As
filed with the U.S. Securities and Exchange Commission on April 21,
2008
Registration
No. 333-148247
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1/A
(Amendment
No. 1)
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
ODYNE
CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
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8742
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13-4050047
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(State
or other jurisdiction of
incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer
Identification
Number)
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89
Cabot Court, Suite L, Hauppauge, New York 11788
(631)
750-1010
(Address,
including zip code, and telephone number, including
area
code, of registrant’s principal executive offices)
President
and Chief Operating Officer
Odyne
Corporation
89
Cabot Court, Suite L
Hauppauge,
New York 11788
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
Copy
to:
Spencer
G. Feldman, Esq.
Greenberg
Traurig, LLP
MetLife
Building
200
Park Avenue – 15
th
Floor
New
York, New York 10166
Tel:
(212) 801-9200; Fax: (212) 801-6400
Approximate
date of commencement of proposed sale to the public:
As soon
as practicable after the effective date of this Registration
Statement.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.
x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
Accelerated Filer
o
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Accelerated
Filer
o
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Non-accelerated
Filer
o
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Smaller
Reporting Company
x
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CALCULATION
OF REGISTRATION FEE
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Title of each class of
securities to be
registered
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Amount being registered
(1)
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Proposed maximum
offering price per unit
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Proposed maximum
aggregate offering
price
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Amount of
registration
fee
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Common Stock (3)
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275,286
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$
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.62
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(2)
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$
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170,678
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$
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5.24
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Common
Stock (4)
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4,181,966
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$
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.60
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(5)
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$
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2,509,180
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$
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77.04
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Total
Registration Fee
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—
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—
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—
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$
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82.28
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(6)
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(1)
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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.
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(2)
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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.
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(3)
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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.
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(4)
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Represents
shares of common stock issuable upon exercise of warrants at a price
of
$.75 per share.
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(5)
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Calculated
pursuant to Rule 457(g).
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(6)
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A
registration filing fee of $388.51 was previously paid in connection
with
the initial filing of this registration
statement.
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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 APRIL 21, 2008
ODYNE
CORPORATION
4,457,252
Shares
Common
Stock
This
prospectus relates to the sale of up to 4,457,252 shares of our common stock
by
the selling stockholders listed in this prospectus. The shares offered by this
prospectus include 275,286 shares issuable in connection with the payment of
interest on our 10% senior secured convertible debentures, if such interest
is
not otherwise paid in cash, and 4,181,966 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
as payment of interest on the debentures and upon 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 April 18, 2008, were $.47
and $.46 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 April __, 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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4
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Risk
Factors
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5
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Special
Note Regarding Forward-Looking Statements
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11
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Where
You Can Find More Information
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11
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Use
Of Proceeds
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12
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Market
for Our Common Stock and Related Stockholder Matters
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12
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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14
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Business
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19
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Management
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29
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Certain
Relationships and Related Transactions
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39
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Selling
Stockholders
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40
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Plan
of Distribution
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44
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Description
of Securities
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46
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Shares
Eligible for Future Sale
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52
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Legal
Matters
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53
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Experts
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53
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Interest
of Named Experts and Counsel
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53
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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53
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Index
to Consolidated Financial Information
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F-1
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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 either series or parallel configuration hybrids that are
optimized for different applications. 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. 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 original equipment manufacturers (OEMs), municipalities
and private fleet operators.
Through
the end of 2007, we delivered five Plug-in Hybrid Electric Vehicles, consisting
of two buses and three trucks, to five different customers. In the same
timeframe, we also delivered five PHEV kits to two different customers, one
being an OEM and the other a retrofitter.
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
certain drive systems as well as electric motors/generators 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 expand our range of Plug-in Hybrid Electric
Vehicle propulsion systems by tailoring them for use in specific medium and
heavy-duty truck and bus applications. We intend to sell Plug-in Hybrid Electric
Vehicle power system components to medium and heavy-duty OEMs and vehicle
retrofitters.
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 $2,076,787 in revenue, including
research and development grants, from inception through December 31, 2007,
while
incurring an operating loss of $7,424,310 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 4,457,252 shares of our common stock by the selling stockholders listed
in
this prospectus. The shares offered by this prospectus include 275,286 shares
issuable in connection with the payment of interest on our 10% senior secured
convertible debentures, if such interest is not otherwise paid in cash, and
4,181,966 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 (recently adjusted to $.60 per share).
The
expenses and potential profit to investors in the private placement (at an
assumed conversion price of $.25 per share and a market price of $.47 per share)
of approximately $4,230,284 over the maximum term of the debentures (18 months)
represents 150% of our net proceeds of approximately $2,820,632 from the private
placement. 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
12%
of our total outstanding shares of common stock and series A convertible
preferred stock as of April 18, 2008.
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:
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·
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Number
of shares that may be issued in connection with the payment of
interest on
our 10% senior secured convertible debentures, if such interest
is not
otherwise paid in cash
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275,286
shares
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·
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Number
of shares that may be issued upon exercise of warrants
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4,181,966
shares
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Total
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4,457,252
shares
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Common
stock outstanding
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33,934,814
shares (1)
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Use
of proceeds
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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.
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OTC
Bulletin Board symbol
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ODYC
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(1)
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As
of April 18, 2008. 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.
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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 $2,076,787 in revenue, including
research and development grants, from inception through December 31, 2007,
while
incurring a net operating loss of $7,424,310 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. Through the end of 2007, we delivered five Plug-in Hybrid Electric
Vehicles, consisting of two buses and three trucks, to five different customers.
In the same timeframe, we also delivered five PHEV kits to two different
customers, one being an OEM and the other a retrofitter. 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
2007, 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. As of
April
18,
2008,
4,645,294
shares of our common stock are issuable upon the conversion of our Series
A
Convertible Preferred Stock. Up to 12,800,000 shares of common stock will
be
issuable upon conversion of our 10% senior secured convertible debentures
and
23,303,014 shares of common stock are issuable upon exercise of warrants
to
purchase common stock. Sales of common stock, including those that may be
sold
pursuant to Rule 144, are likely to have a depressive effect on the market
for
our common stock.
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 26% 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 S-1 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 $2,509,180 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,
|
|
|
|
2006
|
|
2007
|
|
2008
|
|
Quarter
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First
|
|
|
—
|
|
|
—
|
|
$
|
2.40
|
|
$
|
1.63
|
|
$
|
.75
|
|
$
|
.40
|
|
Second
|
|
|
—
|
|
|
—
|
|
$
|
1.95
|
|
$
|
.28
|
|
|
—
|
|
|
—
|
|
Third
|
|
|
—
|
|
|
—
|
|
$
|
.40
|
|
$
|
.15
|
|
|
|
|
|
|
|
Fourth
|
|
|
—
|
|
|
—
|
|
$
|
.70
|
|
$
|
.23
|
|
|
|
|
|
|
|
Second
(through
April
18, 2008
)
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
$
|
.585
|
|
$
|
.425
|
|
Fourth
(beginning on October 18, 2006)
|
|
$
|
2.85
|
|
$
|
1.60
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
On
April
18, 2008, the closing price of our common stock, as reported by the OTC Bulletin
Board, was $.46 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
April 18, 2008, there were 33,934,814 shares of our common stock outstanding
and
approximately 60 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 4,457,252 shares of our common stock offered for sale by
the
selling stockholders, which includes 275,286 shares of common stock issuable
in
connection with the payment of interest on our 10% senior secured convertible
debentures, if such interest is not otherwise paid in cash, and 4,181,966
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. As of December 31, 2007, 1,325,000 stock options are available
for issuance under our 2006 Equity Incentive Plan and there are outstanding
stock options to purchase 1,675,000 shares of common stock.
The
following table provides information as of December 31, 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
|
|
|
1,675,000
|
(1)
|
$
|
.55
|
|
|
1,325,000
|
|
Equity
compensation
plans not approved by
security holders
|
|
|
2,400,000
|
|
$
|
.32
|
|
|
—
|
|
Total
|
|
|
4,075,000
|
|
$
|
.41
|
|
|
1,325,000
|
|
(1)
|
Does
not include stock options to purchase 300,000 shares of our common
stock
that we granted to Alan Tannenbaum, our Chief Executive Officer,
on
January 2, 2008, with an exercise price equal to $.71 per
share.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
S
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.
Overview
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 - Year Ended December 31, 2007 Compared to December 31,
2006
Revenues
We
engage
in two primary sources of revenue generating activities, revenues from
fixed-price contracts and revenue from time and material contracts. Total
revenues were $610,945 and $242,945 for the years ended December 31, 2007
and
2006, respectively, an increase of $368,000, or 151%. During the year ended
December 31 2007, we delivered our first commercialized OEM PHEV production
system.
Cost
of Revenues
Cost
of
revenues for the years ended December 31, 2007 and 2006 were $1,207,080 and
$410,213, respectively, an increase of $796,867, or 194%. We had a gross
loss on
revenues of $596,135 compared to gross loss on revenues of $167,268 for the
years ended December 31, 2007 and 2006, respectively. Cost of revenues for
the
year ended December 31, 2007 included direct costs in the amount of $895,964,
other costs, including allocated general and administrative expenses, of
$268,116 and the establishment of warranty reserves of $43,000. Cost of revenues
for the year ended December 31, 2006 included direct costs in the amount
of
$370,361 and other costs, including allocated general and administrative
expenses, of $39,852. We did not record any reserve for warranty during the
year
ended December 31, 2006.
Research
and Development Expense
Research
and development expenses were $1,573,594 and $755,429 for the years ended
December 31, 2007 and 2006, respectively, an increase of $818,165, or 108%.
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 years ended December 31, 2007 and 2006
were
$1,922,244 and $758,283, respectively, an increase of $1,163,961, or 153%.
This
includes the following increases: $445,366 in professional fees associated
with
becoming a publicly traded company, $169,603 in salaries associated with
the
hiring of additional staff, $144,187 in sales, marketing and promotional
activities, $140,000 in allowances for uncollectible accounts, $93,930 in
payroll benefits including option grants, $57,410 in depreciation expense,
$17,342 in insurance associated with increased general liability and directors
and officers coverage and $96,123 of other cost associated with our expanded
operational activities.
