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INDEX TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

As filed with the Securities and Exchange Commission on November 10, 2011

Registration No. 333-            

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549



FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Smith Electric Vehicles Corp.
(Exact name of Registrant as specified in its charter)

Delaware   3711   26-4073886
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

12200 N.W. Ambassador Drive
Suite 326
Kansas City, MO 64163
(816) 464-0508
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)



Paul R. Geist
Chief Financial Officer
Smith Electric Vehicles Corp.
12200 N.W. Ambassador Drive
Suite 326
Kansas City, MO 64163
(816) 464-0508
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

W. Andrew Jack, Esq.
Covington & Burling LLP
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
(202) 662-6000
  Justin L. Bastian, Esq.
Sandra P. Knox, Esq.
Faie R. Dorin, Esq.
Sidley Austin LLP
1001 Page Mill Road, Building 1
Palo Alto, CA 94304
(650) 565-7000

        Approximate date of commencement of proposed sale to the public:    As soon as practicable after this Registration Statement becomes effective.

         If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: o

         If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

         If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

         If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a smaller
reporting company)
  Smaller reporting company o

Calculation of Registration Fee

       
 
Title of Each Class of
Securities to be Registered

  Proposed Maximum
Aggregate
Offering Price(1)(2)

  Amount of
Registration Fee(2)

 

Common Stock, $0.001 par value

  $125,000,000   $14,325

 

(1)
Includes shares issuable upon exercise of the underwriters' over-allotment option.

(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

         The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted.

Subject to Completion dated November 10, 2011

Preliminary Prospectus

[            ] Shares

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Common Stock



        This is the initial public offering of our common stock. No public market currently exists for our common stock. We are offering                         of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional                        shares. We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders. We expect the public offering price to be between $            and $            per share.

        We have applied to list our common stock on The Nasdaq Global Market under the symbol "SMTH".

        Investing in our common stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common stock in "Risk Factors" beginning on page 16 of this prospectus.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 
  Per Share   Total  

Public offering price

  $     $    

Underwriting discounts and commissions

  $     $    

Proceeds, before expenses, to us

  $     $    

Proceeds, before expenses, to the selling stockholders

  $     $    

        The underwriters may also purchase from us and the selling stockholders up to an additional                        shares of our common stock at the public offering price, less the underwriting discounts and commissions payable by us, to cover over-allotments, if any, within 30 days from the date of this prospectus. If the underwriters exercise this option in full, the total underwriting discounts and commissions will be $            , our total proceeds, after underwriting discounts and commissions but before expenses, will be $            , and the selling stockholders' total proceeds before expenses will be $            .

Joint Book Running Managers



UBS Investment Bank   BofA Merrill Lynch



Delivery of the shares will be made on or about                                    .


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        You should rely only on the information contained in this prospectus. We and the underwriters have not authorized anyone to provide you with information different from that contained in this prospectus. We and the selling stockholders named in this prospectus are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front cover of this prospectus, or such other dates as are stated in this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.


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Conventions that Apply to this Prospectus

  i

Prospectus Summary

  1

Risk Factors

  16

Forward-Looking Statements

  42

Use of Proceeds

  43

Dividend Policy

  44

Capitalization

  45

Dilution

  47

Selected Historical Financial Data

  49

Management's Discussion and Analysis of Financial Condition and Results of Operations

  52

Business

  77

Management

  107

Executive Compensation

  115

Relationships and Related Person Transactions

  133

Principal and Selling Stockholders

  139

Shares Eligible for Future Sale

  141

Description of Capital Stock

  144

Material U.S. Federal Income Tax Considerations for Non-U.S. Holders

  151

Underwriting

  155

Legal Matters

  163

Experts

  163

Where You Can Find More Information

  163

Index to Combined and Consolidated Financial Statements

  F-1



        The "Smith Electric Vehicles" design logo, "Smith," "Smith Electric," "Newton," "Edison," "Smith Power," "Smith Drive," and "Smith Link" and other trademarks or service marks of ours appearing in this prospectus are our property. This prospectus contains additional trade names, trademarks and service marks of other companies. We do not intend our use or display of other companies' tradenames, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.


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CONVENTIONS THAT APPLY TO THIS PROSPECTUS

        Unless the context otherwise requires, in this prospectus:

    "Smith," "the Company," "we," "us" and "our" refer to Smith Electric Vehicles Corp. and, for the period following January 1, 2011, its subsidiary;

    "Smith Europe" refers to our subsidiary, Smith Electric Vehicles Europe Limited; and

    "Smith UK" refers to the zero emission vehicles business of Tanfield Group Plc, which was operated by SEV Group Ltd. and Saxon Specialist Electric Vehicles, a wholly owned subsidiary and division, respectively, of Tanfield Group Plc. We acquired the Smith UK business effective January 1, 2011. Smith Europe operates the Smith UK business.

        Certain market data presented in this prospectus has been derived from data included in various vehicle industry publications, surveys and forecasts, including those generated by J.D. Power and Associates. Certain target market sizes presented in this prospectus have been calculated by us (as further described below) based on such data. We have assumed the correctness and truthfulness of such data, including projections and estimates, when we use them in this prospectus. You should read our cautionary statement in the section entitled "Forward-Looking Statements."

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PROSPECTUS SUMMARY

        This summary highlights information contained elsewhere in this prospectus. To understand this offering fully, you should read the entire prospectus carefully, including "Risk Factors," "Selected Historical Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and our financial statements and related notes before deciding whether to purchase shares of our common stock.

OUR COMPANY

        We design, produce and sell zero emission commercial electric vehicles designed to be a superior performing alternative to traditional diesel trucks due to higher efficiency and lower total cost of ownership. We believe we are the only vehicle manufacturer selling to major commercial fleets in the United States and Europe that exclusively produces electric vehicles. Our vehicle designs leverage over 80 years of market knowledge from selling and servicing electric vehicles in the United Kingdom. This experience has led to the development of our advanced powertrain (Smith Drive™), power management (Smith Power™) and telemetry (Smith Link™) technologies. We believe that these technologies will drive improved vehicle performance, provide us with increased control over supply chain quality and reduce the upfront cost of our vehicles.

        Unlike companies that have introduced electric passenger vehicles, we focus on the production and sale of commercial electric vehicles that primarily address the needs of medium-duty commercial fleet operators with depot-based operations and predictable daily service routes of up to 120 miles. We believe we are the only company focused on producing and globally offering an all-electric commercial vehicle having a gross vehicle weight, or GVW, between approximately 16,500 and 26,400 pounds (the Smith Newton™). We also produce the Smith Edison™, which is a lighter duty vehicle than the Newton that is sold in the United Kingdom and in other selected markets worldwide. As part of our continued focus on product development, we plan to introduce a Newton model that is configured as a step van in the United States in early 2012. Our vehicles feature a battery system that is scalable to meet the varying range needs of commercial fleets and provide a lower total cost of ownership than that of a conventional diesel vehicle. We believe electric vehicles are ideally suited for the cost conscious commercial vehicles market because:

    lower cost per mile—on a per mile basis electric power to charge our vehicles costs significantly less than diesel fuel;

    less volatility—the cost of electricity is considerably less volatile than the price of diesel fuel;

    less maintenance—electric vehicles require less maintenance than diesel vehicles due to the fewer number of moving parts in an electric powertrain than in a diesel powertrain;

    minimal infrastructure requirements—most commercial vehicles in our target market operate from the same location and follow specific routes, eliminating the need for distributed charging infrastructure and concerns over limited range; and

    fuel efficient with low environmental impact—commercial fleet operators are under government and popular pressure to improve fuel mileage, cut emissions and reduce noise associated with diesel powered trucks.

        Demand for our vehicles is growing as customers recognize their economic benefits. Additionally, in the near term we believe that governmental and popular support for companies that purchase environmentally friendly transportation will accelerate demand for our vehicles. Over the twelve months ended September 30, 2011, we sold 320 vehicles, and as of October 31, 2011 we have an order backlog of 120 vehicles and have allocated nearly all of our estimated 540 production slots through July 2012. In addition to the 120 vehicles included in our order backlog, we have written indications of interest

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from existing and potential customers for approximately 2,220 vehicles for requested delivery spanning the period 2012 through 2015. We are actively involved in discussions with existing and potential customers on an ongoing basis and expect to continue to allocate additional production slots and increase our order backlog.

        We sell our vehicles through our direct sales force, as well as limited third party distribution agreements. We sell our vehicles to commercial fleet operators across multiple industries, including food & beverage, utility, telecommunications, retail, grocery, parcel and postal delivery, school transportation, military and government. Our customers include the following:

Food & Beverage   Utilities   Retail   Grocery   Package Delivery   Military

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        Our sales strategy is focused on industry-leading companies and government entities that operate substantial, well-recognized, medium-duty commercial vehicle fleets and that have the corporate or public commitment and resources to support and sustain the development of the commercial electric vehicle industry. We offer a differentiated approach to commercial vehicle sales and service that departs from traditional truck sales and service models. Our approach involves a comprehensive plan for the pilot and roll-out of our electric vehicles, as well as the ongoing replacement of existing commercial vehicles with our electric vehicles, which is tailored to the individual needs of our customers. This plan includes the development of a multi-year purchasing forecast to help the customer systematically integrate our vehicles into their fleets, as well as analytics that provide the expected economic and environmental impact of fleet conversion. We believe that our strategy of targeting industry-leading companies and providing them with an individualized sales and service solution has elevated our public profile, enhanced the credibility of our vehicles in the marketplace and made our customers advocates of our sales approach and our vehicles, all of which enhances our ability to sell vehicles to new customers.

        As a part of our sales strategy, we separately present to our customers the base vehicle price and the battery system price. We believe that, in most cases, our base vehicle price is competitive with or a slight premium to the price of a diesel-fueled vehicle with a comparable GVW. Our approach to pricing allows customers to compare the relative merits of a diesel truck's low cost energy storage system (the fuel tank) and more expensive and volatile energy cost (the per gallon price of diesel fuel) with our vehicle's higher cost energy storage system (the battery) and lower and more predictable energy cost (the per kilowatt hour price of electricity). We believe these comparisons make our vehicles more attractive to customers than traditional diesel options, particularly during periods of rising fuel prices, even when the social and environmental benefits of our vehicles are ignored.

        We currently design, produce and sell vehicles based on two platforms, the Smith Newton and the Smith Edison, both of which can be configured for multiple applications. The Newton has a GVW of approximately 16,500 to 26,400 pounds, a payload capacity of approximately 6,100 to 16,200 pounds and a range of up to 50 to 150 miles depending on vehicle specification and battery configuration. The Newton, which is sold in the United States and internationally, is used in a wide range of general delivery applications, as well as in specialty applications such as refrigerated delivery, military transport and boom truck. In November 2011, less than 24 months after the first sale of the Smith Newton in the United States, we introduced a second generation Newton, which incorporates our Smith Drive, Smith Power and Smith Link technologies. We also are developing a Newton model that will have a GVW of

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approximately 33,000 pounds to meet the needs of delivery and transit customers, which we expect to be available in mid-2012.

        The Smith Edison, which is a lighter duty vehicle than the Newton, is sold in the United Kingdom and in other selected markets worldwide. The Edison has a GVW of approximately 7,700 to 10,100 pounds, a payload capacity of approximately 1,600 to 5,100 pounds and a range of up to 55 to 110 miles depending on vehicle specification and battery configuration. The Edison is used in a wide range of service and delivery applications, as well as specialty applications such as refrigerated delivery, utility boom and shuttle service. We intend to continue to develop and introduce a next generation Smith Edison that utilizes our Smith Drive, Smith Power and Smith Link technologies.

        We also are developing and plan to introduce in early 2012 a Newton model that is configured as a step van. We expect this model will have a GVW of approximately 14,000 to 22,000 pounds, a payload capacity of approximately 2,700 to 10,000 pounds and a range of up to 40 to 120 miles depending on battery configuration. We expect the vehicle will be used primarily for delivery of parcels, uniforms and baked goods. The Newton step van will utilize our Smith Drive, Smith Power and Smith Link technologies.

        Our production operations leverage our supply chain of component manufacturers and allow us to focus on vehicle assembly. This focus contributes to our low capital expenditure requirements and rapidly scalable capacity, and makes our decentralized production strategy financially advantageous. To continue to drive and sustain the economic advantage of our vehicles over diesel trucks, we are working to reduce our materials, operating and production costs, which we expect will reduce the prices of our vehicles and improve our gross margin. We have implemented a three-phased approach to reducing costs, which we refer to as our "cost down" initiative, which we believe will help us achieve these goals. The first phase was focused on transitioning our supply chain from low volume suppliers to a medium-volume automotive-grade supply chain. The second phase involves the transition from battery and powertrain systems produced by third party suppliers to our Smith Power and Smith Drive systems and the implementation of multi-source volume purchasing strategies. The third phase will involve the transition of the supply chain for our ancillary components to higher volume and lower-cost suppliers. We expect to complete all three phases of our current cost down initiative in the first half of 2012. Thereafter, we expect to pursue continuous improvements in our supply chain and vehicle production costs.

        We have production, research and development, sales and service facilities in Kansas City, Missouri and outside of Newcastle, England. To execute on our decentralized production strategy, we plan to open sales, service and assembly facilities in targeted urban areas in the United States and abroad, beginning with facilities on the east and west coasts of the United States. We expect to open the first of these facilities in New York City in the first half of 2012. We also have an established service base in the United Kingdom, where we operate four service facilities and a fleet of approximately 100 service vehicles. Our U.K. service teams maintain both electric and traditional diesel vehicles.

OUR MARKET OPPORTUNITY

        Our primary market is commercial fleet purchasers of medium-duty vehicles, which are on-road vehicles with GVWs ranging from 14,000 to 33,000 pounds. Medium-duty commercial vehicles are used in, among other things, urban applications such as grocery, package and beverage delivery, utility, and school and shuttle buses. According to J.D. Power and Associates (Q3, 2011 Medium Duty World Truck Sales), global annual sales of on-highway medium-duty commercial trucks are expected to reach 822,197 units in 2011, with a compound annual growth rate, or CAGR, of 3.3% from 2011 to 2016. Based on our calculations, this equates to greater than a $40 billion total available market for these vehicles worldwide. In relation to the overall commercial vehicle market, the medium-duty commercial

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vehicle segment represents a niche opportunity for many traditional large-scale original equipment manufacturers, or OEMs.

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Source: J.D. Power and Associates Global Commercial Vehicles Forecast published September 30, 2011

        According to Fleet Owner Magazine, medium-duty fleet operators have an estimated current installed base of 1.2 million vehicles in the United States. The primary drivers impacting new purchases by these fleets are macroeconomic growth, industrial activity, fuel and maintenance costs and government spending. Vehicles in this segment are often operated within urban centers, are driven at speeds below 50 mph and utilize depot-based routes with predictable distances, typically 50 to 100 miles per day. In addition, fleet owners tend to maintain a large number of vehicles, typically purchase in high volume, and can leverage economies of scale in the operation and servicing of such vehicles. Fleet size varies depending on the company, but large consumer products and package delivery companies such as Frito-Lay North America, Inc., or Frito-Lay, Coca-Cola and FedEx have fleets in excess of 20,000 vehicles, with an average service life of eight years. As a result, fleet owners place significant importance on total cost of ownership, which includes a vehicle's upfront cost as well as ongoing operating costs such as fuel and maintenance. According to J.D. Power and Associates, on average, gasoline and diesel trucks in this category have a fuel economy of approximately 8.4 miles per gallon. We estimate that diesel trucks in this category cost between $0.15 and $0.23 per mile to maintain.

OUR COMPETITIVE STRENGTHS

        We believe that the following strengths position us well to capitalize on the expected growth in demand for medium-duty electric commercial vehicles:

    Focus on commercial electric vehicles.  We believe that adoption of electric vehicles will be fastest in commercial applications where the economic benefits are greatest, and which have predictable routes and centralized charging, thereby avoiding range anxiety and dependence on development of public infrastructure to support electric vehicle fleets. We believe our position as a leading provider of commercial electric vehicles enables us to benefit from this trend.

    First mover with established major commercial fleet relationships in the United States, Europe and Asia.  We believe we are the only vehicle manufacturer selling to major commercial fleets in the United States and Europe that exclusively produces electric vehicles. We have sold trucks to and are currently negotiating additional orders with customers such as Staples, Frito-Lay, Coca-Cola, TNT Express and DHL, some of which are among the largest purchasers of medium-duty trucks

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      in the world. We believe that our established relationships with large customers position us to receive additional orders from them, which will increase the recognition of our products with prospective customers and reinforce our brand equity.

    Proven ability to reduce the cost of our vehicles.  We believe that wider adoption of commercial electric vehicles can be achieved by reducing their cost. We have already demonstrated our ability to reduce the cost of our vehicles. We believe our component sourcing strategy coupled with our engineering expertise will allow us to continue to reduce the cost of our vehicles and increase their attractiveness to customers.

    Low capital intensity of production.  We believe our ability to achieve a relatively low level of capital intensity with respect to our production operations will enable us to expand more rapidly and deliver high returns on invested capital. We assemble our vehicles using components manufactured by pre-qualified third party vendors using our specifications and designs. By purchasing components and focusing on assembly, we are able to leverage medium-volume automotive-grade suppliers who have already achieved economies of scale, allowing us to avoid significant fixed costs and capital investment.

    Our vehicle and system design facilitates component-based cost reduction and protection of our trade secrets and know-how.  We believe our component-based approach allows us to achieve lower costs when compared to buying entire systems, which typically carry higher margins for suppliers, and more easily and fairly fosters competition among multiple suppliers, as greater sourcing options exist for components as compared to systems. For example, our recently introduced Smith Power battery management system allows us to purchase battery modules, rather than entire battery systems, and over time we expect to purchase battery cells and assemble our own battery modules into packs, thereby further reducing our costs. Our powertrain provides us the ability to purchase at either a system or component level, such that we are able to purchase motors, inverters, controllers and transmissions separately from suppliers. Our approach also allows us to continuously develop our intellectual property and to better protect our trade secrets and know-how because no one supplier has access to our complete system design.

    Modular battery system design that allows customers to configure each truck's range based on its application and significantly impact the total cost of vehicle operation.  We have designed our battery system to be modular so the same vehicle can accept battery packs with different capacities. For example, the Smith Newton has multiple battery pack options depending on the customer's range requirements and duty cycle. The flexibility to correctly size each vehicle's battery pack allows customers to select the most cost effective solution for their particular application, with the option to add additional capacity in order to repurpose vehicles for new applications in the future. Together, we believe these options allow our customers to maximize each vehicle's economic return, thereby increasing the attractiveness of our vehicles.

    Focus on medium-duty commercial vehicles positions us well to avoid direct competition with heavy-duty truck and light-duty automotive OEMs.  Incumbent heavy-duty truck manufacturers and light-duty automotive OEMs generally are not as focused as we are on sales of medium-duty trucks due to the relatively limited sales volume opportunity. We believe that as an early entrant with exclusive focus on medium-duty vehicles, we are well positioned to avoid direct competition with the much larger organizations that produce heavy- and light-duty trucks.

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OUR STRATEGY

        We intend to be a leading global producer of medium-duty commercial electric vehicles. Key elements of our strategy include:

    Focusing on large, well-recognized commercial operators to establish long-term customer advocates.  We are focusing our sales efforts on industry-leading companies and governmental entities that operate substantial, well-recognized, medium-duty commercial vehicle fleets. These entities have not only the resources available to purchase our vehicles, but also the corporate or public commitment to support and sustain the development of the commercial electric vehicle industry. We believe this strategy will increase our sales and provide us with market credibility. Additionally, these customers typically have well-defined fleet replacement strategies that strengthen our visibility with respect to customers' purchasing cycles and future supply needs.

    Leveraging our existing vehicle technologies and platforms to diversify applications and sales channels.  We are leveraging our current vehicle technologies and platforms to diversify applications in the United States, Europe and Asia. We anticipate these new vehicle models will broaden our reach within our addressable market and result in increased sales to our existing customers. In addition to offering vehicles with a wider range of GVWs, we are working with several truck and bus body manufacturers to provide specialized models, including a step van, shuttle and school buses, aircraft ground service and military transportation. These relationships will not only allow us to offer specialized models to our commercial fleet customers, but also could open new sales channels for us, as these manufacturers also may purchase our vehicles for resale to the end users.

    Continuing to focus on technological innovation to reduce the initial cost of our vehicles.  We are focused on improving our vehicle technologies and broadening our proprietary intellectual property rights over systems and components incorporated into our vehicles. These strategies are intended to improve our vehicle performance and reliability, strengthen our competitive position and lower our vehicle costs. For example, our recently introduced Smith Power battery management system allows us to purchase battery modules, and ultimately will allow us to purchase lithium-ion cells, from various pre-qualified manufacturers. We expect that this ability to source from multiple suppliers will enable us to reduce the cost per kilowatt hour of the batteries used in our vehicles and improve reliability.

    Establishing sales, service and assembly facilities in selected local markets.  We intend to establish sales, service and assembly facilities in select urban areas in different regions of the United States and abroad. Our initial plans include opening facilities on the east and west coasts of the United States, including a facility in New York City, which we anticipate will open in the first half of 2012. In addition to increasing our production capacity, these new facilities will allow us to provide localized sales and service and will significantly reduce costs associated with shipping completed trucks from our existing U.S. and U.K. locations to our customers.

    Supporting and leveraging our customers' brands through branding synergies and co-promotions.  We intend to continue helping our customers build and achieve corporate sustainability objectives and enhance their brand images. Our efforts include co-promotional media and joint presentations at industry conferences and other public events that highlight the ongoing replacement of our customers' legacy diesel fleets with our environmentally-friendly, 100% electric vehicles.

    Providing customized battery acquisition models to our customers.  We intend to provide purchasing options for the battery system used in our vehicles that meet our customers' varying purchasing strategies. For example, we intend to provide our customers with the flexibility to purchase complete vehicles that include battery systems or to purchase base vehicles and separately

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      acquire battery systems through leasing arrangements with third parties. In the future we may offer battery leasing arrangements to our customers.

    Working with federal and state governments to promote the electric vehicle industry.  We work with government authorities to promote the adoption of electric vehicles and believe we are well-positioned to benefit from support for commercial electric vehicles. Government support for the development and use of commercial electric vehicles can accelerate their adoption. Such support ranges from tax incentives, to end-user rebates for the purchase of electric vehicles, to consortium tenders for the purchase of electric vehicles in volume.

RISK FACTORS

        Our business is subject to a number of risks and uncertainties that you should carefully consider prior to deciding whether to invest in our common stock. These risks are discussed more fully in the section entitled "Risk Factors" beginning on page 16. For example,

    we have had a history of losses, and we may be unable to achieve or sustain profitability;

    we have yet to achieve positive cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain;

    we will need access to additional financing, which may not be available to us on acceptable terms or at all, and if we cannot access additional financing when we need it and on acceptable terms, our business, prospects, financial condition, operating results and ability to continue as a going concern could be adversely affected;

    our limited operating history makes evaluating our business and future prospects difficult, and may increase the risk of your investment;

    our future growth is dependent upon the willingness of operators of commercial vehicle fleets to adopt electric vehicles and on our ability to produce, sell and service vehicles that meet their needs;

    our business, prospects, financial condition and operating results could be adversely affected if we experience disruptions in our supply chain or if we cannot obtain materials of sufficient quality at reasonable prices;

    our business, prospects, financial condition and operating results will be adversely affected if we cannot reduce and adequately control the costs and expenses associated with operating our business, including our costs of materials, production and sales;

    we recently transitioned the powertrains and battery systems used in our U.S.-produced vehicles to our Smith Drive and Smith Power systems, and any difficulties we experience with the performance of these systems or our supply chain as a result of this transition could adversely affect our business, prospects, financial condition and operating results;

    our inability to effectively and quickly scale our vehicle assembly processes from low volume production to high volume production could adversely affect our business, prospects, financial condition and operating results;

    we rely on a limited number of customers for a significant portion of our revenue, and the loss of any of these customers could materially harm our business; and

    the unavailability, reduction, elimination or adverse application of government subsidies, incentives and regulations could have an adverse effect on our business, prospects, financial condition and operating results.

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RECENT DEVELOPMENTS

Senior note financing

        On September 14, 2011, we issued a $2.8 million senior unsecured note, or the senior note, to one of our existing stockholders. The senior note accrued interest at 8.00% per annum and had a maturity date of December 31, 2011. We exchanged the senior note in connection with our 2011 convertible notes financing discussed below.

