ITEM 1. BUSINESS
Recent Corporate Developments
Management Team
Effective November 14, 2014 Wil Cashen voluntarily resigned all positions with us, including Chief Technology Officer. In connection with Mr. Cashen’s resignation he also voluntarily agreed to forfeit a substantial portion (approximately 22.8% of our outstanding shares as of November 14, 2014) of the shares of our common stock previously allocated to him.
In response, in part, to Mr. Cashen’s voluntary resignation and the cost of maintaining employees, our management team decided to engage a number of consultants to perform certain strategic tasks and services. Some consultants will provide these services on as-needed basis, will others will provide services on an on-going, consistent basis which will likely result in the eventual hiring as a full-time employee. These consultants render a wide range of services including though not limited to accounting and financial; engineering; electric vehicle production; vehicle assembly; strategic relationships; insurance; liability assessment; investor relations and communications; capital raising; and, the auto dealership business.
New Corporate Strategy
As a result of a comprehensive business review by our management team, in December, 2014, we formulated and began to execute a new business strategy focused on providing our investors a single point of entry into two fast-growing automotive markets: (1) ownership of car dealerships; and, (2) sale of commercial and consumer electric vehicles. We are working with experts in the car dealership field to acquire profitable, volume-brand dealerships in select markets. We will, at the same time, continue our efforts to provide the electric vehicle EV market with a multipurpose (consumer and commercial) vehicle built on the most widely sold 4x4 vehicle platform in the world - the Jeep® Wrangler.
We propose to execute a roll-up of select car dealerships that meet our unique criteria. Our dealership acquisition model should provide investor-grade assets, positive cash-flow, and minimize risk. A core theme in our dealership roll up strategy is to acquire a Jeep dealership to leverage the sales of our EMAV all-electric Jeep Wrangler® platform for commercial, fleet, municipal, military and consumer sales.
Our near-term focus is to acquire a number of identified car dealerships. We will, on a limited basis, collaborate with strategic business partners who have the demonstrated relevant experience and resources necessary to acquire, operate, and integrate these targeted dealerships. Long-term we remain committed to the electric vehicle market, though are dealership acquisition strategy will now enable us to better time our entry into that market and make better use of financial resources.
Organizational History
PopBig, Inc., a Delaware corporation (the “Company” or “PopBig”), was originally incorporated on May 14, 1987 in Florida as Ventura Promotion Group, Inc. for the purpose of engaging in the incentive marketing business. At the time of formation, the Company was authorized to issue 7,500 shares of $1.00 par value common stock.
In late 1997, the Company changed control and the direction of its business. In particular, the Company was in the business of manufacturing and marketing pre-packaged pour-in-place playground surfacing products. The Company subsequently held the exclusive manufacturing and distribution licenses for SafetyPlay 2 Surfacing for North America, Mexico, Central, and South America.
In anticipation of going public, on June 30, 1998, the Company raised its authorized common stock to 50,000,000 shares at $0.001 par value. On November 12, 1998, the Company changed its name to American Surface Technologies International, Inc. The Company went public in July 1998, and began trading on the NASDAQ over the counter market under the symbol “VPGP” which symbol was changed to “SURF” following the November 1998 name change. The Company did not register with the Securities and Exchange Commission (“SEC”) and was not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended.
From 1998 through the end of 1999, the Company attempted to expand quickly, including expending a great deal of sums on research and development and growth. In 1999, the Company made a large capital investment to open a full scale manufacturing plant to produce its SafetyPlay products. The Company suffered from financial difficulties due to its rapid growth and associated expenditures. Despite efforts, including bringing in new management, the Company’s business ultimately failed and the Company ceased operations. In September 2001, the State of Florida administratively dissolved the Company for not maintaining its proper filings with the state and not paying its franchise tax fees.
PopBig had not conducted any business operations since 2001. In 2006, the Company briefly attempted to re-activate. The Company changed its name to Global Environmental, Inc. and increased its authorized common stock to 100,000,000 shares at $0.001 par value. However, this brief attempt was unsuccessful and was abandoned almost immediately.
Effective October 31, 2005, the Company approved and authorized a plan of quasi-reorganization and restatement of accounts to eliminate the accumulated deficit and related capital accounts on the Company’s balance sheet. The Company concluded its period of reorganization after reaching a settlement agreement with all of its significant creditors. The Company, as approved by its Board of Directors, elected to state its November 1, 2005 balance sheet as a “quasi-reorganization”, pursuant to ARB 43. These rules require the revaluation of all assets and liabilities to their current values through a current charge to earnings and the elimination of any deficit in retained earnings by charging paid-in capital. From November 1, 2005 forward, the Company has recorded net income (and net losses) to retained earnings and (and net losses) to retained earnings and (accumulated deficit).
On July 23, 2007, in its Court Order, the Circuit Court for the 11th Judicial Circuit in and for Miami Dade County, Florida granted the application of Century Capital Partners, LLC to have a receiver appointed. The Court appointed Brian T. Scher, Esquire as receiver of the Company. The Court Order appointing Receiver empowered Mr. Scher to evaluate our financial status, to determine whether there are any options for corporate viability that could benefit our stockholders, to reinstate our corporation with the Florida Secretary of State, and to obtain copies of our stockholder records from our transfer agent. Mr. Michael Anthony is the sole managing member of Century Capital Partners.
Under Mr. Scher’s receivership, and with funds supplied by Century Capital Partners, the Company reinstated its corporate charter and paid all past due franchise taxes; paid the outstanding debt with the transfer agent; and made an analysis of the Company’s debts and potential for viability as a merger candidate. In addition, on October 7, 2007, Mr. Scher, as receiver, appointed Michael Anthony as our sole Director, President, Secretary, and Treasurer.
On October 8, 2007, following the submittal of detailed reports by Mr. Scher, the Court discharged the receiver and returned the Company to the control of its Board of Directors. On October 9, 2007, the Company adopted amended and restated Bylaws.
On November 21, 2007 after proper notice to all stockholders, the Company held an annual meeting for the purposes of the election of directors. At the meeting, Michael Anthony was elected the sole Director. Immediately following the stockholder meeting, Michael Anthony was appointed President, Secretary, and Treasurer.
In exchange for a capital investment of $12,562 by Century Capital Partners, LLC on or near October 17, 2007 PopBig issued to Century Capital Partners, LLC 90,000,000 shares of its common stock (1,200,000 shares post reverse) representing approximately 88.1% of its common stock outstanding on that date. The funds were used to pay ongoing administrative expenses, including but not limited to, outstanding transfer agent fees, state reinstatement and filing fees and all costs associated with conducting the stockholders meeting.
On or near August 27, 2008, Corporate Services International, Inc. agreed to contribute $20,000 as paid in capital to PopBig on November 4, 2008. This capital contribution is separate from and in addition to the $12,562 capital contribution by Century Capital Partners, LLC. PopBig has used and shall continue to use these funds to pay the costs and expenses necessary to revive the Company’s business and implement the Company’s business plan. Such expenses include, without limitation, fees to redomicile the Company to the state of Delaware; payment of state filing fees; transfer agent fees; calling and holding a stockholder’s meeting; accounting and legal fees; and costs associated with preparing and filing this Registration Statement, etc.
In exchange for the $20,000 capital contribution by Corporate Services International, Inc., the Company agreed to issue 1,000,000 shares of its Series B Preferred Stock. Corporate Services International is a personal use business consulting company of which Michael Anthony is the sole officer and director. On January 19, 2009, Corporate Services International, Inc. converted the 1,000,000 shares of Series B Preferred Stock into 10,000,000 shares of common stock.
In addition to, and separate from the above discussed capital investments, through October 30, 2008, Century Capital Partners has loaned the Company $4,509 for ongoing general and administrative expenses.
Moreover, Michael Anthony, as officer and director has agreed to assist the Company in its efforts to salvage value for the benefit of its stockholders. Mr. Anthony’s efforts include and will continue to include, but are not limited to, assistance in gathering information, retaining counsel and working with counsel and the auditor for purposes of preparation of this Registration Statement and corresponding audited financial statements. Mr. Anthony and PopBig do not have a written agreement.
On October 11, 2007, American Surface Technologies International, Inc. was incorporated in Delaware for the purpose of merging with American Surface Technologies International, Inc., a Florida Corporation so as to effect a re-domicile to Delaware. The Delaware Corporation is authorized to issue 250,000,000 shares of $0.001 par value common stock and 2,000,000 shares of $0.001 par value preferred stock. On December 11, 2007 both American Surface Technologies International the Florida corporation and American Surface Technologies International the Delaware corporation signed and filed Articles of Merger with their respective states, pursuant to which the Florida Corporation’s stockholders received one share of new (Delaware) common stock for every one share of old (Florida) common stock they owned. All outstanding shares of the Florida Corporation’s common stock were effectively purchased by the new Delaware Corporation, effectively merging the Florida Corporation into the Delaware Corporation, and making the Delaware Corporation the surviving entity.
On August 27, 2008, the Company changed its name to Ravenwood Bourne, Ltd. Effective September 30, 2008, the Company enacted a 1:75 reverse split of its outstanding common stock and changed the authorized capital stock to 300,000,000 shares $0.001 par value common stock and 10,000,000 shares of preferred stock $0.001 par value. Of the preferred stock 1,000,000 shares were designated as Series B Preferred Stock. Each share of Series B Preferred Stock entitles the holder thereof to ten (10) votes on all matters submitted to stock holders for vote, is convertible into ten (10) shares of common stock, and has a liquidation preference of $1.00 per share. The Company’s name change is not meant to be reflective of any business plan or particular business industry but rather is thought by management to be neutral and therefore may assist in the Company’s current business plan as described herein.
On March 31, 2010, we issued 12,000,000 shares of our common stock to Bedrock Ventures, Inc. Under the terms of this transaction we received $275,000 for the shares we issued.
On April 1, 2010, we repurchased and retired a total of 11,200,000 shares of our common stock from two of our stockholders for a total cash payment of $275,000. We repurchased 10,000,000 shares from Corporate Services International, Inc. and 1,200,000 shares from Century Capital Partners, LLC. These repurchases were funded from the proceeds of the Bedrock Ventures, Inc. transaction.
As a result of the transactions, Bedrock Ventures, Inc. became the holder of 99% of our issued and outstanding shares of common stock.
On April 5, 2010, Michael Anthony appointed Keith A. Rosenbaum as the sole officer and director of the Company. Michael Anthony then resigned all positions in and with the company as of the same date.
On December 31, 2010, Bedrock Ventures, Inc. executed a written consent of the majority stockholders of the Company removing Mr. Rosenbaum as a director and electing Mr. Fotis Georgiadis as a director. Mr. Georgiadis then removed Mr. Rosenbaum as Chief Executive Officer and appointed himself as Chief Executive Officer.
Effective as of September 30, 2011, the Company changed its name from Ravenwood Bourne Ltd. to PopBig, Inc. The name change was effected through a parent/subsidiary merger of our wholly-owned subsidiary, PopBig, Inc., with and into the Company, with the Company as the surviving corporation. To effectuate the merger, the Company filed its Certificate of Merger with the Delaware Secretary of State and the merger became effective on September 30, 2011. The Company’s board of directors approved the merger which resulted in the name change. In accordance with the Delaware General Corporation Law, stockholder approval of the merger was not required. On the effective date of the merger, the Company’s name was changed to “PopBig, Inc.” and the Company’s Certificate of Incorporation was amended to reflect this name change.
On January 24, 2013, Bedrock Ventures, Inc. closed a transaction in which it sold all of its shares of our common stock it owned. In that transaction Bedrock sold 12,000,000 shares of our common stock to Keith A. Rosenbaum. Under the terms of the transaction we received no proceeds for the shares purchased and we were not a party to the transaction. Mr. Rosenbaum became our controlling stockholder, owning approximately 99% of our issued and outstanding shares of stock.
On January 24, 2013, our Board appointed Keith A. Rosenbaum to our Board of Directors and named Mr. Rosenbaum Chairman of the Board of our Company. Mr. Rosenbaum, 54, is a licensed attorney in the State of California. Mr. Rosenbaum is the founder of Spectrum Law Group, LLP, Irvine, California, where he has practiced for the last 13-years, focusing on corporate transactions (public and private); general corporate law, and tax matters. Mr. Rosenbaum has no family relationship with anyone else involved in our Company. Mr. Rosenbaum has rendered legal services to our Company and it is anticipated that he will continue to do so.
On January 24, 2013, immediately following the appointment of Mr. Rosenbaum, Fotis Georgiadis resigned as a member of our Board and resigned all officer positions he previously held. Mr. Georgiadis’ resignation was voluntary; it was the result of the prior agreement and understanding under which Mr. Rosenbaum acquired the 12,000,000 shares from Bedrock. Mr. Georgiadis’ departure was amicable.
On January 24, 2013, immediately following the departure of Mr. Georgiadis, Mr. Rosenbaum was appointed as our CEO, CFO, and Secretary. At this time, the Company does not have any employment or other arrangements with Mr. Rosenbaum regarding his current position as our sole officer and director.
On December 27, 2013, the Company and EV Pop Acquisition Company, a Delaware corporation (“Merger Sub”), a wholly owned subsidiary of the Company, and EMAV, a privately held company incorporated in Delaware, executed an Agreement and Plan and Reorganization (“Merger Agreement”). Pursuant to the Merger Agreement, Merger Sub merged with and into EMAV, with EMAV being the surviving entity of the transaction, which is sometimes referred to herein as the “Merger”. Additionally, just prior to and in anticipation of the Merger, the Company changed its name on December 27, 2013 from PopBig, Inc. to EMAV Holdings, Inc. Following the closing of the Merger, EMAV became a wholly-owned subsidiary of the Company, with the former stockholders of EMAV owning 97.4% of the outstanding shares of common stock of the combined company. The Merger was accounted for as a reverse-merger and recapitalization. EMAV was the acquirer for financial reporting purposes and the Company was the acquired company. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the Merger are those of EMAV and are recorded at the historical cost basis of EMAV, and the consolidated financial statements after completion of the Merger include the assets, liabilities and operations of the Company and EMAV (the “Combined Company”), from the closing date of the Merger. Additionally all historical equity accounts of EMAV, including par value per share, share, and per share numbers, have been adjusted to reflect the number of shares received in the Merger. As a result of the Merger, the Company changed its fiscal year-end from October 31 to December 31. This change was effected for business reasons to coincide with the fiscal year-end of EMAV. As a further result of the Merger we acquired the business of EMAV and will continue the business operations of EMAV as our primary business operations.
Business Plan
Electric Vehicles
Our wholly-owned subsidiary, Electric Motors and Vehicles Company, Inc. (“EMAV”), is a new car company which we propose to operate out of the Colorado Springs, Colorado area and the Detroit, Michigan area. It is anticipated that the sales, marketing, and administrative functions for our commercial electric vehicles will be operated out of the Colorado Springs area. All other functions, including though not limited to all assembly operations; sales and marketing for our consumer sales; and, all other general corporate administrative functions will be conducted in our Detroit area facility. We have identified suitable properties in each location though we have not yet leased or acquired or made any formal arrangements for such lease or acquisition of either facility.
Consumer Vehicles
EMAV will design, assemble, and sell premium rugged sport adventure vehicles (“SAVs”), with an emphasis on offering electric versions. EMAV intends to acquire a Jeep automotive dealership through which it will conduct certain aspects of its operations, and which will also afford EMAV access to Jeep vehicles which will serve as the platform/foundation for its vehicle sales. The automotive industry has invested heavily in electric vehicle technology and most manufacturers are now introducing electric vehicles as part of their product line to the consumer public. In addition, a number of new companies have emerged which exclusively manufacture and sell electric vehicles. EMAV intends to be unique in the marketplace in that its proposed signature vehicle (the “ES”), will be based upon an existing iconic vehicle; the 4-door Jeep Wrangler.
EMAV proposes to design, develop, manufacture, and sell premium rugged electric vehicles built from the base chassis of the 4-door Jeep Wrangler. We will be a low volume vehicle design, engineering, and manufacturing company focusing on premium rugged electric vehicles. Our initial product offering will focus on the consumer market.
The EMAV ES intends to leverage the iconic design of the 4-door Jeep Wrangler and combine that with aerodynamic body modifications and styling and significant interior comfort and technology upgrades to create its own brand identity. The EMAV ES will maintain the rugged, cool exterior appearance of a Jeep, while the interior will be upgraded with luxury features and technology such as continuous online information access from a 15-17 inch interactive touch screen monitor. The electric 4-wheel drive drive-train is intended to deliver a new premium high performance standard, and with zero emissions the ES will be in a class by itself. EMAV intends to create and dominate the Sport Adventure Vehicle market by delivering a luxurious, comfortable, cool driving experience which is environmentally conscious. At this time EMAV has yet to produce a vehicle for sale and has not yet completed an electric vehicle using the 4-door Jeep Wrangler as its platform.
This Annual Report contains additional trade names, trademarks, and service marks of others, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
We plan to begin shipments of our signature vehicle, the EMAV ES, in Spring 2016. As of the filing of this Annual Report we have not yet produced any vehicles. We will be adapting the platform architecture of the 4-door Jeep Wrangler to develop our EMAV ES. This all electric vehicle is designed to create a new niche in the automotive industry: a luxury/premium all electric SUV, which we refer to as a premium Sport Adventure Vehicle.
We propose to sell our vehicles directly through a Jeep dealership we plan to acquire, as well as on the internet through that dealership. We also propose to sell our vehicles directly through selected Jeep dealerships throughout North America, and then globally. We may also lease small retail spaces in high-traffic areas (such as shopping malls and retail areas of large metropolitan areas) in order to highlight and advertise our product offerings. We will deploy a build-on-demand model so as to keep finished inventory low. Similar to the manner in which many large laptop manufacturers operate, we will maintain low levels of parts and platform vehicles, and then build the vehicle “to order” when our customer places the order. We believe that this approach provides us with a competitive advantage as compared to incumbent automobile manufacturers.
The battery pack and electric power train system we propose to purchase from a third party vendor should enable us to deliver competitive range capability at what we believe will be a compelling battery cost per kilowatt-hour. Our battery packs will use commercially available lithium-ion battery cells. Our proprietary energy management software and system should maximize the energy efficiency of our vehicles. Our proprietary technology includes charge balancing systems, battery engineering, and software and electronics management systems necessary to manage battery and vehicle performance.
We believe that our vehicles will offer consumers a compelling alternative to other electric vehicles, as well as to similar internal combustion engine or hybrid electric vehicles. We expect our electric vehicles will have a lower relative maintenance costs than hybrid, plug-in hybrid, or internal combustion engine vehicles due to fewer moving parts and the absence of certain components, including oil, oil filters, spark plugs, and engine valves. Additionally, government incentives that are currently available can reduce the cost of ownership even further.
Our approach and business model of leveraging a successful and iconic brand and its dealership network will enable us to succeed where so many other electric vehicle manufacturers have failed. We have not created a new vehicle in search of a market. Rather, we have started with a vehicle which has documented and growing demand and will transform it into a premium electric vehicle. We do not require the hundreds of millions of dollars other electric vehicle manufacturers required to start from the ground up. We will not have to raise that level of capital and we will be able to avoid the design, performance, and marketing issues which doomed most early electric vehicle companies.
Most of the pre-programming and design work for our EMAV ES has already been completed. Our successful efforts are summarized as follows:
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Jeep Wrangler® platform review, spec and component design
Completed
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System sizing
Completed
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Engineering for all packaging
Completed
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Battery sizing, quantity and packaging
Completed
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Packaging studies for front end redesign and interior redesign
Completed
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Vehicles tear-down studies including labor hours
Completed
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Batter regeneration including controls strategy; to be re-verified on first demo unit
Underway
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Engineering financials including line speed for both demo unit production run
Known
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Sources for both demo and production components
Identified
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Assembly and up-fitting facility in Michigan
Identified
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20 unit build for sales, celebrity promotion, & marketing
Pending Financing
Commercial Vehicles
We also plan to enter the market for commercial applications and the military, homeland protection, civil, and law enforcement markets. By using a single platform, the 4-Door Jeep Wrangler, we will leverage economies of scale and operating efficiencies to simultaneously produce consumer and commercial vehicles from a single facility. Our signature commercial vehicles will consist of two vehicles:
EMAV Power Station: Designed to replace noisy and polluting towed generators, the vehicle will be the power plant. Non-polluting and silent, the Power Station is ideal for use in myriad industries and applications, such as construction, military, homeland defense, and disaster response.
Fleet, delivery, multi-purpose vehicle: The 4-door Jeep Wrangler has traditionally has been under used in this fast-growing market. Our vehicle will offer a variety of drive-trains, each specifically suited for its specific use and intended demands of the industry.
Acquisition of Car Dealerships
Our engagement of and association with industry experts should give us the ability to identify, acquire, operate, and integrate auto dealerships. Our roll-up strategy is designed to not compete with the larger acquirers recently entering into this same space. We propose to acquire mid-market, smaller, profitable dealerships often overlooked by the private equity groups and public companies which are now actively pursuing acquisitions in this space. We have identified and initiated discussions with a number of experienced professionals to manage and operate this segment of our business.