Other
Income and Expense
Interest
income was $62,878 and $14,610 the years ended December 31, 2007 and 2006,
respectively. This increase resulted from interest earned on the funds we
received in connection with our two private placements. Interest expense
was
$232,995 and $343,598 for the years ended December 31, 2007 and 2006,
respectively.
Liquidity
and Capital Resources
Our
net
loss amounted to $4,262,090 and $2,009,968 for the years ended December 31,
2007
and 2006, respectively. Our accumulated deficit amounted to $8,103,167 and
$3,841,077 at December 31, 2007 and 2006, respectively. We used $3,732,075
to
fund our operating activities during the year ended December 31, 2007 and
$1,237,106 to fund operations during the year ended December 31, 2006. As
of
December 31, 2007 and 2006, we had $1,829,467 and $2,969,858, respectively,
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.
On
March
27, 2008, we completed a private placement of shares of common stock and
warrants to purchase common stock, and received gross proceeds in the amount
of
$7,000,000. The net proceeds of the private placement of $6,354,996 are being
used by us for our working capital and capital expenditure
requirements.
We
believe that the proceeds we received in connection with our March 2008 private
placement improved our overall liquidity. However, we will still be required
to
devote all of our capital resources to pursuing our research and development
initiatives, developing our manufacturing infrastructure and penetrating
possible markets Plug-in Hybrid Electric Vehicle system. We will need to
raise
substantial additional funds to achieve commercialization of our Plug-in
Hybrid
Electric Vehicle system and continue the pursuit of our business
plan.
We
have
taken certain measures to conserve our liquidity while we continue the effort
to
develop our technology. Our management believes that our current level of
capital resources is sufficient to sustain our business through December
31,
2008. However, we cannot assure you that we will be successful in our
efforts to fully commercialize our Plug-in Hybrid Electric Vehicle system
or
that the commercialization of this technology will actually improve our
operating results. Additionally, we cannot assure you that unforeseen
circumstances will not have a material affect on our business that could
require
us to raise additional capital or take other measures to sustain operations
in
the event that outside sources of capital are not available. We have not
secured
any commitments for new financing at this time nor can we assure you that
new
capital will be available to us on acceptable terms, if at all. We also
cannot assure you that even if we are successful in our efforts to raise
additional capital, that the proceeds of any such financing transaction will
enable us to develop our business to a level in which it is actually generating
operating profits and positive cash flows.
Net
Cash Used in Operating Activities:
Net cash
used in operating activities totaled $ 3,732,015 for the year ended December
31,
2007 as compared to cash flow used in operating activities of $1,237,106
for the
year ended December 31, 2006. During the year ended December 31, 2007, the
major
components of cash used in operations included our net loss from operations
of
$4,262,090, an increase in our level of inventory of $194,830, an increase
in
our accounts receivable of $274,243 and a reduction of our billings in excess
of
cost of $57,500. Items that had a favorable impact on cash used in operating
activities during the year ended December 31, 2007 included the use of
restricted cash for investor relations activities of $227,583 and an increase
in
the amount of customer deposits in hand of $87,089. During the year ended
December 31, 2006, cash used in operating activities included our net loss
from
operations of $1,237,106, an increase in our inventory of $127,593 and an
increase in the amount of our pre paid expenses, primarily insurance, by
$103,482. Items that had a favorable impact on cash used in operating activities
included an increase in accounts payable of $182,018, an increase in accrued
expenses and other liabilities of $113,248 and an increase in customer deposits
on hand in the amount of $150,000.
Net
Cash Used in Investing Activities:
We
invested $78,632 in property and equipment during the year ended December
31,
2007 as compared to $95,572 invested in property and equipment during the
year
ended December 31, 2006.
Net
Cash Provided by Financing Activities:
Net cash
provided by financing activities during the year ended December 31, 2007
included $2,765,624 of net proceeds we received from the issuance of our
convertible debentures, receipt and repayment of a loan from our Chief Executive
Officer in the amount of $250,000, the sale of a warrant for $55,115 and
the
payment of capital lease obligations in the amount of $6,817.
Net
cash
provided from financing activities during the year ended December 31, 2006
included $4,355,319 of net proceeds from our issuance of series A convertible
preferred stock, proceeds from convertible debentures of $250,000 and loans
from
officers in the amount of $73,000. We used cash in financing activities to
pay
down officer’s loans in the amount of $139,725, capital lease obligations of
$6,644 and pay net credit line activity in the amount of $115,830.
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 December 31, 2007, we
had not obtained a refuse vehicle from the third party and have not incurred
any
costs related to this contract extension.
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.
Stock-Based
Compensation
We
have
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.
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.
Recently-issued
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements” (“SFAS 157”). SFAS 157 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 our consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 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. We are in the process
of evaluating the impact of the adoption of this statement on our results of
operations and financial condition.
In
June
2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue
No. 06-11, “Accounting for Income Tax Benefits on Dividends on Share-Based
Payment Awards” (“EITF 06-11”) effective for reporting periods after December
15, 2007. EITF 06-11 addresses share-based payment arrangements with
dividend protection features that entitle employees to receive (a) dividends
on
equity-classified non-vested shares, (b) dividend equivalents on
equity-classified non-vested share units, or (c) payments equal to the dividends
paid on the underlying shares while an equity-classified share option is
outstanding, when those dividends or dividend equivalents are charged to
retained earnings under Statement 123(R) and result in an income tax deduction
for the employer. A realized income tax benefit from dividends or dividend
equivalents that are charged to retained earnings are paid to employees for
equity-classified non-vested shares, non-vested equity share units, and
outstanding equity share options should be recognized as an increase in
additional paid in capital. The amount recognized in additional paid-in
capital for the realized income tax benefit from dividends on those awards
should be included in the pool of excess tax benefits available to absorb
potential future tax deficiencies on share-based payments. We do not
expect the adoption of this pronouncement to have a material impact on our
financial position, results of operation and cash flows.
In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS
141R”), which establishes principles and requirements for how the acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree, goodwill acquired in the business combination or a gain from a bargain
purchase. SFAS 141R is effective for business combinations with an acquisition
date on or after the beginning of the first annual reporting period beginning
on
or after December 15, 2008. We expect SFAS 141R to have an impact on the
accounting for any future business acquisitions as of the effective date.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 establishes accounting and reporting standards for the noncontrolling
interest (minority interest) in a subsidiary and for the deconsolidation of
a
subsidiary. SFAS 160 requires (a) the ownership interest in the subsidiary
held
by parties other than the parent to be clearly identified and presented in
the
consolidated balance sheet within equity, but separate from the parent’s equity,
(b) the amount of consolidated net income attributable to the parent and to
the
noncontrolling interest to be clearly identified and presented on the face
of
the consolidated statement of operations and (c) changes in a parent’s ownership
interest while the parent retains its controlling financial interest in its
subsidiary to be accounted for consistently. Entities must provide sufficient
disclosures that clearly identify and distinguish between the interests of
the
parent and the interests of the noncontrolling owners. SFAS 160 is effective
for
financial statements issued for fiscal years beginning on or after December
15,
2008, and interim periods within those fiscal years. We are currently assessing
the impact of SFAS 160 on our consolidated financial statements.
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 either series or parallel configuration hybrids that are
optimized for different applications. 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. 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 original equipment manufacturers (OEMs), municipalities
and private fleet operators.
Through
the end of 2007, we delivered five Plug-in Hybrid Electric Vehicles, consisting
of two buses and three trucks, to five different customers. In the same
timeframe, we also delivered five PHEV kits to two different customers, one
being an OEM and the other a retrofitter.
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
certain drive systems as well as electric motors/generators 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 expand our range of Plug-in Hybrid Electric
Vehicle propulsion systems by tailoring them for use in specific medium and
heavy-duty truck and bus applications. We intend to sell Plug-in Hybrid Electric
Vehicle power system components to medium and heavy-duty OEMs and vehicle
retrofitters.
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
Alcohols
in blends containing at least 85% alcohol
Hydrogen
Electricity
100%
biodiesel
|
|
Alternatively
fueled vehicle suppliers
Alternative
transportation fuel suppliers
Alternatively
fueled vehicle technologies and components
|
|
Automobiles
Vans
& minivans
Light-duty
trucks
Medium-duty
trucks
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.
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.
The
efficiency of an electric motor at low rpm is superior to that of an internal
combustion engine. To the extent that the electric motor is delivering power
to
the drive wheels at low speeds, this efficiency differential results in improved
fuel efficiency.
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 braking.
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. From a systemic emissions perspective, the use of this “grid fuel”
is cleaner than using the liquid fuel carried in the vehicle.
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 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 series PHEV operates at a fixed rpm, which enhances
the
vehicle’s efficiency and resiliency.
|
|
·
|
Electric-only
operation
.
We
offer 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.
|
Business
and Growth Strategy
Products
We
provide series and parallel propulsion systems consisting of a control area
network, appropriate driver interface controls and a selection of other major
components.
Series
Versus Parallel 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.” 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
|
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.
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 expand our range of Plug-in Hybrid Electric
Vehicle propulsion systems by tailoring them for use in specific medium and
heavy-duty truck and bus applications. We intend to sell Plug-in Hybrid Electric
Vehicle power system components to medium and heavy-duty vehicle OEMs and
vehicle retrofitters. We spent approximately $1,252,752 in the first nine months
of 2007 and $755,429 in 2006 on research and development
activities.
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, motors and drives 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 the 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
Through
the end of 2007, we delivered five Plug-in Hybrid Electric Vehicles, consisting
of two buses and three trucks, to five different customers. In the same
timeframe, we also delivered five PHEV kits to two different customers, one
being an OEM and the other a retrofitter. We have an agreement with Dueco Inc.,
a Wisconsin-based manufacturer of aerial “bucket” trucks used by utilities and
telecom companies, to supply them with PHEV systems optimized for this
application. In December 2007, we received an order from Dueco for twenty-five
of the systems to be delivered before the end of 2008.
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 approved by the PTO and U.S. Patent No.
7,323,272 was issued on January 29, 2008. One patent application is currently
being reviewed by the PTO. The other two utility patent applications have not
yet been reviewed by the PTO. W
e
cannot
assure you
that
patents will issue from the PTO on any of these patent applications that are
in
process to be reviewed by the PTO.
