CALCULATION
OF REGISTRATION FEE
|
Title
of each class of
securities
to be registered
|
|
Amount
being registered (1)
|
|
Proposed
maximum offering price per share
|
|
Proposed
maximum aggregate offering price
|
|
Amount
of registration
fee
|
|
|
Common
Stock, par value $.001 per share (2)
|
|
|
12,800,000
|
|
$
|
.62
|
(3)
|
$
|
7,936,000
|
|
$
|
243.64
|
|
|
Common
Stock (4)
|
|
|
1,920,000
|
|
$
|
.62
|
(3)
|
$
|
1,190,400
|
|
$
|
36.55
|
|
|
Common
Stock (5)
|
|
|
4,704,170
|
|
$
|
.75
|
(6)
|
$
|
3,528,128
|
|
$
|
108.32
|
|
|
Total
Registration Fee
|
|
|
—
|
|
|
|
|
|
|
|
$
|
388.51
|
|
|
(1)
|
This
registration statement shall also cover any additional shares of
common
stock that shall become issuable by reason of any stock dividend,
stock
split, recapitalization or other similar transaction effected without
the
receipt of consideration that results in an increase in the number
of the
outstanding shares of common stock.
|
|
(2)
|
Consists
of shares of common stock issuable upon conversion of 10% senior
secured
convertible debentures.
|
|
(3)
|
Estimated
solely for the purpose of calculating the registration fee pursuant
to
Rule 457(c) under the Securities Act of 1933, as amended, based upon
the
average of the high and low prices of the registrant’s common stock on the
OTC Bulletin Board on December 20,
2007.
|
|
(4)
|
Represents
shares of common stock issuable in connection with the payment of
interest
on 10% senior secured convertible debentures, if such interest is
not
otherwise paid in cash.
|
|
(5)
|
Represents
shares of common stock issuable upon exercise of warrants at a price
of
$.75 per share.
|
|
(6)
|
Calculated
pursuant to Rule 457(g).
|
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A
FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
The
information in this prospectus is not complete and may be changed. Our selling
stockholders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities, and it is not soliciting offers
to buy
these securities in any state where the offer or sale is not
permitted.
SUBJECT
TO COMPLETION, DATED DECEMBER 21, 200
7
ODYNE
CORPORATION
19,424,170
Shares
Common
Stock
This
prospectus relates to the sale of up to 19,424,170 shares of our common stock
by
the selling stockholders listed in this prospectus. The shares offered by this
prospectus include 14,720,000 shares of common stock issuable upon conversion
of
10% senior secured convertible debentures (including shares issuable in
connection with the payment of interest on the debentures, if such interest
is
not otherwise paid in cash) and 4,704,170 shares of common stock issuable upon
exercise of warrants to purchase common stock. These shares may be sold by
the
selling stockholders from time to time in the over-the-counter market or other
national securities exchange or automated interdealer quotation system on which
our common stock is then listed or quoted, through negotiated transactions
or
otherwise at market prices prevailing at the time of sale or at negotiated
prices.
Pursuant
to a registration rights agreement with the selling stockholders relating to
our
October 2007 private placement, we are obligated to register the shares issuable
upon conversion of the debentures (and payment of interest on the debentures)
and exercise of the warrants. The distribution of the shares by the selling
stockholders is not subject to any underwriting agreement. We will receive
none
of the proceeds from the sale of the shares by the selling stockholders, except
upon exercise of the warrants. We will bear all expenses of registration
incurred in connection with this offering, but all selling and other expenses
incurred by the selling stockholders will be borne by them.
Our
common stock is quoted on the OTC Bulletin Board under the symbol ODYC. The
high
and low bid prices for shares of our common stock on December 20, 2007, were
$.65 and $.58 per share, respectively, based upon bids that represent prices
quoted by broker-dealers on the OTC Bulletin Board. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions, and
may
not represent actual transactions.
The
selling stockholders may be deemed, and any broker-dealer executing sell orders
on behalf of the selling stockholders will be considered, “underwriters” within
the meaning of the Securities Act of 1933. Commissions received by any
broker-dealer will be considered underwriting commissions under the Securities
Act of 1933.
An
investment in these securities involves a high degree of
risk.
Please
carefully review the section titled
“Risk
Factors” beginning on page 6.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The
date of this prospectus is _____________, 2008.
In
considering the acquisition of the common stock described in this prospectus,
you should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell, or a
solicitation of an offer to buy, shares of common stock in any jurisdiction
where offers and sales would be unlawful. The information contained in this
prospectus is complete and accurate only as of the date on the front cover
of
this prospectus, regardless of the time of delivery of this prospectus or of
any
sale of the shares of common stock.
TABLE
OF CONTENTS
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Page
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Summary
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1
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The
Offering
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5
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Risk
Factors
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6
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Special
Note Regarding Forward-Looking Statements
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12
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Where
You Can Find More Information
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12
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Use
of Proceeds
|
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13
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Market
for Our Common Stock and Related Stockholder Matters
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13
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Management’s
Discussion and Analysis or Plan of Operation
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15
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Business
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22
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Management
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35
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Certain
Relationships and Related Transactions
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45
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Selling
Stockholders
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46
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Plan
of Distribution
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49
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Description
of Securities
|
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51
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Shares
Eligible for Future Sale
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56
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Legal
Matters
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57
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Experts
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57
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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57
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Index
to Consolidated Financial Information
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F-1
|
SUMMARY
You
should read the following summary together with the more detailed information
contained elsewhere in this prospectus, including the section titled “Risk
Factors,” regarding us and the common stock being sold in this
offering.
Overview
of Our Business
We
are a
clean technology company that develops and manufactures propulsion systems
for
advanced Plug-in Hybrid Electric Vehicles for medium and heavy-duty trucks
and
buses by integrating our proprietary electric power conversion, electric power
control and energy storage systems with a range of off-the-shelf components
including electric motors and storage batteries. Our Plug-in Hybrid Electric
Vehicle systems are generally series configuration hybrids that offer customers
significant advantages when compared to the more familiar parallel architecture
found in hybrid passenger cars. Our environmentally friendly and cost-effective
Plug-in Hybrid Electric Vehicle systems allow vehicles to operate at lower
costs
and with lower vehicle emissions
.
Alternatively
Fueled Vehicles
General
We
compete in the alternatively fueled vehicles market. Alternatively fueled
vehicles include various types of vehicles that utilize electric and hybrid
electric technology, hydrogen fuel cell technology, compressed natural gas,
biodiesel, ethanol, propane and liquefied natural gas, or a combination of
these
technologies and fuels. There are more than 1,500,000 on-road alternatively
fueled vehicles of all vehicle classes in use in the United States today,
growing 9.3% per year since 1995. Each year in North America, an estimated
500,000 new medium and heavy-duty trucks and buses are sold, each with an
estimated average life of ten years.
Electric
and Hybrid Electric Vehicles
Electric
vehicles and hybrid electric vehicles have emerged as a revolutionary solution
for improved fuel efficiency and reduced vehicle emissions. Electric vehicles
operate solely on electric power. Hybrid electric vehicles are capable of
operating on both electricity and a conventional or alternative power source.
Plug-in
Hybrid Electric Vehicles
Plug-in
Hybrid Electric Vehicles are powered both by battery power and a conventional
or
alternative fuel source and with power taken from a power grid. This reduces
the
amount of conventional or alternative fuel required to operate a Plug-in Hybrid
Electric Vehicle when compared to a hybrid electric vehicle. Our technology
can
be deployed in electric vehicles, hybrid electric vehicles and Plug-in Hybrid
Electric Vehicles. Any vehicle, whether it operates on diesel, gasoline or
an
alternative fuel source, can be made a Plug-in Hybrid Electric Vehicle. Plug-in
Hybrid Electric Vehicles are therefore known as being fuel agnostic. A Plug-in
Hybrid Electric Vehicle consumes less fuel, requires less maintenance and
typically has a longer lifespan than conventional gas-powered
vehicles.
We
estimate the addressable market for our Plug-in Hybrid Electric Vehicle systems
in newly-manufactured vehicles, which excludes vehicles that may be retrofitted
with our Plug-in Hybrid Electric Vehicle systems, to be approximately $1.8
billion per year. This assumes modest growth in the number of medium and
heavy-duty trucks and buses and 10% adoption of hybrid electric power at an
estimated cost of $25,000 to $30,000 per vehicle. This cost target will not
be
achieved without substantial unit volume production of hybrid power trains.
Several factors are driving accelerating demand in this market: (i) economic
and
political instability in many of the world’s largest oil producing countries
placing increasing pressures on fuel costs, (ii) attempts to reduce the United
States’ dependence on foreign oil by displacing imported petroleum with
electricity generated from domestic fuels and (iii) increasingly stringent
emissions standards. In addition, initiatives by the federal government,
including the Energy Policy Act of 2005 and the Clean Efficient Automobiles
Resulting from Advanced Technologies Act of 2003 support the development and
use
of clean technologies. Hybrid electric propulsion offers a highly attractive,
affordable and user-friendly solution.
Odyne’s
Value Proposition
Our
Plug-in Hybrid Electric Vehicle solution offers several advantages to
stand-alone alternatively fueled vehicles and vehicles powered by conventional
internal combustion engines, including lower vehicle emissions and lower
operating costs through greater fuel efficiency and lower maintenance costs.
Our
Plug-in Hybrid Electric Vehicle system integrates off-the-shelf products,
advanced control systems and our modular, build-to-order propulsion system.
This
combination allows our Plug-in Hybrid Electric Vehicle system to be
competitively priced while retaining the flexibility to build to customer
specifications and enabling later modifications to extend the life of a vehicle
and meet evolving customer needs.
Our
Plug-in Hybrid Electric Vehicle system is designed with a larger battery storage
device, which allows for a smaller, less expensive engine in the auxiliary
power
unit. The engine in our Plug-in Hybrid Electric Vehicle system operates at
a
fixed rpm (revolutions per minute), enhancing vehicle efficiency and minimizing
engine wear. In addition, our series hybrid propulsion system architecture
enables operation in “all-electric” mode for a range of 30 to 50 miles between
recharging, as well as in a conventional hybrid electric mode where operating
ranges can be significantly higher, but vary based on the size of the fuel
tank.
The Plug-in Hybrid Electric Vehicle can be recharged overnight by plugging
into
a high-capacity 220-volt electrical outlet.
To
protect the value of our Plug-in Hybrid Electric Vehicle system, we have filed
patent applications to cover our vehicular battery carriers and cooling systems,
vehicle monitoring and control systems, battery management systems and vehicle
charging system.
Business
and Growth Strategy
We
have
developed a Plug-in Hybrid Electric Vehicle propulsion system for Class 6,
7 and
8 trucks and buses that encompasses proprietary battery and thermal management
technology, unique system architecture and modular/scalable configuration.
Class
6, 7 and 8 are vehicle weight classifications for most semi-trucks, busses
and
trailers. Current and prospective customers for our Plug-in Hybrid Electric
Vehicle system include municipalities and private fleet operators.
During
the first quarter of 2007, we delivered our first two commercial, heavy-duty
vehicles. Since then we delivered three PHEV propulsion systems, which are
being
installed by one of our dealers into refuse trucks for the Town of Oyster Bay,
New York; a 24-passenger Champion Defender Bus, which has been sold to the
Town
of North Hempstead, New York for use in its senior transportation system; a
Crane refuse vehicle, belonging to the Town of Hempstead, New York; and a
compressed natural gas-fueled work truck owned by Keyspan, a part of National
Grid. We are currently in discussions with several fleet operators for the
purchase of vehicles and component systems based on our PHEV technology,
although we cannot assure you that such discussions will result in
sales.
We
have
developed strategic relationships and strategic partnerships to further our
development, marketing, and manufacturing of Plug-in Hybrid Electric Vehicle
systems for medium and heavy-duty vehicles. Long Island Power Authority (known
as LIPA), the non-profit electric utility serving southeastern New York, has
agreed to work with us to promote our Plug-in Hybrid Electric Vehicle technology
and to collaborate with us on product demonstrations. ElDorado National, a
subsidiary of Thor Industries, Inc., has agreed to supply bus gliders and bodies
for the Odyne/LIPA demonstration program and future projects. General Electric
supplies induction traction drive motors to us and has worked with us to select
induction motors that can meet a range of requirements. Bosch Rexroth provides
auxiliary power unit induction alternators to us. EnerSys supplies the lead-acid
batteries used in constructing our Plug-in Hybrid Electric Vehicle system.
We
are also a founding member (and the only founding member company that is not
a
public utility company) in the Plug-In Partners National Campaign
(www.pluginpartners.org), a national grass-roots campaign created to demonstrate
the existing market for flexible-fuel Plug-in Hybrid Electric Vehicles. Plug-In
Partners members include 24 of the nation’s largest locally-owned and controlled
power systems. We have appointed FAB Industries as an exclusive agent within
a
defined geographic territory to sell, install and maintain our products into
existing vehicles. We have also appointed Creative Bus Sales, Inc. of Chino,
California as our exclusive sales agent in a specified territory with respect
to
the transit bus market. Additionally, we have entered into an agreement with
Dueco, Inc., a Wisconsin-based manufacturer of aerial lift trucks, to provide
proprietary hybrid drive systems optimized for that market. In December 2007,
we
received a purchase order from Dueco for 25 of our Plug-in Hybrid Electric
Vehicle propulsion systems.
Our
growth strategy is to continue to develop our Plug-in Hybrid Electric Vehicle
propulsion systems tailored for use with medium and heavy-duty trucks and buses
while jointly manufacturing and selling plug-in hybrid electric buses and trucks
with original equipment manufacturers of bus and truck bodies, including
ground-up builds and modifications of existing vehicles. We intend to expand
our
product offerings to include a range of auxiliary power units that work with
a
variety of fuels, electric drive motors, electric motor controllers, battery
chargers and energy storage batteries. As the market for Plug-in Hybrid Electric
Vehicles expands and we expand our product offerings, we intend to sell Plug-in
Hybrid Electric Vehicle power system components to medium and heavy-duty vehicle
fleet manufacturers that sell their vehicles directly to fleet
owners.
Since
our
inception, we have engaged primarily in research and product development,
testing, the establishment of strategic alliances and marketing. Our products
are at various stages in the development cycle. We have earned limited revenues
to date and have supported our operations primarily through cash flow from
product sales, engineering services, development grants and cost-sharing
programs and debt and private equity investment.
We
were
formed in August 2001 and have generated $1,465,842 in revenue, including
research and development grants, from inception through December 31, 2006,
while
incurring an operating loss of $1,984,824 during that period. There is limited
operating and financial information to evaluate our historical performance
and
our future prospects.
We
do not
know whether or when we will be able to develop efficient, low-cost
manufacturing capabilities and processes that will enable us to manufacture
our
products in commercial quantities while meeting the quality, price, engineering,
design and production standards required to successfully market our
products.
About
this Offering
This
prospectus relates to the public offering, which is not being underwritten,
of
up to 19,424,170 shares of our common stock by the selling stockholders listed
in this prospectus. The shares offered by this prospectus include 14,720,000
shares of common stock issuable upon conversion of 10% senior secured
convertible debentures (including shares issuable in connection with the payment
of interest on the debentures, if such interest is not otherwise paid in cash)
and 4,704,170 shares of common stock issuable upon exercise of warrants to
purchase common stock. These shares may be sold by the selling stockholders
from
time to time in the over-the-counter market or other national securities
exchange or automated interdealer quotation system on which our common stock
is
then listed or quoted, through negotiated transactions or otherwise at market
prices prevailing at the time of sale or at negotiated prices. We will receive
none of the proceeds from the sale of the shares by the selling stockholders,
except upon exercise of the warrants. We will bear all expenses of registration
incurred in connection with this offering, but all selling and other expenses
incurred by the selling stockholders will be borne by them.
The
shares of common stock being offered by this prospectus relate to our October
2007 private placement. In the closing, which took place on October 26, 2007,
we
completed a private placement to accredited investors of $3,200,000 principal
amount of our 10% senior secured convertible debentures, for gross proceeds
of
$3,200,000. As part of the private placement, the investors were issued warrants
to purchase up to a maximum of 4,266,670 shares of our common stock, at an
initial exercise price of $.75 per share.
For
a
more detailed discussion regarding our October 2007 private placement, see
the
discussion under the heading “Selling Stockholders - October 2007 Private
Placement.”
The
number of shares being offered by this prospectus represents approximately
75%
of our total outstanding common stock and series A convertible preferred stock
as of December 20, 2007.
Corporate
Information and History
On
October 17, 2006, we completed a “reverse public offering” transaction, in which
we became a publicly-traded and reporting company through our merger with a
newly-created, wholly-owned subsidiary of Technology Integration Group, Inc.,
a
public company previously engaged in the technology consulting business. Through
the merger, the shareholders of our privately-held predecessor, Odyne
Corporation (a New York corporation), received a majority of the outstanding
shares of Technology Integration Group and its officers and directors assumed
similar positions with Technology Integration Group. Immediately following
the
merger, we changed our corporate name to Odyne Corporation. Concurrently with
the closing of the merger and through December 13, 2006, we also completed
a
private placement to accredited investors, in which we received aggregate gross
proceeds of $5,750,000 (including the conversion of our earlier bridge notes).
Matrix U.S.A., LLC served as the placement agent in that private
placement.
When
we
refer to the “Company,” “we,” “us” or “our,” for periods prior to the closing of
the reverse public offering, we are referring to Odyne Corporation (a
privately-held New York corporation), and as of the closing of the reverse
public offering and thereafter, we are referring to Odyne Corporation, the
current publicly-traded and reporting company and the issuer of this
prospectus.
Our
principal executive offices are located at 89 Cabot Court, Suite L, Hauppauge,
New York 11788, and our telephone number is (631) 750-1010. We maintain a
corporate website at www.odyne.com. The contents of our website are not part
of
this prospectus and should not be relied upon with respect to this
prospectus.
THE
OFFERING
|
Common
stock offered by the selling stockholders:
|
|
|
|
|
|
|
|
·
Maximum
number of shares that may be issued upon conversion of 10% senior
secured
convertible debentures (including shares issuable in connection with
the
payment of interest on the debentures, if such interest is not otherwise
paid in cash)
|
|
14,720,000
shares
|
|
|
|
|
|
·
Maximum
number of shares that may be issued upon exercise of warrants
|
|
4,704,170
shares
|
|
|
|
|
|
Total
|
|
19,424,170
shares
|
|
|
|
|
|
Common
stock outstanding
|
|
22,061,428
shares (1)
|
|
|
|
|
|
Use
of proceeds
|
|
We
will receive none of the proceeds from the sale of the shares by
the
selling stockholders, except cash for the warrant exercise price
upon
exercise of the warrants, which would be used for working capital
purposes.
|
|
|
|
|
|
OTC
Bulletin Board symbol
|
|
ODYC
|
|
(1)
|
As
of December 20, 2007. Does not include shares of common stock issuable
upon conversion of our series A convertible preferred stock or our
10%
senior secured convertible debentures. Also does not include shares
of our
common stock that are reserved for issuance pursuant to outstanding
warrants and stock options.
|
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the following material risks, together with the other
information contained in this prospectus, before you decide to buy our common
stock. If any of the following risks actually occur, our business, results
of
operations and financial condition would likely suffer. In these circumstances,
the market price of our common stock could decline, and you may lose all or
part
of your investment.
Risks
Related to Our Business and Industry
We
are still in an early stage of development and have earned limited revenues
to
date.
We
are
still an early-stage company. Since our inception, we have engaged primarily
in
research and product development, testing, the establishment of strategic
alliances and marketing. Our products are at various stages in the development
cycle. We have earned limited revenues to date and have supported our operations
primarily through cash flow from product sales, engineering services,
development grants and cost-sharing programs and debt and private equity
investment. Our operations are subject to all of the risks inherent in the
establishment of a new business enterprise. Our likelihood of success must
be
considered in light of the problems, expenses and delays frequently encountered
in connection with a new business and the development of new products and new
technology.
We
have a limited operating history, which limits the information available to
you
to evaluate our business, and have a history of operating losses and uncertain
future profitability.
We
were
formed in August 2001 and have generated $1,883,834 in revenue, including
research and development grants, from inception through September 30, 2007,
while incurring an operating loss of $6,166,704 during that period. There is
limited operating and financial information to evaluate our historical
performance and our future prospects. We face the risks and difficulties of
an
early-stage company including the uncertainties of market acceptance,
competition, cost increases and delays in achieving business objectives. There
can be no assurance that we will succeed in addressing any or all of these
risks
or that our efforts will generate significant revenue or achieve future
profitability. The failure to do so would have an adverse effect on our
business, financial condition and operating results.
We
have no experience manufacturing our products on a large-scale commercial basis
and may be unable to do so.
To
date,
we have focused primarily on research, development and low volume manufacturing
and have no experience manufacturing our products on a large-scale commercial
basis. We delivered our first two Plug-in Hybrid Electric Vehicles in the first
quarter of 2007. We do not know whether or when we will be able to develop
efficient, low-cost manufacturing capabilities and processes that will enable
us
to manufacture our products in commercial quantities while meeting the quality,
price, engineering, design and production standards required to successfully
market our products. Our failure to develop such manufacturing processes and
capabilities could have an adverse effect on our business, financial condition
and results of operations. Even if we are successful in developing our
manufacturing capabilities and processes, we do not know whether we will do
so
in time to meet the requirements of our customers.
Because
hybrid technology is new and evolving, its future growth or ultimate market
size
is difficult to predict. Our business will not grow or may grow less rapidly
if
the use of hybrid technology does not continue to grow.
Our
industry is in the early stages of market acceptance of products and related
services and is subject to rapid and significant technological change. Because
of the new and evolving nature of hybrid technology, it is difficult to predict
the size of the market, the rate at which the market for our products and
services will grow or be accepted, if at all, or whether emerging technologies
will render our services less competitive or obsolete. If the market for our
products and services fails to develop or grows less rapidly than anticipated,
our business would be significantly impacted.
If
our products and services do not achieve market acceptance, we may not achieve
our revenue and earnings goals in the time projected, or at all.
If
we are
unable to operate our business as contemplated by our business model or if
the
assumptions underlying our business model prove to be unfounded, we could fail
to achieve our revenue and earnings goals within the time we have projected,
or
at all, which would have a detrimental effect on our business. As a result,
the
value of your investment could be significantly reduced or completely lost.
Failure
of our Plug-in Hybrid Electric Vehicle demonstrations could negatively impact
demand for our products.
We
are
currently demonstrating our Plug-in Hybrid Electric Vehicle system. We may
encounter problems and delays during these demonstrations for a number of
reasons, including the failure of our technology or the technology of third
parties. Many of these potential problems and delays are beyond our control.
Any
problem or perceived problem with our demonstrations could harm our reputation
and impair market acceptance of, and demand for, our products.
Our
operating results will be harmed if we are unable to manage and sustain our
growth.
Our
business is unproven on a large scale and actual operating margins may be less
than expected. If we are unable to scale capacity efficiently, we may fail
to
achieve expected operating margins, which would have an adverse effect on our
operating results.
Delays
in the development of our Plug-in Hybrid Electric Vehicle technology would
have
a material impact on our commercialization schedule.
If
we
experience delays in meeting our development goals or if our products exhibit
technical defects or fail to meet cost or performance goals, our
commercialization schedule will be delayed. In this event, potential users
of
our Plug-in Hybrid Electric Vehicle system may resort to alternative
technologies. Delays could allow our competitors to gain market advantages.
Despite our efforts, we cannot assure you that we will meet our
commercialization schedule.
We
may need to secure additional funding to complete our product development and
commercialization plans, as well as maintain our current operating structure,
and we may be unable to raise additional capital.
Our
cash
requirements depend on numerous factors, including the extent of future research
and development activities, our ability to commercialize our products and market
acceptance of our products. We expect to devote substantial capital resources
to
further our research and development initiatives, develop a manufacturing
infrastructure, develop manufacturing processes and maintain our current
operating structure. We also expect to devote substantial capital resources
to
expand our marketing and sales activities. Additional funds may be required
to
achieve commercialization of our Plug-in Hybrid Electric Vehicle system. We
may
be unable to secure additional funding, or funding on acceptable terms, to
pursue our commercialization plans. If adequate funds are unavailable to satisfy
either short-term or long-term capital requirements, we may be required to
limit
our operations in a manner inconsistent with our business plan, which could
adversely affect operations in future periods.
If
we are unable to obtain grants from the federal government to fund current
and
future projects, we may not be able to fund research and development or
production, which could materially harm our operating results.
We
have
received non-refundable development funding from various governmental and/or
energy-related agencies, including Long Island Power Authority, the Electric
Power Research Institute and the Greater Long Island Clean Cities Coalition.
In
2006, we received $12,500 from grants. Several of our current and proposed
projects for certain municipalities have been, or are expected to be, funded
by
such programs. We cannot assure you that we will be able to obtain grants funded
by government programs in the future. The loss of existing grants or the failure
to earn new grants would harm our ability to fund future research and
development and production, which would have an adverse effect on our operating
results.
Our
products and services may become obsolete if we do not effectively respond
to
rapid technological change on a timely basis.
Our
products and services are new and our business model is evolving. Our products
and services depend on the needs of our customers and their desire to utilize
hybrid technology. Since the hybrid industry is characterized by evolving
technologies, uncertain technology and limited availability of standards, we
must respond quickly to new research findings and technological changes
affecting our customers. We may not be successful in developing and marketing
on
a timely and cost-effective basis new or modified products that respond to
technological changes, evolving customer requirements and
competition.
We
may have difficulty managing change in our operations as a result of limited
management personnel and resources.
We
continue to undergo rapid change in the scope and breadth of our operations
as
the development of our Plug-in Hybrid Electric Vehicle system advances. Such
rapid change is likely to place a significant strain on our senior management
team and other resources. We will be required to make significant investments
in
our engineering, logistics, financial and management information systems and
to
motivate and effectively manage our employees. Our business, prospects, results
of operations and financial condition could be harmed if we encounter
difficulties in effectively managing the process of implementing such
changes.
If
we fail to recruit and retain qualified senior management and other key
personnel, we will not be able to execute our business
plan.
Our
business plan requires us to hire a number of qualified personnel, as well
as
retain our current key management employees. We must attract leading talent
to
be able to execute our business strategy. Presently, our senior executive
officers are Alan Tannenbaum, Chief Executive Officer, Joshua A. Hauser,
President and Chief Operating Officer, Daniel Bartley, Chief Financial Officer,
Joseph M. Ambrosio, Executive Vice President - Engineering and Chief Technology
Officer, and Konstantinos Sfakianos, our Executive Vice President - Operations.
The loss of the services of one or more of our senior executives or our
inability to find the additional managers we require for any reason could impair
our ability to execute our business plan.
If
we fail to protect our intellectual property, our current competitive strengths
could be eroded and we could lose customers, market share and
revenues.
Our
viability will depend on our ability to develop and maintain the proprietary
aspects of our technology to distinguish our products and services from our
competitors’ products and services. To protect our proprietary technology, we
rely primarily on a combination of confidentiality procedures, copyright,
trademark and patent laws.
The
process of seeking patent, industrial design and trademark protection can be
time consuming and expensive.
We
cannot
assure you
that
patents, industrial design registrations or trademark registrations will issue
from currently pending or future applications or any new patents, industrial
design registrations or trademark registrations that may be issued will be
sufficient in scope or strength to provide meaningful protection or any
commercial advantage to us.
We
cannot
assure you
that
any
pending or future patent, industrial design or trademark applications will
be
granted in respect of our technology and business, or that any pending or future
patents, industrial design registrations or trademark registrations will not
be
challenged, invalidated, ignored, circumvented or otherwise rendered
unenforceable, or that the rights granted under such patents, industrial design
registrations or trademark registrations will provide meaningful protection
or
competitive advantages to us.
Similarly,
we
cannot
assure you
that
common law trademark rights, copyright, trade secret and non-disclosure
agreements and other contractual provisions will provide meaningful protection
or any commercial advantage to us, or that our existing or future common law
trademark rights, copyrights, trade secrets and non-disclosure agreements and
other contractual provisions will not be challenged, invalidated, ignored,
circumvented or otherwise rendered unenforceable, or that the rights arising
under our existing or future common law
trademark
rights, copyrights, trade secrets and non-disclosure agreements and other
contractual provisions will provide meaningful protection or any commercial
advantage to us.
Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our products and services or obtain and use information
that
we regard as proprietary. Unauthorized use of our proprietary technology could
harm our business. Litigation to protect our intellectual property rights can
be
costly and time-consuming to prosecute, and we cannot assure you that we will
be
able to enforce our rights or prevent other parties from developing similar
technology or designing around our intellectual property.
Although
we believe that our products and services do not and will not infringe upon
the
patents or violate the proprietary rights of others, it is possible such
infringement or violation has occurred or may occur which could have a material
adverse effect on our business.
In
the
event that products and services we sell are deemed to infringe upon the patents
or proprietary rights of others, we could be required to modify our products
and
services or obtain a license for the manufacture and/or sale of such products
and services. In such event, we cannot assure you that we would be able to
do so
in a timely manner, upon acceptable terms and conditions, or at all, and the
failure to do any of the foregoing could have a material adverse effect upon
our
business. Moreover, we cannot assure you that we will have the financial or
other resources necessary to enforce or defend a patent infringement or
proprietary rights violation action. In addition, if our products and services
or proposed products and services are deemed to infringe or likely to infringe
upon the patents or proprietary rights of others, we could be subject to
injunctive relief and, under certain circumstances, become liable for damages,
which could also have an adverse effect on our business.
We
face competition from other companies developing hybrid
technology.
There
are
other companies in the hybrid electric area developing technologies. The major
automotive manufacturers are targeting passenger vehicles and light-duty
vehicles and their technology could potentially be applied to medium-duty and
heavy-duty commercial vehicles as well.
We
cannot
assure you
that
our
competitors will not be able to duplicate our technology or provide
products
and
services
similar to ours more efficiently. Many of the potential competitors in the
market are also organizations with access to significant resources that may
be
applied to research and development of hybrid electric vehicle and
PHEV
technologies. Other clean vehicle technologies are also progressing and their
arrival may change the relative economics of the technology solutions. Although
hybrid technology can potentially improve the efficiency of all technologies in
the area,
we
cannot
assure you
that
we
will have a role in new technologies that emerge.
Our
business plan includes dependence upon products developed by third parties
and
our inability to successfully integrate our technology with third parties’
products or secure resources from third parties could adversely affect our
business.
To
be
commercially useful, our technology for hybrid electric vehicles and Plug-in
Hybrid Electric Vehicles must, to a certain extent, be integrated into products
manufactured by third parties. There are no guarantees that third parties will
continue to manufacture appropriate products or, if they do manufacture such
products, that they, or the customers who purchase such products, will choose
to
use our technology. Any integration, design, manufacturing or marketing problems
encountered by third parties could adversely affect the market for our control
systems technology and our financial results.
Our
strategy is to effectively utilize the resources that exist in the automotive
sector and, accordingly, our internal resources are focused on core product
development and related activities. We substantially depend upon third parties
for several critical elements of our business plan, including, but not limited
to, product and component manufacturing and assembly, technological development
and testing.
We
cannot
assure you
that
such
third
parties
resources will continue to be suitable, available and affordable or in a
position to assist us in achieving our objectives.
While
we
have entered into relationships with suppliers of some key components for our
products, we do not know when or whether we will secure supply relationships
for
all required components and subsystems for our
Plug-in
Hybrid Electric Vehicle
system,
or whether such relationships will be on terms that will allow us to achieve
our
objectives. Our business, prospects, results of operations and financial
condition could be harmed if we fail to secure relationships with entities
that
can develop or supply the required components for our products and provide
the
required distribution and servicing support.
We
use a variety of components in our businesses, and significant shortages or
price increases could increase operating costs and adversely affect the
competitive position of our products.
The
major
component requirements for our Plug-in Hybrid Electric Vehicle system include
batteries, semiconductors and electric drive motors. We utilize off-the-shelf
components for each of our major requirements and are not significantly
dependent on any one or a few suppliers. Significant shortages of such
components could affect the prices we pay for such components, which could
adversely affect our results of operations.
Changes
in government policies and regulation, including environmental policies, could
affect our business.
To
date,
the markets targeted by us have been influenced by government regulation,
including environmental laws, regulations and policies emerging in various
parts
of the United States. There can be no guarantee that these laws, regulations
and
policies will not change. Changes in these laws, regulations and policies could
result in decreased interest and demand in our target markets for hybrid
electric vehicles and Plug-in Hybrid Electric Vehicles. In addition,
we
cannot
assure you
that
changes in these laws, regulations and policies or their application will not
require further expenditures by us to further develop our
technology.
A
malfunction of our product could subject us to product liability or tort
claims.
A
malfunction or the inadequate design of our products could result in product
liability or other tort claims. Accidents involving our products could lead
to
personal injury or physical damage. Any liability for damages resulting from
malfunctions could be substantial and could materially adversely affect our
business and results of operations. In addition, a well-publicized actual or
perceived problem could adversely affect the market’s perception of our
products. This could result in a decline in demand for our products, which
would
adversely affect our financial condition and results of operations.
We
may engage in additional financing that could lead to dilution of existing
investors.
We
have
relied on equity financing, debt financing and governmental funding to carry
on
our business to date, which has consisted primarily of internal and
customer-related product development, the negotiation of strategic alliances
and
marketing activities. Any future financings by us may result in substantial
dilution of the holdings of existing stockholders and could have a negative
impact on the market price of our common stock. Furthermore, we cannot assure
you that such future financings will be possible.
Risks
Related to Our Common Stock
Our
common stock may be considered a “penny stock” and may be difficult to
sell.
The
SEC
has adopted regulations which generally define “penny stock” to be an equity
security that has a market or exercise price of less than $5.00 per share,
subject to specific exemptions. The market price of our common stock may be
below $5.00 per share and therefore may be designated as a “penny stock”
according to SEC rules. This designation requires any broker or dealer selling
these securities to disclose certain information concerning the transaction,
obtain a written agreement from the purchaser and determine that the purchaser
is reasonably suitable to purchase the securities. These rules may restrict
the
ability of brokers or dealers to sell our common stock and may affect the
ability of our stockholders to sell their shares. In addition, since our common
stock is currently quoted on the OTC Bulletin Board, our stockholders may find
it difficult to obtain accurate quotations of our common stock and may find
few
buyers to purchase the stock or a lack of market makers to support the stock
price.
A
significant number of the shares of our common stock are eligible for sale,
and
their sale could depress the market price of our common
stock.
Sales
of
a significant number of shares of common stock in the public market could harm
the market price of our common stock. Up to 14,720,000 shares of common stock
will be issuable upon conversion of our 10% senior secured convertible
debentures (including shares issuable in connection with the payment of interest
on the debentures, if such interest is not otherwise paid in cash) and 4,704,170
shares of common stock will be issuable upon exercise of warrants to purchase
common stock, all of which are being registered as part of the registration
statement of which this prospectus is a part. In addition, a number of our
shares have previously been registered or will generally be salable under SEC
Rule 144. Sales of common stock either pursuant to this prospectus or Rule
144
are likely to have a depressive effect on the market for our common stock.
If
this registration statement is approved, up to 19,424,170 shares will be freely
tradable.
Our
officers and directors have significant voting power and may take actions that
may not be in the best interests of other stockholders.
Our
executive officers and directors control in excess of 30% of our outstanding
voting securities. If these stockholders act together, they will be able to
exert significant control over our management and affairs requiring stockholder
approval, including approval of significant corporate transactions. This
concentration of ownership may have the effect of delaying or preventing a
change in control and might adversely affect the market price of our common
stock. This concentration of ownership may not be in the best interests of
all
of our stockholders.
We
do not anticipate paying dividends in the foreseeable future; you should not
buy
our stock if you expect dividends.
We
currently intend to retain our future earnings to support operations and to
finance expansion and, therefore, we do not anticipate paying any cash dividends
on our capital stock in the foreseeable future. You should not buy our stock
if
you are expecting to receive cash dividends.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Included
in this prospectus are “forward-looking” statements, as well as historical
information. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we can give no assurance that the
expectations reflected in these forward-looking statements will prove to be
correct. Our actual results could differ materially from those anticipated
in
forward-looking statements as a result of certain factors, including matters
described in the section titled “Risk Factors.” Forward-looking statements
include those that use forward-looking terminology, such as the words
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,”
“plan,” “will,” “shall,” “should” and similar expressions, including when used
in the negative. Although we believe that the expectations reflected in these
forward-looking statements are reasonable and achievable, these statements
involve risks and uncertainties and no assurance can be given that actual
results will be consistent with these forward-looking statements, Actual results
may be materially different than those described herein. Important factors
that
could cause our actual results, performance or achievements to differ from
these
forward-looking statements include the factors described in the “Risk Factors”
section and elsewhere in this prospectus.
All
forward-looking statements attributable to us are expressly qualified in their
entirety by these and other factors. We undertake no obligation to update or
revise these forward-looking statements, whether to reflect events or
circumstances after the date initially filed or published, to reflect the
occurrence of unanticipated events or otherwise.
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed a registration statement on Form SB-2 with the U.S. Securities and
Exchange Commission, or the SEC, to register the shares of our common stock
being offered by this prospectus. In addition, we file annual, quarterly and
current reports, proxy statements and other information with the SEC. You may
read and copy any reports, statements or other information that we file at
the
SEC’s public reference facilities at 100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information regarding the
public reference facilities. The SEC maintains a website, http://www.sec.gov,
that contains reports, proxy statements and information statements and other
information regarding registrants that file electronically with the SEC,
including us. Our SEC filings are also available to the public from commercial
document retrieval services. Information contained on our website should not
be
considered part of this prospectus.