Our Advisory Boards
We plan to create, and name members to, an Advisory Board this year. To better understand the markets we are entering, and to make sure our products are of the highest quality and relevance to users, we will invite professional athletes, subject matter experts, industry specialists, media and technology experts, former military leaders, and former politicians to join our Advisory Board. These individuals will sit in on Company meetings, visit trade-shows and industry events, and provide their recommendations and advice to us. Individuals will be appointed to the Advisory Board for a period of one year, and can be asked to continue serving on the Advisory Board annually.
We will assemble a separate Advisory Board to help ensure we acquire the “right” car dealerships. This Advisory Board will review each potential car dealership acquisition and advise accordingly. Members of this Advisory Board will be comprised industry experts, finance experts, recognized roll-up experts from other industries, and current owners of car dealerships. Membership may also include other members of our management team.
Industry
We plan to operate in the automotive industry sector. Our presence in the electric vehicle side of our business will include electric vehicle design, development, engineering, and manufacturing with a focus on creating a new market segment: a premium vehicle which is an electric Sport Adventure Vehicle. The automotive industry sector is dominated by large original equipment manufacturers (also referred to as “OEM’s”) which require large annual volumes to keep their plants working efficiently (typically in excess of 10,000 units per month) and thus leave low volume requirements to specialist manufacturers (usually in the order of less than 1,000 per month). The economies of scale necessary for the large OEM’s to achieve break even preclude the production of these lower volumes. The large OEM’s also buy technological development from outside their core business (which is manufacturing and marketing), primarily from design and development companies. In particular those in the emerging technology area of electric vehicle drive trains provide significant input into the development of OEM products for large automobile companies. These companies are known as second or third tier suppliers. In addition, due to the much lower sale numbers large OEMs typically do not venture into these areas of specialized vehicles, and, as a result, there is a market for niche vehicle manufacturers producing anything from low volume specialty or niche consumer vehicles to military vehicles, commercial fleet vehicles, and emergency service products. These specialist companies have faced pressure to produce products with zero or low exhaust emissions in order to meet both customer and regulatory demands related to the environment.
Our management believes that the supply chain for electric vehicle components necessary to manufacture electric vehicles is well established since the majority of electric motors are derivatives of existing motors deployed for other purposes (e.g. trains, fork lifts, aerial lifts, etc.). The controllers for these vehicles and motors have been around for some time and are also used in other similar industries. While battery technology based on lithium ion technology is still relatively new, manufacturers have made great strides in refining the technology a great deal of success. We propose to use lithium ion batteries supplied by well-known manufacturers.
The niche vehicle market for electric vehicles is emerging. We believe that this niche is the same for internal combustion engine vehicles in that they are both sectors where the volume is too low for a major OEM to be able to survive economically. We believe the unique combination of a premium vehicle based on the platform of a 4-door Jeep Wrangler with an electric drive will enable us to create a successful business in a new sector we have chosen to create. We also believe that continued adoption of more stringent environmental legislation, particularly for the reduction of exhaust and pollutant emissions, will be a key industry driver, and that deploying zero emission drive trains will be the fastest growing sector of the automotive industry for the foreseeable future.
Our presence in the dealership side of our business will focus on mid-market, smaller dealerships which are typically not targeted for acquisition by the private equity groups and public companies now pursuing acquisitions in this market. We propose to engage professional managers and operators with successful track records in the auto dealership business to run this segment of our business. Once we acquire multiple dealerships we propose to centralize many administrative functions in order to streamline store level operations and achieve costs savings. We may also outsource many of these functions to a management company yet to be identified. These functions might include though not be limited to accounts payable, accounts receivable, credit and collections, accounting and taxes, payroll and benefits, information technology, legal, human resources, personnel development, advertising, and marketing.
Electric Vehicle Products
Our first and primary product will be the EMAV ES. It will be a 4-wheel drive electric vehicle with zero emissions. It will have a rugged cool exterior and a premium luxury interior. The electric motor will provide for premium driving performance and the vehicle will be versatile, providing the driver access to almost any destination on any road surface. The vehicle will offer features and a personality that should attract a broad range of prospective buyers.
EMAV plans on commencing deliveries of the EMAV ES in major U.S. metropolitan areas by Spring 2016. The 4- door Jeep Wrangler platform will be used for the EMAV ES, with significant upgrades in quality, comfort performance, and technology. The EMAV ES model will be the world’s first and only all-wheel drive zero emission electric vehicle. The re-design of the vehicle should improve aero-dynamics as well as differentiate the EMAV ES as a completely new, different vehicle. Our vehicles will offer an upgraded interior focusing on comfort; technologies to manage the energy use of the efficient powerful electric motor; and, electronic technology providing the driver with a multitude of real time information and constant internet connectivity from a redesigned dashboard and large touch screen control displays.
By leveraging the 4-door the Jeep Wrangler, the market segment leader in market share (75%) and substantial growth (43% sales growth over the last 5 years), the EMAV ES will share enough of the Jeep Wrangler style to capitalize on similarities yet different enough to create its own brand. The EMAV ES will combine comfort and performance for urban or road travel with the rugged freedom of adventure enthusiasts or those seeking a more spirited performance driving experience with energy independence and environmental responsibility. The experience for the EMAV ES driver will be further upgraded with technology that allows the driver to be always connected, never lost, continuous internet connection, video entertainment, 360 degree camera viewing, power audio, and a battery energy usage system that monitors terrain and driver habits optimizing energy use. The interface between the driver and the vehicle is a system which we call the EMAV Interactive WBS System™.
The EMAV ES will be powered by the world’s first 2-speed all-wheel drive electric motor that delivers high performance driving on any road surface or off road environment. The EMAV ES will be able to be plugged into nearly any outlet in the world and depending on the charging source, be completely charged in less than 45 minutes, or in the convenience of an owner’s garage overnight. The EMAV ES is intended to deliver energy, excitement, adventure, and endless lifestyle possibilities. In addition to zero emissions, the electric motor of the EMAV ES should provide instant torque, power, acceleration, and performance at levels comparable to high performance sports cars.
We also propose to develop and sell the EMAV Power Station. A commercial vehicle intended to be driven at low speeds, it is designed to replace the mobile diesel power generators which are towed to work sites. It will also be based on the 4-door Jeep Wrangler platform, though with only the front passenger cab. The remainder of the vehicle will consist of batteries and capacitors and proprietary design and technology. The Power Station will be perfect for the entertainment industry, especially in California, as studios and production companies are looking to reduce emissions on all shoots. The application and utility for the construction, oil & gas, military, homeland security, and disaster response industries should also be favorable.
Price
The price point for our vehicles will be positioned at the moderately high end of pre-existing vehicle segments. The only vehicles available in these segments have high energy usage costs and the environmental stigma that goes with them. The EMAV ES will be priced from $65,000 - $95,000; the final price is dependent on upgrades, features, battery, and motor type.
There is a significant price range variance in the rugged SUV market, starting with the Nissan Xterra at under $20,000, and with the Mercedes G-Wagon topping the price matrix at over $120,000. The EMAV ES competes for market share in that market as the only electric rugged SUV. The EMAV ES platform is upgraded in quality, comfort, performance, and design to further justify a price point segment entry point above the Land Rover and below the Range Rover with vehicle pricing starting around $65,000 and up to $95,000. This price point also expands our target market into the luxury SUV segment. The EMAV ES feature upgrades should position it to compete with high end comfort and driving capabilities of other SUVs, while offering significant differences in performance and adventure opportunities. The electric motor should reduce energy costs substantially and create an environmentally conscious alternative to a vehicle segment known for high ownership and energy consumption costs.
Sales and Marketing
Because of the EMAV ES features, versatility, and price point, our market segment starts with a more upper class affluent buyer. This market segment is further broken down into several smaller segments or niches within that segment. Our market sub groups should include: adventure enthusiasts; environmentally conscious; families; lifestyle conscious; rugged image; off-road freedom; outdoor enthusiasts; soccer moms; collectors; celebrities; and, professional athletes.
Although these groups have a variety of media habits, buying habits, expectations, and priorities, targeting most or all of them using a variety of promotion, media, and digital mix is possible. Our market segment sub-groups can be paired together and targeted with a message from the same event, release, or media.
How we position our vehicles in the market will influence how the vehicles are perceived by our target groups. Their perception will help shape our brand. Our promotional message will influence our target groups by creating buying customers and aspiring customers; it will also shape public opinion and our brand.
Our initial sales focus will be on the consumer market. Thereafter we plan to access and exploit opportunities in the commercial and military marketplaces. Our efforts must successfully access the following distribution points and sales opportunities:
1.
Acquire a Jeep dealership for initial access to inventory and distribution.
2.
Build and educate our sales staff.
3.
Establish relationships with Jeep dealers in key target markets.
4.
Build credibility and confidence in the top tier Jeep dealerships throughout North America.
5.
Set up a sales and support system for that dealer network which promotes our mutually beneficial economic goals.
6.
Promote EMAV vehicles online and at Jeep dealerships.
7.
Promote the EMAV brand at car shows, trade shows, and similar public relations events.
8.
Approach at a high level commercial fleet business and government/military accounts, as well as delivery, freight, and service vehicles.
9.
Partner with parallel industry markets, specifically the charging station eco-system.
10.
Open sales markets/territories through Jeep dealership access points in all major North American markets by year July, 2015.
11.
Use sales and promotional events to attract press coverage, provide opportunities for press and public relations, and place us within our target market buyers.
Competition in the Electric Vehicle Space
Competition in the automotive industry is intense and evolving. We believe the impact of new regulatory requirements for occupant safety and vehicle emissions, technological advances in power train and consumer electronics components, and shifting customer needs and expectations are causing the industry to evolve in the direction of electric-based vehicles. We believe the primary competitive factors in our markets include but are not limited to:
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technological innovation;
·
product quality and safety;
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service options;
·
product performance;
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design and styling;
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product price; and
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manufacturing efficiency.
Sales of automobiles in the United States auto are currently at their highest levels in over six years. Competition in the automobile industry is, in most cases, based on reputation, prestige, quality, service, and overall price. A strong combination of all of these factors attracts repeat and loyal customers. Consumers tend to shop for name brand and expect high customer service levels. Promptness of service also matters because customers want and need their cars back as soon as possible. In addition to customer service, name or brand recognition and reputation play an important role in determining the competitiveness of an automotive customization business.
Another crucial competitive factor in the automotive industry is the location of retail outlets. A location is best determined by a combination of population distribution, average income levels, and the number of vehicle registrations and existing competitors. The optimum combination results in a location that often allows the company to achieve economies of scale in terms of advertising and distribution costs.
The worldwide automotive market, particularly for alternative fuel vehicles, is highly competitive today and we expect it will become even more so in the future. Prior to the introduction of the Nissan Leaf in December 2010, no mass produced performance highway-capable electric vehicles were being sold in the United States. We expect additional competitors to enter the United States and Europe within the next several years, and as they do so, we expect that we will experience significant competition. Many established and new automobile manufacturers have entered or have announced plans to enter the alternative fuel vehicle market. For example, Nissan introduced the Nissan Leaf, a fully electric vehicle in December 2010 and Ford introduced the pure electric Ford Focus and plug-in hybrid Ford C-Max Energi and Ford Fusion Energi in 2012. In addition, several manufacturers, including General Motors, Toyota, Ford, and Honda, are each selling hybrid vehicles, and certain of these manufacturers have announced plug-in versions of their hybrid vehicles. For example, in December 2010, General Motors introduced the Chevrolet Volt, which is a plug-in hybrid vehicle that operates purely on electric power for a limited number of miles, at which time an internal combustion engine engages to recharge the battery.
BMW, Daimler, Lexus, Audi, Fiat, Renault, and Volkswagen are also developing electric vehicles. Several new start-ups have also announced plans to enter the market for performance electric vehicles, although none of these have yet come to market. Finally, electric vehicles have already been brought to market in China and other foreign countries and we expect a number of those manufacturers to enter the United States market as well.
Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing, and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale, and support of their products. Virtually all of our competitors have more extensive customer bases and broader customer and industry relationships than we do. In addition, almost all of these companies have longer operating histories and greater name recognition than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively. We believe our focus on a premium electric rugged SUV will provide a foundation on which we can compete in the global automotive market in spite of the challenges posed by our competition. However, we have a limited history of operations.
The EMAV ES will enter the market as the only premium electric rugged sport adventure vehicle. Competition will be from vehicle market segments that have some features or similarities of/to the ES. The Premium SUV or RSUV segments, which are all internal combustion engine vehicles include: the Cadillac Escalade, GMC Yukon, Ford Expedition, Lincoln Navigator, Mercedes G-Wagon, Range Rover, Jeep Wrangler, and Toyota Range Rover. The ES is priced within a significant price range variance in the RSUV market, starting with the Nissan Xterra at under $20,000 and the Mercedes G-Wagon at over $120,000. The EMAV ES will compete for market share in that market as the only electric RSUV.
While there is no direct or specific competition within our market segment, EMAV will be forced to compete with public perception about our chosen energy source; electrical power. There remains a perception in the consumer marketplace that, among other things, (i) electric vehicles are unreliable; (ii) electric vehicles have short mileage range; (iii) there is nowhere to charge electric vehicles; and, (iv) it takes too long to charge. As such, in addition to facing competition from other electric vehicles, we will continue to compete against similar, less expensive gas powered vehicles which still use internal combustion engines.
Competition in the Auto Dealership Space
The retail automotive business is highly competitive. Currently, there are approximately 17,800 dealers in the United States, many of which are independent stores managed by individuals, families, or small retail groups. We will compete primarily with other automotive retailers, both publicly- and privately-held. Recently a number of high profile companies (both public and private) have entered the auto dealership space through acquisition, or have indicated their intent to enter the business. This has caused greater interest in the space and an increase in valuation expectations for dealers considering a sale of their business.
We do not have the same financial resources enjoyed by many other competitors looking to acquire dealerships. In addition to competing with others seeking to acquire dealerships, upon acquiring our first dealership we will then also compete with other automotive retailers. Some of those other automotive retailers may be larger or have access to greater financial resources. We will not have any cost advantage in purchasing new vehicles from manufacturers. We propose to rely on advertising and merchandising, pricing, sales expertise, and the location of our stores to sell new vehicles.
Intellectual Property
Our policy is to pursue patents, pursue trademarks, maintain trade secrets, and use other means to protect our technology, inventions and improvements that are commercially important to the development of our business.
Our success in the electric vehicle business will depend, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we will rely on a combination of patent applications, trade secrets, including know-how, employee, and third party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology. As of 11 April 2014 we have the following provisional patents:
1. Electric Drive Transaxle Unit: The uniqueness of our “Split Shaft Design” is the power to frame size to weight ratio, meaning it is a very small dive unit that delivers direct drive power to the ring gear attached to the drive axle. A 2 speed transmission located at the front of the electric motor as part of the complete assembly. The 2 speed transmission is electronically controlled and has fewer moving parts than any other transaxle system designs. Our Split Shaft Modular System Design is simple to install as a complete drive system. Our Split Shaft unit connects to the electric power source and the power controller. There are no other electro-mechanical systems needed.
2. Power Regeneration Unit: The Power Regeneration Unit (“PRU”) is a sophisticated vehicle system that incorporates several layers of technologies in electronics, and electro-mechanical devices operating as one system to improve energy consumption of the PRU’s host vehicle. The PRU is a self-guided and self-powered vehicle that follows the commands transferred to it electronically from an array of installed system sensors. These sensors deliver functional orders to the PRU’s power and system controllers providing seamless operation between the PRU and the host vehicle. The PRU is designed to deliver energy to the host vehicle over any roads and under most common road conditions. This supply of generated electric power extends the range of any full electric vehicle and also doubles as a power supply for charging an electric vehicle’s batteries in stationary mode.
3. Topographic Power Controller: The Topographic Power Controller (“TPC”) is based on our Topomatic© electronic communications system design and utility. The TPC performs all intellectual functions attributed to landscapes encountered by electric vehicles for long distance operations. All electric vehicle batteries have specific duty cycles based on their energy density or the ability to hold a long term charge. Detours and elevation changes in the landscape set the field of operation for our Topomatic systems. The TPC receives data signals from satellites that allow the TPC to control vehicle battery charging, vehicle speed and energy consumption as a function of road surface and attitude changes. This unique method of control reduces power demands at critical attitudes and alters battery charging duty cycles as needed before in demand.
4. Staged Radial Electric Motors: The design and staging of an array of radial electric motors and clutches controlled either sequentially or as a unified coupled drive, allows for significant energy savings. Additionally, motors can be used as generators in hybrid applications then electromechanically connected to the drive array when needed for additional power and torque. Freewheeling mass is eliminated through this unique method, allowing for energy consumption saving and delivery power and torque at critical points in a vehicle’s operation.
5. Radial Electric Drive Differential: Our Radial Electric Drive Differential (“REDD”) is a drive system that reduces packaging of the electric drives when space is important and the reduction of components is needed for cost savings. The REDD incorporates the current design of electronic differentials isolating a radial permanent magnet rotor array from the active differential to allow for freewheeling speed changes, dynamic power control, regenerative braking for a specific wheel or in locked differential operation. Smaller packaging opportunities are also possible within the REDD design.
We intend to continue to file additional patent applications with respect to our technology. We also intend to take all necessary and required action to secure patent status to the above provisional patents. We do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims. Even if granted, there can be no assurance that these pending patent applications will provide us with protection.
We also rely on confidentiality and nondisclosure agreements with our customers, consultants, advisors, licensees and potential partners to protect our technology, intellectual property and other proprietary property. Pursuant to the foregoing and for other reasons, we face the risk that our competitors may acquire information which we consider to be proprietary, that such parties may breach such agreements or that such agreements will be inadequate or unenforceable.
Seasonality
The sales of automobiles have historically fluctuated on a seasonal basis with increased sales during the spring and summer months. Further, automotive sales tend to decline over the winter season. Our limited operating history makes it difficult for us to judge the exact nature or extent of the seasonality of our business.
Government Regulation
Regulatory Credits
In connection with the expected delivery and placement into service of our zero emission vehicles in the United Sates, we believe we will earn various tradable regulatory credits that can be sold to other manufacturers. Under California’s Low-Emission Vehicle Regulations and those of states that have adopted the California standards, vehicle manufacturers are required to ensure that a portion of the vehicles delivered for sale in those states during each model year are zero emission vehicles. Currently, the states of Arizona, California, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Rhode Island, and Vermont have such laws in effect. These laws provide that a manufacturer of may earn credits, referred to as “ZEV” credits, if they produce more zero emission vehicles than the minimum quantity required by those laws. Those manufacturers with a surplus of credits may sell those excess credits to other manufacturers who can then apply such credits to comply with the regulatory requirements, including making up for deficits. As a manufacturer of solely of zero emission vehicles, we have no minimum requirement, and as a result, we earn ZEV credits on each vehicle sold in such states. We believe we will be able to other automobile manufacturers the ZEV credits that we earn.
Recently, California passed amendments to the ZEV mandate that would require all large volume manufacturers (those manufacturers selling 20,000 or more vehicles in California in 2018) to increase the number of zero emission vehicles sold starting in 2018. Under the new requirements, by 2025 up to 15.4% of each large volume manufacturers’ fleet must be made of zero emission vehicles. All states that have adopted the California program will amend their programs to conform to the new California standards.
Additionally, under the Environmental Protection Agency’s (EPA) national greenhouse gas (GHG) emission standards, vehicle manufacturers are required to meet fleet-wide average carbon dioxide emissions standards for cars and trucks at increasingly lower levels annually from 2012 - 2025. Those manufacturers whose fleet wide average fails to meet such standards have a deficit in their emission profile. Those manufacturers whose fleet wide average performs better than such standards may earn credits. Manufacturers may sell excess credits to other manufacturers who can apply such credits to comply with these regulatory requirements. As a manufacturer solely of zero emission vehicles, we earn the full amount of GHG credits established by the standards on each vehicle sold. We believe we will be able to sell the credits that we earn to other automobile manufacturers.
Regulation-Vehicle Safety and Testing
While our vehicles are subject to numerous regulatory requirements established by the National Highway Traffic Safety Administration (NHTSA), including all applicable United States federal motor vehicle safety standards (FMVSS), we should satisfy all such requirements as our platform, the 4-door Jeep Wrangler, satisfies all such requirements. We anticipate that we may need to satisfy certain electric vehicle requirements to comply with limitations on electrolyte spillage, battery retention, and avoidance of electric shock following specified crash tests.
The Federal Trade Commission (FTC) will require that we calculate and display the range of our electric vehicles on a label we affix to the window of the vehicle. The FTC specifies that we follow testing requirements set forth by the Society of Automotive Engineers (SAE) which further requires that we test using the United States EPA’s combined city and highway testing cycles. In July 2011, the EPA announced new energy efficiency testing methodologies and labeling requirements for electric vehicles. We expect the FTC to issue amended rules to conform to the EPA standards, which will result in FTC labels mirroring the current EPA label.