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.
In
addition to vehicle manufacturers, there are several competitors that offer
either hybrid systems or hybrid system components to original equipment
manufacturers. Among those competitors are public companies such as Eaton
Corporation, Azure Dynamics Inc. and Enova Systems Inc. as well as ISE Research
Corporation, a private company
We
believe that we are distinct in our approach of offering original equipment
manufacturers a comprehensive plug-in 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 that started 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
April 18, 2008, we employed 22 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
On
January 16, 2008, Amity Truck Service Corp. commenced an action against Odyne
Corporation and others in the Supreme Court, Suffolk County seeking to recover
damages based on alleged facts concerning our commercial relationship with
the plaintiff in the latter part of 2006 and the early part of 2007 which
culminated in an Exclusive Sales and Marketing Agreement, whereby the plaintiff
agreed to serve as the exclusive retrofitting installer of our plug-in
hybrid electric propulsion systems for medium and heavy trucks and as the
exclusive distributor of such vehicles in the New York metropolitan area. It
is
our opinion that the alleged facts, even if true, do not provide a legal basis
for recovery, and we have filed a motion to dismiss the litigation on the
grounds that the complaint fails to state any viable cause of action. The motion
was submitted to the court on February 27, 2008 and is presently
pending. Our management believes that we have a reasonable chance of
succeeding in dismissing the action, although we cannot predict the outcome
of
the motion and the action.
Apart
from the legal proceeding noted in the previous paragraph, we are not party
to
any legal proceedings, nor are we aware of any contemplated or pending legal
proceedings against us.
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 April 18, 2008:
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Alan
Tannenbaum
|
|
40
|
|
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
|
|
38
|
|
Executive
Vice President-Operations
|
|
|
|
|
|
Daniel
Bartley
|
|
47
|
|
Chief
Financial Officer
|
|
|
|
|
|
Jeffrey
H. Auerbach
|
|
37
|
|
Director
|
|
|
|
|
|
Bruce
E. Humenik
|
|
59
|
|
Director
|
|
|
|
|
|
Stanley
W. Struble
|
|
62
|
|
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.
Jeffrey
H. Auerbach
has
served as a member of our board of directors since April 2008. Mr. Auerbach
is
the Senior Vice President, Private Client Group, of vFinance Investments, Inc.,
where he has been a registered representative for five years. vFinance
Investments is a subsidiary of vFinance, Inc., a publicly-held financial
services firm headquartered in Boca Raton, Florida, with offices in New York,
New York. Mr. Auerbach is a director nominee of The Quercus Trust, the lead
investor in our October 2007 and March 2008 financing transactions. He also
serves on the board of directors of Electro Energy Inc., a publicly-held
developer of energy storage technology, products and related systems.
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 31, 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-K.
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 $100,000 during the stated period and any individuals
for whom disclosure would have been made in this table but for the fact that
the
individual was not serving as an executive officer as at December 31,
2007:
Summary
Compensation Table
Name and
Principal Position
|
|
Year
|
|
Salary
($)
|
|
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
|
|
|
2007
2006
|
|
|
—
—
|
|
|
—
|
|
|
—
|
|
|
7,431
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,431
—
|
|
Joshua
A. Hauser
President
and Chief Operating Officer
|
|
|
2007
2006
|
|
|
140,269
40,923
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
140,269
40,923
|
|
Joseph
M. Ambrosio
Executive
Vice President - Engineering and Chief Technology Officer
|
|
|
2007
2006
|
|
|
141,885
59,323
|
|
|
10,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
151,885
59,323
|
|
Konstantinos
Sfakianos
Executive
Vice President - Operations
|
|
|
2007
2006
|
|
|
141,866
59,323
|
|
|
10,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
151,866
59,323
|
|
Daniel
Bartley
Chief
Financial Officer(2)
|
|
|
2007
2006
|
|
|
135,462
22,230
|
|
|
10,000
|
|
|
—
|
|
|
14,279
3,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
159,741
25,730
|
|
Roger
M. Slotkin
former
Chief Executive Officer (3)
|
|
|
2007
2006
|
|
|
105,135
40,923
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,288
|
|
|
151,423
40,923
|
|
(1)
Mr.
Tannenbaum joined our company in September 2007. Assumptions used for the
valuation of options are contained in the Notes to the accompanying financial
statements.
(2)
Mr.
Bartley joined our company in October 2006. Assumptions used for the valuation
of options are contained in the Notes to the accompanying financial statements.
(3)
Mr.
Slotkin left our company in August 2007. Other compensation represents payments
made under a Separation Agreement
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
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
Tannenbaum
|
|
|
0
0
|
|
|
300,000
300,000
|
(1)
(2)
|
|
|
|
|
.47
.71
|
|
|
Sept.2017
Jan.2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel
Bartley
|
|
|
0
0
|
|
|
150,000
250,000
|
(3)
(4)
|
|
—
|
|
|
.75
.395
|
|
|
Oct.
2016
Oct.
2017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Bruce
E. Humenik
|
|
|
0
0
|
|
|
50,000
80,000
|
(3)
(4)
|
|
—
|
|
|
.75
.395
|
|
|
Oct.
2016
Oct.
2017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Stanley
W. Struble
|
|
|
0
0
|
|
|
50,000
80,000
|
(3)
(4)
|
|
—
|
|
|
.75
.395
|
|
|
Oct.
2016
Oct.
2017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
S.
Charles Tabak
|
|
|
0
0
|
|
|
50,000
80,000
|
(3)
(4)
|
|
—
|
|
|
.75
.395
|
|
|
Oct.
2016
Oct.
2017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
These
options vest and become exercisable in three equal increments on
each of
September 19, 2009, 2010 and 2011. The fair market value of the options
is
$.16 per share.
|
|
(2)
|
These
options vest and become exercisable in three equal increments on
each of
January 2, 2010, 2011 and 2012. The fair market value of the options
is
$24 per share.
|
|
(3)
|
These
options vest and become exercisable in three equal increments on
each of
October 17, 2008, 2009 and 2010. The fair market value of the options
is
$.43 per share.
|
|
(4)
|
These
options vest and become exercisable in three equal increments on
each of
October 23, 2009, 2010 and 2011. The fair market value of the options
is
$.13 per share.
|
Compensation
of Directors
Directors
are expected to timely and fully participate in all regular and special board
meetings, and all meetings of committees that they serve on. We currently
compensate non-management directors through stock options granted under our
stock option plan and a cash stipend for each meeting attended.
During
the years ended December 31, 2007 and 2006, respectively, each of our
non-management directors, Messrs. Humenik, Struble and Tabak, received grants
of
stock options to purchase 80,00 and 50,000 shares of our common stock for
serving on our board of directors. The 2007 stock options vest and become
exercisable in three equal increments on each of October 23, 2009, 2010 and
2011. The 2006 stock options vest and become exercisable in three equal
increments on each of October 17, 2008, 2009 and 2010. Messrs. Tannenbaum and
Hauser, as members of management, do not receive separate compensation for
serving as directors.
The
table
below summarizes the compensation that we paid to non-management directors
for
the fiscal year ended December 31, 2007 and 2006.
Director
Compensation
Name
|
|
Year
|
|
Fees
Earned or
Paid in
Cash ($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive
Plan Compen
-sation
(4)
|
|
Nonqualified
Deferred
Compen-
sation
Earnings
($)
|
|
All Other
Compen-
sation ($)
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce
E. Humenik
|
|
|
2007
2006
|
|
|
7,000
1,000
|
|
|
—
|
|
|
4,741
1,167
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,741
2,167
|
|
Stanley
W. Struble
|
|
|
2007
2006
|
|
|
7,000
1,000
|
|
|
—
|
|
|
4,741
1,167
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,741
2,167
|
|
S.
Charles Tabak
|
|
|
2007
2006
|
|
|
7,000
1,000
|
|
|
—
|
|
|
4,741
1,167
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,741
2,167
|
|
Employment
Agreements
We
have
employment agreements with Joseph M. Ambrosio and Konstantinos Sfakianos. 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 Executive
Vice
President – Engineering and Chief Technology Officer, and Executive Vice
President – Operations, respectively. 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
per share (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 per
share (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 have an exercise price equal to $.71 per share (the
closing market price of our common stock on January 2, 2008). 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 Mr. Tannenbaum a reduction in his 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 April 18, 2008, 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:
|
|
|
|
|
|
|
|
|
|
|
|
The
Quercus Trust
(3)
|
|
|
19,333,333
|
|
|
43.0
|
%
|
|
|
|
|
|
|
|
|
Spinel
Finance LLC
(4)
|
|
|
6,666,666
|
|
|
17.9
|
%
|
|
|
|
|
|
|
|
|
Roger
M. Slotkin
(5)
|
|
|
3,528,310
|
|
|
10.4
|
%
|
|
|
|
|
|
|
|
|
Directors
and Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
Tannenbaum
(6)
|
|
|
583,334
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
Joshua
A. Hauser
|
|
|
1,842,259
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
Joseph
M. Ambrosio
|
|
|
3,231,194
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
Konstantinos
Sfakianos
|
|
|
3,378,740
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
Daniel
Bartley
(7)
|
|
|
—
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Jeffrey
Auerbach
(8)
|
|
|
502,039
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
Bruce
E. Humenik
(9)(10)
|
|
|
46,680
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Stanley
W. Struble
(9)
|
|
|
27,500
|
|
|
*
|
|
|
|
|
|
|
|
|
|
S.
Charles Tabak
(9)(11)
|
|
|
56,697
|
|
|
*
|
|
|
|
|
|
|
|
|
|
All
directors and executive officers as a group (9 persons)
|
|
|
9,668,443
|
|
|
27.7
|
%
|
*
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 33,934,814 shares of common
stock
outstanding on April 18, 2008. Does not include 4,645,294 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 April 18, 2008 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
11,000,000 shares of common stock issuable upon the exercise of warrants.
Excludes a maximum of 8,000,000 shares of common stock issuable upon
the
conversion of $2,000,000 principal amount of 10% senior secured
convertible debentures, which are not currently convertible.
|
|
(4)
|
Includes
3,333,333 shares of common stock issuable upon the exercise of warrants.
|
|
(5)
|
Includes
33,350 shares of common stock issuable upon the exercise of warrants.