2011 convertible notes financing

        Between October 7, 2011 and October 31, 2011, we issued and sold in a private placement senior unsecured convertible promissory notes, or 2011 convertible notes, and seven-year warrants to purchase 726,960 shares of our common stock for aggregate proceeds of $30.0 million, consisting of cash proceeds of $25.2 million, cancellation of the $2.8 million of indebtedness under the senior note and the conversion of approximately $2.0 million of the outstanding balance of the purchase price we owe to Tanfield Group Plc, or Tanfield, in connection with the acquisition of our Smith UK business. Each 2011 convertible note had a maturity date that was three years from its date of issuance and accrued interest at a per annum rate of 8.50%, 12.00% and 15.00% for the first, second and third year of its term, respectively. The 2011 convertible notes converted into shares of our Series C convertible redeemable preferred stock, par value $0.001 per share, or the Series C preferred stock, upon our receipt of $30.0 million of proceeds from the 2011 convertible notes financing. Each warrant is exercisable at any time for the number of shares of our common stock equal to 30% of the initial principal amount of the related note divided by the exercise price of $12.38 and is automatically exercised upon the pricing of an initial public offering of our common stock.

Series C preferred stock issuance

        Between November 3, 2011 and November 8, 2011, we issued 2,431,170 shares of our Series C preferred stock in connection with the conversion of all of our outstanding 2011 convertible notes. We did not receive any additional cash proceeds upon the conversion of the 2011 convertible notes into Series C preferred stock.

Transition to next generation technologies

        We recently completed the transition of the powertrain and battery system used in the U.S.-produced Smith Newton to our Smith Drive and Smith Power technologies. In order to facilitate this transition, we temporarily suspended U.S. production of the Newton in August 2011 and re-tooled our Kansas City production facility. We began limited production of our second generation Newton, which includes our Smith Drive, Smith Power and Smith Link technologies, in November 2011 and are in the process of ramping production and integrating new vendors into our supply chain.

COMPANY INFORMATION

        Smith Europe and its predecessor entities have existed since the early 1920s. We were incorporated in Delaware in 2009 and have been operating on a consolidated basis with Smith Europe since January 2011, when we acquired the business of Smith UK from Tanfield. We believe our acquisition of the Smith UK business provides us with:

    a platform on which we can expand our business internationally, particularly in Europe and Asia, where fuel costs exceed those in the United States;

    enhanced product development capabilities as a result of access to Smith UK's engineering division;

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    access to recurring service-related revenues from Smith UK's fleet management services; and

    Smith UK's existing vehicle technologies and the elimination of a royalty obligation to Tanfield. Smith Europe now owns the intellectual property rights we previously licensed from Tanfield.

        We are headquartered in Kansas City, Missouri. Our principal executive offices are located at 12200 N.W. Ambassador Drive, Suite 326, Kansas City, Missouri 64163, and our telephone number at this location is (816) 464-0508. Our website address is www.smithelectric.com. Information contained on our website is not incorporated by reference into this prospectus and you should not consider information on our website to be part of this prospectus.

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THE OFFERING

Common stock we are offering

                  shares (or                shares, if the underwriters exercise their over-allotment option in full)

Common stock offered by the selling stockholders

 

                shares (                shares, if the underwriters exercise their option to purchase shares from the selling stockholders in full)

Over-allotment option

 

                shares

Common stock to be outstanding after this offering

 

                shares

Use of proceeds

 

We intend to use $         million of the net proceeds to us from this offering to redeem $            in principal amount of our outstanding 10% Series A secured convertible debentures, or Series A debentures. We intend to use the remainder of the net proceeds to us from this offering for capital expenditures, working capital and other general corporate purposes. See the "Use of Proceeds" section of this prospectus beginning on page 43 for more information.

 

We will not receive any proceeds from the sale of shares by the selling stockholders.

Risk factors

 

You should read the "Risk Factors" section of this prospectus beginning on page 16 for a discussion of factors to consider carefully before deciding whether to purchase shares of our common stock.

Nasdaq Global Market symbol

 

"SMTH"

        The number of shares of our common stock that will be outstanding after this offering is based on 10,507,929 shares of our common stock outstanding as of November 8, 2011 and excludes:

    1,652,688 shares of our common stock issuable upon the exercise of stock options outstanding as of November 8, 2011 at a weighted average exercise price of $10.45 per share;

    shares of our common stock issuable upon conversion of $            in principal amount of our outstanding Series A debentures at an assumed conversion price of $            , which is 80% of the mid-point of the price range listed on the cover page of this prospectus; and

    3,000,000 shares of our common stock reserved as of the closing date of this offering for future issuance under our 2012 Incentive Plan.

        Unless otherwise indicated, the information in this prospectus reflects the following:

    the automatic conversion of all of the outstanding shares of our Series B convertible redeemable preferred stock, par value $0.001 per share, or our Series B preferred stock, into shares of our common stock on a one-to-one basis, immediately prior to the closing of this offering;

    the automatic conversion of all of the outstanding shares of our Series C preferred stock into shares of our common stock, on a one-to-one basis, immediately prior to the closing of this offering;

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    the automatic exercise, on a net exercise basis, of all of the warrants issued in our 2011 convertible notes financing, or the 2011 warrants, for an aggregate of 726,960 shares of our common stock upon the pricing of this offering;

    the            for            stock split of our outstanding common stock effected on                        ;

    the filing of our fourth amended and restated certificate of incorporation, or our certificate of incorporation, and the adoption of our amended and restated by-laws, or our by-laws, as of the closing date of this offering; and

    no exercise by the underwriters of their over-allotment option.

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SUMMARY HISTORICAL FINANCIAL DATA

        The summary combined and consolidated financial data should be read together with our financial statements and the accompanying notes appearing elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The summary historical financial data in this section is not intended to replace our historical financial statements and the accompanying notes. As of and for the periods prior to December 31, 2010, the financial statements of Smith UK and Smith US are presented on a combined basis. As of and for periods subsequent to January 1, 2011, the financial statements for Smith Europe and Smith US are presented on a consolidated basis. Our historical results are not necessarily indicative of our future results. We derived the statement of operations data for 2008, 2009 and 2010 and the balance sheet data as of December 31, 2009 and 2010 from our audited financial statements appearing elsewhere in this prospectus. The statement of operations data for the six months ended June 30, 2010 and 2011 and the balance sheet data as of June 30, 2011 are derived from our unaudited interim financial statements appearing elsewhere in this prospectus. The balance sheet data as of December 31, 2008 is unaudited and has been derived from accounting records of Tanfield that are not included elsewhere in this prospectus. See "Selected Historical Financial Data" for certain information regarding this data. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly our financial position as of June 30, 2011 and results of operations for the six months ended June 30, 2010 and 2011. Operating results for the six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

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  Years ended December 31,   Six Months ended June 30,  
 
  2010   2009   2008   2011   2010  
 
  (in thousands, except share and per share amounts)
 

Combined and Consolidated Statement of Operations Data:

                               

Revenue

                               
   

Vehicle(1)

  $ 23,827   $ 8,223   $ 14,166   $ 31,930   $ 9,633  
   

Service and repairs(2)

    11,767     14,631     18,208     5,672     6,191  
                       
     

Total revenue

    35,594     22,854     32,374     37,602     15,824  
                       

Cost of revenue

                               
   

Vehicle

    33,117     13,370     21,671     40,035     12,335  
   

Service and repairs

    12,175     14,421     18,124     5,945     6,165  
                       
     

Total cost of revenue

    45,292     27,791     39,795     45,980     18,500  
                       
 

Gross loss

    (9,698 )   (4,937 )   (7,421 )   (8,378 )   (2,676 )

Research and development expense

    2,550     1,126     9,478     1,457     830  

Selling, general and administrative

    13,307     10,697     5,411     7,031     4,360  
                       
   

Total operating expenses

    15,857     11,823     14,889     8,488     5,190  

Operating loss

    (25,555 )   (16,760 )   (22,310 )   (16,866 )   (7,866 )

Other expense (income)

                               
   

Interest expense

    3,699     696         1,881     1,225  
   

Government grant reimbursements

    (688 )   (18 )       (205 )   (315 )
   

Loss on extinguishment of debt

                971      
   

Other expense, net

    1,698     60         1,763     745  
                       

Net loss

  $ (30,264 ) $ (17,498 ) $ (22,310 ) $ (21,276 ) $ (9,521 )
                       

Net loss per share of common stock, basic and diluted(3)(4)

  $ (2.95 ) $ (1.89 )   N/A   $ (2.05 ) $ (0.94 )
                       

Shares used in computing net loss per share of common stock, basic and diluted(3)(4)

    10,258     9,271     N/A     10,381     10,133  
                       

Pro forma net loss per share of common stock, basic and diluted(3)(5)

  $     $     $     $     $    
                       

Shares used in computing pro forma net loss per share of common stock, basic and diluted(3)(5)

                               
                       

(1)
Vehicle revenue consists of revenues derived primarily from the sale of our Newton and Edison vehicles. Vehicle revenue also includes payments received by us in connection with Smith Europe's, and previously Smith UK's, distribution of forklifts.

(2)
Service and repairs revenue consists of revenues derived from the provision of fleet maintenance and repair services. These services, which are primarily provided in the United Kingdom, include services for traditional diesel-fueled vehicles as well as for electric vehicles.

(3)
Our basic net loss per share of common stock is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share of common stock is computed by dividing the net loss by the weighted-average number of shares of common stock and, if dilutive, potential shares of common stock outstanding during the period. Potential shares of common stock consist of stock options and warrants to purchase shares of our common stock (using the treasury stock method) and the conversion of our

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    Series B preferred stock, 12% senior unsecured convertible promissory bridge notes and Series A debentures (using the if-converted method). As we generated a loss in each period, the potential shares of common stock would have reduced our per share loss (antidilutive) and, therefore, were excluded from the calculation.

(4)
Smith Electric Vehicles Corp. was not incorporated until January 2009. Smith UK, the predecessor entity, was, in part, a division of Tanfield and, in part, a wholly-owned subsidiary of Tanfield and did not have separately issued stock. As a result, we are unable to calculate loss per share of common stock for the year ended December 31, 2008. See Note 1, "Nature of Business and Presentation" to the combined and consolidated financial statements included elsewhere in this prospectus for information regarding our acquisition of Smith UK.

(5)
Pro forma net loss per share of common stock, basic and diluted includes shares of common stock issuable upon the automatic conversion of all of the outstanding shares of our Series B preferred stock into shares of our common stock, at a one-to-one conversion ratio, immediately prior to the closing of this offering, and the            for            stock split of our outstanding common stock effected on            .

        The following table summarizes our consolidated balance sheet as of June 30, 2011:

    on an actual basis;

    on a pro forma basis to reflect the filing of our certificate of incorporation, the conversion of all of our outstanding shares of Series B preferred stock into 4,809,007 shares of our common stock, based on the one-to-one conversion ratio in effect as of June 30, 2011; and the             for            stock split of our outstanding common stock effected on                        ; and

    on a pro forma, as adjusted basis to reflect the pro forma adjustments described above, our receipt of the estimated net proceeds to us from this offering, based on an assumed initial public offering price of $            per share (the mid-point of the price range set forth on the cover page of this prospectus) and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and our use of such net proceeds to us as described in "Use of Proceeds."

 
  As of June 30, 2011  
 
  Actual   Pro forma   Pro forma, as
adjusted
 
 
  (unaudited)
(in thousands, except share
and per share data)

 

Combined and Consolidated Balance Sheet Data:

                   

Cash and cash equivalents

  $ 7,227   $     $    

Property, plant and equipment, net

    4,747              

Working (deficit) capital

    (2,918 )            

Total assets

    38,394              

Bridge notes, net of discount

                 

Bridge note detachable warrants

                 

Note payable—Tanfield

  $ 7,750              

Series A debentures, net of discount

  $ 10,031   $          

Series A conversion option

    3,052              

Series B convertible redeemable preferred stock

    56,688              

Common stock warrant

    23              

Total stockholders' (deficit) equity

    (73,692 )            

        Each $1.00 increase or decrease in the assumed initial public offering price of $            per share (the mid-point of the price range set forth on the cover page of this prospectus) would increase or

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decrease, as applicable, our pro forma, as adjusted cash and cash equivalents, additional paid-in capital and stockholders' equity by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        The pro forma column and the pro forma, as adjusted column in the table above do not include:

    714,688 shares of our common stock issuable upon the exercise of options outstanding as of June 30, 2011 at a weighted average exercise price of $7.98 per share;

    938,000 shares of our common stock issuable upon the exercise of options issued after June 30, 2011 at a weighted average exercise price of $12.33 per share;

                    shares of our common stock issuable upon conversion of $            in principal amount of our outstanding Series A debentures at an assumed conversion price of $            , which is 80% of the mid-point of the price range listed on the cover page of this prospectus;

    726,960 shares of our common stock issuable upon the exercise, on a net exercise basis, of the 2011 warrants at a weighted average exercise price of $12.38 per share;

    the issuance in November 2011 of shares of our Series C preferred stock and the conversion of such shares into 2,431,170 shares of our common stock, based on a one-to-one conversion ratio; and

    3,000,000 shares of our common stock reserved for future issuance under our 2012 Incentive Plan, which will become effective in connection with the consummation of this offering.

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RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and all other information contained in this prospectus, including our financial statements and the related notes, before investing in our common stock. If any of the following risks materialize, our business, prospects, financial condition and operating results could be materially harmed. In such case, the price of our common stock could decline, and you may lose some or all of your investment.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

We have had a history of losses, and we may be unable to achieve or sustain profitability.

        We have never been profitable and as of June 30, 2011 have an accumulated deficit of $74.2 million. We have had net losses in each quarter since our inception. Our net losses for the six months ended June 30, 2011 and the years ended December 31, 2008, 2009 and 2010 were $21.3 million, $22.3 million, $17.5 million and $30.3 million, respectively. We expect that we will continue to incur net losses during the remainder of 2011. We expect to incur significant future expenses as we develop and expand our business, particularly when we establish our network of sales, service and assembly facilities in the United States and abroad. Following the completion of this offering, we also expect to incur significant legal, accounting and other expenses that we did not incur as a private company. Taken together, these and other increased expenditures may make it difficult for us to achieve and maintain future profitability. We may incur significant losses in the future for a number of reasons, including the other risks described in this prospectus, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown events. Accordingly, we may not be able to achieve or maintain profitability.

We have yet to achieve positive cash flow and, given our projected funding needs, our ability to generate positive cash flow is uncertain.

        We have had negative cash flow from operating and investing activities of $24.2 million, $26.9 million, $13.4 million and $13.9 million for the six months ended June 30, 2011 and the years ended December 31, 2008, 2009 and 2010, respectively. We anticipate that we will continue to have negative cash flow for the foreseeable future as we make significant capital expenditures to open sales, service and assembly facilities and incur increased research and development, sales and marketing, and general and administrative expenses. Our business also will at times require significant amounts of working capital to support our growth. An inability to generate positive cash flow for the foreseeable future may adversely affect our ability to raise needed capital for our business on reasonable terms, diminish supplier or customer willingness to enter into transactions with us, and have other adverse effects that may decrease our long-term viability.

We will need access to additional financing, which may not be available to us on acceptable terms or at all. If we cannot access additional financing when we need it and on acceptable terms, our business, prospects, financial condition, operating results and ability to continue as a going concern could be adversely affected.

        Our growth-oriented business plan to design, produce, sell and service commercial electric vehicles using a decentralized production model will require continued capital investment. We have received a report from our independent registered public accounting firm on our 2010 financial statements that contains an explanatory paragraph stating that our recurring losses from operations, negative working capital and stockholders' capital deficiency and the uncertainty around our ability to raise additional capital raise substantial doubt about our ability to continue as a going concern. We expect that our cash and cash equivalent balances, together with our anticipated cash from operating activities, will be sufficient to fund our operations, including our planned capital expenditures and research and development activities, through the first quarter of 2012. However, if our operating costs exceed our expectations or if we incur any significant unplanned expenses, we may need to raise additional funds

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through the issuance of equity, equity-related or debt securities or by obtaining credit from government or financial institutions. This capital will be necessary to fund our ongoing operations, continue research, development and design efforts, open our sales, service and assembly facilities, improve infrastructure and introduce new or improve existing vehicle models. We cannot be certain that additional financing will be available to us on favorable terms when required, or at all, particularly given that we do not now have a committed credit facility with any government or financial institution. If we cannot obtain additional financing when we need it and on terms acceptable to us, our business, prospects, financial condition, operating results and ability to continue as a going concern could be adversely affected.

Our limited operating history makes evaluating our business and future prospects difficult, and may increase the risk of your investment.

        You must consider the risks and difficulties we face as an early stage company with limited operating history in evaluating an investment in our common stock. If we do not successfully address these risks and difficulties, including the other risks discussed in this prospectus, our business, prospects, financial condition and operating results may be adversely affected. Although Smith Europe and its predecessor entities have existed since the early 1920s, Smith was formed in January 2009 and Smith and Smith Europe have been operating as a consolidated company only since January 2011. Further, we have sold the Smith Newton in the United States only since December 2009 and our current senior management team has been with us only since May 2011. As such, we have a very limited operating history on which investors can base an evaluation of our business, prospects and operating results, which may increase the risk of their investment.

Our future growth is dependent upon the willingness of operators of commercial vehicle fleets to adopt electric vehicles and on our ability to produce, sell and service vehicles that meet their needs. If the market for commercial 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 adversely affected.

        Our growth is dependent upon the adoption of electric vehicles by operators of commercial vehicle fleets and on our ability to produce, sell and service vehicles that meet their needs. The entry of commercial electric vehicles into the medium-duty commercial vehicle market is a relatively new development, particularly in the United States, and is characterized by rapidly changing technologies and evolving government regulation, industry standards and customer views of the merits of using electric vehicles in their businesses. As such, we believe that operators of commercial vehicle fleets consider a number of factors when deciding whether to purchase our commercial electric vehicles (or commercial electric vehicles generally) or vehicles powered by internal combustion engines, particularly diesel-fueled vehicles. We believe these factors include:

    the difference in the initial purchase prices of commercial electric vehicles and vehicles with comparable GVWs powered by internal combustion engines, both including and excluding the impact of government and other subsidies and incentives designed to promote the purchase of electric vehicles;

    the total cost of ownership of the vehicle over its expected life, which includes the initial purchase price and ongoing operating and maintenance costs;

    the availability of tax and other governmental incentives to purchase and operate electric vehicles and future regulations requiring increased use of nonpolluting vehicles;

    government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;

    fuel prices, including volatility in the cost of diesel;

    corporate sustainability initiatives;

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    commercial electric vehicle quality, performance and safety (particularly with respect to lithium-ion battery packs);

    the quality and availability of service for the vehicle, including the availability of replacement parts;

    the limited range over which commercial electric vehicles may be driven on a single battery charge;

    access to charging stations and standardization of electric vehicle charging systems;

    electric grid capacity and reliability; and

    macroeconomic factors.

        If, in weighing these factors, operators of commercial vehicle fleets determine that there is not a compelling business justification for purchasing commercial electric vehicles, particularly those that we produce and sell, then the market for commercial electric vehicles may not develop as we expect or may develop more slowly than we expect, which would adversely affect our business, prospects, financial condition and operating results.

        If our customers are unable to efficiently and effectively integrate our electric vehicles into their existing commercial fleets our sales may suffer and our business, prospects, financial condition and operating results may be adversely affected.

        Our sales strategy involves a comprehensive plan for the pilot and roll-out of our electric vehicles, as well as the ongoing replacement of existing commercial vehicles with our electric vehicles, that is tailored to the individual needs of our customers. If we are unable to develop and execute fleet integration strategies or fleet management support services that meet our customers' unique circumstances with minimal disruption to their businesses, our customers may not realize the economic benefits they expect from our electric vehicles. If this were to occur, our customers may not order additional vehicles from us, which could adversely affect our business, prospects, financial condition and operating results.

Our business, prospects, financial condition and operating results will be adversely affected if we cannot reduce and adequately control the costs and expenses associated with operating our business, including our materials and production costs.

        We incur significant costs and expenses related to procuring the materials and components required to produce our commercial electric vehicles and assembling vehicles. As a result, without including the impact of government or other subsidies and incentives, the purchase prices for our commercial electric vehicles currently are substantially higher than the purchase prices for diesel-fueled vehicles with comparable GVWs. Through our cost down initiative, we are attempting to reduce our materials and production costs to the point where the upfront cost of our vehicles, excluding the battery system and the impact of government subsidies and incentives, is competitive with or a slight premium to the upfront cost of diesel trucks with comparable GVWs. We have had some success reducing our cost of revenue, however, the cost of producing our vehicles currently exceeds the sales prices of our vehicles. If we are unable to reduce costs effectively, we will not be able to sustain our current pricing and therefore may lose sales to lower priced competitors and we may not be able to achieve profitability.

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Because we assemble vehicles from components supplied by third parties, we are particularly dependent on those third parties to deliver raw materials, parts, components and services in adequate quality and quantity in a timely manner and at reasonable prices. Our business, prospects, financial condition and operating results could be adversely affected if we experience disruptions in our supply chain or if we cannot obtain materials of sufficient quality at reasonable prices.

        Our production operations depend on obtaining raw materials, parts and components, manufacturing equipment and other supplies, and services from reliable suppliers in adequate quality and quantity in a timely manner. For example, we purchase the chassis and cab for the Smith Newton from Avia Ashok Leyland Motors S.R.O., or Avia, located in the Czech Republic; the battery system for our vehicles from A123 Systems, Inc., or A123, and Valence Technology, Inc., or Valence; the charger for the Smith Newton from EDN Group S.r.l., or EDN, located in Italy; the charger for the Smith Edison from BRUSA Electronik AG, located in Switzerland; and the powertrain for our vehicles from Magnetic Systems Technology Limited, or MagTec, located in the United Kingdom, and Enova Systems, Inc., or Enova. In cases where we rely on one supplier for a component or system, it may be difficult for us to substitute one supplier for another, increase the number of suppliers or change one component for another in a timely manner or at all due to interruption of supply, dependence on a sole source supplier or increased industry demand. We may not be able to shift our supply chain to alternative suppliers if any of our significant suppliers experience financial distress, as has been common in the motor vehicle industry over the past several years. Furthermore, many of our current suppliers are small companies that produce a limited number of specialized products, which may make them attractive acquisition targets. If any of these suppliers were acquired by a competitor of ours or any other third party that determines to discontinue our supply relationship, we would need to find an alternative supplier, which we may not be able to do. If we are unable to maintain a consistent, high quality and cost effective supply chain, our business, prospects, financial condition and operating results could be adversely affected.

        We currently depend on sole source suppliers or a limited number of suppliers for our primary vehicle systems and certain key raw materials and component parts used in producing and developing our vehicles. For example, we purchase approximately 96%, based on value, of the over 530 parts used in the assembly of the U.S.-produced Smith Newton from sole source suppliers. We generally purchase materials pursuant to purchase orders placed from time to time and have only a limited number of long-term contracts and other guaranteed supply arrangements with our sole or limited source suppliers. As a result, many of our suppliers may not be able to meet our requirements relative to specifications and volumes for certain key raw materials and components, and we may not be able to locate alternative sources of supply at an acceptable cost. Additionally, if a sole source supplier ceases to continue to produce a component with little or no notice to us or significantly increases the cost of the component, whether due to increased market demand, limited supply or other reasons, our business could be harmed.

We recently transitioned the powertrains and battery systems used in our U.S.-produced vehicles to our Smith Drive and Smith Power systems, and any difficulties we experience with our supply chain as a result of this transition could adversely affect our business, prospects, financial condition and operating results.

        We believe that the transition to our Smith Drive and Smith Power systems is critical to reducing the cost of our commercial electric vehicles to a level that, even without the benefit of government subsidies and incentives, is competitive with or a slight premium to the cost of diesel-fueled vehicles with comparable GVWs and to our ability to profitably grow our business. In connection with this transition, we moved to a new supply chain, including suppliers with which we have limited or no prior experience. We cannot be certain that these third parties will be willing or able to supply materials and components at prices, in quantities and on other terms acceptable to us and, if they are not, that we will be able to otherwise fulfill our supply needs on acceptable terms.

        If any of our new suppliers are unable to scale to meet our production, cost and quality requirements, our business, prospects, financial condition and operating results could be adversely affected.

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If we are unable to scale our vehicle assembly processes effectively and quickly from low volume production to high volume production, our business, prospects, financial condition and operating results could be adversely affected.

        Our existing production model is well suited for the low volume production of our vehicles, but may not be well suited for the high volume production we will require if demand significantly increases for our commercial electric vehicles. Our ability to scale our vehicle assembly process is in part dependent on our ability to execute on our decentralized production strategy. For more information about the risks associated with our decentralized production strategy, see "—Our decentralized assembly, sales and service model will present numerous challenges, including site selection for and build-out of new facilities, consistent quality control across facilities and hiring sufficiently skilled employees. If we are unable to execute on our plan to establish sales, service and assembly facilities in the urban areas we have targeted or if our facilities in any of those markets underperform relative to our expectations, our business, prospects, financial condition and operating results may be adversely affected" below. If we are unable to scale our existing assembly processes and systems quickly while maintaining our current quality level, we may be unable to meet our customers' vehicle quality and quantity requirements or our forecasted production schedule or lower our cost of revenue. As a result, we may not be able to meet our customers' delivery schedules and could face the loss of customers, or be exposed to liability to customers to which we promised delivery, which could adversely affect our business, prospects, financial condition and operating results.