The Automobile Information and Disclosure Act require manufacturers of motor vehicles to disclose certain information regarding the manufacturer’s suggested retail price, optional equipment and pricing. In addition, that law also allows inclusion of city and highway fuel economy ratings, as determined by EPA, as well as crash test ratings as determined by NHTSA if such tests are conducted.
Regulation-Battery Safety and Testing
We anticipate that our battery pack will conform to mandatory regulations that govern transport of “dangerous goods” that may present a risk in transportation, which includes lithium-ion batteries. The governing regulations, which are issued by the Pipeline and Hazardous Materials Safety Administration (PHMSA) are based on the UN Recommendations on the Safe Transport of Dangerous Goods Model Regulations, and related UN Manual Tests and Criteria. The regulations vary by mode of transportation when these items are shipped such as by ocean vessel, rail, truck, or by air.
Regulation-Auto Dealerships
Auto dealerships operate in a highly regulated industry. A number of state and federal laws and regulations will affect our business once we acquire our first dealership. In every state in which we will operate, we will need to obtain various licenses to operate our businesses, including dealer, sales and finance and insurance licenses issued by state regulatory authorities. Numerous laws and regulations will govern our business, including those relating to our proposed sales, operations, financing, insurance, advertising, and employment practices. These laws and regulations include state franchise laws and regulations, consumer protection laws, privacy laws, escheatment laws, anti-money laundering laws and federal and state wage-hour, anti-discrimination and other employment practices laws.
Financing activities with customers will also be subject to numerous federal, state, and local laws and regulations. Claims arising out of actual or alleged violations of law may be asserted against us or our stores by individuals, a class of individuals, or governmental entities. These claims may expose us to significant damages or other penalties, including revocation or suspension of our licenses to conduct store operations and fines.
The vehicles we will sell through dealerships we acquire will also be subject to rules and regulations of various federal and state regulatory agencies.
Manufacturers and Suppliers
To date we have not produced any vehicles and we are not yet in production of any vehicles. As such, we have not established any formal relationships with any of the manufacturers or suppliers with which we will need to work once we go into production. We anticipate that we will purchase parts from over 100 suppliers, many of whom we believe will be our single source suppliers for certain components. We have established communication with many of these key suppliers though we have no formal agreements with any of them. While we will work to obtain components from multiple sources whenever possible, similar to other automobile manufacturers, many of the components to be used in our vehicles may be purchased by us from a single source. While we believe that we will be able to establish manufacture and supply relationships, we may be unable to do so in the short term or at all at prices or costs that is favorable to us.
Employees
As of December 31, 2014 we had no employees. We utilize the services of consultants on a regular basis.
Legal Proceedings
Although we may, from time to time, be a party to certain lawsuits in the ordinary course of business, we are not currently involved in any lawsuits that would have a material adverse effect on our results of operations, financial condition, or cash flows.
Properties
We currently have no properties. We currently work out of shared office space with a related party in Irvine, California. We intend to acquire car dealerships, one of which will be a Jeep dealership. It is intended that assembly operations will be conducted at a separate facility yet to be identified. We believe that the facility we plan to acquire or lease will be suitable and adequate to meet our anticipated needs.
Company Information; Available Information
The Company was originally incorporated on May 14, 1987 in Florida as Ventura Promotion Group, Inc. After a series of names changes and a re-domicile to the State of Delaware (in 2007), in December 2013 the Company and EV Pop Acquisition Company, a wholly owned subsidiary of the Company, and EMAV, at that time a privately held company incorporated in Delaware, executed an Agreement and Plan and Reorganization (the “Merger Agreement”). Pursuant to the Merger Agreement EMAV was the surviving entity of the transaction, which is sometimes referred to herein as the “Merger”. Additionally, just prior to and in anticipation of the Merger, the Company changed its name on December 27, 2013 to EMAV Holdings, Inc. Following the closing of the Merger, EMAV became a wholly-owned subsidiary of the Company, with the former stockholders of EMAV owning 97.4% of the outstanding shares of common stock of the combined companies.
We are now a fully reporting issuer, subject to the Securities Exchange Act of 1934. We file or furnish periodic reports and amendments thereto, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K and other statements and other information with the Securities and Exchange Commission (SEC). Such reports, amendments, statements, and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website (www.sec.gov) that contains reports, and information statements, and other information regarding issuers that file electronically.
Our reports, amendments thereto, and other information will also be made available, free of charge, on our website at www.emavholdings.com as soon as reasonably practicable. The information posted on our website is not incorporated by reference into this current report.
Our corporate offices are located at 1900 Main Street, Suite 300, Irvine, California 92614. Our telephone number is (949) 851-5996. Our website address is www.emavholdings.com. We make available free of charge on our website our periodic and current reports, proxy statements and other information as soon as reasonably practicable after such reports are filed with the SEC. Information contained on, or accessible through, our website is not part of this report or our other filings with the SEC.
ITEM 1A.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below together with the other information set forth in this report, which could materially affect our business, financial condition, and future results. The risks described below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results.
Risks Related to Our Business and Industry
We are a development stage company with a limited operating history and our business and prospects are extremely difficult to evaluate.
EMAV was formed in the state of Delaware in March 2010. Since March 2010, the majority of our resources have been dedicated to our development efforts in preparation to bring our signature electric vehicle to market. We have only recently begun to transition into the very early stages of commercial production. We do not have a stable operating history that you can rely on in connection with your evaluation of our business and our future business prospects. Our business and prospects must be carefully considered in light of our limited operating history and the relative infancy of the electric vehicle market. There are also many business risks, uncertainties, and difficulties that are typically encountered by development stage companies that have sporadic revenues and are committed to focusing on research, development, and product testing for an indeterminate period of time. Some of the principal risks and difficulties we have and expect to continue to encounter include, but are not limited to, our ability to:
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raise the necessary capital to finance our business until we can sell products on a full-scale and profitable basis;
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maintain effective control over the cost of our research, development and product testing activities;
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develop cost effective manufacturing methods for essential components of our proposed products;
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improve the performance of our commercial prototype batteries;
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successfully transition from our research and pilot production efforts to commercial manufacturing and sales of our vehicles;
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adapt and successfully execute our rapidly evolving and inherently unpredictable business plan;
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implement and improve operational, financial and management control systems and processes;
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license complementary technologies if necessary and successfully defend our intellectual property rights against potential claims;
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respond effectively to competitive developments and changing market conditions;
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continue to attract, retain and motivate qualified personnel; and
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manage each of the other risks set forth below.
We have a history of net losses, may incur substantial net losses in the future, and may not achieve profitability.
We have incurred significant losses since inception, including a net loss of $3,735,480 and $365,201 for the years ended December 31, 2014 and 2013, respectively. As of December 31, 2014, we have an accumulated deficit of $4,810,130. We expect to incur increased costs in order to implement additional initiatives designed to increase revenues, such as increased research and development and sales and marketing expenses related to our signature vehicle. If our revenues do not increase to offset these additional expenses or if we experience unexpected increases in operating expenses, we will continue to incur significant losses and will not become profitable. If we are not able to significantly increase our revenues, we will likely not be able to achieve profitability in the future.
The risks associated with our business may be more acute during periods of economic slowdown or recession. In addition to other consequences, these periods may be accompanied by decreased consumer and institutional spending in general, as well as decreased demand for, or additional downward pricing pressure on, our products. Accordingly, any prolonged economic slowdown or a lengthy or severe recession with respect to either the U.S. or the global economy is likely to have a material adverse effect on our results of operations, financial condition, and business prospects. As a result, given the current weakness and uncertainties in the U.S. and in certain overseas economies, we expect that our business will continue to be adversely affected for so long as, and to the extent that, such adverse economic conditions and uncertainty exist.
We may not have sufficient working capital to fund our planned operations or be able to continue as a going concern, and, as a result, we will need to raise additional capital in the future in order to continue operating our business and developing new products and technologies, which capital may not be available on acceptable terms or at all.
We believe that our existing cash resources are not sufficient to meet our anticipated needs over the next twelve months. The factors below raise substantial doubt about our ability to continue as a going concern.
We have a history of recurring losses. As of December 31, 2014, we have incurred a cumulative net loss of approximately $4,810,130.
As of December 31, 2014, we had $63,914 in cash and cash equivalents, $176,299 in total assets and $107,828 in total liabilities. During the year ended December 31, 2014, net cash used in operating activities was $436,727.
Our capital requirements will depend on many factors, including, among others:
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the availability of and the price to acquire car dealerships;
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the cost and timing to go into production of our signature consumer vehicle, the ES;
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the cost and timing to go into production of our signature commercial product, the Power Station;
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the amount we will have to pay for marketing of our vehicles;
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the costs associated with commercializing our vehicles, including the cost and timing of developing sales and marketing capabilities or entering into strategic collaborations to market and sell our vehicles;
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the acceptance of, and demand for, our vehicles;
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the timing and success of executing our business strategy;
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the costs of further developing our existing, and developing new, products or technologies;
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the cost of filing, prosecuting and enforcing patent claims;
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the extent to which we invest in new technology, testing and product development; and
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the costs associated with the continued operation, and any future growth, of our business.
Until we can generate significant cash from operations, we expect to continue to fund our operations with the proceeds of offerings of our equity and debt securities. However, we cannot assure you that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or to our stockholders. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business. Further, any contracts or license arrangements we enter into to raise funds may require us to relinquish our rights to our products or technology, and we cannot assure you that we will be able to enter into any such contracts or license arrangements on acceptable terms, or at all. Having insufficient funds may require us to delay or scale back our marketing, distribution and other commercialization activities or cease our operations altogether.
The above circumstances, along with our history and near term forecast of incurring significant net losses and negative operating cash flows, raise substantial doubt on our ability to continue as a going concern. If we do not obtain additional capital from external sources, we may not have sufficient working capital to fund our planned operations or be able to continue as a going concern.
Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern.
Our financial statements have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued a report that included an explanatory paragraph referring to our working capital deficiency, recurring net losses, and negative cash flows from operations and expressing substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity financing or other capital, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. However, if adequate funds are not available to us when we need it, and we are unable to enter into some form of strategic relationship that will give us access to additional cash resources, we will be required to even further curtail our operations which would, in turn, further raise substantial doubt about our ability to continue as a going concern.
Our forecasts are highly speculative in nature and we cannot predict results in a development stage company with a high degree of accuracy.
Any financial projections, especially those based on ventures with minimal operating history, are inherently subject to a high degree of uncertainty, and their ultimate achievement depends on the timing and occurrence of a complex series of future events, both internal and external to the enterprise. There can be no assurance that potential revenues or expenses we project will, in fact, be received or incurred.
Raising additional funds by issuing securities or through collaboration and licensing arrangements may cause dilution to existing stockholders, restrict our operations, or require us to relinquish proprietary rights.
We expect that we will need to increase our liquidity and capital resources in our current fiscal year and in future periods. We have a history of raising funds through offerings of our common stock, and we may in the future raise additional funds through public or private equity offerings, debt financings or corporate collaborations and licensing arrangements. To the extent that we raise additional capital by issuing equity securities, our stockholders’ ownership will be diluted. Additionally, any debt financing we obtain may involve covenants that restrict our operations. These restrictive covenants may include, among other things, limitations on borrowing, specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens on our assets, pay dividends on or redeem our capital stock or make investments. In addition, if we raise funds through collaboration and licensing arrangements, it may be necessary to grant licenses on terms that are not favorable to us or relinquish potentially valuable rights to our products or proprietary technologies. We may be required in future collaborations to relinquish all or a portion of our sales and marketing rights with respect to our products or license intellectual property that enable licensees to develop competing products in order to complete any such transaction.
In addition to capital raising activities, other possible business and financial uses for our authorized common stock include, without limitation, stock splits; acquiring other companies, businesses, or products in exchange for shares of common stock; issuing shares of our common stock to partners in connection with strategic alliances; attracting and retaining employees by the issuance of additional securities; satisfying any debt we may have by issuing equity securities; or, other transactions and corporate purposes that our Board of Directors (the “Board”) deems are in our best interest. Additionally, shares of common stock could be used for anti-takeover purposes or to delay or prevent changes in control or management of the Company. For example, without further stockholder approval, our Board could approve the sale of shares of common stock in a private transaction to purchasers who may oppose a takeover or favor our current Board. We cannot provide assurances that any issuances of common stock will be consummated on favorable terms or at all, that they will enhance stockholder value, or that they will not adversely affect our business or the trading price of our common stock.
We may experience significant delays in the design, manufacture, launch, and financing of our signature electric vehicle, which could harm our business and prospects.
Any delay in the financing, design, manufacture and launch of our signature electric vehicle, the ES, could materially damage our brand, business, prospects, financial condition, and operating results. Automobile manufacturers often experience delays in the design, manufacture, and commercial release of new vehicle models.
We face significant barriers in our attempt to produce our first consumer vehicle, the ES, and if we cannot successfully overcome those barriers our business will be negatively impacted.
We face significant barriers as we attempt to produce our first vehicle, the EMAV ES. We currently have all design work completed for a drivable early prototype, though have not yet produced an actual drivable prototype. Further, we do not currently have a full production prototype, a final design, a built-out manufacturing facility, or a manufacturing process. The automobile industry has traditionally been characterized by significant barriers to entry, including large capital requirements, investment costs of designing and manufacturing vehicles, long lead times to bring vehicles to market from the concept and design stage, the need for specialized design and development expertise, regulatory requirements and establishing a brand name and image and the need to establish sales and service locations. As a manufacturer and seller of primarily electric vehicles, we will face a variety of added challenges to entry that a traditional automobile manufacturer would not encounter including additional costs of producing an electric powertrain that has comparable performance to a traditional gasoline engine in terms of range and power, inexperience with servicing electric vehicles, regulations associated with the transport of lithium-ion batteries and unproven high-volume customer demand for fully electric vehicles. If we are not able to overcome these barriers, our business, prospects, operating results and financial condition will be negatively impacted and our ability to grow our business will be harmed.
We have no experience with using a single platform in the design and manufacture of our vehicles.
If we are unable to effectively leverage the benefits of using an existing vehicle platform (the 4-door Jeep Wrangler) for our signature vehicle, our business prospects, operating results, and financial condition would be adversely affected. We intend to design the ES so that we do not have to create a vehicle from “scratch”. We have limited experience with using such a platform in the design and manufacture of our vehicles. We may make changes to the design of the ES that may make it more difficult to use the 4-door Jeep Wrangler platform for future electric vehicles. There are no assurances that we will be able to use the 4-door Jeep Wrangler platform to bring our vehicles to market faster or more inexpensively by leveraging use of this platform or that there will be sufficient customer demand for electric vehicles based of this platform.
If we are unable to reduce and adequately control the costs associated with operating our business, including our costs of manufacturing, sales and materials, our business, financial condition, operating results and prospects will suffer.
If we are unable to reduce and/or maintain a sufficiently low level of costs for designing, manufacturing, marketing, selling and distributing and servicing our electric vehicles relative to their selling prices, our operating results, gross margins, business and prospects could be materially and adversely impacted. We have made, and will be required to continue to make, significant investments for the design, manufacture, and sales of our electric vehicles. There can be no assurances that we will ever achieve a positive gross margin on sales of the ES.
We will incur significant costs related to procuring the parts required to manufacture our premium electric cars, assembling vehicles, and compensating our personnel. Additionally, in the future we may be required to incur substantial marketing costs and expenses to promote our vehicles, including through the use of traditional media such as television, radio and print, even though our marketing expenses to date have been relatively limited. If we are unable to keep our operating costs aligned with the level of revenues we generate, our operating results, business and prospects will be harmed. Many of the factors that impact our operating costs are beyond our control. For example, the costs of parts and components, such as lithium-ion battery cells or body panels used in our vehicles, could increase due to shortages as global demand for these products increases. Indeed, if the popularity of electric vehicles exceeds current expectations without significant expansion in battery cell production capacity and advancements in battery cell technology, shortages could occur which would result in increased materials costs to us.
Our vehicles will make use of lithium-ion battery cells, which on rare occasions have caught fire.
The battery pack we propose to use in the ES will be a lithium-ion battery, which have been used for years in laptops and cell phones. On rare occasions, lithium-ion batteries can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials. Highly publicized incidents of laptop computers and cell phones bursting into flames have focused consumer attention on the safety of these batteries. The events have also raised questions about the suitability of these lithium-ion batteries for automotive applications. There can be no assurance that a failure of the battery packs we will use will not occur, which could damage the vehicle or lead to personal injury or death and may subject us to lawsuits. Such damage or injury would likely lead to adverse publicity and potentially a safety recall. Moreover, any failure of a competitor’s electric vehicle, especially those that use a high volume of batteries similar to those to be used by us, may cause indirect adverse publicity for us. Such adverse publicity would negatively affect our brand and harm our business, prospects, financial condition, and operating results.
Increases in costs, disruption of supply or shortage of materials, in particular lithium-ion batteries, could harm our business.
We may experience increases in the cost or a sustained interruption in the supply or shortage of materials. Any such an increase or supply interruption could materially negatively impact our business, prospects, financial condition, and operating results. The prices for the materials we will use fluctuate depending on market conditions and global demand for these materials and could adversely affect our business and operating results. For instance, we are exposed to multiple risks relating to price fluctuations for lithium-ion batteries. These risks include:
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the inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells required to support the growth of the electric or plug-in hybrid vehicle industry as demand for such cells increases;
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disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and
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an increase in the cost of raw materials, such as cobalt, used in lithium-ion cells.
Our business will be dependent on the continued supply of batteries cells for our vehicles. Any disruption in the supply of batteries could temporarily disrupt production until such time as another supplier is fully qualified. Moreover, battery manufacturers may choose to refuse to supply electric vehicle manufacturers to the extent they determine that the vehicles are not sufficiently safe. Furthermore, current fluctuations or shortages in petroleum and other economic conditions may cause us to experience significant increases in freight charges and raw material costs. Substantial increases in the prices for raw materials would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased electric vehicle prices. There can be no assurance that we will be able to recoup increasing costs of materials by increasing vehicle prices.
The automotive market is highly competitive, and we may not be successful in competing in this industry. We currently face competition from established competitors and expect to face competition from others in the future.
The worldwide automotive market, particularly for alternative fuel vehicles, is highly competitive today and we expect it will become even more so in the future. We expect competitors to continue to enter these markets within the next several years with some entering as early as 2014 and as they do so we expect that we will experience significant competition. While there is currently no other electric 4-wheel drive SUV in the marketplace, we expect other manufacturers to enter that space. We also believe that other electric vehicles which are not SUVs may pose a competitive risk to our products. Tesla Motors has announced it will offer an electric SUV in 2014. We will also face strong competition from established automobile manufacturers of premium vehicles looking to enter the electric vehicle market, such as BMV, Mercedes Benz, and Lexus. Electric vehicles which are non-premium and non-4 wheel drive also pose a competitive threat to us. Such vehicles would include the Nissan Leaf and Fiat 500.
Several manufacturers, including General Motors, Toyota, Ford, and Honda, are each selling hybrid vehicles, and certain of these manufacturers have announced plug-in versions of their hybrid vehicles. It has been reported other manufacturers, such as Audi, Renault, Mitsubishi, and Volkswagen, are also developing electric vehicles. Several start-ups have attempted to enter the market for performance electric vehicles, though many (such as Fisker) have failed and gone out of business. We also expect that a number of Chinese electric vehicle manufacturers will seek to enter the United States market as well.
Most of our current and potential competitors have significantly greater financial, manufacturing, marketing, and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale, and support of their products. Virtually all of our competitors have more extensive customer bases and broader customer and industry relationships than we do. In addition, almost all of these companies have longer operating histories and greater name recognition than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively.
We expect competition in the electric vehicle industry to intensify in the future in light of increased demand for alternative fuel vehicles, continuing globalization and consolidation in the worldwide automotive industry. Factors affecting competition include product quality and features, innovation and development time, pricing, reliability, safety, fuel economy, customer service and financing terms. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in a further downward price pressure and adversely affect our business, financial condition, operating results and prospects. Our ability to successfully compete in our industry will be fundamental to our future success in existing and new markets and our market share. There can be no assurances that we will be able to compete successfully in our markets. If our competitors introduce new cars or services that compete with or surpass the quality, price, or performance of our cars or services, we may be unable to satisfy existing customers or attract new customers at the prices and levels that would allow us to generate attractive rates of return on our investment. Increased competition could result in price reductions and revenue shortfalls, loss of customers and loss of market share, which could harm our business, prospects, financial condition, and operating results.
Demand in the automobile industry is highly volatile.
Volatility of demand in the automobile industry may materially and adversely affect our business, prospects, operating results, and financial condition. The markets in which we plan to compete in the future have been subject to considerable volatility in demand in recent periods. Demand for automobile sales depends to a large extent on general, economic, political, and social conditions in a given market and the introduction of new vehicles and technologies. As a new automobile manufacturer and low volume producer, we have less financial resources than more established automobile manufacturers to withstand changes in the market and disruptions in demand. As our business grows, economic conditions and trends in other countries and regions where we sell our electric vehicles will impact our business, prospects, and operating results as well. Demand for our electric vehicles may also be affected by factors directly impacting automobile price or the cost of purchasing and operating automobiles such as sales and financing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations, and other taxes. Volatility in demand may lead to lower vehicle unit sales and increased inventory, which may result in further downward price pressure and adversely affect our business, prospects, financial condition, and operating results. These effects may have a more pronounced impact on our business given our relatively smaller scale and financial resources as compared to many incumbent automobile manufacturers.