Mr.
Slotkin previously served as an officer and director of our
company.
|
|
(6)
|
Includes
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 a
maximum of 1,000,000 shares of common stock issuable upon the conversion
of $250,000 principal amount of 10% senior secured convertible debentures,
which are not currently convertible. Excludes 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 $.71. The $.47 and $.32 options vest in three equal
increments on each of October 26, 2009, 2010 and 2011. The $.71 options
vest in three equal increments on each of January 2, 2010, 2011 and
2012.
|
|
(7)
|
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.
|
|
(8)
|
Represents
shares of common stock issuable upon the exercise of warrants, including
50,000 shares of common stock issuable upon the exercise of a warrant
owned by Mr. Auerbach’s spouse.
|
|
(9)
|
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.
|
|
(10)
|
Represents
33,340 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.
|
|
(11)
|
Represents
40,689 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 2006
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 2006 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 2006 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 2006 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 (recently adjusted to $.60 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 at the time of 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. The holders of the
debentures waived their rights to convert the debentures or be prepaid in
connection with our March 2008 private placement.
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 (recently adjusted to $.60 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.
The
expenses and potential profit to investors in the private placement (at an
assumed conversion price of $.25 per share and a market price of $.47 per share)
of approximately $4,230,284 over the maximum term of the debentures (18 months)
represents 150% of our net proceeds of approximately $2,820,632 from the private
placement.
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 to the extent such shares are not
otherwise salable pursuant to Rule 144 without volume restrictions. In the
event
the registration statement is not declared effective within 180 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.
Recent
Adjustments Resulting from the March 2008 Private
Placement
On
March
27, 2008, we completed a $7,000,000 private placement by issuing a total of
11,666,666 shares of common stock at a purchase price of $.60 per share, and
warrants to purchase up to a total of 11,666,666 shares of common stock at
an
exercise price of $.72 per share. As a result of the purchase price of the
common stock in the private placement, we triggered certain adjustment
provisions in our earlier issued series A convertible preferred stock and
warrants to purchase common stock.
|
·
|
For
holders of our series A convertible preferred stock, the conversion
rate
of the series A convertible preferred stock was reduced to $1,000
divided
by the adjusted price of $.60 per share (previously, $.75 per share).
Accordingly, from the closing of the March 2008 private placement,
the
series A convertible preferred stock has a conversion rate equal
to 1,667
shares of common stock for every share of series A convertible preferred
stock, instead of 1,333 shares of common stock for every share of
series A
convertible preferred stock.
|
|
·
|
For
holders of our warrants issued in October and December 2006 in connection
with our reverse public offering (including warrants issued to certain
advisors), the exercise price of the warrants was reduced from $1.00
per
share to equal the March 2008 private placement common stock price
of $.60
per share multiplied by 1.33, as called for by the terms of the warrant.
Accordingly, from the closing of the private placement, these warrants
have an adjusted warrant exercise price of $.80 per share and are
exercisable to purchase the same number of shares of common
stock.
|
|
·
|
For
holders of our warrants issued in October 2007 in connection with
our 10%
senior secured convertible debenture financing (including placement
agent
warrants), the exercise price of the warrants was reduced from $.75
per
share to the March 2008 private placement common stock price. Accordingly,
from the closing of the private placement, these warrants have an
exercise
price of $.60 per share and are exercisable to purchase the same
number of
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 April 18, 2008,
|
|
·
|
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.
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.
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 April 18, 2008. 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)
|
|
|
333,334
|
|
|
348,222
|
|
|
-
|
|
|
*
|
|
Avrum
Lewittes
|
|
|
266,667
|
|
|
278,578
|
|
|
-
|
|
|
*
|
|
Robert
Meyer
|
|
|
333,334
|
|
|
348,227
|
|
|
-
|
|
|
*
|
|
George
L. Noble
|
|
|
666,668
|
|
|
696,445
|
|
|
-
|
|
|
*
|
|
The
Quercus Trust (6)
|
|
|
19,333,333
|
|
|
2,785,780
|
|
|
16,719,607
|
|
|
39.5
|
%
|
Selling
Stockholders Total
|
|
|
|
|
|
4,457,252
|
|
|
|
|
|
|
|
*
Less
than 1% of outstanding shares.
(1)
|
Beneficial
ownership as of April 18, 2008, for all selling stockholders based
upon
information provided by the selling stockholders known to us. Does
not
include shares issuable upon conversion of our 10% senior secured
convertible debentures or shares of our common stock potentially
issuable
in connection with the payment of interest on the senior secured
convertible debentures.
|
(2)
|
The
number of shares in this column includes 275,286 shares of our common
stock potentially issuable in connection with the payment of interest
on
the 10% senior secured convertible debentures, if such interest is
not
otherwise paid in cash, and 4,181,966 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. Does
not
include shares issuable upon conversion of our 10% senior secured
convertible debentures or shares of our common stock potentially
issuable
in connection with the payment of interest on the senior secured
convertible debentures.
|
(4)
|
Based
on 33,934,814 shares of common stock outstanding on April 18, 2008,
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 April 18, 2008 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.
|
(6)
|
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.
|
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:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers,
|
|
·
|
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,
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account,
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange,
|
|
·
|
privately
negotiated transactions,
|
|
·
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a part,
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share,
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise,
|
|
·
|
a
combination of any such methods of sale,
or
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
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 April 18, 2008, there were issued
and outstanding:
|
·
|
33,934,814
shares of common stock,
|
|
·
|
2,786.62
shares of series A convertible preferred stock, convertible at any
time
into 4,645,294 shares of common
stock,
|
|
·
|
$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,
|
|
·
|
stock
options to purchase 4,595,000 shares of common stock at an average
weighted per share price of $.43,
and
|
|
·
|
warrants
to purchase 23,303,014 shares of common stock at an average per share
exercise price of $.79.
|
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 convertible into 1,667
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 $.60 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). The holders of the debentures
waived their rights to be prepaid in connection with our March 2008 private
placement.
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. The holders of the debentures waived
their rights to convert the debentures in connection with our March 2008 private
placement.
March
2008 Private Placement Warrants
On
March
27, 2008, we completed a private placement to two institutional investors,
pursuant to the terms of a securities purchase agreement. As part of this
transaction, the investors received warrants to purchase 11,666,666 shares
of
our common stock at an exercise price of $.72 per share. The warrants
expire on March 27, 2013.
Exercise
Price and Terms
.
Warrants were issued to each investor for a number of shares of common stock
equal to 100% of the number of shares of common stock purchased by such
investor. The exercise price of the warrants is $.72 per share. The warrants
are
exercisable at any time and expire five 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 contain anti-dilution provisions (including “full-ratchet” price
protection from the future issuance of stock, exclusive of certain issuances,
or
securities convertible or exercisable for shares of common stock below $.72
per
share), provided that the exercise price of the warrants may not be adjusted
to
less than $.60 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 five years from March 27, 2008, 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 March 2008 private placement, we agreed with investors
in
the private placement to file a registration statement with the U.S. Securities
and Exchange Commission no later than 150 calendar days following March 27,
2008
(the closing date of the private placement), covering the resale of the shares
of our common stock sold in the private placement and issuable upon the exercise
of the warrants sold in the private placement, and to use all reasonable best
efforts to cause the registration statement to be declared effective within
240
calendar days after the closing date, and to remain continuously effective
for
three years after the closing date.
Placement
Agent Warrants
.
In
connect with the closing in March 2008 of the private placement, we issued
to
the placement agent and its designees common stock purchase warrants to purchase
up to 1,050,0000 shares of our common stock at an exercise price of $.72 per
share. The warrants expire on March 27, 2013.
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 (recently adjusted to $.60 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 currently $.60 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, to the
extent such shares are not otherwise salable pursuant to Rule 144 without volume
restrictions. In the event the registration statement is not declared effective
within 180 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 1,000,000 shares of our common stock at an exercise price of $.75 per
share (recently adjusted to $.60 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
(recently adjusted to $.80 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
April 18, 2008, as reported by the OTC Bulletin Board, were $.47 and $.46 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. In the event that a claim for indemnification against such
liabilities (other than the payment of expenses incurred or paid by a director,
officer or controlling person in the successful defense of any action, suit
or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit
to a
court of appropriate jurisdiction the question whether such indemnification
by
us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
SHARES
ELIGIBLE FOR FUTURE SALE
As
of
April 18, 2008, we had 33,934,814 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
33,934,814 outstanding shares of our common stock not included in this
prospectus, as of April 18, 2008, will be eligible for sale in the public market
as follows:
Public
Float
Of
our
outstanding shares, 23,891,319 shares are owned by executive officers,
directors, and 5% or greater stockholders. The remaining 10,043,495 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 six months, including the holding
period of prior owners other than affiliates, is entitled to sell his or her
shares without any volume limitations; an affiliate, however, can sell such
number of shares within any three-month period as does not exceed the greater
of:
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1%
of the number of shares of our common stock then outstanding, which
equaled 339,348 shares as of April 18, 2008,
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
April 18, 2008, 22,268,148 shares of our common stock are eligible for sale
under Rule 144.
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 Holtz
Rubenstein Reminick LLP and Marcum & Kliegman LLP, independent registered
public accountants, to the extent and for the periods set forth in their
respective reports appearing elsewhere herein and are included in reliance
upon
such reports given upon the authority of each of those respective
firms as experts in auditing and accounting.
INTEREST
OF NAMED EXPERTS AND COUNSEL
No
expert
or counsel named in this prospectus as having prepared or certified any part
of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the common stock was employed on a contingency basis, or had,
or
is to receive, in connection with the offering, a substantial interest, direct
or indirect, in the registrant or any of its parents or subsidiaries. Nor was
any such person connected with the registrant or any of its parents or
subsidiaries as a promoter, managing or principal underwriter, voting trustee,
director, officer, or employee.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
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 STATEMENTS
Page
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Reports
of Independent Registered Public Accounting Firms
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F-2
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Consolidated
Balance Sheets as of December 31, 2007 and 2006
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F-4
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Consolidated
Statements of Operations for the years ended
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December
31, 2007 and 2006
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F-5
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Consolidated
Statements of Stockholders’ (Deficit) for the
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years
ended December 31, 2007 and 2006
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F-6
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Consolidated
Statements of Cash Flows for the years ended
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December
31, 2007 and 2006
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F-7
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Notes
to Consolidated Financial Statements
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F-8
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[Holtz
Rubenstein Reminick LLP Letterhead]
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors
Odyne
Corporation
And Subsidiary
Hauppauge,
New York
We
have
audited the accompanying consolidated balance sheet of Odyne Corporation and
Subsidiary as of December 31, 2007, and the related consolidated statements
of operations, stockholders’ equity and cash flows for the year then ended. The
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audit.