You
may
also request a copy of our filings at no cost by writing or telephoning us
at:
Odyne
Corporation
89
Cabot
Court, Suite L
Hauppauge,
New York 11788
Attention:
Mr. Joshua A. Hauser
President
and Chief
Operating
Officer
(631)
750-1010
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by the selling stockholders who will receive all of the
proceeds from the sale of the shares. We will not receive any proceeds from
the
sale of shares of common stock in this offering, except upon the exercise of
outstanding warrants. We could receive up to $3,528,128 from the cash exercise
price upon exercise of warrants held by selling stockholders. We expect to
use
the proceeds received from the exercise of the warrants, if any, for working
capital and general corporate purposes. We will bear all expenses of
registration incurred in connection with this offering, but all commissions,
selling and other expenses incurred by the selling stockholders to underwriters,
agents, brokers and dealers will be borne by them. We estimate that our expenses
in connection with the filing of the registration statement of which this
prospectus is a part will be approximately $70,000.
MARKET
FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
shares of common stock are currently quoted and listed for trading on the OTC
Bulletin Board under the symbol ODYC. Our symbol prior to the closing of our
reverse merger transaction on October 17, 2006, was TING. No trades, however,
were ever made with respect to shares of Technology Integration Group common
stock prior to the merger. As a result, the range of high and low bid
information for shares of Technology Integration Group common stock for each
full quarterly period within the two most recent fiscal years is not available.
The
following table sets forth the high and low closing prices for our common stock
for the periods indicated as reported by the OTC Bulletin Board:
|
|
|
Year
ended December 31,
|
|
|
|
|
2005
|
|
2006
|
|
2007
|
|
|
Quarter
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
First
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
$
|
2.40
|
|
$
|
1.63
|
|
|
Second
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.95
|
|
$
|
.28
|
|
|
Third
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
.40
|
|
$
|
.15
|
|
|
Fourth
(through December 20, 2007)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
.70
|
|
$
|
.23
|
|
|
Fourth
(beginning on October 18, 2006)
|
|
|
|
|
|
|
|
$
|
2.85
|
|
$
|
1.60
|
|
|
|
|
|
|
|
On
December 20, 2007, the closing price of our common stock, as reported by the
OTC
Bulletin Board, was $.61 per share.
These
bid
prices represent prices quoted by broker-dealers on the OTC Bulletin Board.
The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions, and may not represent actual transactions.
As
of
December 20, 2007, there were 22,061,428 shares of our common stock outstanding
and approximately 63 holders of record of our common stock. However, we believe
that there are significantly more beneficial holders of our common stock as
many
beneficial holders hold their stock in “street name.”
This
prospectus covers 19,424,170 shares of our common stock offered for sale by
the
selling stockholders, which includes 14,720,000 shares of common stock issuable
upon conversion of our 10% senior secured convertible debentures (including
shares issuable in connection with the payment of interest on the debentures,
if
such interest is not otherwise paid in cash) and 4,704,170 shares of common
stock issuable upon exercise of warrants to purchase common stock.
Dividend
Policy
We
do not
expect to pay a dividend on our common stock in the foreseeable future.
The payment of dividends on our common stock is within the discretion of
our
board
of
directors
,
subject
to our
certificate
of
incorporation
.
We
intend to retain any earnings for use in our operations and the expansion of
our
business. Payment of dividends in the future will depend on our future earnings,
future capital needs and our operating and financial condition, among other
factors.
Equity
Compensation Plan Information
There
are
3,000,000 shares of common stock reserved for issuance under our 2006 Equity
Incentive Plan. Based on our common stock outstanding as of December 20, 2007,
1,305,000 stock options are available for issuance under our 2006 Equity
Incentive Plan and, as of December 20, 2007, there are outstanding stock options
to purchase 1,695,000 shares of common stock.
The
following table provides information as of December 20, 2007, with respect
to
the shares of common stock that may be issued under our existing equity
compensation plan.
Equity
Compensation Plan Information
|
Plan
category
|
|
Number
of shares of common stock to be issued upon exercise of outstanding
options, warrants and rights
(a)
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
|
|
Equity
compensation plans approved by security holders
|
|
|
1,695,000
|
(1)
|
$
|
.55
|
|
|
1,305,000
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
2,400,000
|
|
$
|
.32
|
|
|
|
|
|
Total
|
|
|
4,095,000
|
|
$
|
.41
|
|
|
1,305,000
|
|
|
(1)
|
Does
not include stock options to purchase 300,000 shares of our common
stock
that we have agreed to grant to Alan Tannenbaum, our Chief Executive
Officer, on January 2, 2008 with an exercise price equal to the closing
price of our common stock on that
date.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
You
should read the following description of our financial condition and results
of
operations in conjunction with the financial statements and accompanying notes
included in this prospectus beginning on page
F-1.
We
completed a reverse merger transaction on October 17, 2006, in which we caused
PHEV Acquisition Corp., a New York corporation and our newly-created,
wholly-owned subsidiary, to be merged with and into Odyne Corporation, a New
York corporation (Odyne-New York). Until the merger, we engaged in the business
of
providing
marketing, communications and technical integration advice to small and
medium-sized businesses
,
which
we discontinued following the merger and succeeded to the business of Odyne-New
York. The directors and management of Odyne-New York thereupon became our
directors and management. On October 17, 2006, we changed our corporate name
from Technology Integration Group Inc. to Odyne Corporation.
Since
our
business is that of Odyne-New York only, the information in this prospectus
is
that of Odyne-New York as if Odyne-New York had been the registrant for all
the
periods presented in this prospectus. Management’s Discussion and Analysis or
Plan of Operation and the audited consolidated financial statements include
those of Odyne-New York prior to the reverse merger, as these provide the most
relevant information about us on a continuing basis.
For
accounting purposes, Odyne-New York was the acquirer in the reverse merger
transaction, and consequently the transaction is treated as a recapitalization
of that company. Odyne-New York’s financial statements are our historical
financial statements.
The
following discussion of our financial condition and results of operations should
be read in conjunction with our financial statements and related notes included
in this
prospectus
.
Results
of Operations - Nine Months Ended September 30, 2007 Compared to Nine Months
Ended September 30, 2006
Revenues
We
engage
in two primary sources of revenue generating activities, revenues from
fixed-price contracts and revenue from and time and material contracts. Total
revenues were $417,992 and $182,071 for the nine months ended September 30,
2007
and 2006, respectively, an increase of $235,921, or 130%. We had an increase
in
our fixed-price contract revenue of $254,223 or 155% and a reduction in revenue
from time and materials contracts of $18,302 because we have shifted our focus
away from time and materials contracts.
Cost
of Revenues
Cost
of
revenues for the nine months ended September 30, 2007 and 2006 were $827,797
and
$262,700, respectively, an increase of $565,097, or 215%. We had a gross loss
on
revenues of $409,805 compared to gross loss on revenues of $80,629 for the
nine
months ended September 30, 2007 and 2006, respectively. Cost of revenues for
the
nine months ended September 30, 2007 included direct cost in the amount of
$630,656, other cost, including allocated general and administrative expenses,
of $162,141 and the establishment of warranty reserves of $35,000. Cost of
revenues for the nine months ended September 30, 2006 included direct cost
in
the amount of $243,058 and other cost, including allocated general and
administrative expenses, of $19,642.
Research
and Development Expense
Research
and development expenses were $1,252,752 and $500,532 for the nine months ended
September 30, 2007 and 2006 respectively, an increase of $752,220, or 150%.
This
increased spending, primarily labor and material cost, was incurred to further
develop our PHEV technology that is incorporated into our products. This
increase represents a planned application of private placement funds.
General
and Administrative Expenses
General
and administrative expenses for the nine months ended September 30 2007 and
2006
were $1,341,927 and $355,336 respectively, an increase of $986,591, or 278%.
This includes the following increases: $452,270 - professional fees associated
with becoming a publicly traded company, salaries - $202,144 associated with
the
hiring of additional staff and our Chief Financial Officer, insurance - $76,988
associated with increased general liability and directors and officers coverage,
rent - $42,586 resulting from increased space and marketing, and sales promotion
- $43,054, associated with promoting our technology at trade shows and other
venues.
Other
Income and Expense
Interest
income was $48,443 and $0 for the nine months ended September 30, 2007 and
2006,
respectively. This increase resulted from interest earned on the funds we
received in connection with our private placement. Interest expense was $1,421
and $35,333 for the nine months ended September 30, 2007 and 2006, respectively.
The decrease in interest resulted from the repayment of credit line borrowings
based upon the availability of funds from our private placement in October
2006.
Results
of Operations - Year Ended December 31, 2006 Compared to Year Ended December
31,
2005
Net
Loss
Our
net
loss for the year ended December 31, 2006 was $ 2,009,968 compared to $694,909
for the year ended December 31, 2005, an increase of $1,315,059.
Revenues
We
engage
in two primary sources of revenue generating activities, r
evenues
from fixed-price contracts and revenue from time and materials contracts.
Revenues
were $242,945 and $285,598 for the years ended December 31, 2006 and December
31, 2005, respectively, a decrease of $42,653 or 14.9%. The decrease resulted
from a reduction in revenue from time and materials contracts that was not
entirely offset by our increase in fixed-price contract revenue.
Revenues
from fixed-price contracts are recognized on the percentage-of-completion
method, measured by the percentage of costs incurred to date to estimated total
cost for each contract. We consider expended cost to be the best available
measure of progress on these contracts. Revenues generated from fixed-price
contracts amounted to $239,519 and $46,543 for the years ended December 31,
2006
and December 31, 2005, respectively.
Revenues
from time and materials contracts are billed, including profit, as incurred,
based on a fixed labor rate plus materials. Revenues generated from time and
materials contracts amounted to $3,426 and $239,055 for the years ended December
31, 2006 and December 31, 2005, respectively.
Cost
of Revenues
Cost
of
revenues on fixed-price contracts includes direct contract costs such as
materials, labor, subcontract labor, payroll, payroll taxes, insurance and
other
sundry direct costs, and indirect contract costs such as travel, supplies,
repairs and depreciation. Provisions for estimated losses on contracts in
progress are made in the period in which such losses are determined. Cost of
revenues from time and materials contracts includes labor and materials.
Cost
of
revenues for the years ended December 31 2006 and December 31, 2005 were
$410,213 and $208,186, respectively, an increase of $202,027 or 97%. This
increase resulted from a significant shift in our revenue sources from primarily
time and materials contracts to primarily fixed-price contracts. This shift
resulted in $163,465 higher material costs being incurred in connection with
our
revenue activities.
Research
and Development Expense
Research
and development expenses were $755,429 and $442,993 for the years ended December
31, 2006 and December 31, 2005, respectively, an increase of $312,436 or 70.5%.
This increased spending, primarily labor and material cost, was incurred to
further develop our PHEV technology that is incorporated in our products. During
the year ended December 31, 2006, we received $80,428 in research and
development funding from the New York State Energy Research Development
Authority (NYSERDA) that is subject to repayment under a royalty agreement
based
on future shipments. During the year ended December 31, 2005, we received
$160,465 in similar funding.
General
and Administrative Expenses
General
and administrative expenses for the years ended December 31 2006 and December
31, 2005 were $758,283 and $296,448, respectively, an increase of $461,835
or
155.8%. This increase included a $225,872 increase in professional fees,
primarily incurred in connection with our reverse merger and related SEC
filings, a $144,183 increase in general and administrative salaries, a $49,108
increase in insurance cost and a $45,907 increase in travel expenses incurred
in
connection with revenue promotion activities.
Other
Income and Expense
Interest
income was $14,610 and $0 for years ended December 31, 2006 and December 31,
2005, respectively. This increase resulted from interest earned on the funds
we
received in connection with our private placement. Interest expense was $343,598
and $32,880 for the years ended December 31, 2006 and December 31, 2005,
respectively, an increase of $310,718. The increase in interest expense resulted
primarily from non-cash interest charges of $303,000 incurred in connection
with
our convertible notes including $250,0000 resulting from the beneficial
conversion feature contained in them.
Liquidity
and Capital Resources
Our
net
loss amounted to $2,957,462 for the nine months ended September 30, 2007. Our
accumulated deficit amounted to $6,798,539 at September 30, 2007. We also used
$2,895,791 of cash to fund our operating activities during the nine months
ended
September 30, 2007. At September 30, 2007, we had $60,412 of working capital
available to fund our ongoing operations.
On
October 26, 2007, we completed a private placement of 10% senior secured
convertible debentures and warrants to purchase common stock, and received
gross
proceeds in the amount of $3.2 million. The net proceeds of the private
placement of approximately $2.8 million are being used by us for our working
capital and capital expenditure requirements and to repay a $250,000 bridge
note
we received from Alan Tannenbaum, our Chief Executive Officer. The debentures
are due on April 24, 2009, bear interest at 10% per year, payable in cash or
freely-tradable common stock, at our option.
Although
the completion of the private placement substantially improved our overall
liquidity, we believe we may not have sufficient capital resources to sustain
operations through September 30, 2008. We will continue to devote substantial
capital resources to research and development activities, developing our
manufacturing infrastructure and penetrating possible markets for PHEV
propulsion system. We will also need to raise additional funds to achieve
commercialization of our PHEV system and continue the pursuit of our
business plan. We cannot assure you that these funds will be available to us,
and if available, at acceptable terms. Nor can we assure you that we will
ultimately be successful in the commercialization of our PHEV propulsion system.
If we are unable to obtain additional capital, we will have to implement a
cost
cutting plan, reduce the size of our operating structure, and/or sell assets
to
conserve our liquidity. We also cannot assure you that even if we are successful
in efforts to raise additional capital, that the proceeds of any such financing
transactions will enable us to develop our business to a level at which we
are actually generating operating profits and positive cash flows.
At
September 30, 2007, our current assets exceeded our current liabilities by
$60,412 with a ratio of current assets to current liabilities of approximately
1.09 to 1.0. At September 30, 2007, unrestricted cash on hand was $108,742,
a
decrease of $2,975,200 from December 31, 2006. Restricted cash of $14,349 on
hand at September 30, 2007 can be used to pay for investor relations costs,
all
of which are expected to be used during three months ending December 31,
2007.
Net
cash
used in operating activities totaled $2,895,791 for the nine months ended
September 30, 2007 as compared to cash flow used in operating activities of
$295,273 for the nine months ended September 30, 2006. This increase resulted
primarily from our net loss from operations of $2,957,462, as discussed above,
and was funded by the proceeds of our October 2006 private placement.
Additionally, as part of our increased level of operating activities to continue
our plan for the development and distribution of our PHEV propulsion system,
other significant components of our change in working capital included: the
use
of cash to increase our inventory by $168,212 and to increase our accounts
receivable by $225,457.
On
March
29, 2007, we signed a Research and Development Contract Extension with NYSERDA
to develop and install a PHEV system into a refuse vehicle provided by a third
party. Our obligation under this agreement is to design and install the system
and to provide NYSERDA with regular status reports. NYSERDA will provide funding
up to an additional $161,046 for this effort. As of September 30, 2007, we
had not obtained a refuse vehicle from a third party.
On
April
25, 2007, we entered into a strategic partnership agreement with a company
that
sells buses on the west coast. Under the terms of the agreement, this
distributor will supply a demonstration vehicle for which we will supply its
PHEV system to the distributor at a price equal to material cost. We have
incurred no obligation under this arrangement as of September 30,
2007.
On
April
24, 2007, we entered into a memorandum of understanding with a company that
manufactures and sells vehicles that are used for aerial truck applications.
As
part of the memorandum of understanding, we agreed to share the cost of
developing a prototype unit with this distributor. We do not anticipate that
our
net cost incurred for the development of the prototype will have a material
impact on our operations.
We
have
no commitments to invest in capital improvements.
Impact
of Inflation
We
expect
to be able to pass inflationary increases for raw materials and other costs
on
to our customers through price increases, as required, and do not expect
inflation to be a significant factor in our business.
Seasonality
Although
our operating history is limited, we do not believe our products are
seasonal.
Off-Balance
Sheet Arrangements
There
are
no off-balance sheet arrangements between us and any other entity that have,
or
are reasonably likely to have, a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to stockholders.
Critical
Accounting Policies and Estimates
The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires our management to exercise its judgment. We exercise considerable
judgment with respect to establishing sound accounting polices and in making
estimates and assumptions that affect the reported amounts of our assets and
liabilities, our recognition of revenues and expenses, and disclosures of
commitments and contingencies at the date of the financial
statements.
On
an
ongoing basis, we evaluate our estimates and judgments. Areas in which we
exercise significant judgment include, but are not necessarily limited to,
recording revenue and cost and cost of sales under production contracts using
the percentage of completion method, establishing loss reserves of contracts
in
progress when necessary, equity transactions (compensatory and financing),
and
allocating costs among different cost centers and departments within our
company. We have adopted certain polices with respect to our recognition of
revenue that we believe are consistent with the guidance provided under
Securities and Exchange Commission Staff Accounting Bulletin No.
104.
We
base
our estimates and judgments on a variety factors including our historical
experience, knowledge of our business and industry, current and expected
economic conditions, the composition of our products and the regulatory
environment. We periodically re-evaluate our estimates and assumptions with
respect to these judgments and modify our approach when circumstances indicate
that modifications are necessary.
While
we
believe that the factors we evaluate provide us with a meaningful basis for
establishing and applying sound accounting policies, we cannot guarantee that
the results will always be accurate. Since the determination of these estimates
requires the exercise of judgment, actual results could differ from such
estimates.
A
description of significant accounting polices that require us to make estimates
and assumptions in the preparation of our consolidated financial statements
are
as follows:
Revenue
Recognition.
We
derive a significant portion of our revenues from production contracts that
we
account for using the percentage of completion method. Accordingly, we make
estimates of costs to complete these contracts that we us a basis for recording
revenue.
We
apply
the revenue recognition principles set forth under AICPA Statement of Position
(“SOP”) 81-2 “Accounting for Production Type Contracts” and Securities and
Exchange Commission Staff Accounting Bulletin (“SAB”) 104 “Revenue Recognition”
with respect to our revenue.
Income
Taxes
.
We are
required to determine the aggregate amount of income tax expense or loss based
upon tax statutes in jurisdictions in which we conduct business. In making
these
estimates, we adjust our results determined in accordance with generally
accepted accounting principles for items that are treated differently by the
applicable taxing authorities. Deferred tax assets and liabilities, as a result
of these differences, are reflected on our balance sheet for temporary
differences, loss and credit carry forwards that will reverse in subsequent
years. We also establish a valuation allowance against deferred tax assets
when
it is more likely than not that some or all of the deferred tax assets will
not
be realized. Valuation allowances are based, in part, on predictions that our
management must make as to our results in future periods. The outcome of events
could differ over time which would require us to make changes in our valuation
allowance.
Share-Based
Payments and Other Equity Transactions.
We
apply SFAS No. 123R “Share-Based Payment.” This statement is a revision of SFAS
Statement No. 123, and supersedes APB Opinion No. 25, and its related
implementation guidance. SFAS 123R addresses all forms of share-based payment
awards including shares issued under employee stock purchase plans, stock
options, restricted stock and stock appreciation rights. Under SFAS 123R,
share-based payment awards result in a cost that is measured at fair value
on
the awards’ grant date, based on the estimated number of awards that are
expected to vest. We adopted the modified prospective method with respect to
accounting for our transition to SFAS 123(R) and measured unrecognized
compensation cost. Under this method of accounting, we are required to estimate
the fair value of share-based payment that we make to our employees by
developing assumption regarding expected holding terms of stock options,
volatility rates, and expectation of forfeitures and future vesting that can
significantly impact the amount of compensation cost that we recognize in each
reporting period.
We
are
also required to apply complex accounting principles with respect to accounting
for financing transactions that we have consummated in order to finance the
growth of our business. These transactions, which generally consist of
convertible debt and equity instruments, require us to use significant judgment
in order to assess the fair values of these instruments at their dates of
issuance, which is critical to making a reasonable presentation of our financing
costs and how we finance our business.
Recent
Accounting Pronouncements
In
February 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS’) No. 155, “Accounting for
Certain Hybrid Financial Instruments - an amendment of FASB Statements No.
133
and 150.” SFAS No. 155 (a) permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, (b) clarifies that certain instruments are not subject
to
the requirements of SFAS 133, (c) establishes a requirement to evaluate
interests in securitized financial assets to identify interests that may contain
an embedded derivative requiring bifurcation, (d) clarifies what may be an
embedded derivative for certain concentrations of credit risk and (e) amends
SFAS 140 to eliminate certain prohibitions related to derivatives on a
qualifying special-purpose entity.
SFAS
155
is applicable to new or modified financial instruments in fiscal years beginning
after September 15, 2006, though the provisions related to fair value accounting
for hybrid financial instruments can also be applied to existing instruments.
Early adoption, as of the beginning of an entity’s fiscal year, is also
permitted, provided interim financial statements have not yet been issued.
The
adoption of SFAS 155 has not had an effect on our consolidated financial
statements.
In
March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets.” SFAS No. 156 amends SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,” to require
all separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable. SFAS No. 156 also permits
services to subsequently measure each separate class of servicing assets and
liabilities at fair value rather than at the lower of cost or market. For those
companies that elect to measure their servicing assets and liabilities at fair
value, SFAS No. 156 requires the difference between the carrying value and
fair
value at the date of adoption to be recognized as a cumulative effect adjustment
to retained earnings as of the beginning of the fiscal year in which the
election is made. SFAS No. 156 is effective for the first fiscal year beginning
after September 15, 2006. The adoption of this pronouncement did not have an
effect on our consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This
standard defines fair value, establishes a framework for measuring fair value
in
generally accepted accounting principles and expands disclosures about fair
value measurements. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. The adoption of this pronouncement did not have an effect
on
our consolidated financial statements.
In
September 2006, the U.S. Securities and Exchange Commission issued Staff
Accounting Bulletin (“SAB”) 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements.” SAB 108 provides guidance on how prior year misstatements should be
taken into consideration when quantifying misstatements in current year
financial statements for purposes of determining whether the current year’s
financial statements are materially misstated. SAB 108 is effective for the
first fiscal year ending after November 15, 2006. The adoption of SAB 108 did
not have an effect on our consolidated financial statements.
In
November 2006, the Emerging Issues Task Force (“EITF’) reached a final consensus
in EITF Issue No. 06-6 “Debtor’s Accounting for a Modification (or Exchange) of
Convertible Debt Instruments.” EITF Issue No. 06-6 addresses the modification of
a convertible debt instrument that changes the fair value of an embedded
conversion option and the subsequent recognition of interest expense for the
associated debt instrument when the modification does not result in a debt
extinguishment pursuant to EITF Issue No. 96-19, “Debtor’s Accounting for a
Modification or Exchange of Debt Instruments.” The consensus should be applied
to modifications or exchanges of debt instruments occurring in interim or annual
periods beginning after November 29, 2006. We do not expect the adoption of
EITF
Issue No. 06-6 to have a material impact on our financial position, results
of
operations or cash flows.
In
November 2006, the FASB ratified EITF Issue No. 06-7, “Issuer’s Accounting for a
Previously Bifurcated Conversion Option in a Convertible Debt Instrument When
the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities.” At the
time of issuance, an embedded conversion option in a convertible debt instrument
may be required to be bifurcated from the debt instrument and accounted for
separately by the issuer as a derivative under SFAS 133, based on the
application of EITF Issue No. 00-19. Subsequent to the issuance of the
convertible debt, facts may change and cause the embedded conversion option
to
no longer meet the conditions for separate accounting as a derivative
instrument, such as when the bifurcated instrument meets the conditions of
EITF
Issue No. 00-19 to be classified in stockholders’ equity. Under EITF Issue No.
06-7, when an embedded conversion option previously accounted for as a
derivative under SFAS 133 no longer meets the bifurcation criteria under that
standard, an issuer shall disclose a description of the principal changes
causing the embedded conversion option to no longer require bifurcation under
SFAS 133 and the amount of the liability for the conversion option reclassified
to stockholders’ equity. EITF Issue No. 06-7 should be applied to all previously
bifurcated conversion options in convertible debt instruments that no longer
meet the bifurcation criteria in SFAS 133 in interim or annual periods beginning
after December 15, 2006, regardless of whether the debt instrument was entered
into prior or subsequent to the effective date of EITF Issue No. 06-7. Earlier
application of EITF Issue No. 06-7 is permitted in periods for which financial
statements have not yet been issued. The adoption of this pronouncement did
not
have an effect on our consolidated financial statements.
In
December 2006, the FASB issued FASB Staff Position (“FSP”) EITF 00-19-2
“Accounting for Registration Payment Arrangements” (“FSP EITF 00-19-2”). FSP
EITF 00-19-2 addresses an issuer’s accounting for registration payment
arrangements. This pronouncement specifies that the contingent obligation to
make future payments or otherwise transfer consideration under a registration
payment arrangement, whether issued as a separate agreement or included as
a
provision of a financial instrument, should be separately recognized and
accounted for as a contingency in accordance with SFAS 5, “Accounting for
Contingencies.” FSP EITF 00-19-2 amending previous standards relating to rights
agreements became effective on December 21, 2006 with respect to arrangements
entered into or modified beginning on such date and for the first fiscal year
beginning after December 15, 2006 with respect to those arrangements entered
into prior to December 21, 2006. The adoption of this pronouncement did not
have
an effect on our consolidated financial statements.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.” SFAS 159 provides companies with an option to
report selected financial assets and liabilities at fair value and establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar
types
of assets and liabilities. SFAS 159 is effective for fiscal years beginning
after November 15, 2007. We are in the process of evaluating the impact of
the
adoption of this statement on our results of operations and financial
condition.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on our consolidated financial statements
upon adoption.
BUSINESS
Overview
of Our Business
We
are a
clean technology company that develops and manufactures propulsion systems
for
advanced Plug-in Hybrid Electric Vehicles for medium and heavy-duty trucks
and
buses by integrating our proprietary electric power conversion, electric power
control and energy storage systems with a range of off-the-shelf components
including electric motors and storage batteries. Our Plug-in Hybrid Electric
Vehicle systems are generally series configuration hybrids that offer customers
significant advantages when compared to the more familiar parallel architecture
found in hybrid passenger cars. Our environmentally friendly and cost-effective
Plug-in Hybrid Electric Vehicle systems allow vehicles to operate at lower
costs
and with lower vehicle emissions
.
Alternatively
Fueled Vehicles
General
We
compete in the alternatively fueled vehicles market. Alternatively fueled
vehicles include various types of vehicles that utilize electric and hybrid
electric technology, hydrogen fuel cell technology, compressed natural gas,
biodiesel, ethanol, propane and liquefied natural gas, or a combination of
these
technologies and fuels. There are more than 1,500,000 on-road alternatively
fueled vehicles of all vehicle classes in use in the United States today,
growing 9.3% per year since 1995. Each year in North America, an estimated
500,000 new medium and heavy-duty trucks and buses are sold, each with an
estimated average life of ten years.
Electric
and Hybrid Electric Vehicles
Electric
vehicles and hybrid electric vehicles have emerged as a revolutionary solution
for improved fuel efficiency and reduced vehicle emissions. Electric vehicles
operate solely on electric power. Hybrid electric vehicles are capable of
operating on both electricity and a conventional or alternative power source.
Plug-in
Hybrid Electric Vehicles
Plug-in
Hybrid Electric Vehicles are powered both by battery power and a conventional
or
alternative fuel source and with power taken from a power grid. This reduces
the
amount of conventional or alternative fuel required to operate a Plug-in Hybrid
Electric Vehicle when compared to a hybrid electric vehicle. Our technology
can
be deployed in electric vehicles, hybrid electric vehicles and Plug-in Hybrid
Electric Vehicles. Any vehicle, whether it operates on diesel, gasoline or
an
alternative fuel source, can be made a Plug-in Hybrid Electric Vehicle. Plug-in
Hybrid Electric Vehicles are therefore known as being fuel agnostic. A Plug-in
Hybrid Electric Vehicle consumes less fuel, requires less maintenance and
typically has a longer lifespan than conventional gas-powered
vehicles.
We
estimate the addressable market for our Plug-in Hybrid Electric Vehicle systems
in newly-manufactured vehicles, which excludes vehicles that may be retrofitted
with our Plug-in Hybrid Electric Vehicle systems, to be approximately $1.8
billion per year. This assumes modest growth in the number of medium and
heavy-duty trucks and buses and 10% adoption of hybrid electric power at an
estimated cost of $25,000 to $30,000 per vehicle. This cost target will not
be
achieved without substantial unit volume production of hybrid power trains.
Several factors are driving accelerating demand in this market: (i) economic
and
political instability in many of the world’s largest oil producing countries
placing increasing pressures on fuel costs, (ii) attempts to reduce the United
States’ dependence on foreign oil by displacing imported petroleum with
electricity generated from domestic fuels and (iii) increasingly stringent
emissions standards. In addition, initiatives by the federal government,
including the Energy Policy Act of 2005 and the Clean Efficient Automobiles
Resulting from Advanced Technologies Act of 2003 support the development and
use
of clean technologies. Hybrid electric propulsion offers a highly attractive,
affordable and user-friendly solution.
Odyne’s
Value Proposition
Our
Plug-in Hybrid Electric Vehicle solution offers several advantages to
stand-alone alternatively fueled vehicles and vehicles powered by conventional
internal combustion engines, including lower vehicle emissions and lower
operating costs through greater fuel efficiency and lower maintenance costs.
Our
Plug-in Hybrid Electric Vehicle system integrates off-the-shelf products,
advanced control systems and our modular, build-to-order propulsion system.
This
combination allows our Plug-in Hybrid Electric Vehicle system to be
competitively priced while retaining the flexibility to build to customer
specifications and enabling later modifications to extend the life of a vehicle
and meet evolving customer needs.
Our
Plug-in Hybrid Electric Vehicle system is designed with a larger battery storage
device, which allows for a smaller, less expensive engine in the auxiliary
power
unit. The engine in our Plug-in Hybrid Electric Vehicle system operates at
a
fixed rpm (revolutions per minute), enhancing vehicle efficiency and minimizing
engine wear. In addition, our series hybrid propulsion system architecture
enables operation in “all-electric” mode for a range of 30 to 50 miles between
recharging, as well as in a conventional hybrid electric mode where operating
ranges can be significantly higher, but vary based on the size of the fuel
tank.
The Plug-in Hybrid Electric Vehicle can be recharged overnight by plugging
into
a high-capacity 220-volt electrical outlet.
To
protect the value of our Plug-in Hybrid Electric Vehicle system, we have filed
patent applications to cover our vehicular battery carriers and cooling systems,
vehicle monitoring and control systems, battery management systems and vehicle
charging system.
Business
and Growth Strategy
We
have
developed a Plug-in Hybrid Electric Vehicle propulsion system for Class 6,
7 and
8 trucks and buses that encompasses proprietary battery and thermal management
technology, unique system architecture and modular/scalable configuration.
Class
6, 7 and 8 are vehicle weight classifications for most semi-trucks, busses
and
trailers. Current and prospective customers for our Plug-in Hybrid Electric
Vehicle system include municipalities and private fleet operators.
During
the first quarter of 2007, we delivered our first two commercial, heavy-duty
vehicles. Since then we delivered three PHEV propulsion systems, which are
being
installed by one of our dealers into refuse trucks for the Town of Oyster Bay,
New York; a 24-passenger Champion Defender Bus, which has been sold to the
Town
of North Hempstead, New York for use in its senior transportation system; a
Crane refuse vehicle, belonging to the Town of Hempstead, New York; and a
compressed natural gas-fueled work truck owned by Keyspan, a part of National
Grid. We are currently in discussions with several fleet operators for the
purchase of vehicles and component systems based on our PHEV technology,
although we cannot assure you that such discussions will result in
sales.
We
have
developed strategic relationships and strategic partnerships to further our
development, marketing, and manufacturing of Plug-in Hybrid Electric Vehicle
systems for medium and heavy-duty vehicles. Long Island Power Authority (known
as LIPA), the non-profit electric utility serving southeastern New York, has
agreed to work with us to promote our Plug-in Hybrid Electric Vehicle technology
and to collaborate with us on product demonstrations. ElDorado National, a
subsidiary of Thor Industries, Inc., has agreed to supply bus gliders and bodies
for the Odyne/LIPA demonstration program and future projects. General Electric
supplies induction traction drive motors to us and has worked with us to select
induction motors that can meet a range of requirements. Bosch Rexroth provides
auxiliary power unit induction alternators to us. EnerSys supplies the lead-acid
batteries used in constructing our Plug-in Hybrid Electric Vehicle system.
We
are also a founding member (and the only founding member company that is not
a
public utility company) in the Plug-In Partners National Campaign
(www.pluginpartners.org), a national grass-roots campaign created to demonstrate
the existing market for flexible-fuel Plug-in Hybrid Electric Vehicles. Plug-In
Partners members include 24 of the nation’s largest locally-owned and controlled
power systems. We have appointed FAB Industries as an exclusive agent within
a
defined geographic territory to sell, install and maintain our products into
existing vehicles. We have also appointed Creative Bus Sales, Inc. of Chino,
California as our exclusive sales agent in a specified territory with respect
to
the transit bus market. Additionally, we have entered into an agreement with
Dueco, Inc., a Wisconsin-based manufacturer of aerial lift trucks, to provide
proprietary hybrid drive systems optimized for that market. In December 2007,
we
received a purchase order from Dueco for 25 of our Plug-in Hybrid Electric
Vehicle propulsion systems.
Our
growth strategy is to continue to develop our Plug-in Hybrid Electric Vehicle
propulsion systems tailored for use with medium and heavy-duty trucks and buses
while jointly manufacturing and selling plug-in hybrid electric buses and trucks
with original equipment manufacturers of bus and truck bodies, including
ground-up builds and modifications of existing vehicles. We intend to expand
our
product offerings to include a range of auxiliary power units that work with
a
variety of fuels, electric drive motors, electric motor controllers, battery
chargers and energy storage batteries. As the market for Plug-in Hybrid Electric
Vehicles expands and we expand our product offerings, we intend to sell Plug-in
Hybrid Electric Vehicle power system components to medium and heavy-duty vehicle
fleet manufacturers that sell their vehicles directly to fleet
owners.
Industry
Background and Trends
Overview
The
United States faces major challenges in meeting the ever-increasing demand
for
transportation goods and services while striving to minimize adverse energy,
environmental and economic impacts. More efficient vehicles are imperative
to
meeting these challenges.
New
emissions standards are forcing current diesel engine and vehicle manufacturers
to consider complete engine redesigns that utilize alternative transportation
fuels. New legislation, coupled with rising fuel and labor costs, resulted
in
the accelerated development of the alternative fuel industry. The alternative
fuel industry can be segmented by fuel type, application and vehicle class,
as
shown in the diagram below.
Alternative
Transportation Fuel Industry Segmentation
|
Alternative
Transportation Fuels
|
|
Applications
|
|
Vehicles
|
|
Liquefied
petroleum gas
Compressed
natural gas
|
|
Alternatively
fueled vehicle
suppliers
|
|
Automobiles
Vans
& minivans
|
|
|
|
|
|
|
|
Alcohols in blends containing at least 85% alcohol
Hydrogen
|
|
Alternative
transportation fuel
suppliers
|
|
Light-duty
trucks
Medium-duty
trucks
|
|
|
|
|
|
|
|
Electricity
100%
biodiesel
|
|
Alternatively
fueled vehicle technologies and components
|
|
Heavy-duty
trucks
Buses
Other
|
We
compete in the alternatively fueled vehicles market. Alternatively fueled
vehicles include various types of vehicles that utilize electric and hybrid
electric technology, hydrogen fuel cell technology, compressed natural gas,
biodiesel, ethanol, propane and liquefied natural gas, or a combination of
these
technologies and fuels. According to publicly available industry sources, there
are more than 1,500,000 on-road alternatively fueled vehicles in use in the
United States today. There are approximately 113,000 medium and heavy-duty
alternatively fueled trucks and buses in use in the United States as compared
to
our estimate of approximately 1,100,000 conventional trucks and buses in these
classes. Each year in North America, an estimated 500,000 new medium and
heavy-duty trucks and buses are sold, each with an estimated average life of
ten
years.
Electric
and Hybrid Electric Vehicles
Electric
vehicles and hybrid electric vehicles, or HEVs, have emerged as an appealing
solution for improved fuel efficiency and reduced vehicle emissions. Electric
vehicles operate solely on electric power. Hybrid electric vehicles are capable
of operating on both electricity and a conventional or alternative power source,
such as diesel fuel. According to estimates of the Energy Information
Administration of the U.S. Department of Energy, automakers will sell
approximately 1.1 million hybrid electric vehicles in 2015.
Plug-in
Hybrid Electric Vehicles
Plug-in
Hybrid Electric Vehicles, or PHEVs, are powered both by battery power and a
conventional or alternative fuel source and with power taken from a power grid.
Any vehicle, whether it operates on diesel, gasoline or an alternative fuel
source, can be made a PHEV. PHEVs are therefore known as being fuel agnostic.
By
“hybridizing” a vehicle, the fuel efficiency of that vehicle is improved. By
requiring less fuel to perform the same tasks, operating costs and environmental
emissions are reduced. Moreover, a PHEV vehicle requires less maintenance and
typically has a longer lifespan than conventional gas-powered vehicles.
Several
factors are driving accelerating demand in the alternatively fueled vehicle
market: (i) economic and political instability in many of the world’s largest
oil producing countries placing increasing pressures on fuel costs, (ii)
attempts to reduce the United States’ dependence on foreign oil by displacing
imported petroleum with electricity generated from domestic fuels and (iii)
increasingly stringent emissions standards. In addition, initiatives by the
United States federal government, including the Energy Policy Act of 2005 and
the Clean Efficient Automobiles Resulting from Advanced Technologies Act
(“CLEAR”) of 2003, support the development and use of clean technologies. Hybrid
electric propulsion offers a highly attractive, affordable and user-friendly
solution.
The
propulsion system of a conventional vehicle consists of an internal combustion
engine, a transmission and a differential that delivers power to the drive
wheels. The drive wheels may be the front wheels, the rear wheels or both.
The
transmission changes the ratio of the revolutions per minute, or rpm, of the
internal combustion engine to the rpm of the drive wheels in order to operate
the internal combustion engine at its most efficient operating rpm. The internal
combustion engine must be sized to be able to meet peak power requirements;
the
peak power requirement is considerably higher than the average power
requirement. We design hybrid propulsion systems for medium-duty and heavy-duty
trucks and buses where the peak power requirements are four to five times higher
than the average power requirements.