Difficult economic conditions may affect consumer purchases of luxury items, such as our premium sport utility electric vehicles.
The automobile industry was severely impacted by recent poor economic conditions and several vehicle manufacturing companies, including General Motors and Chrysler, were forced to file for bankruptcy. Sales of new automobiles generally dropped during this recessionary period, though recent sales figures have been the highest in many years. Sales of high-end and luxury consumer products, such as our premium electric vehicles, depend in part on discretionary consumer spending and are even more exposed to adverse changes in general economic conditions. Difficult economic conditions could therefore temporarily reduce the market for vehicles in our price range. Discretionary consumer spending also is affected by other factors, including changes in tax rates and tax credits, interest rates and the availability and terms of consumer credit.
If the difficult economic conditions return we may experience a decline in the demand for our vehicles, which could materially harm our business, prospects, financial condition, and operating results. Accordingly, any events that have a negative effect on the United States economy or on foreign economies or that negatively affect consumer confidence in the economy, including disruptions in credit and stock markets, and actual or perceived economic slowdowns, may harm our business, prospects, financial condition, and operating results.
In the event we are unable to establish and maintain marketplace confidence in our liquidity and long-term business prospects, then our financial condition, operating results, business prospects, and our stock price may suffer materially.
If we are unable to establish and maintain confidence about our liquidity and business prospects among consumers and within our industry, then our financial condition, operating results, business prospects, and our stock price may suffer materially. Our vehicles will be highly technical products that require maintenance and support. If we were to cease or cut back operations, even years from now, buyers of our vehicles from years earlier might have much more difficulty in maintaining their vehicles and obtaining satisfactory support. As a result, consumers may be less likely to purchase our vehicles now if they are not convinced that our business will succeed or that our operations will continue for many years. Similarly, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed. Accordingly, in order to build and maintain our business, we must maintain confidence among customers, suppliers and other parties in our liquidity and long-term business prospects. In contrast to some more established auto makers, we believe that, in our case, the task of maintaining such confidence may be particularly complicated by factors such as the following:
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our limited operating history;
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our limited revenues and lack of profitability to date;
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unfamiliarity with or uncertainty about our signature consumer product, the ES;
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unfamiliarity with or uncertainty about our signature commercial product, the Power Station;
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uncertainty about the long-term marketplace acceptance of alternative fuel vehicles generally, or electric vehicles specifically;
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the prospect that we will need ongoing infusions of external capital to fund our planned operations;
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the size of our expansion plans in comparison to our existing capital base and scope and history of operations; and
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the prospect or actual emergence of direct, sustained competitive pressure from more established auto makers, which may be more likely if our initial efforts are perceived to be commercially successful.
Many of these factors are largely outside our control, and any negative perceptions about our liquidity or long-term business prospects, even if exaggerated or unfounded, would likely harm our business and make it more difficult to raise additional funds when needed.
If our vehicles fail to perform as expected, our ability to develop, market, and sell our electric vehicles could be harmed.
Our vehicles may contain defects in design and manufacture that may cause them not to perform as expected or that may require repair. For example, our vehicles use a substantial amount of software code to operate. Software products are inherently complex and often contain defects and errors when first introduced. Further, our electric vehicles may not perform consistent with customers’ expectations or consistent with other vehicles currently available. For example, our electric vehicles may not have the durability or longevity of current vehicles, and may not be as easy to repair as other vehicles currently on the market. Any product defects or any other failure of our performance electric vehicles to perform as expected could harm our reputation and result in adverse publicity, lost revenue, delivery delays, product recalls, product liability claims, harm to our brand and reputation, and significant warranty and other expenses, and could have a material adverse impact on our business, financial condition, operating results and prospects.
The success of our business depends on attracting and retaining a large number of customers. If we are unable to do so, we will not be able to achieve profitability.
Our success depends on attracting a large number of potential customers to purchase our electric vehicles. We have not yet sold any vehicles. If prospective customers do not perceive our vehicles and services to be of sufficiently high value and quality and cost competitive, we may not be able to attract customers, and our business and prospects, operating results and financial condition would suffer as a result. In addition, because we have not yet sold any vehicles, we may be required to incur significantly higher and more sustained advertising and promotional expenditures than we have planned in order to attract customers. In addition, if we engage in traditional advertising, we may face review by consumer protection enforcement agencies and may incur significant expenses to ensure that our advertising claims are fully supported. To date we have no experience selling our electric vehicles and we may not be successful in attracting and retaining a large number of customers. We also have not yet formed a sales team. The individual we have targeted to lead our sales team has no experience in the marketing and selling of electric vehicles. If for any of these reasons we are not able to attract and maintain customers, our business, prospects, operating results and financial condition would be materially harmed.
We have no experience servicing our vehicles and we are using a different service model from the one typically used in the industry. If we are unable to address the service requirements of our future customers our business will be materially and adversely affected.
If we are unable to successfully address the service requirements of our future customers our business and prospects will be materially and adversely affected. In addition, we anticipate the level and quality of the service we provide our customers will have a direct impact on our success. If we are unable to satisfactorily service our customers, our ability to generate customer loyalty, grow our business and sell additional vehicles could be impaired.
We have no experience servicing our vehicles as we have yet to produce any vehicles. Servicing electric vehicles is different than servicing vehicles with internal combustion engines and requires specialized skills, including high voltage training and servicing techniques. We plan to service our premium electric vehicles at Jeep dealerships through mobile service technicians we intend to retain. We have not yet retained any such technicians. We will need to retain and train a significant number of technicians in order to successfully service and maintain the premium electric vehicles we intend to sell. There can be no assurance that these service arrangements or our lack of experience servicing our vehicles will adequately address the service requirements of our customers to their satisfaction, or that we will have sufficient resources to meet these service requirement in a timely manner as the volume of vehicles we are able to deliver annually increases.
We will need to make special arrangements with Jeep dealerships. Such arrangements may be expensive and we may not be able to recoup the costs of providing these services to our customers. In addition, a number of potential customers may choose not to purchase our vehicles because of the lack of a more widespread service network. If we do not adequately address our customers’ service needs, our brand and reputation will be adversely affected, which in turn, could have a material and adverse impact on our business, financial condition, operating results and prospects.
We may be unsuccessful in our efforts to acquire a Jeep dealership or, in the alternative, enter into an exclusive agreement with a Jeep dealership. Failure to do either may significantly increase our costs and/or reduce the availability of our product.
We believe that our success is dependent on either (i) acquiring a Jeep dealership; or, (ii) entering into an exclusive agreement with a Jeep dealership for inventory. We currently have no definitive agreement to acquire a Jeep dealership. Even if we were to enter into any such definitive agreement, Chrysler, LLC, which is the owner of the Jeep brand, has the discretion to deny our offer to acquire such a dealership.
Alternatively we would seek to enter into an exclusive relationship with another Jeep dealer to provide us with the vehicle platform and inventory. Even if we were to make such an agreement there is no assurance we would be provided with the inventory we believe we will need. Further, not owning our own dealership would likely increase our cost to acquire all necessary inventory and parts.
If we are unable to acquire our own Jeep dealership or enter into an exclusive relationship with another Jeep dealer our cost and ability to produce our signature vehicle mat be significantly affected.
We will not be able to successfully commercialize our product candidates without establishing sales and marketing capabilities internally or through collaborators.
We currently have no sales and marketing staff. If and when we initiate sales of our signature vehicle we may not be able to find suitable sales and marketing staff and collaborators. The marketing collaborators we propose to work with are other Jeep dealerships. These other Jeep dealerships may not be adequate, successful, or could refuse to work with us and sell our vehicles. The development of a marketing and sales capability will require significant expenditures, management resources, and time. The cost of establishing such a sales force may exceed any potential product revenues, or our marketing and sales efforts may be unsuccessful. If we are unable to develop an internal marketing and sales capability or if we are unable to enter into marketing and sales arrangement with a third party on acceptable terms, we may be unable to successfully and effectively market and sell our vehicles.
Our future success depends on our ability to retain our chief technology officer and other key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on Wilhelm Cashen, our Chief Technology Officer, and the other principal members of our executive team listed under “Management”. Employment with our executives and other employees are currently “at will”, meaning that there is no mandatory fixed term and their employment with us may be terminated by us or by them for any or no reason. The loss of the services of any of our executives or other key employees might impede the achievement of our research, development, and commercialization objectives. Recruiting and retaining qualified engineering and mechanical personnel, accounting personnel, and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain qualified personnel on acceptable terms, or at all, given the competition in the electric vehicle market for similar personnel. In addition, we rely on consultants and advisors to assist us in formulating our development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
We will need to grow our company, and we may encounter difficulties in managing this growth, which could disrupt our operations.
Other than the services provided by our management team we currently have no employees. We currently expect to experience significant growth in the number of employees and the scope of our operations. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational, and financial systems, expand our facilities, and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our vehicle and compete effectively will depend, in part, on our ability to effectively manage any future growth.
Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Risks that we face in undertaking this expansion include:
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training new personnel;
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forecasting production and revenue;
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controlling expenses and investments in anticipation of expanded operations;
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establishing or expanding design, manufacturing, sales and service facilities;
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implementing and enhancing administrative infrastructure, systems and processes;
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addressing new markets; and
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expanding international operations.
We intend to continue to hire a significant number of additional personnel, including design and manufacturing personnel and service technicians for our performance electric vehicles. Because our high-performance vehicles are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in performance electric vehicles may not be available to hire, and we will need to expend significant time and expense training the employees we do hire. Competition for individuals with experience designing, manufacturing, and servicing electric vehicles is intense, and we may not be able to attract, assimilate, train, or retain additional highly qualified personnel in the future. The failure to attract, integrate, train, motivate, and retain these additional employees could seriously harm our business and prospects.
We may become subject to the risk of product liability claims.
We face an inherent risk of product liability. Automotive production involves the risk of product liability claims and associated adverse publicity. Claims might be made by purchasers of our vehicles, people injured in accidents or events involving our vehicles, other Jeep dealerships, or others. We may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable for use. Any product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our vehicles. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
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decreased demand for our vehicles;
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injury to our reputation;
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initiation of investigations by regulators;
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costs to defend the related litigation;
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a diversion of management’s time and our resources;
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substantial monetary awards to trial participants or patients;
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product recalls, marketing or promotional restrictions;
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loss of revenues from vehicle sales; and
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the inability to commercialize our vehicles.
We may not have or be able to obtain or maintain sufficient and affordable insurance coverage, and without sufficient coverage any claim brought against us could have a materially adverse effect on our business, financial condition or results of operations. While intend to maintain significant product liability insurance, any claim which may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by insurance or that is in excess of the limits of our insurance coverage. Most insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
We may have to dedicate resources to the settlement of litigation.
Securities legislation in the United States makes it relatively easy for stockholders to sue. This could lead to frivolous law suits which could take substantial time, money, resources, and attention or force us to settle such claims rather than seek adequate judicial remedy or dismissal of such claims. Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. If we are required to defend patent infringement actions brought by third parties, or if we sue to protect our own patent rights or otherwise to protect our proprietary information and to prevent its disclosure, we may be required to pay substantial litigation costs and managerial attention may be diverted from business operations even if the outcome is in our favor. If we are required to defend our patents or trademarks against infringement by third parties, we may be required to pay substantial litigation costs, managerial attention and financial resources may be diverted from our research and development operations even if the outcome is in our favor.
The unavailability, reduction, or elimination of government and economic incentives could have a material adverse effect on our business, financial condition, operating results and prospects.
Our growth depends in part on the availability and amounts of government subsidies and economic incentives for alternative fuel vehicles generally and performance electric vehicles specifically. Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, the reduced need for such subsidies and incentives due to the perceived success of the electric vehicle, fiscal tightening or other reasons may result in the diminished competitiveness of the alternative fuel vehicle industry generally or our electric vehicles in particular. This could materially and adversely affect the growth of the alternative fuel automobile markets and our business, prospects, financial condition and operating results.
Our future growth is dependent upon the willingness of consumers to adopt electric vehicles.
Our growth is highly dependent upon the adoption by consumers of, and we are subject to an elevated risk of any reduced demand for, alternative fuel vehicles in general and electric vehicles in particular. If the market for electric vehicles does not develop as we expect or develops more slowly than we expect, our business, prospects, financial condition, and operating results will be harmed. The market for alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards, frequent new vehicle announcements, and changing consumer demands and behaviors.
Other factors that may influence the adoption of alternative fuel vehicles, and specifically electric vehicles, include though is not limited to the following:
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perceptions about electric vehicle quality, safety (in particular with respect to lithium-ion battery packs), design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles, such as those related to the Chevrolet Volt battery pack fires;
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perceptions about vehicle safety in general, in particular safety issues that may be attributed to the use of advanced technology, including vehicle electronics and regenerative braking systems;
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negative perceptions of electric vehicles, such as that they are more expensive than non-electric vehicles and are only affordable with government subsidies;
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the limited range over which electric vehicles may be driven on a single battery charge and the effects of weather on this range;
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the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge;
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varied calculations for driving ranges achievable by EVs;
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concerns about electric grid capacity and reliability, which could derail our past and present efforts to promote electric vehicles as a practical solution to vehicles which require gasoline;
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concerns by potential customers that if their battery pack is not charged properly, it may become unusable and may need to be replaced;
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the availability of alternative fuel vehicles, including plug-in hybrid electric vehicles;
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improvements in the fuel economy of the internal combustion engine;
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the availability of service for electric vehicles;
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consumers’ desire and ability to purchase a luxury automobile or one that is perceived as exclusive;
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the environmental consciousness of consumers;
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volatility in the cost of oil and gasoline;
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consumers’ perceptions of the dependency of the United States on oil from unstable or hostile countries;
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government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;
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access to charging stations, standardization of electric vehicle charging systems and consumers’ perceptions about convenience and cost to charge an electric vehicle;
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the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles; and
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perceptions about and the actual cost of alternative fuel,
It is anticipated that our electric vehicles will make less noise than internal combustion vehicles. Due to concerns about overly quiet vehicles and vision impaired pedestrians, in January 2011, Congress passed and the President signed the Pedestrian Safety Enhancement Act of 2010. The new law requires NHTSA to establish minimum sounds for electric vehicles and hybrid electric vehicles when travelling at low speeds. NHTSA plans to finalize a rule early next year with an effective date by September 1, 2014. This will begin a three year phase-in schedule for establishing these minimum sounds in all electric and hybrid electric vehicles. Adding this artificial noise may cause potential customers not to purchase our electric vehicles, which would materially adversely affect our business, operating results, financial condition, and prospects.
The range of our electric vehicles on a single charge declines over time which may negatively influence potential customers’ decisions whether to purchase our vehicles.
The range of our electric vehicles on a single charge will decline principally as a function of usage, time, and charging patterns as well as other factors. For example, a customer’s use of one of our vehicles as well as the frequency with which they charge the battery pack of their vehicle can result in additional deterioration of the battery pack’s ability to hold a charge. Such battery pack deterioration and the related decrease in range and power may negatively influence potential customer decisions whether to purchase our vehicles, which may harm our ability to market and sell our vehicles.
We will need to establish and build our information technology systems. If these implementations are not successful, our business and operations could be disrupted and our operating results could be harmed.
We are currently establishing and building our information technology systems, including new internally developed systems, to assist us in the management of our business. In particular, our information technology systems will include product data management, procurement, inventory management, production planning and execution, sales and logistics, dealer management, and, financial and regulatory compliance systems. These systems will support our operations and enable us to produce our signature vehicle. The implementation, maintenance, and improvement of these systems require significant management time, support, and cost. There are inherent risks associated with developing, improving, and expanding our core systems which may affect our ability to manage our data and inventory, procure parts or supplies or manufacture, sell and deliver our vehicles. We cannot be sure that these systems or their required functionality will be fully or effectively implemented on a timely basis, if at all, or maintained. If we do not successfully establish, implement, or maintain these systems, our operations may be disrupted and our operating results could be harmed. In addition, these systems or their functionality may not operate as we expect them to, and we may be required to expend significant resources to correct problems or find alternative sources for performing these functions.
We face risks associated with our objective to sell our vehicles internationally, including unfavorable regulatory, political, tax, and labor conditions, which could harm our business.
We face risks associated with our objective to sell our vehicles internationally, including possible unfavorable regulatory, political, tax and labor conditions, which could harm our business. We currently have no international operations. As part of our growth strategy we intend to expand our sales, maintenance, and repair services internationally. However, we have limited experience to date selling and servicing our vehicles internationally and such expansion would require us to make significant expenditures, including the hiring of local employees and establishing facilities, in advance of generating any revenue. We are subject to a number of risks associated with international business activities that may increase our costs, impact our ability to sell our electric vehicles and require significant management attention. These risks include though are not limited to the following:
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conforming our vehicles to various international regulatory and safety requirements where we hope to sell our vehicles;
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difficulty in staffing and managing foreign operations;
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difficulties attracting customers in new jurisdictions;
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foreign government taxes, regulations and permit requirements, including foreign taxes that we may not be able to offset against taxes imposed upon us in the United States, and foreign tax and other laws limiting our ability to repatriate funds to the United States;
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fluctuations in foreign currency exchange rates and interest rates, including risks related to any interest rate swap or other hedging activities we undertake;
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our ability to enforce our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as do the United States, Japan and European countries, which increases the risk of unauthorized, and uncompensated, use of our technology;
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United States and foreign government trade restrictions, tariffs and price or exchange controls;
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foreign labor laws, regulations, and restrictions;
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preferences of foreign nations for domestically produced vehicles;
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changes in diplomatic and trade relationships;
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political instability, natural disasters, war or events of terrorism; and
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the strength of international economies.
If we fail to successfully address these risks, our business, prospects, operating results and financial condition could be materially harmed.
Developments in alternative technologies or improvements in the internal combustion engine may materially adversely affect the demand for our electric vehicles.
Significant developments in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect our business and prospects in ways we do not currently anticipate. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and enhanced electric vehicles, which could result in the loss of competitiveness of our vehicles, decreased revenue, and a loss of market share to competitors.
We will be subject to various environmental and safety laws and regulations that could impose substantial costs upon us and negatively impact our ability to operate our planned manufacturing facilities.
As we propose to be an automobile manufacturer, we and our operations, both in the United States and abroad, will be subject to national, state, provincial, and/or local environmental, health and safety laws and regulations, including laws relating to the use, handling, storage, disposal and human exposure to hazardous materials. Environmental and health and safety laws and regulations can be complex, and we expect that our business and operations will be affected by future amendments to such laws or other new environmental and health and safety laws which may require us to change our operations, potentially resulting in a material adverse effect on our business. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury and fines and penalties. Capital and operating expenses needed to comply with environmental, health and safety laws and regulations can be significant, and violations may result in substantial fines and penalties, third party damages, suspension of production, or a cessation of our operations.
Contamination at properties we will own and operate, and properties to which hazardous substances were sent by us, may result in liability for us under environmental laws and regulations, including, but not limited to the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), which can impose liability for the full amount of remediation-related costs without regard to fault, for the investigation and cleanup of contaminated soil and ground water, for building contamination and impacts to human health and for damages to natural resources. The costs of complying with environmental laws and regulations and any claims concerning noncompliance, or liability with respect to contamination in the future, could have a material adverse effect on our financial condition or operating results. We may face unexpected delays in obtaining the necessary permits and approvals required by environmental laws in connection with our manufacturing facilities that could require significant time and financial resources and negatively impact our ability to operate these facilities, which would adversely impact our business prospects and operating results.
Risks Related to the Auto Retailer Business and Industry
Our entry into the auto retailer business will be through acquisitions, and we may not be able to acquire and successfully integrate any auto dealerships.
Limitations on our capital resources
The acquisition of auto retailer stores will require substantial capital investment. We may not be able to obtain financing which would restrict our ability to complete acquisitions. Since we propose to borrow some of the funds required to acquire the stores we will likely be required to pledge all of the assets of stores we acquire to secure the indebtedness for the acquisitions. These pledges may limit our ability to borrow from other sources in order to fund future acquisitions.
Manufacturers
We will be required to obtain consent from the applicable manufacturer prior to the acquisition of a franchised store. In determining whether to approve an acquisition, a manufacturer considers many factors, including our financial condition, ownership structure, the number of stores currently owned and our performance with those stores. Obtaining manufacturer approval of acquisitions also takes a significant amount of time, typically 60 to 90 days. There is no assurance that manufacturers will approve acquisitions timely, if at all, which could significantly impair the execution of our acquisition strategy.
Once we acquire stores, manufacturers will also consider our performance at the other stores. Industry performance standards are measured by the Minimum Sales Responsibility scores, Customer Satisfaction Index scores, and Sales Satisfaction Index scores. At any point in time, certain stores may have scores below the manufacturers’ sales zone averages or have achieved sales below the targets manufacturers have set. Our failure to maintain satisfactory scores and to achieve market share performance goals could restrict our ability to complete future store acquisitions.