We
conducted our audit 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
includes examining on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides 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, 2007, and the results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of
America.
/s/
Holtz
Rubenstein Reminick LLP
Melville,
New York
March
27,
2008
[Marcum
& Kliegman LLP Letterhead]
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 the year
then ended. 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 audit.
We
conducted our audit 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 audit provides 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 the year then ended 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 SHEETS
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
Cash
|
|
$
|
2,087,217
|
|
$
|
3,083,942
|
|
Cash
- restricted
|
|
|
-
|
|
|
227,583
|
|
Accounts
receivable, net of reserves of $ 143,000 and $ 3,000,
respectively
|
|
|
158,333
|
|
|
24,090
|
|
Inventory,
net of reserves of $ 90,000 and $ 0, respectively
|
|
|
237,423
|
|
|
132,593
|
|
Prepaid
insurance
|
|
|
103,168
|
|
|
111,535
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,586,141
|
|
|
3,579,743
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
120,019
|
|
|
98,797
|
|
Deferred
financing costs, net
|
|
|
386,130
|
|
|
-
|
|
Intangible
assets - patents
|
|
|
14,000
|
|
|
14,000
|
|
Other
assets
|
|
|
10,000
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
3,116,290
|
|
$
|
3,702,540
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' (DEFICIENCY) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
270,538
|
|
$
|
249,254
|
|
Accrued
payroll and other operating expenses
|
|
|
206,464
|
|
|
119,375
|
|
Customer
deposits
|
|
|
171,487
|
|
|
150,000
|
|
Billings
in excess of costs incurred on contracts progress
|
|
|
-
|
|
|
57,500
|
|
Accrued
losses on contracts in progress
|
|
|
3,016
|
|
|
26,939
|
|
Reserve
for warranty
|
|
|
43,000
|
|
|
-
|
|
Accrued
interest on convertible debentures
|
|
|
57,863
|
|
|
-
|
|
Current
maturities of capital lease obligations
|
|
|
4,306
|
|
|
6,817
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
756,674
|
|
|
609,885
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations, net of current maturities
|
|
|
656
|
|
|
4,962
|
|
Development
funding subject to repayment
|
|
|
238,948
|
|
|
240,894
|
|
Convertible
debentures, net
|
|
|
2,433,633
|
|
|
-
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
3,429,911
|
|
|
855,741
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
(DEFICIENCY) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value, 4,994,000 shares authorized, no shares issued
and
outstanding
|
|
|
-
|
|
|
-
|
|
Series
A Convertible Preferred Stock, $0.001 par value; 6,000 authorized;
2,917
and 5,750 shares issued and outstanding respectively, liquidation
rights $
1,000 per share
|
|
|
3
|
|
|
6
|
|
Common
stock, $0.001 par value per share; 95,000,000 shares authorized;
22,061,428 and 18,000,000 shares issued and outstanding respectively
|
|
|
22,061
|
|
|
18,000
|
|
Additional
paid-in-capital
|
|
|
7,767,482
|
|
|
6,669,870
|
|
Accumulated
deficit
|
|
|
(8,103,167
|
)
|
|
(3,841,077
|
)
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS' (DEFICIENCY) EQUITY
|
|
|
(313,621
|
)
|
|
2,846,799
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
|
|
$
|
3,116,290
|
|
$
|
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,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
SALES
|
|
$
|
610,945
|
|
$
|
242,945
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
1,207,080
|
|
|
410,213
|
|
|
|
|
|
|
|
|
|
GROSS
LOSS
|
|
|
(596,135
|
)
|
|
(167,268
|
)
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,573,594
|
|
|
755,429
|
|
General
and administrative
|
|
|
1,922,244
|
|
|
758,283
|
|
TOTAL
OPERATING EXPENSES
|
|
|
3,495,838
|
|
|
1,513,712
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(4,091,973
|
)
|
|
(1,680,980
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
Interest
income
|
|
|
62,878
|
|
|
14,610
|
|
Interest
expense
|
|
|
(232,995
|
)
|
|
(343,598
|
)
|
TOTAL
OTHER EXPENSE
|
|
|
(170,117
|
)
|
|
(328,988
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(4,262,090
|
)
|
|
(2,009,968
|
)
|
|
|
|
|
|
|
|
|
Deemed
dividends
|
|
|
-
|
|
|
(3,230,791
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$
|
(4,262,090
|
)
|
$
|
(5,240,759
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS PER COMMON SHARE - BASIC AND DILUTED
|
|
$
|
(0.21
|
)
|
$
|
(0.40
|
)
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING- BASIC AND
DILUTED
|
|
|
20,143,062
|
|
|
13,250,000
|
|
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, 2007 and 2006.
|
|
Convertible Preferred Stock
|
|
|
|
|
|
Excess of
|
|
|
|
|
|
|
|
Series A
|
|
Common Stock
|
|
Additional Paid-in
|
|
Liabilities
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
over Assets
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
based payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,884
|
|
|
|
|
|
|
|
|
107,884
|
|
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
|
|
|
(2,833
|
)
|
|
(3
|
)
|
|
3,779,771
|
|
|
3,779
|
|
|
(3,776
|
)
|
|
|
|
|
-
|
|
|
-
|
|
Discount
on convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
938,671
|
|
|
|
|
|
|
|
|
938,671
|
|
Sale
of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,115
|
|
|
|
|
|
|
|
|
55,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
(4,262,090
|
)
|
|
(4,262,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
2,917
|
|
$
|
3
|
|
|
22,061,428
|
|
$
|
22,061
|
|
$
|
7,767,482
|
|
|
|
|
$
|
(8,103,167
|
)
|
$
|
(313,621
|
)
|
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,
|
|
|
|
2007
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,262,090
|
)
|
$
|
(2,009,968
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
105,656
|
|
|
19,103
|
|
Provision
for bad debts
|
|
|
140,000
|
|
|
-
|
|
Provision
for obsolete inventory
|
|
|
90,000
|
|
|
-
|
|
Non
-cash interest
|
|
|
172,304
|
|
|
303,570
|
|
Share
based payments
|
|
|
107,884
|
|
|
11,782
|
|
Series
A Convertible Preferred Stock issued for services
|
|
|
-
|
|
|
79,000
|
|
Deferred
rent
|
|
|
-
|
|
|
(1,732
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Cash
- Restricted
|
|
|
227,583
|
|
|
(227,583
|
)
|
Accounts
receivable
|
|
|
(274,243
|
)
|
|
66,574
|
|
Inventory
|
|
|
(194,830
|
)
|
|
(127,593
|
)
|
Prepaid
expenses and other current assets
|
|
|
8,367
|
|
|
(103,482
|
)
|
Accounts
payable
|
|
|
21,284
|
|
|
182,018
|
|
Accrued
payroll and other operating expenses
|
|
|
87,089
|
|
|
113,248
|
|
Customer
deposits
|
|
|
21,487
|
|
|
150,000
|
|
Billings
in excess of costs incurred on contracts in progress
|
|
|
(57,500
|
)
|
|
(8,725
|
)
|
Accrued
losses on contracts in progress
|
|
|
(23,923
|
)
|
|
26,939
|
|
Deferred
compensation payable to officers
|
|
|
-
|
|
|
231,995
|
|
Reserve
for warranty
|
|
|
43,000
|
|
|
-
|
|
Accrued
interest on convertible debentures
|
|
|
57,863
|
|
|
-
|
|
Development
funding subject to repayment
|
|
|
(1,946
|
)
|
|
57,748
|
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(3,732,015
|
)
|
|
(1,237,106
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(78,632
|
)
|
|
(95,572
|
)
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(78,632
|
)
|
|
(95,572
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Net
proceeds from issuances of Series A Convertible Preferred
Stock
|
|
|
-
|
|
|
4,355,319
|
|
Net
proceeds from issuances of Convertible Debentures
|
|
|
2,765,624
|
|
|
250,000
|
|
Proceeds
of loans made to the Company by officers
|
|
|
250,000
|
|
|
73,000
|
|
Repayment
of loans payable to officers
|
|
|
(250,000
|
)
|
|
(139,725
|
)
|
Capital
lease payments
|
|
|
(6,817
|
)
|
|
(6,644
|
)
|
Proceeds
on sale of warrants
|
|
|
55,115
|
|
|
-
|
|
Net
repayment under lines of credit
|
|
|
-
|
|
|
(115,830
|
)
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
2,813,922
|
|
|
4,416,120
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH
|
|
|
(996,725
|
)
|
|
3,083,442
|
|
|
|
|
|
|
|
|
|
CASH
–
beginning of year
|
|
|
3,083,942
|
|
|
500
|
|
|
|
|
|
|
|
|
|
CASH
–
end of year
|
|
$
|
2,087,217
|
|
$
|
3,083,942
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
2,828
|
|
$
|
10,397
|
|
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 AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 –
The
Company
Organization
The
accompanying 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, and its
wholly-owned subsidiary. All significant intercompany balances and transactions
have been eliminated. 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
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.
Principles
of Consolidation
The
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.
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. The Company had
cash
balances in excess of federally insures limits of approximately $1,987,000
and
$3,112,000 at December 31, 2007 and 2006,respectively. Management believes
that
the financial institutions that hold the Company’s deposits are financially
sound and have minimal credit risk.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 vehicle manufacturers, vehicle retrofitters, municipal
governments, public utilities and not-for-profit organizations.
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. 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 and supplies.