We rely on a limited number of customers for a significant portion of our revenue and our future growth, and the loss of any of these customers could materially harm our business.

        A significant portion of our total revenue and vehicle revenue is generated from a limited number of vehicle customers. For the year ended December 31, 2010 and for the six months ended June 30, 2011, four and two of our customers, respectively, collectively accounted for approximately 40% and 62%, respectively, of our total revenue; and 60% and 73%, respectively, of our vehicle revenue. Frito-Lay accounted for 66% of our vehicle revenue for the six months ended June 30, 2011. Staples, Inc., Frito-Lay and Sainsbury's accounted for 24%, 14% and 12%, respectively, of our vehicle revenue for the year ended December 30, 2010.

        Furthermore, our growth strategy is premised on expanding our relationships with our largest customers, which increases our dependence on their continued business. Although we expect to broaden our customer base over time by leveraging our existing relationships and through our acquisition of Smith UK, we expect that most of our revenue will continue, for the foreseeable future, to come from a relatively small number of customers.

        Our contracts with our customers currently do not include long-term commitments or minimum volumes that ensure future sales of our vehicles. Rather, our customers place orders for a specified number of vehicles on a purchase order basis, which may be cancelled without financial penalty to the customer. Consequently, our financial results may fluctuate significantly from period-to-period based on the actions of one or more significant customers. A customer may take actions that affect us for reasons that we cannot anticipate or control, such as reasons related to the customer's financial condition, changes in the customer's business strategy or operations or as the result of the perceived performance or cost-effectiveness of our vehicles. The loss of or a reduction in sales or anticipated sales to our most significant customers could have an adverse effect on our business, prospects, financial condition and operating results.

The unavailability, reduction, elimination or adverse application of government subsidies, incentives and regulations could have an adverse effect on our business, prospects, financial condition and operating results.

        We believe that, currently, the availability of government subsidies and incentives is an important factor considered by our customers when purchasing our vehicles, and that our growth depends in part

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on the availability and amounts of these subsidies and incentives. Any reduction, elimination or discriminatory application of government subsidies and incentives because of budgetary challenges, policy changes, the reduced need for such subsidies and incentives due to the perceived success of electric vehicles or other reasons may result in the diminished price competitiveness of the alternative fuel vehicle industry generally and our commercial electric vehicles in particular, especially prior to the completion of our current cost down initiative. For example, in the United States, we and our customers benefit from significant subsidies in connection with the purchase of our vehicles under the California Hybrid Truck and Bus Voucher Incentive Program, or HVIP, Smith Electric Vehicles Medium-Duty Electric Vehicle Demonstration Project, or the EV Demonstration Project, and state-level Clean Cities programs. Under these programs, purchasers of our vehicles are eligible to receive subsidies or incentives of up to $20,000, $71,000 and $94,000, respectively, per vehicle purchased from us. See "Business—Government Programs and Incentives" for more information about the government subsidy and incentive programs in which we or our customers may participate.

        Certain regulations and programs that encourage sales of electric vehicles could be eliminated or applied in a way that adversely impacts sales of our commercial electric vehicles, either currently or at any time in the future. For example, the U.S. federal government and many state governments, as well as many national governments within the European Union, are facing severe fiscal crises, which could result in the elimination of programs, subsidies and incentives that encourage the purchase of electric vehicles. In addition, grants made by the DOE under the American Recovery and Reinvestment Act of 2009 to clean technology companies, such as the EV Demonstration Project grant, may be subject to a high level of scrutiny as a result of recent financial difficulties experienced by recipients of DOE loan guarantees. If government subsidies and incentives to produce and purchase electric vehicles were no longer available to us or to our customers, or the amounts of such subsidies and incentives were reduced, our business, prospects, financial condition and operating results could be adversely affected.

We may not be able to obtain, agree on acceptable terms and conditions for, or continue to qualify for all or a significant portion of the government grants, loans and other incentives for which we have applied and may in the future apply. Our inability to do so could adversely affect our ability to grow our business.

        We have applied for, and we assist our customers in applying for, federal and state grants, loans and tax incentives under government programs designed to stimulate the economy and support the production of electric vehicles and advanced battery technologies. We anticipate that in the future there may be new opportunities for us to apply for grants, loans and other incentives from federal, state and foreign governments on our own behalf and on behalf of our customers. Our and our customers' ability to obtain funds or incentives from government sources is subject to the availability of funds under applicable government programs and approval of our and our customers' applications to participate in such programs. The application process for these funds and other incentives is and will continue to be highly competitive. We are eligible to receive, subject to certain conditions, some or all of which we may not be able to satisfy, up to $32.0 million of funding under the EV Demonstration Project (up to $4.0 million of which is available to us and $28.0 million of which is available to compensate our customers for their participation in the project) and, as of September 30, 2011, we and our customers have received approximately $14.7 million of incentives under the project. However, we cannot assure you that we will be successful in obtaining additional grants, loans or other incentives. Moreover, our ability to obtain funds under state programs will depend on the continued availability of state funding for such programs.

        With respect to the funding that we have been awarded and the grants, loans and other incentives that we may be awarded, we may not be able to satisfy or continue to satisfy the requirements and milestones imposed by the granting authority as conditions to receipt of the funds or other incentives on a timely basis or at all.

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        For example, we are subject to annual audits in connection with the EV Demonstration Project and have been and may in the future be subject to additional audits by the Defense Contract Audit Agency, or DCAA, which is performing such audits for the DOE. A DCAA audit of us, completed in October 2010, revealed significant deficiencies that are considered to be material weaknesses in our accounting system for accumulating and billing costs under government contracts or financial assistance agreements, including our process for submitting reimbursement claims, our timing for submitting rebates to our customers and our calculation of indirect costs to be reimbursed by the DOE. The DCAA audit report recommended that reimbursement of expenditures for fixed assets, direct labor and overhead costs be discontinued under the project until we remedy these issues. In January 2011, we responded to the DOE regarding the DCAA audit findings. Based on this response, the DOE confirmed in July 2011 that it would resume reimbursements for qualified fixed asset expenditures and direct labor costs incurred by us in connection with the EV Demonstration Project. We have submitted additional requested information to the DOE and are awaiting a decision on whether the DOE will resume reimbursement of qualified indirect costs and overhead costs. If the DCAA concludes that our remedial steps taken in response to the current DCAA audit are insufficient or a future DCAA audit concludes that we continue to have material weaknesses in our accounting system for accumulating and billing costs under government contracts or financial assistance agreements, the DOE could terminate the EV Demonstration Project and we and our customers would lose access to the remaining $17.3 million of funding available under the project as of September 30, 2011.

        In addition, the EV Demonstration Project and other federal government programs which in the future may make awards to us require us to spend a portion of our own funds for every incentive dollar we receive or are permitted to borrow and limit the time period in which we must use the funds awarded to us. The EV Demonstration Project, for example, requires us to fund up to $36.0 million, or 53.0%, of the total cost of our project prior to November 30, 2014, the termination date of the project. We also are required to deliver 510 vehicles by September 30, 2013 under this program. If we are unable to fund our share of these projects or deliver the required number of vehicles, we will not receive all of the amounts that are available to us from the government, which could adversely affect our revenues, our customer relationships and our ability to improve our vehicle technologies or expand our production, sales and service capacity.

We have only a limited number of long-term supply contracts with guaranteed pricing, which exposes us to fluctuations in component, materials and equipment prices. Substantial increases in these prices would increase our operating costs and could adversely affect our business, prospects, financial condition and operating results.

        Because we have only a limited number of long-term supply contracts with guaranteed pricing, we are subject to fluctuations in the prices of the raw materials, parts and components and equipment we use in the production of our vehicles. In addition, currency fluctuations and a weakening of the U.S. dollar or the British pound against foreign currencies may adversely affect our purchasing power for such raw materials, parts and components and manufacturing equipment from foreign suppliers. Substantial increases in the prices for such raw materials, components and equipment would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased vehicle prices. There can be no assurance that we will be able to recoup these increased costs by increasing the prices of our commercial electric vehicles, which already have a higher purchase price than diesel trucks with comparable GVWs. Any attempts to increase the announced or expected prices of our commercial electric vehicles in response to increased costs could be viewed negatively by our customers and could adversely affect our business, prospects, financial condition and operating results.

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Our service model may be costly for us to operate and may not address the service requirements of our existing or prospective customers.

        All-electric commercial vehicles incorporate new and evolving technologies and require specialized service. We currently service the commercial electric vehicles we have sold in the United States by sending technicians from our Kansas City, Missouri facility to the customer's location. We have more extensive service capabilities in the United Kingdom, where we have four service facilities and a fleet of service vehicles to maintain our customers' vehicles. Once we have established a sales, service and assembly facility in a geographic area, we intend for that facility to be responsible for servicing the Smith vehicles operating in that area. We do not, however, expect to open these facilities in all of the geographic areas in which our existing and potential customers may operate our vehicles. In order to address the service needs of customers that are not in close geographic proximity to our sales, service and assembly facilities or an existing service depot, we plan to deploy technicians from our closest facility to service the vehicles at the customer's location. These special service arrangements are now and in the future may continue to be costly for us 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 commercial electric 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 may be adversely affected, which, in turn, could have an adverse effect on our business, prospects, financial condition and operating results.

Our decentralized assembly, sales and service model will present numerous challenges, including site selection for and build-out of new facilities, consistent quality control across facilities and hiring sufficiently skilled employees. If we are unable to execute on our plan to establish sales, service and assembly facilities in the urban areas we have targeted or if our facilities in any of those markets underperform relative to our expectations, our business, prospects, financial condition and operating results may be adversely affected.

        Our strategy of establishing sales, service and assembly facilities in selected urban areas in the United States and abroad is substantially different from the prevailing centralized manufacturing and franchised distribution and service model used in the motor vehicle industry and presents significant risks. Opening a sales, service and assembly facility in any market will require, among other things, establishing a local order volume that is sufficient to support the facility, finding a suitable and available location, negotiating a satisfactory lease agreement for the facility, obtaining permits and approvals from local and state authorities (and in the case of facilities to be opened in foreign countries, may require obtaining approvals from national governments), building out the facility to our specifications and hiring and training employees to assemble, sell and service our vehicles. We plan to seek state and local government incentives to open sales, service and assembly facilities in the markets we have selected, but we may not be successful in this effort, or the incentives may not be as significant as we would like. As with any development project, the development and build-out of a facility will subject us to the risk of cost-overruns and delays, which may be significant. Further, given the novelty and relative scarcity of our commercial electric vehicles compared to other types of commercial vehicles, we may have difficulties locating sufficient numbers of experienced, skilled assembly and service technicians in any market we select. Once our sales, service and assembly facilities are open for business, we will need to ensure that they maintain a high level of quality in order to enhance the Smith brand. Even if we are able to address all of the challenges discussed above, and there are no assurances we will be able to, our sales, service and assembly facilities in one or more markets may not be profitable and we may lose our entire investment in such facilities. If we are unable to establish the local order volume we require in order to open new sales, service and assembly facilities or are unable to successfully open and profitably operate these new facilities in our target markets, our business, prospects, financial condition and operating results may be adversely affected.

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If our vehicles fail to perform as expected, our business, prospects, financial condition and operating results could be adversely affected.

        Our vehicles may not perform in a manner that is consistent with our customers' expectations for a variety of reasons. Many of our first generation vehicles have experienced maintenance problems, which has resulted in increased service costs and management time spent to address the customer relationship. We believe we have responded promptly to and have appropriately addressed our customers' maintenance concerns; however, in some cases our relationship with our customers has been impaired as a result of these issues. Further, in the past we have experienced performance issues with the powertrain system previously used in the Smith Newton, which resulted in production delays. As a result, we temporarily suspended U.S. production while we performed extensive testing on the new powertrain components we use in our second generation Newton.

        Vehicles that we produce and sell in the future also may contain defects in design and manufacture that cause them not to perform as expected or that may require repair. Further, the performance of our vehicles may be negatively impacted by other factors, such as limitations inherent in existing battery technology and extreme weather conditions. We have performed extensive internal testing on our current vehicle offerings and on our Smith Drive and Smith Power technologies, however, our vehicles and vehicle technologies, particularly our Smith Drive and Smith Power technologies, have limited field experience. As such, there can be no assurance that we have detected, and in the future will be able to detect and fix, all defects in our vehicles prior to their delivery to customers. Furthermore, there can be no assurance that our vehicle technologies will function properly over the entire useful lives of our vehicles. If defects in our vehicles exist or our vehicle technologies do not perform over time in the manner we expect, we could be required to incur significant costs to fix such defects, replace vehicle systems and/or conduct recalls of our vehicles, which could adversely affect our brand, business, prospects, financial condition and operating results.

        Any product defect or other failure of our commercial electric vehicles to perform as expected could result in customer losses, adverse publicity, lost revenue, delivery delays, product recalls, product liability claims, harm to our brand and reputation, and significant warranty and other expenses, any of which could have an adverse effect on our business, prospects, financial condition and operating results.

Our warranty reserves may be insufficient to cover future warranty claims and we may incur significant non-warranty maintenance and repair costs, each of which could adversely affect our financial performance.

        We have expended significant time and resources performing warranty maintenance on the vehicles we have sold in the United States and United Kingdom and, as of June 30, 2011, have a warranty reserve of $7.9 million, or approximately 21.0% of our total revenue for the six months ended June 30, 2011, to cover our expected warranty obligations in future periods. We record and adjust warranty reserves based on changes in estimated costs and actual warranty costs. In the United States, a significant portion of our warranty maintenance has involved the battery packs and inverters that were used in the Smith Newton until our transition to our Smith Drive and Smith Power technologies. In the United Kingdom, a significant portion of our warranty maintenance has involved the battery packs, driveline components and chargers used in the Smith Edison. We could in the future become subject to additional significant and unexpected warranty expense, and there can be no assurances that our existing warranty reserves will be sufficient to cover all claims. If our warranty reserves are inadequate to cover future warranty claims on our vehicles, our business, prospects, financial condition and operating results could be adversely affected.

        We also may incur significant maintenance and repair costs for non-warranty work we perform on our customers' vehicles. We believe that our growth depends in part on our customers becoming advocates for our business and vehicles and, as such, we may choose to perform non-warranty service on their vehicles without charge in order to ensure their satisfaction. Any costs and expenses related to such maintenance would increase our service and repairs cost of revenue and, if such amounts become significant, could adversely affect our financial condition and operating results.

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If we are unable to keep up with advances in electric vehicle technology, we may suffer a decline in our competitive position.

        There are companies in the electric vehicle industry that have developed or are developing vehicles and technologies that compete or will compete with our vehicles. We cannot assure you that our competitors will not be able to duplicate our technology or provide products and services similar to ours more efficiently. If for any reason we are unable to keep pace with changes in commercial electric vehicle technology, particularly battery technology, our competitive position may be adversely affected. We plan to upgrade or adapt our vehicles and introduce new models in order to continue to provide commercial electric vehicles that incorporate the latest technology, as we are doing with our Smith Drive and Smith Power technologies. However, there are no assurances that our research and development efforts will keep pace with those of our competitors. If we cannot keep pace with our competitors, our commercial electric vehicles may not compete effectively with other available electric vehicles which could have an adverse effect on our position in our industry and on our business and operating results.

Our commercial electric vehicles compete for market share with trucks powered by other vehicle technologies that may prove to be more attractive than ours.

        Our target market currently is serviced by truck manufacturers with existing customers and suppliers using proven and widely accepted diesel fuel technologies. Additionally, our competitors are working on developing technologies such as cleaner diesel engines, bio-diesel, fuel cells, natural gas and hybrid battery/internal combustion engines that may be introduced in our target market. If any of these alternative technology vehicles can provide lower fuel costs, greater efficiencies, greater reliability or otherwise benefit from other factors resulting in an overall lower total cost of ownership, this may negatively affect the commercial success of our vehicles or make our vehicles uncompetitive or obsolete.

Many of our competitors have greater financial and other resources, longer operating histories and greater name recognition than we do and one or more of these competitors could use their greater resources and/or name recognition to gain market share at our expense.

        Many of our existing and potential competitors, including Ford Motor Company, or Ford, Navistar International Corporation, or Navistar, Freightliner Custom Chassis, or Freightliner, PACCAR Inc., or PACCAR, Hino Trucks USA, or Hino, Mitsubishi Fuso, or Fuso, and the Volvo Truck Corporation, or Volvo, have substantially greater financial resources, more extensive engineering, manufacturing, marketing and customer service and support capabilities, longer operating histories and greater name recognition than we do. As a result, our competitors may be able to compete more aggressively and sustain that competition over a longer period of time than we can. Each of these competitors has the potential to capture market share in our target market, which could have an adverse effect on our position in our industry and on our business and operating results.

If we are unable to design, produce, market and sell new electric vehicles that address additional market opportunities, our business, prospects, financial condition and operating results could be adversely affected.

        We may not be able to successfully develop new commercial electric vehicles, address new market segments or the needs of customers in our existing market, or develop a broader customer base. To date, we have focused our business on the sale of commercial electric vehicles that primarily address the needs of medium-duty, depot-based commercial fleet operators. In the United States, we have addressed this market by offering the Smith Newton, a 16,500 to 26,400 pound truck (by GVW), while in the United Kingdom and other countries where we have distribution partners, we have addressed this market by offering both the Smith Newton and the smaller Smith Edison, a 7,700 to 10,100 pound truck (by GVW) that is offered as a chassis cab, van and minibus. In order to expand our U.S. customer base, we plan to introduce a Newton vehicle that is configured as a step van and to further

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expand our Newton platform to accommodate additional applications, such as delivery and transit. However, we may be unable to increase the number of applications for which our Newton platform may be used, which could adversely affect our business, prospects, financial condition and operating results.

We depend on the business of customers that are larger than we are and who may have significant leverage over us in negotiations related to the purchase price of our commercial electric vehicles. If we are forced to sell our vehicles at lower prices than we anticipate, our business, prospects, financial condition and operating results will be adversely affected.

        Our strategy has been, and will continue to be, to pursue business relationships with industry-leading companies that operate substantial, depot-based, medium-duty commercial vehicle fleets. All of these customers are larger than we are, and wield a significant amount of purchasing power. These customers may in the future require us to reduce the purchase prices of our commercial electric vehicles to levels that are lower than we anticipate, which may reduce our gross margins or result in negative gross margins. To compensate for these lower gross margins, we would need to reduce our expenses, which we may be unable to do. If we are forced to sell our vehicles at lower prices than we anticipate and are unable to compensate for these lower prices by reducing our expenses, our business, prospects, financial condition and operating results will be adversely affected.

If we are unable to convince the marketplace that we have sufficient access to liquidity and positive long-term business prospects we may not be able to expand our business and our prospects, financial condition and operating results may be adversely affected.

        Our prospects, financial condition and operating results may be adversely affected if we are unable to establish and maintain confidence about our liquidity and business prospects among customers and within our industry. Our vehicles are 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, customers 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 need access to liquidity and we must maintain confidence among customers, suppliers and other parties in our liquidity and long-term business prospects. We believe that maintaining such confidence may be particularly complicated by factors such as the following:

    our limited operating history;

    our limited revenues and lack of profitability to date;

    uncertainty about the long-term marketplace acceptance of commercial electric vehicles;

    the prospect that we will need access to additional capital to fund our planned operations;

    the breadth of our expansion plans relative to our existing capital base and scope and history of operations; and

    the prospect or actual emergence of direct, sustained competitive pressure from larger, more well-capitalized commercial vehicle makers.

        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, may harm our business and make it more difficult to raise additional funds when needed.

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We have identified material weaknesses in our internal control over financial reporting. If we fail to remediate these weaknesses and maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could negatively impact our operating results, our ability to operate our business and investors' views of us.

        Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs, and is required under Securities and Exchange Commission, or SEC, rules, to be evaluated frequently. In connection with the audit of our financial statements for 2008, 2009 and 2010, we identified material weaknesses in our internal control over financial reporting. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis by the company's internal controls. The material weaknesses for the year ended and as of December 31, 2010 were as follows:

    We did not have an adequate number of personnel in our accounting and finance department with sufficient technical accounting expertise and, as a result, we could not evaluate in a timely manner the accounting implications of our business transactions. For example, our inventory costing system was inadequate to produce a measure of cost of revenue on a U.S. generally accepted accounting principles, or GAAP, basis and we did not properly manage the accrual process related to cutoffs at the end of reporting periods.

    We did not design or maintain effective internal controls over the financial statement close and reporting process in order to ensure the accurate and timely preparation of financial statements in accordance with GAAP. For example, we did not compare our actual results to our budget, we allowed individuals to process journal entries without supervisor approval or review, and we had not established information technology control policies.

    We did not maintain adequate segregation of duties within the accounting and finance department. As result, we had an increased fraud risk. Compensating controls such as budget to actual reviews and a robust reconciliation processes had not been adequately implemented to provide for the timely identification of fraudulent activity.

        We are in the process of taking the necessary steps to remediate the material weaknesses that we identified and have made enhancements to our control procedures; however, the material weaknesses will not be remediated until the necessary controls have been implemented and are operating effectively. We do not know the specific time frame needed to fully remediate the material weaknesses identified.

        We cannot assure you that our efforts to fully remediate these internal control weaknesses will be successful or that similar or different material weaknesses will not develop.

        Implementing any appropriate changes to our internal controls may distract our management and employees, entail substantial costs to implement new, and modify existing, processes and take significant time to complete. Moreover, these changes do not guarantee that we will be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business. In addition, investors' perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price and make it more difficult for us to effectively market and sell our vehicles to new and existing customers. For a more detailed discussion of our material weaknesses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting."

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If we are unable to implement new enterprise-wide accounting, information technology and other systems, our growth, profitability and operating results may be adversely affected.

        Following our acquisition of Smith UK on January 1, 2011, we began the process of upgrading and implementing accounting, information technology and other systems enterprise-wide, which we expect will be completed by the end of 2011. Our new systems 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. For example, shortly after we began our upgrade process, our new information technology system experienced successive failures, which delayed our close process for our quarter ended June 30, 2011. Among the risks associated with developing, improving and expanding our core systems is supply chain disruption, which may affect our ability to obtain supplies when needed or to deliver vehicles to our customers. There are no assurances that our expanded systems will be fully or effectively implemented on a timely basis, if at all, or that we will not experience additional system failures in the future. If we do not successfully implement our new enterprise-wide systems, our operations may be disrupted and our operating results could be harmed.

The inability of certain of our customers to obtain credit on commercially reasonable terms may adversely affect our growth prospects.

        While most of our current customers are large, well-established companies with significant purchasing power, many of our potential smaller and medium-sized customers may need to rely on credit or leasing arrangements to gain access to our vehicles. Unlike certain of our competitors who provide credit or leasing services for the purchase of their diesel-powered vehicles, we do not provide such financial services, which could adversely affect our revenues and market share in the commercial vehicle market. Furthermore, if leasing solutions for battery packs are not available to our customers on favorable terms when required, these customers may not be able to reduce the capital cost of purchasing our vehicles as we expect and our business, prospects and financial condition could be adversely affected.

If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or adequately address competitive challenges.

        We may experience periods of significant growth as demand for commercial electric vehicles accelerates. Our growth may place a significant strain on our managerial, administrative, operational, financial, information technology and other resources. Expanding a global organization and managing a geographically dispersed workforce will require substantial management effort and significant additional investment in our infrastructure. We will be required to continue to improve our operational, financial and management controls and our reporting procedures, and we may not be able to do so effectively. If we are unable to manage our growth effectively, our ability to execute our business plan, maintain high levels of service and address competitive challenges will be adversely affected, which, in turn, will adversely affect our business, prospects, financial condition and operating results.

Our ability to compete could be harmed if we are unable to attract and retain key employees.

        There is increasing competition for talented individuals with specialized knowledge of electric vehicles and this competition affects our ability to hire and retain key employees. The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our commercial electric vehicles and services, and negatively impact our business, prospects and operating results. In particular, we are highly dependent on the services of our President and Chief Executive Officer and our Chief Technology Officer and Senior Vice President. Both of these executives are subject to employment agreements, but these agreements do not provide for any specific employment term. Our future growth and success depend upon our ability to attract and retain our executive officers and other key technology, production, sales, service and support personnel. Any

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failure to do so could adversely impact our business, prospects, financial condition and operating results.

Members of our management team and board of directors are new to the company, to the electric vehicle industry and to leading a U.S. publicly-traded company, and the execution of our business plan and development strategy could be seriously harmed if the integration of our management team or board is not successful or our management team or board does not adapt to the demands of managing a public company.

        Our business and prospects could be seriously harmed if the integration of our management team or board of directors is not successful. We expect that it will take time for our management team and for our board of directors to coalesce and function with optimal efficiency, and it is too early to predict whether this integration will be successful. Since late 2010, we have experienced significant changes in our senior management team and our current senior management team has only limited experience working together as a group. Specifically, three of the seven members of our senior management team have joined us since November 2010 and none of these new executives have any experience in the electric vehicle industry. Our Chief Financial Officer and our Vice President of Human Resources and Administration are the only two members of our senior management team that have served in senior roles at U.S. publicly-traded companies. Furthermore, two of our six directors joined the board in November 2011. This lack of public company experience and of long-term experience working together on both the senior management and board levels and limited experience in the electric vehicle industry may adversely impact our management team's ability to quickly and efficiently respond to problems and effectively manage our business and our board's ability to provide effective guidance to and oversight of management.