The
engine configuration and the braking system differentiate a PHEV propulsion
system from conventional propulsion systems. In a PHEV propulsion system, the
internal combustion engine operates in conjunction with an electric energy
storage system and an electric motor to deliver power to the drive wheels.
As
such, the engine in the auxiliary power unit, which is the primary power source
of the PHEV, is sized to provide only the average
power
requirement. Peak power requirements are provided through the electric motor
from the stored electric energy system. The internal combustion engine recharges
the energy storage system during low power driving periods. Low power driving
periods include both idling and relatively constant speed highway driving.
The
energy storage system also receives power from a PHEV’s braking system. The
braking system of a conventional vehicle relies on friction between the brake
elements to convert kinetic energy of the vehicle to heat, which then dissipates
into the air and is wasted. The braking system in a PHEV operates the same
as a
conventional vehicle, but the electronics in a PHEV convert much of the kinetic
energy back into electric power that is then stored for future use. This concept
is called regenerative breaking.
In
most
of the currently available HEVs, the internal combustion engine is the only
source of power. In our PHEV configuration, the operator is able to supplement
power from the internal combustion engine with electric power from a power
grid
by periodically plugging the vehicle in during times that it is not in use.
This
“Plug-in HEV” capability allows the use of electric power that is considerably
less expensive than diesel fuel per mile.
In
the
United States today, much of the vehicular fuel, gasoline or diesel oil is
imported. Most electricity is generated from domestic fuels. Thus, supplementing
the diesel fuel with “Plug-in HEV” electric power contributes to national energy
independence.
The
table
compiled by us below outlines the key differences in major drive system
components between a conventional internal combustion engine system and a series
PHEV system.
Comparison
of Major Drive System Components
|
Component
|
|
Internal
Combustion Engine Drive System
|
|
PHEV
Drive System
|
|
Internal
Combustion Engine
|
|
Yes
|
|
No
|
|
Auxiliary
Power Unit
|
|
No
|
|
Yes
|
|
Electric
Drive Motor
|
|
No
|
|
Yes
|
|
Electric
Motor Controller
|
|
No
|
|
Yes
|
|
Transmission
|
|
Yes
|
|
No
|
|
Battery
Charger
|
|
No
|
|
Yes
|
|
Starter
System
|
|
Yes
|
|
No
(included in auxiliary power unit)
|
|
Energy
Storage Battery
|
|
No
|
|
Yes
|
|
Control
Network
|
|
No
|
|
Yes
|
PHEV
Advantages
We
believe hybrid propulsion lowers the operating costs of vehicles because
of:
Greater
Fuel Efficiency/Lower Emissions
.
PHEVs
are more fuel efficient than conventional internal combustion engine vehicles,
as well as any stand-alone alternatively fueled vehicle. The auxiliary power
unit provides average power only and the peak requirements, which are
substantially higher than the average, are provided through the electric motor
from the stored electric system. The result is that a PHEV uses less fuel with
lower vehicle emissions. Improvements in fuel efficiency and vehicle emissions
will vary based on the application; however, we estimate that when the power
system in a typical transit bus application is changed from conventional diesel
to HEV, fuel consumption and vehicle emissions will be reduced 30% to 50%.
PHEVs
enhance the efficiency of internal combustion engines regardless of the type
of
fuel used, which we believe makes them more advantageous than other
alternatively fueled vehicles without a hybrid system. A PHEV system can be
coupled with an engine operating on gasoline, diesel fuel or any alternative
fuel. For fleet operators who have already adopted some form of alternatively
fueled vehicle, we believe a hybrid electric system will further enhance the
fuel efficiency of that alternatively fueled vehicle and lower its operating
costs.
Moreover,
the fuel efficiency of a PHEV can be further enhanced by recharging the energy
storage battery from utility power when the vehicle is not in operation, thereby
substituting power from an electric grid for fuel and reducing the overall
fuel
consumption of the vehicle.
Less
Maintenance
.
We
believe a PHEV has lower operating costs, and requires less maintenance than
a
conventional vehicle. Any HEV, whether it has a series or parallel architecture,
requires less brake maintenance due to regenerative braking. When the brakes
are
applied in a conventional vehicle, the kinetic energy of the vehicle is
converted to thermal energy (heat) as the temperature of the brake pads is
raised. This wasted energy raises the operating temperature of the brakes,
accelerating their wear-out and increasing the associated maintenance costs.
In
a PHEV, much of the kinetic energy of the vehicle is converted back into
electricity and stored in the energy storage battery. This saves both brake
maintenance and fuel. We believe that the more braking there is in the
particular application, the greater the potential savings. Further, in a series
PHEV, there is no transmission, thus saving the costs to maintain and service
this component in a conventional vehicle.
The
Odyne Solution
Our
PHEV
solution offers the advantages of a typical hybrid propulsion system, including
lower vehicle emissions and lower operating costs through greater fuel
efficiency and lower maintenance requirements. Our system provides additional
benefits that are not achieved with the use of other hybrid electric bus and
truck propulsion systems.
|
|
·
|
Lower
costs
.
Our system is designed with a larger battery storage device, which
allows
for a smaller auxiliary power unit engine that is less expensive.
Also,
the engine in our PHEV operates at a fixed rpm, which enhances the
vehicle’s efficiency and resiliency.
|
|
|
·
|
Electric-only
operation
.
We
use a series hybrid propulsion system architecture, which enables
operation in electric-only mode as well as in hybrid-electric mode.
Operating in electric-only mode lowers vehicle emissions further
and
enables operation in compliance with a “zero emission” standard where
mandated or desirable.
|
|
|
·
|
Plug-in
capability
.
The “Plug-in HEV” capability of our system allows operators to use grid
electric power as a supplement to the normal vehicle fuel. Grid electric
power is significantly less expensive per mile than diesel fuel and
is
primarily generated from domestic
fuels.
|
We
integrate off-the-shelf products, advanced control systems and our modular,
build-to-order propulsion system to build our PHEV system. Our modular
configuration can be optimized and modified to meet a customer’s changing needs
over time. This modular configuration utilizes off-the-shelf components (such
as
electric motors, batteries, bus bodies, and chassis), proprietary technologies
and components procured through strategic alliances. Accordingly, our PHEV
system can be:
|
|
·
|
optimized
to meet specific customer requirements,
|
|
|
·
|
easily
modified as requirements change to extend the life of the
vehicle,
|
|
|
·
|
rapidly
serviced because individual components can be swapped out,
|
|
|
·
|
highly
scalable because the same components work with all types of engines,
regardless of their fuel source, and
|
|
|
·
|
flexibly
configured to maximize energy storage and power production with the
smallest number of components.
|
The
table
compiled by us below illustrates the annual estimated cost savings in operating
an Odyne PHEV transit bus as compared to a conventional diesel-powered transit
bus.
Comparison
of Annual Operating Cost
(1)
|
|
|
Internal
Combustion Engine Drive System
|
|
Odyne
PHEV Drive System
|
|
|
Fuel
Cost
|
|
$
|
20,000
|
|
$
|
10,000
|
|
|
Electricity
Cost
|
|
|
—
|
|
$
|
2,500
|
|
|
Maintenance
|
|
$
|
4,500
|
|
$
|
2,000
|
|
|
Total
|
|
$
|
24,500
|
|
$
|
14,500
|
|
|
|
(1)
|
Assumes
(i) 30,000 miles per year of usage, (ii) average fuel efficiency
of 3 mpg
for a conventional bus, (iii) $2.00/gallon average cost for diesel
fuel,
(iv) $0.10/kw-hr off-peak electric power cost and (v) operating on
Long
Island, NY.
|
The
long-term projected cost to the vehicle manufacturers of the components used
in
a conventional drive system and a PHEV system (excluding the energy storage
battery) are approximately equal. For a typical medium-duty or heavy-duty
vehicle, the cost to the end user for the energy storage battery is estimated
to
be $12,000 including labor. The expected life of the battery in the northeastern
United States is three to four years, but will be lower in areas with
consistently hotter climates. We estimate that a fleet operator can recover
the
added purchase cost of the PHEV system in two years or less.
Business
and Growth Strategy
Products
We
provide a hybrid propulsion system consisting of a control area network,
appropriate driver interface controls and a selection of other major components.
Odyne
PHEV Components
Our
PHEV System
We
have
replaced both the internal combustion engine and transmission with a long-life,
comparably powered, off-the-shelf electric motor. Locomotives and subways are
currently propelled by electric motors. Electric motors can provide the speed,
power and reliability to support the continuous duty required for the demanding
vehicular applications found in trucks and buses. The diagram below illustrates
our series hybrid propulsion system configuration.
Odyne’s
Series PHEV Propulsion System Configuration
(Heavy-Duty
PHEV)
The
battery and engine/generator combine to provide power to the electric motor
via
a traction drive, which also inverts DC to AC as it regulates the power and
speed of the electric motor. We utilize off-the-shelf AC induction electric
motors due to their efficiency, cost-effectiveness and reliability. We design
and manufacture traction drives for AC motors of up to 500 horsepower, as well
as all of the battery charging, monitoring and auxiliary power unit power
electronics.
Series
Architecture
HEVs
are
currently designed with either series or parallel architectures. A series system
configuration is better suited to operate in an “all-electric-mode” and/or
“hybrid-mode” and, as a result, better suited for operation in urban and
suburban environments. Parallel hybrid technology is successfully being deployed
in smaller passenger vehicles and heavy-duty vehicles (such as long-haul buses
and trucks) where a larger percentage of travel may be highway
driving.
In
a
series device, there is no direct connection between the internal combustion
engine and the drive wheels. The internal combustion engine drives a
generator-charger system to keep the energy storage system charged to the
appropriate levels. The electric motor is connected directly to the rear wheels
through the differential. There is no transmission. In a parallel system, the
internal combustion engine is connected through a transmission to the drive
wheels. The internal combustion engine also drives a generator-charger to
maintain the energy storage system. The electric motor is also connected to
the
drive wheels through a parallel transmission.
Comparison
of HEV Architecture
|
|
|
Series
Architecture
|
|
Parallel
Architecture
|
|
Capacity
of Electric Motor
|
|
Peak
Drive Requirement
|
|
Lower
|
|
Transmission
|
|
None
|
|
Complex
|
|
Internal
combustion engine rpm
|
|
Fixed
|
|
Variable
|
|
All-Electric
Operation
|
|
Yes
|
|
No
|
We
have
developed a series hybrid propulsion system architecture that enables a vehicle
to operate in electric-only mode or in hybrid-electric mode. In addition, the
series architecture coupled with the larger battery reduces the size of the
engine required and eliminates the need for a transmission. This, in turn,
further reduces the maintenance costs of the PHEV.
Modular
Configuration
Our
propulsion system consists of both proprietary Odyne designed and manufactured
modules, and commercial off-the-shelf products. The ability to “mix and match”
these components allows a system to be optimized for a particular driving
profile and to be modified to meet a customer’s changing needs over time. In
addition, the component/modular configuration allows for scalable manufacturing
and purchasing of components to achieve attractive gross margins. The table
compiled by us below indicates the current mix of proprietary and off-the-shelf
components. Most of the off-the-shelf components are available from multiple
sources.
Power
System Components
|
Module
|
|
Proprietary
(P), Off-the-Shelf (OTS)
|
|
Internal
Combustion Engine
|
|
OTS
|
|
Generator
|
|
OTS
|
|
Auxiliary
Power Unit
|
|
P
(Combination of Internal Combustion
Engine
and Generator)
|
|
Electric
Drive Motor
|
|
OTS
|
|
Drive
Motor Controller
|
|
P
|
|
Battery
Charger
|
|
P
|
|
Batteries
|
|
OTS
|
|
Battery
Trays
|
|
P
|
|
Battery
Environmental Controls
|
|
P
|
|
Controlled
Area Network Software
|
|
P
|
Fuel
Agnostic
Our
configurable and scalable propulsion system products are available for a variety
of heavy-duty bus and truck fleet operations in either all-electric
configurations producing zero emissions, or in hybrid-electric configurations
with very low emissions. During the vehicle’s usable life, the fleet operator
can reconfigure the vehicle to all-electric or hybrid operation at any time.
Since our hybrid propulsion system is fuel agnostic, Odyne-powered hybrid
vehicles are able to use any fuel by simply selecting the appropriate generator
module.
Growth
Strategy
Our
growth strategy is to continue to develop our PHEV propulsion system tailored
for use with medium and heavy-duty trucks and buses while jointly manufacturing
and selling PHEV buses and trucks with original equipment manufacturers of
bus
and truck bodies. We spent approximately $1,252,752 in the first nine months
of
2007, $755,429 in 2006 and $442,993 in 2005 on research and development
activities. Our projects are expected to include ground-up builds and
modifications of existing vehicles. We intend to expand our product offerings
to
include auxiliary power units that work with a variety of fuels, electric drive
motors, electric motor controllers, battery chargers and energy storage
batteries. We then intend to manufacture and sell our PHEV system components
to
vehicle manufacturers that will subsequently sell the vehicles to fleet
owners.
Strategic
Partnerships and Strategic Relationships
We
have
developed strategic relationships and strategic partnerships to further the
development and manufacturing of our PHEV system for medium- and heavy-duty
vehicles.
Long
Island Power Authority.
Long
Island Power Authority, the electric utility serving southeastern New York,
has
agreed to work with us to promote our PHEV technology and to collaborate with
us
on product demonstrations. Long Island Power Authority has a history of vehicle
demonstrations programs, which involves the loan of vehicles to various private
and public organizations and companies for the purpose of having a typical
operator evaluate and validate electric vehicle and PHEV technology, and to
familiarize users with the practical applications of electric vehicles. Long
Island Power Authority is currently in discussions with Long Island
Bus/Metropolitan Transportation Authority (MTA) to provide it with an
Odyne-equipped PHEV transit bus, which will be demonstrated on the streets
of
Nassau County on a daily basis in regular service.
Through
the Electric Power Research Institute, Long Island Power Authority is
participating in the Global Grid Connected Vehicle Project, as well as a variety
of other electric vehicle programs. In addition, Long Island Power Authority
has
played an important role by supporting the Ford TH!NK Program in the Long Island
counties of Suffolk and Nassau. Long Island Power Authority is a founding member
of the Plug-In Partners National Campaign.
ElDorado
National.
ElDorado
National, a subsidiary of Thor Industries, Inc., has verbally agreed to supply
bus gliders and bodies for a Long Island Power Authority/Odyne pre-production
demonstration program and future projects. After the successful demonstration
of
our PHEV hybrid bus, we intend to develop a long-term relationship with
ElDorado, initially for the supply of bus gliders and bodies by ElDorado to
us
and subsequently for the purchase of our propulsion components by ElDorado
for
its continued/ongoing bus production.
General
Electric.
General
Electric supplies us with AC induction traction drive motors. General Electric
has worked with us to select induction motors that can meet the requirements
of
a range of vehicles in a wide variety of applications and terrain. The motors
selected by us and General Electric have extensive use in industrial and
traction applications worldwide.
Bosch
Rexroth Corporation.
Bosch
supplies us with generators and motors that are used in a range of vehicles
that
are currently being deployed. In 2007, we entered into an agreement with Bosch
Rexroth providing for us to purchase certain motors from Bosch at a price to
be
maintained for one year. In addition, the agreement provides for engineering
and
marketing cooperation.
Plug-In
Partners National Campaign.
We
are a
founding member (and the only founding member that is not a public utility
company) in the Plug-In Partners National Campaign (
www.pluginpartners.org
),
a
national grass-roots campaign created to demonstrate the existing market for
flexible-fuel PHEVs. Plug-In Partners includes 24 of the nation’s largest
locally-owned and controlled power systems.
New
York State Energy Research and Development Authority.
The
New
York State Energy Research and Development Authority is a public benefit
corporation created in 1975 by the New York State Legislature. Approximately
400
New York State Energy Research and Development Authority research projects
help
the State of New York’s businesses and municipalities with their energy and
environmental problems. Since 1990, New York State Energy Research and
Development Authority has successfully developed and brought into use more
than
170 innovative, energy-efficient and environmentally beneficial products,
processes and services. We have received funding to offset some of its research
and development costs incurred in the development of a PHEV propulsion system
for a mid-size bus. We intend to continue to work with New York State Energy
Research and Development Authority to further develop and refine our
technology.
EnerSys.
EnerSys
currently supplies a majority of the advanced lead-acid batteries used in
constructing our PHEV system.
Sales
and Marketing
Sales
During
the first quarter of 2007, we delivered our first two commercial, heavy-duty
vehicles. Since then we delivered three PHEV propulsion systems, which are
being
installed by one of our dealers into refuse trucks for the Town of Oyster Bay,
New York; a 24-passenger Champion Defender Bus, which has been sold to the
Town
of North Hempstead, New York for use in its senior transportation system; a
Crane refuse vehicle, belonging to the Town of Hempstead, New York; and a
compressed natural gas-fueled work truck owned by Keyspan, a part of National
Grid. We are currently in discussions with several fleet operators for the
purchase of vehicles and component systems based on our PHEV technology,
although we cannot assure you that such discussions will result in
sales.
In
addition, funding has been approved for several other Plug-in Hybrid Electric
Vehicle projects. We are currently in discussions with several large
municipalities and fleet operators for the purchase of vehicles and component
systems based on our PHEV technology, although we cannot assure you that such
discussions will result in sales.
Marketing
There
is
currently demand from municipal fleet managers for fuel-efficient HEVs. However,
based on initial demand and corresponding production costs, PHEVs are likely
to
cost almost twice the amount of conventional vehicles. As a result, to induce
municipal fleet managers and other potential PHEV purchasers to convert to
PHEVs, the U.S. government has created funding programs that provide purchasers
with incentives to cover 80% of the incremental costs associated with the
procurement of PHEVs.
We
are
implementing a two-step sales and marketing strategy for our PHEV systems.
First, we plan to directly target municipal fleet owners for the sale of PHEV
trucks and buses, which will be developed in conjunction with strategic
partners. Longer-term, however, we plan to focus on becoming a leading provider
of PHEV power system components to medium and heavy-duty truck and bus original
equipment manufacturers.
The
long-term sales strategy for the power system components will be to sell PHEV
propulsion kits that consist of Odyne designed and manufactured components
and
standard components manufactured by others directly to vehicle manufacturers
and
integrators. The components manufactured by others include storage batteries,
electric drive motors and the engine and generator in the auxiliary power unit.
Our components and software will be matched to these external components and
the
vehicle driving profile to achieve optimum performance.
Sales
efforts will be focused on two areas. First, our management will interface
with
fleet managers, both municipal and private, to increase their awareness of
the
benefits and availability of our PHEV technology. These efforts will be focused
in the Northeast, because that is where our offices are located, and California,
because of the state’s aggressive posture toward environmental issues.
Second,
we will use direct sales resources as well as vehicle power train distributors
to sell original equipment manufacturer PHEV power trains to vehicle
manufacturers and up-fitters. Resources will be required to fund the application
support, sales personnel, advertising and documentation required for our sales
initiative.
Intellectual
Property
We
depend
on our ability to develop and maintain the proprietary aspects of our technology
to distinguish our products from our competitors’ products. To protect our
proprietary technology, we rely primarily on a combination of confidentiality
procedures, copyright, trademark and patent laws. It is our policy to
require employees and consultants to execute confidentiality agreements and
invention assignment agreements upon the commencement of their relationship
with
us. These agreements provide that confidential information developed or
made known during the course of a relationship with us must be kept confidential
and not disclosed to third parties except in specific circumstances and for
the assignment to us of intellectual property rights developed within the scope
of the employment relationship.
We
have
filed four utility patent applications with the U.S. Patent & Trademark
Office, or PTO, related to our technology. One application, relating to an
air-cooled battery enclosure, was reviewed and approved by the PTO and we expect
a patent to issue shortly. One patent application is currently being reviewed
by
the PTO. The other two utility patent applications have not yet been reviewed
by
the PTO.
Other
than the patent application that has already been reviewed and approved, we
cannot assure you
that
patents will issue from the PTO on any of these patent
applications.
Competition
We
are
targeting our product development for use in Class 6, 7 and 8 medium- and
heavy-duty trucks and buses. Competition in the hybrid power sector remains
somewhat fragmented, with three different classes of competitors participating
in this space: vehicle manufacturers, component suppliers and systems companies.
Nonetheless, competition has increased recently, and we expect this trend to
continue as the demand for these products increases. We are a systems company
offering a full range of components required for hybrid-electric vehicles.
We
believe we are the only company offering PHEV technology within our target
market. Below is a brief summary of some of the other companies active in the
industry.
Several
vehicle manufactures have announced their intention to produce new HEV passenger
cars and light trucks including Toyota, Honda, Ford, Chrysler and General
Motors. Most of these producers are focusing on the automotive retail market
and
the broader passenger vehicle platforms that it includes. Some of these
producers, including General Motors, are also large vehicle manufacturers and
are focusing on heavy-duty transit bus applications. Most vehicle manufacturers
are not in direct competition with our PHEV technology.
Eaton
Corporation is a component supplier that appears to be aiming at higher unit
volume, lighter-duty applications such as Federal Express and United Parcel
Service delivery vehicles, and public utility company fleets. Eaton has recently
been selected to provide power systems for two buses to be built by Beiqi Foton
AUV Bus Company for use in China. Eaton is a diversified industrial manufacturer
with 2005 sales of approximately $11.1 billion. Allison Transmissions, a major
manufacturer of automatic transmissions, is developing an electric engine assist
module that would replace the automatic transmission in a bus or heavy-duty
truck. BAE has developed a hybrid electric propulsion system for large vehicles
such as city transit buses, and military and commercial fleets.
A
number
of smaller companies also operate in this market. Some of these companies,
more
exclusively focused on this market, have developed broader product lines, but
as
yet have not achieved deep market penetration. Azure Dynamics Inc. is a Canadian
public company that is targeting smaller vehicles such as Purolator delivery
vans and London taxis. Azure also focuses on specific powertrain applications
for commercial and military vehicle fleets. ISE Research Corporation is a
private California company that provides electric and hybrid-electric systems
incorporating many Siemens (itself a competitor in this market) components
for
use in heavy-duty bus and truck applications. Enova Systems Inc. is a U.S.
public company that is targeting a wide range of applications from small
commercial vehicles to Singapore railroads. Enova is developing electric
powertrain components in cooperation with the Hyundai Heavy Industry Division
and focuses on electric, hybrid and fuel cell powered drive systems and related
sub-systems and component integration. Additionally, some companies, such as
DRS
Technologies, Inc., currently focus exclusively on military vehicles.
To
date,
we have not experienced significant competition when submitting proposals within
the PHEV marketplace. Moreover, we are distinct in our approach of offering
original equipment manufacturers a comprehensive series hybrid system comprised
of energy storage, control/power electronics, electric motors and generators
and
advanced control algorithms. Due to significant use of commercial off-the-shelf
components, which keeps costs competitive and provides a wide range of
flexibility in application and format, our PHEV systems have potential
applications for a wide range of bus or truck manufacturers, up-fitters and
specialty vehicle producers.
Government
Regulation
The
Environmental Protection Agency and California Air Research Board currently
regulate the emissions of heavy-duty vehicles such as trucks and buses having
a
gross vehicle weight between 8,500 pounds and 33,000 pounds under Environmental
Protection Agency regulations, and 14,000 pounds and 33,000 pounds under the
California Air Research Board. These vehicles fall within Classes 6, 7 and
8.
The
emissions of these vehicles are determined by testing the engine under Transient
Federal Test Procedure via an engine dynamometer test cycle and the Supplemental
Emissions Test, which simulates steady state or highway driving. This differs
from the methodology used to certify passenger vehicles. Passenger vehicles
are
tested and certified for emission compliance whereas heavy-duty vehicle engines
are certified for compliance.
The
overall allowable emission levels decreased each year over the ten-year period
starting in 1988. From 1998 to present (and going into 2010), emissions
reductions have been mandated to further reduce airborne pollutants by lowering
the allowable limits for specific by-products, measuring new pollutants (not
measured before) and by regulating and eventually outlawing the sulfur in diesel
fuel.
A
very
challenging component of the new emissions standards starting in 2007 is the
drastic reduction (75% less in some cases) of nitrogen oxide, non-methane
hydrocarbons and particulate matter. New engine “add-on” technology such as
particulate traps, fuel filters and computerized fuel injection control have
been created in an attempt to meet the mandates, but more work is required.
To
meet the stringent 2007 standards completely, vehicle and engine manufacturers
are rethinking their current engine and propulsion technology. Major (and
expensive) redesigns of diesel engine technology, the abandonment of diesel
for
gasoline and the use of advanced propulsion systems all represent potential
alternatives to meeting the new standards.
Employees
As
of
December 20, 2007, we employed 19 full-time employees and 4 part-time employees.
None of our employees are represented by a collective bargaining unit. All
employees sign standard employment agreements that specify they are all “at
will” employees.
Facilities
We
currently have a lease for approximately 10,000 rentable square feet of office
and manufacturing space at our corporate headquarters in Hauppauge, New York.
The lease provides for monthly rental payments of approximately $7,000 and
increases approximately 3% per year on July 1 of each year. The lease expires
in
June 2009. We believe our leased space is adequate for us at this time.
Legal
Proceedings
We
are
not party to any pending or, to our knowledge, threatened legal
proceedings.
MANAGEMENT
Executive
Officers and Directors
The
following table shows the positions held by our board of directors and executive
officers, and their ages as of December 20, 2007:
|
Name
|
|
Age
|
|
Position
|
|
Alan
Tannenbaum
|
|
39
|
|
Chief
Executive Officer and Director
|
|
|
|
|
|
|
|
Joshua
A. Hauser
|
|
62
|
|
President,
Chief Operating Officer and Director
|
|
|
|
|
|
|
|
Joseph
M. Ambrosio
|
|
38
|
|
Executive
Vice President-Engineering and Chief Technology Officer
|
|
|
|
|
|
|
|
Konstantinos
Sfakianos
|
|
37
|
|
Executive
Vice President-Operations
|
|
|
|
|
|
|
|
Daniel
Bartley
|
|
47
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
Bruce
E. Humenik
|
|
59
|
|
Director
|
|
|
|
|
|
|
|
Stanley
W. Struble
|
|
61
|
|
Director
|
|
|
|
|
|
|
|
S.
Charles Tabak
|
|
75
|
|
Director
|
The
principal occupations for the past five years (and, in some instances, for
prior
years) of each of our directors and executive officers are as
follows:
Alan
Tannenbaum
has
served as our Chief Executive Officer and as a member of our board of directors
since September 2007. Immediately prior to joining the Company, Mr. Tannenbaum
was an independent investor and consultant. From 1998 to May 2006, he had been
a
Managing Director of Lehman Brothers Inc., a leading investment banking firm.
At
Lehman Brothers, he served as the Head of Institutional Equity Sales from 2002
to 2006, where he was responsible for sales production of more than $300 million
and managed a team of 85 senior sales people in nine offices around the world,
leading his group to a number one institutional sales ranking on Wall Street.
Mr. Tannenbaum also served at Lehman Brothers as the Head of European Equity
Capital Markets in London in 2001 and 2002, and Head of Telecom and Media Equity
Capital Markets from 1998 to 2000. Mr. Tannenbaum received a B.A. degree from
the University of Michigan.
Joshua
A. Hauser
has
served as our President and Chief Operating Officer and as a member of our
board
of directors since October 2006, and joined Odyne in July 2004 as Senior Vice
President, Business Development and Finance and as a director and in June 2006
became its President and Chief Operating Officer. He brings over 30 years
experience in industrial and military electronics. From 1967 to 1984, he held
various positions, including Vice President of Manufacturing, Vice President
of
Operations and General Manager at Lambda Electronics, a division of Veeco
Instruments Inc. Veeco Instruments designed and manufactured electronic power
supplies and instrumentation used primarily in semiconductor processing. From
1984 to 1989, he was Executive Vice President and Director of Veeco Instruments
Inc., a New York Stock Exchange listed company; from 1989 to 1996, he was
Managing Director of Unitech plc, a London Stock Exchange listed company that
manufactured and designed electronic power supplies and control system
components; and from 1996 to 1999, he was President of Siebe Power Controls,
a
division of Siebe plc, a London Stock Exchange listed company. Siebe plc was
a
diversified manufacturer of environmental and process control systems, control
system components and other electronic subsystems including electronic power
supplies. Mr. Hauser has previously served on the board of directors of Veeco
Instruments Inc., NEMICLambda KK, a Japanese manufacturer of electronic power
supplies (Tokyo Stock Exchange listed), and Unitech plc. Since leaving Siebe
plc
in April 1999, Mr. Hauser has managed a successful management consulting
business. He is currently also the Chairman of the Board of Transistor Devices,
Inc., a manufacturer of electronic power supplies and power systems. Mr. Hauser
received B.S. and M.S. degrees in Electrical Engineering from Columbia
University. He is presently a member of the Board of Visitors of the School
of
Engineering at Columbia University.
Joseph
M. Ambrosio
has
served as our Executive Vice President - Engineering, Chief Technology Officer
since October 2006, and in similar positions with Odyne, of which he was
co-founder, since August 2001. Mr. Ambrosio has over 12 years of experience
in
the alternative fuel transportation industry and substantial experience in
printed circuit board production, quality control and industrial engineering.
He
co-founded Neocon Technologies in 1995 (which ceased operations in 2000) and
Odyne Corporation in August 2001 with Konstantinos Sfakianos. Mr. Ambrosio’s
experience in the alternative-fuel transportation industry includes design,
development, and integration of a variety of liquid and gaseous fuel systems,
battery energy and thermal management, auxiliary power unit systems for PHEVs
(fuel cell, micro turbine, internal combustion engine), and testing procedures.
He has authored six technical reports published by the Electric Power Research
Institute on battery energy and thermal management for heavy and light duty
electric vehicles. In addition to EV/PHEV system integration and research and
development, Mr. Ambrosio has worked closely with electric utilities such as
LILCO, Con Edison, NYPA and NYSEG, along with organizations such as the Electric
Power Research Institute in alternative fuel vehicle development and drive
system development and support programs. Mr. Ambrosio currently serves as
Treasurer of the Greater Long Island Clean Cities Coalition. He received a
B.S.
degree in Mechanical Engineering from New York Institute of Technology and
has
been an active member of the Society of Automotive Engineers for 10
years.
Konstantinos
(Gus) Sfakianos
has
served as our Executive Vice President - Operations since October 2006, and
in a
similar position with Odyne, of which he was co-founder, since August 2001.
Mr.
Sfakianos has over 10 years of experience in the alternative fuel transportation
industry, specifically EVs and HEVs and battery energy storage systems. He
co-founded Neocon Technologies in 1995 and Odyne Corporation in August 2001
with
Mr. Ambrosio. Mr. Sfakianos has worked with organizations such as Blue Bird
Corporation, Westinghouse/Northrop Grumman, Solectria, TDM (Ford subcontractor),
Chrysler, Exide Europe, Baker Electric, GNB, Ovonics, HPower and many more.
Some
of his technical accomplishments include the development of several unique
and
application specific battery energy storage systems, charging algorithms, and
EV/PHEV systems control design. As co-founder of Neocon Technologies, he was
responsible for all EV field service, in house production of energy storage
systems and general operations. At Odyne, Mr. Sfakianos is responsible for
all
product regulatory standards and certifications. Mr. Sfakianos received a B.S.
degree in Mechanical Engineering, with a concentration in Energy Systems, from
New York Institute of Technology.
Daniel
Bartley
has
served as our Chief Financial Officer since October 2006. Mr. Bartley has over
22 years of consulting and financial accounting experience. From June 2004
through April 2006, Mr. Bartley served as Vice President-Controller of Levitz
Home Furnishings, Inc., a specialty retailer of home furnishings. From 1992
through May 2004, Mr. Bartley served as President of Bartley & Associates,
Ltd., a financial consulting firm that specialized in advising businesses in
asset purchase transactions, financial advisory services and financial reporting
systems. From 1989 through 1992, Mr. Bartley served as Controller of General
Utilities, Inc., a company that operated in the fuel industry and home security
industries. From 1984 through 1989, Mr. Bartley served as a Supervising
Consultant for the Emerging Business Department of Deloitte, LLP where he was
responsible for financial statement audits and advisory services for early
stage
companies. Mr. Bartley received a B.S. degree in accounting from Long Island
University and M.A. in Theology from the Seminary of the Immaculate Conception.
Mr. Bartley is a Certified Public Accountant.
Bruce
E. Humenik
has
served as a member of our board of directors since October 2006. Mr. Humenik
has
more than 30 years of management experience in the electric and gas utility
industry, including, corporate planning, finance, marketing, research and
development and customer service. Since 1995, Mr. Humenik has been a Senior
Vice
President at Applied Energy Group, Inc., a provider of consulting services
to
energy companies. During his time with Applied Energy Group, Inc., Mr. Humenik
has worked on consulting projects with the Long Island Power Authority, Keyspan,
El Paso Electric Company and Bermuda Electric Light Company, Ltd., among others.
From 1970 until 1995, Mr. Humenik worked for Long Island Lighting Company,
where
he served as a Manager of Conservation Services. Mr. Humenik received a B.S.
degree in Electrical Engineering from Manhattan College and an M.B.A. from
Long
Island University.
Stanley
W. Struble
has
served as a member of our board of directors since October 2006. Mr. Struble
has
37 years of experience in sales and marketing with Snap-on Tools Company, a
manufacturer and marketer of tools, diagnostics and equipment solutions for
professional tool users. Mr. Struble has held a number of positions with Snap-On
Tools Company including Eastern Division Vice President (2004 to 2006), Eastern
Regional Manager (1999 to 2004) and Northeast Regional Manager (1992 to 1998).
Mr. Struble received a B.S. degree in Business Administration from New England
College.
S.
Charles Tabak
has
served as a member of our board of directors since October 2006. Mr. Tabak
has
more than 50 years of business experience in varying positions. From 1991 to
August 2004, Mr. Tabak served as Chief Executive Officer and General Counsel
for
Arc Medical & Professional Personnel, Inc., a privately owned and operated
staffing company that provided temporary and permanent medical personnel
placements as well as DNA genetic testing services. From 1969 to 1990, Mr.
Tabak
served as a principal and as Executive Vice President and General Counsel to
Channel Home Centers Inc., a multi state retailer of home improvement products.
From 1964 to 1969, Mr. Tabak served as Director of Finance for the JJ Newberry
Co., which owned and operated over 1,000 retail stores and restaurants. From
1959 to 1964, Mr. Tabak served as assistant in-house counsel, Director of
Internal audit- Expense Controller and Director of Accounts for Bloomingdale’s,
a division of Federated department stores that owned and operated retail
department stores. From 1957 to 1959, Mr. Tabak served as a Senior staff Auditor
for Ernst & Ernst, then a Big 8 worldwide accounting firm. Mr. Tabak
received a B.S. degree in accounting, as well as a J.D. degree from New York
University. Mr. Tabak is admitted to practice law in the State of New York
and
before the U.S. Supreme Court.
All
directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors. Officers are elected annually
by
the board of directors and serve at the discretion of the board.
Board
Committees
On
October 17, 2006, the board of directors authorized the creation of an audit
committee, compensation committee, and nominations and governance committee.
Audit
Committee
.
We
established an audit committee of the board of directors, which is chaired
by
Mr. Tabak, who is considered an independent director with the financial
sophistication to hold such position, and includes Messrs. Humenik and Struble.
The audit committee’s duties are to recommend to the board of directors the
engagement of independent auditors to audit our financial statements and to
review our accounting and auditing principles. The audit committee reviews
the
scope, timing and fees for the annual audit and the results of audit
examinations performed by the internal auditors and independent public
accountants, including their recommendations to improve the system of accounting
and internal controls. The audit committee is at all times to be composed
exclusively of directors who are, in the opinion of the board of directors,
free
from any relationship which would interfere with the exercise of independent
judgment as a committee member and who possess an understanding of financial
statements and generally accepted accounting principles.
Compensation
Committee
.
We
established a compensation committee of the board of directors, which is chaired
by Mr. Humenik, and includes Messrs. Struble and Tabak. The compensation
committee reviews and approves our salary and benefits policies, including
compensation of executive officers. The compensation committee also administers
our stock option plans, and recommends and approves grants of stock options
under that plan.
Nominations
and Governance Committee
.
We
established a nominations and governance committee of the board of directors,
which is chaired by Mr. Struble, and includes Messrs. Humenik and Tabak. The
purpose of the nominations and governance committee is to select, or recommend
for our entire board’s selection, the individuals to stand for election as
directors at the annual meeting of stockholders and to oversee the selection
and
composition of committees of our board. The nominations and governance
committee’s duties also include considering the adequacy of our corporate
governance and overseeing and approving management continuity planning
processes.
Indebtedness
of Directors and Executive Officers
None
of
our directors or executive officers or their respective associates or affiliates
is indebted to us.
Family
Relationships
There
are
no family relationships among our directors and executive officers.
Legal
Proceedings
As
of the
date of this prospectus, there is no material proceeding to which any of our
directors, executive officers, affiliates or stockholders is a party adverse
to
us.
2006
Equity Incentive Plan
The
purpose of our 2006 Equity Incentive Plan, formerly the 2005 Non-Statutory
Stock
Option Plan (the “2006 Plan”), is to enable us to attract, retain and motivate
key employees, directors and, on occasion, consultants, by providing them with
stock options. Awards granted under the 2006 Plan may be either incentive stock
options, as defined in Section 422A of the Internal Revenue Code of 1986,
non-qualified stock options, performance shares, stock appreciation rights,
restricted stock, restricted stock units, bonus shares or dividend equivalents.
Pursuant to the 2006 Plan, awards to purchase an aggregate of 3,000,000 shares
of common stock may be granted under the 2006 Plan and, on December 20, 2007,
stock options to purchase 1,695,000 shares of common stock were outstanding:
505,000 stock options with an exercise price of $.75 per share, 20,000 stock
options with an exercise price of $1.65 per share, 20,000 stock options with
an
exercise price of $.65 per share, 715,000 stock options with an exercise price
of $.395 per share, 300,000 stock options with an exercise price of $.47 per
share and 135,000 stock options with an exercise price of $.53 per share. The
$.75 stock options vest and become exercisable in three equal increments on
each
of October 17, 2008, 2009 and 2010. The $1.65 options vest and become
exercisable in three equal increments on each of March 1, 2009, 2010 and 2011.