Acquisition risks
We will face risks commonly encountered with growth through acquisitions. These risks include, though are not limited to, the following:
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failure to identify and acquire targets;
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incorrectly valuing stores to be acquired;
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failure to integrate the operations and personnel of acquired stores;
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failure to achieve forecasted sales levels;
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incurring significantly higher capital expenditures and operating expenses;
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incurring additional facility renovation costs or other expenses required by the manufacturer;
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entering new, unfamiliar markets;
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strain on our existing systems, procedures, structures and personnel;
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encountering undiscovered liabilities and operational difficulties at acquired dealerships;
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diverting the resources of our management;
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disrupting our ongoing business;
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encountering latent or undiscovered liabilities and operational difficulties at acquired stores; and
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failing to obtain a manufacturer’s consent to the acquisition of one or more of its stores.
Consummation and competition
We may not be able to complete future acquisitions at acceptable prices and terms or identify suitable candidates. In addition, we anticipate increased competition in the future for acquisition candidates which could result in fewer acquisition opportunities for us and higher acquisition prices. The magnitude, timing, pricing, and nature of future acquisitions will depend upon various factors, including though not limited to the following:
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availability of suitable acquisition candidates;
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competition with other dealer groups for suitable acquisitions;
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negotiation of acceptable terms with the seller and with the manufacturer;
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our financial capabilities and ability to obtain financing on acceptable terms; and
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the availability of skilled employees to manage the acquired businesses.
Operating and financial condition
We will undertake and conduct a significant amount of due diligence and investigation in considering each acquisition opportunity. Even so there remains an unavoidable level of risk remains regarding the actual operating condition of acquired stores and we may not have an accurate understanding of each acquired store’s financial condition and performance. Similarly, most of the dealerships we propose to acquire will not have financial statements audited or prepared in accordance with U.S. generally accepted accounting principles. We may not have an accurate understanding of the historical financial condition and performance of the businesses to be acquired. Until we assume control of the business, we may not be able to ascertain the actual value or understand the potential liabilities of the acquired businesses and their earnings potential. These risks may not be adequately mitigated by the indemnification obligations we propose to negotiate with sellers.
Limitations on our capital resources
We will be required to make a substantial capital investment when we acquire dealerships. Initially we propose to finance these acquisitions with cash flows from our operations, borrowings, and the issuance of shares of our common stock. We may not be able to service the debt obligations incurred with the proposed acquisitions.
Increasing competition among automotive retailers could reduce our profit margins on vehicle sales and related businesses. Further, the use of the Internet in the car purchasing process could materially adversely affect us.
Automobile retailing is a highly competitive business. Our competitors include publicly and privately-owned dealerships, of which certain competitors are larger and have greater financial and marketing resources than we have. Many of our competitors sell the same or similar makes of new and used vehicles that we propose to offer at competitive prices. We will not have any cost advantage in purchasing new vehicles from manufacturers due to the volume of purchases or otherwise.
The Internet has become a significant part of the sales process in the automotive retail industry. Customers are using the Internet to compare pricing for vehicles and related finance and insurance services, which may further reduce margins for new and used vehicles and profits for related finance and insurance services. If Internet new vehicle sales are allowed to be conducted without the involvement of franchised dealers, our business could be materially adversely affected. In addition, other franchise groups have aligned themselves with services offered on the Internet or are investing heavily in the development of their own Internet capabilities, which could materially adversely affect our business, results of operations, financial condition and cash flows.
Our success will depend in large part upon the overall demand for the particular lines of vehicles that each of our stores will sell and the ability of the manufacturers to continue to deliver high quality, defect-free vehicles.
Demand for the manufacturers’ vehicles of the stores we acquire, as well as the financial condition, management, marketing, production and distribution capabilities of these manufacturers, can significantly affect our business. Events that adversely affect a manufacturer’s ability to timely deliver new vehicles may adversely affect us by reducing our supply of popular new vehicles and leading to lower sales in our stores during those periods than would otherwise occur. We will depend on our manufacturers to deliver high-quality, defect-free vehicles. If manufacturers experience quality issues, our financial performance may be adversely impacted. In addition, the discontinuance of a particular brand could negatively impact our revenues and profitability.
Vehicle manufacturers would be adversely affected by economic downturns or recessions, adverse fluctuations in currency exchange rates, significant declines in the sales of their new vehicles, increases in interest rates, declines in their credit ratings, port closures, labor strikes or similar disruptions (including within their major suppliers), supply shortages or rising raw material costs, rising employee benefit costs, adverse publicity that may reduce consumer demand for their products, product defects, vehicle recall campaigns, litigation, poor product mix or unappealing vehicle design, or other adverse events. These and other risks could materially adversely affect any manufacturer and limit its ability to profitably design, market, produce or distribute new vehicles, which, in turn, could materially adversely affect our business, results of operations, financial condition and cash flows.
Additionally, federal and certain state laws mandate minimum levels of vehicle fuel economy and establish emission standards. These levels and standards could be increased in the future, including the required use of renewable energy sources. Such laws often increase the costs of new vehicles, which would be expected to reduce demand. Further, changes in these laws could result in fewer vehicles available for sale by manufacturers unwilling or unable to comply with the higher standards.
Compliance with the variety of federal, state and local regulations cannot be assured. Claims may arise out of actual or alleged violations of these various laws and regulations which may be asserted against us through class actions or by governmental entities in civil or criminal investigations and proceedings.
We may be involved in legal proceedings arising from the conduct of our business, including litigation with customers, employee-related lawsuits, class actions, purported class actions and actions brought by governmental authorities. Claims arising out of actual or alleged violations of law may be asserted against us or any of our dealers by individuals, either individually or through class actions, or by governmental entities in civil or criminal investigations and proceedings. Such actions may expose us to substantial monetary damages and legal defense costs, injunctive relief, criminal and civil fines, and penalties and damage our reputation and sales.
Government regulations and compliance costs may adversely affect our business, and the failure to comply could have a material adverse effect on our results of operations.
Our stores will be subject to a wide range of federal, state and local laws and regulations, including local licensing requirements. These laws will regulate the conduct of our business at the stores, including though not limited to the following:
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motor vehicle and retail installment sales practices;
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leasing;
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sales of finance, insurance and vehicle protection products;
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consumer credit;
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deceptive trade practices;
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consumer protection;
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consumer privacy;
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advertising;
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health and safety; and
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employment practices.
In every state in which we acquire a store we will be required to obtain certain licenses issued by state authorities, including dealer, sales, finance and insurance-related licenses. State laws will also regulate our advertising, operating, financing, employment, and sales practices. Other laws and regulations include state franchise laws and regulations and laws and regulations applicable to new and used automobile dealers. In some states, some of our practices will need to be approved by regulatory agencies which have broad discretion. The enactment of new laws and regulations that materially impair or restrict our sales, finance and insurance or other operations could have a material adverse effect on our business, results of operations, financial condition, cash flows, and prospects.
If we or any of our employees at any individual dealership violate or are alleged to violate laws and regulations applicable to them or protecting consumers generally, we could be subject to individual claims or consumer class actions, administrative, civil or criminal investigations or actions and adverse publicity. Such actions could expose us to substantial monetary damages and legal defense costs, injunctive relief and criminal and civil fines and penalties, including suspension or revocation of our licenses and franchises to conduct dealership operations.
Risks Related to Our Dependence on Third Parties
We will rely upon third-party contractors and service providers for the execution of some aspects of our business plan. Failure of these collaborators to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of our development programs.
We intend to outsource certain functions and services to collaborators and/or contract manufacturers. We also intend to rely upon third parties for engineering and design services. There is no assurance that such individuals or organizations will be able to provide the functions or services as agreed upon or in a quality fashion. Any failure to do so could cause us to suffer significant delays in the development and commercialization of our vehicles.
We will initially rely on one vehicle, the 4-Door Jeep Wrangler, and the loss in the availability of that vehicle could have a material adverse effect on our business.
Although we plan on acquiring a Jeep dealership to ensure an uninterrupted supply of 4-Door Jeep Wranglers, we may be unable to acquire such a dealership. Further, interruptions experienced by Jeep and Chrysler could also significantly impact us even if we own a Jeep dealership. Purchasing sufficient quantities of the platform vehicle is pivotal to our success. Since there is only a limited number of 4-Door Jeep Wranglers produced each year we may limited access to sufficient inventory which could affect our success.
Risks Relating to Our Intellectual Property
Our success depends in part on our ability to protect our intellectual property. It is difficult and costly to protect our proprietary rights and technology, and we may not be able to ensure their protection.
Our commercial success will depend in part on obtaining and maintaining patent, trademark, and trade secret protection for various aspects of our business, in addition to successfully defending these patents against third party challenges. Our ability to stop unauthorized third parties from making, using, selling, offering to sell, or importing our vehicles, once commercialized, is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.
The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep a competitive advantage. For example:
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others may be able to make or use our ideas which are not afforded any protection;
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we may not be able to detect infringement against our owned or licensed patents;
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we might not have been the first to make the inventions covered by our pending patent applications;
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we might not have been the first to file patent applications for our inventions;
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others may independently develop similar or alternative technologies or duplicate any of our technologies;
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it is possible that our pending patent applications will not result in issued patents;
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it is possible that there are prior public disclosures that could invalidate our inventions, or parts of our inventions, of which we are not aware;
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it is possible that others may circumvent our rights;
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it is possible that there are unpublished applications or patent applications maintained in secrecy that may later issue with claims covering our products or technology similar to ours;
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the laws of foreign countries may not protect our proprietary rights to the same extent as the laws of the United States;
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the claims of our patent applications, if and when issued, may not cover our product candidates;
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any patents issued in our favor may not provide us with any competitive advantages, or may be narrowed in scope, be held invalid or unenforceable as a result of legal challenges by third parties;
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we may not develop additional proprietary technologies for which we can obtain patent protection; or
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the patents of others may have an adverse effect on our business.
We also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect, and we have limited control over the protection of trade secrets used by our collaborators and suppliers. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods, and know-how. If our confidential or proprietary information is divulged to or acquired by third parties, including our competitors, our competitive position in the marketplace will be harmed and our ability to successfully penetrate our target markets could be severely compromised.
If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.
Our commercial success depends upon our ability to develop, manufacture, market, and sell our vehicles and use our proprietary technologies without infringing the proprietary rights of third parties. There is a substantial amount of litigation involving patent and other intellectual property rights in the automotive industry, and related industries generally. If a third party claims that we infringe its intellectual property rights, we may face a number of issues, including, but not limited to:
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infringement and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert our management’s attention from our core business;
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substantial damages for infringement, which we may have to pay if a court decides that the product at issue infringes on or violates the third party’s rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owner’s attorneys’ fees;
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a court prohibiting us from selling our vehicles unless the third party licenses its product rights to us, which it is not required to do;
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if a license is available from a third party, we may have to pay substantial royalties, upfront fees and/or grant cross-licenses to intellectual property rights for our products; and
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redesigning our vehicles or processes so they do not infringe, which may not be possible or may require substantial monetary expenditures and time.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations or otherwise have a material adverse effect on our business, results of operations, financial condition, and prospects.
We may be subject to claims that our future employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As is common in the automotive and related industries, we will employ individuals who were previously employed at other automotive companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these future employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management, which would adversely affect our financial condition.
Risks Related to Ownership of Our Common Stock
Our share price is likely to be highly volatile and may be influenced by numerous factors that are beyond our control.
A low share price and low market valuation may make it difficult to raise sufficient additional cash due to the significant dilution to current stockholders. The market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including:
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plans for, progress, and development of our signature vehicle;
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the failure to acquire a Jeep dealership;
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accelerated entry into the electric vehicle market by larger automobile manufacturers;
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Jeep or Chrysler (which owns Jeep) producing a competitive electric vehicle based on the 4- Jeep Wrangler;
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announcements of new products, technologies, commercial relationships, acquisitions or other events by us or our competitors;
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the success or failure of other electric vehicle companies;
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failure of our vehicles to achieve commercial success;
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fluctuations in stock market prices and trading volumes of similar companies;
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general market conditions and overall fluctuations in U.S. equity markets;
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variations in our quarterly operating results;
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changes in our financial guidance or securities analysts’ estimates of our financial performance;
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changes in accounting principles;
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sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;
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additions or departures of key personnel;
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discussion of us or our stock price by the press and by online investor communities; and
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other risks and uncertainties described in these Risk Factors.
In recent years the stock of other electric vehicle companies has experienced extreme price fluctuations that have been unrelated to the operating performance of the affected companies. There can be no assurance that the market price of our shares of common stock will not experience significant fluctuations in the future, including fluctuations that are unrelated to our performance. These fluctuations may result due to macroeconomic and world events, national or local events, general perception of the electric vehicle industry or to a lack of liquidity. In addition other electric vehicle companies or our competitors’ programs could have positive or negative results that impact their stock prices and their results, or stock fluctuations could have a positive or negative impact on our stock price regardless whether such impact is direct or not.
Stockholders may not agree with our business, marketing, engineering, and financial strategy, including additional dilutive financings, and may decide to sell their shares or vote against such proposals. Such actions could materially impact our stock price. In addition, portfolio managers of funds or large investors can change or change their view on us and decide to sell our shares. These actions could have a material impact on our stock price. In order to complete a financing, or for other business reasons, we may elect to consolidate our shares of common stock. Investors may not agree with these actions and may sell the shares. We may have little or no ability to impact or alter such decisions.
There is little current trading of shares or our common stock. Our stock price is likely to be highly volatile.
Although prices for shares of our common stock are quoted on the OTC QB, there is little current trading and no assurance can be given that an active public trading market will develop or, if developed, that it will be sustained. The OTC QB is generally regarded as a less efficient and less prestigious trading market than other national markets. There is no assurance if or when our common stock will be quoted on another more prestigious exchange or market. The market price of our common stock is likely to be highly volatile because for some time there will likely be a thin trading market for the stock, which causes trades of small blocks of stock to have a significant impact on the stock price.
Because our common stock is a “penny stock,” trading therein will be subject to regulatory restrictions.
Our common stock is currently, and in the near future will likely continue to be, considered a “penny stock.” The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure and other requirements may adversely affect the trading activity in the secondary market for our common stock.
We have not paid dividends in the past and we have no current plans to pay dividends on our common stock and investors must look solely to stock appreciation for a return on their investment in us.
We have no plans to pay, and we do not anticipate paying, any cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings to fund the development and growth of our business. Any payment of future dividends will be at the discretion of our board of directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that the board of directors deems relevant. Investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our common stock.
Our officers, directors, and principal stockholders will be able to exert significant influence over the combined business and may make decisions that are not in the best interests of all stockholders.
As of December 31, 2014, our officers, directors, and principal stockholders (greater than 5% stockholders) collectively own approximately 39.6% of our fully-diluted common stock. As a result of such ownership, these stockholders may be able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control. In particular, this concentration of ownership of our common stock could have the effect of delaying or preventing a change of control of our company or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of our company. This, in turn, could have a negative effect on the market price of our common stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of our common stock. Moreover, the interests of this concentration of ownership may not always coincide with the combined company’s interests or the interests of other stockholders, and accordingly, they could cause the combined company to enter into transactions or agreements that it would not otherwise consider.
If we do not implement and maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financial reporting may be adversely affected.
The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and disclosure controls and procedures quarterly. In particular, beginning with the year ending on December 31, 2014, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. If we are not able to comply with the requirements of Section 404 in a timely manner, our reported financial results could be materially misstated, we could receive an adverse opinion regarding our internal controls over financial reporting from our accounting firm and we could be subject to investigations or sanctions by regulatory authorities, which would require additional financial and management resources, and the market price of our stock could decline. For so long as we remain as an emerging growth company or a smaller reporting company, our accounting firm will not be required to provide an opinion regarding our internal controls over financial reporting.
Potential future sales or issuances of our common stock to raise capital, or the perception that such sales could occur, could cause dilution to our current stockholders and the price of our common stock to fall.
Although we are pursuing various sources of potential funding, we have historically supported our operations through the issuance of equity and expect to continue to do so in the future. Although we may not be successful in obtaining financing through equity sales on terms that are favorable to us, if at all, any such sales that do occur could result in substantial dilution to the interests of existing holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock or other equity securities to any new investors, or the anticipation of such sales, could cause the trading price of our common stock to fall.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock could be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
We are a smaller reporting company and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.
We are currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In the event that we are still considered a “smaller reporting company,” at such time we cease being an “emerging growth company”, we will be required to provide additional disclosure in our SEC filings. However, similar to “emerging growth companies”, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports and in a registration statement under the Exchange Act on Form 10. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.
Anti-takeover provisions in our Certificate of Incorporation and our Bylaws, as well as provisions of Delaware law, might discourage, delay or prevent a change in control of our company or changes in our Board of Directors or management and, therefore, depress the trading price of our common stock.
Our Certificate of Incorporation, Bylaws, and Delaware law contain provisions that may depress the market price of our common stock by acting to discourage, delay, or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove members of our Board of Directors or our management. Our corporate governance documents include provisions:
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providing that directors may be removed by stockholders only for cause;
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limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;
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requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our Board of Directors;
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authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock; and
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limiting the liability of, and providing indemnification to, our directors and officers.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock from engaging in certain business combinations with us. Any provision of our Certificate of Incorporation, Bylaws, or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock. The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that stockholders could receive a premium for their common stock in an acquisition.
Our common stock may not be eligible for listing on a national securities exchange.
Although, our common stock is currently quoted on the OTC Markets, to date, there has been no active public trading market for our common stock. Securities quoted in these venues often lack liquidity and analyst coverage, which may result in lower prices for our common stock than might be obtained in a larger, more established stock exchanges and may also result in a larger spread between the bid and asked price for our common stock. If a market for our common stock does not develop or is not sustained, it may be difficult for our stockholders to sell their shares of common stock at an attractive price or at all. In the absence of an active trading market for our common stock, stockholders may not be able to sell their common stock at or above the price at which they acquired the shares or at the time that they would like to sell. We cannot predict the prices at which our common stock will trade. In addition, we cannot assure you that we will be able to meet the initial listing standards of any national securities exchange, or, if we do meet such initial qualitative listing standards, that we will be able to maintain any such listing.
Maintaining compliance with our obligations as a public company may strain our resources and distract management, and if we do not remain compliant our stock price may be adversely affected.
Our common stock is registered under the Exchange Act. It is therefore subject to the information, proxy solicitation, insider trading, and other restrictions and requirements of the SEC under the Exchange Act. Both the U.S. Congress and the SEC continue to issue new and proposed rules, and complying with existing and new rules has caused, and will continue to cause, us to devote significant financial and other resources to maintain our status as a public company. These regulatory costs and requirements will continue to increase our losses in future periods, and we expect that an increasing amount of management time and effort will be needed to meet our regulatory obligations. On January 3, 2014 our common stock began trading on the OTCQB marketplace under the symbol “EMAV”.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate our internal control systems and that management report on and attest to the adequacy of our internal controls. Recent SEC pronouncements suggest that in the next several years we may be required to report our financial results using new International Financial Reporting Standards, replacing GAAP, which would require us to make significant investments in training, hiring, consulting and information technology, among other investments. All of these and other reporting requirements and heightened corporate governance obligations that we face, or may face in the future, will further increase the cost to us, perhaps substantially, of remaining compliant with our obligations under the Exchange Act and other applicable laws, including the Sarbanes-Oxley Act and the Dodd-Frank Act of 2010. In order to meet these incremental obligations, we will need to invest in our corporate and accounting infrastructure and systems, and acquire additional services from third party auditors and advisors. As a result of these requirements and investments, we may incur significant additional expenses and may suffer a significant diversion of management’s time. There is no guarantee that we will be able to continue to meet these obligations in a timely manner. If we fail to do so, we could be subject to sanctions or investigation by regulatory authorities such as the SEC. Any such actions could adversely affect the market price of our common stock, perhaps significantly.
Our publicly-filed reports are reviewed from time to time by the SEC, and any significant changes or amendments required as a result of any such review may result in material liability to us and may have a material adverse impact on the trading price of our common stock.
The reports and other securities filings of publicly-traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements. The SEC is required, pursuant to the Sarbanes-Oxley Act of 2002, to undertake a comprehensive review of a company’s reports at least once every three years, although an SEC review may be initiated at any time. While we believe that our previously filed SEC reports comply, and we intend that all future reports will comply, in all material respects with the published rules and regulations of the SEC, we could be required to modify, amend, or reformulate information contained in our filings as a result of any SEC review. Any modification, amendment, or reformulation of information contained in such reports could be significant and result in material liability to us and have a material adverse impact on the trading price of our common stock.
We may invest or spend our cash in ways with which you may not agree or in ways which may not yield a significant return.