The demand for commercial electric vehicles depends, in part, on the continuation of current trends resulting from dependence on fossil fuels. Extended periods of low diesel or other petroleum-based fuel prices could adversely affect demand for our vehicles, which would adversely affect our business, prospects, financial condition and operating results.

        We believe that much of the present and projected demand for commercial electric vehicles results from concerns about volatility in the cost of petroleum-based fuel, the dependency of the United States on oil from unstable or hostile countries, government regulations and economic incentives promoting fuel efficiency and alternative forms of energy, as well as the belief that climate change results in part from the burning of fossil fuels. If the cost of petroleum-based fuel decreased significantly, the outlook for the long-term supply of oil to the United States improved, the government eliminated or modified its regulations or economic incentives related to fuel efficiency and alternative forms of energy, or if there is a change in the perception that the burning of fossil fuels negatively impacts the environment, the demand for commercial electric vehicles could be reduced, and our business and revenue may be harmed.

        Diesel and other petroleum-based fuel prices have been extremely volatile, and we believe this continuing volatility will persist. Lower diesel or other petroleum-based fuel prices over extended periods of time may lower the perception in government and the private sector that cheaper, more readily available energy alternatives should be developed and produced. If diesel or other petroleum-based fuel prices remain at deflated levels for extended periods of time, the demand for commercial electric vehicles may decrease, which would have an adverse effect on our business, prospects, financial condition and operating results.

We face risks associated with our international operations, including unfavorable regulatory, political, tax and labor conditions, which could harm our business.

        We face risks associated with our existing international operations, including possible unfavorable regulatory, political, tax and labor conditions, which could harm our business. We expect these risks to increase as we expand our international operations. These risks may increase our costs, impact our

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ability to sell our commercial electric vehicles and require significant management attention. These risks may include:

    conforming our vehicles to various international regulatory requirements where our vehicles are sold, an undertaking referred to as homologation;

    difficulty in staffing and managing foreign operations;

    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;

    fluctuations in foreign currency exchange rates and interest rates, including risks related to any interest rate swap or other hedging activities we may undertake;

    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 and select European countries, increasing the risk of unauthorized and uncompensated use of our technology;

    U.S. and foreign customs and trade restrictions, anti-bribery laws, tariffs and price or exchange controls;

    foreign anti-dumping laws and regulations;

    foreign labor laws, regulations and restrictions;

    preferences of foreign nations for domestically produced vehicles;

    changes in diplomatic and trade relationships;

    political instability, natural disasters, war or events of terrorism; and

    the strength of international economies, particularly those in Europe.

        We also face the risk that our foreign currency denominated liabilities will increase if such foreign currencies strengthen quickly and significantly against the U.S. dollar or the British pound. This risk is particularly acute because we do not currently hedge our foreign currency risk. If the value of the U.S. dollar or the British pound depreciates significantly when compared to other currencies in which our contracts are denominated, our costs will correspondingly increase and our operating results will be adversely affected.

        If we fail to successfully address these risks, our business, prospects, financial condition and operating results could be adversely affected.

If we determine to grow our business through mergers and acquisitions, we may not realize the anticipated benefits of any transactions we enter into, which could adversely affect our business, prospects, financial condition and operating results.

        We currently, and from time to time in the future may, evaluate opportunities to acquire other companies in order to grow our business, secure access to technology we use in our business or vertically integrate our company. To the extent that our future growth includes acquisitions, there are no assurances that we will successfully identify suitable acquisition candidates, consummate such potential acquisitions, integrate any acquired entities or successfully expand into new markets as a result of our acquisitions. Growth through mergers and acquisitions involves business risks, including unforeseen contingent risks or latent business liabilities that may only become apparent after the merger or acquisition is completed. The key success factors of any merger and acquisition activity we may undertake will be seamless integration and effective management of the merged/acquired entity, retention of key personnel, and generating cash flow from synergies in engineering and sourcing, joint sales and marketing efforts, and management of a larger business. If any of these factors fails to

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materialize or if we are unable to manage any of the associated risks successfully, our business, prospects, financial condition and operating results could be adversely affected.

We are subject to substantial regulation, which is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and operating results.

        Our commercial electric vehicles, the sale of motor vehicles in general and the electronic components used in our vehicles are subject to substantial regulation under international, federal, state and local laws. We have incurred, and expect to incur in the future, significant costs in complying with these regulations. Regulations related to the electric vehicle industry and alternative energy currently are evolving and we face risks associated with changes to these regulations. These risks include the following:

    changes to the regulations governing the assembly and transportation of lithium-ion batteries, such as the UN Recommendations on the Safe Transport of Dangerous Goods Model Regulations or regulations adopted by the U.S. Pipeline and Hazardous Materials Safety Administration, or PHMSA, the E.U. Batteries Directive, or the E.U. Directive on the Inland Transport of Dangerous Goods could increase the cost of lithium-ion batteries;

    changes to regulations governing the exportation of our vehicles could increase our costs incurred to deliver products outside of the United States or the United Kingdom or force us to charge higher prices for our exported vehicles;

    revisions in motor carrier safety laws in the United States and Europe to further enhance motor vehicle safety generally and to ensure that electric vehicles achieve levels of safety commensurate with other cars and trucks could increase the costs associated with the component parts and the assembly of our vehicles; and

    revisions in consumer protection laws to ensure that consumers are fully informed of the particular operational characteristics of electric vehicles could increase our costs associated with warning labels or other related customer information dissemination.

        To the extent the laws governing our business and vehicles change, some or all of our vehicles may not comply with applicable international, federal, state or local laws, and certain of the competitive advantages of our vehicles may be reduced or eliminated, which would have an adverse effect on our business. Furthermore, compliance with changing regulations could be burdensome, time consuming, and expensive. To the extent compliance with new regulations is cost prohibitive, our business, prospects, financial condition and operating results will be adversely affected.

Vehicle dealer and distribution laws could adversely affect our ability to sell our commercial electric vehicles.

        Sales of our vehicles are subject to international, state and local vehicle dealer and distribution laws. To the extent such laws prevent us from selling our vehicles to customers located in a particular jurisdiction or require us to retain a local dealer or distributor or establish and maintain a physical presence in a jurisdiction in order to sell vehicles in that jurisdiction, our business, prospects, financial condition and operating results could be adversely affected.

We are subject to various environmental laws and regulations that could impose substantial costs upon us and cause delays in opening our sales, service and assembly facilities.

        We and our operations, both in the United States and abroad, are subject to national, state and/or local environmental laws and regulations, including laws relating to the use, handling, storage, transportation, disposal and human exposure to hazardous substances and wastes. 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. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury and fines and penalties.

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Capital and operating expenses needed to comply with environmental 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.

        Our Kansas City, Missouri production facility previously was operated by third parties, some of whom generated, stored, released, and disposed of hazardous substances at the facility. As a result of historical operations by third parties, the facility has been subject to corrective action under the Resource Conservation and Recovery Act, as amended, or RCRA, since before we occupied a portion of the facility. The facility is subject to deed restrictions in connection with the presence of residual contamination and annual groundwater monitoring is conducted by third-parties pursuant to a RCRA "post-closure" permit issued to American Airlines (a prior occupant) and the City of Kansas City, Missouri (the current property owner).

        Contamination at properties currently or formerly owned and/or operated by us, as well as at properties we will own and/or 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, as amended, or CERCLA, also known as the Superfund law. CERCLA and comparable state laws can impose joint and several liability, without regard to fault, for the full cost of investigating and cleaning up hazardous substances that have been or pose a threat of being released into the environment, for damages to natural resources, and for the costs of certain environmental and health studies. The costs of complying with U.S. and foreign environmental laws and regulations and any claims concerning noncompliance, or liability with respect to contamination in the future, could have an adverse effect on our financial condition or operating results. We may not be able to recover some or any of these costs from insurance. Compliance with these laws also may give rise to unexpected delays in opening our sales, service and assembly facilities, as we may be required to obtain permits and approvals required by environmental laws. For example, the European Union imposes emission limits on and requires permits for manufacturing facilities that may affect our facilities in the United Kingdom and other possible new sales, service and assembly facilities we wish to establish across Europe. Depending on capacity, our new facilities may be subject to the stringent permitting and reporting requirements of the Directive on Integrated Pollution Prevention Control, the European Pollutant Release and Transfer Register, the Solvent Emissions Directive, the Paints Directive and Directive 2010/75/EU on Industrial Emissions, among others. Furthermore, our European production activities and our vehicles and parts that are marketed in the European Union and/or European Economic Area, as well as those of our suppliers, are subject to the registration, evaluation, authorization and restriction procedures of the E.U.'s REACH Regulation for chemicals. Any delays in opening our sales, service and assembly facilities as a result of regulatory challenges could adversely impact our business, prospects and operating results.

        We are exploring arrangements with third parties to reuse battery packs for secondary applications. Currently, if a customer returns a battery pack from one of our vehicles, we return the battery pack to our supplier for disposal. If in the future we are required to dispose of the battery packs used in our vehicles and are unable to secure disposal arrangements with third parties, we may be required to incur significant expenses to dispose of these battery packs in a manner that complies with applicable environmental laws and regulations.

Our business, prospects, financial condition and operating results could be adversely affected if we are unable to secure exclusive, global rights to systems and components we purchase from our key suppliers.

        Our ability to expand our business depends in large part on our ability to obtain exclusive, global rights to the key systems and components we incorporate in our vehicles. For example, in September 2010, we entered into a development, supply and license agreement with Impact Clean Power Technology S.A., formerly Clean Power Technical Solutions Sp. z.o.o., or CPTS, under which CPTS granted us an exclusive, non-transferable, sublicensable license to the technology and know-how related to the battery management system and battery pack assembly that comprises Smith Power for use in

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commercial electric vehicles in the United States, Canada and Mexico. Subject to CPTS's agreement, we have the ability to expand the scope of the license to cover additional territories; however, there are no assurances that we will be able to do so on terms acceptable to us or at all. In the event that we are unable to obtain license rights on acceptable terms for additional territories in which we sell or plan to sell our commercial electric vehicles, any vehicles sold by us in those territories could not include our Smith Power technology. This, in turn, could limit or eliminate our ability to realize the cost savings we expect from our Smith Power technology and reduce the upfront cost of our vehicles sold in these territories.

        Furthermore, our supply agreement with Avia grants us the exclusive right to sell, service and market Avia's chassis and cabs in the electric vehicle market in North America, provided that we meet certain minimum annual purchase requirements under the agreement. We currently expect that we will not meet these minimum purchase requirements for 2011 and, if we do not, we will lose our exclusive rights beginning on January 1, 2012. If we lose our exclusive rights, Avia would be able to sell its chassis and cabs to other electric vehicle manufacturers in North America, including to our competitors, while we would continue to be required to exclusively purchase Avia chassis and cabs for the duration of the supply agreement. If Avia sells the chassis and cabs we use in the Smith Newton to one or more of our competitors, those competitors would receive the benefit of the technological enhancements we have developed with Avia and could produce trucks with a look and feel that is similar to those of our vehicles, which could dilute our brand. There also is some risk that Avia would allocate production capacity to our competitors before allocating capacity to us, which could result in production delays for us.

        If any of the circumstances described above were to occur, our business, prospects, financial condition and operating results could be adversely affected.

Our business will be adversely affected if we are unable to protect our technology from unauthorized use or infringement by third parties.

        Our success depends, at least in part, on our ability to protect our core technology and know-how. To accomplish this, we rely primarily on trade secret protection and employee and third party nondisclosure and non-competition agreements. We also rely on intellectual property licenses, other contractual rights and common law rights to establish and protect our proprietary rights in our technology. We do not own any patents and do not have any patent applications pending with the United States Patent and Trademark Office, or the USPTO, or applicable foreign patent filing offices. We have entered into intellectual property licenses with third parties in order to obtain the intellectual property rights necessary to produce our vehicles, including for the battery management system and battery pack and powertrain that form the basis of our Smith Power and Smith Drive technologies as well as for the wireless data collection system and telemetry hardware that form the basis of our Smith Link technology. We do not have a written agreement with the third-party developer of the message-queuing software component of Smith Link and may not be able to enter into any such agreement on terms acceptable to us or at all. We recently filed applications to register our adopted marks with the USPTO and have filed applications for international trademark registration under the Madrid Protocol and in Canada for the mark "Smith." We also are in the process of filing applications to register our marks in the European Union and other designated countries around the world. We previously relied on common law trademark protections for our adopted marks in the countries in which such protections are available.

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        The protection provided by intellectual property law is and will be important to our future opportunities. However, such laws and other measures we take to protect our intellectual property from use by others may not be effective for various reasons, including the following:

    the costs associated with enforcing our intellectual property rights may make aggressive enforcement impracticable;

    current and future competitors may independently develop similar technology, duplicate our vehicles or design new vehicles in a way that circumvents our intellectual property rights;

    our in-licensed intellectual property rights may be invalidated or terminated, the holders of these intellectual property rights may seek to breach our license arrangements, or the holders of these intellectual property rights may license these rights to current and future competitors without breaching our license arrangements;

    any patent or trademark applications we file may not result in the issuance of patents or trademarks;

    patents, if issued, may not be broad enough to protect our proprietary rights; and

    patents we in the future may be granted may be challenged, invalidated or circumvented because of the pre-existence of similar patented or unpatented intellectual property rights or for other reasons.

        Trade secrets, in particular, are difficult to protect. We rely in part on nondisclosure and non-competition agreements with our employees, contractors, consultants and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Additionally, others may independently discover our trade secrets or independently develop processes or products that are similar or identical to our trade secrets, and courts outside of the United States and United Kingdom may be less willing to protect trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

        Any failure to protect our proprietary rights adequately could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, prospects, financial condition and operating results.

The U.S. federal government's rights under the DOE EV Demonstration Project could adversely affect our business, financial condition and operating results.

        The grant agreement that governs our participation in the DOE's EV Demonstration Project provides that, subject to certain conditions, we may elect to retain title to any inventions conceived of or first actually reduced to practice under or during the performance of the agreement, or subject inventions. We must, however, grant the U.S. federal government a paid-up, nonexclusive, irrevocable, worldwide license to use (or to authorize third parties to use on behalf of the federal government) such subject inventions. The grant agreement also provides the U.S. federal government with unlimited rights in the data first produced in the performance of the grant agreement or delivered to the DOE under the agreement, which include the right to use, disclose, reproduce, prepare derivative works, and distribute copies to the public, in any manner and for any purpose, and to have or permit others to do so. These rights may compromise our ability to protect these inventions and data as trade secrets. Furthermore, the grant agreement requires us to substantially manufacture products that incorporate the subject inventions in the United States, unless we obtain a waiver of this requirement. The federal

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government's intellectual property rights and approval rights over where we manufacture products that incorporate subject inventions could limit our ability to fully exploit the technology created under the EV Demonstration Project and reduce our vehicle production costs, which could adversely affect our business, financial condition and operating results.

We may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and would cause us to incur substantial costs.

        Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to produce, use, develop or sell our vehicles or components, which could make it more difficult for us to operate our business. From time to time, we may receive infringement claims from third parties relating to our vehicles and technologies. In those cases, we intend to investigate the validity of the claims and, if we believe the claims have merit, to respond through licensing or other appropriate actions. If we are determined to have infringed upon a third party's intellectual property rights, we may be required to do one or more of the following:

    cease producing, using, developing or selling vehicles that incorporate the challenged intellectual property;

    pay substantial damages;

    obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; or

    redesign our vehicles.

        In the event of a successful infringement claim against us and our inability to obtain a license to the infringed technology, our business, prospects, financial condition and operating results could be adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs and diversion of resources and management attention.

Our commercial electric vehicles make use of lithium-ion battery cells, which, if not appropriately managed and controlled, on rare occasions have been observed to catch fire or vent smoke and flames. If any such events occur in our commercial electric vehicles, we could face liability for damage or injury, adverse publicity and a potential safety recall, any of which could adversely affect our business, prospects, financial condition and operating results.

        The battery packs in our commercial electric vehicles use lithium-ion cells, which have been used for years in laptop computers and cell phones. On rare occasions, if not appropriately managed and controlled, lithium-ion cells 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 cells. These events also have raised questions about the suitability of these lithium-ion cells for automotive applications. There can be no assurance that a field failure of our battery packs will not occur, which could damage the vehicle or lead to personal injury or death and may subject us to lawsuits. Furthermore, there is some risk of electrocution if individuals who attempt to repair battery packs on our vehicles do not follow applicable maintenance and repair protocols. Any such damage or injury would likely lead to adverse publicity and potentially a safety recall. Any such adverse publicity could adversely affect our business, prospects, financial condition and operating results.

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We may become subject to product liability claims, which could adversely affect our financial condition and liquidity if we are not able to successfully defend or insure against such claims.

        Although we have not been subject to any product liability claims to date, we could become subject to such claims in the future, which could harm our business, prospects, financial condition and operating results. The motor vehicle industry experiences significant product liability claims and we face inherent risk of exposure to claims in the event our vehicles do not perform as expected or malfunction and personal injury or death results. Our risks in this area are particularly pronounced given the limited field experience of our commercial electric vehicles and vehicle technologies. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our commercial electric vehicles and business, which could have an adverse impact on our brand, business, prospects and operating results. We maintain product liability insurance for all of our vehicles with annual limits of $6.0 million on a claims made basis, but there is no assurance that our insurance will be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage, or outside of our coverage, may have an adverse effect on our reputation, business and financial condition. We may not be able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we do face liability for our vehicles and are forced to make a claim under our policy.

Our business may be adversely affected by union activities.

        None of our full-time U.S. employees currently are represented by a labor union, while approximately 17% of our full-time U.K. employees are represented by a labor union. Many manufacturers in the U.S. motor vehicle industry employ unionized workforces, which can result in higher employee costs and increased risk of work stoppages. As we expand our business, there can be no assurances that our employees will not join or form a labor union, more of our U.K. employees will not join our existing labor union or that we will not be required to become a union signatory. We also are directly or indirectly dependent upon companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition or operating results. If a work stoppage occurs, whether at one of our facilities or a supplier's facility, it could delay the production and sale of our commercial electric vehicles and have an adverse effect on our business, prospects, financial condition and operating results.

Our facilities could be damaged or adversely affected as a result of disasters or other unpredictable events. Any prolonged disruption in the operations of our facilities would adversely affect our business, prospects, financial condition and operating results.

        We assemble our electric vehicles in facilities located in Kansas City, Missouri and outside of Newcastle, England. Any prolonged disruption in the operations of our production facilities, whether due to technical or labor difficulties, disruptions in our information systems or communications network, accidents, weather conditions, terrorist activity, natural disaster or otherwise, whether short- or long- term, would adversely affect our business, prospects, financial condition and operating results.

RISKS RELATED TO THIS OFFERING AND OWNERSHIP OF OUR COMMON STOCK

We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our operating results.

        As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting and corporate governance requirements. These requirements include compliance with Section 404 and other

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provisions of the Sarbanes-Oxley Act, as well as SEC and Nasdaq rules. Additionally, our management team will have to adapt to operating a public company. If these requirements divert our management's attention from other business concerns, they could have an adverse effect on our business, prospects, financial condition and operating results. We expect complying with these rules and regulations will substantially increase our legal and financial compliance costs and make some activities more time-consuming and costly. We currently are unable to estimate these costs with any degree of certainty.

        We also expect that it may be more difficult and more expensive for us as a public company to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.

An active, liquid and orderly trading market for our common stock may not develop, and you may not be able to resell your shares at or above the initial public offering price.

        Prior to this offering, there has been no public market for shares of our common stock. The initial public offering price of our common stock will be determined through negotiation with the underwriters, but this price may not necessarily reflect the price at which investors in the market will be willing to buy and sell shares of our common stock following this offering. In the absence of an active trading market for our common stock, investors may not be able to sell their shares of our common stock at or above the initial offering price or at the time they would like to sell.

Our stock price may be volatile, and the market price of our common stock after this offering may drop below the price you pay.

        The market price of our common stock could be subject to significant fluctuations after this offering, and it may decline below the initial public offering price. Market prices for securities of early stage companies have historically been particularly volatile. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. Some of the factors that may cause the market price of our common stock to fluctuate include:

    fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

    fluctuations in our recorded revenue, even during periods of significant sales order activity;

    changes in estimates of our financial results or recommendations by securities analysts;

    failure of any of our vehicles to achieve or maintain market acceptance;

    product liability issues involving our vehicles or our competitors' vehicles;

    changes in market valuations of similar companies;

    success of competitive vehicles or vehicle technologies;

    changes in our capital structure, such as future issuances of securities or the incurrence of debt;

    announcements by us or our competitors of significant services, contracts, acquisitions or strategic alliances;

    regulatory developments in the United States, foreign countries or both;

    litigation involving us, our general industry or both;

    additions or departures of key personnel;

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    investors' general perception of us; and

    changes in general economic, industry and market conditions.

        In addition, if the market for electric vehicle or alternative energy stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or operating results. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

Tanfield beneficially owns a significant amount of our common stock, which may depress the trading price of our common stock or prevent new investors from influencing significant corporate decisions.

        Upon completion of this offering, Tanfield will beneficially own approximately        % of our outstanding shares of common stock, assuming the underwriters do not exercise their over-allotment option, and approximately        % of our outstanding shares of common stock, if the underwriters' over-allotment option is exercised in full. Tanfield's ownership percentage may adversely affect the trading price of our common stock because investors often perceive disadvantages in owning stock in companies that have a significant ownership concentration in a single stockholder or group of stockholders. As a result of its ownership concentration, Tanfield will be able to significantly influence the outcome of all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions. Tanfield's exercise of this influence could have the effect of delaying or preventing a change of control of us or changes in directors or management and will make the approval of certain transactions difficult or impossible without Tanfield's support. Tanfield may sell a portion of its shares in this offering.

A total of            , or        %, of the total outstanding shares of our common stock after the offering are restricted from immediate resale, but may be sold in the public markets in the near future. The large number of shares eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our common stock.

        The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after this offering, and the perception that these sales could occur also may depress the market price of our common stock. We will have                 shares of common stock outstanding after this offering, assuming the underwriters do not exercise their over-allotment option, and                shares of common stock outstanding after this offering, assuming the underwriters exercise their over-allotment option in full. Of these shares, the common stock sold in this offering will be freely tradable in the United States, except for any shares purchased by our "affiliates," as defined in Rule 144 under the Securities Act of 1933. The holders of                shares of our outstanding common stock have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock during the 180-day period (and with respect to Tanfield, which holds                 shares of our outstanding common stock, the 365-day period) beginning on the date of this prospectus, except with the prior written consent each of UBS Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated. After the expiration of the 180-day (or, with respect to Tanfield, 365-day) restricted period, these shares may be sold in the public market in the United States, subject to prior registration in the United States, if required, or reliance upon an exemption from U.S. registration, including, in the case of shares held by affiliates or control persons, compliance with the volume restrictions of Rule 144.

        Subject to the lock-up period discussed above, following the six-month anniversary of the closing of this offering (or with respect to Tanfield, following the 12-month anniversary of the closing of this offering), and after giving effect to the automatic exercise, on a net exercise basis, of the 2011 warrants upon the pricing of this offering, conversion of our Series B preferred stock and Series C preferred into

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common stock immediately prior to the closing of this offering and the                        for                         stock split of our outstanding common stock effected on                        , stockholders owning an aggregate of                shares, or                shares, including shares held by Tanfield, will have rights, subject to certain conditions, to require us to file registration statements with the SEC covering their shares and to include their shares in registration statements that we may file on our own behalf or on behalf of other of our stockholders. In addition, we intend to file a registration statement to register the                shares of our common stock previously issued or reserved for future issuance under our equity compensation plans and agreements. Upon effectiveness of that registration statement, subject to the satisfaction of applicable exercise periods and lock-up agreements with the representatives of the underwriters referred to above,                shares of common stock issued upon exercise of our outstanding stock options will be available for resale in the United States in the open market.

        Sales of our common stock as restrictions end or pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause our stock price to fall and make it more difficult for you to sell shares of our common stock.

Anti-takeover provisions contained in our certificate of incorporation and by-laws and provisions of Delaware law, as well as our stockholder rights plan, could deter a change in control of us.