The $.65 options vest and become exercisable in three equal increments on each
of May 29, 2009, 2010 and 2011. The $.395 options vest and become exercisable
in
three equal increments on each of October 23, 2009, 2010 and 2011. The $.47
options vest and become exercisable in three equal increments on each of October
26, 2009, 2010 and 2011. The $.53 options vest and become exercisable in three
equal increments on each of December 12, 2009, 2010 and 2011. The aggregate
number of shares of common stock subject to options, stock appreciation rights,
performance stock and bonus shares granted to any one employee during any
calendar year, may not exceed 300,000 shares. The aggregate fair market value
of
common stock with respect to incentive stock options that are exercisable for
the first time by any employee may not exceed $100,000 during any calendar
year.
The
2006
Plan is administered by the compensation committee of the board of directors,
or
by the board of directors as a whole. The board of directors has the power
to
determine the terms of any award granted under the 2006 Plan, including the
exercise price, the number of shares subject to the award and conditions of
exercise. Stock options granted under the 2006 Plan are generally not
transferable, and each stock option is generally exercisable during the lifetime
of the optionee only by such optionee. The exercise price of all incentive
stock
options granted under the 2006 Plan must be at least equal to the fair market
value of the shares of common stock on the date of the grant. With respect
to
any participant who owns stock possessing more than 10% of the voting power
of
all classes of our stock, the exercise price of any incentive stock option
granted must be equal to at least 110% of the fair market value on the grant
date. The term of all incentive stock options under the 2006 Plan may not exceed
ten years, or five years in the case of 10% owners. The board of directors,
pursuant to an authorizing resolution, has the power to terminate the 2006
Plan
at any time and for any reason.
Section 16(a)
Beneficial Ownership Reporting Compliance
We
do not
have securities registered under Section 12 of the Exchange Act and,
accordingly, our directors, officers and affiliates are not required to file
reports under Section 16(a) of the Exchange Act.
Code
of Ethics
Our
board
of directors has adopted a code of ethics, which applies to all our directors,
officers and employees. Our code of ethics is intended to comply with the
requirements of Item 406 of Regulation S-B.
Our
code
of ethics is posted on our Internet website at www.odyne.com. We will provide
our code of ethics in print without charge to any stockholder who makes a
written request to: Chief Financial Officer, Odyne Corporation, 89 Cabot Court,
Suite L, Hauppauge, New York 11788. Any waivers of the application, and any
amendments to, our code of ethics must be made by our board of directors. Any
waivers of, and any amendments to, our code of ethics will be disclosed promptly
on our Internet website, www.odyne.com.
Executive
Compensation
The
following table sets forth, for the most recent fiscal year, all cash
compensation paid, distributed or accrued, including salary and bonus amounts,
for services rendered to us by our Chief Executive Officer and four other
executive officers in such year who received or are entitled to receive
remuneration in excess of $100,000 during the stated period and any individuals
for whom disclosure would have been made in this table but for the fact that
the
individual was not serving as an executive officer as at December 31,
2006:
Summary
Compensation Table
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan Compensa-tion
(4)
|
|
Nonqualified
Deferred Compen-sation Earnings
($)
|
|
All
Other Compe-nsation ($)
|
|
Total
($)
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
(j)
|
|
|
Alan
Tannenbaum
Chief
Executive Officer
|
|
|
2006
2005
|
|
|
—
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joshua
A. Hauser
President
and Chief Operating Officer
|
|
|
2006
2005
|
|
|
40,923
0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40,923
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
M. Ambrosio
Executive
Vice President - Engineering and Chief Technology Officer
|
|
|
2006
2005
|
|
|
59,323
4,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
59,323
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Konstantinos
Sfakianos
Executive
Vice President - Operations
|
|
|
2006
2005
|
|
|
59,323
4,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
59,323
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
Bartley
Chief
Financial Officer(2)
|
|
|
2006
2005
|
|
|
22,230
—
|
|
|
—
|
|
|
—
|
|
|
3,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,730
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger
M. Slotkin
former
Chief Executive Officer (3)
|
|
|
2006
2005
|
|
|
40,923
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40,923
—
|
|
(1)
Mr.
Tannenbaum joined our company in September 2007.
(2)
Mr.
Bartley joined our company in October 2006.
(3)
Mr.
Slotkin left our company in August 2007.
Outstanding
Equity Awards at Fiscal Year-End
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
Name
|
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
|
Option
Exercise Price
($)
|
|
Option
Expiration Date
|
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other
Rights
That Have Not Vested
(#)
|
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares,
Units or
Other Rights That Have Not Vested
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
Bartley
|
|
|
0
|
|
|
150,000
|
|
|
—
|
|
|
.75
|
|
|
Oct.
2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Bruce
E. Humenik
|
|
|
0
|
|
|
50,000
|
|
|
—
|
|
|
.75
|
|
|
Oct.
2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Stanley
W. Struble
|
|
|
0
|
|
|
50,000
|
|
|
—
|
|
|
.75
|
|
|
Oct.
2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
S.
Charles Tabak
|
|
|
0
|
|
|
50,000
|
|
|
—
|
|
|
.75
|
|
|
Oct.
2016
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
These
options vest and become exercisable in three equal increments on each of October
17, 2008, 2009 and 2010.
Compensation
of Directors
Directors
are expected to timely and fully participate in all regular and special board
meetings, and all meetings of committees that they serve on. We currently
compensate non-management directors through stock options granted under our
stock option plan and a cash stipend for each meeting attended.
Each
of
our non-management directors, Messrs. Humenik, Struble and Tabak, received
initial grants of stock options to purchase 50,000 shares of our common stock
for serving on our board of directors. The stock options vest and become
exercisable in three equal increments on each of October 17, 2008, 2009 and
2010. Messrs. Tannenbaum and Hauser, as members of management, do not receive
separate compensation for serving as directors.
The
table
below summarizes the compensation that we paid to non-management directors
for
the fiscal year ended December 31, 2006.
Director
Compensation
|
Name
|
|
Fees
Earned or Paid in Cash ($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan Compen
-sation
(4)
|
|
Nonqualified
Deferred Compen-sation Earnings
($)
|
|
All
Other Compen-sation ($)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce
E. Humenik
|
|
|
1,000
|
|
|
—
|
|
|
1,167
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,167
|
|
|
Stanley
W. Struble
|
|
|
1,000
|
|
|
—
|
|
|
1,167
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,167
|
|
|
S.
Charles Tabak
|
|
|
1,000
|
|
|
—
|
|
|
1,167
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,167
|
|
Employment
Agreements
Odyne
Corporation - New York entered into employment agreements with Joshua A. Hauser,
Joseph M. Ambrosio and Konstantinos Sfakianos effective September 1, 2006,
which
we assumed at the closing of our reverse public offering. The employment
agreements require each of the executives to devote all of their time and
attention during normal business hours to our business as our President and
Chief Operating Officer, Executive Vice President - Engineering and Chief
Technology Officer, and Executive Vice President - Operations, respectively.
The
employment agreement for Mr. Hauser has a term of one year and may be renewed
for an additional term of one year upon the mutual agreement of us and the
executive. The employment agreements for Messrs. Ambrosio and Sfakianos have
an
amended term of three years from October 26, 2007. The employment agreements
provide that each executive will receive an annual salary of $140,000 during
the
first year of the term with increases equal to 5% of such salary on each
anniversary of the effective date of the employment agreement. In addition,
each
executive is entitled to (a) receive a cash bonus in an amount determined by
the
compensation committee of the board of directors if we meet or exceed certain
mutually agreed upon performance goals and (b) participate in our stock option
plan.
On
September 19, 2007, we entered into an employment agreement with Alan
Tannenbaum. The employment agreement has a term expiring one year from October
26, 2007, and requires Mr. Tannenbaum to devote all of his time and attention
during normal business hours to the business of our company as Chief Executive
Officer. So long as he serves as Chief Executive Officer, he will also be
nominated as a director. The employment agreement provides that Mr. Tannenbaum
will receive a base salary at the annual rate of $145,000, starting on January
1, 2008. In addition, Mr. Tannenbaum is entitled to (a) receive a cash bonus
in
an amount determined by the compensation committee of the board of directors
based on our company meeting or exceeding certain mutually agreed upon
performance goals and (b) participate in our employee benefit
plans.
Under
Mr.
Tannenbaum’s employment agreement, we agreed to grant stock options to him to
purchase an aggregate of 3,000,000 shares of our common stock. Of such stock
options, options to purchase 300,000 shares have an exercise price equal to
$.47
(the closing market price of our common stock on October 26, 2007), options
to
purchase 2,400,000 shares have an exercise price equal to $.32 (the average
closing market price of our common stock on the 30 consecutive trading days
on
and prior to October 26, 2007), and options to purchase 300,000 shares, which
will be granted on January 2, 2008, will have an exercise price equal to the
closing market price of the common stock on such date. Each stock option will
vest in three equal installments on the second, third and fourth anniversaries
of the grant date and expires ten years after it is granted. We have agreed
to
adopt a new incentive compensation plan or amend our existing plan to increase
the number of available options that we may grant in order to satisfy our
obligation to Mr. Tannenbaum.
The
employment agreements provide for termination of an executive’s employment
without any further obligation on our part upon the death or disability of
the
executive or for cause. In the event that an executive’s employment is
terminated without cause or for good reason, we are obligated to pay such
executive his salary for the remainder of the term. Termination for cause means
termination as a result of (w) willful and material malfeasance, dishonesty
or
habitual drug or alcohol abuse by the executive related to or affecting the
performance of his duties, (x) continuing and intentional breach,
non-performance or non-observance of any of the terms or provisions of the
employment agreement, but only after the failure of the executive to cure the
breach within ten days of receipt of notice from us, (y) conduct which the
board
determines could reasonably be expected to have a material adverse effect on
us,
but only after the failure of the executive to cease such conduct within ten
days of receipt of notice from us, or (z) the executive’s conviction of a
felony, any crime involving moral turpitude related to or affecting the
performance of the executive’s duties or any act of fraud, embezzlement, theft
or willful breach of fiduciary duty against us. Good reason means (i) material
breach of our obligations under the employment agreement, (ii) any decrease
in
the executive’s salary during the term of the executive’s employment (except for
decreases that are in conjunction with decreases in executive salaries
generally), or (iii) (a) in the case of Messrs. Tannenbaum and Hauser, a
reduction in their duties or authority inconsistent with the duties and
authority of an executive officer and (b) in the case of Messrs. Ambrosio and
Sfakianos, any material reduction in their duties or authority.
The
employment agreements also contain covenants (a) restricting the executive
from
engaging in any activity competitive with our business during the term of the
employment agreement and in the event of termination for cause or without good
reason, for a period of one year thereafter, (b) prohibiting the executive
from
disclosing confidential information regarding us, and (c) soliciting our
employees, customers and prospective customers during the term of the employment
agreement and for a period of one year thereafter.
PRINCIPAL
STOCKHOLDERS
The
following table sets forth information regarding the number of shares of our
common stock beneficially owned on December 20, 2007, by:
|
|
·
|
each
person who is known by us to beneficially own 5% or more of our common
stock,
|
|
|
·
|
each
of our directors and executive officers, and
|
|
|
·
|
all
of our directors and executive officers as a group.
|
Beneficial
ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Shares of
our common stock which may be acquired upon exercise of stock options or
warrants which are currently exercisable or which become exercisable within
60
days after the date indicated in the table are deemed beneficially owned by
the
optionees. Subject to any applicable community property laws, the persons
or entities named in the table above have sole voting and investment power
with
respect to all shares indicated as beneficially owned by them.
|
Name
and Address of Beneficial Owner
(1)
|
|
Shares
Beneficially Owned
|
|
Percentage
of
Common
Stock
(2)
|
|
|
|
|
|
|
|
|
|
5%
or Greater Holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger
M. Slotkin
(3)
|
|
|
3,528,310
|
|
|
16.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Directors
and Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
Tannenbaum
(4)
|
|
|
1,333,334
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Joshua
A. Hauser
|
|
|
1,842,259
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Joseph
M. Ambrosio
|
|
|
3,231,194
|
|
|
14.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Konstantinos
Sfakianos
|
|
|
3,378,740
|
|
|
15.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Daniel
Bartley
(5)
|
|
|
—
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
Stanley
W. Struble
(6)
|
|
|
27,500
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
Bruce
E. Humenik
(6)(7)
|
|
|
40,020
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
S.
Charles Tabak
(6)(8)
|
|
|
48,024
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
All
directors and executive officers as a group (8 persons)
|
|
|
9,901,071
|
|
|
44.9
|
%
|
*Represents
less than 1%.
|
|
(1)
|
The
address of each person is c/o Odyne Corporation, 89 Cabot Court,
Suite L,
Hauppauge, New York 11788.
|
|
|
(2)
|
The
calculation in this column is based upon 22,061,428 shares of common stock
outstanding on December 20, 2007. Does not include 3,890,770
shares issuable upon conversion of our outstanding series A convertible
preferred stock and a maximum of 12,800,000 shares issuable upon
conversion of our 10% senior secured convertible debentures
.
The
shares issuable under stock options, warrants and other derivative
securities to acquire our common stock that are exercisable or convertible
currently or within 60 days after December 20, 2007 are treated as
if
outstanding for computing the percentage ownership of the person
holding
these securities, but are not treated as outstanding for purposes
of
computing the percentage ownership of any other person. Unless otherwise
indicated, also includes shares owned by a spouse, minor children,
by
relatives sharing the same home, and entities owned or controlled
by the
named person.
|
|
|
(3)
|
Includes
66,700 shares of common stock issued upon the conversion of 50 shares
of
series A convertible preferred stock and 33,350 shares of common
stock
issuable upon the exercise of warrants. Mr. Slotkin previously served
as
an officer and director of our
company.
|
|
|
(4)
|
Includes
1,000,000 shares of common stock issuable upon the conversion of
$250,000
principal amount of 10% senior secured convertible debentures and
333,334
shares of common stock issuable upon the exercise of warrants held
by AT
Holdings I, LLC, an entity controlled by Mr. Tannenbaum. Excludes
3,000,000 stock options to purchase 3,000,000 shares of common stock
in
amounts and at exercise prices as follows: 300,000 at an exercise
price
$.47 per share, 2,400,000 at an exercise price of $.32 per share
and
300,000 at an exercise price per share equal to the closing price
of our
common stock on January 2, 2008. The $.47 and $.32 options vest in
three
equal increments on each of October 26, 2009, 2010 and 2011. The
January
2008 options will vest in three equal increments on each of January
2,
2010, 2011 and 2012.
|
|
|
(5)
|
Excludes
stock options to purchase 150,000 shares of common stock at an exercise
price of $.75 per share, vesting in three equal increments on each
of
October 17, 2008, 2009 and 2010, and stock options to purchase 250,000
shares of common stock at an exercise price of $.395 per share, vesting
in
three equal increments on each of October 23, 2009, 2010 and 2011.
|
|
|
(6)
|
Excludes
stock options to purchase 50,000 shares of common stock at an exercise
price of $.75 per share, vesting in three equal increments on each
of
October 17, 2008, 2009 and 2010, and stock options to purchase 80,000
shares of common stock at an exercise price of $.395 per share, vesting
in
three equal increments on each of October 23, 2009, 2010 and 2011.
|
|
|
(7)
|
Represents
26,680 shares of common stock issuable upon the conversion of 20
shares of
series A convertible preferred stock and 13,340 shares of common
stock
issuable upon the exercise of
warrants.
|
|
|
(8)
|
Represents
32,016 shares of common stock issuable upon the conversion of 24
shares of
series A convertible preferred stock and 16,008 shares of common
stock
issuable upon the exercise of
warrants.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Related
Party Transactions
Prior
to
the closing of our reverse public offering, we had a total of approximately
$281,000 in principal amount of unsecured loans outstanding from Roger M.
Slotkin, our former Chief Executive Officer ($102,300), Joshua A. Hauser
($82,600), Konstantinos Sfakianos ($62,400) and Joseph M. Ambrosio ($33,400).
Interest accrued on these loans at a rate of 8% per annum, compounded monthly
based on a 360-day year. On October 17, 2006, accrued interest in the amount
of
$43,559 was forgiven, $140,000 of principal amount of the unsecured loans was
converted to our equity and $139,725 was repaid from the proceeds of the private
placement.
We
had a
total of approximately $624,000 of deferred compensation due to Roger M.
Slotkin, our former Chief Executive Officer ($167,000), Joshua A. Hauser
($167,000), Konstantinos Sfakianos ($145,000) and Joseph M. Ambrosio ($145,000),
which was forgiven on October 17, 2006.
We
had
outstanding bank and credit card debt of approximately $181,000, which was
personally guaranteed by Messrs. Sfakianos and Ambrosio. We repaid this debt
from the proceeds of the private placement and the personal guarantees were
released.
Mr.
Slotkin, our former chief executive officer, purchased 50 shares of series
A
convertible preferred stock and associated warrants in the private placement,
on
the same terms as other investors. In March 2007, Mr. Slotkin converted his
preferred shares into common stock in accordance with the terms of such
preferred stock. Mr. Tabak participated in the convertible note financing and
purchased approximately 24 shares of series A convertible preferred stock and
associated warrants in the private placement on the same terms as other
investors. Mr. Humenik purchased 20 shares of series A convertible preferred
stock and associated warrants in the private placement, on the same terms as
other investors.
In
October 2007, Alan Tannenbaum, our Chief Executive Officer, lent us $250,000
in
the form of a short term bridge note. Later that month, Mr. Tannenbaum purchased
$250,000 principal amount of 10% senior secured convertible debentures and
associated warrants in our October 2007 private placement, on the same terms
as
other investors, the proceeds from which we used at closing to repay his bridge
note.
It
is our
policy that all related party transactions must be approved by a majority of
the
independent and disinterested members of our board of directors, outside the
presence of any interested director and, to the extent deemed necessary or
appropriate by the board of directors, we will obtain fairness opinions or
stockholder approval in connection with any such transaction.
SELLING
STOCKHOLDERS
October
2007 Private Placement
On
October 26, 2007, we completed a private placement to five accredited investors,
pursuant to the terms of a subscription agreement. The securities were offered
and sold in units, with each unit consisting of $100,000 principal amount of
10%
senior secured convertible debentures and warrants to purchase shares of common
stock at an exercise price of $.75 per share.
The
debentures bear interest at 10% per year, payable quarterly in cash or
freely-tradable common stock, at our option, and mature on the earlier of 18
months after the original issuance date or the completion by us of one or a
series of related debt or equity financing transactions for minimum gross
proceeds of $5,000,000, exclusive of any financing transaction by a factor
or
commercial bank (referred to as a Subsequent Financing). The warrants are
exercisable at any time and expire three years from issuance.
Pursuant
to the subscription agreements with the investors, we sold debentures with
an
aggregate face value of $3,200,000 and received gross proceeds of $3,200,000.
The debentures rank senior to all other indebtedness of ours. Pursuant to the
terms of a security agreement with the investors, the debentures are secured
by
the grant by us and our subsidiary to a collateral agent of collateral that
consists of a first priority security interest in all of our and our
subsidiary’s assets. The outstanding balance of the debentures may be converted
at the option of the holder, in whole or in part, at the earlier of 12 months
after the original issuance date, into shares of our common stock at a
conversion price equal to 70% of the then market price per share of common
stock, or upon the completion by us of a Subsequent Financing, into the
securities being sold in such Subsequent Financing at an effective conversion
price equal to 80% of the purchase price of those securities. Notwithstanding
the foregoing, the minimum conversion price will be no less than $.25 per share.
Partial conversions by the investors are permitted.
As
part
of the transaction, we issued to the investors warrants to purchase an aggregate
of up to 4,266,670 shares of our common stock at an exercise price of $.75
per
share. The warrants are exercisable for three years, contain customary change
of
control buy-out provisions and are not redeemable. The warrants also contain
anti-dilution provisions (including “full-ratchet” price protection from the
future issuance of stock, exclusive of the conversion of the debentures and
certain other excluded stock issuances, or securities convertible or exercisable
for shares of common stock below $.75 per share), provided that the exercise
price of the warrants may not be adjusted to less than $.25 per share as a
result of the full-ratchet price protection.
Pursuant
to the terms of a registration rights agreement with the investors, we agreed
to
file a registration statement with the U.S. Securities and Exchange Commission
as soon as possible for purposes of registering the resale of the shares of
our
common stock issuable upon the conversion of the debentures and exercise of
the
warrants sold in the private placement. In the event the registration statement
is not declared effective within 120 calendar days following the closing, we
will pay the investors 2% in cash or stock of the face amount of the debentures
for every 30-day period, or portion thereof, that the registration statement
is
not declared effective for a maximum of six months, subject to the ability
of
the investors to sell the underlying shares pursuant to Rule 144. The liquidated
damages can be paid in cash or freely-tradable common stock, at our option.
We
have also agreed that we will not file a registration statement for any
additional shares of common stock until 75 days after the effective date of
the
registration statement.
Matrix
U.S.A., LLC acted as placement agent in the transaction. The placement agent
received $320,000 in cash placement fees and warrants to purchase 1,000,000
shares of common stock in the transaction.
The
debentures and warrants issued in the private placement were exempt from
registration under Section 4(2) of the Securities Act of 1933 as a sale by
an
issuer not involving a public offering or under Regulation D promulgated
pursuant to the Securities Act of 1933. None of the debentures or warrants,
or
shares of our common stock underlying such debentures and warrants, were
registered under the Securities Act, or the securities laws of any state, and
were offered and sold in reliance on the exemption from registration afforded
by
Section 4(2) and Regulation D (Rule 506) under the Securities Act and
corresponding provisions of state securities laws, which exempts transactions
by
an issuer not involving any public offering. Such securities may not be offered
or sold in the United States absent registration or an applicable exemption
from
the registration requirements and certificates evidencing such shares contain
a
legend stating the same.
After
the
closing of the October 2007 private placement, we had 21,027,578 shares of
common stock outstanding, not including 4,924,620 shares of common stock
issuable upon conversion, at any time, of shares of our series A convertible
preferred stock and a maximum of 12,800,000 shares of common stock issuable
upon
conversion, at any time, of our 10% senior secured convertible debentures.
We
also had outstanding, warrants to purchase 9,586,350 shares of common stock,
inclusive of the investor warrants and placement agent warrants issued in the
October 2007 private placement, and stock options to purchase 4,270,000 shares
of common stock.
Selling
Stockholder Table
The
following table sets forth:
|
|
·
|
the
name of the selling stockholders,
|
|
|
·
|
the
number of shares of common stock beneficially owned by the selling
stockholders as of December
20, 2007,
|
|
|
·
|
the
maximum number of shares of common stock that may be offered for
the
account of the selling stockholders under this prospectus,
and
|
|
|
·
|
the
amount and percentage of common stock that would be owned by the
selling
stockholders after completion of the offering, assuming a sale of
all of
the common stock that may be offered by this
prospectus.
|
Except
as
noted below and elsewhere in this prospectus, the selling stockholders have
not,
within the past three years, had any position, office or other material
relationship with us.
Except
for Matrix U.S.A., LLC, none of the selling stockholders is a broker-dealer
regulated by the Financial Industry Regulatory Authority, Inc. or is an
affiliate of such a broker-dealer. Matrix U.S.A. will be deemed an underwriter
in connection with this offering.
Beneficial
ownership is
determined
under
the rules of the U.S. Securities and Exchange Commission. The number of shares
beneficially owned by a person includes shares of common stock underlying
warrants, stock options and other derivative securities to acquire our common
stock held by that person that are currently exercisable or convertible within
60 days after December 20, 2007. The shares issuable under these securities
are
treated as outstanding for computing the percentage ownership of the person
holding these securities, but are not treated as outstanding for the purposes
of
computing the percentage ownership of any other person.
|
|
|
Beneficial
Ownership
|
|
Shares
Registered
|
|
Beneficial
Ownership After this Offering (3)
|
|
|
Name
|
|
Prior
to this Offering (1)
|
|
in
this
Offering
(2)
|
|
Number
of Shares
|
|
Percent
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT
Holdings I, LLC (5)
|
|
|
1,483,334
|
|
|
1,483,334
|
|
|
0
|
|
|
*
|
|
|
Avrum
Lewittes
|
|
|
1,186,668
|
|
|
1,186,668
|
|
|
0
|
|
|
*
|
|
|
Matrix
U.S.A., LLC (6)
|
|
|
437,500
|
|
|
437,500
|
|
|
0
|
|
|
*
|
|
|
Robert
Meyer
|
|
|
1,483,334
|
|
|
1,483,334
|
|
|
0
|
|
|
*
|
|
|
George
L. Noble.
|
|
|
2,966,667
|
|
|
2,966,667
|
|
|
0
|
|
|
*
|
|
|
The
Quercus Trust (7)
|
|
|
11,866,667
|
|
|
11,866,667
|
|
|
0
|
|
|
*
|
|
|
Selling
Stockholders Total
|
|
|
|
|
|
19,424,170
|
|
|
|
|
|
|
|
*
Less
than 1% of outstanding shares.
|
(1)
|
Beneficial
ownership as of December 20, 2007, for all selling stockholders based
upon
information provided by the selling stockholders known to
us.
|
|
(2)
|
The
number of shares in this column includes 12,800,000 shares of our
common
stock issuable upon conversion of 10% senior secured convertible
debentures, 1,920,000
shares
of our common stock potentially issuable in connection with the payment
of
interest on the senior secured convertible debentures, if such interest
is
not otherwise paid in cash,
and
4,704,170
shares
of common stock issuable upon exercise of warrants to purchase common
stock.
|
|
(3)
|
Assumes
the sale of all shares of common stock registered pursuant to this
prospectus, although the selling stockholders are under no obligation
known to us to sell any shares of common stock at this
time.
|
|
(4)
|
Based
on 22,061,428 shares of common stock outstanding on December 20,
2007, not
including shares issuable upon conversion of our series A convertible
preferred stock and our 10% senior secured convertible debentures.
The
shares issuable under stock options, warrants and other derivative
securities to acquire our common stock that are exercisable or convertible
currently or within 60 days after December 20, 2007 are treated as
if
outstanding for computing the percentage ownership of the person
holding
these securities, but are not treated as outstanding for purposes
of
computing the percentage ownership of any other person. Unless otherwise
indicated, also includes shares owned by a spouse, minor children,
by
relatives sharing the same home, and entities owned or controlled
by the
named person.
|
|
(5)
|
Alan
Tannenbaum, our Chief Executive Officer, is the Manager of AT Holdings
I,
LLC, which is the registered holder of the shares of common stock.
Mr.
Tannenbaum, as Manager of AT Holdings I, LLC, has voting and disposition
power over the shares owned by AT Holdings I, LLC offered under this
prospectus.
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(6)
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Matrix
U.S.A., LLC is regulated by the
Financial
Industry Regulatory Authority
,
Inc. and, therefore, will be deemed an underwriter in connection
with this
offering. Dan Scalzi is the President of Matrix U.S.A., LLC, which
is the
registered holder of a warrant to purchase 437,500 shares of common
stock
that it received for acting as the placement agent in our October
2007
private placement. Mr. Scalzi, as the President of Matrix, has voting
and
disposition power of the shares owned by Matrix offered under this
prospectus. Matrix purchased the shares to be resold in the ordinary
course of business and, at the time of purchase, Matrix had no agreements
or understandings, directly or indirectly, with any person to distribute
the shares.
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(7)
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David
Gelbaum is the trustee of The Quercus Trust, which is the registered
holder of the shares of common stock. Mr. Gelbaum, as trustee of
The
Quercus Trust, has voting and disposition power over the shares owned
by
The Quercus Trust offered under this
prospectus.
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PLAN
OF DISTRIBUTION
Distribution
by Selling Stockholders
We
are
registering the shares of our common stock covered by this prospectus for the
selling stockholders.
Each
selling stockholder, the “selling stockholders,” of the common stock and any of
their pledgees, assignees and successors-in-interest may, from time to time,
sell any or all of their shares of common stock through the OTC Bulletin Board
or any other stock exchange, market or trading facility on which the shares
are
traded or in private transactions. These sales may be at fixed or negotiated
prices. A selling stockholder may use any one or more of the following methods
when selling shares:
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers,
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block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction,
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purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account,
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an
exchange distribution in accordance with the rules of the applicable
exchange,
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privately
negotiated transactions,
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settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a part,
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broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share,
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through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise,
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a
combination of any such methods of sale,
or
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any
other method permitted pursuant to applicable
law.
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The
selling stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance
with
NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with NASDR IM-2440.
In
connection with the sale of the common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares will be considered “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each selling stockholder has informed us
that it does not have any written or oral agreement or understanding, directly
or indirectly, with any person to distribute the common stock. In no event
shall
any broker-dealer receive fees, commissions and markups which, in the aggregate,
would exceed eight percent (8%).
Because
selling stockholders will be considered “underwriters” within the meaning of the
Securities Act, they will be subject to the prospectus delivery requirements
of
the Securities Act including Rule 172 thereunder. In addition, any securities
covered by this prospectus which qualify for sale pursuant to Rule 144 under
the
Securities Act may be sold under Rule 144 rather than under this prospectus.
There is no underwriter or coordinating broker acting in connection with the
proposed sale of the shares by the selling stockholders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on which
the
shares may be resold by the selling stockholders without registration and
without regard to any volume limitations by reason of Rule 144(k) under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to this prospectus or Rule 144 under the Securities
Act
or any other rule of similar effect. The shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the shares may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirement is available
and is complied with.
Under
applicable rules and regulations under the Securities Exchange Act of 1934,
any
person engaged in the distribution of the shares may not simultaneously engage
in market making activities with respect to the common stock for the applicable
restricted period, as defined in Regulation M, prior to the commencement of
the
distribution. In addition, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and
sales of shares of the common stock by the selling stockholders or any other
person. We will make copies of this prospectus available to the selling
stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including
by
compliance with Rule 172 under the Securities Act).
We
are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
The
selling stockholders may offer all of the shares of common stock for sale.
Further, because it is possible that a significant number of shares could be
sold at the same time under this prospectus, such sales, or that possibility,
may have a depressive effect on the market price of our common stock. We cannot
assure you, however, that any of the selling stockholders will sell any or
all
of the shares of common stock they may offer.
DESCRIPTION
OF SECURITIES
Our
authorized capital stock consists of 100,000,000 shares, of which 95,000,000
shares are designated as common stock and 5,000,000 shares are designated as
preferred stock. Of the preferred stock, 6,000 shares have been classified
as
series A convertible preferred stock. As of December 20, 2007, there were issued
and outstanding:
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22,061,428
shares of common stock,
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2,917
shares of series A convertible preferred stock, convertible at any
time
into 3,890,770 shares of common
stock,
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$3,200,000
principal amount of 10% senior secured convertible debentures, convertible
at any time into a maximum of 12,800,000 shares of common
stock,
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stock
options to purchase 4,095,000 shares of common stock at an average
weighted per share price of $.41,
and
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warrants
to purchase 10,586,350 shares of common stock at an average per share
exercise price of $.87.
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The
following summary of the
material
provisions
of our
common stock, preferred stock, debentures, warrants, certificate of
incorporation
and
by-laws is qualified by reference to the provisions of our certificate of
incorporation and by-laws and the forms of debenture and warrant included or
incorporated by reference as exhibits to the registration statement of which
this prospectus is a part.
Common
Stock
The
holders of our common stock are entitled to one vote per share. The holders
of
common stock are entitled to receive ratably such dividends, if any, as may
be
declared by our board of directors out of legally available funds. However,
the
current policy of our board of directors is to retain earnings, if any, for
the
operation and expansion of our business. Upon liquidation, dissolution or
winding-up, the holders of common stock are entitled to share ratably in all
our
assets which are legally available for distribution, after payment of or
provision for all liabilities and the liquidation preference of any outstanding
preferred stock. The holders of common stock have no preemptive, subscription,
redemption or conversion rights. All issued and outstanding shares of common
stock are, and the common stock reserved for issuance upon exercise of the
warrants described below will be, when issued, fully-paid and
non-assessable.
Series
A Preferred Stock
Conversion.
Holders
of series A preferred stock are entitled at any time to convert their shares
of
series A preferred stock into common stock, without any further payment
therefor. Each share of series A preferred stock is initially convertible into
1,334 shares of common stock. The number of shares of common stock issuable
upon
conversion of the series A preferred stock is subject to adjustment upon the
occurrence of certain events, including, among others, a stock split, reverse
stock split or combination of common stock; our issuance of common stock or
other securities as a dividend or distribution on the common stock; a
reclassification, exchange or substitution of the common stock; or a capital
reorganization. In the event that we issue any shares of common stock for cash
consideration at a price less than $.75 per share, the conversion rate will
be
that number of shares of common stock equal to $1,000 divided by the price
per
share at which we issued common stock in any such private placement. At our
option, if the closing price of the common stock is $5.00 or more per share
during any period of 30 consecutive trading days, each share of series A
preferred stock can be automatically converted into common stock at the
conversion rate then in effect.
Merger.
Upon our
merger or consolidation with or into another company, or any transfer, sale
or
lease by us of substantially all of our common stock or assets, the series
A
preferred stock will be treated as common stock for all purposes, including
the
determination of any assets, property or stock to which holders of the series
A
preferred stock are entitled to receive, or into which the series A preferred
stock is converted, by reason of the consummation of such merger, consolidation,
sale or lease.
Voting
Rights.
Holders
of series A preferred stock are entitled to vote their shares on an as-converted
to common stock basis, and shall vote together with the holders of the common
stock, and not as a separate class. Holders of series A preferred stock shall
also have any voting rights to which they are entitled by law.
Liquidation
Rights.
In
the
event of our voluntary or involuntary liquidation, dissolution or winding-up,
holders of series A preferred stock will be entitled to receive out of our
assets available for distribution to shareholders, before any distribution
is
made to holders of our common stock, liquidating distributions in an amount
equal to $1,000 per share. After payment of the full amount of the liquidating
distributions to which the holders of the series A preferred stock are entitled,
holders of the series A preferred stock will receive liquidating distributions
pro rata with holders of common stock, based on the number of shares of common
stock into which the series A preferred stock is convertible at the conversion
rate then in effect.
Redemption.
The
series A preferred stock may not be redeemed by us at any time.
Dividends.
Holders
of series A preferred stock will not be entitled to receive dividends except
to
the extent that dividends are declared on the common stock. Holders of series
A
preferred stock are entitled to receive dividends paid on the common stock
based
on the number of shares of common stock into which the series A preferred stock
are convertible on the record date of such dividend.
October
2007 Private Placement Debentures
As
part
of the closing in October 2007 of the private placement, we issued $3,200,000
principal amount of 10% senior secured convertible debentures. The debentures
are convertible into a maximum of 12,800,000 shares of common stock.
Seniority
.
The
debentures rank senior to all other indebtedness of ours.
Security
.
The
debentures are secured by the grant by us and our subsidiary to a collateral
agent of collateral that consists of a first priority security interest in
all
of our and our subsidiary’s assets.
Maturity
.
The
debentures mature on the earlier of (i)18 months after the original issuance
date of the debentures or (ii) the completion by us of one or a series of
related debt or equity financing transactions for minimum gross proceeds of
$5,000,000, exclusive of any financing transaction by a factor or commercial
bank (referred to as a Subsequent Financing).
Interest
.
The
debentures bear interest at 10% per annum. Interest is payable in cash or
freely-tradable common stock, at our option. Interest on the debentures accrues
upon issuance and is payable quarterly in arrears, with the first interest
payment due on March 31, 2008, and quarterly thereafter. If interest is payable
in stock, the stock shall be valued at the volume weighted average price per
share of common stock as quoted on Bloomberg L.P. for the ten days prior to
the
due date for the interest.
Conversion
.
The
outstanding balance of the debentures may be converted, at the option of the
holder, in whole or in part, at the earlier of (i) 12 months after the original
issuance date, into shares of common stock at a conversion price equal to 70%
of
the then market price per share of common stock (the market price shall be
the
volume weighted average price per share of common stock as quoted on Bloomberg
L.P. for the ten days prior to the conversion date), or (ii) upon the completion
by us of a Subsequent Financing, into the securities being sold in such
Subsequent Financing at an effective conversion price equal to 80% of the
purchase price of those securities. Notwithstanding the foregoing, the minimum
conversion price per share shall be no less than $.25 per share. Partial
conversions are permitted by the holders.
October
2007 Private Placement Warrants
As
part
of the closing in October 2007 of the private placement, we issued common stock
purchase warrants to purchase up to 4,266,670 shares of our common stock at
an
exercise price of $.75 per share. The warrants expire on October 26, 2010.
Exercise
Price and Terms
.
Warrants were issued to each investor for a number of shares of common stock
equal to 100% of the principal amount of the debentures purchased by the
investor divided by the initial warrant exercise price. The exercise price
of
the warrants is $.75 per share. The warrants are exercisable at any time and
expire three years from the date of issuance. The holder of any warrant may
exercise such warrant by surrendering the warrant to us, with the notice of
exercise properly completed and executed, together with payment of the exercise
price. The warrants may be exercised at any time in whole or in part at the
applicable exercise price until expiration of the warrants. No fractional shares
will be issued upon the exercise of the warrants.
Adjustments
.
The
warrants have anti-dilution protection (including “full-ratchet” price
protection from the future issuance of stock, exclusive of the conversion of
the
debentures and certain other excluded stock issuances, or securities convertible
or exercisable for shares of common stock below $.75 per share), provided that
the exercise price of the warrants may not be adjusted to less than $.25 per
share as a result of the full-ratchet price protection.
Transfer,
Exchange and Exercise
.