Our management has considerable discretion in the use of our cash. Our cash may be used for purposes that do not increase our operating results or market value. Until the cash is used, it may be placed in investments that do not produce significant income or that may lose value. The failure of our management to invest or spend our cash effectively could result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
We currently have no properties. We currently work out of shared office space with a related party in Irvine, California. We intend to acquire auto dealerships and certain operations of the Company may be operated out of those dealerships. We also plan to establish an office in the Colorado Springs area to support our commercial sales. We expect to establish an assembly and up-fit facility in the Detroit, Michigan area out of which we intend to house our consumer sales operations and our general corporate administrative functions. The Company plans on acquiring and/or leasing any additional facilities it will need to execute on its business plan, which we believe will be suitable and adequate to meet our anticipated needs.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Although we may, from time to time, be a party to certain lawsuits in the ordinary course of business, we are not currently involved in any lawsuits that would have a material adverse effect on our results of operations, financial condition, or cash flows.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Information About Our Common Stock
Our common stock is approved for quotation on the OTC Markets’ OTCQB marketplace under the symbol “EMAV.” The OTC QB is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter equity securities. The OTC QB securities are traded by a community of market makers that enter quotes and trade reports. This market is limited in comparison to the national stock exchanges and any prices quoted may not be a reliable indication of the value of our common stock.
On April 21, 2015, the closing price of our common stock reported on the OTCQB was $0.75 per share. The following table sets forth, for each of the quarterly periods indicated, the high and low sales prices of our common stock, as reported on the OTCQB.
Holders
As of April 21, 2015, we had approximately 275 holders of record of our common stock. This does not include beneficial owners holding common stock in street name.
Dividend Policy
We have never paid dividends and have no current plans to do so. We currently anticipate that we will retain all of our future earnings, if any, for use in the development and expansion of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our Board and will depend upon our results of operations, financial condition, and other factors that the Board, in its discretion, may deem relevant. There are no restrictions, other than applicable law, on the ability of the Board to declare and pay dividends.
Recent Sales of Unregistered Securities
On October 29, 2014, the Company sold 50,000 shares of its common stock pursuant to a private placement to an accredited investor for $25,000. The shares of common stock issued in this offering were offered and sold without registration under the Securities Act, or state securities laws, in reliance on the exemptions provided by Section 4(a)(2) (previously 4(2)) of the Securities Act and Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws, based on the lack of any general solicitation or advertising in connection with the sale of the securities; the representation of the investor to the Company that it is an accredited investor (as that term is defined in Rule 501 of Regulation D) and that it was purchasing the securities for its own account and without a view to distribute them. The shares were sold at a per share purchase price of $0.50 per share, resulting in $25,000 in aggregate proceeds to the Company.
On November 28, 2014, the Company sold 10,000 shares of its common stock pursuant to a private placement to an accredited investor for $5,000. The shares of common stock issued in this offering were offered and sold without registration under the Securities Act, or state securities laws, in reliance on the exemptions provided by Section 4(a)(2) (previously 4(2)) of the Securities Act and Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws, based on the lack of any general solicitation or advertising in connection with the sale of the securities; the representation of the investor to the Company that it is an accredited investor (as that term is defined in Rule 501 of Regulation D) and that it was purchasing the securities for its own account and without a view to distribute them. The shares were sold at a per share purchase price of $0.50 per share, resulting in $5,000 in aggregate proceeds to the Company.
On November 14, 2014, pursuant to a separation agreement with an executive, the executive who was previously allotted 13,000,000 shares of the Company’s common stock, returned 12,000,000 common shares and the Company had the sole discretion to determine the disposition of the shares. The Company has allocated these 12,000,000 shares of common stock as follows: (i) 6,125,000 shares of its common stock to third parties for consulting and business advisory services and the Company has recorded an expense of $3,062,500 upon their issuance (ii) cancelled 5,000,000 shares of common stock valued at $5,000 based upon the par value of the shares at the dated of issuance, and returned to the status of authorized and unissued shares as of December 31, 2014 and (iii) the remaining 875,000 shares of common stock to remain issued and not outstanding and held as treasury shares as of December 31, 2014.
In December 2014 we completed closings of a private placement pursuant to which we sold a total of 184,000 shares of our common stock to accredited investors for a total of $92,000. The shares of common stock issued in this offering were offered and sold without registration under the Securities Act, or state securities laws, in reliance on the exemptions provided by Section 4(a)(2) (previously 4(2)) of the Securities Act and Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws, based on the lack of any general solicitation or advertising in connection with the sale of the securities; the representation of each investor to the Company that it is an accredited investor (as that term is defined in Rule 501 of Regulation D) and that it was purchasing the securities for its own account and without a view to distribute them. The shares were sold at a per share purchase price of $0.50 per share, resulting in $92,000 in aggregate proceeds to the Company.
In December 2014 we issued a total of 550,000 shares of our common stock to accredited investors in exchange for services rendered to the Company. These shares of common stock were offered and issued without registration under the Securities Act, or state securities laws, in reliance on the exemptions provided by Section 4(a)(2) (previously 4(2)) of the Securities Act and Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws, based on the lack of any general solicitation or advertising in connection with the sale of the securities; the representation of each investor to the Company that it is an accredited investor (as that term is defined in Rule 501 of Regulation D) and that it was purchasing the securities for its own account and without a view to distribute them. The shares were issued at a per share price of $0.50 per share, though the issuance did not result in any proceeds to the Company.
50,000 of the 550,000 shares issued in December 2014 were issued to National Securities Corporation and its designees pursuant to an Investment Banking Agreement dated December 01, 2014. The Investment Banking Agreement further provides, among other things, that the Company will issue to National Securities warrants to acquire our common stock in an amount equal to 10% of the securities acquired in certain financings and that the investors have the right to acquire under certain financings. The warrants will have a term of 5-years from issuance, exercisable at the same price at which the investor can acquire the common stock.
We also had sales of unregistered securities subsequent to the year ended December 31, 2014, summarized as follows:
On January 27, 2015, the Company sold 20,000 shares of its common stock pursuant to a private placement to an accredited investor for $10,000. The shares of common stock issued in this offering were offered and sold without registration under the Securities Act, or state securities laws, in reliance on the exemptions provided by Section 4(a)(2) (previously 4(2)) of the Securities Act and Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws, based on the lack of any general solicitation or advertising in connection with the sale of the securities; the representation of the investor to the Company that it is an accredited investor (as that term is defined in Rule 501 of Regulation D) and that it was purchasing the securities for its own account and without a view to distribute them. The shares were sold at a per share purchase price of $0.50 per share, resulting in $10,000 in aggregate proceeds to the Company.
In February 2015 we completed closings of a private placement pursuant to which we sold a total of 50,000 shares of our common stock to accredited investors for a total of $25,000. The shares of common stock issued in this offering were offered and sold without registration under the Securities Act, or state securities laws, in reliance on the exemptions provided by Section 4(a)(2) (previously 4(2)) of the Securities Act and Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws, based on the lack of any general solicitation or advertising in connection with the sale of the securities; the representation of each investor to the Company that it is an accredited investor (as that term is defined in Rule 501 of Regulation D) and that it was purchasing the securities for its own account and without a view to distribute them. The shares were sold at a per share purchase price of $0.50 per share, resulting in $25,000 in aggregate proceeds to the Company.
In March 2015 we completed closings of a private placement pursuant to which we sold a total of 32,000 shares of our common stock to accredited investors for a total of $16,000. The shares of common stock issued in this offering were offered and sold without registration under the Securities Act, or state securities laws, in reliance on the exemptions provided by Section 4(a)(2) (previously 4(2)) of the Securities Act and Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws, based on the lack of any general solicitation or advertising in connection with the sale of the securities; the representation of each investor to the Company that it is an accredited investor (as that term is defined in Rule 501 of Regulation D) and that it was purchasing the securities for its own account and without a view to distribute them. The shares were sold at a per share purchase price of $0.50 per share, resulting in $16,000 in aggregate proceeds to the Company.
Repurchase of Equity Securities
None. However, in connection with the resignation of Wil Cashen from all positions with our Company, twelve million shares of our common stock previously allocated to Mr. Cashen were returned to the Company, of which 6,125,000 shares were reissued to other parties as discussed above, 5,000,000 shares were cancelled and returned to the status of authorized and unissued shares and the remainder of 875,000 shares are held by the Company in treasury. The effective date was November 14, 2014.
Information About Our Equity Compensation Plans
The information required under this heading is incorporated herein by reference to the applicable information set forth in Item 12 of this Annual Report on Form 10-K.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
As a Smaller Reporting Company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All references to “Holdings”, “we”, “our,” “us” and the “Company” in this Item 7 refer to EMAV Holdings, Inc. and our wholly owned subsidiary, Electric Motors and Vehicles Company (“EMAV”).
The discussion in this section contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “would” or “will” or the negative of these terms or other comparable terminology, but their absence does not mean that a statement is not forward-looking. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, which could cause our actual results to differ from those projected in any forward-looking statements we make. Several risks and uncertainties we face are discussed in more detail under “Risk Factors” in Part I, Item 1A of this Annual Report or in the discussion and analysis below. You should, however, understand that it is not possible to predict or identify all risks and uncertainties and you should not consider the risks and uncertainties identified by us to be a complete set of all potential risks or uncertainties that could materially affect us. You should not place undue reliance on the forward-looking statements we make herein because some or all of them may turn out to be wrong. We undertake no obligation to update any of the forward-looking statements contained herein to reflect future events and developments, except as required by law. The following discussion should be read in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this Annual Report on Form 10-K.
Overview
Company Overview
Electric Motors and Vehicles Company (“EMAV”) was started in March 2010 with the intent of bringing to market rugged electric vehicles. The business was initially focused on developing a relationship with the Jeep brand as that was the desired model to use for EMAV’s electric vehicles. EMAV designed a trailer/camper in conjunction with the MOPAR division of Jeep. The camper was approved as the first camper to be branded as a Jeep. EMAV sold the Jeep Camper directly through dealerships in 2010 and 2011. EMAV abandoned its involvement in the project in 2011 due to slow sales and the lack of financial resources to support marketing for the program.
Through 2011 and 2012, EMAV focused its efforts on electric vehicle technology to be used in vehicles it planned to introduce. EMAV also developed the Power Regeneration Unit (“PRU”). It is a small camper designed to be towed behind an electric vehicle and is designed to significantly increase the range of the electric vehicle. EMAV has not commercialized the PRU and has not sold any units of the PRU. It is anticipated that at some time in the future the PRU may become one of the products offered by EMAV.
In 2013, EMAV once again focused its efforts on bringing to market a rugged electric vehicle. EMAV is described as a new car company which we propose to operate out of (i) a Jeep dealership we propose to acquire; and, (ii) an assembly facility we propose to lease. EMAV will design, assemble, and sell premium rugged sport adventure vehicles (“SAVs”), with an emphasis on offering electric versions, in addition to commercial products for the construction, fleet, military, homeland security and related industries. EMAV intends to acquire a Jeep automotive dealership through which it will conduct certain aspects of its operations, and which will also afford EMAV access to Jeep vehicles which will serve as the platform/foundation for its vehicle sales. The automotive industry has invested heavily in electric vehicle technology and most manufacturers are now introducing electric vehicles as part of their product line. In addition, a number of new companies have emerged which exclusively manufacture and sell electric vehicles. EMAV intends to be unique in the marketplace in that its proposed signature vehicle, the ES, will be based upon an existing iconic vehicle; the 4-door Jeep Wrangler.
On December 27, 2013, we acquired all of the issued and outstanding common shares of EMAV in exchange for issuing 38,840,525 shares of our common stock. In addition, we assumed the obligations of EMAV to issue common shares pursuant to all outstanding warrants. Following the closing of the merger, EMAV became our wholly-owned subsidiary and the combined entity solely engaged in EMAV’s business. EMAV is the acquirer for financial reporting purposes and EMAV Holdings, Inc. is the acquired company. The merger was accounted for as a reverse-merger and recapitalization. Consequently, the assets and liabilities and the operations that will be reflected in the historical financial statements prior to the merger will be those of EMAV and are recorded at the historical cost basis, and the consolidated financial statements after completion of the merger will include the assets and liabilities of the Company and EMAV, and the historical operations of EMAV and operations of the combined company from the closing date of the merger. Subsequent to the merger, our operations are consolidated with the operations of EMAV.
In late 2014, we initiated a plan to acquire auto dealerships in addition to our electric vehicle business. We propose to engage industry experts to enable us to identify, acquire, operate, and integrate auto dealerships. Our roll-up strategy is designed to not compete with the larger acquirers recently entering into this same space. We propose to acquire mid-market, smaller, profitable dealerships often overlooked by the private equity groups and public companies which are now actively pursuing acquisitions in this space. We have identified and initiated discussions with a number of experienced professionals to manage and operate this segment of our business.
EMAV has generated limited revenues from product sales, and no revenue from product sales during the years ended December 31, 2014, 2013 and 2012. To date, we have funded our operations through the private sale of equity securities. We do not expect to generate revenue from product sales for at least the next nine months.
We have an accumulated deficit of $4,810,130 as of December 31, 2014. Our net loss for the year ended December 31, 2014 was $3,735,480 as compared to $365,201 for the same comparable period in 2013. Substantially all of our operating losses resulted from expenses incurred in connection with development of our vehicles and general and administrative costs associated with our operations.
We expect to continue to incur significant expenses and increasing operating losses for at least the next two to four years. In the near term, we anticipate that our expenses will increase as we:
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complete our initial vehicle offering;
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enter into production and marketing of our initial vehicle offering;
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continue our development additional vehicle offerings;
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maintain, expand and protect our intellectual property portfolio; and
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provide general and administrative support for our operations.
To fund our future operations and acquisitions of car dealerships we will need to raise additional capital. The amount and timing of future funding requirements will depend on many factors, including the timing and results of our ongoing development efforts, the potential expansion of our current development programs, potential new development programs, and related general and administrative support. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources. We cannot be certain that anticipated additional financing will be available to us on favorable terms, or at all.
Financial Operations Overview
Revenue
We have not earned revenues from product sales for the year ended December 31, 2014 and 2013, respectively. We do not expect to earn revenues from product sales for at least the next nine months. We may never generate revenues from product sales as we may never succeed in selling our initial vehicle or commercializing any other products or vehicles.
Operating Expenses
Operating expenses for the year ended December 31, 2014 were $3,708,550 compared to $353,412 for the same comparable period in 2013. Operating expenses increased by $3,355,138 in 2014 primarily due to the increase in general and administrative expense and depreciation expense as discussed below.
General and administrative expense (G&A) was $3,700,072 and $353,204 for the year ended December 31, 2014 and 2013, respectively. G&A expense increased in 2014 over 2013 primarily due to the increase in (a) consulting expenses related to development plans of our business and initial design of our vehicle by $3,187,500, (b) increase in investor relations and marketing research expenses by $126,250, (c) professional fees for auditing, tax and legal services of $23,399, and (d) expenses related to finance, business development and support functions of $16,718. We expect that general and administrative expenses will increase materially as we operate as a public company. These increases will likely to include salaries and related expenses, legal and consulting fees, accounting and audit fees, director fees, increased directors’ and officers’ insurance premiums, fees for investor relations services and enhanced business and accounting systems, and other costs.
Depreciation expense for the years ended December 31, 2014 and 2013 was $8,478 and $208, respectively. During the year ended December 31, 2014, we acquired property and equipment of $40,908 and recorded a depreciation expense of $8,478.
Other Income and Expenses
We did not record any other income for the years ended December 31, 2014 and 2013, respectively.
Other expenses consisted of interest expense of $26,930 and $11,789 for the years ended December 31, 2014 and 2013, respectively. Interest expense was accrued and recorded on $53,000 stockholder loan obtained by us on May 23, 2013 for our working capital needs. In conjunction with the execution of stockholder loan, we issued 100,000 shares of our common stock to the lender as additional consideration and recorded a debt discount of $30,000 which is being accreted to interest expense over the term of the loan. For the year ended December 31, 2014, we recorded an interest expense of $16,363 related to the accretion of debt discount. In addition, we recorded interest expense of $3,698 on the principal balance borrowed from the stockholder for the year ended December 31, 2014.
On June 18, 2014, we borrowed $40,000 from a shareholder and recorded a debt discount of $33,233 applied to normalize interest to 5% which is amortized as interest expense over the term of the promissory note. The Company has recognized and recorded interest expense of $5,865 for amortization of debt discount related to promissory note for the year ended December 31, 2014. In addition, we recorded interest expense of $1,000 on the promissory note for the year ended December 31, 2014.
In June 2010, we acquired three limited liability companies (the “LLCs”) registered in the state of Indiana, with the purpose to start a consortium of manufacturers and suppliers for our electric vehicles. We issued in 2010, 202,000 shares of our common stock valued at $101,000 for the purchase of the LLCs. The common shares were valued at $0.50 per share fair value based upon contemporaneous cash sales of shares by the Company on the date of authorization by the Board for their issuance. Management subsequently revised its strategy and business plans and dissolved each of the three LLCs in July 2013. The LLCs had no assets, no employees, no bank accounts, and no money-making operations since their formation.
In April 2010, the Company entered into a verbal agreement with Wilhem Cashen, its then Chief Technology Officer, for providing business consulting and marketing services to the Company. No fixed compensation was agreed at the time of the verbal agreement. On November 14, 2014, Mr. Cashen resigned from his position and entered into a separation agreement which provided for, among other covenants and conditions, a mutual release of all claims between the Company and him. Mr. Cashen was previously allotted 13,000,000 shares of the Company’s common stock. Pursuant to the separation agreement, Mr. Cashen will retain 1,000,000 shares of common stock, and the Company will have the sole discretion to determine the disposition of the remaining 12,000,000 shares of common stock. The Company has allocated these 12,000,000 shares of common stock as follows: (i) 6,125,000 shares of common stock have been reallocated to other persons and the Company has recorded an expense of $3,062,500 upon their issuance; (ii) 5,000,000 shares of common stock were cancelled and returned to the status of authorized and unissued shares as of December 31, 2014; (iii) the remaining 875,000 shares of common stock to remain issued but held by the Company in treasury as of December 31, 2014. The Company made cash payments to Mr. Cashen and recorded an expense of $54,100 and $65,334 as consulting fees for the years ended December 31, 2014 and 2013, respectively.
Liquidity and Capital Resources
Since our inception, our operations have been primarily financed through private sales of our equity. We have devoted our resources to funding the development of our initial vehicle. We have incurred operating losses in each year since our inception and we expect to continue to incur operating losses into the foreseeable future as we advance the ongoing development of our initial vehicle.
As of December 31, 2014, we had $63,914 of cash and cash equivalents compared to $125,450 at December 31, 2013. We believe that our existing capital resources, together with interest thereon, will not be sufficient to meet our projected operating requirements for at least the next 12 months and we will need to raise additional capital. Based on our operating plan, we will need additional funds to meet operational needs and capital requirements for product development and commercialization. We currently have no credit facility or committed sources of capital. To fund future operations we will need to raise additional capital and our requirements will depend on many factors, including the following:
Funding may not be available to us on acceptable terms or at any terms. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of, or even suspend development of our initial vehicle. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our vehicle and future revenue streams, and we may have to grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.
The accompanying financial statements for the years ended December 31, 2014 and 2013 have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We have continuing net losses and negative cash flows from operating activities. In addition, we have deficiencies in working capital as of most of the balance sheet dates. These conditions raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern. These circumstances caused our independent registered public accounting firm to include an explanatory paragraph in their report dated April 22, 2015, regarding their concerns about our ability to continue as a going concern. Our ability to continue as a going concern depends on our ability to obtain additional financing as may be required to fund current operations. Management’s plans include selling our common stock to investors to raise working capital for operations and there is no assurance these plans will be realized.
Operating Activities
Net cash used in operating activities for the year ended December 31, 2014 was $436,727 which resulted primarily from the loss of $3,735,480, depreciation of $8,478, issuance of common stock to vendors for services of $3,187,500, amortization of prepaid consulting services for stock issuances of $82,334, amortization of debt discount of $22,228, increase in accounts payable of $5,353, and increase in accrued liabilities of $2,860.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2014 was $40,908 due to purchase of property and equipment.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2014 was $416,099 primarily due to cash proceeds of $384,500 received from sale of common stock, cash proceeds of $40,000 received from a stockholder on execution of a promissory note, cash receipts of $12,500 against a short term loan, and cash payment of $20,901 against the note payable.
As a result of the above activities, we experienced a net decrease in cash and cash equivalents of $61,536 for the year ended December 31, 2014. Our ability to continue as a going concern is still dependent on our success in obtaining additional financing from investors or from sale of our common stock.
Contractual Commitments and Contingencies
Contractual Obligations
Stockholder Note Payable (Note 1)
On May 23, 2013, we executed a promissory note (the “Note 1”) with a stockholder third party lender in the principal amount of $53,000. The terms of the Note 1required us to make (a) a principal payment of $3,000 on or before June 6, 2013, and (b) fifteen (15) monthly payments of $3,790 each, including principal and interest, beginning February 2014 through April 2015, at which time the entire principal amount, plus any and all accrued interest shall be due and payable. We have made the principal payments on the Note 1 of $23,850 as of December 31, 2014 and the remaining balance of $29,150 on the Note 1 is due on December 31, 2015.