Provisions for estimated losses on contracts in progress are made in the period
in which such losses are determined. The Company’s provision for estimated
losses was $3,016 and $26,939 for the years ended December 31, 2007 and 2006,
respectively .
|
·
|
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. Losses expected
to be
incurred on contracts in progress are charged to operations in the period such
losses 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 short term fixed price contracts. No revenue was
recognized using this method during the year ended December 31,
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 year ended December 31, 2007. Revenues generated
from time and materials contracts amounted to $3,426 for the year ended December
31, 2006. Cost of revenues from time and materials contracts includes labor
and
materials.
Product
Warranty Reserves
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 year
ended December 31, 2007, the Company established a warranty reserve for
delivered systems in the amount of $43,000.
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.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Research
and development expenses, net of non-refundable development funding, for the
years ended December 31, 2007 and 2006 were as follows:
|
|
2007
|
|
2006
|
|
Total
research and development expense
|
|
$
|
1,620,844
|
|
$
|
767,929
|
|
Less:
reimbursements
|
|
|
(47,250
|
)
|
|
(12,500
|
)
|
|
|
|
|
|
|
|
|
Net
Research and Development Expense
|
|
$
|
1,573,594
|
|
$
|
755,429
|
|
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.
The
Company has adopted the provisions of Financial Accounting Standards Board
(“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109”(“FIN 48”), on
January 1, 2007. FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements in accordance
with SFAS No. 109, “Accounting for Income Taxes,” and prescribes a
recognition threshold and measurement process for 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 period, disclosure and transition.
The Company believes that its income tax positions and deductions would be
sustained on audit and does not anticipate any adjustments that would result
in
a material change to its financial position. In addition, the company did not
record a cumulative effect adjustment related to the adoption of FIN 48.
The Company does not expect its unrecognized tax benefit position to change
during the next twelve months. Management is currently unaware of any issues
under review that could result in significant payments, accruals or material
deviations from its position.
Prior
to
the aforementioned Share Exchange Transaction which occurred on October 17,
2006, 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.
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.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 year ended December
31,
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 the Company 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 December 31 2007 and 2006 are as follows;
|
|
2007
|
|
2006
|
|
Series
A Convertible Preferred Stock
|
|
|
3,890,770
|
|
|
7,670,500
|
|
Convertible
Debentures
|
|
|
12,800,000
|
|
|
-
|
|
Warrants
|
|
|
10,586,346
|
|
|
4,648,893
|
|
Options
|
|
|
1,975,000
|
|
|
505,000
|
|
Total
|
|
|
29,252,116
|
|
|
12,824,393
|
|
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
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
June
2007, the EITF reached a consensus on EITF Issue No. 06-11, “
Accounting
for Income Tax Benefits on Dividends on Share-Based Payment
Awards
”
(“EITF
06-11”) effective for reporting periods after December 15, 2007. EITF
06-11 addresses share-based payment arrangements with dividend protection
features that entitle employees to receive (a) dividends on equity-classified
non-vested shares, (b) dividend equivalents on equity-classified non-vested
share units, or (c) payments equal to the dividends paid on the underlying
shares while an equity-classified share option is outstanding, when those
dividends or dividend equivalents are charged to retained earnings under
Statement 123(R) and result in an income tax deduction for the employer. A
realized income tax benefit from dividends or dividend equivalents that are
charged to retained earnings are paid to employees for equity-classified
non-vested shares, non-vested equity share units, and outstanding equity share
options should be recognized as an increase in additional paid in capital.
The amount recognized in additional paid-in capital for the realized
income tax benefit from dividends on those awards should be included in the
pool
of excess tax benefits available to absorb potential future tax deficiencies
on
share-based payments. The Company does not expect the adoption of this
pronouncement to have a material impact on its financial position, results
of
operation and cash flows.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 establishes accounting and reporting standards for the noncontrolling
interest (minority interest) in a subsidiary and for the deconsolidation of
a
subsidiary. SFAS 160 requires a) the ownership interest in the subsidiary held
by parties other than the parent to be clearly identified and presented in
the
consolidated balance sheet within equity, but separate from the parent’s equity,
b) the amount of consolidated net income attributable to the parent and to
the
noncontrolling interest to be clearly identified and presented on the face
of
the consolidated statement of operations and c) changes in a parent’s ownership
interest while the parent retains its controlling financial interest in its
subsidiary to be accounted for consistently. Entities must provide sufficient
disclosures that clearly identify and distinguish between the interests of
the
parent and the interests of the noncontrolling owners. SFAS 160 is effective
for
financial statements issued for fiscal years beginning on or after December
15,
2008, and interim periods within those fiscal years. The Company is currently
assessing the impact of SFAS 160 on its 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 financial statements upon
adoption.
NOTE
3 -
Cash
Cash
-
Restricted
The
terms
of the October 2006 Private Placement Agreement required 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.
The
balance of the restricted cash account was $-0- and $227,583 as of December
31
2007 and 2006, respectively . 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 December 31, 2007, the
Company has received no such warrant exercise proceeds.
NOTE
4 -
Property
and Equipment
Property
and equipment consist of the following as of December 31 2007 and
2006;
|
|
2007
|
|
2006
|
|
Equipment
|
|
$
|
152,847
|
|
$
|
89,181
|
|
Furniture
and fixtures
|
|
|
43,359
|
|
|
28,393
|
|
Leasehold
improvements
|
|
|
26,398
|
|
|
26,398
|
|
|
|
|
222,604
|
|
|
143,972
|
|
Less:
accumulated depreciation and amortization
|
|
|
(102,585
|
)
|
|
(45,175
|
)
|
|
|
|
|
|
|
|
|
Property
and Equipment, Net
|
|
$
|
120,019
|
|
$
|
98,797
|
|
Property
and equipment includes $22,000 of assets financed under capital lease
obligations. Depreciation amounted to $57,410 and $19,103 for the years ended
December 31, 2007 and 2006, respectively.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5-
Deferred
Financing Costs
In
connection with the issuance of the Company’s 10% convertible debentures (see
Note 8) the company incurred $434,376 of professional fees and other related
cost associated with closing the transaction. Such costs were recorded as
Deferred financing costs and are shown net of $48,246 of amortization on the
accompanying consolidated balance sheet. Such costs are being amortized over
the
term the debentures.
NOTE
6 -
Capital
Lease 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 2007 and 2006 are as follows:
|
|
2007
|
|
2006
|
|
Total
obligations under capital leases
|
|
$
|
4,962
|
|
$
|
11,779
|
|
Less:
current portion of lease obligations
|
|
|
4,306
|
|
|
6,817
|
|
|
|
|
|
|
|
|
|
|
|
$
|
656
|
|
$
|
4,962
|
|
Minimum
lease payments due in years subsequent to December 31 2007:
|
|
Amount
|
|
For
Years Ending December 31,
|
|
|
|
|
2008
|
|
|
4,557
|
|
2009
|
|
|
679
|
|
Total
minimum lease payments
|
|
|
5,236
|
|
Less:
amount representing interest
|
|
|
274
|
|
|
|
|
|
|
Present
Value of Minimum Lease Payments
|
|
$
|
4,962
|
|
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
3,642 and $80,428 during the years ended December 31, 2007 and 2006
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. Funding due to be repaid under
this
agreement was $ 5,587 and $ -0- at December 31 2007 and 2006, respectively,
and
is included in accrued payroll and other operating expenses on the accompanying
consolidated balance sheets. 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 $238,948 and $240,894 at December 31, 2007 and 2006,
respectively and is presented as a liability in the accompanying balance sheets.
This contract was recently amended as described in Note 11.
NOTE
8 -
Convertible
Debentures
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, expiring October 26, 2010, to purchase 133,333 shares of common stock
at an exercise price of $.75 per share (“Warrants”).
The
Company allocated the proceeds of $3,200,000 between the Debentures and the
Warrants based on the relative fair value-based method. The proceeds were
allocated to the value of Warrants of $938,671 as debt discount, which is being
amortized over the eighteen-month life of the Debentures as additional interest
expense. The warrants, including 4,266,667 issued as part of the Units sold
to
investors and 1,000,000 warrants issued to the placement agents in this
transaction, were valued by utilizing the Black-Scholes option-pricing model
with the following assumptions:
fair
value per share of common stock $.47, volatility rate 29.95%, risk free
interest rate 3.79%, expected term three years, dividend yield 0. Amortization
of the discount resulted in interest expense in the amount of $172,304 for
the
year ended December 31, 2007. The unamortized debt discount at December 31,
2007
in the amount of $766,367 has been accounted for as a reduction of the
Debentures. Accrued interest payable on the Debentures of $57,863 as of December
31, 2007 is reflected on the accompanying balance sheet.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 aggregate
gross proceeds of $5,000,000. This does not include any financing transaction
by
a factor or commercial bank (a “Subsequent Financing”).
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 included
in the Subsequent Financing. Notwithstanding the foregoing, the minimum
conversion price will be no less than $.25 per share. Partial conversions by
the
Investors are permitted.
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. As required, the Company filed a registration statement in December
2007 within 60 calendar days following the closing. In the event that this
registration statement is not declared effective within 180 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. Liquidated damages, should there be
any,
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
aforementioned 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.
NOTE
9 -
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.
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.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
October 12, 2007, the Company received $250,000 in proceeds of a Bridge
Promissory Note (“Bridge Note”) to its Chief Executive Officer. The Bridge Note
included interest at 10% per annum. The Bridge Note, including interest in
the
amount of $1,233 was repaid in connection with the company’s October 26, 2007
Private Placement.
On
October 26, 2007, AT Holdings I, LLC, an entity controlled by the company’s
Chief Executive Officer, purchased $250,000 of the Company’s 10% senior secured
convertible debentures.
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
|
|
|
|
|
|
2008
|
|
$
|
90,941
|
|
2009
|
|
|
46,252
|
|
|
|
$
|
137,193
|
|
Rent
expense amounted to approximately $87,243 and $45,932 for the years ended
December 31, 2007 and 2006, respectively. Rent expense includes ($707) and
$5,312 for the years ended December 31, 2007 and 2006 respectively, for the
effects of recording rent expense on a straight line basis over the term of
the
lease.