The
warrants may be presented to us for exchange or exercise at any time on or
prior
to three years from October 26, 2007, the date of the closing, at which time
the
warrants become wholly void and of no value. Prior to any transfer of the
warrants the holder must notify us of the same and, if subsequently requested,
provide a legal opinion regarding the transfer to us.
Warrantholder
Not a Stockholder
.
The
warrants do not confer upon holders any voting, dividend or other rights as
stockholders of the Company.
Registration
Rights
.
In
connection with the October 2007 private placement, we agreed with investors
in
the private placement to file a registration statement with the U.S. Securities
and Exchange Commission as soon as possible for purposes of registering the
resale of the shares of our common stock issuable upon the conversion of the
debentures and exercise of the warrants sold in the private placement. In the
event the registration statement is not declared effective within 120 calendar
days following the closing, we will pay the investors 2% in cash or stock of
the
face amount of the debentures for every 30-day period, or portion thereof,
that
the registration statement is not declared effective for a maximum of six
months, subject to the ability of the investors to sell the underlying shares
pursuant to Rule 144. The liquidated damages can be paid in cash or
freely-tradable common stock, at our option. We have also agreed that we will
not file a registration statement for any additional shares of common stock
until 75 days after the effective date of the registration statement.
Placement
Agent Warrants
.
In
connect with the closing in October 2007 of the private placement, we issued
to
the placement agent and its designees common stock purchase warrants to purchase
up to 1,000,0000 shares of our common stock at an exercise price of $.75 per
share. The warrants expire on October 26, 2010.
2006
Private Placement Warrants
As
part
of the closing in October 2006 of our reverse public offering and related
private placements, we issued common stock purchase warrants to purchase up
to
3,835,270 shares of our common stock at an exercise price of $1.00 per share.
The warrants expire on October 16, 2010, subject to redemption provisions based
on the trading price of our common stock. The warrants contain provisions that
protect the holders thereof against dilution by adjustment of the purchase
price
in certain events, such as stock splits or reverse stock splits, stock
dividends, recapitalizations or similar events. The holders of these warrants
do
not possess any rights as stockholders unless and until they exercise their
warrants. The warrants do not confer upon holders any voting or any other rights
as stockholders. Additionally, as part of these transactions, we issued warrants
to purchase 813,645 shares of our common stock at an exercise price of $.75
per
share. The warrants expire on October 16, 2010.
Other
Warrants
In
addition to the warrants issued in connection with our 2006 and October 2007
private placements, we have issued warrants to purchase 1,105,000 shares of
common stock: 50,000 at an exercise price of $1.60 per share expiring on January
25, 2009, 25,000 at an exercise price of $1.99 per share expiring on February
5,
2011, 30,000 at an exercise price of $1.71 per share expiring on April 18,
2012
and 1,000,000 at an exercise price of $1 per share expiring on December 18,
2010.
Market
Information
Our
common stock is quoted on the OTC Bulletin Board under the trading symbol ODYC.
The high and low bid prices for our common stock at the close of business on
December 20, 2007, as reported by the OTC Bulletin Board, were $.65 and $.58
per
share, respectively.
Transfer
Agent
The
transfer agent and registrar for our common stock is Action Stock Transfer
and
its address is 7069 S. Highland Drive, Suite 300, Salt Lake City, Utah 84121.
We
serve as transfer agent for our preferred stock and warrant agent for our
warrants.
Anti-Takeover
Law, Limitations of Liability and Indemnification
Delaware
Anti-Takeover Law.
We are
subject to the provisions of Section 203 of the Delaware General Corporation
Law
concerning corporate takeovers. This section prevents many Delaware corporations
from engaging in a business combination with any interested stockholder, under
specified circumstances. For these purposes, a business combination includes
a
merger or sale of more than 10% of our assets, and an interested stockholder
includes a stockholder who owns 15% or more of our outstanding voting stock,
as
well as affiliates and associates of these persons. Under these provisions,
this
type of business combination is prohibited for three years following the date
that the stockholder became an interested stockholder unless:
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the
transaction in which the stockholder became an interested stockholder
is
approved by the board of directors prior to the date the interested
stockholder attained that status,
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upon
consummation of the transaction that resulted in the stockholder’s
becoming an interested stockholder, the interested stockholder owned
at
least 85% of the voting stock of the corporation outstanding at the
time
the transaction was commenced, excluding those shares owned by persons
who
are directors and also officers, or
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on
or subsequent to that date, the business combination is approved
by the
board of directors and authorized at an annual or special meeting
of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested
stockholder.
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This
statute could prohibit or delay mergers or other takeover or change in control
attempts and, accordingly, may discourage attempts to acquire us.
Limited
Liability and Indemnification.
Our
certificate of incorporation eliminates the personal liability of our directors
for monetary damages arising from a breach of their fiduciary duty as directors
to the fullest extent permitted by Delaware law. This limitation does not affect
the availability of equitable remedies, such as injunctive relief or rescission.
Our certificate of incorporation requires us to indemnify our directors and
officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under Delaware
law.
Under
Delaware law, we may indemnify our directors or officers or other persons who
were, are or are threatened to be made a named defendant or respondent in a
proceeding because the person is or was our director, officer, employee or
agent, if we determine that the person:
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conducted
himself or herself in good faith,
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reasonably
believed, in the case of conduct in his or her official capacity
as our
director or officer, that his or her conduct was in our best interests,
and, in all other cases, that his or her conduct was at least not
opposed
to our best interests, and
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in
the case of any criminal proceeding, had no reasonable cause to believe
that his or her conduct was
unlawful.
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These
persons may be indemnified against expenses, including attorneys fees,
judgments, fines, including excise taxes, and amounts paid in settlement,
actually and reasonably incurred, by the person in connection with the
proceeding. If the person is found liable to the corporation, no indemnification
shall be made unless the court in which the action was brought determines that
the person is fairly and reasonably entitled to indemnity in an amount that
the
court will establish. Insofar as indemnification for liabilities under the
Securities Act may be permitted to directors, officers or persons controlling
us
pursuant to the above provisions, we have been informed that, in the opinion
of
the SEC, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
SHARES
ELIGIBLE FOR FUTURE SALE
As
of
December 20, 2007, we had 22,061,428 shares of common stock outstanding,
exclusive of shares issuable upon conversion of our series A convertible
preferred stock and 10% senior secured convertible debentures, and exclusive
of
shares issuable upon exercise of our outstanding warrants and stock options.
All
shares sold in this offering will be freely tradeable without restriction or
further registration under the Securities Act, unless they are purchased by
our
“affiliates,” as that term is defined in Rule 144 promulgated under the
Securities Act.
The
22,061,428 outstanding shares of our common stock not included in this
prospectus, as of December 20, 2007, will be eligible for sale in the public
market as follows:
Public
Float
Of
our
outstanding shares, 8,479,693 shares are owned by executive officers and
directors. The remaining 13,581,735 shares constitute our public float and
are
freely tradable without restriction or further registration under the Securities
Act, except as described below.
Rule
144
In
general, under Rule 144, as currently in effect, a person who has beneficially
owned shares of our common stock for at least one year, including the holding
period of prior owners other than affiliates, is entitled to sell within any
three-month period a number of shares that does not exceed the greater
of:
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1%
of the number of shares of our common stock then outstanding, which
equaled 220,614 shares as of December 20, 2007,
or
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the
average weekly trading volume of our common stock on the OTC Bulletin
Board during the four calendar weeks preceding the filing of a notice
on
Form 144 with respect to that sale.
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Sales
under Rule 144 are also subject to manner-of-sale provisions, notice
requirements and the availability of current public information about us. In
order to effect a Rule 144 sale of our common stock, our transfer agent will
require an opinion from legal counsel. We may charge a fee to persons requesting
sales under Rule 144 to obtain the necessary legal opinions.
As
of
December 20, 2007, 7,581,735 shares of our common stock are eligible for sale
under Rule 144.
Rule
144(k)
Under
Rule 144(k), a person who is not deemed to have been one of our affiliates
at
any time during the three months preceding a sale and who has beneficially
owned
shares for at least two years, including the holding period of certain prior
owners other than affiliates, is entitled to sell those shares without complying
with the manner-of-sale, public information, volume limitation or notice
provisions of Rule 144. Our transfer agent will require an opinion from legal
counsel to effect a Rule 144(k) transaction. We may charge a fee to persons
requesting transactions under Rule 144(k) to obtain the necessary legal
opinions. As of December 20, 2007, 6,000,000 shares of our common stock are
eligible for transactions under Rule 144(k).
LEGAL
MATTERS
Greenberg
Traurig, LLP, New York, New York, our counsel, will pass upon the validity
of
the shares of common stock offered in this prospectus.
EXPERTS
The
financial statements included in this prospectus have been audited by Marcum
& Kliegman LLP, independent registered public accountants to the extent and
for the periods set forth in their report appearing elsewhere herein and are
included in reliance upon such report given upon the authority of that firm
as
experts in auditing and accounting.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
2006
Change in Certifying Accountant
.
On
November 20, 2006, we dismissed Most & Company, LLP as our independent
registered public accounting firm. Most & Company audited our financial
statements for the fiscal year ended June 30, 2006. The reason for the
replacement of Most & Company was that, following the merger, the former
shareholders of Odyne own a majority of the outstanding shares of our common
stock. Odyne is our primary business unit, and the current independent
registered public accountants of Odyne was the firm of Marcum & Kliegman
LLP. We believed that it was in our best interest to have Marcum & Kliegman
LLP continue to work with our business, and we therefore retained Marcum &
Kliegman LLP as our new independent registered public accounting firm effective
as of November 20, 2006.
The
appointment of Marcum & Kliegman LLP was recommended and approved by our
board of directors. During the previous two most recent fiscal years, and the
subsequent interim period prior to November 20, 2006, we did not consult Marcum
& Kliegman LLP regarding either: (i) the application of accounting
principles to a specified transaction, completed or proposed, or the type of
audit opinion that might be rendered on Odyne’s financial statements, or (ii)
any matter that was either the subject of a disagreement as defined in Item
304(a)(1)(iv) of Regulation S-K or a reportable event as described in Item
304(a)(1)(v) of Regulation S-K.
Most
& Company’s report on our financial statements for each of the past two
fiscal years ended June 30, 2005 and 2006, did not contain any adverse opinion
or disclaimer of opinion and was not qualified as audit scope or accounting
principles.
During
the two most recent fiscal years ended June 30, 2005 and 2006, and the interim
period from the date of the last audited financial statements to November 20,
2006, (i) there were no disagreements between us and Most & Company on any
matter of accounting principles or practices, financial statement disclosure
or
auditing scope or procedure which, if not resolved to the satisfaction of Most
& Company, would have caused Most & Company to make reference to the
subject matter of the disagreement in connection with its reports and (ii)
there
were no “reportable events,” as described in Item 304(a)(1)(iv) of Regulation
S-B of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
The
decision to replace Most & Company was not the result of any disagreement
between us and Most & Company on any matter of accounting principle or
practice, financial statement disclosure or audit procedure. Our board of
directors deemed it in our best interest to change independent auditors
following the closing of the merger transaction.
2007
Change in Certifying Accountant
.
On
September 10, 2007, we dismissed Marcum & Kliegman LLP as our independent
registered public accounting firm. The reports of Marcum & Kliegman LLP on
our financial statements as of and for the fiscal year ended December 31, 2006
did not contain an adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
During
the fiscal year ended December 31, 2006 and through the date hereof, (i) there
were no disagreements between us and Marcum & Kliegman LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of Marcum &
Kliegman LLP, would have caused Marcum & Kliegman LLP to make reference to
the subject matter of the disagreement in connection with its reports and (ii)
there were no “reportable events,” as described in Item 304(a)(1)(iv) of
Regulation S-B of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. The decision to replace Marcum & Kliegman LLP was not the
result of any disagreement between us and Marcum & Kliegman LLP on any
matter of accounting principle or practice, financial statement disclosure
or
audit procedure. Our board of directors deemed it in our best interest to change
independent auditors.
Simultaneously
with the dismissal of Marcum & Kliegman LLP, we engaged Holtz Rubenstein
Reminick LLP to act as our independent registered public accounting firm as
successor to Marcum & Kliegman LLP. During our two most recent fiscal years,
and the subsequent interim period prior to September 10, 2007, we did not
consult Holtz Rubenstein regarding either: (i) the application of accounting
principles to a specified transaction, completed or proposed, or the type of
audit opinion that might be rendered on Odyne’s financial statements, or (ii)
any matter that was either the subject of a disagreement as defined in Item
304(a)(1)(iv) of Regulation S-K or a reportable event as described in Item
304(a)(1)(v) of Regulation S-K.
The
audit
committee of our board of directors approved the dismissal of Marcum &
Kliegman LLP and this action was ratified by our board of directors. The audit
committee simultaneously approved the appointment of Holtz Rubenstein as our
independent registered public accounting firm and this action was ratified
by
the our board of directors.
As
of June 30, 2006, Marcum & Kliegman LLP had advised us
that it identified certain deficiencies in our internal controls over
financial reporting that constitute a “material weakness.” The material
weakness principally relates to our having limited segregation of
duties within our accounting department and the need for us to strengthen our
expertise with respect to the application of complex accounting principles
involving equity transactions and SEC reporting rules. These control
deficiencies have not resulted in any misstatements in our financial
statements. Our management has attempted to remedy these
deficiencies by engaging outside consultants with the appropriate
skills to address our ongoing accounting and finance needs. We have
authorized Marcum & Kliegman LLP to respond fully to any inquiries
of Holtz Rubenstein concerning the material weakness described
above.
ODYNE
CORPORATION AND SUBSIDIARY
INDEX
TO
CONSOLIDATED FINANCIAL INFORMATION
|
|
|
Page
|
|
|
ANNUAL
FINANCIAL STATEMENTS
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheet at December 31, 2006
|
|
|
F-3
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2006 and
2005
|
|
|
F-4
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ (Deficiency) Equity for the years ended
December 31, 2006 and 2005
|
|
|
F-5
|
|
|
|
|
|
|
|
|
Consolidated
Statement of Cash Flows for the years ended December 31, 2006 and
2005
|
|
|
F-6
|
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
F-7
|
|
|
|
|
|
|
|
|
INTERIM
FINANCIAL STATEMENTS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheet at September 30, 2007
|
|
|
F-24
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the nine months ended September 30,
2007 and
2006
|
|
|
F-25
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ (Deficiency) Equity for nine months ended
September 30, 2007
|
|
|
F-26
|
|
|
|
|
|
|
|
|
Consolidated
Statement of Cash Flows for the nine months ended September 30, 2007
and
2006
|
|
|
F-27
|
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
F-28
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Audit Committee of the
Board
of
Directors and Stockholders
of
Odyne
Corporation and Subsidiary
We
have
audited the accompanying consolidated balance sheet of Odyne Corporation and
Subsidiary (the “Company”) as of December 31, 2006, and the related consolidated
statements of operations
,
changes
in stockholders’ (deficiency) equity and cash flows for each of the two years in
the period ended December 31, 2006. These consolidated financial statements
are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the
consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of
its
internal control over financial reporting. Our audit included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, as
well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Odyne
Corporation and Subsidiary as of December 31, 2006, and the consolidated results
of their operations and their cash flows for each of the two years in the
period ended December 31, 2006 in conformity with United States generally
accepted accounting principles.
/s/
Marcum & Kliegman LLP
New
York,
New York
April
4,
2007
ODYNE
CORPORATION AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEET
December
31, 2006
|
ASSETS
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
Cash
|
|
$
|
3,083,942
|
|
|
Cash
- restricted
|
|
|
227,583
|
|
|
Accounts
receivable, net
|
|
|
24,090
|
|
|
Inventory
|
|
|
132,593
|
|
|
Prepaid
insurance
|
|
|
111,535
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,579,743
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
98,797
|
|
|
Intangible
assets - patents
|
|
|
14,000
|
|
|
Other
assets
|
|
|
10,000
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
3,702,540
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
Accounts
payable
|
|
$
|
249,254
|
|
|
Accrued
payroll and other operating expenses
|
|
|
119,375
|
|
|
Customer
deposits
|
|
|
150,000
|
|
|
Billings
in excess of costs incurred on contracts in progress
|
|
|
57,500
|
|
|
Accrued
losses on contracts in progress
|
|
|
26,939
|
|
|
Current
maturities of capital lease obligations
|
|
|
6,817
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
609,885
|
|
|
|
|
|
|
|
|
Capital
lease obligations, net of current maturities
|
|
|
4,962
|
|
|
Development
funding subject to repayment
|
|
|
240,894
|
|
|
TOTAL
LIABILITIES
|
|
|
855,741
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value, 4,994,000 shares authorized, 0 shares issued
and
outstanding
|
|
|
-
|
|
|
|
|
|
|
|
|
Series
A Convertible Preferred Stock, $0.001 par value; 6 ,000 authorized;
5,750
shares issued and outstanding, liquidation rights $ 1,000 per
share
|
|
|
6
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value per share; 95,000,000 shares authorized;
18,000,000 shares issued and outstanding
|
|
|
18,000
|
|
|
Additional
paid-in-capital
|
|
|
6,669,870
|
|
|
Accumulated
deficit
|
|
|
(3,841,077
|
)
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS' EQUITY
|
|
|
2,846,799
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
3,702,540
|
|
The
accompanying footnotes are an integral part of these consolidated financial
statements
ODYNE
CORPORATION AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
For
the Years Ended
December
31,
|
|
|
|
|
2006
|
|
2005
|
|
|
SALES
|
|
$
|
242,945
|
|
$
|
285,598
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
410,213
|
|
|
208,186
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT (LOSS)
|
|
|
(167,268
|
)
|
|
77,412
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
755,429
|
|
|
442,993
|
|
|
General
and administrative
|
|
|
758,283
|
|
|
296,448
|
|
|
TOTAL
OPERATING EXPENSES
|
|
|
1,513,712
|
|
|
739,441
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(1,680,980
|
)
|
|
(662,029
|
)
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
14,610
|
|
|
-
|
|
|
Interest
(expense)
|
|
|
(343,598
|
)
|
|
(32,880
|
)
|
|
TOTAL
OTHER EXPENSE
|
|
|
(328,988
|
)
|
|
(32,880
|
)
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(2,009,968
|
)
|
|
(694,909
|
)
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividends on Series A Convertible Preferred Stock
|
|
|
(3,230,791
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$
|
(5,240,759
|
)
|
$
|
(694,909
|
)
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS PER COMMON SHARE - BASIC AND DILUTED
|
|
$
|
(0.40
|
)
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON
|
|
|
|
|
|
|
|
|
SHARES
OUTSTANDING- BASIC AND DILUTED
|
|
|
13,250,000
|
|
|
12,000,000
|
|
The
accompanying footnotes are an integral part of these consolidated financial
statements
ODYNE
CORPORATION AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
For
the Years Ended December 31, 2006 and 2005
|
|
|
Convertible
Preferred Stock
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
Series
A
|
|
Common
Stock
|
|
Paid-in
|
|
over
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Assets
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2005
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(2,034,839
|
)
|
$
|
-
|
|
$
|
(2,034,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(694,909
|
)
|
|
|
|
|
(694,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,729,748
|
)
|
|
-
|
|
|
(2,729,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Exchange Transaction and Recapitalization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature of convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
of loans payable to officers upon completion of
share
exchange transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183,559
|
|
|
|
|
|
|
|
|
183,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation
of liability, reinstatement of shares subject to mandatory
redemption
|
|
|
|
|
|
|
|
|
12,000,000
|
|
|
12,000
|
|
|
1,766,496
|
|
|
(12,000
|
)
|
|
|
|
|
1,766,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of S Corp accumulated deficit and excess of liabilities over assets
to
additional paid-in capital upon
share
exchange transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,141,430
|
)
|
|
2,741,748
|
|
|
1,399,682
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
6,000
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
of compensation payable to officers upon completion of
share
exchange transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
623,314
|
|
|
|
|
|
|
|
|
623,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Placements Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A convertible preferred stock issued in private placement for cash,
net of
offering costs of $998,676
|
|
|
5,354
|
|
|
6
|
|
|
|
|
|
|
|
|
4,355,313
|
|
|
|
|
|
|
|
|
4,355,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A Convertible Preferred stock exchanged for convertible
debentures
|
|
|
304
|
|
|
-
|
|
|
|
|
|
|
|
|
303,570
|
|
|
|
|
|
|
|
|
303,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A Convertible Preferred stock issued in settlement of accounts
payable
|
|
|
13
|
|
|
-
|
|
|
|
|
|
|
|
|
13,475
|
|
|
|
|
|
|
|
|
13,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A Convertible Preferred stock issued for services
|
|
|
79
|
|
|
-
|
|
|
|
|
|
|
|
|
79,000
|
|
|
|
|
|
|
|
|
79,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend relating to beneficial conversion feature embedded in Series
A
Convertible Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,230,791
|
|
|
|
|
|
(3,230,791
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
resulting from ongoing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,782
|
|
|
|
|
|
|
|
|
11,782
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,009,968
|
)
|
|
(2,009,968
|
)
|
|
Balance
at December 31, 2006
|
|
|
5,750
|
|
$
|
6
|
|
|
18,000,000
|
|
$
|
18,000
|
|
$
|
6,669,870
|
|
$
|
-
|
|
$
|
(3,841,077
|
)
|
$
|
2,846,799
|
|
The
accompanying footnotes are an integral part of these consolidated financial
statements
ODYNE
CORPORATION AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
For
the Years Ended
December 31,
|
|
|
|
|
2006
|
|
2005
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,009,968
|
)
|
$
|
(694,909
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
19,103
|
|
|
11,487
|
|
|
Provision
for bad debts
|
|
|
-
|
|
|
3,000
|
|
|
Non
-cash interest
|
|
|
303,570
|
|
|
|
|
|
Share
based payments
|
|
|
11,782
|
|
|
-
|
|
|
Series
A Convertible Preferred Stock issued for services
|
|
|
79,000
|
|
|
|
|
|
Deferred
rent
|
|
|
(1,732
|
)
|
|
(2,921
|
)
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Cash
- Restricted
|
|
|
(227,583
|
)
|
|
|
|
|
Accounts
receivable
|
|
|
66,574
|
|
|
(73,326
|
)
|
|
Inventory
|
|
|
(127,593
|
)
|
|
-
|
|
|
Prepaid
expenses and other current assets
|
|
|
(103,482
|
)
|
|
496
|
|
|
Accounts
payable
|
|
|
182,018
|
|
|
|
|
|
Accrued
payroll and other operating expenses
|
|
|
113,248
|
|
|
60,097
|
|
|
Customer
deposits
|
|
|
150,000
|
|
|
-
|
|
|
Billings
in excess of costs incurred on contracts in progress
|
|
|
(8,725
|
)
|
|
66,225
|
|
|
Accrued
losses on contracts in progress
|
|
|
26,939
|
|
|
-
|
|
|
Deferred
compensation payable to officers
|
|
|
231,995
|
|
|
391,320
|
|
|
Development
funding subject to repayment
|
|
|
57,748
|
|
|
183,146
|
|
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(1,237,106
|
)
|
|
(55,385
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
of patent costs
|
|
|
-
|
|
|
(14,000
|
)
|
|
Purchases
of property and equipment
|
|
|
(95,572
|
)
|
|
-
|
|
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(95,572
|
)
|
|
(14,000
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net
proceeds from issuances of Series A Convertible Preferred
Stock
|
|
|
4,355,319
|
|
|
-
|
|
|
Proceeds
from issuances of Convertible Debentures
|
|
|
250,000
|
|
|
-
|
|
|
Proceeds
of loans made to the Company by officers
|
|
|
73,000
|
|
|
74,050
|
|
|
Repayment
of loans payable to officers
|
|
|
(139,725
|
)
|
|
-
|
|
|
Capital
lease payments
|
|
|
(6,644
|
)
|
|
(3,171
|
)
|
|
Net
repayment under lines of credit
|
|
|
(115,830
|
)
|
|
(3,956
|
)
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
4,416,120
|
|
|
66,923
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH
|
|
|
3,083,442
|
|
|
(2,462
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
-
beginning of year
|
|
|
500
|
|
|
2,962
|
|
|
|
|
|
|
|
|
|
|
|
CASH
-
end of year
|
|
$
|
3,083,942
|
|
$
|
500
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
Interest
|
|
$
|
10,397
|
|
$
|
11,840
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Equipment
financed under capital lease obligations
|
|
|
11,906
|
|
|
-
|
|
|
Series
A Convertible Preferred Stock exchanged for convertible
debentures
|
|
|
303,570
|
|
|
-
|
|
|
Contribution
of loans payable to officers upon completion of share exchange
transaction
|
|
|
183,559
|
|
|
-
|
|
|
Contribution
of compensation payable to officers upon completion of share exchange
transaction
|
|
|
623,314
|
|
|
-
|
|
|
Recapitalization
of excess of liabilities over assets into stockholders equity concurrent
with share exchange transaction
|
|
|
2,729,748
|
|
|
|
|
|
Series
A Convertible Preferred Stock exchanged for accounts
payable
|
|
|
13,475
|
|
|
|
|
The
accompanying footnotes are an integral part of these consolidated financial
statements
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 -
The
Company
Organization
The
financial statements presented are those of Odyne Corporation (the “Company” or
“Odyne”), which was originally formed as a Subchapter S Corporation in the State
of New York on August 3, 2001. The Company designs, develops, manufactures
and
installs Plug-in Hybrid Electric Vehicle (“PHEV”) propulsion systems for medium
and heavy duty trucks and buses using its proprietary technology.
Merger
of Technology Integration Group , Inc. and Odyne Corporation
Pursuant
to an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”),
Technology Integration Group, Inc. (“TIG”), through a newly-formed acquisition
subsidiary, acquired all of the outstanding common stock of the Company on
October 17, 2006. TIG, in exchange for the Company stock, issued 12,000,000
shares of its common stock directly to the Company’s stockholders (the “Share
Exchange Transaction”). Following the Share Exchange Transaction, the existing
stockholders of TIG retained 6,000,000 shares of the TIG’s outstanding common
stock and the Company’s stockholders became the majority owners of TIG. TIG was
incorporated in the State of Delaware on February 3, 1999.
Prior
the
Share Exchange Transaction, TIG was a publicly-traded corporation with
nominal operations of its own. TIG, immediately following the Share Exchange
Transaction, changed its name to Odyne Corporation and continued to carry on
the
operations of the Company. The Share Exchange Transaction has been accounted
for
as a reverse merger and recapitalization transaction in which the original
Odyne
is deemed to be the accounting acquirer. Accordingly, the accompanying
consolidated financial statements present the historical financial position,
results of operations and cash flows of Odyne, adjusted to give retroactive
effect to the recapitalization of Odyne into TIG.
NOTE
2 -
Liquidity
and Capital Resources
The
Company’s incurred operating losses in the amounts of $1,680,980 and $662,029
for the years ended December 31, 2006 and 2005, respectively. The Company’s
accumulated deficit amounts to $3,841,077 at December 31, 2006. The Company
also
used $1,237,106 of cash in its operating activities during the year ended
December 31, 2006.
As
more
fully described in Note 11, the Company received gross proceeds of $5,354,595
(net proceeds of $4,355,319 after the payment of $998,676 in transaction
expenses) in a private placement (the “Private Placement”) of 5,750 Units (the
“Units”). The Company also received $250,000 from its issuance of convertible
debentures (the “Convertible Debentures”) that the holders exchanged for Units
upon the first closing of the Private Placement in October 2006 (Notes 10 and
12). Upon the completion of the Share Exchange transaction, the Company also
effectuated a recapitalization of certain indebtedness to officers/stockholders
into permanent capital, including (i) $1,766,496 for the fair value of common
stock subject to mandatory redemption under a stockholders agreement that was
terminated at the time of the Share Exchange Transaction, (ii) $623,314 of
deferred compensation payable to certain officers/stockholders and (iii)
$183,559 of loans payable to officers (Note 9).
The
Company used a portion of the proceeds received in the Private Placement
Transaction to repay $115,830 of indebtedness due under previously existing
credit lines with banks and to fund its shortages of working
capital.
The
Company believes that the completion of its Private Placement and
recapitalization of liabilities due to officers/stockholders has substantially
improved its overall liquidity. However, the Company will still be required
to
devote all of its capital resources to pursuing its research and development
initiatives, developing its manufacturing infrastructure and penetrating
possible markets for its PHEV propulsion system. The Company will need to raise
substantial additional funds to achieve commercialization of its PHEV
system and continue the pursuit of its business plan.
The
Company has taken certain measures to conserve its liquidity while it continues
the effort to develop its technology. There can be no assurance that the Company
will be successful in its efforts to fully commercialize its PHEV propulsion
system or that the commercialization of this technology will actually improve
its operating results. Management believes that the Company has sufficient
capital resources to sustain the business through December 31, 2007.
Additionally, there can be no assurance that unforeseen circumstances will
not have a material affect on the business that could require it to raise
additional capital or take other measures to sustain operations in the event
that outside sources of capital are not available. The Company has not secured
any commitments for new financing at this time nor can it provide any assurance
that new capital will be available to it on acceptable terms, if at all.
The Company can also not provide any assurance that even it is successful in
efforts to raise additional capital, at the proceeds of any such financing
transactions will enable it to develop its business to a level in which it
is actually generating operating profits and positive cash flows.
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 -
Summary
of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Odyne Corporation
and its wholly-owned subsidiary. All significant inter-company accounts and
transactions have been eliminated.
Use
of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
These estimates and assumptions include revenue recognition reserves and
write-downs related to receivables and inventories, the recoverability of
long-term assets, deferred taxes and related valuation allowances and valuation
of equity instruments.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents may
be
invested in money market funds, commercial paper, and certificates of deposits.
Cash equivalents are carried at cost, which approximates fair
value.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist of cash, cash equivalents and accounts receivable. The
Company maintains its cash accounts at high quality financial institutions
with
balances, at times, in excess of federally insured limits. As of December 31,
2006, the Company had cash balances in excess of federally insures limits of
approximately $3,112,000. Management believes that the financial institutions
that hold the Company’s deposits are financially sound and have minimal credit
risk.
Accounts
Receivable
The
Company has a policy of reserving for uncollectible accounts based on its best
estimate of the amount of probable credit losses on its existing accounts
receivable. Account balances deemed to be uncollectible are charged to the
allowance for doubtful accounts after all means of collection have been
exhausted and the potential for recovery is considered remote. The Company’s
customers include municipal governments, public utilities and not-for-profit
organizations. The Company’s credit losses to date have been minimal.
Accordingly, the Company established a $3,000 allowance for doubtful accounts
during the year ended December 31, 2006.
Inventory
Inventories
include raw material and assembled parts. Inventories are stated at the lower
of
cost, determined by the first-in first out (“FIFO”) method, or
market.
Revenue
and Cost Recognition
Fixed
Price Production Contracts
Revenues
from fixed-price production contracts are recognized on the
percentage-of-completion method, measured by the percentage of costs incurred
to
date to estimated total costs for each contract. The Company considers expended
cost to be the best available measure of progress on these contracts. Revenues
generated from fixed-price contracts amounted to $ 239,519 and $ 46,543 for
the
years ended December 31, 2006 and December 31, 2005 respectively. Cost of
revenues earned on fixed-price contracts includes direct contract costs such
as
materials, labor, subcontract labor, payroll, payroll taxes, insurance and
other
sundry direct costs, and indirect contract costs such as travel, supplies,
repairs and depreciation. Provisions for estimated losses on contracts in
progress are made in the period in which such losses are determined. For the
year ended December 31, 2006 the Company recorded a provision for losses on
contracts in progress of $26,939. No loss reserve on contracts in progress
was
deemed necessary for the year ended December 31, 2005.
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Making
estimates about revenue recognition and cost estimates on the company’s
production contracts requires management to exercise significant judgment.
It is
at least reasonably possible that the estimate of the effect on the financial
statements of a condition, situation, or set of circumstances that existed
at
the date of the financial statements, which management considered in formulating
its estimate could change in the near term due to one or more future confirming
events. Accordingly, the actual results regarding estimates of the Company’s
revenue and cost associated with long-term contracts could differ materially
from the Company’s estimates.
Accounts
receivable represents progress billings that the Company rendered in the course
of performing the work under contract. Billings in excess of costs and estimated
earnings on uncompleted contracts, which amounted to $57,500 at December 31,
2006, are presented as liabilities in the accompanying balance
sheet.
Time
and Materials Contracts
Revenues
from time and materials contracts are billed, including profits, as incurred
based on a fixed labor rate plus materials. Revenues generated from time and
materials contracts amounted to $ 3,426 and $ 229,055 for the years ended
December 31, 2006 and December 31, 2005 respectively. Cost of revenues from
time
and materials contracts includes labor and materials.
The
Company will be obligated to provide a one-year product warranty with respect
to
a contract it entered into in 2005. As of December 31, 2006, the product was
not
completed. Accordingly, no provision for warranty costs has been
recorded.
Research
and Development
Research
and development expenses include costs incurred for the experimentation, design
and testing of the Company’s PHEV technology. Such costs are expensed as
incurred. Research and development cost includes direct costs such as materials,
labor, subcontract labor, payroll, payroll taxes, insurance and other sundry
direct costs, and indirect costs such as travel, supplies, repairs and
depreciation.
The
Company has received non-refundable development funding from various
governmental and/or energy related agencies, including Long Island Power
Authority, the Electric Power Research Institute, New York State Energy Research
& Development Authority and the Greater Long Island Clean Cities Coalition.
They are funded, in part, by third parties and expensed as
incurred.
Research
and development expenses, net of non-refundable development funding, for the
years ended December 31, 2006 and 2005 were as follows:
|
|
|
2006
|
|
2005
|
|
|
Total
research and development expense
|
|
$
|
767,929
|
|
$
|
523,505
|
|
|
Less:
reimbursements
|
|
|
(12,500
|
)
|
|
(80,512
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
Research and Development Expense
|
|
$
|
755,429
|
|
$
|
442,993
|
|
Property
and Equipment
Property
and equipment, including assets acquired under capital leases, are stated at
cost less accumulated deprecation and amortization . Depreciation is computed
using the straight-line method over the estimated useful lives of the respective
assets. Leasehold improvements are being amortized on a straight-line basis
over
the lesser of the term of the related lease or the estimated useful lives of
the
assets. Equipment and furniture and fixtures are depreciated over estimated
useful lives of 3 years.
Upon
retirement or sale, the cost and related accumulated depreciation are removed
from the balance sheet and the resulting gain or loss is reflected in
operations. Maintenance and repairs are charged to operations as
incurred
Intangible
Assets - Patents
Costs
incurred to obtain patents are amortized over the remaining legal life of the
patent or its economic useful life, if shorter. Patent costs are reviewed for
impairment annually or whenever events or changes in business circumstance
indicate the carrying value of the assets may not be recoverable. Impairment
losses are recognized if future cash flows of the related assets are less than
their carrying values.
Income
Taxes
The
Company accounts for income taxes under Statement of Financial Accounting
Standard No. 109, “Accounting for Income Taxes,” (“SFAS 109”). SFAS No. 109
requires the recognition of deferred tax assets and liabilities for both the
expected impact of differences between the financial statements and tax basis
of
assets and liabilities and for the expected future tax benefit to be derived
from tax loss and tax credit carry forwards. SFAS No. 109 additionally requires
the establishment of a valuation allowance be established when it is more likely
than not that all or a portion of deferred tax assets will not be realized.
Furthermore, SFAS No. 109 provides that it is difficult to conclude
that a valuation allowance is not needed when there is negative evidence such
as
cumulative losses in recent years. Therefore, cumulative losses weigh heavily
in
the overall assessment. Accordingly the Company has recorded a full
valuation allowance against its net deferred tax assets. In
addition, the Company expects to provide a full valuation allowance on
future tax benefits until it can sustain a level of profitability that
demonstrates its ability to utilize the assets, or other significant
positive evidence arises that suggests its ability to utilize such assets.
The future realization of a portion of the reserved deferred tax assets
related to tax benefits associated with the exercise of stock options, if and
when realized, will not result in a tax benefit in the consolidated statement
of
operations, but rather will result in an increase in additional paid in
capital. The Company will continue to re-assess reserves on deferred
income tax assets in future periods on a quarterly basis.
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Prior
to
the Share Exchange Transaction, the Company’s stockholders elected for the
Company to be treated as an “S” corporation under subchapter “S” of the Internal
Revenue Code and as a small business corporation under similar provisions of
the
New York State income tax code applicable to corporations. Accordingly, no
income tax provision had been recorded prior to the Share Exchange Transaction
as any income earned or losses incurred and any tax credits were reported by
the
stockholders in their individual federal and state income tax
returns.
Fair
Value of Financial Instruments
The
carrying amounts reported in the balance sheet for accounts receivable, accounts
payable, prepaid expenses and accrued expenses, approximate fair value based
on
the short-term maturity of these instruments. The carrying amount for
development funding subject to repayment is the maximum amount that would be
repaid upon the occurrence of certain events as specified in the funding
agreement which approximates fair value.
Stock-Based
Compensation
The
Company has adopted SFAS No. 123(R) “Share Based Payment”
(“SFAS 123(R)”). This statement is a revision of SFAS Statement
No. 123, and supersedes APB Opinion No. 25, and its related
implementation guidance. SFAS 123(R) addresses all forms of share based
payment (“SBP”) awards including shares issued under employee stock purchase
plans, stock options, restricted stock and stock appreciation rights. Under
SFAS 123(R), SBP awards are measured at fair value on the awards’
grant date, based on the estimated number of awards that are expected to vest
and results in a charge to operations.
Non-Employee
Stock-Based Compensation
The
Company accounts for equity instruments issued to non-employees in accordance
with the provisions of SFAS No. 123(R) and Emerging Issues Task Force
(“EITF”)Issue No. 96-18, “Accounting for Equity Instruments That are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
or
Services,” (“EITF 96-18”) which requires that such equity instruments are
recorded at their fair value on the measurement date. The measurement of
stock-based compensation is subject to periodic adjustment as the underlying
equity instrument vests. Non-employee stock-based compensation charges are
being
amortized over the term of the related service period.