Stockholder Note Payable (Note 2)
On June 18, 2014, we executed a promissory note (the “Note 2”) with a stockholder lender in the principal amount of $40,000. The terms of the Note 2 required us to make (a) monthly interest only payments (5% annual rate) starting on September 18, 2014; (b) twenty-four (24) payments of $3,290 each, including principal and interest, beginning May 18, 2015 through April 18, 2017, at which time the entire principal amount, plus any and all accrued interest shall be due and payable; and, (c) in the event of an investment or series of related investments of at least $5,000,000 before April 18, 2017, then the entire principal balance and all accrued and unpaid interest shall be due in full in addition to a $5,000 prepayment penalty. In connection with the issuance of Note 2, we have recorded a debt discount of $33,233 applied to normalize interest to 5% which will be amortized as interest expense over the life of the Note 2. We have not paid any principal payments towards the Note 2 in 2014 and have recorded an interest expense of $5,865 for amortization of debt discount related to Note 2 for the year ended December 31, 2014. The unamortized portion of debt discount was $27,368 at December 31, 2014. In addition, we have recorded an interest expense of $1,000 on Note 2 for the year ended December 31, 2014.
The following table shows our contractual obligation to make the payments in accordance with the terms of the Stockholder Notes Payable:
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Other Obligations
Settlement of litigation
The Company entered into an agreement for public relations services (the “Agreement”) with an unrelated third party (“DLC”) in September 2010. The Company disputed the quality of the services rendered and failed to tender final payment under the Agreement. DLC initiated legal action against the Company in January 2012 for collection under the Agreement. The Company did not have the resources to contest the action, so a default judgment was entered against the Company in favor of DLC in July 2012 in the amount of $14,425. Thereafter, DLC sought to collect on the judgment, and the total amount claimed by DLC grew to over $25,000 as DLC was entitled to collect attorney’s fees under the Agreement.
In October 2013, the entire Agreement with DLC was negotiated and settled requiring the Company to pay DLC $3,000 in November 2013 and $1,000 per month for the next 12-month period. The Company agreed not to contest DLC’s ownership of 80,000 shares of the Company’s stock. The Company had recorded a liability and an expense of $15,000 as a result of this litigation in its consolidated financial statements as of December 31, 2010. As of December 31, 2014, the remaining liability on the settlement of $7,000 is included in accounts payable in accompanying consolidated financial statements. The Company plans on paying DLC for the months of May 2014 through November 2014, which DLC has yet to demand.
JOBS Act Accounting Election
We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements which we have prepared in accordance with U.S. generally accepted accounting principles. In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We have identified the following accounting policies that we believe require application of management’s most subjective judgments, often requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our actual results could differ from these estimates and such differences could be material.
While our significant accounting policies are described in more detail in Note 2 of our annual consolidated financial statements included in this Annual Report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
The Company recognizes revenues when persuasive evidence of an arrangement exists; delivery has occurred; price is fixed or determinable; and collectability of the related receivable is reasonably assured. The Company closely follows the provisions of ASC 605, “Revenue Recognition”, which includes the guidelines of Staff Accounting Bulletin No. 104.
Stock-Based Compensation
In accordance with ASC 718, Compensation - Stock Compensation, the Company accounts for share-based payments to employees using the fair value method. All transactions in which goods or services are received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The Company generally uses the Black-Scholes option pricing method to compute the fair value of options or warrants granted for goods or services.
Share based payments to non-employees are accounted for under the measurement and recognition criteria of ASC 505-50 “Equity Based Payments to Non-Employees”.
Issuances of the Company’s common stock or warrants for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. However, situations may arise in which counter performance may be required over a period of time but the equity award granted to the party performing the service is fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in which vesting periods do not exist as the instruments fully vested on the date of agreement, the Company determines such date to be the measurement date and will record the estimated fair market value of the instruments granted as a prepaid expense and amortize such amount to general and administrative expense in the accompanying statement of operations over the contract period. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates.
Non Cash Equity Transactions
Shares of equity instruments issued for noncash consideration are recorded at the estimated fair market value of the consideration granted based on the estimated fair market value of the equity instrument, or at the estimated fair market value of the goods or services received whichever is more readily determinable.
Off-Balance Sheet Arrangements
We have not engaged in any off-balance sheet arrangements as defined in Item 303(c) of the SEC’s Regulation S-B. We did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special-purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Newly adopted accounting pronouncements
In June 2014 the FASB issued ASU 2014-10 regarding development stage entities. The ASU removes the definition of development stage entity, as was previously defined under generally accepted accounting principles in the United States (U.S. GAAP), from the accounting standards codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP.
In addition, the ASU eliminates the requirements for development stage entities to (i) present inception-to-date information in the statement of income, cash flow and stockholders' equity, (ii) label the financial statements as those of a development stage entity, (iii) disclose a description of the development stage activities in which the entity is engaged, and (iv) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.
The Company has chosen to adopt the ASU early for the Company’s financial statements as of September 30, 2014. The adoption of this pronouncement impacted the Company by eliminating the requirement to report inception to date financial information previously required.
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 will be effective for the Company beginning in its first quarter of 2017. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of adopting the new revenue standard on its financial statements.
In August 2014, the FASB issued guidance that requires management to evaluate whether there are conditions or events that raise substantial doubt about an entity's ability to continue as a going concern. If such conditions or events exist, disclosures are required that enable users of the financial statements to understand the nature of the conditions or evens, management's evaluation of the circumstances and management's plans to mitigate the conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. The Company will be required to perform an annual assessment of its ability to continue as a going concern when this standard becomes effective on January 1, 2017; however, the adoption of this guidance is not expected to impact our financial position, results of operations or cash flows.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a Smaller Reporting Company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data required by this Item 8 are set forth at the end of this Annual Report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with our accountants on accounting or financial disclosure matters during 2014 and 2013, respectively.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer (who is also our Chief Financial Officer), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2014. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on their evaluation, management concluded as of December 31, 2014 that our disclosure controls and procedures were not effective because of material weaknesses in our internal control over financial reporting, described below in Management’s Report on Internal Control Over Financial Reporting. Notwithstanding the identified material weaknesses, management believes the consolidated financial statements included in this Annual Report on Form 10-K fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
Management’s Report on Internal Control Over Financial Reporting
Company management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of Company management, including the CEO and the CFO, an evaluation was performed of the effectiveness of the Company’s internal control over financial reporting. The evaluation was based on the framework in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on our evaluation under the criteria set forth in Internal Control - Integrated Framework (1992), our management concluded that, as of December 31, 2014, our internal control over financial reporting was not effective because of the identification of material weaknesses described as follows:
•
We did not have controls designed to validate the completeness and accuracy of underlying data used in the determination of accounting transactions. As a result, errors were identified in the underlying data used to support accounting transactions. Accordingly, we believe we have a material weakness because there is a reasonable possibility that a material misstatement to the interim or annual financial statements would not be prevented or detected on a timely basis.
•
We did not have an adequate process or appropriate controls in place to support the accurate and timely reporting of our financial results and disclosures in our Form 10-K. As a result, errors were identified primarily related to stock issuances and their accounting treatment. Accordingly, we believe we have a material weakness because there is a reasonable possibility that a material misstatement to the interim or annual financial statements would not be prevented or detected on a timely basis.
Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting
With the oversight of senior management, the Company has begun taking steps and plans to take additional measures to remediate the underlying causes of the material weaknesses. With respect to validation of the completeness and accuracy of underlying data used in the determination of stock issuance and accounting transactions, management intends to:
•
Timely issue all stock certificates contemporaneous with the closing of transactions resulting in a stock issuance.
•
Have the Company’s independent transfer agent issue all stock certificates to stockholders listed on the Company’s stock ledger.
•
As soon as the Company can afford it, hire an employee who will be dedicated to overseeing all stock issuance and related matters.
With respect to timely and accurate filing of our financial results, management intends to:
•
As soon as the Company can afford to do so, engage consultants to identify efficiencies and enhance reporting capabilities as well as opportunities to reduce the incidence of errors.
•
Implement more robust accounting policies and work with consultants to streamline activities and implement best practices.
•
As soon as we can afford to do, hire a Chief Financial Officer so the same person is not serving as both Chief Executive Officer and Chief Financial Officer.
Additionally, as soon as we can afford to do so we plan on creating a new position to oversee accounting systems, designing internal controls and ensuring compliance, implementing accounting policies and procedures, and implementing process improvements.
While senior management is closely monitoring the implementation of these remediation plans, there is no assurance that the aforementioned plans will be sufficient and that additional steps may not be necessary. There is also no assurance that we will be able to afford to implementation of these improvements during the current fiscal year.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
On December 27, 2013, the Company and EV Pop Acquisition Company, a Delaware corporation (“Merger Sub”), a wholly owned subsidiary of the Company, and EMAV executed an Agreement and Plan and Reorganization (“Merger Agreement”). Pursuant to the Merger Agreement, Merger Sub merged with and into EMAV, with EMAV being the surviving entity of the transaction, which is sometimes referred to herein as the “Merger”. Additionally, just prior to and in anticipation of the Merger, Company changed its name on December 27, 2013 from PopBig, Inc. to EMAV Holdings, Inc. Following the closing of the Merger, EMAV became a wholly-owned subsidiary of the Company, with the former stockholders of EMAV owning 97.4% of the outstanding shares of common stock of the combined company. The Merger is accounted for as a reverse-merger and recapitalization. EMAV is the acquirer for financial reporting purposes and the Company is the acquired company. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the Merger are those of EMAV and are recorded at the historical cost basis of EMAV, and the consolidated financial statements after completion of the Merger include the assets, liabilities and operations of the Company and EMAV (the “Combined Company”), from the closing date of the Merger. Additionally all historical equity accounts of EMAV, including par value per share, share, and per share numbers, have been adjusted to reflect the number of shares received in the Merger.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Information Regarding Our Board of Directors
Pursuant to our bylaws, the number of directors is fixed and may be increased or decreased from time to time by resolution of our Board of Directors (the “Board”). The Board has currently fixed the number of directors at one (1) member.
Information with respect to our current directors is shown below.
Keith A. Rosenbaum has served as the sole director and officer of Holdings since January, 2013. Keith has served as EMAV’s Chairman, CEO, CFO, and Secretary since EMAV’s formation in March, 2010. Keith brings with him over 30-years of experience and a well-deserved reputation as a “deal maker”, having been profiled in Forbes, The Wall Street Journal, and Inc. Magazine. Keith has curtailed his commitment as Managing Partner of SPECTRUM LAW GROUP, LLP, where he focuses on “deals” (capital intensive financing transactions, both public and private; mergers and acquisitions; and, business formation and partnering arrangements) in order to serve as CEO of EMAV. In his role as advisor, and not “just the attorney”, to many of his clients, Keith has relied upon his experience to provide exceptional analytical and execution skills, counseling his clients in virtually all areas of business. A graduate of Cal. State Fullerton with a degree in Finance, Keith graduated from California Western School of Law (Magna Cum Laude) and holds an LL.M. degree in Taxation from New York University School of Law. Keith has taught corporate law and federal income tax law as an adjunct professor at Western State University College of Law and Chapman University School of Law.
Information Regarding Our Executive Officers
Information with respect to our current named executive officers is shown below. Since Keith A. Rosenbaum also serves as a member of the Board, his executive officer’s biography is set forth under “Information Regarding the Board of Directors”, above.
Mike Conway joined EMAV in June, 2013 as Chief Operating Officer. Mike started his business career with sales and management leadership roles at McCaw Cellular and Pitney Bowes. In 1992 Mike and a business started a sourcing warehousing distribution company for manufacturers. Over the course of the next 16-years Mike grew the business into an industry leader and sold the company in 2008. Thereafter, Mike started another successful venture which manufactures and distributes protective eyewear for the military and police tactical markets. As a highly successful senior-level executive, Mike brings to EMAV the ability to build and lead high performing teams by leveraging his expertise in sales management, business development, marketing and customer relationships. Mike is a graduate of Arizona State University (Business) and is actively involved in numerous charitable organizations.
Family Relationships
There is currently just one individual serving on our Board Directors, Keith A. Rosenbaum. Mr. Rosenbaum has no familial relationship with any other executive officers.
Corporate Governance
Director Independence
Our sole director, Mr. Rosenbaum, is not an independent director, using the definition of independence set forth in the rules of the NASDAQ Stock Market. Our securities are not listed on any national securities exchange and therefore we are not subject to any director independence standards.
Board Committees and Charters
Audit Committee
We do not currently have a separately constituted audit committee. We intend to constitute an Audit Committee in 2015 and will commence a search for new qualified board members, one of whom will meet the definition of an “audit committee financial expert”. The board of directors also intends to adopt a written audit committee charter.
Compensation Committee
We do not currently have a separately constituted compensation committee. We intend to constitute a compensation committee in 2015 and will commence a search for new qualified board members. The board of directors also intends to adopt a written compensation committee charter.
Nominating Committee
We do not currently have a separately constituted nominating committee. Our board of directors has not yet determined whether to create a nominating committee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more than 10% of our common stock to file reports of ownership and changes in ownership with the SEC. Based solely upon our review of the Forms 3, 4 and 5 filed during fiscal 2014, and written representations from certain reporting persons that no Forms 5 were required, we believe that all required reports were timely filed during fiscal 2014.
Code of Business Conduct
We have not yet adopted a Code of Business Conduct, which would apply to our chief executive officer and chief financial officer, or to all directors and employees. Our board of directors plans to adopt a Code of Business Conduct as soon as practicable.
Stockholder Communications
Although we do not have a formal policy regarding communications with our board of directors, stockholders may communicate with the board of directors by writing to us at 1900 Main Street, Suite 300, Irvine, California, 92614, Attention: Chief Executive Officer. Stockholders who would like their submission directed to a member of the board of directors may so specify, and the communication will be forwarded, as appropriate. All such communications may also be E-Mailed to keith@emavco.com.
Board Structure
Our board of directors consists of one member, Mr. Rosenbaum, who consequently serves as our chairman of the board. We intend to add additional board members, some of which will be executive management and others who will satisfy the definition of an independent director using the definition of independence set forth in the rules of the NASDAQ Stock Market.
Board Assessment of Risk
Our Board of Directors oversees our risk management function. Our management keeps the Board of Directors apprised of material risks and provides directors access to all information necessary for them to understand and evaluate how these risks interrelate and how management addresses those risks. Currently, the primary risks affecting us are access to financing and the development of our initial vehicle.
Board Diversity
While we do not have a formal policy on diversity, our Board of Directors considers diversity to include the skill set, background, reputation, type and length of business experience of our board of directors members, as well as, a particular nominee’s contributions to that mix. Our Board of Directors believes that diversity brings a variety of ideas, judgments, and considerations that can benefit our stockholders and us. Although there are many other factors, the Board of Directors primarily seeks individuals with experience in the automotive industry and other disciplines which will benefit us in the production and marketing of our vehicles.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth a summary of cash and non-cash compensation awarded, earned or paid for services rendered to us during the years ended December 31, 2014 and December 31, 2013 by our named executive officers, consisting of (i) each individual serving as principal executive officer during the year ended December 31, 2014; and, (ii) our two most highly compensated executive officers, other than the principal executive officer, who were serving as executive officers during the year ended December 31, 2014.
(1)
Compensation paid to an entity controlled by Keith Rosenbaum for providing business advisory and legal services.
Executive Employment Agreements and Change-in-Control Arrangements
We have not entered into employment agreements or change-in-control arrangements with any of our executive officers. Each of our executive officers is an at-will employee and their employment relationship with us may be terminated at any time.
Outstanding Equity Awards at Fiscal Year End
As of December 31, 2014, we did not have any outstanding stock options or stock awards in favor of any executive officer. At this time we have no plans to adopt any equity award program though that could change in the future.
Director Compensation
None of our directors have been compensated for their service as a director. We did not award any equity compensation to our directors during 2014.
Related Person Transactions
In April 2010, we entered into a verbal agreement with our Chief technology Officer Wilhelm Cashen, for providing business consulting and marketing services to the Company. No fixed compensation was agreed at the time of the verbal agreement. On November 14, 2014, Wilhelm Cashen resigned from his position and entered into a separation agreement which provided for, among other covenants and conditions, a mutual release of all claims between the Company and Wilhelm Cashen. Mr. Cashen was previously alloted 13,000,000 shares of the Company’s common stock. Pursuant to the separation agreement, Mr. Cashen agreed to retain 1,000,000 shares of our common stock, and the Company will have the sole discretion to determine the disposition of the remaining 12,000,000 shares of common stock. The Company has allocated these 12,000,000 shares of common stock as follows: (i) 6,125,000 shares of common stock have been reallocated to other persons with no new or additional consideration received by the Company and these shares will continue to be treated as issued and outstanding, (ii) 5,000,000 shares of common stock were cancelled and returned to the status of authorized and unissued shares as of December 31, 2014, (iii) the remaining 875,000 shares of common stock to remain issued but held by the Company in treasury as of December 31, 2014. The Company made cash payments to Wilhelm Cashen and recorded an expense of $54,100 and $65,334 as consulting fees for the years ended December 31, 2014 and 2013, respectively.
The Company engaged an entity owned by the Chief Executive Officer/director of the Company to provide business advisory, consulting and legal services. The Company has recorded an expense of $42,500 and $77,011 as consulting services for the years ended December 31, 2014 and 2013, respectively.
At December 31, 2014, amounts due to the Chief Executive Officer for advances made to the Company for working capital were $12,500. Amounts due to the Chief executive Officer are unsecured, non-interest bearing and due on demand without specific repayment terms.
Indemnification Agreements
We intend to enter into indemnification agreements with each of our directors and officers, as described in the section titled “Indemnification of Directors and Officers”.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table provides information regarding the beneficial ownership of our common stock as of April 21, 2015, which is also referred to herein as the “Evaluation Date”, by: (i) each person or group who is known by us to beneficially own more than 5% of our common stock; (ii) each of our current directors; (iii) each of our named executive officers as set forth in Item 11 of this Annual Report; and, (iv) all such directors and executive officers as a group. The table is based upon information supplied by our officers, directors and principal stockholders and a review of Schedules 13D and 13G, if any, filed with the SEC. Unless otherwise indicated in the footnotes to the table and subject to community property laws where applicable, we believe that each of the stockholders named in the table has sole voting and investment power with respect to the shares indicated as beneficially owned.
Applicable percentages are based on 48,523,565 shares outstanding as of the Evaluation Date, adjusted as required by rules promulgated by the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of our common stock issuable pursuant to the exercise of stock options or warrants that are either immediately exercisable or exercisable within 60 days of the Evaluation Date. These shares are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
(1) Address for all individuals is 1900 Main Street, #300, Irvine, CA 92614
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
Other than Board or employment relationships and compensation resulting from those employment relationships, no director, executive officer, 5% stockholder or immediate family member of any of the foregoing, was a party to any transaction or series of transactions since the beginning of the year ended December 31, 2014, or is to be a party to any currently proposed transaction or series of proposed transactions, in which (i) we were or are to be a participant; (ii) the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at fiscal year-end for the fiscal years ended December 31, 2014 and 2013, which is $1,277; and, (iii) any director, executive officer, or immediate family member of any of the foregoing had or will have a direct or indirect material interest.
Compensation of Our Current Directors and Executive Officers
For information with respect to the compensation offered to our current directors and executive officers, please see the descriptions in Items 9B and 11 of this Annual Report.
Related Party Transaction Policy and Procedures
Pursuant to our Related Party Transaction and Procedures, our executive officers, directors, and principal stockholders, including their immediate family members and affiliates, are prohibited from entering into a related party transaction with us without the prior consent of our directors. Any request for us to enter into a transaction with an executive officer, director, principal stockholder, or any of such persons’ immediate family members or affiliates, must first be presented to our Board for review, consideration, and approval. In approving or rejecting the proposed agreement, our Board will consider the relevant facts and circumstances available and deemed relevant, including, though not limited, to the risks, costs and benefits to us, the terms of the transaction, the availability of other sources for comparable services or products, and, if applicable, the impact on a director’s independence. Our Board shall approve only those agreements that, in light of known circumstances, are in, or are not inconsistent with, our best interests, as our Board determines in the good faith exercise of its discretion.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table provides information regarding the fees billed to us by Hartley Moore Accountancy Corporation in the years ended December 31, 2014 and 2013. All fees described below were approved by the Board:
(1)
Audit Fees include fees for services rendered for the audit and/or review of our financial statements, including our Annual Report on Form 10-K and our periodic reports.
Pre-Approval Policies and Procedures
The policy of our Board is to pre-approve all audit and permissible non-audit services provided by our independent auditors. These services may include audit services, audit-related services, tax services, and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services. The independent auditor and management are required to periodically report to the Board regarding the extent of services provided by the independent auditor in accordance with this pre-approval. Any proposed services not included within the list of pre-approved services or any proposed services that will cause the Company to exceed the pre-approved aggregate amount requires specific pre-approval by the Audit Committee. All audit fees, audit-related fees, tax fees, and other fees listed in the table above were approved by the Audit Committee pursuant to its pre-approval policies and procedures.