        Our certificate of incorporation and by-laws, which will be in effect immediately following this offering, Delaware law and our stockholder rights plan contain provisions which could have the effect of rendering more difficult, delaying or preventing an acquisition of us deemed undesirable by our board of directors. Our corporate governance documents include provisions:

    creating a classified board of directors whose members serve staggered three-year terms;

    providing that our directors may be removed by stockholders only for cause;

    authorizing "blank check" preferred stock, which could be issued by our board without stockholder approval and may contain voting, liquidation, dividend and other rights superior to those of our common stock;

    limiting the liability of, and providing indemnification to, our directors and officers;

    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;

    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;

    controlling the procedures for the conduct and scheduling of board and stockholder meetings;

    providing the board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings; and

    requiring the affirmative vote of 75% of our capital stock entitled to vote generally in the election of directors to amend certain of the provisions described above.

        These provisions, alone or together, could delay or prevent hostile takeovers and changes in control of us or changes in our management.

        Our board of directors also has adopted a stockholder rights plan, which will become effective upon the closing of this offering and which could have the effect of discouraging third parties from attempting to acquire us without the prior approval of our board. See "Description of Capital Stock—Anti-Takeover Considerations—Stockholder rights plan" for more information about our stockholder rights plan.

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        As a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations with us without approval of the holders of substantially all of our outstanding common stock.

        Any provision of our certificate of incorporation or by-laws, Delaware law or our stockholder rights plan that has the effect of delaying or deterring a change in control of us 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.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

        The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our outstanding common stock immediately after this offering. Therefore, if you purchase our common stock in this offering, you will incur immediate dilution of $            in net tangible book value per share from the price you paid. Additionally, following this offering, purchasers in this offering will have contributed        % of the total consideration paid by our stockholders to purchase shares of common stock, in exchange for acquiring approximately        % of our total outstanding shares as of June 30, 2011, after giving effect to this offering, the automatic exercise, on a net exercise basis, of the 2011 warrants upon the pricing of this offering, the conversion immediately prior to the closing of this offering of all of the outstanding shares of our Series B preferred stock and Series C preferred stock and the            for            stock split of our outstanding common stock effected on                        . Any exercise of outstanding stock options and/or conversion of Series A debentures into shares of common stock will result in further dilution. See "Dilution" for a further description of the dilution that purchasers in this offering will experience immediately after this offering.

The terms of any indebtedness we incur and any preferred securities that we issue could adversely affect our common stockholders.

        We anticipate that in the future we will enter into credit facilities and incur other indebtedness the terms of which may limit our ability to pay dividends on our common stock. Furthermore, our certificate of incorporation provides our board of directors with the ability to issue up to 5,000,000 shares of preferred stock having rights and preferences determined by our board at the time such preferred stock is issued. Holders of any such preferred stock could rank senior to our common stockholders with respect to the distribution of our assets upon any liquidation of us and the receipt of dividends. Any debt or preferred equity securities that we may issue in the future also may be convertible into shares of our common stock, which would dilute the ownership interests of our common stockholders, perhaps materially. If we were to enter into any such debt facilities or issue any such debt or preferred securities, the rights of our common stockholders may be adversely affected.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they downgrade their recommendations regarding our stock, our stock price and trading volume could decline.

        The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us downgrade their recommendation regarding our stock, or provide more favorable relative recommendations about our competitors, our stock price likely would decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports about us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

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Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

        Our management will have broad discretion over the use of our net proceeds from this offering and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. We expect to use $             million of the net proceeds to us from this offering to redeem $             million in principal amount of our outstanding Series A debentures. We expect the remainder of the net proceeds to us of this offering to be used for general corporate purposes, including working capital and capital expenditures, which may include the opening of our sales, service and assembly facilities and investments in, or acquisitions of, complementary businesses, services or technologies. Our management's investment of these net proceeds may not yield a significant, or any, return. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.

After the completion of this offering, we do not expect to declare any cash dividends in the foreseeable future.

        After the completion of this offering, we do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

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FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements. Forward-looking statements include all statements that are not historical facts, including, without limitation, statements regarding our future financial position, prospects, business strategy, budgets, pending acquisitions, recent acquisitions and divestitures, project costs and plans and objectives for future operations, and statements pertaining to future development activities and costs. The words "estimate," "project," "predict," "contemplate," "continue," "believe," "expect," "anticipate," "potential," "could," "may," "foresee," "plan," "goal," "will," "should" and "intend" and similar expressions will generally identify forward-looking statements.

        These statements involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. Such forward-looking statements are based on assumptions and beliefs that we believe to be reasonable; however, assumed facts almost always vary from actual results, and the differences between assumed facts and actual results can be material, depending upon the circumstances. We cannot assure you that the stated expectation or belief will occur or be achieved or accomplished.

        Our forward-looking statements are expressly qualified by these cautionary statements and any other cautionary statements that may accompany those statements. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as guarantees of future events. With this in mind, you should carefully consider the risks discussed in the "Risk Factors" section of this prospectus and other disclosures about us that are included in this prospectus. The forward-looking statements in this prospectus represent our views only as of the date of this prospectus, and we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this prospectus.

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USE OF PROCEEDS

        We estimate that the net proceeds to us from this offering will be approximately $                  and the net proceeds to the selling stockholders will be approximately $                  , based on an assumed initial public offering price of $          per share (the mid-point of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses.

        We will not receive any proceeds from the sale of shares of common stock by the selling stockholders, including any shares of common stock sold by the selling stockholders in connection with the underwriters' exercise of their over-allotment option, although we will bear the costs, other than underwriting discounts and commissions, associated with the sale of these shares. The selling stockholders include certain of our executive officers and members of our board of directors and entities affiliated with or controlled by them.

        We intend to use $         million of the net proceeds to us from this offering to redeem $         million in principal amount of our outstanding Series A debentures. The Series A debentures bear interest at 10% per annum and mature at various dates in 2014.

        We intend to use the remainder of the net proceeds to us from this offering for capital expenditures, working capital and other general corporate purposes, including the continued development of our technology and establishment of our sales, service and assembly facilities. Such uses may include the continuous development of our Smith Power, Smith Drive and Smith Link technologies, the expansion of our research and development facilities, including for battery testing and powertrain, gearbox and telemetry development, and the development of our current and anticipated vehicle platforms.

        Some of the other principal purposes of this offering are to create a public market for our common stock, increase our visibility in the marketplace and provide liquidity to existing stockholders. A public market for our common stock will facilitate future access to public equity markets and enhance our ability to use our common stock as a means of attracting and retaining key employees and as consideration for strategic transactions. Depending on the future demand for our vehicles and the pace at which we expand our production, sales and service capacity, we may seek to raise additional capital to fund our expansion.

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DIVIDEND POLICY

        We have never declared or paid any cash dividends on our capital stock and do not expect to pay any cash dividends for the foreseeable future. We intend to use future earnings, if any, in the operation and expansion of our business. Payment of future cash dividends, if any, will be at the discretion of our board of directors and subject to compliance with applicable law, and will depend on our financial condition, recent and expected operating results, capital requirements, general business conditions, restrictions imposed by lenders, if any, and such other factors our board of directors may deem relevant.

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CAPITALIZATION

        The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2011:

    on an actual basis; and

    on a pro forma basis to reflect:

    the filing of our certificate of incorporation;

    the conversion of all of our outstanding shares of Series B preferred stock into 4,809,007 shares of our common stock, based on the one-to-one conversion ratio in effect as of June 30, 2011; and

    the      for      stock split of our outstanding common stock effected on                        ; and

    on a pro forma, as adjusted basis to reflect the pro forma adjustments described above, our receipt of the estimated net proceeds to us from this offering, based on an assumed initial public offering price of $            per share (the mid-point of the price range set forth on the cover page of this prospectus) and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and our use of such net proceeds to us as described in "Use of Proceeds."

        The pro forma and pro forma, as adjusted information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the accompanying notes appearing elsewhere in this prospectus.

 
  As of June 30, 2011  
 
  Actual   Pro forma   Pro forma,
as adjusted
 
 
  (unaudited)
(in thousands, except share
and per share data)

 

Cash and cash equivalents

  $ 7,227   $     $    
               

Note payable—Tanfield

  $ 7,750              

Series A debentures, net of discount

  $ 10,031   $          

Series B convertible redeemable preferred stock, $0.001 par value per share; 6,600,000 shares authorized, 4,809,007 shares issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma and pro forma, as adjusted

  $ 56,688              

Stockholders' deficit:

                   
 

Common stock, $0.001 par value per share; 20,000,000 shares authorized, 10,507,929 issued and outstanding, actual; 200,000,000 shares authorized,                    shares issued and outstanding, pro forma; and 200,000,000 shares authorized,                    shares issued and outstanding, pro forma, as adjusted

    11              
 

Preferred stock, $0.001 par value per share; no shares authorized, issued and outstanding, actual; 5,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma, as adjusted

                 
 

Additional paid-in capital

    2,997              
 

Common stock warrant

    23              
 

Accumulated other comprehensive loss

    (2,540 )            
 

Accumulated deficit

    (74,183 )            
 

Total stockholders' (deficit) equity

    (73,692 )            

Total capitalization

  $ 777   $     $    

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        Each $1.00 increase or decrease in the assumed initial public offering price of $            per share (the mid-point of the price range set forth on the cover page of this prospectus) would increase or decrease, as applicable, our pro forma, as adjusted cash and cash equivalents, additional paid-in capital and stockholders' equity by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        The pro forma column and the pro forma, as adjusted column in the table above do not include:

    714,688 shares of our common stock issuable upon the exercise of options outstanding as of June 30, 2011 at a weighted average exercise price of $7.98 per share;

    938,000 shares of our common stock issuable upon the exercise of options issued after June 30, 2011 at a weighted average exercise price of $12.33 per share;

                shares of our common stock issuable upon conversion of $            in principal amount of our outstanding Series A debentures at an assumed conversion price of $            , which is 80% of the mid-point of the price range listed on the cover page of this prospectus;

    726,960 shares of our common stock issuable upon the exercise, on a net exercise basis, of the 2011 warrants at a weighted average exercise price of $12.38 per share;

    the issuance in November 2011 of shares of our Series C preferred stock and the conversion of such shares into 2,431,170 shares of our common stock, based on a one-to-one conversion ratio; and

    3,000,000 shares of our common stock reserved for future issuance under our 2012 Incentive Plan, which will become effective in connection with the consummation of this offering.

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DILUTION

        If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per share of our common stock after this offering. Our pro forma net tangible book value as of June 30, 2011 was $         million, or $            per share of our common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the total number of shares of our common stock outstanding, after giving effect to the automatic conversion of all of the outstanding shares of our Series B preferred stock into common stock immediately prior to the closing of this offering and the            for            stock split of our outstanding common stock effected on                        .

        After giving effect to the sale by us of                  shares of our common stock in this offering at an assumed initial public offering price of $            per share, which is the mid-point of the price range listed on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of June 30, 2011 would have been approximately $         million, or $            per share of our common stock. This amount represents an immediate increase in our pro forma net tangible book value of $            per share to our existing stockholders and an immediate dilution in our pro forma net tangible book value of $            per share to new investors purchasing shares of our common stock in this offering at the initial public offering price.

        The following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share

        $    
 

Pro forma net tangible book value per share as of June 30, 2011

  $          
 

Increase per share attributable to this offering

             
             

Pro forma net tangible book value per share after this offering

        $    

Dilution per share to new investors

       
$
 
             

        An initial public offering price of $            per share, which is the bottom of the price range listed on the cover page of this prospectus, would decrease our pro forma net tangible book value per share after this offering by approximately $            and would decrease dilution per share to new investors by approximately $            , assuming that the number of shares offered by us, as listed on the cover page of this prospectus, remains the same. Additionally, to the extent any outstanding options are exercised, new investors will experience further dilution.

        An initial public offering price of $            per share, which is the top of the price range listed on the cover page of this prospectus, would increase our pro forma net tangible book value per share after this offering by approximately $            and would increase dilution per share to new investors by approximately $            , assuming that the number of shares offered by us, as listed on the cover page of this prospectus, remains the same.

        If the underwriters exercise their over-allotment option in full, the pro forma net tangible book value per share after this offering will increase to $            per share, representing an immediate increase to existing stockholders of $            per share and an immediate dilution of $            per share to new investors. If any shares are issued upon exercise of outstanding options, you will experience further dilution.

        The following table summarizes, as of June 30, 2011, the number of shares purchased or to be purchased from us, the total consideration paid or to be paid to us, and the average price per share paid or to be paid to us by existing stockholders and new investors purchasing shares of our common stock in this offering at an assumed initial public offering price of $            per share, which is the

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mid-point of the price range listed on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table below shows, new investors purchasing shares of our common stock in this offering will pay an average price per share substantially higher than our existing stockholders paid.

 
  Shares Purchased   Total Consideration    
 
 
  Average Price
Per Share
 
 
  Number   Percent   Amount   Percent  

Existing stockholders

            % $         % $    

New investors

                               

Total

         
%

$
   
%

$
 
                         

        The percentage of shares purchased from us by existing stockholders is based on                  shares of our common stock outstanding as of June 30, 2011, after giving effect to the automatic conversion of all of the outstanding shares of our Series B preferred stock into common stock immediately prior to the closing of this offering and the      for       stock split of our outstanding common stock effected on                        . This number excludes:

    714,688 shares of our common stock issuable upon the exercise of options outstanding as of June 30, 2011 at a weighted average exercise price of $7.98 per share;

    938,000 shares of our common stock issuable upon the exercise of options issued after June 30, 2011 at a weighted average exercise price of $12.33 per share;

                      shares of our common stock issuable upon conversion of $            in principal amount of our outstanding Series A debentures at an assumed conversion price of $            , which is 80% of the mid-point of the price range listed on the cover page of this prospectus;

    726,960 shares of our common stock issuable upon the exercise, on a net exercise basis, of the 2011 warrants at a weighted average exercise price of $12.38 per share; and

    the issuance in November 2011 of shares of our Series C preferred stock and the conversion of such shares into 2,431,170 shares of our common stock, based on a one-to-one conversion ratio; and

    3,000,000 shares of our common stock reserved for future issuance under our 2012 Incentive Plan, which will become effective in connection with the consummation of this offering.

        If all of our Series A debentures had been converted to shares of common stock (using the if-converted method), assuming a conversion price of $            , which is 80% of the mid-point of the price range listed on the cover page of this prospectus, and all of our outstanding stock options had been exercised (using the treasury stock method), in each case, as of June 30, 2011, our pro forma net tangible book value as of June 30, 2011 would have been approximately $         million, or $            per share of our common stock, and the pro forma net tangible book value after giving effect to this offering would have been $            per share, representing dilution in our pro forma net tangible book value per share to new investors of $            .

        The sale of                  shares of our common stock to be sold by the selling stockholders in this offering will reduce the number of shares of our common stock held by existing stockholders to                  , or        % of the total shares outstanding, and will increase the number of shares of our common stock held by new investors to                  , or         % of the total shares outstanding.

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SELECTED HISTORICAL FINANCIAL DATA

        The following selected historical financial data should be read together with our financial statements and the accompanying notes appearing elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected historical financial data in this section is not intended to replace our historical financial statements and the accompanying notes. Our historical results are not necessarily indicative of our future results.

        We derived the statement of operations data for 2008, 2009 and 2010 and the balance sheet data as of December 31, 2009 and 2010 from our audited financial statements appearing elsewhere in this prospectus. The statement of operations data for the six months ended June 30, 2010 and 2011 and the balance sheet data as of June 30, 2011 are derived from our unaudited interim financial statements appearing elsewhere in this prospectus. The balance sheet data as of December 31, 2008 is unaudited and has been derived from accounting records of Tanfield that are not included elsewhere in this prospectus. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly our financial position as of June 30, 2011 and results of operations for the six months ended June 30, 2010 and 2011. Operating results for the six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

        We completed the acquisition of Smith UK on January 1, 2011. As a result of the conclusion that Smith and Smith UK were under common control for the historical periods, their results have been combined for the 2009 and 2010 periods. All results subsequent to the acquisition on January 1, 2011 have been consolidated. The balance sheet data with respect to Smith UK as of December 31, 2008, 2009 and 2010 and the statement of operations data for the periods then ended have been derived from Tanfield's accounting records as of and for such periods. Our historical combined financial statements may not reflect what our financial position, results of operations and cash flows would have been had we operated as a separate, standalone company without the shared resources of Tanfield in the predecessor periods.

        The selected historical financial data as of and for Smith UK's fiscal years ended December 31, 2007 and 2006 has been omitted because it is not available without the expenditure of unreasonable effort and expense. A combination of factors results in our inability to provide the 2007 and 2006 selected balance sheet and statement of operations information without unreasonable effort and expense. These factors include:

    Smith UK was part of Tanfield prior to January 2011;

    Tanfield did not prepare stand-alone financial statements for Smith UK for the years ended December 31, 2007 and 2006 and there was no requirement to complete such as part of the sale to us;

    Tanfield did not prepare separate trial balances and related entries for Smith UK for the years ended December 31, 2007 and 2006, which would be required in order to prepare financial statements for Smith UK from which selected financial data could be derived for those years;

    Tanfield's 2007 and 2006 financial information was prepared to comply with International Financial Reporting Standards rather than GAAP;

    due to the conversion to new accounting systems during 2007 and 2008, information to support the development of GAAP basis financial information, as well as supplemental information required to make informed judgments related to accounting estimates, for 2006 and 2007, is not available without unreasonable effort and expense;

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    we are not in a position to independently ascertain whether the information necessary to calculate the carve-out financial information continues to be available from Tanfield and Tanfield is under no obligation to provide us with such information; and

    we believe the omission of the 2007 and 2006 selected financial data does not have a material impact on the understanding of our results of operations, financial condition, liquidity and operating trends.

 
  Years ended December 31,   Six Months ended
June 30,
 
 
  2010   2009   2008   2011   2010  
 
  (in thousands, except share and per share amounts)
 

Combined and Consolidated Statement of Operations Data:

                               

Revenue

                               
   

Vehicle(1)

  $ 23,827   $ 8,223   $ 14,166   $ 31,930   $ 9,633  
   

Service and repairs(2)

    11,767     14,631     18,208     5,672     6,191  
                       
     

Total revenue

    35,594     22,854     32,374     37,602     15,824  
                       

Cost of revenue

                               
   

Vehicle

    33,117     13,370     21,671     40,035     12,335  
   

Service and repairs

    12,175     14,421     18,124     5,945     6,165  
                       
     

Total cost of revenue

    45,292     27,791     39,795     45,980     18,500  
                       
 

Gross loss

    (9,698 )   (4,937 )   (7,421 )   (8,378 )   (2,676 )

Research and development expense

    2,550     1,126     9,478     1,457     830  

Selling, general and administrative

    13,307     10,697     5,411     7,031     4,360  
                       
   

Total operating expenses

    15,857     11,823     14,889     8,488     5,190  

Operating loss

   
(25,555

)
 
(16,760

)
 
(22,310

)
 
(16,866

)
 
(7,866

)

Other expense (income)

                               
   

Interest expense

    3,699     696         1,881     1,225  
   

Government grant reimbursements

    (688 )   (18 )       (205 )   (315 )
   

Loss on extinguishment of debt

                971      
   

Other expense, net

    1,698     60         1,763     745  
                       

Net loss

  $ (30,264 ) $ (17,498 ) $ (22,310 ) $ (21,276 ) $ (9,521 )
                       

Net loss per share of common stock, basic and diluted(3)(4)

  $ (2.95 ) $ (1.89 )   N/A   $ (2.05 ) $ (0.94 )
                       

Shares used in computing net loss per share of common stock, basic and diluted(3)(4)

    10,258     9,271     N/A     10,381     10,133  
                       

Pro forma net loss per share of common stock, basic and diluted(3)(5)

  $     $     $     $     $    
                       

Shares used in computing pro forma net loss per share of common stock, basic and diluted(3)(5)

                               
                       

(1)
Vehicle revenue consists of revenues derived primarily from the sale of our Newton and Edison vehicles. Vehicle revenue also includes payments received by us in connection with Smith Europe's, and previously Smith UK's, distribution of forklifts.

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(2)
Service and repairs revenue consists of revenues derived from the provision of fleet maintenance and repair services. These services, which are primarily provided in the United Kingdom, include services for traditional diesel-fueled vehicles as well as for electric vehicles.

(3)
Our basic net loss per share of common stock is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share of common stock is computed by dividing the net loss by the weighted-average number of shares of common stock and, if dilutive, potential shares of common stock outstanding during the period. Potential shares of common stock consist of stock options and warrants to purchase shares of our common stock (using the treasury stock method) and the conversion of our Series B preferred stock, 12% senior unsecured convertible promissory bridge notes and Series A debentures (using the if-converted method). As we generated a loss in each period, the potential shares of common stock would have reduced our per share loss (antidilutive) and, therefore, were excluded from the calculation.

(4)
Smith Electric Vehicles Corp. was not incorporated until January 2009. Smith UK, the predecessor entity, was, in part, a division of Tanfield and, in part, a wholly-owned subsidiary of Tanfield and did not have separately issued stock. As a result, we are unable to calculate loss per share of common stock for the year ended December 31, 2008. See Note 1, "Nature of Business and Presentation" to the combined and consolidated financial statements included elsewhere in this prospectus for information regarding our acquisition of Smith UK.

(5)
Pro forma net loss per share of common stock, basic and diluted includes shares of common stock issuable upon the automatic conversion of all of the outstanding shares of our Series B preferred stock into shares of our common stock, at a one-to-one conversion ratio, immediately prior to the closing of this offering, and the      for      stock split of our outstanding common stock effected on                        .

 
  December 31,    
 
 
  June 30,
2011
 
 
  2010   2009   2008  
 
  (in thousands)
 

Combined and Consolidated Balance Sheet Data:

                         

Cash and cash equivalents

  $ 1,000   $ 1,183   $ 280   $ 7,227  

Property, plant and equipment, net

    3,611     2,912     2,501     4,747  

Working (deficit) capital

    (29,304 )   (548 )   1,550     (2,918 )

Total assets

    30,323     16,334     11,804     38,394  

Bridge notes, net of discount

    13,055              

Bridge note detachable warrants

    3,039              

Note payable—Tanfield

                7,750  

Series A debentures, net of discount

    9,859     8,930         10,031  

Series A conversion option

    2,612     1,340         3,052  

Series B convertible redeemable preferred stock

                56,688  

Common stock warrant

    23     37         23  

Total stockholders' equity (deficit)

    (42,431 )   (12,621 )   2,523     (73,692 )

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion of our financial condition and results of operations should be read together with the financial statements and related notes that are included elsewhere in this prospectus. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" or in other parts of this prospectus.

OVERVIEW

        We design, produce, sell and service zero-emission commercial electric vehicles designed to be a superior performing alternative to traditional diesel trucks due to higher efficiency and lower total cost of ownership. We believe we are the only vehicle manufacturer selling to major commercial fleets in the United States and Europe that exclusively produces electric vehicles. We focus on the production and sale of commercial electric vehicles that primarily address the needs of medium-duty commercial fleet operators with depot-based operations and predictable daily service routes of up to 120 miles.

        We currently design, produce and sell two vehicle platforms, the Smith Newton and the Smith Edison, both of which can be configured for multiple applications. We sell the Smith Newton in the United States, the United Kingdom and in selected international markets. We currently sell the Smith Edison in the United Kingdom and in selected international markets. We are developing and plan to introduce in early 2012 a Newton model that is configured as a step van, and intend to introduce in mid-2012 a Newton that will have a GVW of approximately 33,000 pounds to meet the needs of delivery and transit customers. We intend to continue to develop and introduce a next generation Smith Edison in mid-2012. Our planned future vehicle offerings will be based on our Newton and Edison vehicle platforms and will utilize our Smith Drive, Smith Power and Smith Link technologies.

        Smith UK launched the Smith Newton in December 2006 and began U.K. production of the Newton in January 2007. Smith UK also launched and began U.K. production of the Smith Edison in 2007. Smith Electric Vehicles Corp., or Smith US, was incorporated in Delaware on January 13, 2009. We obtained our U.S. production facility in March 2009, began production in July 2009 and sold our first Newton in the United States in December 2009.

        From August 5, 2009 through December 31, 2010, Smith US held a license from Tanfield under which we had the exclusive right in North America to use the Smith brand and Tanfield's zero-emission vehicle know-how and technology to develop, test, manufacture, market, distribute, sell and service electric vehicles. We acquired Smith UK effective January 1, 2011 and now own the Smith brand and the intellectual property rights we previously had licensed from Tanfield.

        Our corporate headquarters are located in Kansas City, Missouri and we have production, research and development, sales and service facilities in Kansas City, Missouri and outside of Newcastle, England. Our two production facilities provide us with an aggregate of approximately 165,100 square feet of production space. Long term, we intend to expand our vehicle assembly operations through a network of sales, service and assembly facilities, rather than significantly increasing the production capabilities of our existing facilities. We plan to open our sales, service and assembly facilities in targeted urban areas in the United States and abroad, beginning with facilities on the east and west coasts of the United States. We expect to open the first of these facilities in New York City in the first half of 2012. Once a sales, service and assembly facility is open in a geographic market, vehicle assembly for sales made in that geographic market generally would be performed at that facility.