Net
Loss Per Share
Net
loss
per share is presented under SFAS No. 128 “Earnings Per Share." (“SFAS 128”)
Under SFAS 128, basic net loss per share is computed by dividing net loss per
share available to common stockholders by the weighted average shares of common
stock outstanding for the period and excludes any potential dilution. Diluted
earnings per share reflect the potential dilution that would occur upon the
exercise or conversion of all dilutive securities into common stock. The
computation of loss per share for the years ended December 31, 2006 and 2005
excludes potentially dilutive securities because their inclusion would be
anti-dilutive. Loss per share retroactively includes 12,000,000 shares of common
stock issued to the former stockholders of Odyne in the Share Exchange
Transaction.
Shares
of
common stock issuable upon conversion or exercise of potentially dilutive
securities at December 31, 2006 are as follows:
|
Series
A Convertible Preferred Stock
|
|
|
7,670,500
|
|
|
Warrants
|
|
|
4,648,
893
|
|
|
Options
|
|
|
505,000
|
|
|
Total
|
|
|
12,824,393
|
|
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in its
convertible instruments in accordance with SFAS No. 133 “Accounting
for Derivative Instruments and Hedging Activities” (“SFAS 133”) and EITF
00-19 “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”).
SFAS 133
generally provides three criteria that, if met, require companies to bifurcate
conversion options from their host instruments and account for them as free
standing derivative financial instruments in accordance with EITF 00-19. These
three criteria include circumstances in which (a) the economic
characteristics and risks of the embedded derivative instrument are not clearly
and closely related to the economic characteristics and risks of the host
contract, (b) the hybrid instrument that embodies both the embedded
derivative instrument and the host contract is not remeasured at fair value
under otherwise applicable generally accepted accounting principles with changes
in fair value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative instrument would
be
considered a derivative instrument subject to the requirements of SFAS 133.
SFAS 133 and EITF 00-19 also provide an exception to this rule when the
host instrument is deemed to be conventional (as that term is described in
the
implementation guidance to SFAS 133 and further clarified in EITF 05-2 “The
Meaning of “Conventional Convertible Debt Instrument” in Issue
No. 00-19).
The
Company accounts for convertible instruments (when it has determined that the
embedded conversion options should not be bifurcated from their host
instruments) in accordance with the provisions of EITF 98-5 “Accounting for
Convertible Securities with Beneficial Conversion Features,” (“EITF 98-5”) and
EITF 00-27 “Application of EITF 98-5 to Certain Convertible Instruments.”
Accordingly, the Company records when necessary discounts to convertible notes
for the intrinsic value of conversion options embedded in debt instruments
based
upon the differences between the fair value of the underlying common stock
at
the commitment date of the note transaction and the effective conversion price
embedded in the note. Debt discounts under these arrangements are amortized
over
the term of the related debt to their earliest date of redemption. The Company
also records when necessary deemed dividends for the intrinsic value of
conversion options embedded in preferred shares based upon the differences
between the fair value of the underlying common stock at the commitment date
of
the note transaction and the effective conversion price embedded in the
note.
Preferred
Stock
The
Company applies the guidance enumerated in SFAS No. 150 “Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and
Equity ”(“SFAS150”) and “Classification and Measurement of Redeemable
Securities,” (“EITF Topic D-98”) when determining the classification and
measurement of preferred stock. Preferred shares subject to mandatory redemption
(if any) are classified as liability instruments and are measured at fair value
in accordance with SFAS 150. All other issuances of preferred stock are
subject to the classification and measurement principles of EITF Topic D-98.
Accordingly the Company classifies conditionally redeemable preferred shares
(if
any), which includes preferred shares that feature redemption rights that are
either within the control of the holder or subject to redemption upon the
occurrence of uncertain events not solely within the Company’s control, as
temporary equity. At all other times, the Company classifies its preferred
shares in stockholders’ equity.
The
Company’s preferred shares do not feature any redemption rights within the
holders control or conditional redemption features not within the Company’s
control as of December 31, 2006. Accordingly all issuances of preferred
shares are presented as a component of stockholders equity.
Recent
Accounting Pronouncements
In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements No. 133 and 150.”
SFAS No. 155 (a) permits fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation, (b) clarifies that certain instruments are not subject to the
requirements of SFAS 133, (c) establishes a requirement to evaluate interests
in
securitized financial assets to identify interests that may contain an embedded
derivative requiring bifurcation, (d) clarifies what may be an embedded
derivative for certain concentrations of credit risk and (e) amends SFAS 140
to
eliminate certain prohibitions related to derivatives on a qualifying
special-purpose entity. SFAS 155 is applicable to new or modified
financial instruments in fiscal years beginning after September 15, 2006, though
the provisions related to fair value accounting for hybrid financial instruments
can also be applied to existing instruments. Early adoption, as of the beginning
of an entity’s fiscal year, is also permitted, provided interim financial
statements have not yet been issued. The Company is currently evaluating the
potential impact, if any, that the adoption of SFAS 155 will have on its
consolidated financial statements.
In
March
2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets
(SFAS No. 156). SFAS No. 156 amends SFAS No. 140 “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,” to require
all separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable. SFAS No. 156 also permits
services to subsequently measure each separate class of servicing assets and
liabilities at fair value rather than at the lower of cost or market. For those
companies that elect to measure their servicing assets and liabilities at fair
value, SFAS No. 156 requires the difference between the carrying value and
fair
value at the date of adoption to be recognized as a cumulative effect adjustment
to retained earnings as of the beginning of the fiscal year in which the
election is made. SFAS No. 156 is effective for the first fiscal year beginning
after September 15, 2006. The Company is currently evaluating the potential
impact, if any, that the adoption of SFAS 156 will have on its consolidated
financial statements.
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
June
2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), Accounting for
Uncertainty in Income Taxes. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The Company has not yet
completed its analysis of the impact that FIN 48 may have on its
financial condition, results of operations, cash flows or
disclosures.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS
157"). This Standard defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The adoption of SFAS 157 is not expected to have
a
material impact on the Company's financial position, results of operations
or
cash flows.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin (“SAB”) 108, “Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB
108 provides guidance on how prior year misstatements should be taken into
consideration when quantifying misstatements in current year financial
statements for purposes of determining whether the current year’s financial
statements are materially misstated. SAB 108 is effective for the first fiscal
year ending after November 15, 2006. The adoption of SAB 108 did not impact
the Company’s financial statements.
In
December 2006, the FASB issued FSP EITF 00-19-2 “Accounting for Registration
Payment Arrangements” (“FSP EITF 00-19-2”). FSP EITF 00-19-2 addresses an
issuer’s accounting for registration payment arrangements. This pronouncement
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument,
should be separately recognized and accounted for as a contingency in accordance
with SFAS 5 “Accounting for Contingencies.” FSP EITF 00-19-2 amending previous
standards relating to rights agreements became effective on December 21, 2006
with respect to arrangements entered into or modified beginning on such date
and
for the first fiscal year beginning after December 15, 2006 with respect to
those arrangements entered into prior to December 21, 2006. The Company is
in
the process of evaluating the impact of the adoption of this statement on the
Company’s results of operations and financial condition.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies
with an option to report selected financial assets and liabilities at fair
value
and establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes
for
similar types of assets and liabilities. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company is in the process of
evaluating the impact of the adoption of this statement on the Company’s results
of operations and financial condition.
In
November 2006, the EITF reached a final consensus in EITF Issue 06-6 “Debtor’s
Accounting for a Modification (or Exchange) of Convertible Debt Instruments”
(“EITF 06-6”). EITF 06-6 addresses the modification of a convertible debt
instrument that changes the fair value of an embedded conversion option and
the
subsequent recognition of interest expense for the associated debt instrument
when the modification does not result in a debt extinguishment pursuant to
EITF
96-19, “Debtor’s Accounting for a Modification or Exchange of Debt
Instruments.” The consensus should be applied to modifications or
exchanges of debt instruments occurring in interim or annual periods beginning
after November 29, 2006. The Company does not expect the adoption of EITF
06-6 to have a material impact on its consolidated financial position, results
of operations or cash flows.
In
November 2006, the FASB ratified EITF Issue No. 06-7, “Issuer’s Accounting for a
Previously Bifurcated Conversion Option in a Convertible Debt Instrument When
the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities” (“EITF
06-7”). At the time of issuance, an embedded conversion option in a convertible
debt instrument may be required to be bifurcated from the debt instrument and
accounted for separately by the issuer as a derivative under FAS 133, based
on
the application of EITF 00-19. Subsequent to the issuance of the convertible
debt, facts may change and cause the embedded conversion option to no longer
meet the conditions for separate accounting as a derivative instrument, such
as
when the bifurcated instrument meets the conditions of Issue 00-19 to be
classified in stockholders’ equity. Under EITF 06-7, when an embedded conversion
option previously accounted for as a derivative under FAS 133 no longer meets
the bifurcation criteria under that standard, an issuer shall disclose a
description of the principal changes causing the embedded conversion option
to
no longer require bifurcation under FAS 133 and the amount of the liability
for
the conversion option reclassified to stockholders’ equity. EITF 06-7 should be
applied to all previously bifurcated conversion options in convertible debt
instruments that no longer meet the bifurcation criteria in FAS 133 in interim
or annual periods beginning after December 15, 2006, regardless of whether
the
debt instrument was entered into prior or subsequent to the effective date
of
EITF 06-7. Earlier application of EITF 06-7 is permitted in periods for which
financial statements have not yet been issued. The Company is currently
evaluating the impact of this guidance on its consolidated financial position,
results of operations or cash flows
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the consolidated financial statements
upon adoption.
NOTE
4 -
Cash
Cash
-
Restricted
The
Merger Agreement requires the Company to use $250,000 of the proceeds from
its
Private Placement during the twelve months following the closing toward
establishing a comprehensive capital markets initiative. The funds are currently
being held in a trust account by Sovereign Bancorp Ltd. (“Sovereign”)
established specifically for this purpose. In the event one or a series of
warrant redemptions result in additional proceeds to the Company of at least
$1,500,000, the Company shall deposit an additional $200,000 in trust, to be
held by Sovereign, and to be used for additional capital markets initiatives
during the twelve months following the warrant redemption. At December 31,
2006,
the restricted cash account balance was $227,583.
NOTE
5 -
Property
and Equipment
Property
and equipment consist of the following as of December 31, 2006:
|
Equipment
|
|
$
|
89,181
|
|
|
Furniture
and fixtures
|
|
|
28,393
|
|
|
Leasehold
improvements
|
|
|
26,398
|
|
|
|
|
|
143,972
|
|
|
Less:
accumulated depreciation and amortization
|
|
|
(45,175
|
)
|
|
|
|
|
|
|
|
Property
and Equipment, Net
|
|
$
|
98,797
|
|
Property
and equipment includes $22,000 of assets financed under capital lease
obligations. Depreciation and amortization amounted to $19,103 and $11,487
for
the years ended December 31, 2006 and 2005, respectively.
NOTE
6 -
Capital
Leases Obligations
The
Company leases equipment under capital leases in which the present value of
the
minimum lease payments was calculated using discount rates ranging from 9%
to
18% over three-year terms. A summary of capital lease obligations that remain
at
December 31, 2006 is as follows:
|
Total
obligations under capital leases
|
|
$
|
11,779
|
|
|
Less:
current portion of lease obligations
|
|
|
6,817
|
|
|
|
|
|
|
|
|
|
|
$
|
4,962
|
|
Minimum
lease payments due in years subsequent to December 31, 2006 are as
follows:
|
For
Years Ending December 31,
|
|
|
Amount
|
|
|
2007
|
|
$
|
7,647
|
|
|
2008
|
|
|
4,557
|
|
|
2009
|
|
|
679
|
|
|
Total
minimum lease payments
|
|
|
12,883
|
|
|
Less:
amount representing interest
|
|
|
1,104
|
|
|
|
|
|
|
|
|
Present
Value of Minimum Lease Payments
|
|
$
|
11,779
|
|
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 -
Development
Funding Subject to Repayment
The
Company entered into a contract in which it received development funding from
the New York State Energy Research & Development Authority in the amount of
$80,428 and $160,465 during for the years ended December 31, 2006 and 2005,
respectively. Funding received under the terms of this agreement is subject
to
repayment based on a percentage of sales of the related invention or discovery
as defined under the terms of the agreement. The obligation terminates upon
the
earlier of fifteen (15) years from the date of the first sale or, depending
on
whether the seller is a New York State manufacturer, upon repayment of the
amount of funds received under the agreement or if seller is not a New York
State manufacturer, upon repayment of three times the amount of funds received
under the agreement. Development funding subject to repayment was $240,894
at
December 31, 2006.
Concurrent
with the Share Exchange Transaction, certain of the Company’s
officers/stockholders contributed to additional paid in capital (i) $183,559
loans (including accrued interest of $43,559) and (ii), $623,314 of accrued
officers’ salaries earned through August 31, 2006.
An
officer/director purchased 50 Units in the Private Placement. Two directors
purchased an aggregate of 44 Units in the Private Placement, including 24 Units
exchanged for $20,000 bridge notes. These transactions were made on terms
identical to those offered to unrelated parties.
NOTE
9 -
Convertible
Debentures
During
the period of June 2006 through October 2006, the Company issued $250,000 of
Convertible Debentures with warrants (the “Debenture Warrants”) to purchase
66,666 shares of common stock at an exercise price of $.75 per share. A Director
of the Company participated in this transaction by purchasing Convertible
Debentures in the aggregate principal amount of $20,000.
The
Debenture Warrants feature a cashless exercise provision which permits the
holder to net share settle these instrument for the number of shares issuable
upon exercise less such number of shares equal to the exercise price of the
Debenture Warrants based on the then fair value of the stock. The Debenture
Warrants also provide for standard anti-dilution rights including stock splits,
stock dividends, recapitalization and similar transactions in the event that
the
Company subsequently issues additional instruments providing for the purchase
of
its equity securities at prices more favorable than the exercise price of the
Debenture Warrants.
The
Convertible Debentures featured contractual interest at the rate of 10% per
annum with the full amount of principal payable on the earlier of December
31,
2006 or the date in which the Company completes the Private Placement described
in Note 11. The Convertible Debentures agreement also stipulated that these
instruments would become convertible, at the option of the holder, into shares
of the Company’s common stock at a conversion price of $.375 per share if its
was determined prior to December 31, 2006 that the Private Placement described
in Note 11 would not be completed. Conversely, the agreement provided for the
Debentures to automatically convert into the Units to be issued in the Private
Placement upon the completion of such transaction.
The
Company evaluated the conversion option embedded in the Convertible Debentures
to determine whether, in accordance with SFAS 133 such conversion option should
be bifurcated from the convertible debentures and accounted for as a
free standing derivative financial instrument. The Company determined that
since
the conversion option could only be realized by the holder by exercising such
option and receiving the entire amount of the proceeds in a fixed number of
shares or cash at the Company’s option, that the instrument is deemed
conventional. Accordingly, the conversion feature was accounted for as an
embedded conversion option.
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company determined, in accordance with Accounting Principles Board (“APB”)
Opinion No. 14, “ Accounting for Convertible Debt and Debt Issued with Stock
Purchase Warrants” (“APB 14”), that $24,177 of the proceeds received in the
financing transaction should be allocated to the Debenture Warrants and the
remaining amount of the proceeds, which amounted to $225,823, should be
allocated to the Convertible Debentures. The Company further determined that
the
effective conversion price embedded in the Convertible Debentures, (based on
this allocation) amounts to $.34 per share. The fair value of the Company's
common stock on the respective commitment dates within this financing
transaction amounted to $.75 per share. Accordingly, the Convertible
Debentures were fully discounted at the time of their respective issuances
by
crediting additional paid in capital since the conversion is deemed to be
beneficial.
On
October 17, 2006, the Convertible Debentures were converted into 304 Units
upon
the first closing of the Private Placement described in Note 11, which
represents a 120% contractual exchange premium stipulated in the Convertible
Debenture Agreement. The excess of the Units exchanged for the Convertible
Debentures, which amounted to $53,570, is recorded as interest expense in the
accompanying statement of operations for the year ended December 31, 2006.
Aggregate noncash interest expense resulting from the Convertible Debentures
amounted to $303,570 including $250,000 for the discounting of these instruments
at their respective commitment dates and the $53,570 exchange premium described
above.
Note
10 -
Commitments
and
Contingencies
Operating
Lease
The
Company conducts its operations from a single facility, under a non-cancelable
operating lease expiring in June 2009 requiring minimum monthly payments that
increase from $5,544 to $7,708 over the term of the lease.
Future
minimum rental payments under the above non-cancelable operating lease are
as
follows:
|
For
the Year Ending
December
31,
|
|
Amount
|
|
|
|
|
|
|
|
2007
|
|
$
|
87,950
|
|
|
2008
|
|
|
90,941
|
|
|
2009
|
|
|
46,252
|
|
|
|
|
|
|
|
|
|
|
$
|
225,143
|
|
Rent
expense amounted to $45,932 and $28,710, for the years ended December 31, 2006
and December 31, 2005, respectively. Rent expense includes $5,312
and ($2,920) for the effects of recording rent expense on a straight line
basis over the term of the lease during the years ended December 31, 2006 and
December 31, 2005, respectively.
Consulting
and Royalty agreements
In
October of 2006, the Company entered into an agreement with one of its outside
engineering labor providers whereby it committed to paying for a minimum of
100
hours per month through December of 2008. Hourly rates charged under the
contract are $ 80 per hour in 2007 and $ 85 per hour in 2008. In May of 2005,
the Company entered into a royalty agreement with the same party that requires
the Company to pay royalties for sales of vehicles containing certain
proprietary source code used in the Company's PHEV system. Royalty fees range
from $ 75 per vehicle to $ 850 per vehicle depending on annual volume. The
Company can purchase these source codes for $ 165,000 in 2007 and $ 181,500
in
2008. The Company did not deliver any of these vehicles during the year ended
December 31, 2006.
Employment
Agreements
In
October of 2006, the Company entered into employment agreements with its Chief
Executive Officer, President and Chief Operating Officer, Executive Vice
President - Engineering and Chief Technology Officer, and Executive Vice
President - Operations, respectively. The employment agreements for Chief
Executive Officer and President have a term of one year and may be renewed
for
an additional term of one year upon the mutual agreement of the Company and
the
executive. The employment agreements for the Engineering and Chief Technology
Officer, and Executive Vice President - Operations, have a term of three years.
The employment agreements provide that each executive will receive an annual
salary of $140,000 during the first year of the term with increases equal to
5%
of such salary on each anniversary of the effective date of the employment
agreement. In addition, each executive is entitled to (a) receive a cash bonus
in an amount determined by the compensation committee of the board of directors
if the Company meets or exceeds certain mutually agreed upon performance goals
and (b) participate in the company’s stock option plan. In October of 2006, the
Company also entered into a one year employment agreement with its chief
engineer that provides for an annual salary of $ 140,000 and participation
in
the Company’s stock option plan.
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
employment agreements provide for termination of an executive’s employment
without any further obligation upon the death or disability of the executive
or
for cause. In the event that an executive’s employment is terminated without
cause or for good reason, the Company is obligated to pay such executive his
salary for the remainder of the term.
Recent
Contracts
The
Company recently received the following sales orders:
The
Company is committed to delivering three PHEV systems to a third party who
will
install them in a municipality’s vehicles. The total purchase order is for $
240,000 for which the company received a $ 100,000 deposit.
The
Company is committed to installing a PHEV system in a customer provided vehicle
and making additional changes to the vehicle as specified by the customer in
the
statement of work. The total price for the Statement of work is $ 111,000 for
which the Company is awaiting receipt of a $ 55,000 deposit.
The
Company committed to provide a trailer-mounted system to a customer that
utilizes components from it’s PHEV system in accordance with a Statement of
Work. The total statement of work is $107,285 which is payable upon
completion.
The
Company does not anticipate that any of these projects are likely
to result in a loss. However, making estimates about revenue recognition
and cost estimates on production contracts requires management to exercise
significant judgment. It is at least reasonably possible that the estimate
of
the effect on the financial statements of a condition, situation, or set of
circumstances that existed at the time an estimate is formulated could
change in the near term due to one or more future confirming events.
Accordingly, the actual results regarding estimates of the company’s revenue and
cost associated with these commitments could differ materially from its
estimates.
Research
and Development Contract
On
March
30, 2006 the Company signed a Research and Development Contract Extension with
NYSERDA to develop and install a PHEV system into a refuse vehicle provided
by a
third party. The Company’s obligation under this agreement is to design and
install the system and to provide NYSERDA with regular status reports. NYSERDA
will provide funding up to an additional $161,046 for this effort. NYSERDA
is entitled to a 1.5 % royalty on future sales of vehicles weighing up to 33,000
pounds that utilize the Company’s PHEV propulsion system. The maximum royalty
obligation that is payable under this agreement is limited to the amount of
funding received and will be recorded as a liability at the time such funding
is
received.
NOTE
11 -
Stockholders’
Equity
Authorized
Capital
The
Company is authorized to issue up to 95,000,000 shares of common stock and
5,000,000 shares of preferred stock of which 6,000 shares have been
designated as Series A Convertible Preferred stock.
Description
of Common Stock
Each
share of common stock has the right to one vote. The holders of common stock
are
entitled to dividends when funds are legally available and when declared by
the
Board of Directors.
Description
of Preferred Stock
The
Company is authorized to issue up 5,000,000 shares of “blank check” Preferred
Stock, par value $.001 per share, of which 6,000 shares have been designated
as
Series A Convertible Preferred Stock
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Holders
of the Series A Convertible Preferred stock are entitled, at any time, to
convert their shares of Series A Convertible Preferred stock into common stock,
without any further payment. Each share of Series A Convertible Preferred stock
is initially convertible into 1,334 shares of common stock. The number of shares
of common stock issuable upon conversion of the Series A Convertible Preferred
stock is subject to adjustment upon the occurrence of certain events, including,
among others, a stock split, reverse stock split or combination of the Company’s
common stock, an issuance of common stock or other securities as a dividend
or
distribution on the common stock, a reclassification, exchange or substitution
of the common stock or a capital reorganization. In the event of a subsequent
issue of common stock for cash consideration at a price less than $.75 per
share, the conversion rate will be that number of shares of common stock equal
to $1,000 divided by the price per share at which the common stock is
issued.
Upon
a
merger or consolidation of the Company with or into another Company, or any
transfer, sale or lease by the Company of its common stock or assets, the Series
A Convertible Preferred stock will be treated as common stock for all purposes,
including the determination of any assets, property or stock to which holders
of
the Series A Convertible Preferred stock are entitled to receive, or into which
the Series A Convertible Preferred stock is converted, by reason of the
consummation of such merger, consolidation, sale or lease.
Holders
of Series A Convertible Preferred stock are entitled to vote their shares on
an
as-converted to common stock basis, and shall vote together with the holders
of
the common stock, and not as a separate class.
In
the
event of voluntary or involuntary liquidation, dissolution or winding-up of
the
Company, holders of Series A Convertible Preferred stock will be entitled to
receive out of the Company’s assets available for distribution to its
stockholders, before any distribution is made to holders of Company common
stock, liquidating distributions in an amount equal to $1,000 per share. After
payment of the full amount of the liquidating distributions to which the holders
of the Series A Convertible Preferred stock are entitled, holders of the Series
A Convertible Preferred stock will receive liquidating distributions pro rata
with holders of common stock, based on the number of shares of common stock
into
which the Series A Convertible Preferred stock is convertible at the conversion
rate then in effect. The Series A Convertible Preferred Stock holders do not
have redemption rights.
Holders
of the Series A Convertible Preferred stock will not be entitled to receive
dividends except to the extent that dividends are declared on the common stock.
Holders of the Series A Convertible Preferred stock are entitled to receive
dividends paid on the common stock based on the number of shares of common
stock
into which the Series A Convertible Preferred stock are convertible on the
record date of such dividend.
If
the
closing bid price of the Company’s common stock is above $5.00 per share for a
period of thirty consecutive trading days, then each share of the Series A
Convertible Preferred stock automatically converts into the number of shares
of
common stock at the conversion rate then in effect.
Share
Exchange Transaction
As
described in Note 1 the Company completed a Share Exchange Transaction on
October 17, 2006. Prior to the completion of the Share Exchange Transaction,
the
Company’s four principal stockholders owned, in the aggregate 10,588 shares of
the Company’s stock which, under the terms of a stockholders agreement dated
January 1, 2004, was subject to mandatory redemption upon the death of any
such
stockholder at a redemption price of $167 per share. In accordance with SFAS
150, the Company presented these shares in its balance sheet as an excess of
liabilities over assets since such shares were subject to a mandatory redemption
requirement. The stockholders agreement was terminated upon the completion
of
the Share Exchange Transaction. Accordingly, upon completion of the Share
Exchange Transaction, the excess of liabilities over assets was reclassified
as
permanent capital to reflect their recapitalization into TIG common stock.
In
addition, the Company reclassified the amount of its accumulated deficit, which
represents losses incurred in periods in which the Company maintained its status
as a Subchapter S Corporation, into additional paid in capital.
The
Share
Exchange Transaction was treated as a recapitalization for accounting purposes
since the Company was deemed to be the accounting acquirer in this transaction.
TIG had 6,000,000 shares of common stock outstanding at the time of the Share
Exchange Transaction.
Contributions
to Capital
As
described in Notes 2 and 9, certain of the Company’s officers/stockholders
contributed to additional paid in capital (i) $183,559 loans (including accrued
interest of $43,559) and (ii), $623,314 of accrued officers’ salaries earned
through August 31, 2006.
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Private
Placement of Series A Convertible Preferred Stock
Pursuant
to a Confidential Private Placement Memorandum dated July 27, 2006, the Company
initiated a proposed $5,000,000 Private Placement which would, for each $1,000
Unit purchased, result in the issuance of (i) one share of Series A Convertible
Preferred Stock and (ii) warrants (“Investor Warrants”) to purchase 667 shares
of the Company’s common stock with a contractual terms of four years. The
minimum amount of the Series A Convertible Preferred Financing was $3,500,000
(“Minimum Amount”) and the maximum amount was $5,000,000. As described in Note
10, the Convertible Debenture holders were mandatory obligated to exchange
their
Convertible Debentures for such number of units that would result in a 120%
exchange premium over the principal value of the Convertible
Debentures.
The
Company has agreed to file a registration statement with the Securities and
Exchange Commission on or before 180 days after each closing date. The
registration rights stipulated in the investor subscription agreements provide
the payment of liquidated damages payable in such number of shares of common
stock equal to 2% of the registerable shares up to a maximum of 20%
As
a
component of the Series A Convertible Preferred stock, holders were issued
Investor Warrants to purchase a total of 3,835,271
shares
of common stock at an exercise price of $1.00 per share expiring on October
16,
2010. The Company determined that the preferred stock was issued with an
effective beneficial conversion feature for which it recorded a deemed dividend
of $3,230,791an allocation of the proceeds to the relative fair values of the
preferred stock and the warrants.
The
Investor Warrants may be redeemed in whole or in part by the Company upon 30
days written notice, at a price of $.05 per share, provided (i) the average
closing price of the common stock exceeds $3.00 per share for a period of 20
consecutive trading days ending within 15 days prior to the date on which the
notice of redemption is given and the registration statement to be filed by
the
Company registering the common stock issued pursuant to the private placement
is
then effective or (ii) that the Company reports revenues in accordance with
generally accepted accounting principles of at least $3.0 million for the four
full reporting quarters subsequent to the closing and the resale registration
statement to be filed by the Company registering the common stock issued in
the
private placement is then effective.
The
Investor Warrants contain provisions that protect the holders against dilution
by adjustment of the purchase price in certain events, such as stock dividends,
stock splits, and other similar events. Prior to exercise, the Investor Warrants
do not confer upon holders any voting or any other rights as a stockholder.
All
of the Investor Warrants issued in these transactions are exercisable by the
holders at any time.
The
Company evaluated whether in accordance with the provisions of SFAS 150 and
EITF
Topic D-98, the Series A Convertible Preferred contained any features that
permit the holder to settle such for shares for cash. The Company determined,
based on the rights and privileges specified in the certificate of designation
that there are currently no provisions that would permit the holders to redeem
these shares for cash that are not solely with the Company’s control. The
Company performs a classification assessment at each reporting date to determine
whether a reclassification of these shares may be necessary.
The
Company also evaluated the conversion option embedded in the Series A
Convertible Preferred stock to determine whether, in accordance with SFAS 133
such conversion option should be bifurcated from its host instrument and
accounted for as free standing derivative financial instrument. The Company
determined that the conversion option meets the clearly and closely related
criteria provide for in paragraph 61(l) of the implementation guidance in
Appendix to SFAS 133. Accordingly, the conversion feature was accounted for
as
an embedded conversion option.
Commencing
October 17, 2006 through December 13, 2006, the Company issued 5,750 Units
to
investors including (i) 5,354.Units issued for cash in three separate closings,
(ii) 304 issued to the Convertible Debenture holders as described in Note 10,
(iii) 13 issued in settlement of certain trade accounts payable, and (iv) 70
issued to a non-employee for corporate finance advisory services.
The
Company completed its first closing of 3,033 Units on October 17, 2006. This
closing included 2,651 units issued for gross proceeds amounting to $2,650,500
(net proceeds of $ $2,148,375 after the payment of transaction expenses
amounting to $ 502,125). This closing resulted in the issuance of 3,033 shares
of Series A Convertible Preferred stock convertible into 4,046,022 share of
common stock plus Investor Warrants to purchase up to 2,023,011 shares of common
stock at an exercise price of $1.00 per share.
The
Company also issued at the time of this closing 303.57 Units in exchange for
the
Convertible Debentures described in Note 10. This exchange resulted in the
issuance of 303,570 shares of Series A Convertible Preferred stock convertible
into 404,962 shares of common stock plus Investor Warrants to purchase up to
202,481 shares of common stock at an exercise price of $1.00 per
share.
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
fair
value of Investor Warrants issued in this closing amounted to $ 2,023,011 using
the Black-Scholes option-pricing model with the following assumptions: fair
value of common stock $ .75 , term of 4 years, volatility range of 65.36 %
risk-free interest rate of 4.73 %, and, dividend yield of 0.
The
Company determined, based upon an allocation of the proceeds to the fair values
of the Series A Preferred Stock and Investor Warrants in this closing, that
the
effective conversion price embedded in the Series A Convertible Preferred Shares
amounts to $.35 per share. Accordingly, the Company recorded a deemed dividend
in the amount of $ 513,821 based upon the effective conversion price embedded
in
the preferred shares times the number of shares issuable upon
conversion.
On
October 17, 2006, the Company also issued 79 Units with a fair volume of
79,000as stock based compensation to a non-employee for corporate finance
advisory services. The Units were fully vested and non-forfeitable at the date
of issuance
The
Company completed its second closing of 2,366.97 Units on October December
6,
2006. This closing included 2,355 units issued for gross proceeds amounting
to $ 2,366,970 (net proceeds of $2,095,560 after the payment of transaction
expenses amounting to $ 259,910). This closing resulted in the issuance of
2,366,970 shares of Series A Convertible Preferred stock convertible into
3,157,538 share of common stock plus Investor Warrants to purchase up to
1,587,768 shares of common stock at an exercise price of $1.00 per
share.
The
Company also issued at the time of this closing 11.5 Units in settlement of
$11,500 of trade accounts payable. This exchange resulted in the issuance of
11,500 shares of Series A Convertible Preferred stock convertible into 15,341
shares of common stock plus Investor Warrants to purchase up to 7,670 shares
of
common stock at an exercise price of $1.00 per share.
The
fair
value of Investor Warrants issued in this closing amounted to $ 2,934,561 using
the Black-Scholes option-pricing model with the following assumptions: fair
value of common stock $ 2.50, term of 4 years, volatility range of 66.64 %
risk-free interest rate of 4.44 %, and, dividend yield of 0.
The
Company determined, based upon an allocation of the proceeds to the fair values
of the Series A Preferred Stock and Investor Warrants in this closing, that
the
effective conversion price embedded in the Series A Convertible Preferred Shares
amounts $. 1.86 per share. Accordingly, the Company recorded a deemed dividend
in the amount of $ 2,366,970 based upon the effective conversion price embedded
in the preferred shares times the number of shares issuabel upon
conversion.
The
Company completed its third closing of 350 Units on October December 13, 2006.
This closing included 348 units for gross proceeds amount to $ 348,025 (net
proceeds of $ 320,025 after the payment of transaction expenses amounting to
$
28,000). This closing resulted in the issuance of 350,000 shares of Series
A
Convertible Preferred stock convertible into 466,900 share of common stock
plus
Investor Warrants to purchase up to 223,450 shares of common stock at an
exercise price of $1.00 per share.
The
Company also issued at the time of this closing 1.98 Units in settlement of
$
$1,980 of trade accounts payable. This exchange resulted in the issuance of
1,980 shares of Series A Convertible Preferred stock convertible into 2,641
shares of common stock plus Investor Warrants to purchase up to 13,206 shares
of
common stock at an exercise price of $1.00 per share.
The
fair
value of Investor Warrants issued in this closing amounted to $ 295,631 using
the Black-Scholes option-pricing model with the following assumptions: fair
value of common stock $ 1.85, term of 4 years, volatility range of 66.82 %
risk-free interest rate of 4.50 %, and, dividend yield of 0.
The
Company determined, based upon an allocation of the proceeds to the fair values
of the Series A Preferred Stock and Investor Warrants in this closing, that
the
effective conversion price embedded in the Series A Convertible Preferred Shares
amounts $ 1.27 per share. Accordingly, the Company recorded a deemed dividend
in
the amount of $ 350,000 based upon the effective conversion price embedded
in
the preferred shares times the number of shares issuabel upon
conversion.
The
placement agents received warrants to purchase an aggregate of 512,958 shares
of
common stock at an exercise price of $.75 per share expiring on October 16,
2010. In connection with the transaction, the Company also issued four-year
warrants to purchase 234,019 shares of the Company’s common stock to consultants
at an exercise price of $.75 per share. The fair value of these warrants was
$183,340 which was treated as a cost of the private placement. Additional
expenses incurred in connection with these closings amounted to an aggregate
of
$208,641. These expenses were accounted for as a reduction of the offering
prceeds by recording a charge to additional paid in capital.
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 -
2006
Equity Incentive Plan
The
2006
Equity Incentive Plan (the “Plan”) was adopted by the Company’s Board of
Directors on October 16, 2006 and approved by the Company’s stockholders on
October 17, 2006. The Plan is intended to provide a means whereby the Company
may, through the grant of awards to employees, consultants and non-employee
directors, attract and retain individuals whose services are considered valuable
to the Company. Under the Plan, the Company is authorized to issue Incentive
Stock Options intended to qualify under Section 422 of the Code, non-qualified
options, SARS, restricted stock, bonus shares and dividend
equivalents.
Options
Granted Pursuant to 2006 Equity Incentive Plan
On
October 16, 2006, the Company granted options to purchase an aggregate of
505,000 shares of its common stock to certain employees, directors and advisors
of the Company at an exercise price of $.75 per share. These options, which
include 405,000 shares granted to employees and directors and 100,000 shares
to
non-employees pursuant to the terms of certain consulting agreements, vest
over
four years and feature a contractual term of ten years.
The
fair
value of the awards granted to the non-employees for services was estimated
at
the date of grant using the Black-Scholes option pricing model with the
following assumptions: fair value of common stock $ .75, term of 2 years,
volatility range of 65.36 % risk-free interest rate of 4.77 %, and, dividend
yield of 0. The expected term of the non-employee awards is deemed to the equal
to the term of the related consulting agreements.
The
fair
value of the awards granted to employees and directors was estimated at the
date
of grant using the Black-Scholes option pricing model with the following
assumptions: fair value of common stock $ .75, term of 4 years, volatility
range
of 65.36 % risk-free interest rate of 4.77 %, and, dividend yield of 0. The
expected term of the non-employee awards is deemed to the equal to the term
of
the related consulting agreements.
The
risk-free interest rate is based on the U.S. Treasury yield curve in effect
at
the time of grant. The Company has not paid dividends to date and does not
expect to pay dividends in the foreseeable future due to its accumulated deficit
and limited capital resources. Accordingly, expected dividends yields are
currently zero. The volatility rate was developed based on rates obtained for
similar companies whose shares are publicly traded and have sufficient trading
history upon which to develop a reasonable estimate. The Company has limited
historical data upon which to base an expected term. Accordinlgy, the expected
term of four years represents management’s best estimate of the period of time
in which grantees would likely hold their options until realizing the benefit
through their exercise.
The
Company only recently adopted its Plan and has only made one grant under its
plan to date. Accordingly, the Company has no historical data upon which to
develop its expectations. However, based upon the specific grantees involved,
the Company has assumed that 80% of the options granted on October 16, 2006
will
vest annually. The Company will prospectively monitor employee terminations,
exercises and other factors that could affect its expectations relating to
the
vesting of options in future periods. The Company will adjust its assumptions
relating to its expectations of future vesting and the terms of options at
such
times that additional data indicates that changes in these assumptions are
necessary.
A
summary
of option activity for the year ended December 31, 2006 is as
follows:
|
Options
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Outstanding
at January 1, 2006
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
|
Granted
|
|
|
505,000
|
|
|
.75
|
|
|
9.8
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
505,000
|
|
|
.75
|
|
|
9.8
|
|
|
Exercisable
at December 31, 2006
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
At
December 31, 2006, the aggregate intrinsic value of options outstanding, based
on the December 29, 2006 closing price of the Company’s common stock ($1.61 per
share) amounted to $434,000. There were no options exercisable at December
31,
2006. As described above the company expects eighty percent of these stock
options to vest annually.
The
weighted-average grant-date fair value of all stock options granted during
the
year ended December 31, 2006 amounted to $ .42 per share. The aggregate fair
value of all awards granted during the period amounted to $ 212,150 during
the
year ended December 31, 2006. There have not been any exercises of stock options
to date and options have vested to date.
As
of
December 31, 2006, there was $ 200,368 of unrecognized compensation cost related
to non-vested share-based compensation arrangements. These costs are expected
to
be recognized over a weighted-average period of 3.6
years.