Litigation
On
January 16, 2008, a subcontractor commenced an action against Odyne Corporation
and others in the Supreme Court, Suffolk County seeking to recover damages
based
on alleged facts concerning our commercial relationship with the plaintiff
in the latter part of 2006 and the early part of 2007 which culminated in an
Exclusive Sales and Marketing Agreement, whereby the plaintiff agreed to serve
as the exclusive retrofitting installer of our plug-in hybrid electric
propulsion systems for medium and heavy trucks and as the exclusive distributor
of such vehicles in the New York metropolitan area. It is our opinion that
the
alleged facts, even if true, do not provide a legal basis for recovery, and
we
have filed a motion to dismiss the litigation on the grounds that the complaint
fails to state any viable cause of action. The motion was submitted to the
Supreme Court in Suffolk County on February 27, 2008 and is presently
pending. Our management believes that we have a reasonable chance of
succeeding in dismissing the action, although we cannot predict the outcome
of
the motion and the action.
Employment
Agreements
In
October of 2006, the Company entered into employment agreements with its Chief
Operating Officer, Executive Vice President - Engineering and Chief Technology
Officer, and Executive Vice President - Operations, respectively. The employment
agreements 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.
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.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 term may be extended for additional terms of one year
provided the Company gives Mr. Tannenbaum 30 days prior written notice and
the
Mr. Tannenbaum accepts. 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
25, 2007 at an exercise price of $.395, the closing market price on that date.
The stock based compensation expense associated with these options is included
in the amounts disclosed in Note12 hereunder. 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.
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 8. These options are pursuant to a separate plan requiring shareholder
approval, which has not yet been received and which approval is not assured.
Consequently the no stock based compensation expense associated with these
options has been reflected in the accompanying financial statements. Upon the
date of receipt of shareholder approval, the stock based compensation expense
associated with these options will be recorded as appropriate. These options
will also vest in three equal installments on the second, third and fourth
anniversaries of the grant date and expire ten years after it is
granted.
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 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 $850 per vehicle depending on cumulative volume. The Company can
purchase these source codes for $165,000 in 2007 and $181,500 in 2008. For
the
years ended December 31, 2007 and 2006, the Company recorded $2,700 and $-0-
respectively, of royalty expense under this agreement.
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 December
31, 2007 amounted to $244,536.
Exclusive
Retrofitting and Sales Arrangements
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.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2007.
NOTE
11 -
Stockholders’
Equity
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
Description
of Series A Convertible Preferred Stock
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.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
11, 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.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 A 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 11,
(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 11. 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.
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 per share of common stock $ .75, term of 4 years, volatility 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 79,000
as 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 per share of common stock $2.50, term of 4 years, volatility 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 issuable 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 shares 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.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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
per share of common stock $1.85, term of 4 years, volatility 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 issuable 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
proceeds by recording a charge to additional paid in capital.
Conversions
of Series A Convertible Preferred Stock
During
the year ended December 31, 2007, holders of 2,833 shares of Series A
Convertible Preferred stock elected to convert their preferred shares into
4,061,428 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 9).
Common
Stock Purchase Warrants
A
summary
of the status of the Company’s outstanding common stock purchase warrants is as
follows:
|
|
Number of
options
|
|
Weighted
average
exercise
price
|
|
Outstanding
at January 1, 2006
|
|
|
0
|
|
$
|
0
|
|
Granted
|
|
|
4,648,915
|
|
$
|
0.96
|
|
Exercised
|
|
|
0
|
|
$
|
0
|
|
Outstanding
at December 31,2006
|
|
|
4,648,915
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
6,371,667
|
|
$
|
0.81
|
|
Exercised
|
|
|
(434,236
|
)
|
$
|
0.75
|
|
Outstanding
at December 31, 2007
|
|
|
10,586,346
|
|
$
|
0.87
|
|
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Warrants
issued
During
the year ended December 31, 2006 the company did not issue any warrants for
non
– employee services. During the year ended December 31, 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:
|
|
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
sold
On
December 18. 2007 the company sold a warrant to purchase 1,000,000 shares of
Odyne common stock for $55,115 to one of its customers. The warrants have an
exercise price of $1.00 per share and expire December 18, 2010.
Warrants
exercised
During
the year ended December 31, 2007 placement agents involved in the Private
Placement (Note 8) exercised the cashless exercise provision with respect to
400,902 warrants and received 267,268 shares of common stock of the
Company.
During
the year ended December 31, 2007 individuals that received warrants in
connection with the issuance of convertible debentures in October of 2006
exercised the cashless exercise provision with respect to 33,334 warrants and
received 14,389 shares of common stock of the Company.
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. 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.
On
September 19 2007, the Company granted 600,000 stock options to its Chief
Executive Officer; (a) 300,000 stock options at an exercise price of $.47 per
share. The fair value of this award was estimated to be $47,190 at the date
of
grant using the Black-Scholes option pricing model with the following weighed
average assumptions: fair value of common stock $.47 volatility rate 35.42
%;
risk free interest rate 3.915%; expected term 4 years; dividend yield 0 and
(b) 300,000 stock options at an exercise price of $.71 per share, The fair
value
of this award was estimated to be $71,700 at the date of grant using the
Black-Scholes option pricing model with the following weighed average
assumptions: fair value of common stock $.71 volatility rate 37.50 %;
risk free interest rate 3. 85%; expected term 4 years; dividend yield 0
and.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
October 23 2007, the Company issued 725,000 stock options to key employees
and
directors at an exercise price of $.395 per share, The fair value of this award
was estimated to be $95,990 at the date of grant using the Black-Scholes option
pricing model with the following weighed average assumptions: fair value per
share of common stock $.395 volatility rate 35.42 %; risk free interest
rate 3.96%; expected term 4 years; dividend yield 0.
On
December 12 2007, the Company granted 135,000 stock options to key employee
and
a consultant at an exercise price of $.53 per share, The fair value of this
award was estimated to be $27,733 at the date of grant using the Black-Scholes
option pricing model with the following weighed average assumptions: fair value
per share of common stock $.53 volatility rate 36.41 %; risk free interest
rate 3.265%; expected term 4 years; dividend yield 0.
The
volatility rate used for December 31, 2007 transactions was based upon the
rates
obtained from the Dow Jones Select Micro-Cap Index for appropriate historical
periods upon which to develop a more reasonable estimate of volatility for
the
Company’s stock. Management believes that this result is more indicative of the
Company’s actual volatility. The volatility rate used for December 31, 2006
ransactions 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 years ended December 31, 2007 and 2006 is as
follows:
|
|
|
|
|
|
Weighted
-
|
|
|
|
|
|
Weighted
-
|
|
Average
|
|
|
|
|
|
Average
|
|
Remaining
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Options
|
|
Shares
|
|
Price
|
|
Term in Years
|
|
Outstanding
January 1, 2006
|
|
-0-
|
|
$
0
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
505,000
|
|
0.75
|
|
8.8
|
|
Exercised
|
|
-
|
|
|
|
|
|
Forfeited
or expired
|
|
-
|
|
|
|
|
|
Outstanding
December 31, 2006
|
|
505,000
|
|
$
0.75
|
|
8.8
|
|
Exercisable
at December 31, 2006
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,500,000
|
|
|
0.49
|
|
|
9.8
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(30,000
|
)
|
|
0.40
|
|
|
|
|
Outstanding
December 31, 2007
|
|
|
1,975,000
|
|
$
|
0.56
|
|
|
9.6
|
|
Exercisable
at December 31, 2007
|
|
|
-
|
|
|
|
|
|
|
|
These
options, which include 1,800,000 shares granted to employees and directors
and
175,000 shares to non-employees pursuant to the terms of certain consulting
agreements, vest over four years and feature a contractual term of ten
years.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Options
|
|
Shares
|
|
Weighted
-
Average
Fair
Value
|
|
Outstanding
January 1, 2006
|
|
|
-0-
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
505,000
|
|
|
212,150
|
|
Exercised
|
|
|
-
|
|
|
|
|
Forfeited
or expired
|
|
|
-
|
|
|
|
|
December
31, 2006
|
|
|
505,000
|
|
$
|
212,150
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,500,000
|
|
|
261,954
|
|
Exercised
|
|
|
-
|
|
|
|
|
Forfeited
or expired
|
|
|
(30,000
|
)
|
|
(3,960
|
)
|
December
31, 2007
|
|
|
1,975,000
|
|
$
|
470,144
|
|
At
December 31, 2007, the aggregate intrinsic value of options outstanding,
based
on the December 31, 2007 closing price of the Company’s common stock ($.70 per
share) amounted to $280,175. 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, 2007 and 2006. 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.
There were no options exercisable at December 31, 2006. As described above
the
company expects eighty percent of these stock options to vest
annually.
As
of
December 31, 2007 and 2006 there was $397,833 and $ 200,368 of unrecognized
compensation cost related to non-vested share-based compensation arrangements,
respectively. These costs are expected to be recognized over a weighted-average
period of 3.5 years. These amounts exclude the stock compensation expense
associated with the issuance of the 2,400,000 stock options pursuant to the
employment agreement with the CEO of the Company (Note 10).
NOTE
13 -
Income
Taxes
As
describe in Note 3, 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, in New York, 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, 2005 and 2006 that have not been
examined by the applicable Federal and State tax authorities. The Company’s
consolidated tax return for the year ended December 31, 2006 have also not been examined by federal and state tax authorities.
Management
does not believe that the Company has any material uncertain tax positions
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.
At
December 31, 2007, the Company has federal and state net operating loss
carryforwards available to offset future taxable income, if any, of
approximately $4.6 million expiring at various times through 2027. The Company’s
determination of the amount of its net operating loss carryforwards
(“NOL’s”) includes approximately $50,000 associated with TIG that arose
prior to the completion of the share exchange transaction. These NOL’s may
become 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.