        We recently completed the transition of the powertrain and battery system used in the U.S.-produced Smith Newton to our Smith Drive and Smith Power technologies. In order to facilitate this

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transition, we temporarily suspended U.S. production of the Newton in August 2011 and re-tooled our Kansas City production facility. We began limited production of our second generation Newton, which includes our Smith Drive, Smith Power and Smith Link technologies, in November 2011 and are in the process of ramping production and integrating new vendors into our supply chain.

        As a result of the transition to our next generation technologies and the accompanying suspension of U.S. production, we sold 21 vehicles in the U.S. during the third quarter of 2011, compared with sales of 84 vehicles and 91 vehicles during the first and second quarters of 2011, respectively. Although the decline in sales resulted in a concurrent decline in material costs, our other operating and administrative costs were stable or increasing. For example, to maintain our investment in training of our assembled workforce, we determined not to make reductions in our assembly workforce during this period. We also continued to expand our research and development function to support future technology enhancements and build out our administrative workforce to position the company for future growth. To manage cash, we worked with vendors to extend our payment terms and, as a result, our consolidated accounts payable increased between June 30, 2011 and October 31, 2011. As a result of these activities, our consolidated cash position declined substantially from the $7.2 million of cash at June 30, 2011. To increase liquidity, we issued $30.0 million of 2011 convertible notes and warrants in October 2011 to increase our cash position. All of the 2011 convertible notes converted into Series C preferred stock in November 2011. See "—Liquidity and Capital Resources—Cash flows—Cash flows provided by financing activities" for additional information about our 2011 convertible notes financing and our Series C preferred stock issuance.

        Smith US was a development stage enterprise from January 13, 2009, the date of Smith US's inception, through September 30, 2009. During this period, we devoted all of our efforts to securing and establishing a new business, and our planned principal operations had not commenced. Smith US was no longer a development stage enterprise and first recognized revenues during the fourth quarter of 2009.

        We operate on a fiscal year that ends on December 31. As of and for the periods prior to December 31, 2010, the financial statements of Smith UK and Smith US are presented on a combined basis. As of and for periods subsequent to January 1, 2011, the financial statements for Smith Europe and Smith US are presented on a consolidated basis. See Note 1, "Nature of Business and Presentation" to the combined and consolidated financial statements included elsewhere in this prospectus. Our combined results of operations, financial position and cash flows may not be indicative of our future performance and do not necessarily reflect what our combined consolidated results of operations, financial position and cash flows would have been had we operated as a separate, standalone entity without the shared resources of Tanfield during the periods presented.

        We operate our business in two reportable segments: (i) Zero Emission Vehicles and (ii) Maintenance Services. See "—Results of Operations" and Note 16, "Information about Segments and Geographic Areas" to the combined and consolidated financial statements included elsewhere in this prospectus for information about our segments.

CONDITIONS IMPACTING OUR BUSINESS

        We believe that the commercial electric vehicle industry is poised for growth due to governmental and popular support for companies that purchase environmentally friendly vehicles, the current emphasis on reducing carbon emissions, the volatility of diesel fuel prices and the policy shift toward energy independence from fossil fuels in the United States and Western Europe. Although these macro-level conditions are favorable and should drive adoption of commercial electric vehicles generally, and our vehicles specifically, there are significant near-term challenges we are working to overcome related to introducing new technology products. We believe that the most significant of these challenges is the limited and under-developed supply chain for many of the key components used in

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commercial electric vehicles, including motors, control electronics units and batteries. The current absence of a well-developed supply chain has led to reliability and quality issues and high vehicle system and component costs, which results in high initial vehicle costs when compared to diesel powered trucks of comparable GVWs, all of which impact customer satisfaction and limit the broader adoption of commercial electric vehicles. To meet these challenges, we recently transitioned our U.S.-produced vehicles, and in 2012 expect to transition our U.K.-produced vehicles, to our Smith Drive and Smith Power technologies, which will allow us to control and expand our supply chain with a goal of enhancing vendor diversity, reliability and quality. In turn, this will enable us to substantially reduce the cost of key components, and thereby reduce both our initial vehicle prices and our vehicle cost of revenue. Furthermore, we expect that our tighter control over product quality will result in decreased service and repairs cost of revenue, as we will incur lower warranty and non-warranty service costs. Combined, these factors should result in enhanced customer satisfaction, deeper and broader customer relationships and increased vehicle sales.

KEY OPERATING METRICS

        Our management uses order backlog, production slots filled and inventory turns as key operating metrics in evaluating our business.

        As of October 31, 2011 we have an order backlog of 120 vehicles. We include in our order backlog vehicles yet to be produced that are subject to binding purchase agreements or written purchase orders we have received. Our order backlog excludes vehicles in inventory awaiting additional modifications or delivery to the end customer. Although the backlog of unfilled orders is one of many indicators of market demand, other factors such as changes in production rates, internal and supplier available capacity, new vehicle introductions and competitive pricing actions may affect point-in-time comparisons.

        We generally manage our production schedule on a rolling six-month forward basis and allocate production slots based on our receipt of binding purchase agreements and purchase orders as well as customers' ordering forecasts. Based on this planning, we have allocated nearly all of our estimated 540 production slots through July 2012, of which approximately 80% reflects U.S. production. Our allocation of production slots based on customers' ordering forecasts does not represent a guarantee that those customers will place orders, that customers will not alter their forecasted delivery dates when placing orders or that orders made will not be cancelled. Nevertheless, we believe that closely monitoring our projected production schedule allows us to better manage our business, including our inventory levels. We expect that our number of available production slots will increase as we transition our supply chain, which will allow us to ramp our production and increase our production capacity.

        Our inventory turnover days for the six months ended June 30, 2011 was approximately 101 days. We calculate inventory turnover as consolidated total revenue for the period divided by average consolidated inventory for the period. We use consolidated total revenue as the numerator as we believe this is a more stable indicator than cost of revenue, which may include period adjustments such as lower of cost or market charges and warranty expense. Average consolidated inventory for the period is calculated as the sum of beginning of period and end of period inventories divided by two. Management believes that inventory turnover is a useful operating metric because it provides insight into our ability to effectively manage our supply chain, purchasing and production planning.

BASIS OF PRESENTATION

Revenue

        Revenue consists of vehicle revenue and service and repairs revenue.

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Vehicle revenue

        We recognize vehicle revenue primarily from the sale of our Newton and Edison vehicles. For the six months ended June 30, 2011, vehicle revenue represented approximately 85% of total revenue, compared with 67%, 36% and 44% for 2010, 2009 and 2008, respectively. We anticipate that vehicle revenue as a percentage of total revenue will continue to increase over the foreseeable future. For the year ended December 31, 2010 and for the six months ended June 30, 2011, four and two of our customers, respectively, collectively accounted for approximately 40% and 62%, respectively, of our total revenue; 60% and 73%, respectively, of our vehicle revenue. Frito-Lay accounted for 66% of our vehicle revenue for the six months ended June 30, 2011. Staples, Inc., Frito-Lay and Sainsbury's accounted for 24%, 14% and 12%, respectively, of our vehicle revenue for the year ended December 30, 2010. Our vehicle sales strategy is focused on industry-leading companies and government entities that operate substantial, well-recognized, medium-duty commercial vehicle fleets and that have the corporate or public commitment and resources to support and sustain the development of the commercial electric vehicle industry. As such, and given the relationships we have established with our existing customers, we anticipate that a significant portion of our vehicle revenue will continue to come from a concentrated group of customers for the foreseeable future.

        Smith UK previously sold and leased and Smith Europe also sells and leases forklifts to customers. During the six months ended June 30, 2011 and the years ended December 31, 2010, 2009 and 2008, we recognized revenue related to the sale and lease of forklifts of approximately $0.8 million, $1.9 million, $2.7 million, and $3.3 million, respectively. See Note 2, "Summary of Significant Accounting Policies" to the combined and consolidated financial statements included elsewhere in this prospectus for a description of our accounting policy related to these transactions. We anticipate that revenue related to the sale and lease of forklifts will continue to be stable or declining over the foreseeable future.

Service and repairs revenue

        Service and repairs revenue is derived from the provision of fleet maintenance and repair services. These services, which are primarily provided in the United Kingdom, include services for traditional diesel-fueled vehicles as well as for electric vehicles. For the six months ended June 30, 2011, service and repairs revenue represented approximately 15% of total revenue, compared with 33%, 64% and 56% for 2010, 2009 and 2008, respectively. Although we anticipate that we will grow our electric vehicle maintenance and repair services, we also anticipate that this growth will be slower than the growth in our vehicle sales and, accordingly, service and repairs revenue will continue to decline as a percent of total revenue over the foreseeable future.

Cost of revenue

        Cost of revenue consists of vehicle cost of revenue and service and repairs cost of revenue.

Vehicle cost of revenue

        Vehicle cost of revenue includes direct material costs, labor costs, and manufacturing overhead. Vehicle cost of revenue also includes estimated warranty expense and charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand. We anticipate that our vehicle cost of revenue will increase as our vehicles sales increase and as we open our sales, service and assembly facilities. However, we expect vehicle cost of revenue to decrease as a percentage of vehicle revenue as we complete our current cost down initiative and transition to our Smith Drive and Smith Power technologies, which will result in increased component-, and decreased systems-, based purchasing.

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Service and repairs cost of revenue

        Service and repairs cost of revenue includes replacement part costs, direct labor costs, and overhead that supports our service activities. Service and repairs cost of revenue also includes charges to provide for obsolete and on-hand inventory in excess of forecasted use, and recognized depreciation expense related to our forklift business. We anticipate that our service and repairs cost of revenue will increase as we expand our electric vehicle maintenance and repair services and open our sales, service and assembly facilities.

Research and development expense

        Research and development expense consists primarily of costs for personnel, third-party contractors, materials and supplies related to the development of new products and the enhancement of existing products. As of September 30, 2011 we had 36 full-time employees engaged in research, development, design and engineering. We expense all of our research and development costs as they are incurred. In the near term, we expect research and development expenses to increase in large part due to increased personnel-related expenses, as we seek to hire additional employees, as well as contract-related expenses as we continue to invest in the development of our products. Reimbursements received from government agencies for research and development expenditures are recorded separately as a component of other expense (income). We anticipate that our research and development expenses will continue to increase in absolute dollars, primarily as a result of the continued development of our Smith Drive, Smith Power and Smith Link technologies, but, over time, will decrease as a percentage of revenue.

Selling, general and administrative expense

        Selling, general and administrative expenses consist primarily of personnel and facility costs related to our marketing, sales, executive, finance, human resources, information technology and legal organizations, as well as litigation settlements and fees for professional and contract services. As of September 30, 2011, we had 37 full-time employees engaged in these functions. We expect general and administrative expenses to increase as we incur additional costs related to operating as a publicly-traded company, including increased audit and legal fees, costs of compliance with securities, corporate governance and other regulations, investor relations expenses and higher insurance premiums, particularly those related to director and officer insurance. We also expect to incur increased costs as we hire personnel and enhance our infrastructure to support the anticipated growth of our business, including in connection with the opening of our sales, service and assembly facilities.

Interest expense

        Interest expense consists primarily of payable-in-kind interest related to convertible debt, the amortization of deferred financing fees, and the amortization of debt discount recognized on issue of convertible debt.

Government grant reimbursements

        We receive reimbursements from government agencies for certain qualified research and development expenditures, primarily under the DOE's EV Demonstration Project and the United Kingdom's national innovation agency programs sponsored by the U.K. Department for Business, Innovation and Skills. As these projects are limited in scope and duration, we have determined the best presentation to assist users of our financial statements in understanding our financial results is to recognize these reimbursements as a component of other expense (income) rather than as a reduction in research and development expense.

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Other expense, net

        Other expense, net consists primarily of fair value adjustments to financial instruments we have issued. Our Series A debentures and 12% senior unsecured convertible promissory bridge notes, which we refer to as our bridge notes, include identifiable and separable derivative financial instruments. These separable financial instruments, consisting primarily of a conversion option, an acceleration option and warrants, are adjusted at each quarter- and year-end to fair value. The adjustment to record the change in each instrument's fair value may result in a either a charge to expense or a credit to income.

Income tax provision

        We are subject to taxes in the United States and the United Kingdom. In the United States, we have incurred net losses since inception and in the United Kingdom we have a history of operating losses. As a result, we do not currently pay tax in the jurisdictions in which we operate. Based on the available information, we concluded it is more likely than not that our deferred tax assets will not be realized and, accordingly, we have recorded a full valuation allowance against all of our deferred tax assets.

Impact of foreign currency translation on reported results

        The functional currency for Smith UK was and for Smith Europe is the British pound. Therefore, the results of Smith UK and Smith Europe's operations are initially recorded in the British pound and, at the end of each period, are translated into U.S. dollars. The combined and consolidated operating results for all periods presented are presented in U.S. dollars, which include the fluctuation of currency translation between the U.S. dollar and the British pound.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

        Our results of operations and financial condition, as reflected in our combined and consolidated financial statements, have been prepared in accordance with accounting principles generally accepted in the United States. As discussed in Note 2, "Summary of Significant Accounting Policies" to our combined and consolidated financial statements included elsewhere in this prospectus, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, our management evaluates its estimates and judgments. We consider our accounting policies related to revenue recognition, allowance for doubtful accounts, inventory valuation, warranty and fair value of financial instruments to be our critical accounting policies. Our management bases its estimates and judgments on relevant facts and circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our most critical accounting policies are described below.

Revenue recognition

        We recognize revenue from the sale of products and provision of services in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition. Accordingly, we recognize revenue when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered and there are no uncertainties regarding customer acceptance; (iii) our price is fixed or determinable; and (iv) collection is reasonably assured. In instances where customer acceptance is required, revenue is either recognized (a) upon shipment when we are able to demonstrate that the customer specific objective criteria have been met or (b) upon the earlier of customer acceptance or

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expiration of the acceptance period. Payments received in advance of work performed are recorded as deferred revenue.

        The majority of our vehicle sales are made pursuant to purchase orders, although we do enter into purchase agreements from time to time. We also enter into both short- and long-term vehicle maintenance agreements. We examine sales contracts to determine if the contract contains a multiple element arrangement, to determine whether the contract contains multiple elements and, if so, to determine if separate units of accounting exist within the arrangement. As of June 30, 2011 and December 31, 2010, we have determined that all sales arrangements should be accounted for as a single unit of accounting.

        Smith UK entered and Smith Europe enters into contracts with customers for the use of forklifts that we have determined to be lease transactions. At inception of these contracts, the customer pays Smith UK or Smith Europe the full value of the forklift. At the end of a specified period, generally five years, the customer is contractually obligated to return the forklift to us and we must pay the customer a residual value that was determined at the inception of the contract. The up-front payment received by Smith UK or Smith Europe from the customer is initially recorded as deferred revenue and subsequently recognized as vehicle revenue on a straight-line basis, net of expected guaranteed repurchase payments, over the life of the contract. Deferred revenue expected to be recognized as revenue more than one year subsequent to the balance sheet date is classified as long-term deferred revenue. We recognize the forklifts as a component of property, plant and equipment throughout the contract term and depreciate the forklifts on a straight-line basis, net of salvage value, over the life of the contract. The recognized depreciation expense is included as a component of cost of revenue in our combined and consolidated statements of operations.

Inventory valuation

        We value our inventories at the lower of cost or market. Cost is computed using standard cost adjusted for purchase price variances, which approximates actual cost on a first-in, first-out basis.

        At each quarter- and year-end, we review inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires us to determine the estimated selling price of our vehicles less the estimated cost to convert inventory on hand into a finished product. Our inventory valuation is based on our current technology and estimates of demand, selling prices and production costs. Unforeseen changes in technology or our estimates of future selling prices or production costs may result in material additional charges. We recorded permanent lower of cost or market adjustments of $3.7 million, $4.6 million, and $4.4 million during for the six months ended June 30, 2011 and for the years ended December 31, 2010 and 2009, respectively.

        At the end of each period, we also review inventory for excess or obsolete items. When inventory on hand for a specific item is determined to be in excess of our demand forecast or no longer used in current production, we permanently reduce the inventory value for those excess or obsolete items to the estimated recoverable amount.

Warranty

        We estimate and accrue our warranty and additional service action costs for each vehicle at the time of sale. Because we currently have only two vehicle platforms and little claims experience, estimates are principally based on assumptions regarding the warranty costs. In addition, the number and magnitude of additional service actions expected to be approved, and actual additional service actions, are taken into consideration in our assumptions. Significant vehicle components, such as batteries, cab, chassis and motors are covered under warranty by our suppliers. These vendor warranties generally extend from one to five years from the date of our purchase of the component. If a component fails within the warranty period, we have the right to return the component part to the

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vendor and the vendor will either repair and return the component part, supply us with a new component part at no charge, or authorize us to offset the value against our open payable to the vendor. The vendor warranty generally does not cover labor, travel or other costs we may incur when we provide the service action for our customer. We recognize warranty claim recoveries as an adjustment to our warranty reserve when collection is reasonably assured. Future experience may result in changes in our assumptions, which could materially affect net income. Warranty reserves amounted to $7.9 million, $6.7 million and $5.3 million as of June 30, 2011 and December 31, 2010 and 2009, respectively. Adjustments to warranty reserves are recorded as a component of vehicle cost of revenue.

Fair value of financial instruments

        We have issued financial instruments that either contain embedded conversion or acceleration options or include detachable warrants. At the date we issue a financial instrument, we measure and recognize as an asset or liability the fair value of that financial instrument. Changes in the fair value of these financial instruments in subsequent periods are recognized as a component of our net loss and the carrying value of the asset or liability is adjusted accordingly. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Under applicable accounting guidance, a fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable, that may be used to measure fair value:

    Level 1—Quoted prices in active markets for identical assets or liabilities.

    Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

    Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

        We have financial instruments, consisting of a Series A conversion option liability, a bridge note acceleration option asset, and a bridge note detachable warrant, that are valued based on Level 3 unobservable inputs that are supported by little or no market activity. As further described in Note 3, "Fair Value of Financial Instruments" to our combined and consolidated financial statements included elsewhere in this prospectus, our measurement of fair value requires significant management assumptions and estimates. The recognized loss for change in fair value for these instruments, in the aggregate, was $1.7 million both for the six months ended June 30, 2011 and the year ended December 31, 2010, and is included as a component of other expense, net.

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RESULTS OF OPERATIONS

Six months ended June 30, 2011 compared to six months ended June 30, 2010

        An analysis of changes in key items included in the statements of operations for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 follows. Amounts have been rounded. Percent of revenues, dollar change and percent change are all calculated based on amounts presented in this table (dollar amounts in millions):

 
  Six Months ended
June 30, 2011
  Six Months ended
June 30, 2010
   
   
 
 
  Amount   % of
Revenues
  Amount   % of
Revenues
  $ Change   % Change  

Revenue

                                     

Vehicle

  $ 31.9     84.8 % $ 9.6     60.8 % $ 22.3     232 %

Service and repairs

    5.7     15.2     6.2     39.2     (0.5 )   (8 )
 

Total revenue

    37.6     100.0     15.8     100.0     21.8     138  

Significant Expenses

                                     

Cost of revenue—vehicle

    40.0     106.4     12.3     77.8     27.7     225  

Cost of revenue—service and repairs

    6.0     16.0     6.2     39.2     (0.2 )   (3 )
 

Total cost of revenue

    46.0     122.3     18.5     117.1     27.5     149  

Research and development

    1.5     4.0     0.8     5.1     0.7     88  

Selling, general and administrative

    7.0     18.6     4.4     27.8     2.6     59  

Interest expense

    1.9     5.1     1.2     7.6     0.7     58  

Government grant reimbursements

    (0.2 )   (0.5 )   (0.3 )   (1.9 )   0.1     33  

Loss on extinguishment of debt

    1.0     2.7             1.0     n/m  

Other expense, net

    1.8     4.8     0.7     4.4     1.1     157  

Provision (benefit) for income taxes

                         

Key Measurements

                                     

Gross loss

    (8.4 )   (22.3 )   (2.7 )   (17.1 )   (5.7 )   (211 )

Operating loss

    (16.9 )   (44.9 )   (7.9 )   (50.0 )   (9.0 )   (114 )

Net loss

    (21.3 )   (56.6 )   (9.5 )   (60.1 )   (11.8 )   (124 )

Impact of foreign currency translation on reported results

        Based on the average exchange rate for each year, the British pound was stable versus the U.S. dollar during the six months ended June 30, 2011 compared with the same period of the prior year and, as a result, had a negligible impact on our operating results discussed below.

Discussion of operating results

        Revenue:    Revenue increased $21.8 million, or 138%, to $37.6 million during the six months ended June 30, 2011 from $15.8 million during the same period of the prior year.

        Vehicle revenue increased $22.3 million, or 232%, to $31.9 million for the six months ended June 30, 2011 from $9.6 million for the six months ended June 30, 2010. Our U.S. sales increased $21.5 million, to $25.4 million for the six months ended June 30, 2011 compared to $3.9 million during the comparable period of 2010. Although we had commenced U.S. operations by the beginning of 2010, our focus during the six months ended June 30, 2010 was on developing our own processes and supply chain and on developing customer leads. As a result, we had relatively few sales during this period.

        Service and repairs revenue decreased $0.5 million, or 8%, to $5.7 million for the six months ended June 30, 2011 from $6.2 million for the same period of the prior year. The decrease in service and repairs revenue is primarily the result of the ongoing economic downturn. In response to the continued downturn, some fleet managers have continued the trend of bringing service in-house to better control costs. As a result of this trend, our service and repairs revenue mix has continued to shift from fixed service contracts that primarily cover scheduled maintenance activities, which have more

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predictable volume but lower margins, towards cost plus work not under a service contract that has less predictable volume but higher margins.

        Cost of revenue:    Cost of revenue increased $27.5 million, or 149%, to $46.0 million during the six months ended June 30, 2011 from $18.5 million for the same period of the prior year.

        Vehicle cost of revenue increased $27.7 million, or 225%, to $40.0 million for the six months ended June 30, 2011 from $12.3 million for the same period of the prior year. This increase is primarily the result of a $26.4 million increase in U.S. vehicle cost of revenue to support the increase in U.S. vehicle revenue.

        Service and repairs cost of revenue decreased $0.2 million, or 3%, to $6.0 million for the six months ended June 30, 2011 from $6.2 million for the same period of the prior year. The decrease in service and repair cost of revenue is primarily the result of the $0.5 million decrease in service and repairs revenue, partially offset by continuing fixed costs.

        Gross loss:    Gross loss increased $5.7 million, to $8.4 million for the six months ended June 30, 2011 from $2.7 million for the same period of the prior year. Gross loss as a percentage of revenue was 22.3% for the six months ended June 30, 2011 compared to 17.1% for the six months ended June 30, 2010. This increase in gross loss is primarily attributable to a $4.9 million increase in the U.S. gross loss as we increased sales, which currently have a negative gross margin.

        Research and development expense:    Research and development expense increased $0.7 million, or approximately 88%, to $1.5 million for the six months ended June 30, 2011 from $0.8 million for the same period of the prior year. The increase in research and development expense is primarily related to our efforts to develop our second generation technology related to battery management (Smith Power), drive train components (Smith Drive), and chargers.

        Selling, general and administrative expense:    Selling, general and administrative expense increased $2.6 million, or approximately 59%, to $7.0 million for the six months ended June 30, 2011 from $4.4 million for the same period of the prior year. The increase in selling, general and administrative expense was primarily the result of a $2.2 million increase in compensation expense combined with a $0.7 million increase in legal and professional fees. The increase in compensation expense is primarily related to an increase in staffing required to support our growth in the U.S. combined with a $0.6 million increase in share-based and incentive compensation. The increase in legal and professional fees is primarily related to defending litigation. See Note 13, "Commitments and Contingencies" to the combined and consolidated financial statements included elsewhere in this prospectus.

        Interest expense:    Interest expense for the six months ended June 30, 2011 was $1.9 million, an increase of $0.7 million, or approximately 58%, from $1.2 million of interest expense for the same period of the prior year. From March 2009 through December 2009, we placed approximately $10.4 million of Series A debentures and in January 2010 we placed approximately $0.7 million of Series A debentures. As of June 30, 2011, all $11.1 million of Series A debentures were outstanding. From March 2010 through October 2010 we placed, in increments, approximately $14.2 million of bridge notes. These placements are discussed in additional detail under "—Liquidity and Capital Resources" below. The $0.7 million increase in interest expense results from an increase in our average outstanding debt balance combined with increased accretion and amortization of debt discount and deferred financing fees, respectively.

        Government grant reimbursements:    Government grant reimbursements for the first six months of 2011 was $0.2 million compared to $0.3 million for the first six months of 2010. The $0.2 million of government grant reimbursements received during the six months ended June 30, 2011 are primarily comprised of balances received under the United Kingdom's national innovation agency programs sponsored by the U.K. Department for Business, Innovation and Skills. The $0.3 million during the six

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months ended June 30, 2010 is primarily comprised of qualified expenses that we incurred, submitted and were reimbursed for under the DOE EV Demonstration Project.