NOTE
13 -
Income
Taxes
The
Company, prior to the Share Exchange Transaction, was organized as a Subchapter
S Corporation for Federal income tax purposes and under similar provisions
for
state income tax purposes in the jurisdictions in which it operates.
Accordingly, losses incurred by the Company during the period of January 1,
2006
through October 16, 2006 are being reported by the principal stockholders of
the
Company for that period on their individual income tax returns. The Company’s
pass-through loss for the period of January 1, 2006 through October 16, 2006
amounted to approximately $1,400,000 (including $250,000 of non-cash interest
that would be considered a permanent difference for income tax purposes).
Accordingly, the Company has not recognized any income tax benefit in the
accompanying financial statements resulting from losses incurred for the period
of January 1, 2006 through October 16, 2006.
At
December 31, 2006, the Company has federal and state net operating loss
carryforwards available to offset future taxable income, if any, of
approximately $535,000 expiring at various times through 2026. The Company’s
determination of the amount of its net operating loss carryforwards ( “NOL’s ”)
includes approximately $50,000 associated TIG that arose prior to the
completion of the share exchange transaction. These NOL’s may be
subject to a substantial limitation under the “Change of Ownership”
provisions under Section 382 of the Internal Revenue Code and similar state
provisions. Such limitations are likely to result in the expiration of these
net
operating losses prior to their utilization.
The
tax
effects of significant temporary differences which give rise to the Company’s
deferred tax assets and liabilities are as follows:
|
Net
Operating Losses
|
|
$
|
210,000
|
|
|
Contracts
Loss Reserve
|
|
|
10,000
|
|
|
Accrued
Expenses and other
|
|
|
8,000
|
|
|
Stock
Based Compensation
|
|
|
5,000
|
|
|
|
|
|
233,000
|
|
|
Valuation
Allowance
|
|
|
(233,000
|
)
|
|
Net
Deferred Tax Asset
|
|
$
|
-0-
|
|
The
Company’s recorded income benefit, net of the change in the valuation allowance
for each of the period presented, is as follows:
|
Current
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
State
|
|
|
-
|
|
|
|
|
|
-
|
|
|
Deferred
|
|
|
|
|
|
Federal
|
|
|
(183,000
|
)
|
|
State
|
|
|
(30,000
|
)
|
|
|
|
|
(213,000
|
)
|
|
|
|
Change
in valuation allowance
|
|
|
213,000
|
|
|
|
|
$
|
-
|
|
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant
to SFAS No. 109 “Accounting for Income Taxes,” management has evaluated the
recoverability of the deferred income tax assets and the level of the valuation
allowance required with respect to such deferred income tax assets. After
considering all available facts, the Company fully reserved for its deferred
tax
assets because it is more likely than not that their benefit will not be
realized in future periods. The Company will continue to evaluate its deferred
tax assets to determine whether any changes in circumstances could affect the
realization of their future benefit. If it is determined in future periods
that
portions of the Company’s deferred income tax assets satisfies the realization
standard of SFAS No. 109, the valuation allowance will be reduced
accordingly.
A
reconciliation of the expected Federal statutory rate of 34% to the Company’s
actual rate as reported for each of the periods presented is as
follows:
|
Expected
statutory rate
|
|
|
-34
|
%
|
|
State
income tax rate, net of Federal benefit
|
|
|
-5
|
%
|
|
Permanent
Differences:
|
|
|
|
|
|
S
Corporation losses
|
|
|
27
|
%
|
|
Non-cash
interest charges
|
|
|
1
|
%
|
|
|
|
|
-11
|
%
|
|
Valuation
allowance
|
|
|
11
|
%
|
|
|
|
|
-
|
|
NOTE
14 -
Major
Customers
The
Company had two customers to which sales amounted to 10% or more of its total
sales for the year ended December 31, 2006. Net sales to these customers
represent approximately 66% and 26% of total sales for the year then ended.
As
of December 31, 2006, accounts receivable due from these customers amounted
to
$12,117.
The
Company had two customers to which sales amounted to 10% or more of its total
sales for the year ended December 31, 2005. Net sales to these customers
represent approximately 84% and 10% of total sales for the year then ended.
As
of December 31, 2005, accounts receivable due from these customers amounted
to
$45,741.
NOTE
15 -
Subsequent
Events
a.
Subsequent to December 31, 2006, the Company issued warrants to non-employers
for services to purchase 75,000 shares of its common stock at prices ranging
from $ 1.60 to 1.99 for consulting services.
|
Grant
Date
|
|
Number
of Shares
|
|
Exercise
Price
|
|
Expiration
Date
|
|
Unit
Fair Value
|
|
Total
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/25/2007
|
|
|
50,000
|
|
$
|
1.60
|
|
|
1/25/2009
|
|
$
|
.81
|
|
$
|
40,500
|
|
|
2/5/2007
|
|
|
25,000
|
|
$
|
1.99
|
|
|
2/5/2011
|
|
$
|
1.01
|
|
$
|
25,250
|
|
The
fair
value of thse awards was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighed average assumptions: fair value
of common stock $1.73; volatility rate 65.36%; risk free interest rate
4.77%; expected term 2 years; dividend yield 0.
b.
On
January 22, 2007 one of the placement agents in the Private Placement exercised
its cashless exercise provision with respect to 400,902 warrants it received
as
consideration in the Private Placement, and received 267,268 shares of common
stock of the Company.
c.
On
February 16, 2007 a holder 125 shares of Series A Convertible Preferred stock
exercised the conversion option which resulted in the issuance of 166,750 shares
of the Company’s Common Stock.
d.
On
February 19, 2007 an officer holding 50 shares of Series A Convertible Preferred
stock exercised the conversion option which resulted in the issuance of 66,700
shares of the Company’s Common Stock.
ODYNE
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
e.
On
March 1, 2007, an investor holding 50 shares of Series A Convertible Preferred
Stock exercised the conversion option which resulted in the issuance of 66,700
shares of the Company's common stock.
f.
On
March 1, 2007, the Company issued 20,000 stock options to a newly hired employee
at an exercise price of $1.65, which was equal to the fair value of the stock
on
the date of grant. The fair value of the award amounted to $15,800, which
was priced using Black-Scholes option pricing model with the same
assumptions described in item a. above.
ODYNE
CORPORATION AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEET
September
30, 2007
(UNAUDITED)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
Cash
|
|
$
|
108,742
|
|
|
Cash
- restricted
|
|
|
14,349
|
|
|
Accounts
receivable, net
|
|
|
261,664
|
|
|
Inventory
|
|
|
300,805
|
|
|
Prepaid
insurance
|
|
|
76,952
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
762,512
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
105,391
|
|
|
Deferred
finance cost
|
|
|
29,571
|
|
|
Intangible
assets - patents, net
|
|
|
14,000
|
|
|
Other
assets
|
|
|
10,000
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
921,474
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
Accounts
payable
|
|
$
|
351,538
|
|
|
Accrued
payroll and other operating expenses
|
|
|
86,613
|
|
|
Customer
deposits
|
|
|
185,350
|
|
|
Accrued
losses on contracts in progress
|
|
|
1,401
|
|
|
Reserve
for warranty
|
|
|
35,000
|
|
|
Accrued
officers salaries
|
|
|
37,692
|
|
|
Current
maturities of capital lease obligations
|
|
|
4,506
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
702,100
|
|
|
|
|
|
|
|
|
Capital
lease obligations, net of current maturities
|
|
|
1,763
|
|
|
Development
funding subject to repayment
|
|
|
244,536
|
|
|
TOTAL
LIABILITIES
|
|
|
948,399
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value, 4,994,000 shares authorized, 0 shares issued
and
outstanding
|
|
|
-
|
|
|
Series
A Convertible Preferred Stock, $0.001 par value; 6,000 shares authorized;
3,742 shares issued and outstanding, liquidation rights $ 1,000 per
share
|
|
|
4
|
|
|
Common
stock, $0.001 par value per share; 95,000,000 shares authorized;
20,960,878 shares issued and outstanding
|
|
|
20,961
|
|
|
Additional
paid-in-capital
|
|
|
6,750,649
|
|
|
Accumulated
deficit
|
|
|
(6,798,539
|
)
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS' DEFICIENCY
|
|
|
(26,925
|
)
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
|
|
$
|
921,474
|
|
The
accompanying footnotes are an integral part of these condensed consolidated
financial statements
ODYNE
CORPORATION AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
$
|
95,936
|
|
$
|
12,847
|
|
$
|
417,992
|
|
$
|
182,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
242,760
|
|
|
114,579
|
|
|
827,797
|
|
|
262,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
LOSS
|
|
|
(146,824
|
)
|
|
(101,732
|
)
|
|
(409,805
|
)
|
|
(80,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development, net of non-refundable payments received
|
|
|
373,141
|
|
|
131,429
|
|
|
1,252,752
|
|
|
500,532
|
|
|
General
and administrative
|
|
|
359,434
|
|
|
205,472
|
|
|
1,341,927
|
|
|
355,336
|
|
|
TOTAL
OPERATING EXPENSES
|
|
|
732,575
|
|
|
336,901
|
|
|
2,594,679
|
|
|
855,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(879,399
|
)
|
|
(438,633
|
)
|
|
(3,004,484
|
)
|
|
(936,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
4,835
|
|
|
-
|
|
|
48,443
|
|
|
-
|
|
|
Interest
(expense)
|
|
|
(394
|
)
|
|
(16,540
|
)
|
|
(1,421
|
)
|
|
(35,333
|
)
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
4,441
|
|
|
(16,540
|
)
|
|
47,022
|
|
|
(35,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(874,958
|
)
|
$
|
(455,173
|
)
|
$
|
(2,957,462
|
)
|
$
|
(971,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS PER COMMON SHARE - BASIC AND DILUTED
|
|
$
|
(0.04
|
)
|
$
|
(0.04
|
)
|
$
|
(0.15
|
)
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING- BASIC AND
DILUTED
|
|
|
20,930,428
|
|
|
12,000,000
|
|
|
19,639,263
|
|
|
12,000,000
|
|
The
accompanying footnotes are an integral part of these condensed consolidated
financial statements
ODYNE
CORPORATION AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
For
the Nine Months Ended September 30, 2007
(UNAUDITED)
|
|
|
Convertible
Preferred Stock
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Series
A
|
|
Common
Stock
|
|
Paid-in
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
Balance
at January 1, 2007
|
|
|
5,750
|
|
$
|
6
|
|
|
18,000,000
|
|
$
|
18,000
|
|
$
|
6,669,870
|
|
$
|
(3,841,077
|
)
|
$
|
2,846,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,738
|
|
|
|
|
|
83,738
|
|
|
Cashless
exercises of warrants
|
|
|
|
|
|
|
|
|
281,657
|
|
|
282
|
|
|
(282
|
)
|
|
|
|
|
-
|
|
|
Conversions
of Series A Convertible Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
to Common Shares, including 66,700 for shares converted by an officer
of
the company
|
|
|
(2,008
|
)
|
|
(2
|
)
|
|
2,679,221
|
|
|
2,679
|
|
|
(2,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,957,462
|
)
|
|
(2,957,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2007
|
|
|
3,742
|
|
$
|
4
|
|
|
20,960,878
|
|
$
|
20,961
|
|
$
|
6,750,649
|
|
$
|
(6,798,539
|
)
|
$
|
(26,925
|
)
|
The
accompanying footnotes are an integral part of these condensed consolidated
financial statements
ODYNE
CORPORATION AND SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
|
2007
|
|
2006
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,957,462
|
)
|
$
|
(971,830
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
41,376
|
|
|
9,306
|
|
|
Share
based payments
|
|
|
83,738
|
|
|
-
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Cash
- restricted
|
|
|
213,234
|
|
|
-
|
|
|
Accounts
receivable
|
|
|
(225,457
|
)
|
|
55,981
|
|
|
Inventory
|
|
|
(168,212
|
)
|
|
(59,805
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
22,466
|
|
|
4,982
|
|
|
Accounts
payable
|
|
|
102,284
|
|
|
253,158
|
|
|
Accrued
payroll and other operating expenses
|
|
|
(32,762
|
)
|
|
109,917
|
|
|
Customer
deposits
|
|
|
(22,150
|
)
|
|
45,835
|
|
|
Reserve
for warranty
|
|
|
35,000
|
|
|
-
|
|
|
Accrued
losses on contracts in progress
|
|
|
(25,538
|
)
|
|
25,189
|
|
|
Deferred
compensation payable to officers
|
|
|
37,692
|
|
|
231,994
|
|
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(2,895,791
|
)
|
|
(295,273
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(47,970
|
)
|
|
(2,228
|
)
|
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(47,970
|
)
|
|
(2,228
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
of loans made to the Company by officers
|
|
|
-
|
|
|
89,743
|
|
|
Proceeds
from issuance of convertible debentures
|
|
|
|
|
|
227,968
|
|
|
Capital
lease payments
|
|
|
(5,510
|
)
|
|
(4,791
|
)
|
|
Developmment
funding subject to repayment
|
|
|
3,642
|
|
|
57,748
|
|
|
Deferred
finance cost
|
|
|
(29,571
|
)
|
|
(118,433
|
)
|
|
Net
borrowing under lines of credit
|
|
|
-
|
|
|
65,240
|
|
|
NET
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
|
|
(31,439
|
)
|
|
317,475
|
|
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH
|
|
|
(2,975,200
|
)
|
|
19,974
|
|
|
|
|
|
|
|
|
|
|
|
CASH
- beginning of period
|
|
|
3,083,942
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
CASH
- end of period
|
|
$
|
108,742
|
|
$
|
20,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,421
|
|
$
|
17,094
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Assets
acquired under capital leases
|
|
|
-
|
|
|
11,906
|
|
|
Cashless
exercise of warrants
|
|
|
282
|
|
|
-
|
|
|
Conversion
of Series A Convertible preferred stock into Common Stock
|
|
|
2,679
|
|
|
-
|
|
The
accompanying footnotes are an integral part of these condensed consolidated
financial statements
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE
1 -
BASIS
OF PRESENTATION AND BUSINESS ORGANIZATION
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial statements and the instructions
to Form 10-QSB. Accordingly, the financial statements do not include all of
the
information and footnotes required by GAAP for complete financial statements.
In
the opinion of management, all adjustments considered necessary for a fair
presentation have been included and such adjustments are of a normal recurring
nature. These condensed consolidated financial statements should be read in
conjunction with the financial statements for the year ended December 31,
2006 and notes thereto of Odyne Corporation, (the “Company” or “Odyne”) included
in the Annual Report on Form 10-KSB for the fiscal year ended December 31,
2006. The results of operations for the nine months ended September 30, 2007
are
not necessarily indicative of the results for the full fiscal year ending
December 31, 2007. The company combined customer deposits and billings in
excess of cost incurred on contracts in progress into one account on the
accompanying balance sheet as of September 30, 2007.
The
condensed consolidated financial statements of the Company include the accounts
of the Company and its wholly-owned subsidiary. All significant inter-company
balances and transactions have been eliminated.
Organization
The
accompanying condensed consolidated financial statements presented are those
of
Odyne Corporation (the “Company” or “Odyne”), which was originally formed as a
Subchapter S Corporation in the State of New York on August 3, 2001. The Company
designs, develops, manufactures and installs Plug-in Hybrid Electric Vehicle
(“PHEV”) propulsion systems for medium and heavy duty trucks and buses using its
proprietary technology.
Merger
of Technology Integration Group , Inc. and Odyne Corporation
Pursuant
to an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”),
Technology Integration Group, Inc. (“TIG”), through a newly-formed acquisition
subsidiary, acquired all of the outstanding common stock of the Company on
October 17, 2006. TIG, in exchange for the Company’s stock, issued 12,000,000
shares of its common stock directly to the Company’s stockholders (the “Share
Exchange Transaction”). Following the Share Exchange Transaction, the existing
stockholders of TIG retained 6,000,000 shares of TIG’s outstanding common stock
and the Company’s stockholders became the majority owners of TIG. TIG was
incorporated in the State of Delaware on February 3, 1999.
Prior
the
Share Exchange Transaction, TIG was a publicly-traded corporation with
nominal operations of its own. TIG, immediately following the Share Exchange
Transaction, changed its name to Odyne Corporation and continued to carry on
the
operations of the Company. The Share Exchange Transaction has been accounted
for
as a reverse merger and recapitalization transaction in which the original
Odyne
is deemed to be the accounting acquirer. Accordingly, the accompanying condensed
consolidated financial statements present the historical financial position,
results of operations and cash flows of Odyne, adjusted to give retroactive
effect to the recapitalization of Odyne into TIG.
NOTE
2 -
LIQUIDITY
AND CAPITAL RESOURCES
The
Company’s net loss amounted to $2,957,462 for the nine months ended September
30, 2007. The Company’s accumulated deficit amounted to $6,798,539 at September
30, 2007. The Company also used $2,895,791 of cash in its operating activities
during the nine months ended September 30, 2007. As of September 30, 2007 the
Company has $60,412 of working capital available to fund its
operations.
On
October 26, 2007, the Company completed a private placement of 10% senior
secured convertible notes and warrants to purchase common stock, and received
gross and net proceeds in the amount of $3.2 million and $2.8 million,
respectively. The net proceeds of the private placement will be used by Odyne
for its working capital and capital expenditure requirements and to repay a
$
250,000 bridge note it received from its Chief Executive Officer.
Odyne’s
notes and warrants were offered and sold in units only to “accredited
investors,” as defined in Regulation D of the Securities Act of 1933. Each unit
consisted of $100,000 principal amount of 10% senior secured convertible
debentures and warrants to purchase shares of common stock at an exercise price
of $.75 per share, subject to certain anti-dilution provisions.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The
debentures are due on April 24, 2009 and bear interest at 10% per year, payable
in cash or freely-tradable common stock, at Odyne’s option. The warrants are
exercisable at any time and expire three years from issuance. The securities
sold in the private placement have not yet been registered under the Securities
Act of 1933, as amended, and may not be offered or sold in the United States
in
the absence of an effective registration statement or exemption from
registration requirements. As part of the private placement, Odyne agreed to
file a registration statement with the U.S. Securities and Exchange Commission
within 60 days after the final closing for purposes of registering the resale
of
the shares of common stock issuable upon the conversion of the notes and
exercise of the warrants sold in the private placement.
The
Company believes it may not have sufficient capital resources to sustain
operations through September 30, 2008. The Company must obtain additional
capital and increase revenue in order to ensure it has the capital resources
it
needs to pursue its planned operations. If the Company is unable to obtain
additional capital, it will have to implement cost cutting plan, reduce the
size
of its operating structure, and/ or sell assets to conserve its liquidity.
Although the Company’s completion of its Private Placement substantially
improved its overall liquidity, the Company must still devote substantially
all
of its capital resources to its research and development activities, developing
its manufacturing infrastructure and penetrating possible markets for its PHEV
propulsion system. The Company needs to raise additional funds to achieve
commercialization of its PHEV system and continue the pursuit of its
business plan. The Company also cannot provide any assurance that it will
ultimately be successful in its efforts to commercialize its PHEV propulsion
system.
In
the
year ended December 31, 2006, the Company received gross proceeds of $5,353,995
(net proceeds of $4,355,319 after the payment of $998,676 in transaction
expenses) in a private placement (the “Private Placement”) of 5,750 Units (the
“Units”). The Company also received $250,000 from its issuance of convertible
debentures (the “Convertible Debentures”) that the holders exchanged for Units
upon the first closing of the Private Placement in October 2006. Upon the
completion of the Share Exchange transaction referred to in Note 1, the Company
also effectuated a recapitalization of certain indebtedness to
officers/stockholders into permanent capital, including (i) $1,766,496 for
the
fair value of common stock subject to mandatory redemption under a stockholders
agreement that was terminated at the time of the Share Exchange Transaction,
(ii) $623,314 of deferred compensation payable to certain officers/stockholders
and (iii) $183,559 of loans payable to officers.
NOTE
3 -
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
condensed consolidated financial statements of the Company include the accounts
of the Company and its wholly-owned subsidiary. All significant inter-company
balances and transactions have been eliminated.
Use
of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
These estimates and assumptions include revenue recognition reserves and
write-downs related to receivables and inventories, the recoverability of
long-term assets, deferred taxes and related valuation allowances and valuation
of equity instruments.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist of cash, cash equivalents and accounts receivable. The
Company maintains its cash accounts at high quality financial institutions
with
balances, at times, in excess of federally insured limits. As of September
30,
2007, the Company had cash balances in excess of federally insured limits of
approximately $8,742. Management believes that the financial institutions that
hold the Company’s deposits are financially sound and pose minimal credit
risk.
Accounts
Receivable
The
Company has a policy of reserving for uncollectible accounts based on its best
estimate of the amount of probable credit losses on its existing accounts
receivable. Account balances deemed to be uncollectible are charged to the
allowance for doubtful accounts after all means of collection have been
exhausted and the potential for recovery is considered remote. The Company’s
customers include municipal governments, public utilities and not-for-profit
organizations. The Company’s credit losses to date have been minimal.
Accordingly, the Company established a $3,000 allowance for doubtful accounts
at
December 31, 2006, which remains unchanged at September 30, 2007.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Revenue
and Cost Recognition
|
|
·
|
Fixed
Price Production Contracts
|
Revenues
from fixed-price production contracts are recognized on the
percentage-of-completion method, measured by the percentage of costs incurred
to
date to estimated total costs for each contract. The Company considers expended
cost to be the best available measure of progress on these contracts. Revenues
generated from fixed-price contracts amounted to $ 95,936 and $ 12,847, for
the
three months ended September 30, 2007 and 2006, respectively and $417,992 and
$182,071 for the nine months ended September 30, 2007 and 2006, respectively.
Cost of revenues earned on fixed-price contracts includes direct contract costs
such as materials, labor, subcontract labor, payroll, payroll taxes, insurance
and other sundry direct costs, and indirect contract costs such as travel,
supplies and depreciation. Provisions for estimated losses on contracts in
progress are made in the period in which such losses are determined. For the
three months ended September 30, 2007, the Company recorded a reduction of
$
13,130 in its provision for losses on contracts in progress. The provision
for
estimated losses is $1,401 as of September 30, 2007.
|
|
·
|
Completed
- Contract Method
|
Under
the
completed contract method, revenue and cost of individual contracts are included
in operations in the year during which they are completed. Loses expected to
be
incurred on contracts in progress are charged to operations in the period such
loses are determined. The aggregate of cost of uncompleted contracts in excess
of related billings is included in inventory, and the aggregate of billings
on
uncompleted on uncompleted contracts in excess of related cost is shown as
a
liability. The Company adopted this accounting method effective January 1,
2007
in order to account for its short term fixed price contracts. No revenue was
recognized using this method during the nine months ended September 30,
2007.
|
|
·
|
Time
and Materials Contracts
|
Revenues
from time and materials contracts are billed, including profits, as incurred
based on a fixed labor rate plus materials. No revenues were generated from
time
and materials contracts for the three months periods ended September 30, 2007
and 2006, respectively. Revenues generated from time and materials contracts
amounted to $-0- and $18,302 for the nine months periods ended September 30,
2007 and 2006, respectively. Cost of revenues from time and materials contracts
includes labor and materials.
Reserve
for Warranty
Product
warranty reserves are established in the same period that revenue from the
sale
of the related products is recognized. The amounts of those reserves are based
on the Company’s best estimate of the amounts necessary to settle future and
existing claims on products sold as of the balance sheet date. During the three
months ended September 30, 2007, the Company established a warranty reserve
for
delivered systems in the amount of $35,000.
Research
and Development
Research
and development expenses include costs incurred for the experimentation, design
and testing of the Company’s PHEV technology. Such costs are expensed as
incurred. Research and development cost includes direct costs such as materials,
labor, subcontract labor, payroll, payroll taxes, insurance and other sundry
direct costs, and indirect costs such as travel, supplies, repairs and
depreciation.
The
Company has received non-refundable development funding from various
governmental and/or energy related agencies, including Long Island Power
Authority, the Electric Power Research Institute and the Greater Long Island
Clean Cities Coalition. These research projects are funded, in part, by third
parties and expensed as incurred. The Company records non refundable development
funds as a reduction of research and development cost. The Company received
no
non-refundable development funding during the three month periods ended
September 30, 2007 and 2006, respectively. The Company received non-refundable
development funding of -0- and $12,500 during the nine month periods ended
September 30, 2007 and 2006, respectively.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Intangible
Assets - Patents
Costs
incurred to obtain patents are amortized over the remaining legal life of the
patent or its economic useful life, if shorter. Patent costs are reviewed for
impairment annually or whenever events or changes in business circumstance
indicate the carrying value of the assets may not be recoverable. Impairment
losses are recognized if future cash flows of the related assets are less than
their carrying values.
Income
Taxes
Effective
January 1, 2007, the Company adopted FASB Interpretation No. 48 (“FIN 48”),
Accounting for Uncertainty in Income Taxes. (Note 10)
Prior
to
the Share Exchange Transaction, the Company’s stockholders elected for the
Company to be treated as an “S” corporation under subchapter “S” of the Internal
Revenue Code and as a small business corporation under similar provisions of
the
New York State income tax code applicable to corporations. Accordingly, there
is
no income tax provision for the three and six month periods ended September
30,
2006 as any income earned or losses incurred and any tax credits earned during
these periods were reported by the stockholders in their individual federal
and
state income tax returns.
Stock-Based
Compensation
The
Company has adopted SFAS No. 123(R) “Share Based Payment”
(“SFAS 123(R)”). This statement is a revision of SFAS Statement
No. 123, and supersedes APB Opinion No. 25, and its related
implementation guidance. SFAS 123(R) addresses all forms of share based
payment (“SBP”) awards including shares issued under employee stock purchase
plans, stock options, restricted stock and stock appreciation
rights.
Under
SFAS 123(R), SBP awards are measured at fair value on the awards’
grant date, based on the estimated number of awards that are expected to vest
and results in a charge to operations.
Non-Employee
Stock-Based Compensation
The
Company accounts for equity instruments issued to non-employees in accordance
with the provisions of SFAS No. 123(R) and Emerging Issues Task Force
(“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services,” (“EITF 96-18”) which requires that such equity instruments
be recorded at their fair value on the measurement date. The measurement of
stock-based compensation is subject to periodic adjustment as the underlying
equity instrument vests. Non-employee stock-based compensation charges are
being
amortized over the term of the related service period.
Net
Loss Per Share
Net
loss
per share is presented in accordance with SFAS No. 128 “Earnings Per Share."
(“SFAS 128”) Under SFAS 128, basic net loss per share is computed by dividing
net loss per share available to common stockholders by the weighted average
shares of common stock outstanding for the period and excludes any potentially
dilutive securities. Diluted earnings per share reflects the potential dilution
that would occur upon the exercise or conversion of all dilutive securities
into
common stock. The computation of loss per share for the three and six month
periods ended September 30, 2007 and 2006 excludes potentially dilutive
securities because their inclusion would be anti-dilutive. Loss per share
retroactively includes 12,000,000 shares of common stock issued to the former
stockholders of Odyne in the Share Exchange Transaction, as if these shares
were
outstanding for all periods presented.
Shares
of
common stock issuable upon conversion or exercise of potentially dilutive
securities at September 30, 2007 are as follows:
|
Series
A Convertible Preferred Stock
|
|
|
4,991,320
|
|
|
Warrants
|
|
|
4,319,680
|
|
|
Options
|
|
|
545,000
|
|
|
Total
|
|
|
9,856,000
|
|
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Recent
Accounting Pronouncements
In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements No. 133 and 150.”
SFAS No. 155 (a) permits fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation, (b) clarifies that certain instruments are not subject to the
requirements of SFAS 133, (c) establishes a requirement to evaluate interests
in
securitized financial assets to identify interests that may contain an embedded
derivative requiring bifurcation, (d) clarifies what may be an embedded
derivative for certain concentrations of credit risk and (e) amends SFAS 140
to
eliminate certain prohibitions related to derivatives on a qualifying
special-purpose entity.
SFAS
155
is applicable to new or modified financial instruments in fiscal years beginning
after September 15, 2006, though the provisions related to fair value accounting
for hybrid financial instruments can also be applied to existing instruments.
Early adoption, as of the beginning of an entity’s fiscal year, is also
permitted, provided interim financial statements have not yet been issued.
The
adoption of SFAS 155 has not had an effect on the Company’s consolidated
financial statements.
In
March
2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets
(SFAS No. 156). SFAS No. 156 amends SFAS No. 140 “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,” to require
all separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable. SFAS No. 156 also permits
services to subsequently measure each separate class of servicing assets and
liabilities at fair value rather than at the lower of cost or market. For those
companies that elect to measure their servicing assets and liabilities at fair
value, SFAS No. 156 requires the difference between the carrying value and
fair
value at the date of adoption to be recognized as a cumulative effect adjustment
to retained earnings as of the beginning of the fiscal year in which the
election is made. SFAS No. 156 is effective for the first fiscal year beginning
after September 15, 2006. The adoption of this pronouncement did not have an
effect on the accompanying consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS
157"). This Standard defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years. The adoption of this pronouncement did not have
an
effect on the accompanying consolidated financial statements.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin (“SAB”) 108, “Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB
108 provides guidance on how prior year misstatements should be taken into
consideration when quantifying misstatements in current year financial
statements for purposes of determining whether the current year’s financial
statements are materially misstated. SAB 108 is effective for the first fiscal
year ending after November 15, 2006. The adoption of SAB 108 did not have
an effect on the accompanying consolidated financial
statements.
In
November 2006, the EITF reached a final consensus in EITF Issue 06-6 “Debtor’s
Accounting for a Modification (or Exchange) of Convertible Debt Instruments”
(“EITF 06-6”). EITF 06-6 addresses the modification of a convertible debt
instrument that changes the fair value of an embedded conversion option and
the
subsequent recognition of interest expense for the associated debt instrument
when the modification does not result in a debt extinguishment pursuant to
EITF
96-19, “Debtor’s Accounting for a Modification or Exchange of Debt
Instruments.” The consensus should be applied to modifications or
exchanges of debt instruments occurring in interim or annual periods beginning
after November 29, 2006. The Company does not expect the adoption of EITF
06-6 to have a material impact on its financial position, results of operations
or cash flows.
In
November 2006, the FASB ratified EITF Issue No. 06-7, “Issuer’s Accounting for a
Previously Bifurcated Conversion Option in a Convertible Debt Instrument When
the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities” (“EITF
06-7”). At the time of issuance, an embedded conversion option in a convertible
debt instrument may be required to be bifurcated from the debt instrument and
accounted for separately by the issuer as a derivative under FAS 133, based
on
the application of EITF 00-19. Subsequent to the issuance of the convertible
debt, facts may change and cause the embedded conversion option to no longer
meet the conditions for separate accounting as a derivative instrument, such
as
when the bifurcated instrument meets the conditions of Issue 00-19 to be
classified in stockholders’ equity. Under EITF 06-7, when an embedded conversion
option previously accounted for as a derivative under FAS 133 no longer meets
the bifurcation criteria under that standard, an issuer shall disclose a
description of the principal changes causing the embedded conversion option
to
no longer require bifurcation under FAS 133 and the amount of the liability
for
the conversion option reclassified to stockholders’ equity. EITF 06-7 should be
applied to all previously bifurcated conversion options in convertible debt
instruments that no longer meet the bifurcation criteria in FAS 133 in interim
or annual periods beginning after December 15, 2006, regardless of whether
the
debt instrument was entered into prior or subsequent to the effective date
of
EITF 06-7. Earlier application of EITF 06-7 is permitted in periods for which
financial statements have not yet been issued. The adoption of this
pronouncement did not have an effect on the accompanying consolidated financial
statements.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
In
December 2006, the FASB issued FSP EITF 00-19-2 “Accounting for Registration
Payment Arrangements” (“FSP EITF 00-19-2”). FSP EITF 00-19-2 addresses an
issuer’s accounting for registration payment arrangements. This pronouncement
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument,
should be separately recognized and accounted for as a contingency in accordance
with SFAS 5 “Accounting for Contingencies.” FSP EITF 00-19-2 amending previous
standards relating to rights agreements became effective on December 21, 2006
with respect to arrangements entered into or modified beginning on such date
and
for the first fiscal year beginning after December 15, 2006 with respect to
those arrangements entered into prior to December 21, 2006. The adoption of
this
pronouncement did not have an effect on the accompanying consolidated financial
statements.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides companies
with an option to report selected financial assets and liabilities at fair
value
and establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes
for
similar types of assets and liabilities. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company is in the process of
evaluating the impact of the adoption of this statement on the Company’s results
of operations and financial condition.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the financial statements upon
adoption.
NOTE
4 -
Cash
Cash
-
Restricted
The
terms
of the October 2006 Private Placement Agreement require that the Company use
$250,000 of the proceeds of this transaction during the twelve months following
the closing toward establishing a comprehensive capital markets initiative.
At
September 30, 2007 and for the nine month period then ended, the restricted
cash
account balance was $14,349. Should one or a series of related warrant exercises
result in additional proceeds to the Company of at least $1,500,000, the Company
would be required to deposit an additional $200,000, to be held in trust and
used exclusively for additional capital markets initiatives during the twelve
months following the warrant exercise. Through September 30, 2007, the Company
has received no such warrant exercise proceeds.
NOTE
5 -
Development
Funding Subject to Repayment
The
Company entered into a contract in which it received development funding from
the New York State Energy Research & Development Authority in the amount of
$3,642 during the nine month period ended September 30, 2007. Funding received
under the terms of this agreement is subject to repayment based on a percentage
of sales of the related invention or discovery as defined under the terms of
the
agreement. The obligation terminates upon the earlier of fifteen (15) years
from
the date of the first sale or upon repayment of the amount of funds received
under the agreement. Development funding subject to repayment amounts to
$244,536 at September 30, 2007 and is presented as a liability in the
accompanying balance sheet. This contract was recently amended as described
in
Note 7.
NOTE
6 -
Related
Parties
On
February 19, 2007, an officer holding 50 shares of Series A Convertible
Preferred stock exercised the conversion option which resulted in the issuance
of 66,700 shares of the Company’s Common Stock to this individual (See Note
8).
On
June
11, 2007, an officer of the Company purchased 5,000 shares of the Company’s
Common Stock at $.45 per share.
On
July
26, 2007, a director of the Company purchased 27,500 shares of the Company’s
Common Stock at $.27 per share.
In
July
2007, in order to conserve liquidity, the President of the Company began
deferring all of his salary and the Chief Executive Officer began deferring
25%
of his salary. The President’s deferred salary, in the amount of $ 43,046, was
repaid on November 8, 2007. The former Chief Executive Officer’s deferred
salary, in the amount of $ 4,038, was repaid in accordance with the terms and
conditions of his Separation Agreement on September 13, 2007.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Pursuant
to an agreement between the Company and Roger M. Slotkin, our
former Chief Executive Officer, effective September 8, 2007, Mr. Slotkin
resigned from the Company's board of directors.
NOTE
7 -
Commitments
and
Contingencies
Operating
Lease
The
Company conducts its operations from a single facility, under a non-cancelable
operating lease expiring in June 2009 requiring minimum monthly payments that
increase from $7,210 to $7,708 over the term of the lease.
Future
minimum rental payments under the above non-cancelable operating lease are
as
follows:
|
For
the Twelve Months Ended
September
30,
|
|
Amount
|
|
|
|
|
|
|
|
2008
|
|
|
90,158
|
|
|
2009
|
|
|
69,378
|
|
|
|
|
|
|
|
|
|
|
|
159,536
|
|
Rent
expense amounted to approximately $24,097 and $14,313 for the three months
ended
September 30, 2007 and 2006, respectively and $73,301 and $30,715, for the
nine
months ended September 30, 2007 and 2006, respectively. Rent expense includes
($533) and ($5,179) for the three months ended September 30, 2007 and 2006
respectively and ($173) and $3,448 for the nine months ended September 30,
2007 and 2006, respectively for the effects of recording rent expense on a
straight line basis over the term of the lease.
Employment
Agreement
On
September 19, 2007, the Company entered into an employment agreement with Alan
Tannenbaum as its new Chief Executive Officer and a member of the Board of
Directors. The employment agreement has a term expiring one year after the
initial closing of the Company’s financing transaction which took place on
October 25, 2007. The employment agreement provides for a base salary at the
annual rate of $145,000, starting on January 1, 2008.
Under
the
employment agreement, the Company agreed to grant Mr. Tannenbaum stock options
to purchase an aggregate of 3,000,000 shares of the Company’s common stock. Of
such stock options, options to purchase 300,000 shares were granted on October
23, 2007 at an exercise price of $.395, the closing market price on that date.
Options to purchase 2,400,000 shares will be granted at $.317 per share, based
on the average closing market price of the common stock on the 30 consecutive
trading days on and prior to the initial closing date of the private placement
described in Note 12. Options to purchase 300,000 shares will be granted on
January 2, 2008, based on an exercise price equal to the closing market price
of
the common stock on such date. Each stock option will vest in three equal
installments on the second, third and fourth anniversaries of the grant date
and
expire ten years after it is granted. The Company has agreed to adopt a new
incentive compensation plan or amend its existing plan to increase the number
of
available options that the Company may grant in order to satisfy its obligation
to Mr. Tannenbaum.
Consulting
and Royalty Agreements
In
October 2006, the Company entered into an agreement with one of its outside
engineering labor providers whereby it committed to paying for a minimum of
100
hours per month through December of 2008. Hourly rates charged under the
contract are $80 per hour in 2007 and $85 per hour in 2008. In May 2005, the
Company entered into a royalty agreement with the same party that requires
the
Company to pay royalties for sales of systems containing certain proprietary
source code used in the Company's PHEV system. Royalty fees range from
approximately $75 per vehicle to $600 per vehicle depending on cumulative
volume. The Company can purchase these source codes for $65,000 in 2007 and
$181,500 in 2008. For the three months ended September 30, 2007, the Company
recorded $850 of royalty expense under this agreement. Prior to the three
month period ended September 30, 2007 the Company did not incur any royalty
expenses under this agreement.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Research
and Development Arrangements
On
March
30, 2006, the Company signed a Research and Development Contract Amendment
to
its NYSERDA agreement to also develop and install a PHEV system into a refuse
vehicle provided by a third party. The Company’s obligation under this amendment
is to design and install the system and to provide NYSERDA with regular status
reports. NYSERDA will provide up to $161,046 of funding for this effort. NYSERDA
is entitled to a 1.5 % royalty on future sales of PHEV systems used in vehicles
weighing up to 33,000 pounds that utilize the Company’s PHEV propulsion system.