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
tax
effects of significant temporary differences which give rise to the Company’s
deferred tax assets and liabilities at December 31, 2007 and 2006 are as
follows:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Net
Operating Losses
|
|
$
|
1,776,000
|
|
$
|
210,000
|
|
Accounts
receivable
|
|
|
56,000
|
|
|
|
|
Inventories
|
|
|
35,000
|
|
|
-
|
|
Accrued
Expenses and reserves
|
|
|
21,000
|
|
|
18,000
|
|
Stock
Based Compensation
|
|
|
47,000
|
|
|
5,000
|
|
|
|
|
1,935,000
|
|
|
233,000
|
|
Valuation
Allowance
|
|
|
(1,935,000
|
)
|
|
(233,000
|
)
|
Net
Deferred Tax Asset
|
|
|
-
|
|
|
-
|
|
The
Company’s recorded income benefit, net of the change in the valuation allowance
for the each of the years ended December 31, 2007 and 2006 are as
follows:
|
|
2007
|
|
2006
|
|
Current
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Deferred
|
|
|
|
|
|
|
|
Federal
|
|
|
(
1,484,000
|
)
|
|
(183,000
|
)
|
State
|
|
|
(
218,000
|
)
|
|
(30,000
|
)
|
|
|
|
(
1,702,000
|
)
|
|
(213,000
|
)
|
Change
in valuation allowance
|
|
|
1,702,000
|
|
|
213,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
$
|
-
|
|
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 years ended December 31, 2007 and
2009
is as follows:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Expected
statutory rate
|
|
|
(34
|
)%
|
|
(34
|
)%
|
State
income tax rate, net of Federal benefit
|
|
|
(5
|
)%
|
|
(5
|
)%
|
Permanent
Differences:
|
|
|
|
|
|
|
|
S
Corporation losses
|
|
|
-
|
%
|
|
27
|
%
|
Non-cash
interest charges
|
|
|
-
|
%
|
|
1
|
%
|
|
|
|
(39
|
)%
|
|
(11
|
)%
|
Valuation
allowance
|
|
|
39
|
%
|
|
11
|
%
|
|
|
|
-
|
%
|
|
-
|
%
|
ODYNE
CORPORATION AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 –
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. In order
to
qualify for matching contributions, an employee must 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 year ended December 31,
2007.
NOTE
15 -
Subsequent
Events
Between
January 1, 2008 and March 27, 2008, 30 shares of Series A Convertible Preferred
stock were converted into 40,020 shares of the Company’s common stock.
On
March
27, 2008, the Company completed a private placement to institutional accredited
investors, pursuant to the terms of a securities purchase agreement. Under
the
terms of the agreement, the Company sold 11,666,667 shares of its common
stock
at $.60 per share. As part of this transaction, the investors also received
warrants to purchase 11,666,667 shares of the Company’s common stock at $.72 per
share. The warrants are exercisable for five 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 certain issuances, or securities
convertible or exercisable for shares of common stock below $.72 per share),
provided that the exercise price of the warrants may not be adjusted to less
than $.60 per share as a result of the full-ratchet price protection. The
Company received $7,000,000 in gross proceeds in connection with this private
placement.
ODYNE
CORPORATION
COMMON
STOCK
Prospectus
April
__,
2008
PART
II
INFORMATION
NOT REQUIRED IN PRO
SPECTUS
Item
13. Other Expenses of Issuance and Distribution.
Registration
Fees
|
|
$
|
83
|
|
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
|
|
|
3,917
|
|
Total
|
|
$
|
70,000
|
|
Item
14. 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
15. Recent Sales of Unregistered Securities.
March
2008 Private Placement.
On March
27, 2008, we completed the closing of the March 2008 private placement of
securities. In the closing, we sold 11,666,666 shares of our common stock
at
$.60 per share and warrants to purchase 11,666,666 shares of our common stock
at
$.72 per share, to purchasers that qualified as accredited investors, as
defined
in Regulation D, pursuant to the terms of a Securities Purchase Agreement
dated
March 27, 2008. We received $7,000,000 in gross proceeds in connection with
this private placement.
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
warrants are exercisable for five 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 certain issuances, or securities
convertible or exercisable for shares of common stock below $.72 per share),
provided that the exercise price of the warrants may not be adjusted to less
than $.60 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
no later than 150 calendar days following March 27, 2008 (the closing date
of
the private placement), covering the resale of the shares of our common stock
sold in the private placement and issuable upon the exercise of the warrants
sold in the private placement, and to use all reasonable best efforts to
cause
the registration statement to be declared effective within 240 calendar days
after the closing date, and to remain continuously effective for three years
after the closing date.
vFinance
Investments, Inc. acted as placement agent in the transaction. The placement
agent received $630,000 in cash placement fees and warrants to purchase
1,050,000 shares of common stock in the transaction. The placement agent
will
also receive a warrant exercise fee in the amount of 2% of the exercise price
of
the warrants paid upon exercise.
The
shares of common stock 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 shares of common stock
or
warrants, or shares of our common stock underlying such 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. 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
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. The holders of the debentures waived their rights
to
convert the debentures or be prepaid in connection with our March 2008 private
placement.
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
180
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
16. Exhibits and Financial Statement Schedules.
|
(a)
|
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)
|
|
|
|
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)
|
|
|
|
4.4
|
|
Form
of Warrant to Purchase Common Stock for the investors in the March
2008
private placement. (6)
|
|
|
|
5.1
|
|
Opinion
of Greenberg Traurig, LLP
|
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 2007 private placement. (5)
|
|
|
|
10.10
|
|
Form
of Security Agreement by and among Odyne Corporation and the investors
in
the October 2007 private placement. (5)
|
|
|
|
10.11
|
|
Securities
Purchase Agreement by and among Odyne Corporation and the investors
in the
March 2008 private placement. (6)
|
|
|
|
10.12
|
|
Registration
Rights Agreement by and among Odyne Corporation and the investors
in the
March 2008 private placement. (6)
|
|
|
|
14.1
|
|
Code
of Business Conduct and Ethics. (3)
|
|
|
|
23.1
|
|
Consent
of Holtz Rubenstein Reminick LLP.
|
|
|
|
23.2
|
|
Consent
of Marcum & Kliegman LLP.
|
|
|
|
23.3
|
|
Consent
of Greenberg Traurig, LLP (included in Exhibit
5.1).
|
________________
(1)
|
Incorporated
by reference to the exhibits included with our Current Report on
Form 8-K,
dated October 17, 2006, and filed with the U.S. Securities and
Exchange
Commission on October 18, 2006.
|
(2)
|
Incorporated
by reference to the exhibits included with our Current Report on
Form 8-K,
dated October 17, 2006, and filed with the U.S. Securities and
Exchange
Commission on October 25, 2006.
|
(3)
|
Incorporated
by reference to the exhibits included with our Annual Report on
Form
10-KSB dated December 31, 2006, and filed with the U.S. Securities
and
Exchange Commission on April 13, 2007.
|
(4)
|
Incorporated
by reference to the exhibits included with our Current Report on
Form 8-K,
dated September 19, 2007, and filed with the U.S. Securities and
Exchange
Commission on September 19,
2007.
|
(5)
|
Incorporated
by reference to the exhibits included with our Current Report on
Form 8-K,
dated October 26, 2007, and filed with the U.S. Securities and
Exchange
Commission on October 30, 2007.
|
(6)
|
Incorporated
by reference to the exhibits included with our Current Report on
Form 8-K,
dated March 27, 2008, and filed with the U.S. Securities and Exchange
Commission on March 31, 2008.
|
(b)
The
financial statement schedules are either not applicable or the required
information is included in the financial statements and footnotes related
thereto.
Item
17. Undertakings.
A.
The
undersigned registrant hereby undertakes:
(1)
To
file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i)
To
include any prospectus required by Section 10(a)(3) of the Securities Act
of
1933;
(ii)
To
reflect in the prospectus any facts or events arising after the effective
date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change
in the information set forth in the registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the
effective registration statement; and
(iii)
To
include any material information with respect to the plan of distribution
not
previously disclosed in the registration statement or any material change
to
such information in the registration statement.
(2)
That,
for
the purpose of determining any liability under the Securities Act of 1933,
each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3)
To
remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the
offering.
(4)
Intentionally
omitted.
(5)
That,
for
the purpose of determining liability under the Securities Act of 1933 to
any
purchaser:
(i)
Intentionally
omitted.
(ii)
If
the
registrant is subject to Rule 430C, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other
than
registration statements relying on Rule 430B or other than prospectuses filed
in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or made in a document incorporated or deemed incorporated by reference into
the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first
use,
supersede or modify any statement that was made in the registration statement
or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
(6)
That,
for
the purpose of determining liability of the registrant under the Securities
Act
of 1933 to any purchaser in the initial distribution of the
securities:
The
undersigned registrant undertakes that in a primary offering of securities
of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser,
if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to
the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i)
Any
preliminary prospectus or prospectus of the undersigned registrant relating
to
the offering required to be filed pursuant to Rule 424.
(ii)
Any
free
writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii)
The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv)
Any
other
communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
B.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being
registered, the registrant will, unless in the opinion of its counsel the
matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of
such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, in the City of Hauppauge, State of New York, on April 21,
2008.
ODYNE
CORPORATION
|
|
By:
|
/s/
Alan Tannenbaum
|
|
Alan
Tannenbaum
|
|
Chief
Executive Officer
|
|
(principal
executive officer)
|
|
|
By:
|
/s/
Daniel Bartley
|
|
Daniel
Bartley
|
|
Chief
Financial Officer
|
|
(principal
financial and accounting officer)
|
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Alan
Tannenbaum
|
|
Chief
Executive Officer(principal executive officer)
|
|
April
21
,
2008
|
Alan
Tannenbaum
|
|
|
|
|
|
|
|
|
|
/s/
Joshua A. Hauser*
|
|
President,
Chief Operating Officer and Director
|
|
April
21
,
2008
|
Joshua
A. Hauser
|
|
|
|
|
|
|
|
|
|
/s/
Daniel Bartley
|
|
Chief
Financial Officer(principal financial and accounting
officer)
|
|
April
21
,
2008
|
Daniel
Bartley
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
H. Auerbach
|
|
Director
|
|
April
21
,
2008
|
|
|
|
|
|
/s/
Bruce E. Humenik*
|
|
Director
|
|
April
21
,
2008
|
Bruce
E. Humenik
|
|
|
|
|
|
|
|
|
|
/s/
Stanley W. Struble*
|
|
Director
|
|
April
21
,
2008
|
Stanley
W. Struble
|
|
|
|
|
|
|
|
|
|
/s/
S. Charles Tabak*
|
|
Director
|
|
April
21
,
2008
|
S.
Charles Tabak
|
|
|
|
|
|
/s/
Alan Tannenbaum
|
|
Alan
Tannenbaum
|
|
|
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