        Loss on extinguishment of debt:    Loss on extinguishment of debt was $1.0 million for the six months ended June 30, 2011 as the result of conversion of the outstanding convertible promissory bridge notes to convertible redeemable preferred stock. During the six months ended June 30, 2010, there was no loss on extinguishment of debt.

        Other expense, net:    Other expense, net for the six months ended June 30, 2011 was $1.8 million, an increase of $1.1 million from $0.7 million for the same period of the prior year. The increase in other expense, net is primarily the result of a $0.9 million increase in net expense recognized related to the change in the fair value of discrete derivatives related to our convertible debt.

        Income tax benefit:    We incurred operating losses in both of the primary jurisdictions in which we have operations. As we have a history of operating losses in both jurisdictions, we have fully reserved our net operating loss deferred tax assets. As a result, we did not record any income tax benefit during the six months ended June 30, 2011 and 2010.

        Net loss:    Net loss for the six months ended June 30, 2011 was $21.3 million, an increase of $11.8 million from the $9.5 million net loss for the same period of the prior year. The increase in net loss was primarily a result of our geographic expansion into the U.S., which resulted in increased sales with a negative gross margin and an increase in infrastructure and financing expense to support these operations.

Segment results

        We have two reportable segments: Zero Emission Vehicles and Maintenance Services. See Note 16, "Information about Segments and Geographic Areas" to the combined and consolidated financial statements included elsewhere in this prospectus for a description of how we calculate segment income (loss).

        The Zero Emission Vehicles segment represents the sale of vehicles we assemble. Intersegment revenues are primarily comprised of parts sold to the maintenance services segment. Zero Emission Vehicles segment revenue, including both external customers and intersegment revenue, increased by approximately $22.3 million to $31.6 million, for the six months ended June 30, 2011 from $9.3 million for the six months ended June 30, 2010. Zero Emission Vehicles segment loss, which excludes corporate expenses and certain other unallocated costs, increased approximately $7.7 million, to $12.6 million, for the six months ended June 30, 2011 from $4.9 million for the six months ended June 30, 2010. Zero Emission Vehicles segment revenue increased during the first six months of 2011 compared to the comparable period of 2010 primarily because, although we had commenced U.S. operations by the beginning of 2010, our focus during the six months ended June 30, 2010 was on developing our own processes and supply chain and on developing customer leads. As a result, our U.S. sales increased by $21.5 million, to $25.4 million, for the six months ended June 30, 2011 from $3.9 million for the comparable period of 2010. The increase in Zero Emission Vehicles segment loss is due primarily to our expansion in the United States, which resulted in an increase in segment gross loss as our cost of revenue exceeded our revenue, an increase in segment research and development expense related to development of our Smith Power and Smith Drive technologies, and an increase in selling, general and administrative costs to support the ongoing geographical expansion of our operations.

        The Maintenance Services segment represents our activities in connection with the servicing of diesel and electric engines for customers in the United Kingdom and the sale and lease of forklifts. Intersegment revenues are primarily comprised of the provision of warranty-related repairs and service by the Maintenance Services segment on behalf of the Zero Emission Vehicles segment. Maintenance Services segment revenue, including both external customers and intersegment revenue, decreased $1.0 million, to $8.0 million, for the six months ended June 30, 2011 from $9.0 million for the six

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months ended June 30, 2010, and Maintenance Services segment loss, which excludes corporate expenses and certain other unallocated costs, increased by $0.4 million, to $0.5 million, for the six months ended June 30, 2011 compared to $0.1 million for the six months ended June 30, 2010. The decrease in Maintenance Services revenue is primarily the result of the continued downturn in the economy, which resulted in the continuation of the trend of fleet managers bringing service in-house to better control costs. Maintenance Services segment income (loss) approximated breakeven for the six months ended June 30, 2011 and 2010.

Year ended December 31, 2010 compared to year ended December 31, 2009

        An analysis of changes in key items included in the statements of operations for the year ended December 31, 2010 compared to the year ended December 31, 2009 follows. Amounts have been rounded. Percent of revenues, dollar change and percent change are all calculated based on amounts presented in this table (dollar amounts in millions):

 
  Year ended
December 31, 2010
  Year ended
December 31, 2009
   
   
 
 
  Amount   % of
Revenues
  Amount   % of
Revenues
  $ Change   % Change  

Revenue

                                     

Vehicle

  $ 23.8     66.9 % $ 8.2     36.0 % $ 15.6     190 %

Service and repairs

    11.8     33.1     14.6     64.0     (2.8 )   (19 )
 

Total revenue

    35.6     100.0     22.8     100.0     12.8     56  

Significant Expenses

                                     

Cost of revenue—vehicle

    33.1     93.0     13.4     58.8     19.7     147  

Cost of revenue—service and repairs

    12.2     34.3     14.4     63.2     (2.2 )   (15 )
   

Total cost of revenue

    45.3     127.2     27.8     121.9     17.5     63  

Research and development

    2.6     7.3     1.1     4.8     1.5     136  

Selling, general and administrative

    13.3     37.4     10.7     46.9     2.6     24  

Interest expense

    3.7     10.4     0.7     3.1     3.0     429  

Government grant reimbursements

    (0.7 )   (2.0 )           (0.7 )   n/m  

Other expense, net

    1.7     4.8     0.1     0.4     1.6     n/m  

Provision (benefit) for income taxes

                         

Key Measurements

                                     

Gross loss

    (9.7 )   (27.2 )   (4.9 )   (21.5 )   (4.8 )   (98 )

Operating loss

    (25.6 )   (71.9 )   (16.8 )   (73.7 )   (8.8 )   (52 )

Net loss

    (30.3 )   (85.1 )   (17.5 )   (76.8 )   (12.8 )   (73 )

Impact of foreign currency translation on reported results

        Based on the average exchange rate for each year, the British pound was stable versus the U.S. dollar during 2010 compared with 2009 and, as a result, had a negligible impact on our operating results discussed below.

Discussion of operating results

        Our vehicle revenues and vehicle cost of revenue for 2010 and 2009 were attributable to sales of the Smith Newton in the United States and sales of the Smith Edison and Smith Newton, and sales and leases of forklifts, in the United Kingdom.

        Revenue:    Revenue increased $12.8 million, or 56%, to $35.6 million for 2010 compared with $22.8 million for 2009. As explained below, the increase in revenue is primarily the result of an increase in vehicle sales partially offset by a decrease in service and repairs revenue.

        Vehicle revenue increased $15.6 million, or 190%, to $23.8 million for 2010 from $8.2 million for 2009. Vehicle revenue increased in 2010 compared to 2009 primarily because we did not commence operations in the U.S. until the fourth quarter of 2009. As a result, our U.S. sales increased by

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$13.7 million, from $0.2 million in 2009 to $13.9 million in 2010. The remainder of the increase is primarily due to a full year of sales of our lower GVW vehicle, the Smith Edison. During 2008, we invested in research and development activities to improve the range of this vehicle. The improved-range vehicle was introduced in 2009 and had a full year of sales in 2010.

        Service and repairs revenue decreased $2.8 million, or 19%, to $11.8 million for 2010 from $14.6 million for 2009. The decrease in service and repairs revenue is primarily the result of the downturn in the economy, which resulted in some fleet managers bringing service in-house to better control costs. As a result of this trend, our service and repairs revenue mix has shifted from fixed service contracts that primarily cover scheduled maintenance activities, which have more predictable volume but lower margins, towards cost plus work not under a service contract that has less predictable volume but higher margins.

        Cost of revenue:    Cost of revenue increased $17.5 million, or 63%, to $45.3 million for 2010 from $27.8 million for 2009.

        Vehicle cost of revenue increased $19.7 million, or 147%, to $33.1 million for 2010 from $13.4 million for 2009. Vehicle cost of revenue increased in 2010 compared to 2009 primarily because we did not commence operations in the U.S. until the fourth quarter of 2009. As a result of the full year of U.S. operations in 2010, our vehicle cost of revenue increased by approximately $21.8 million. This increase was partially offset by a $4.1 million decrease in U.K.-related warranty expense. Warranty expense during 2009 was significantly higher during 2010 due to technology issues related to Newton vehicles sold in the United Kingdom. These technology issues were resolved by 2010.

        Service and repairs cost of revenue decreased $2.2 million, or 15%, to $12.2 million for 2010 from $14.4 million for 2009. The decrease in service and repairs cost of revenue is primarily related to the $2.8 million decrease in service and repairs revenue, partially offset by continuing fixed costs.

        Gross loss:    Gross loss increased $4.8 million, to $9.7 million, for 2010, from $4.9 million for 2009. Gross loss as a percentage of revenue was 27.2% for 2010 compared to 21.5% for 2009. Our gross loss increased approximately $8.1 million primarily as the result of additional expenses as Smith US transitioned from a start-up company to an operating company. This increase was partially offset by the $4.1 million decrease in U.K.-related warranty expense discussed above. For 2010 and 2009, we had a negative gross margin and, as a result, our gross loss increased as our revenues increased.

        Research and development expense:    Research and development expense increased $1.5 million, or approximately 136%, to $2.6 million for 2010, from $1.1 million for 2009. The increase in research and development expense is primarily related to our efforts during 2010 to develop our second generation technology related to battery management (Smith Power), drive train components (Smith Drive), and chargers, as well as to develop our telemetry technology (Smith Link) to monitor, in real-time, key vehicle performance measures.

        Selling, general and administrative expense:    Selling, general and administrative expense increased $2.6 million, or approximately 24%, to $13.3 million for 2010, from $10.7 million for 2009. The increase in selling, general and administrative expense was primarily the result of a $4.0 million charge for the settlement of litigation and a $1.3 million increase in compensation expense as we increased our U.S. administrative staff to support the initiation of U.S. operating activities. These increases were partly offset by decreases in share-based compensation expense of $1.6 million, start-up costs of $0.5 million, and professional services of $0.4 million. The $1.6 million decrease in share-based compensation expense is primarily due to approximately $1.5 million of expense recognized in 2009 upon the grant of common stock to our then current Chairman in December 2009 upon his appointment to that position. The $0.5 million decrease in start-up costs represents costs incurred during our 2009 initiation stage that were not repeated during 2010. The $0.4 million decrease in professional services expenses is due primarily to the decrease in legal and consulting expenses incurred during our inception period and the addition of staff to assume responsibilities previously handled by consultants.

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        Interest expense:    Interest expense for 2010 was $3.7 million, an increase of $3.0 million, or approximately 429%, from $0.7 million of interest expense for 2009. From March 2009 through December 2009, we placed approximately $10.4 million of Series A debentures and in January 2010 we placed approximately $0.7 million of Series A debentures. From March 2010 through October 2010 we placed, in increments, approximately $14.2 million of bridge notes. As of December 31, 2010, all $11.1 million of Series A debentures and $14.2 million of bridge notes were outstanding. These placements are discussed in additional detail under "—Liquidity and Capital Resources" below. The $3.0 million increase in interest expense is primarily the result of a $1.5 million increase in payable-in-kind interest, due primarily to an increase in our average outstanding debt balance in 2010 compared with 2009, a $1.2 million increase resulting from accretion of debt discount, and a $0.4 million increase resulting from amortization of deferred financing fees.

        Government grant reimbursements:    Government grant reimbursements was $0.7 million for 2010 compared to less than $0.1 million for 2009. Government grant reimbursements for 2010 is primarily comprised of the $0.5 million reimbursement of qualified research and development expenditures under the DOE EV Demonstration Project combined with approximately $0.2 million of reimbursements under the United Kingdom's national innovation agency programs. We had minimal expenses that qualified for reimbursement during 2009. See Note 2, "Summary of Significant Accounting Policies—Government Grant Reimbursements" to the combined and consolidated financial statements included elsewhere in this prospectus for additional information regarding the accounting for this grant income.

        Other expense, net:    Other expense, net for 2010 was $1.7 million compared to $0.1 million for 2009. The increase in other expense, net, is primarily the result of an increase in the fair value of embedded derivative related to our convertible debt. Other expense, net is primarily comprised of the change in the fair value of embedded derivatives related to our convertible debt.

        Income tax benefit:    We incurred operating losses in both of the primary jurisdictions in which we have operations. As we have a history of operating losses in both jurisdictions, we have fully reserved our net operating loss deferred tax assets. As a result, we did not record any income tax benefit during either 2010 or 2009.

        Net loss:    Net loss for 2010 was $30.3 million, an increase of $12.8 million from the $17.5 million net loss for 2009. The increase in net loss was primarily a result of the $4.8 million increase in our gross loss, the $4.0 million accrual to settle pending litigation, the $3.0 million increase in interest expense, the $1.6 million increase in expense related to the change in fair value of derivative financial instruments, and the $1.5 million increase in research and development expense, partially offset by the $1.4 million decrease in share-based compensation expense.

Segment results

        Zero Emission Vehicles segment revenue, including both external customers and intersegment revenue, increased by approximately $16.1 million, to $23.6 million for 2010 from $7.5 million for 2009. Zero Emission Vehicles segment loss increased $4.9 million, to $15.1 million, for 2010 from $10.2 million for 2009. Zero Emission Vehicles segment revenue increased in 2010 compared to 2009 primarily because we did not commence operations in the U.S. until the fourth quarter of 2009. As a result, our U.S. sales increased by $13.7 million, from $0.2 million in 2009 to $13.9 million in 2010. The remainder of the increase is primarily due to a full year of sales of our lower GVW vehicle, the Smith Edison that was introduced in the United Kingdom during 2009. The increase in Zero Emission Vehicles segment loss is due primarily to our expansion into the United States, which resulted in an approximate $8.1 million increase in segment gross loss as our cost of revenue exceeded our revenue, an approximate $1.3 million increase in segment research and development expense related to development of our Smith Power and Smith Drive technologies, and an approximate $0.7 million increase in segment selling, general and administrative costs to support the geographical expansion of our operations, and was partially offset by a $4.1 million decrease in U.K.-related warranty expense.

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        Maintenance Services segment revenue, including both external customers and intersegment revenue, decreased $4.4 million, to $16.6 million, for 2010 from $21.0 million for 2009, and Maintenance Services segment income (loss) decreased $1.6 million, to a $(0.7) million loss, for 2010 compared to $0.9 million of income for 2009. The decrease in maintenance services external revenues is primarily the result of the downturn in the economy, which resulted in some fleet managers bringing service in-house to better control costs. Additionally, the sale and lease of forklifts decreased as we focused our efforts and resources on our zero emission vehicle segment. The $1.6 million decrease in maintenance services segment income (loss) relates primarily to a decrease in fixed service contracts combined with the decrease in forklift sales and leases.

Year ended December 31, 2009 compared to year ended December 31, 2008

        An analysis of changes in key items included in the statements of operations for the year ended December 31, 2009 compared to December 31, 2008 follows. Amounts have been rounded. Percent of revenues, dollar change and percent change are all calculated based on amounts presented in this table (dollar amounts in millions):

 
  Year ended
December 31, 2009
  Year ended
December 31, 2008
   
   
 
 
  Amount   % of
Revenues
  Amount   % of
Revenues
  $ Change   % Change  

Revenue

                                     

Vehicle

  $ 8.2     36.0 % $ 14.2     43.8 % $ (6.0 )   (42 )%

Service and repairs

    14.6     64.0     18.2     56.2     (3.6 )   (20 )
 

Total revenues

    22.8     100.0     32.4     100.0     (9.6 )   (30 )

Significant Expenses

                                     

Cost of revenue—vehicle

    13.4     58.8     21.7     67.0     (8.3 )   (38 )

Cost of revenue—service and repairs

    14.4     63.2     18.1     55.9     (3.7 )   (20 )
 

Total cost of revenue

    27.8     121.9     39.8     122.8     (12.0 )   (30 )

Research and development

    1.1     4.8     9.5     29.3     (8.4 )   (88 )

Selling, general and administrative

    10.7     46.9     5.4     16.7     5.3     98  

Interest expense

    0.7     3.1             0.7     n/m  

Provision (benefit) for income taxes

                         

Other expense, net

    0.1     0.4             0.1     n/m  

Key Measurements

                                     

Gross loss

    (4.9 )   (21.5 )   (7.4 )   (22.8 )   2.5     34  

Operating loss

    (16.8 )   (73.7 )   (22.3 )   (68.8 )   5.5     25  

Net loss

    (17.5 )   (76.8 )   (22.3 )   (68.8 )   4.8     22  

Impact of foreign currency translation on reported results

        Based on the average exchange rate for each year, the British pound was weaker versus the U.S. dollar during the year ended December 31, 2009 compared with the year ended December 31, 2008. The amount of the impact, when necessary for an understanding of our operating results, is included in the discussion below.

Discussion of operating results

        Our vehicle revenues and vehicle cost of revenue for 2009 and 2008 were primarily attributable to sales of the Smith Edison, the Smith Newton and sale and lease of forklifts in the United Kingdom. Smith US did not commence operations until January 2009 and recognized the sale of only one vehicle during 2009.

        Revenue:    Revenue decreased $9.6 million, or 30%, to $22.8 million for 2009 compared with $32.4 million for 2008. Approximately $4.2 million of this decrease was attributable to fluctuations in

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the British pound versus the U.S. dollar. The remaining decrease of $5.4 million is primarily the result of weaker vehicle sales as explained below.

        Vehicle revenue, exclusive of the currency impact, decreased approximately $4.5 million, or approximately 32%, from 2008 to 2009. During 2008, we had significant orders from two customers that replaced existing vehicles that were taken out of service with new electric vehicles. During 2009, the economic downturn resulted in vehicle operators, including the two customers that had made significant purchases during 2008, to continuing to hold and maintain their existing fleets. In addition, forklift sales and leases decreased as we reduced our bulk purchases and subsequent sale and lease of forklifts to focus on our Smith Newton and Smith Edison vehicles.

        Service and repairs revenue, exclusive of the currency impact, decreased approximately $0.9 million, or approximately 5%, from 2008 to 2009. This decrease is primarily the result of the downturn in the economy, which resulted in a loss of service contracts as some fleet managers initiated the process of bringing service in-house to better control costs.

        Cost of revenue:    Cost of revenue decreased $12.0 million, or 30%, to $27.8 million for 2009 compared with $39.8 million for 2008. Approximately $4.8 million of this decrease was attributable to fluctuations in the British pound versus the U.S. dollar. The remaining decrease of $7.2 million is explained below.

        Vehicle cost of revenue, exclusive of the currency impact, decreased approximately $6.2 million, or approximately 29%, from 2009 to 2008. This decrease is primarily the result of the decline in vehicle sales partly increased by an increase in our warranty expense. During 2009, we identified a problem with the batteries of Newton vehicles built in the United Kingdom. As a result, we increased our warranty expense by approximately $3.2 million.

        Service and repairs cost of revenue, exclusive of the currency impact, decreased approximately $1.0 million, or approximately 6%, from 2009 to 2008. This decrease is primarily related to the decrease in service and repairs revenue in 2009 compared to 2008.

        Gross loss:    Gross loss decreased $2.5 million, or approximately 34%, to $4.9 million for 2009 compared with $7.4 million for 2008. Gross loss as a percentage of revenues was 21.5% during 2009 compared with 22.8% during 2008. The decrease in gross loss primarily results from a decline in vehicle revenue as we were selling vehicles at a negative margin, partially offset by an increase in warranty expense.

        Research and development expense:    Research and development expense decreased $8.4 million, or approximately 88%, to $1.1 million for 2009 compared with $9.5 million for 2008. Costs incurred during 2009 included general research and development and costs related to preparing the Smith Newton for sale in North America. Costs incurred during 2008 were primarily related to the development of improved technology for our Edison vehicle in Europe, including improved drivelines, development of lithium-ion batteries, and improved battery charging.

        Selling, general and administrative expense:    Selling, general and administrative expense increased $5.3 million, or approximately 98%, to $10.7 million for 2009 compared with $5.4 million for 2008. The increase is primarily the result of the January 2009 inception of Smith US. Smith US incurred $6.1 million of selling, general and administrative during 2009. The combined selling, general and administrative costs of Smith US and Smith UK for 2009 included increases in share-based compensation of $1.7 million, management fees of $1.2 million, professional services of $1.1 million, salaries and other compensation of $1.0 million, marketing expenses of $0.8 million, and start-up costs of $0.5 million. The $1.7 million increase in share-based compensation expense is primarily comprised of approximately $1.5 million of expense related to a grant of common stock to our then current Chairman in December 2009 upon his appointment to that position and $0.2 million representing services contributed by our founding shareholders upon inception in exchange for shares of common stock. The $1.2 million increase in management fees represents an increase in various pass-through and

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shared corporate expenses charged by Tanfield to Smith UK. The increase in professional fees primarily relates to fees paid to consultants engaged and legal fees incurred during the inception period and certain other general legal expenses. The $1.0 million increase in compensation costs relate primarily to the increase in our U.S. administrative staff to support the initiation of U.S. operating activities. The $0.8 million increase in marketing expenses primarily relates to costs incurred to promote the Smith brand in the U.S. The $0.5 million of general start-up costs include production and related facility and overhead costs incurred by Smith US during the 2009 inception period. The increase in Smith US selling, general and administrative expense was partially offset by a $0.8 million decrease in selling, general and administrative expense due to the impact of foreign currency translation.

        Interest expense:    Interest expense for 2009 was $0.7 million. We did not incur any interest expense during 2008. The 2009 interest expense is the result of Smith US's debt financing to support its start-up activities.

        Income tax benefit:    We incurred operating losses in both of the primary jurisdictions in which we have operations. As we have a history of operating losses in both jurisdictions, we have fully reserved our net operating loss deferred tax assets. As a result, we did not record any income tax benefit during either 2009 or 2008.

        Net loss:    Net loss for 2009 was $17.5 million, a decrease of $4.8 million from the 2008 net loss of $22.3 million. Approximately $1.6 million of this decrease was attributable to fluctuations in the British pound versus the U.S. dollar. The remainder of the decrease in net loss is primarily the result of a decrease in research and development spending as a result of the completion of our 2008 project to improve the technology for the Edison and a decrease in inventory adjustments, partially offset by an increase in selling, general and administrative expenses primarily due to the initiation of operations in the United States.

Segment results

        Zero Emission Vehicles segment revenue, including both external customers and intersegment revenue, decreased by $1.5 million, to $7.5 million, for 2009 from $9.0 million for 2008. Zero Emission Vehicles segment loss decreased $10.2 million, to $10.2 million, for 2009 from $20.4 million for 2008. The decrease in segment revenue is primarily the result of an approximate $1.4 million currency impact due to the weakening of the British pound versus the U.S. dollar during 2009 as compared with 2008. The decrease in segment external revenue, which was largely offset by an increase in intersegment revenue, was primarily the result of the economic downturn which resulted in vehicle operators, including the two customers that had made significant purchases during 2008, continuing to hold and maintain their existing fleets. The $10.2 million decrease in Zero Emission Vehicles segment loss is primarily the result of an $8.4 million decrease in research and development spending combined with an approximate $1.9 million currency impact due to the weakening of the British pound versus the U.S. dollar during 2009 as compared with 2008. During 2008, we incurred significant research and development costs primarily related to the development of improved technology for our Edison vehicle in Europe, including improved drivelines, development of lithium-ion batteries, and improved battery charging.

        Maintenance Services segment revenue, including both external customers and intersegment revenue, decreased $3.3 million, to $21.0 million for 2009 from $24.3 million for 2008, and Maintenance Services segment income had a slight decrease of $0.1 million, to $0.9 million, for 2009 compared to $1.0 million for 2008. The decrease in segment revenue is primarily the result of an approximate $3.9 million currency impact due to the weakening of the British pound versus the U.S. dollar during 2009 as compared with 2008. An increase in intersegment revenue was largely offset by a decline in external revenue, primarily attributable to a decrease in forklift sales and leases as we reduced our sale and lease of forklifts to focus on our Smith Newton and Smith Edison vehicles. The $0.1 million decrease in the Maintenance Services segment income relates primarily to the foreign currency impact of the weakening of the British pound versus the U.S. dollar during 2009 as compared with 2008.

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LIQUIDITY AND CAPITAL RESOURCES

Sources of liquidity

        Our primary source of cash from January 1, 2009 through June 30, 2011 has been the proceeds from the sale of our Series A debentures, our bridge notes and our Series B preferred stock. During this period, our financing activities have provided us with aggregate net proceeds of approximately $61.8 million. For 2008, 2009 and 2010, the primary source of cash for Smith UK was cash made available by Tanfield. Cash flows related to the Series A debentures, our bridge notes and our Series B preferred stock are discussed below in "—Cash flows—Cash flow provided by financing activities."

        As of June 30, 2011, we had $7.2 million in cash and cash equivalents. On September 14, 2011, we issued the senior note for cash proceeds of $2.8 million. Between October 7, 2011 and October 31, 2011, we issued and sold the 2011 convertible notes and 2011 warrants for aggregate proceeds of $30.0 million, consisting of cash proceeds of $25.2 million, cancellation of the $2.8 million of indebtedness under the senior note and the conversion of approximately $2.0 million of the outstanding balance of the purchase price we owe to Tanfield in connection with the acquisition of our Smith UK business.