The maximum royalty obligation that is payable under this agreement is limited
to the amount of funding received, which amount will be recorded as a liability
at the time such funding is received. Total funding received through September
30, 2007 amounted to $ 244,536.
Exclusive
Retrofitting and Sales Arrangements
On
November 21, 2006, the Company entered into a Sales and Marketing Agreement
with
a company that repairs, reconditions and retrofits medium and heavy duty trucks
and buses (“Retrofit Installer”). Under the terms of the agreement, the Company
granted to the Retrofit Installer an exclusive right to retrofit heavy duty
trucks using its PHEV system in New York, New Jersey and Connecticut. The
exclusivity granted to the Retrofit Installer is subject to certain performance
requirements and other limitations contained in the agreement.
On
March
28, 2007, the Company entered into a Sales and Marketing Agreement with a
company that repairs, reconditions and retrofits medium and heavy duty trucks
and buses in the western United States (“Retrofit Installer”). Under the terms
of the agreement, the Company granted to the Retrofit Installer an exclusive
right to retrofit vehicles (other than buses) using its PHEV system in
California, Nevada and Arizona. The exclusivity granted to the Retrofit
Installer is subject to certain performance requirements and other limitations
contained in the agreement.
Additionally,
subject to certain terms and conditions contained in the agreement, the Company
agreed to pay the Retrofit Installer a sales commission ranging from 2.0% to
5.0% of sales of its PHEV systems in the territory to original equipment
manufacturers that do not use the Retrofit Installer as the installing
company.
On
April
24, 2007, the Company entered into a Memorandum of Understanding with a company
that manufactures and sells vehicles that are used for aerial truck
applications. Under the terms of the agreement, the Company granted the vehicle
distributor an exclusive right to sell vehicles with aerial truck applications
using the PHEV system. The exclusivity granted to the distributor is subject
to
certain performance requirements and other limitations contained in the
agreement. The Company agreed to share the cost of developing a prototype unit
with the vehicle distributor. The Company does not anticipate that the estimated
cost of developing the prototype will have a material impact on its
operations.
On
April
25, 2007, the Company entered into a Strategic Partnership Agreement with a
company that sells buses in the western United States (“Distributor”). Under the
terms of the agreement, the Company granted to the Distributor an exclusive
right to sell retrofitted buses (excluding school buses) using its PHEV system
in California and Nevada. The exclusivity granted to the Distributor is subject
to certain performance requirements and other limitations contained in the
agreement.
Under
the
terms of the agreement, the Company and the Distributor will build a
demonstration vehicle. The Distributor will supply a vehicle in which the
Company will install its PHEV system and charge the Distributor for its material
cost. Additionally, subject to certain terms and conditions contained in the
agreement, the Company agreed to pay the Distributor a royalty fee ranging
from
3.5% to 5.0%, based on volume of bus sales, other than school buses, containing
the PHEV system, by other manufacturers and Distributors in its territory.
No
amounts are due under this arrangement as of September 30, 2007.
NOTE
8 -
Stockholders’
Equity
Authorized
Capital
The
Company is authorized to issue up to 95,000,000 shares of common stock and
5,000,000 shares of preferred stock, of which 6,000 shares have been
designated as Series A Convertible Preferred stock.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Description
of Common Stock
Each
share of common stock has the right to one vote. The holders of common stock
are
entitled to dividends when funds are legally available and when declared by
the
Board of Directors.
Description
of Preferred Stock
The
Company is authorized to issue up to 5,000,000 shares of “blank check”
Preferred Stock, par value $.001 per share, of which 6,000 shares have been
designated as Series A Convertible Preferred Stock.
Among
other rights, the holders of the Series A Convertible Preferred stock are
entitled, at any time, to convert their shares of Series A Convertible Preferred
stock into common stock, without any further payment.
Each
share of Series A Convertible Preferred stock is initially convertible into
1,334 shares of common stock. In the event of any subsequent issuances of common
stock for cash consideration at a price of less than $.75 per share, the
conversion rate will be that number of shares of common stock equal to $1,000
divided by the price per share at which the common stock is issued.
Holders
of Series A Convertible Preferred stock are entitled to vote their shares on
an
as-converted to common stock basis, and shall vote together with the holders
of
the common stock, and not as a separate class.
In
the
event of voluntary or involuntary liquidation, dissolution or winding-up of
the
Company, holders of Series A Convertible Preferred stock will be entitled to
receive out of the Company’s assets available for distribution to its
stockholders, before any distribution is made to holders of Company common
stock, liquidating distributions in an amount equal to $1,000 per share. After
payment of the full amount of the liquidating distributions to which the holders
of the Series A Convertible Preferred stock are entitled, holders of the Series
A Convertible Preferred stock will receive liquidating distributions pro rata
with holders of common stock, based on the number of shares of common stock
into
which the Series A Convertible Preferred stock is convertible at the conversion
rate then in effect. The Series A Convertible Preferred stock holders do not
have redemption rights.
Holders
of the Series A Convertible Preferred stock will not be entitled to receive
dividends except to the extent that dividends are declared on the common stock.
Holders of the Series A Convertible Preferred stock are entitled to receive
dividends paid on the common stock based on the number of shares of common
stock
into which the Series A Convertible Preferred stock are convertible on the
record date of such dividend.
If
the
closing bid price of the Company’s common stock is above $5.00 per share for a
period of 30 consecutive trading days, then each share of the Series A
Convertible Preferred stock automatically converts into the number of shares
of
common stock at the conversion rate then in effect.
Conversions
of Series A Convertible Preferred Stock
During
the nine months ended September 30, 2007, holders of 2,008.41 shares of Series
A
Convertible Preferred stock elected to convert their preferred shares into
2,679,221 shares of common stock. These exercises included, on February 19,
2007, an officer holding 50 shares of Series A Convertible Preferred stock
exercising the conversion option which resulted in the issuance of 66,700 shares
of the Company’s Common Stock to this individual (Note 6).
In
connection with registration rights granted to the investors in the Private
Placement transaction described in Note 2, the Company filed a registration
statement on Form SB-2 with the Securities and Exchange Commission (the “SEC”)
on April 17, 2007, which became effective on May 11, 2007.
Common
Stock Purchase Warrants
A
summary
of the status of the Company’s outstanding common stock purchase warrants as of
September 30, 2007 and changes during the nine months ended September 30, 2007
are as follows:
|
|
|
Number
of
options
|
|
Weighted
average
exercise
price
|
|
|
Outstanding
at January 1, 2007
|
|
|
4,648,915
|
|
$
|
0.96
|
|
|
Granted
|
|
|
105,000
|
|
$
|
1.72
|
|
|
Exercised
|
|
|
(434,236
|
)
|
$
|
0.75
|
|
|
Outstanding
at September 30, 2007
|
|
|
4,319,679
|
|
$
|
1.00
|
|
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Warrants
Issued
During
the nine month period ended September 30, 2007, the Company issued 105,000
common stock purchase warrants to non-employees for services with exercise
prices ranging from $1.60 to 1.99 per share for consulting services as
follows:
|
Grant
Date
|
|
Number
of
Shares
|
|
Exercise
Price
|
|
Expiration
Date
|
|
Unit
Fair
Value
|
|
Total
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/25/2007
|
|
|
50,000
|
|
$
|
1.60
|
|
|
1/25/2009
|
|
$
|
1.23
|
|
$
|
61,987
|
|
|
2/5/2007
|
|
|
25,000
|
|
$
|
1.99
|
|
|
2/5/2011
|
|
$
|
.78
|
|
$
|
19,524
|
|
|
4/18/07
|
|
|
30,000
|
|
$
|
1.70
|
|
|
4/18/2012
|
|
$
|
1.00
|
|
$
|
30,283
|
|
The
fair
value of these awards was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions: fair
value
of common stock $1.06; volatility rate 65.36%; risk free interest rate
4.77%; expected term 2 years; dividend yield 0.
Warrants
Exercised
During
the nine month period ended September 30, 2007 placement agents involved in
the
Private Placement exercised the cashless exercise provision with respect to
400,902 warrants and received 267,268 shares of common stock of the
Company.
During
the nine month period ended September 30, 2007 individuals that received
warrants in connection with the issuance of convertible debentures exercised
the
cashless exercise provision with respect to 33,334 warrants and received 14,389
shares of common stock of the Company.
NOTE
9 -
2006
Equity Incentive Plan
The
2006
Equity Incentive Plan (the “Plan”) was adopted by the Company’s Board of
Directors on October 16, 2006 and approved by the Company’s stockholders on
October 17, 2006. Awards to purchase an aggregate of 3,000,000 shares of common
stock may be granted under the Plan to employees, consultants and non-employee
directors. Under the Plan, the Company is authorized to issue Incentive Stock
Options intended to qualify under Section 422 of the Code, non-qualified
options, SARS, restricted stock, bonus shares and dividend
equivalents.
On
March
1, 2007, the Company issued 20,000 stock options to a newly hired employee
at an
exercise price of $1.65 per share, The fair value of this award was estimated
to
be $15,800 at the date of grant using the Black-Scholes option pricing model
with the following weighed average assumptions: fair value of common stock
$1.65
volatility rate 65.36 %; risk free interest rate 4.77%; expected term 4
years; dividend yield 0.
On
May 29
2007, the Company issued 20,000 stock options to a newly hired employee at
an
exercise price of $.65 per share, The fair value of this award was estimated
to
be $7,541 at the date of grant using the Black-Scholes option pricing model
with
the following weighed average assumptions: fair value of common stock $.65
volatility rate 73.21 %; risk free interest rate 4.82%; expected term 4
years; dividend yield 0.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of
September 30, 2007, an aggregate of 545,000 options were outstanding at a
weighted average exercise price of $.78 per share. These options, which include
445,000 shares granted to employees and directors and 100,000 shares to
non-employees pursuant to the terms of certain consulting agreements, vest
over
four years and feature a contractual term of ten years.
The
volatility rate used through September 30, 2007 was developed based on rates
obtained from a similar company whose shares are publicly traded and have
sufficient trading history upon which to develop a reasonable estimate. The
Company has limited historical data upon which to base an expected term.
Accordingly, the expected term of four years represents management’s best
estimate of the period of time in which grantees would likely hold their options
until realizing the benefit through their exercise. The Company has estimated
that based upon assumed employee retention, 80% of the options granted entitled
to vest by their terms, will actually vest annually. It believes that this
rate
is reasonable until such time as it develops reliable historical
data.
A
summary
of option activity for the nine months ended September 30, 2007 is as
follows:
|
|
|
|
|
|
|
Weighted
-
|
|
|
|
|
|
|
Weighted
-
|
|
Average
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
|
Options
|
|
Shares
|
|
Price
|
|
Term
|
|
|
Outstanding
January 1, 2007
|
|
|
505,000
|
|
$
|
0.75
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
40,000
|
|
|
1.15
|
|
|
9.7
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
-
|
|
|
|
|
|
|
|
|
Outstanding
September 30, 2007
|
|
|
545,000
|
|
$
|
0.78
|
|
|
9.2
|
|
|
Exercisable
at September 30, 2007
|
|
|
-
|
|
|
|
|
|
|
|
At
September 30, 2007, there was no aggregate intrinsic value of options
outstanding, based on the September 28, 2007 closing price of the Company’s
common stock ($.29 per share). There were no options exercisable at September
30, 2007. As described above, the Company has estimated that based upon assumed
employee retention, 80% of the options granted entitled to vest by their terms,
will actually vest annually. The weighted-average grant-date fair value of
all
stock options granted during the nine months ended September 30, 2007 amounted
to $.57 per share. The aggregate fair value of all awards granted during the
period amounted to $22,756. There have not been any exercises of stock options
to date and no options have vested to date.
As
of
September 30, 2007, there was $135,469 of unrecognized compensation cost related
to non-vested share-based compensation arrangements. These costs are expected
to
be recognized over a weighted-average period of 3.6
years.
NOTE
10 -
Income
Taxes
As
describe in Note 1, the Company adopted FIN 48 effective January 1, 2007.
FIN 48 requires companies to recognize in their financial statements, the impact
of a tax position, if that position is more likely than not of being sustained
on audit, based on the technical merits of the position. FIN 48 prescribes
a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, and
disclosure.
The
Company and its subsidiary intend to file consolidated
federal and state income tax returns. The consolidated group for this
purpose includes TIG and the subsidiary it formed to acquire the
stock of Odyne through the Share Exchange Transaction completed on October
17, 2006. TIG, previous to the Share Exchange Transaction, had
nominal operations and a net operating loss of approximately $50,000. The
initial period of tax reporting with respect to the subsidiary is for
the period of October 17, 2006 through December 31,
2006. TIG (previous to the Share Exchange Transaction) filed
Federal and State income tax returns for the years ended December 31, 2003,
2004,and 2005 that have not been examined by the applicable Federal and State
tax authorities.
Management
does not believe that the Company has any material uncertain tax position
requiring recognition or measurement in accordance with the provisions of FIN
48. Accordingly, the adoption of FIN 48 did not have a material effect on the
Company financial statements. The Company’s policy is to classify penalties and
interest associated with uncertain tax positions, if required as a component
of
its income tax provision.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The
Company has approximately $213,000 of deferred tax assets, a substantial portion
of which includes the tax effects of approximately $485,000 of net operating
loss carry forwards generated subsequent to the Share Exchange Transaction
to offset future taxable income through the year ended December
31, 2026. The Company reduced its deferred tax assets and related
reserve by $20,000 upon the adoption of FIN 48 for the effects of TIG's net
operating losses, which became limited at the time of the Share Exchange
Transaction due to the change in ownership provisions under Section 382 of
the
Internal Revenue Code. The utilization of any net operating losses that
the Company has generated may be subject to substantial limitations in
future periods due to the “change in ownership” provisions under
Section 382 of the Internal Revenue Code and similar state
provisions.
The
Company, as a result of having evaluated all available evidence as required
under SFAS 109, fully reserved for its net deferred tax assets since it is
more
likely than not that the future tax benefits of these deferred tax assets will
not be realized in future periods.
NOTE
11 -
Employee
Benefit Plan
Effective
April 1, 2007, the Company established the Odyne Corporation 401(k) Profit
Sharing Plan (the “Plan”) pursuant to Internal Revenue Service rules and
regulations, under which eligible employees may choose to make salary reduction
contributions. The Company may make a matching voluntary contribution in the
amount determined by a uniform percentage of each employee’s contribution that
does not exceed a Company specified percentage of defined total employee’s
compensation for the year or a fixed dollar amount and a discretionary
contribution that would be allocated equally as a percentage of that year’s 401k
plan employee deferrals, excluding highly compensated employees, as
defined.
In
order
to be eligible for the Plan, an employee must be 21 years of age, have 1000
hours of service in the year and be employed on the last day of the calendar
year. An individual employee vests in the employer’s voluntary matching
contribution 25% after one year of service, 50% after two years of service,
75%
after three years of service and 100% after four years of service.
The
Company made no contributions to the Plan for the three and nine month periods
ended September 30, 2007.
NOTE
12 -
Subsequent
Events
a.
On
October 12, 2007, the Company received $250,000 in proceeds from the issuance
of
its Bridge Promissory Note (“Bridge Note”) to Mr. Tannenbaum. The Bridge Note
bears interest at 10% per annum. Principal and interest is due and payable
on
the earlier of the receipt by the Company of at least $250,000 in proceeds
of
its 10% private placement described below or six months from the date of the
Bridge Note. Such note was repaid on October 31 , 2007
.
b.
On
October 23, 2007, the Company issued 1,025,000 stock options to certain of
its
officers, directors and key employees at an exercise price equal to market
value
of $.395 per share.
c.
On
October 26, 2007, the Company completed a private placement to five accredited
investors (the “Investors”) resulting in gross proceeds of $3,200,000, pursuant
to the terms of a Subscription Agreement (the “Subscription Agreement”). The
securities were offered and sold in Units , consisting of $100,000 principal
amount of 10% senior secured convertible debentures (“Debentures”) and a warrant
to purchase 133,333 shares of common stock at an exercise price of $.75 per
share (“Warrants”).
The
Debentures bear interest at 10% per year, payable quarterly in cash or
freely-tradable common stock, at the Company’s option, and mature on the earlier
of 18 months after the original issuance date or the completion of one or a
series of related debt or equity financing transactions for minimum gross
proceeds of $5,000,000, exclusive of any financing transaction by a factor
or
commercial bank (a “Subsequent Financing”). The Warrants are exercisable at any
time and expire three years from issuance .
The
Debentures are collateralized by a first priority security interest in all
of
the Company’s and its subsidiary’s assets. The outstanding balance of the
Debentures may be converted, at the option of the holder, in whole or in part,
at the earlier of 12 months after the original issuance date, into shares of
Company common stock at a conversion price equal to 70% of the then market
price
per share of common stock, or upon the completion of a Subsequent Financing,
into the securities being sold in such Subsequent Financing at an effective
conversion price equal to 80% of the purchase price of those securities.
Notwithstanding the foregoing, the minimum conversion price will be no less
than
$.25 per share. Partial conversions by the Investors are permitted.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
Warrants are exercisable for three years, contain customary change of control
buy-out provisions and are not redeemable. The Warrants also contain
anti-dilution provisions (including “full-ratchet” price protection from the
future issuance of stock, exclusive of the conversion of the Debentures and
certain other excluded stock issuances, or securities convertible or exercisable
for shares of common stock below $.75 per share), provided that the exercise
price of the Warrants may not be adjusted to less than $.25 per share as a
result of the full-ratchet price protection.
The
net
proceeds from the private placement will be used by the Company to fund its
working capital and capital expenditure requirements.
Pursuant
to the terms of a related Registration Rights Agreement (the “Registration
Rights Agreement”), the Company agreed to file a registration statement with the
U.S. Securities and Exchange Commission as soon as possible for purposes of
registering the resale of the shares of Company common stock issuable upon
the
conversion of the Debentures and exercise of the Warrants sold in the private
placement. In the event the registration statement is not filed within 60
calendar days following the closing, the Company is obligated to pay the
Investors 2% in cash or stock, of the face amount of the Debentures for every
30-day period, or portion thereof, that the registration statement is not filed.
In the event the registration statement is not declared effective within 120
calendar days following the closing, the Company is obligated to pay the
Investors 2% in cash or stock of the face amount of the Debentures for every
30-day period, or portion thereof, that the registration statement is not
declared effective for a maximum of six months, subject to the ability of the
Investors to sell the underlying shares pursuant to Rule 144. The liquidated
damages can be paid in cash or freely-tradable common stock, at the Company’s
option. The Company also agreed not to file a registration statement for any
additional shares of common stock until 75 days after the effective date of
the
registration statement.
The
securities sold in the private placement have not been registered under the
Securities Act of 1933, as amended (the “Securities Act”), and were issued and
sold in reliance upon the exemption from registration contained in Section
4(2)
of the Securities Act and Regulation D promulgated there under.
Between
October 1, 2007 and November 5, 2007, 625 shares of Series A Convertible
Preferred stock were converted into 833,750 shares of the Company’s Common
Stock.
ODYNE
CORPORATION
|
Common
Stock
|
|
|
P
ROSPECTUS
|
|
|
|
,
2008
|
Until
__________, 2008, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers’ obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PART
II
INFORMATION
NOT REQUIRED IN PRO
SPECTUS
Item
24. Indemnification of Directors and Officers.
Under
the
General Corporation Law of the State of Delaware, we can indemnify our directors
and officers against liabilities they may incur in such capacities, including
liabilities under the Securities Act of 1933, as amended (the “Securities Act”).
Our certificate of incorporation provides that, pursuant to Delaware law, our
directors shall not be liable for monetary damages for breach of the directors’
fiduciary duty of care to us and our stockholders. This provision in the
certificate of incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director’s duty of loyalty to us or our stockholders, for acts or omissions not
in good faith or involving intentional misconduct or knowing violations of
law,
for any transaction from which the director directly or indirectly derived
an
improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
also does not affect a director’s responsibilities under any other law, such as
the federal securities laws or state or federal environmental laws.
Our
bylaws provide for the indemnification of our directors and officers to the
fullest extent permitted by the Delaware General Corporation Law. We are not,
however, required to indemnify any director or officer in connection with any
(a) willful misconduct, (b) willful neglect, or (c) gross negligence toward
or
on behalf of us in the performance of his or her duties as a director or
officer. We are required to advance, prior to the final disposition of any
proceeding, promptly on request, all expenses incurred by any director or
officer in connection with that proceeding on receipt of any undertaking by
or
on behalf of that director or officer to repay those amounts if it should be
determined ultimately that he or she is not entitled to be indemnified under
our
bylaws or otherwise.
We
have
been advised that, in the opinion of the SEC, any indemnification for
liabilities arising under the Securities Act of 1933 is against public policy,
as expressed in the Securities Act, and is, therefore,
unenforceable.
Item
25. Other Expenses of Issuance and Distribution.
|
Registration
Fees
|
|
$
|
389
|
|
|
Federal
Taxes
|
|
|
—
|
|
|
State
Taxes
|
|
|
|
|
|
Legal
Fees and Expenses
|
|
|
40,000
|
|
|
Printing
and Engraving Expenses
|
|
|
8,000
|
|
|
Blue
Sky Fees
|
|
|
8,000
|
|
|
Accounting
Fees and Expenses
|
|
|
10,000
|
|
|
Miscellaneous
|
|
|
3,611
|
|
|
Total
|
|
$
|
70,000
|
|
Item
26. Recent Sales of Unregistered Securities.
October
2007 Private Placement.
On
October 26, 2007, we completed the closing of the October 2007 private placement
of securities. In the closing, we sold a total of 32 units, each unit consisting
of $100,000 principal amount of 10% senior secured convertible debentures and
a
detachable, transferable warrant to purchase shares of common stock, at a
purchase price of $100,000 per unit, to purchasers that qualified as accredited
investors, as defined in Regulation D, pursuant to the terms of a Confidential
Private Placement Memorandum dated September 19, 2007.
The
net
proceeds from the private placement, following the payment of offering-related
expenses, will be used by us for our capital expenditure requirements and for
working capital and other general corporate purposes.
The
debentures bear interest at 10% per year, payable quarterly in cash or
freely-tradable common stock, at our option, and mature on the earlier of 18
months after the original issuance date or the completion by us of one or a
series of related debt or equity financing transactions for minimum gross
proceeds of $5,000,000, exclusive of any financing transaction by a factor
or
commercial bank (a “Subsequent Financing”). The warrants are exercisable at any
time and expire three years from issuance.
The
debentures rank senior to all other indebtedness of ours. Pursuant to the terms
of a security agreement with the investors, the debentures are secured by the
grant by us and our subsidiary to a collateral agent of collateral that consists
of a first priority security interest in all of our and our subsidiary’s assets.
The outstanding balance of the debentures may be converted, at the option of
the
holder, in whole or in part, at the earlier of 12 months after the original
issuance date, into shares of our common stock at a conversion price equal
to
70% of the then market price per share of common stock, or upon the completion
by us of a Subsequent Financing, into the securities being sold in such
Subsequent Financing at an effective conversion price equal to 80% of the
purchase price of those securities. Notwithstanding the foregoing, the minimum
conversion price will be no less than $.25 per share. Partial conversions by
the
investors are permitted.
As
part
of the transaction, we issued to the investors warrants to purchase an aggregate
of up to 4,266,670 shares of our common stock at an exercise price of $.75
per
share. The warrants are exercisable for three years, contain customary change
of
control buy-out provisions and are not redeemable. The warrants also contain
anti-dilution provisions (including “full-ratchet” price protection from the
future issuance of stock, exclusive of the conversion of the debentures and
certain other excluded stock issuances, or securities convertible or exercisable
for shares of common stock below $.75 per share), provided that the exercise
price of the warrants may not be adjusted to less than $.25 per share as a
result of the full-ratchet price protection.
Pursuant
to the terms of a registration rights agreement with the investors, we agreed
to
file a registration statement with the U.S. Securities and Exchange Commission
as soon as possible for purposes of registering the resale of the shares of
our
common stock issuable upon the conversion of the debentures and exercise of
the
warrants sold in the private placement. In the event the registration statement
is not filed within 60 calendar days following the closing, we will pay the
investors 2% in cash or stock of the face amount of the debentures for every
30-day period, or portion thereof, that the registration statement is not filed.
In the event the registration statement is not declared effective within 120
calendar days following the closing, we will pay the investors 2% in cash or
stock of the face amount of the debentures for every 30-day period, or portion
thereof, that the registration statement is not declared effective for a maximum
of six months, subject to the ability of the investors to sell the underlying
shares pursuant to Rule 144. The liquidated damages can be paid in cash or
freely-tradable common stock, at our option. We have also agreed that we will
not file a registration statement for any additional shares of common stock
until 75 days after the effective date of the registration
statement.
Matrix
U.S.A., LLC acted as placement agent in the transaction. The placement agent
received $320,000 in cash placement fees and warrants to purchase 1,000,000
shares of common stock in the transaction.
The
debentures and warrants, and shares of our common stock underlying the
debentures and warrants, have not been registered under the Securities Act,
and
were issued and sold in reliance upon the exemption from registration contained
in Section 4(2) of the Securities Act and Regulation D promulgated thereunder,
which exempt transactions by an issuer not involving any public offering. The
issuance of the securities was undertaken without general solicitation or
advertising. Each purchaser of the securities represented in the purchase
agreement, among other things, that (a) it was an “accredited investor,” as
defined in Regulation D promulgated under the Securities Act of 1933, (b) it
had
obtained sufficient information from us to evaluate the merits and risks of
an
investment in our securities and (c) it was acquiring the securities for
investment purposes and not with a view to any public resale or other
distribution in violation of the Securities Act of 1933 or the securities laws
of any state. In addition, the securities are restricted securities under the
Securities Act of 1933. These securities may not be offered or sold in the
United States in the absence of an effective registration statement or exemption
from the registration requirements under the Securities Act. The consideration
and other terms in the purchase agreement were determined as a result of
arm’s-length negotiations between us and the purchasers.
December
2006 Private Placement.
On
December 6, 2006, we completed a second closing of the October 2006 private
placement of securities. In the second closing, we sold a total of 2,367 units,
each unit consisting of one share of our series A convertible preferred stock,
par value $.001 per share, and a detachable, transferable warrant to purchase
shares of common stock, at a purchase price of $1,000 per unit, to purchasers
that qualified as accredited investors, as defined in Regulation D, pursuant
to
the terms of a Confidential Private Placement Memorandum dated July 27, 2006,
as
supplemented by the First Supplement thereto dated October 6, 2006. Each share
of series A convertible preferred stock is initially convertible into 1,334
shares of common stock at any time. Each warrant entitles the holder to purchase
667 shares of common stock at an exercise price of $1.00 per share through
December 4, 2010, subject to redemption provisions based on the trading price
of
our common stock. The investment in the second closing is subject to the same
terms as the October 2006 private placement described below.
On
December 13, 2006, we completed the final closing of the October 2006 private
placement of securities. In the final closing, we sold a total of 350 units,
each unit consisting of one share of our series A convertible preferred stock,
par value $.001 per share, and a detachable, transferable warrant to purchase
shares of common stock, at a purchase price of $1,000 per unit, to purchasers
that qualified as accredited investors, as defined in Regulation D, pursuant
to
the terms of a Confidential Private Placement Memorandum dated July 27, 2006,
as
supplemented by the First Supplement thereto dated October 6, 2006. Each share
of series A convertible preferred stock is initially convertible into 1,334
shares of common stock at any time. Each warrant entitles the holder to purchase
667 shares of common stock at an exercise price of $1.00 per share through
December 4, 2010, subject to redemption provisions based on the trading price
of
our common stock. The investment in the final closing is subject to the same
terms as the first closing for the October 2006 private placement described
below.
The
net
proceeds from the private placement, following the payment of offering-related
expenses, will be used by us for our capital expenditure requirements and for
working capital and other general corporate purposes.
We
agreed, pursuant to the terms of a registration rights agreement with the
investors, to use our commercially reasonable best efforts to file a shelf
registration statement with the U.S. Securities and Exchange Commission covering
the resale of all shares of common stock underlying the series A convertible
preferred stock and warrants issued in connection with the private placement
within 180 days after the closing of the private placement. We are obligated
to
maintain the effectiveness of the registration statement from its effective
date
through and until 12 months after the effective date. We also agreed to use
our
best efforts to have the registration statement declared effective by the SEC
as
soon as possible and to respond to any SEC comments within 20 business days
after receiving comments. In the event the registration statement is not filed
with the SEC on or prior to the 180
th
day
after the closing of the private placement or in the event that we do not
respond to SEC comments within 20 days after receiving the comments, the total
number of shares of series A convertible preferred stock subscribed to in the
private placement and covered by the registration statement for each named
selling stockholder will be increased by 2% per month for each month (or portion
thereof) that the registration statement is not filed, provided that the
aggregate increase may not exceed 20%.
The
preferred stock and warrants, and common stock issuable upon conversion of
the
preferred stock and exercise of the warrants, were not registered under the
Securities Act, and were issued and sold in reliance upon the exemption from
registration contained in Section 4(2) of the Securities Act and Regulation
D
promulgated thereunder, which exempt transactions by an issuer not involving
any
public offering. The issuance of the securities was undertaken without general
solicitation or advertising. Each purchaser of the securities represented in
the
purchase agreement, among other things, that (a) it was an “accredited
investor”, as defined in Regulation D promulgated under the Securities Act of
1933, (b) it had obtained sufficient information from us to evaluate the merits
and risks of an investment in our securities and (c) it was acquiring the
securities for investment purposes and not with a view to any public resale
or
other distribution in violation of the Securities Act of 1933 or the securities
laws of any state. In addition, securities are restricted securities under
the
Securities Act of 1933. These securities may not be offered or sold in the
United States in the absence of an effective registration statement or exemption
from the registration requirements under the Securities Act. The consideration
and other terms in the purchase agreement were determined as a result of
arm’s-length negotiations between us and the purchasers.
October
2006 Private Placement.
On
October 17, 2006, in connection with the merger, we completed the initial
closing of a private placement selling a total of 3,033 units, each unit
consisting of one share of our series A convertible preferred stock, par
value $.001 per share, and a detachable, transferable warrant to purchase shares
of common stock, at a purchase price of $1,000 per unit, to purchasers that
qualified as accredited investors, as defined in Regulation D, pursuant to
the terms of a Confidential Private Placement Memorandum dated July 27, 2006,
as
supplemented by the First Supplement thereto dated October 6, 2006 and the
Second Supplement thereto dated October 30, 2006. Each share of series A
convertible preferred stock is initially convertible into 1,334 shares of common
stock at any time. Each warrant entitles the holder to purchase 667 shares
of common stock at an exercise price of $1.00 per share through October 16,
2010, subject to redemption provisions based on the trading price of our common
stock.
On
December 6, 2006, we completed a second closing of the October 2006 private
placement of securities. In the second closing, we sold a total of 2,367 units,
each unit consisting of one share of our series A convertible preferred stock,
par value $.001 per share, and a detachable, transferable warrant to purchase
shares of common stock, at a purchase price of $1,000 per unit, to purchasers
that qualified as accredited investors, as defined in Regulation D. On December
13, 2006, we completed the final closing of the October 2006 private placement
of securities. In the final closing, we sold a total of 350 units, each unit
consisting of one share of our series A convertible preferred stock, par value
$.001 per share, and a detachable, transferable warrant to purchase shares
of
common stock, at a purchase price of $1,000 per unit, to purchasers that
qualified as accredited investors, as defined in Regulation D.
The
net
proceeds from the private placement, following the payment of offering-related
expenses, will be used by us for our capital expenditure requirements and for
working capital and other general corporate purposes.
We
agreed, pursuant to the terms of the registration rights agreements with the
investors, to use our commercially reasonable best efforts to file a shelf
registration statement with the U.S. Securities and Exchange Commission covering
the resale of all shares of common stock underlying the series A convertible
preferred stock and warrants issued in connection with the private placement
within 180 days after the closing of the private placement. We are obligated
to
maintain the effectiveness of the registration statement from its effective
date
through and until 12 months after the effective date. We also agreed to use
our
best efforts to have the registration statement declared effective by the SEC
as
soon as possible and to respond to any SEC comments within 20 business days
after receiving comments. In the event the registration statement is not filed
with the SEC on or prior to the 180
th
day
after the closing of the private placement or in the event that we do not
respond to SEC comments within 20 days after receiving the comments, the total
number of shares of series A convertible preferred stock subscribed to in the
private placement and covered by the registration statement for each named
selling stockholder will be increased by 2% per month for each month (or portion
thereof) that the registration statement is not filed, provided that the
aggregate increase may not exceed 20%.
The
preferred stock and warrants, and common stock issuable upon conversion of
the
preferred stock and exercise of the warrants, were not registered under the
Securities Act, and were issued and sold in reliance upon the exemption from
registration contained in Section 4(2) of the Securities Act and Regulation
D
promulgated thereunder, which exempt transactions by an issuer not involving
any
public offering. The issuance of the securities was undertaken without general
solicitation or advertising. Each purchaser of the securities represented in
the
purchase agreement, among other things, that (a) it was an “accredited
investor”, as defined in Regulation D promulgated under the Securities Act of
1933, (b) it had obtained sufficient information from us to evaluate the merits
and risks of an investment in our securities and (c) it was acquiring the
securities for investment purposes and not with a view to any public resale
or
other distribution in violation of the Securities Act of 1933 or the securities
laws of any state. In addition, securities are restricted securities under
the
Securities Act of 1933. These securities may not be offered or sold in the
United States in the absence of an effective registration statement or exemption
from the registration requirements under the Securities Act. The consideration
and other terms in the purchase agreement were determined as a result of
arm’s-length negotiations between us and the purchasers.
October
2006 Merger.
In
connection with the merger, at closing, we issued 12,000,000 shares of our
common stock to the former shareholders of Odyne, representing 46.7% of our
outstanding common stock following the merger and private placement, in exchange
for 100% of the outstanding shares of Odyne common stock. The shares of our
common stock issued to former holders of Odyne common stock in connection with
the merger, and the shares of our series A convertible preferred stock and
warrants to purchase common stock issued in the private placement, were not
registered under the Securities Act of 1933 in reliance upon the exemption
from
registration provided by Section 4(2) of that Act and Regulation D promulgated
under that section, which exempts transactions by an issuer not involving any
public offering. These securities may not be offered or sold in the United
States absent registration or an applicable exemption from the registration
requirements. Certificates representing these shares contain a legend stating
the same.
Item
27. Exhibits.
The
exhibits listed in the following Exhibit Index are filed as part of this
registration statement.
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger, dated October 17, 2006, between Technology
Integration
Group, Inc., PHEV Acquisition Corp. and Odyne Corporation.
(1)
|
|
3.1
|
|
Certificate
of Amendment of Certificate of Incorporation of Technology Integration
Group, Inc. (changing name to Odyne Corporation). (2)
|
|
|
|
|
|
3.2
|
|
Certificate
of Designations, Preferences and Rights of Series A Convertible
Preferred
Stock of Odyne Corporation. (2)
|
|
|
|
|
|
3.3
|
|
By-laws
of Odyne Corporation. (2)
|
|
|
|
|
|
5.1
|
|
Opinion
of Greenberg Traurig, LLP
|
|
|
|
|
|
4.1
|
|
Form
of Warrant to Purchase Common Stock for the investors in the October
2006
private placement. (2)
|
|
|
|
|
|
4.2
|
|
Form
of 10% Senior Secured Convertible Debenture for the investors in
the
October 2007 private placement. (5)
|
|
|
|
|
|
4.3
|
|
Form
of Warrant to Purchase Common Stock for the investors in the October
2007
private placement. (5)
|
|
|
|
|
|
10.1
|
|
Form
of Subscription Agreement by and among Odyne Corporation and the
investors
in the October 2006 private placement. (2)
|
|
|
|
|
|
10.2
|
|
Employment
Agreement, dated as of September 1, 2006, between Roger M. Slotkin
and
Odyne Corporation. (2)
|
|
|
|
|
|
10.3
|
|
Employment
Agreement, dated as of September 1, 2006, between Joshua A. Hauser
and
Odyne Corporation. (2)
|
|
|
|
|
|
10.4
|
|
Employment
Agreement, dated as of September 1, 2006, between Joseph M. Ambrosio
and
Odyne Corporation. (2)
|
|
|
|
|
|
10.5
|
|
Employment
Agreement, dated as of September 1, 2006, between Konstantinos
Sfakianos
and Odyne Corporation. (2)
|
|
|
|
|
|
10.6
|
|
Manufacturer’s
Agreement, dated as of July 20, 2005, between the Town of North
Hempstead
and Odyne Corporation. (2)
|
|
|
|
|
|
10.7
|
|
Employment
Agreement, dated as of September 1, 2007, between Alan Tannenbaum
and
Odyne Corporation. (4)
|
|
|
|
|
|
10.8
|
|
Form
of Subscription Agreement by and among Odyne Corporation and the
investors
in the October 2007 private placement. (5)
|
|
|
|
|
|
10.9
|
|
Form
of Registration Rights Agreement by and among Odyne Corporation
and the
investors in the October 2006 private placement. (5)
|
|
|
|
|
|
10.10
|
|
Form
of Security Agreement by and among Odyne Corporation and the investors
in
the October 2006 private placement. (5)
|
|
|
|
|
|
14.1
|
|
Code
of Business Conduct and Ethics. (3)
|
|
|
|
|
|
23.1
|
|
Consent
of Marcum & Kliegman LLP.
|
|
|
|
|
|
23.2
|
|
Consent
of Greenberg Traurig, LLP (included in Exhibit
5.1).
|