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
(1)
The list of financial statements filed in response to Part II, Item 8 is set forth at the end of this Annual Report.
(2)
Schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(3)
The following exhibits are filed as part of this Annual Report pursuant to Item 601 of Regulation S-K:
Exhibit Number Description
* The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 22, 2015
EMAV HOLDINGS, INC.
By: /s/ Keith A. Rosenbaum
Name: KEITH A. ROSENBAUM
Title: Chief Executive Officer, Chief Financial Officer and sole director (Principal Executive Officer and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME
TITLE
DATE
/s/ Keith A. Rosenbaum
Chairman, Director
22 April 2015
Index to Consolidated Financial Statements
F - 1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
EMAV Holdings, Inc:
We have audited the consolidated balance sheets of EMAV Holdings, Inc.and subsidiary as of December 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing 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 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 financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EMAV Holdings, Inc.and subsidiary as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the entity will continue as a going concern. The entity has no revenues, has suffered recurring losses from operations and has limited cash. The Company may not have adequate readily available resources to fund operations through 2015. This raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/S/ Hartley Moore Accountancy Corporation
Irvine, California
April 22, 2015
F - 2
The accompanying notes are an integral part of these consolidated financial statements.
F - 3
The accompanying notes are an integral part of these consolidated financial statements.
F - 4
The accompanying notes are an integral part of these consolidated financial statements.
F - 5
The accompanying notes are an integral part of these consolidated financial statements.
F - 6
EMAV Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN
As used herein and except as otherwise noted, the term “Company”, “it(s)”, “our”, “us”, “we” and “EMAV” shall mean EMAV Holdings, Inc., a Delaware corporation, and its consolidated subsidiary Electric Motors and Vehicles Company.
EMAV Holdings, Inc. was originally incorporated on May 14, 1987 in Florida as Ventura Promotion Group, Inc. The Company became a public company in July 1998 and on November 12, 1998 changed its name to American Surface Technologies International, Inc. In September 2001, the State of Florida administratively dissolved the Company for not maintaining proper filings with the state and not paying franchise tax fees. In 2006, the Company changed its name to Global Environmental, Inc. In December 2007, the Company re-domiciled to Delaware and on August 27, 2008, changed its name to Ravenwood Bourne, Ltd. Effective September 30, 2011 the Company changed its name to PopBig, Inc.
On December 26, 2013, the Company changed its name to EMAV Holdings, Inc. and entered into a merger agreement to acquire Electric Motors and Vehicles Company, a Delaware corporation (“EMAVC”). The merger completed on December 27, 2013 and was accounted for as a reverse merger and recapitalization in which EMAVC is deemed to be the accounting acquirer. Consequently, the assets and liabilities and the operations are reflected as the historical financial statements prior to the merger will be those of EMAVC and are recorded at the historical cost basis of EMAVC, and the consolidated financial statements subsequent to completion of the merger include the assets and liabilities of EMAV and EMAVC, and the operations of the combined Company from the closing date of the merger. The Company elected to change its fiscal year end to be December 31.
Electric Motors And Vehicles Company was formed under the laws of Delaware on March 11, 2010. EMAVC’s principal business is electric vehicle manufacturing and sales. It plans to design, assemble, and sell premium electric rugged sport adventure vehicles directly through a network of dealerships. EMAVC will deploy a unique approach to build and bring its vehicles to market. Rather than creating a new vehicle and building out a new distribution network, EMAVC will use the four-door Jeep Wrangler as the platform for its signature electric vehicle.
Going Concern
The Company’s consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not yet established a stable ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary financing to continue operations, and the attainment of profitable operations. The Company incurred a net loss of $3,735,480 for the year ended December 31, 2014, used net cash in operating activities of $436,727, had a working capital of $65,989, and has an accumulated deficit of $4,810,130 as of December 31, 2014. These factors, among others raise a substantial doubt regarding the Company’s ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying consolidated financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
F - 7
EMAV Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company’s consolidated financial statements. The consolidated financial statements and notes are the representation of the Company’s management who is responsible for their integrity and objectivity. The consolidated financial statements of the Company conform to accounting principles generally accepted in the United States of America (U.S. GAAP).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiary Electric Motors and Vehicles Company. All intercompany balances and transactions are eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates of valuation of equity instruments. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Property and Equipment
Property and equipment consists of office equipment and an automobile, which are recorded at cost and is depreciated on a straight-line basis over its estimated useful life of three to five years. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.
F - 8
EMAV Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
Long-lived Assets
In accordance with ASC 360, “Property, Plant, and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset compared to the estimated future undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss equal to the excess of the carrying value over the assets fair market value is recognized when the carrying amount exceeds the undiscounted cash flows. Through December 31, 2014, the Company has not experienced impairment losses on its long-lived assets. However, there can be no assurance that demand for the Company’s products will continue, which could result in an impairment of long-lived assets in the future.
Fair value of Financial Instruments and Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts payable, accrued liabilities, and loan payable to related party. Pursuant to ASC 820 and ASC 825, “Financial Instruments”, the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations. The Company had no financial assets or liabilities carried and measured on a non-recurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared.
F - 9
EMAV Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
Revenue Recognition
The Company recognizes revenues when persuasive evidence of an arrangement exists; delivery has occurred; price is fixed or determinable; and collectability of the related receivable is reasonably assured. The Company closely follows the provisions of ASC 605 “Revenue Recognition”, which includes the guidelines of Staff Accounting Bulletin No. 104 as described above. The Company has not recognized any revenue through December 31, 2014.
Earnings (Loss) Per Common Share
The Company computes net earnings (loss) per share in accordance with ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted net earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. For the years ended December 31, 2014 and 2013, there were no potentially dilutive common shares outstanding during the period. Outstanding warrants to purchase 2,500,000 shares of common stock were excluded from this calculation as their effect would be anti-dilutive due to the reported net losses in each period.
Equity Instruments Issued to Non-Employees for Acquiring Goods or Services
Issuances of the Company’s common stock or warrants for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. However, situations may arise in which counter performance may be required over a period of time but the equity award granted to the party performing the service is fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in which vesting periods do not exist as the instruments fully vested on the date of agreement, the Company determines such date to be the measurement date and will record the estimated fair market value of the instruments granted as a prepaid expense and amortize such amount to general and administrative expense in the accompanying statement of operations over the contract period. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates.
Non Cash Equity Transactions
Shares of equity instruments issued for noncash consideration are recorded at the estimated fair market value of the consideration granted based on the estimated fair market value of the equity instrument, or at the estimated fair market value of the goods or services received whichever is more readily determinable.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company follows the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
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EMAV Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
Recent Accounting Pronouncements
We qualify as an “emerging growth company” under the 2012 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As an emerging growth company, we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.
In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which provides guidance regarding management’s responsibility to assess whether substantial doubt exists regarding the ability to continue as a going concern and to provide related footnote disclosures. In connection with preparing financial statements for each annual and interim reporting period, management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). This ASU is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company does not expect that the adoption of this ASU to have a material effect on the Company’s financial position, operations, or cash flows.
In May 2014, the FASB issued ASU 2014-09, which will update Codification topic: “Revenue from Contracts with Customers”. The principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which entity expects to be entitled in exchange for those goods or services. The guidance in ASU 2014-09 is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods therein. Management is currently evaluating the impact ASU 2014-09 will have on our financial position, results of operations and cash flows.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 2014 the FASB issued ASU 2014-10 regarding development stage entities. The ASU removes the definition of development stage entity, as was previously defined under generally accepted accounting principles in the United States (U.S. GAAP), from the accounting standards codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP.
In addition, the ASU eliminates the requirements for development stage entities to (i) present inception-to-date information in the statement of income, cash flow and stockholders' equity, (ii) label the financial statements as those of a development stage entity, (iii) disclose a description of the development stage activities in which the entity is engaged, and (iv) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.
The Company has chosen to adopt the ASU early for the Company’s financial statements as of September 30, 2014. The adoption of this pronouncement impacted the Company by eliminating the requirement to report inception to date financial information previously required.
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EMAV Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of:
Depreciation expense for the years ended December 31, 2014 and 2013 was $8,478 and $208, respectively.
NOTE 4 - NOTES PAYABLE
Notes payable consists of:
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EMAV Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
On June 18, 2014, the Company executed a promissory note (the “P/Note 1”) with a stockholder lender in the principal amount of $40,000. The terms of the P/Note 1 require the Company to make (a) monthly interest only payments (5% annual rate) starting on September 18, 2014; (b) twenty-four (24) payments of $3,290 each, including principal and interest, beginning May 18, 2015 through April 18, 2017, at which time the entire principal amount, plus any and all accrued interest shall be due and payable; and, (c) in the event of an investment or series of related investments of at least $5,000,000 before April 18, 2017, then the entire principal balance and all accrued and unpaid interest shall be due in full in addition to a $5,000 prepayment penalty. In connection with the issuance of P/Note 1, the Company has recorded a debt discount of $33,233 applied to normalize interest to 5% which will be amortized as interest expense over the life of the Note 1. The Company has recognized interest expense of $5,865 for amortization of debt discount related to P/Note 1 for the year ended December 31, 2014. The unamortized portion of debt discount was $27,368 at December 31, 2014. In addition, the Company has recorded an interest expense of $1,000 on P/Note 1 for the year ended December 31, 2014.
On May 23, 2013, the Company executed a promissory note (the “P/Note 2”) with a stockholder in the principal amount of $53,000. The terms of the P/Note 2 required the Company to make (a) a principal payment of $3,000 on or before June 6, 2013, and (b) fifteen (15) monthly payments of $3,790 each, including principal and interest, beginning February 2014 through April 2015, at which time the entire principal amount, plus any and all accrued interest shall be due and payable. On March 30, 2015, the Company and the shareholder mutually agreed to extend the due date of payment of the P/Note 2 to April 1, 2016, at which time, the entire principal amount plus any and all accrued interest shall be due and payable (See Note 10). The Company is delinquent in making six (6) monthly payments and the note holder has not made a demand for the past due payments.
The Company has recorded interest expense of $3,698 and $2,244 on P/Note 2 for the years ended December 31, 2014 and 2013, respectively. The Company has recorded accrued interest of $4,052 and $2,192 as of December 31, 2014 and December 31, 2013, respectively.
As additional consideration and not as additional interest, the Company agreed to issue 100,000 shares of restricted common stock at its fair value of $30,000 to the stockholder upon execution of P/Note 2. The Company has formally issued the shares during the year ended December 31, 2014 (Note 7). As of December 31, 2013, the Company had not issued the 100,000 shares of its common stock and as such the value of shares to be issued was reflected as a liability in the balance sheet at that date.
In connection with the issuance of the common stock pursuant to P/Note 2, the Company has recorded a debt discount in the amount of $30,000 which is being amortized to interest expense over the life of the Note. The Company has recognized interest expense of $16,364 and $9,545 related to the amortization of debt discount related to P/Note 2 for the years ended December 31, 2014 and 2013, respectively. The net book value of the unamortized portion of the debt discount was $4,091 and $20,455 at December 31, 2014 and 2013, respectively.
The Company has recorded total interest expense, including amortization of debt discount, of $26,930 and $11,789 for the year ended December 31, 2014 and 2013, respectively.
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EMAV Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
NOTE 5 - RELATED PARTY TRANSACTIONS
In April 2010, the Company entered into a verbal agreement with its executive director for providing business consulting and marketing services to the Company. No fixed compensation was agreed at the time of the verbal agreement. On November 14, 2014, the executive director resigned from his position and entered into a separation agreement which provided for, among other covenants and conditions, a mutual release of all claims between the Company and its executive director. The executive director was previously alloted 13,000,000 shares of the Company’s common stock. Pursuant to the separation agreement, the executive will retain 1,000,000 shares of common stock, and the Company will have the sole discretion to determine the disposition of the remaining 12,000,000 shares of common stock. The Company has allocated these 12,000,000 shares of common stock as follows: (i) 6,125,000 shares of common stock have been reallocated to other persons and the Company has recorded an expense of $3,062,500 upon their issuance, (ii) 5,000,000 shares of common stock were cancelled and returned to the status of authorized and unissued shares as of December 31, 2014, (iii) the remaining 875,000 shares of common stock to remain issued and held in treasury as of December 31, 2014 (See Note 7). The Company made cash payments to the executive director and recorded an expense of $54,100 and $65,334 as consulting fees for the years ended December 31, 2014 and 2013, respectively.
At December 31, 2014, amounts due to the Chief Executive Officer for advances made to the Company for working capital were $12,500. Amounts due to the Chief executive Officer are unsecured, non-interest bearing and due on demand without specific repayment terms.
The Company engaged an entity owned by the Chief Executive Officer/director of the Company to provide business advisory, consulting and legal services. The Company has made cash payments and recorded an expense of $42,500 and $77,011 as consulting services for the years ended December 31, 2014 and 2013, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Settlement of litigation
The Company entered into an agreement for public relations services (the “Agreement”) with an unrelated third party (“DLC”) in September 2010. The Company disputed the quality of the services rendered and failed to tender final payment under the Agreement. DLC initiated legal action against the Company in January 2012 for collection under the Agreement. The Company did not have the resources to contest the action, so a default judgment was entered against the Company in favor of DLC in July 2012 in the amount of $14,425. Thereafter, DLC sought to collect on the judgment, and the total amount claimed by DLC grew to over $25,000 as DLC was entitled to collect attorney’s fees under the Agreement.
In October 2013, the entire Agreement with DLC was negotiated and settled requiring the Company to pay DLC $3,000 in November 2013 and $1,000 per month for the next 12-month period. The Company agreed not to contest DLC’s ownership of 80,000 shares of the Company’s stock. As of December 31, 2014, the remaining liability on the settlement of $7,000 is included in accounts payable in accompanying consolidated financial statements. The Company plans on paying DLC for the months of May 2014 through November 2014, which DLC has yet to demand.
Legal Costs and Contingencies
In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received.
If a loss is considered probable and the amount can be reasonable estimated, the Company recognizes an expense for the estimated loss. If the Company has the potential to recover a portion of the estimated loss from a third party, the Company makes a separate assessment of recoverability and reduces the estimated loss if recovery is also deemed probable.
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EMAV Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
NOTE 7 - STOCKHOLDERS’ EQUITY
The Company’s capitalization at December 31, 2014 was 300,000,000 authorized common shares with a par value of $0.001, and 10,000,000 authorized preferred shares with a par value of $0.001.
Common stock
During the year ended December 31, 2014, the Company sold 769,000 shares of its common stock at $0.50 per share and received total cash consideration of $384,500. All the common shares were sold to accredited investors pursuant to separate Private Placements. The Company issued 100,000 shares of its common stock to a third party lender as additional consideration in conjunction with providing cash proceeds of $53,000 as loan to the Company on May 23, 2013. The common shares issued were valued at their fair value of $30,000 to the third party lender (See Note 4).
On or around June 25, 2014, the Company engaged Lamnia International, LLC (Lamina) to provide investor relations and investor communications services. The engagement is on a “month-to-month” basis. The Company has made cash payments of $25,250 for the services rendered for the year ended December 31, 2014. In addition, the Company issued to Lamnia 250,000 shares of restricted common stock valued at $125,000 based upon the selling price of $0.50 per share the Company was able to obtain for sales of similar stock around the date of issuance. The Company has recorded $150,250 as investor relations expense for the year ended December 31, 2014.
On September 1, 2014, the Company engaged Fastnet Advisors, LLC (Fastnet) to provide corporate advisory services. The engagement is for an initial period of 6-months. The Company agreed to pay to Fastnet $3,000 for September 2014; $4,000 per month for October 2014, November 2014 and December 2014; and $5,000 per month for January 2015 and February, 2015. The Company has made cash payments to Fastnet of $7,000 for consulting services rendered for September and October 2014 and has accrued the expense of $8,000 for consulting services rendered for November and December 2014 as accounts payable as of December 31, 2014. In addition, on December 30, 2014, the Company issued to Fastnet 250,000 shares of restricted common stock valued at $125,000 based upon the selling price of $0.50 per share the Company was able to obtain for sales of similar stock around the date of issuance. The Company has recorded $82,334 as consulting expense for stock issuance for the year ended December 31, 2014 and the remaining balance of $42,666 as prepaid assets as of December 31, 2014. The Company recorded a total of $98,333 as consulting expense to Fastnet for the year ended December 31, 2014.
On November 14, 2014, pursuant to a separation agreement with an executive, the executive returned 12,000,000 shares of the Company's common stock, and the Company had the sole discretion to determine the disposition of the shares. The Company has allocated these 12,000,000 shares of common stock as follows: (i) 6,125,000 shares of its common stock to third parties for consulting and business advisory services and the Company has recorded an expense of $3,062,500 upon their issuance (ii) cancelled 5,000,000 shares of common stock valued at $5,000 based upon the par value of the shares at the dated of issuance, and returned to the status of authorized and unissued shares as of December 31, 2014 and (iii) the remaining 875,000 shares of common stock to remain issued and not outstanding and held as treasury shares as of December 31, 2014 (See Note 5).
On December 1, 2014, the Company engaged a financial advisor and placement agent to raise capital for the Company for a six months term. Pursuant to the terms of the agreement, the Company paid a non-refundable retainer of $10,000 and issued 50,000 shares of its common stock valued at $25,000 based upon the selling price of $0.50 per share the Company was able to obtain for sales of similar stock around the date of issuance. The Company recorded the offering costs of $35,000 as prepaid expense for raising capital as of December 31, 2014.
Warrants
In April 2010, the Company granted three individuals, warrants to purchase 2,500,000 shares of common stock at an exercise price of $0.25 per share as compensation in connection with the individuals providing introductions for raising capital for the Company. The warrants have a six year term and expire in April 2016. The fair value of 2,500,000 warrants at the original issue date was estimated to be $1,077,927 using a Black-Scholes option pricing model with an expected life of 6 years, a risk free interest rate of 2.96%, a dividend yield of 0%, and an expected volatility of 100%. The expected volatility was estimated to be 100% since the Company's stock is not traded and no historical volatility data is available. As these services were provided as part of the Company’s equity funding, the value of the warrants were recorded within equity as part of the accounting for the related equity transactions. There have been no other grants of warrant instruments through December 31, 2014.
The Company has not established a stock option plan nor has issued any stock options through December 31, 2014.
As a result of all common stock issuances and cancellations, the total common shares issued at December 31, 2014 were 47,421,565 of which 46,546,565 shares were outstanding and the remaining 875,000 shares were held in treasury.
Preferred Stock
At December 31, 2014, the Company had no shares of preferred stock issued or outstanding.
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EMAV Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
NOTE 8 - INCOME TAXES
The following is a reconciliation of the provision for income taxes at the U.S. federal income tax rate of 34% and 8.7% state income tax rate for Delaware for the years ended December 31, 2014 and 2013, respectively, to the income taxes reflected in the Consolidated Statements of Operations:
The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31, 2014 and 2013 are as follows:
Deferred income taxes are provided for the tax effects of transactions reported in the financial statements and consist of deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled.
At December 31, 2014 and 2013, the Company had net operating loss carry-forwards of approximately $4.8 million and $1.1 million resulting in deferred tax assets recorded of $1,812,286 and $427,087, respectively, which begin to expire in 2032. The Company has recorded a 100% valuation allowance on the deferred tax assets due to the uncertainty of its realization. The net change in the valuation allowance for the years ended December 31, 2014 and 2013 was an increase of $1,484,554 and $145,138, respectively.
In the normal course of business, the Company’s income tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessment by these taxing authorities. Accordingly, the Company believes that it is more likely than not that it will realize the benefits of tax positions it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with FASB ASC 740-10-15. Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the company’s financial position. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of December 31, 2014, tax years 2013, 2012 and 2011 remain open for IRS audit. The Company has received no notice of audit from the Internal Revenue Service for any of the open tax years.
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EMAV Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2014 and 2013
NOTE 9- CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses related to this in any such accounts. The Company’s bank balances did not exceed FDIC insured amounts as of December 31, 2014 and 2013, respectively.
NOTE 10 - SUBSEQUENT EVENTS
We have evaluated subsequent events and transactions that occurred through the date and time our financial statements were issued for potential recognition or disclosure in the accompanying financial statements.
From January 1, 2015 to April 21, 2015, the Company sold 102,000 shares of its common stock at a per share price of $0.50 pursuant to a private placement to three accredited investors resulting in $51,000 in aggregate proceeds to the Company. The shares of common stock issued in this offering were offered and sold without registration under the Securities Act, or state securities laws, in reliance on the exemptions provided by Section 4(a)(2) (previously 4(2)) of the Securities Act and Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws, based on the lack of any general solicitation or advertising in connection with the sale of the securities; the representation of the investor to the Company that it is an accredited investor (as that term is defined in Rule 501 of Regulation D) and that it was purchasing the securities for its own account and without a view to distribute them.
On March 30, 2015, the Company and the shareholder mutually agreed to extend the due date of payment of the P/Note 2 to April 1, 2016, at which time, the entire principal amount plus any and all accrued interest shall be due and payable (See Note 4).
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