        During the six months ended June 30, 2011 and during each of the three years ended December 31, 2010, our operating activities used significant cash. We expect that our cash and cash equivalents, together with the proceeds of the issuance of the senior note and our 2011 convertible notes and our anticipated cash from operating activities, will be sufficient to fund our operating activities, including our planned capital expenditures and research and development activities, through the first quarter of 2012. As such, we plan to pursue additional funding through one or more private placements of our equity or debt securities. We cannot be certain that additional funds will be available to us on favorable terms or at all.

Cash flows

Summary of cash flows (in thousands)

 
  Years ended December 31,   Six Months ended
June 30,
 
 
  2010   2009   2008   2011   2010  

Net cash used in operating activities

  $ (12,274 ) $ (12,573 ) $ (26,406 ) $ (22,473 ) $ (5,820 )

Net cash used in investing activities

    (1,662 )   (804 )   (524 )   (1,707 )   (812 )

Net cash provided by financing activities

    13,679     14,254     27,239     30,349     5,687  

Cash flows used in operating activities

        Our net cash used in operating activities totaled $22.5 million for the six months ended June 30, 2011. Our net cash used in operating activities for the six months ended June 30, 2011 was comprised primarily of our net loss of $21.3 million combined with $13.2 million of cash used by changes in operating assets and liabilities, partially offset by $12.0 million of non-cash charges and credits.

        The non-cash charges and credits primarily consist of the provision for inventory impairment of $3.7 million, primarily as the result of our lower of cost or market adjustment, a $2.7 million warranty charge, primarily related to our increased vehicle revenue, a $1.7 million charge related to the change in fair value of financial instruments, the $1.0 million loss on debt extinguishment, a $0.9 million increase in accrued paid-in-kind interest, and $0.7 million depreciation and amortization. See Note 9, "Convertible Debt and Convertible Redeemable Preferred Stock" to the combined and consolidated financial statements included elsewhere in this prospectus for additional information regarding the calculation of the fair value of the financial instruments and the accretion of the discount on convertible debt.

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        The most significant changes in operating assets and liabilities were the $4.2 million use of cash related to an increase in receivables and the $6.7 million use of cash related to the decrease in deferred revenue. Receivables will fluctuate from period to period based on the timing of sales. Deferred revenue decreased as we recognized revenue related to the vehicles for which we received cash prior to December 31, 2010 but completed and transferred title subsequent to December 31, 2010.

        Our net cash used in operating activities totaled $12.3 million for the year ended December 31, 2010. Our net cash used in operating activities for 2010 was comprised primarily of our net loss of $30.3 million, partially offset by approximately $13.6 million of non-cash charges and credits and $4.4 million of cash generated by changes in operating assets and liabilities. The non-cash charges and credits primarily consist of the provision for inventory impairment of $4.6 million, primarily as the result of our lower of cost or market adjustment, the provision for warranty reserve of $2.1 million, accrued paid-in-kind interest on our Series A debentures and bridge notes of $1.9 million, the change in the fair value of financial instruments of $1.7 million, accretion of the discount on convertible debt of $1.3 million, and depreciation and amortization of $1.1 million. See Note 9, "Convertible Debt and Convertible Preferred Stock" to the combined and consolidated financial statements included elsewhere in this prospectus for additional information regarding the calculation of the fair value of the financial instruments and the accretion of the discount on convertible debt. The most significant changes in operating assets and liabilities were the $16.1 million use of cash related to the increase of our inventories, partially offset by $12.0 million of cash generated by the increase in accounts payable, $6.1 million of cash generated by the increase in deferred revenue, and a $3.1 million increase in other current liabilities. The inventory use of cash and the source of cash related to accounts payable were primarily to build inventory in the U.S. to support the growth in operating activities. The source of cash related to deferred revenue is primarily due to the timing of payments received in advance of vehicle delivery. The source of cash related to other liabilities, which will fluctuate from period to period based on the timing of underlying transactions, is comprised primarily the result of a $4.0 million accrual for the anticipated settlement of a lawsuit. See Note 13, "Commitments and Contingencies" to the combined and consolidated financial statements included elsewhere in this prospectus for additional information regarding this lawsuit.

        Our net cash used in operating activities totaled $12.6 million for the year ended December 31, 2009. Our net cash used in operating activities for 2009 was comprised primarily of our net loss of $17.5 million combined with $7.3 million of cash used to support changes in operating assets and liabilities, partially offset by $12.3 million of non-cash charges and credits. The non-cash charges and credits primarily consist of the provision for warranty charge of $4.6 million, provision for inventory impairment of $4.4 million, primarily as the result of our lower of cost or market adjustment, share-based compensation of $1.5 million, depreciation and amortization of $0.8 million, and accrued paid-in-kind interest on our Series A debentures of $0.4 million. The most significant changes in operating assets and liabilities were the $5.4 million use of cash related to the increase of our inventories, primarily related the initiation of operating activities in the United States, the $1.1 million use of cash related to other current liabilities, primarily the result of payments related to existing warranty liabilities, and the $0.9 million use of cash related to other current assets, primarily as a result of advanced shipment deposits to suppliers related to commencing operations in the United States.

        Our net cash used in operating activities totaled $26.4 million for the year ended December 31, 2008. Our net cash used in operating activities for 2008 was comprised primarily of our net loss of $22.3 million combined with $12.4 million of cash used to support changes in operating assets and liabilities, partially offset by $8.3 million of non-cash charges and credits. The non-cash charges and credits primarily consist of the provision for inventory impairment of $5.9 million, primarily as the result of our lower of cost or market adjustment, provision for warranty charge of $1.4 million, and depreciation and amortization of $0.8 million. The most significant changes in operating assets and liabilities were the $11.3 million use of cash related to the increase of our inventories, the $4.2 million

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use of cash related to accounts payable, and the $2.6 million source of cash related to trade accounts receivable. During the last part of 2007 and early 2008, our business was improving and, accordingly, we had an increase in receivables at the end of 2007 and we were building inventory in 2007 and early 2008 to support anticipated growth. The increase in inventory also increased our payables as of the end of 2007. We did not realize our anticipated growth during 2008 and sales weakened during the last half of the year. As a result, payables decreased as we slowed our inventory purchases, inventory increased as we slowed production, and receivables decreased as we had fewer sales.

Cash flows used in investing activities

        Our net cash used in investing activities principally relates to investments in processes and infrastructure that enable us to expand our production and operating capabilities. Capital expenditures were $1.7 million, $1.7 million, $0.8 million and $0.5 million for the six months ended June 30, 2011 and the years ended December 31, 2010, 2009 and 2008, respectively. Capital expenditures for the six months ended June 30, 2011 and for the year ended December 31, 2010 were primarily related to the acquisition of tooling to support our growing operations in the United States, the acquisition of computer and related equipment to support the increase in staffing in the United States and the assembly of vehicles to use as demonstration vehicles and for research and development testing.

Cash flows provided by financing activities

        During the six months ended June 30, 2011, our cash provided by financing activities amounted to $30.3 million. This source of cash is primarily comprised of $37.8 million of net proceeds from the issuance of our Series B preferred stock, partially offset by $6.5 million of payments made to Tanfield related to our acquisition of Smith UK and $0.8 million of deferred offering costs.

        During the year ended December 31, 2010, our cash provided by financing activities amounted to $13.7 million. This amount is comprised primarily of proceeds from the issuance of our Series A debentures and bridge notes of $14.8 million, partially offset by the related $0.9 million of debt issuance costs.

        During the year ended December 31, 2009, our cash provided by financing activities amounted to $14.3 million and was comprised primarily of $10.4 million of proceeds received from the issuance of units consisting of Series A debentures and common stock, partially offset by the related debt issuance costs of $0.4 million. The net cash provided by Tanfield during the year ended December 31, 2009 amounted to approximately $4.3 million.

        During the year ended December 31, 2008, Tanfield provided approximately $27.4 million of cash to Smith UK. Smith US was not yet in existence and, therefore, did not have any financing activities.

Series A debentures

        From March 2009 through January 2010, we sold in a private placement 111.25 units for aggregate proceeds of $11.1 million. We received aggregate proceeds from this financing of $10.4 million in 2009 and of $0.7 million in 2010. Each unit consisted of one Series A debenture in the principal amount of $100,000 and 6,666 shares of our common stock. Each Series A debenture has a five year term and bears interest, payable in shares of our common stock, at the rate of 10% per annum. The Series A debentures are secured by all of our assets. Subject to prepayment, acceleration or conversion, interest and principal due on each Series A debenture will be payable at the end of the five year term. The Series A debentures are convertible, at the option of the holder, at 80% of the price at which shares of our common stock are valued in this offering or, if earlier, 80% of the price at which shares of our common stock are sold in a corporate reorganization. We may prepay principal and interest on the Series A debentures at any time without penalty.

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        As of June 30, 2011, we have outstanding the $11.1 million in principal amount of Series A debentures, along with accrued interest of approximately $2.2 million. Holders of $            in principal amount of our Series A debentures have notified us of their election to convert their debentures, including accrued interest, into shares of our common stock immediately following the closing of this offering. We intend to use $            of the net proceeds to use of this offering to prepay the remaining $             principal amount of Series A debentures and accrued interest thereon.

Bridge notes

        From March 2010 through October 2010, we sold $14.2 million of bridge notes in a private placement. Each bridge note issued included a detachable warrant, with a stated per share exercise price of $0.01, that allows the holder to purchase 25% of the number and type of security into which the bridge note was convertible. The stated term of each bridge note was the lesser of one year from the issuance date or the date of an equity offering resulting in gross proceeds to us of at least $20.0 million, or a qualified offering. The bridge notes were unsecured obligations of ours and ranked senior to our Series A debentures. Interest on the bridge notes was payable in kind at a rate of 12% per annum. Upon a successful qualified offering, the principal and interest became due and payable immediately or, at the option of the holder, the principal plus accrued paid-in-kind interest could be converted into shares of the equity security issued in the qualified offering at a conversion price equal to the price per share of the equity securities issued in the qualified offering.

        The warrant included in each unit was exercisable at the option of the holder from the date of the qualified offering through the second anniversary of the issuance date of the warrant. The bridge note did not need to be converted in order for the holder to exercise the warrant.

Series B preferred stock

        During March 2011, in a private placement we sold approximately 3,239,000 shares of our Series B preferred stock for cash proceeds of $39.0 million. We also issued an additional approximate 1,570,000 shares of Series B preferred stock upon the conversion of our outstanding bridge notes and the holders' exercise of the related warrants, as this private placement constituted a qualified offering. There was $14.2 million in principal amount of bridge notes outstanding with accrued paid-in-kind interest of $1.1 million as of the date on which the bridge notes converted. We also paid in cash approximately $171,000 to holders who elected not to convert a portion of their bridge notes. Shares of our Series B preferred stock have the right to vote, on an as-converted basis, together with shares of our common stock on all matters which are subject to a vote of our common stock, and also have separate voting rights with respect to certain amendments of our second amended and restated certificate of incorporation and certain liquidation events. Our Series B preferred stock has a liquidation preference of $12.04 per share (subject to adjustment) over our common stock. Our Series B preferred stock is convertible, on a one-to-one basis, into shares of our common stock at any time at the election of the holder or automatically in the event of a firm commitment underwritten public offering of our common stock, and is subject to certain anti-dilution protections.

Senior note financing

        On September 14, 2011, we issued and sold the senior note for cash proceeds of $2.8 million to an existing stockholder. The senior note accrued interest at 8.00% per annum and had a maturity date of December 31, 2011. The senior note was automatically convertible into shares of our equity securities immediately prior to the closing of the initial public offering of our common stock and was redeemable by us upon the closing of a private placement of our equity securities that provides us with at least $20.0 million in net proceeds. We exchanged the senior note in connection with our 2011 convertible notes financing discussed below.

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2011 convertible notes financing

        Between October 7, 2011 and October 31, 2011, we issued and sold in a private placement convertible notes having an aggregate principal amount of $30.0 million and seven-year warrants to purchase shares of our common stock for aggregate proceeds of $30.0 million. The aggregate proceeds consisted of cash proceeds of $25.2 million, cancellation of the $2.8 million of indebtedness under the senior note and the conversion of approximately $2.0 million of the outstanding balance of the purchase price we owe to Tanfield in connection with the acquisition of our Smith UK business. Each convertible note had a maturity date that was three years from its date of issuance and accrued interest at a per annum rate of 8.50%, 12.00% and 15.00% for the first, second and third year of its term, respectively. Each convertible note provided for automatic conversion into shares of our equity securities (i) upon the issuance of convertible notes resulting in net proceeds to us of at least $30.0 million, (ii) in connection with the first sale of any class of our equity securities that results in net proceeds to us, when added to the net proceeds received by us from the issuance and sale of the 2011 convertible notes, of at least $30.0 million, and (iii) upon the pricing of an initial public offering of our common stock that results in net proceeds to us of at least $50.0 million. We had the right to prepay the 2011 convertible notes at any time using cash flow generated from our operations. Each warrant can be exercised at any time for the number of shares of our common stock equal to 30% of the initial principal amount of the related note divided by the exercise price of $12.38. Each 2011 warrant automatically will be exercised upon the pricing of an initial public offering of our common stock on a cashless exercise basis with a deemed purchase price per share equal to the price at which our common stock is offered to the public in such offering. The 2011 convertible notes converted into shares of our Series C preferred stock upon our receipt of $30.0 million of proceeds from the 2011 convertible notes financing.

Series C preferred stock issuance

        Between November 3, 2011 and November 8, 2011, we issued 2,431,170 shares of our Series C preferred stock in connection with the conversion of all of our outstanding 2011 convertible notes. We did not receive any additional cash proceeds upon the conversion of the 2011 convertible notes into Series C preferred stock. Shares of our Series C preferred stock have the right to vote, on an as-converted basis, together with shares of our Series B preferred stock and common stock on all matters which are subject to a vote of our common stock, and also have voting rights, both together with our Series B preferred stock and as a separate class, with respect to certain amendments of our third amended and restated certificate of incorporation and certain liquidation events. Our Series C preferred stock has a liquidation preference of $12.38 per share (subject to adjustment), which is pari passu with the liquidation preference of our Series B preferred stock. Our Series C preferred stock is convertible, on a one-to-one basis, into shares of our common stock at any time at the election of the holder or automatically in the event of a firm commitment underwritten public offering of our common stock, and is subject to certain anti-dilution protections. The holders of at least a majority of the outstanding shares of Series B preferred stock and Series C preferred stock, voting together as a single class, can require us to redeem all outstanding shares of Series B preferred stock and Series C preferred stock on or after March 1, 2018.

CONTRACTUAL OBLIGATIONS

        The following table shows our contractual payment obligations for our long term debt and future purchase obligations as of December 31, 2010. We did not have any unrecognized tax benefits as of

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December 31, 2010. Interest on our convertible debt is calculated based on the contractual loan maturity at the stated interest rate in effect at December 31, 2010 (in thousands):

Certain Contractual Obligations
  Total   Less than
1 year
  1 - 3
Years
  4 - 5
years
  After 5
years
 

Convertible debt

  $ 25,275   $ 14,150   $   $ 11,125   $  

Interest payable in kind

    8,375     1,742         6,633      

Interest payable in cash

                     

Operating leases

    842     574     194     74      

Lawsuit settlement

    4,000     2,000     2,000          

Purchase orders, primarily for inventory

    12,297     12,297              
                       

Total contractual payment obligations

  $ 50,789   $ 30,763   $ 2,194   $ 17,832   $  
                       

        The following table shows our contractual payment obligations for our long term debt and future purchase obligations as of June 30, 2011. We did not have any unrecognized tax benefits as of June 30, 2011. Interest on our convertible debt is calculated based on the contractual loan maturity at the stated interest rate in effect at June 30, 2011 (in thousands):

Certain Contractual Obligations
  Total   Less than
1 year
  1 - 3
Years
  4 - 5
years
  After 5
years
 

Convertible debt

  $ 11,125   $   $ 2,889   $ 8,236   $  

Note payable—Tanfield

    7,750     6,250     1,500          

Interest payable in kind

    6,633         1,758     4,875      

Interest payable in cash

    471     463     8          

Operating leases

    1,686     838     794     54      

Lawsuit settlement

    4,000     3,000     1,000          

Purchase orders, primarily for inventory

    18,783     18,783              
                       

Total contractual payment obligations

  $ 50,448   $ 29,334   $ 7,949   $ 13,165   $  
                       

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

        In May 2011, the Financial Accounting Standards Board updated the guidance regarding certain accounting and disclosure requirements related to fair value measurements. The updated guidance amends GAAP to create more commonality with International Financial Reporting Standards by changing some of the wording used to describe requirements for measuring fair value and for disclosing information about fair value measurements. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is not permitted. We do not expect the adoption of this update to have a material impact on our financial position, results of operations or cash flows.

OFF-BALANCE SHEET ARRANGEMENTS

        As of December 31, 2010 and June 30, 2011, we had no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, except for operating leases.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign currency risk

        Our purchases and sales are generally denominated in the local currency (U.S. dollar for U.S. operations and the British pound for U.K. operations). As a result, we have limited direct exposure to currency risk and a 10% change in currency rate of exchange would have an immaterial impact on our cash flows. However, many of our suppliers are either located in a foreign jurisdiction or source key components of their products from foreign jurisdictions. If our local currency depreciates significantly against the local currency of our supply chain, it could cause our suppliers to raise their prices, which could adversely impact our operating results and cash flow.

Interest rate risk

        We have issued only fixed rate debt with interest paid-in-kind. We have limited cash and generally do not invest excess cash. As a result, a 10% change in interest rates would have an immaterial impact on our cash flows.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Material weaknesses

        In connection with the preparation of our combined financial statements as of and for the years ended December 31, 2010, 2009 and 2008, we identified material weaknesses in our internal control over financial reporting existing as of December 31, 2010. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

        These material weaknesses were as follows:

    We did not have an adequate number of personnel in our accounting and finance department with sufficient technical accounting expertise and, as a result, we could not evaluate in a timely manner the accounting and financial reporting implications of our business transactions. For example, our inventory costing process was inadequate to produce an appropriate value of cost of revenue and we did not properly manage the accrual process related to cutoffs at the end of reporting periods.

    We did not maintain adequate segregation of duties within the accounting and finance department and, as a result, the company had an increased risk of fraudulent transactions. For example, we did not have appropriate segregation of duties between transaction origination and account reconciliation.

    We did not design or maintain effective operating control activities or information technology controls over the financial statement close and reporting process in order to ensure the accurate and timely preparation of financial statements. For example, we did not compare our actual results to our budget and we allowed individuals to process journal entries without supervisory review and approval. In addition, we had not established information technology control policies and procedures that were sufficient in the circumstances to support accurate and timely financial information processing.

        We are in the process of taking necessary steps to remediate the material weaknesses that we have identified. We will continue to review, revise, and improve the design and operating effectiveness of our internal controls as appropriate. Although we have made enhancements to our control procedures, the material weaknesses will not be remediated until the necessary controls have been implemented and are operating effectively.

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Remediation efforts

        Our remediation efforts for these material weaknesses have included or will include:

    hiring of accounting staff and retention of consultants with the critical skill sets to support accurate and timely financial reporting;

    implementing a financial close schedule;

    identifying activities where staffing size or other factors hinder adequate segregation of duties and either modifying the duties of the individuals or implementing appropriate monitoring controls to reduce fraud risks to an acceptable level;

    designing and documenting key financial and information technology controls, and developing and implementing processes and procedures to support these key controls; and

    devoting resources to implement additional system functionality that will enhance our ability to establish automated accounting controls and systematically define segregation of duties.

        While we are in the process of taking necessary steps to remediate the identified material weaknesses, the remediation process will require significant time and resources and we do not know the specific timeframe required to fully remediate these material weaknesses. Additionally, we will incur both one-time and recurring incremental costs associated with this remediation process. While we anticipate we will fully remediate these material weaknesses, we cannot assure you we will do so, which could impair our ability to satisfy our SEC reporting requirements.

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BUSINESS

OUR COMPANY

Company overview

        We design, produce and sell zero emission commercial electric vehicles designed to be a superior performing alternative to traditional diesel trucks due to higher efficiency and lower total cost of ownership. We believe we are the only vehicle manufacturer selling to major commercial fleets in the United States and Europe that exclusively produces electric vehicles. Our vehicle designs leverage over 80 years of market knowledge from selling and servicing electric vehicles in the United Kingdom. This experience has led to the development of our advanced powertrain (Smith Drive), power management (Smith Power) and telemetry (Smith Link) technologies. We believe that these technologies will drive improved vehicle performance, provide us with increased control over supply chain quality and reduce the upfront cost of our vehicles.

        Unlike companies that have introduced electric passenger vehicles, we focus on the production and sale of commercial electric vehicles that primarily address the needs of medium-duty commercial fleet operators with depot-based operations and predictable daily service routes of up to 120 miles. We are the only company focused on producing and globally offering an all-electric commercial vehicle having a GVW between approximately 16,500 and 26,400 pounds (the Smith Newton). We also produce the Smith Edison, which is a lighter duty vehicle than the Newton that is sold in the United Kingdom and in other selected markets worldwide. As part of our continued focus on product development, we plan to introduce a Newton model that is configured as a step van in the United States in early 2012. Our vehicles feature a battery system that is scalable to meet the varying range needs of commercial fleets and that provides a lower total cost of ownership than that of a conventional diesel vehicle. We believe electric vehicles are ideally suited for the cost conscious commercial vehicles market because:

    lower cost per mile—on a per mile basis electric power to charge our vehicles costs significantly less than diesel fuel;

    less volatility—the cost of electricity is considerably less volatile than the price of diesel fuel;

    less maintenance—electric vehicles require less maintenance than diesel vehicles due to the fewer number of moving parts in an electric powertrain than in a diesel powertrain;

    minimal infrastructure requirements—most commercial vehicles in our target market operate from the same location and follow specific routes, eliminating the need for distributed charging infrastructure and concerns over limited range; and

    fuel efficient with low environmental impact—commercial fleet operators are under government and popular pressure to improve fuel mileage, cut emissions and reduce noise associated with diesel powered trucks.

        Demand for our vehicles is growing as customers recognize their economic benefits. Additionally, in the near term we believe that governmental and popular support for companies that purchase environmentally friendly transportation will accelerate demand for our vehicles. Over the twelve months ended September 30, 2011, we sold 320 vehicles, and as of October 31, 2011 we have an order backlog of 120 vehicles, representing vehicle revenue of $15.7 million, and have allocated nearly all of our estimated 540 production slots through July 2012. In addition to the 120 vehicles included in our order backlog, we have written indications of interest from existing and potential customers for approximately 2,220 vehicles for requested delivery spanning the period 2012 through 2015. We are actively involved in discussions with new and existing and potential customers on an ongoing basis and expect to continue to allocate additional production slots and increase our order backlog.

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        We sell our vehicles through our direct sales force, as well as limited third party distribution agreements. We sell our vehicles to commercial fleet operators across multiple industries including food & beverage, utility, telecommunications, retail, grocery, parcel and postal delivery, school transportation, military and government. Our customers include the following:

Food & Beverage   Utilities   Retail   Grocery   Package Delivery   Military  

•       The Coca-Cola Company

•       Frito-Lay North America, Inc.

 

•       Kansas City Power & Light

   

•       Staples, Inc.

•       Duane Reade Inc.

   

•       Sainsbury's

   

•       DHL

•       FedEx

•       TNT Express

   

•       U.S. Army

•       U.S. Navy

•       U.S. Marine Corps

 

        Our sales strategy is focused on selling to industry-leading companies and government entities that operate substantial, well-recognized, medium-duty commercial vehicle fleets and that have the corporate or public commitment and resources to support and sustain the development of the commercial electric vehicle industry. We offer a differentiated approach to commercial vehicle sales and service that departs from traditional truck sales and service models. Our approach involves a comprehensive plan for the pilot and roll-out of our electric vehicles, as well as the ongoing replacement of existing commercial vehicles with our electric vehicles, which is tailored to the individual needs of our customers. This plan includes the development of a multi-year purchasing forecast to help the customer systematically integrate our vehicles into their fleets, as well as analytics that provide the expected economic and environmental impact of fleet conversion. As a part of this approach, we offer guidance to our customers regarding how to most effectively use and operate their electric vehicles and on integrating electric vehicles into their existing fleets or transitioning to all-electric vehicle operations. We believe that our strategy of targeting industry-leading companies and providing them with an individualized sales and service solution has elevated our public profile, enhanced the credibility of our vehicles in the marketplace and made our customers advocates of our sales approach and our vehicles, all of which enhances our ability to sell vehicles to new customers.

        As a part of our sales strategy, we separately present to our customers the base vehicle price and the battery system price. We believe that, in most cases, our base vehicle price is competitive with or a slight premium to the price of a diesel-fueled vehicle with a comparable GVW. Our approach to pricing allows customers to compare the relative merits of a diesel truck's low cost energy storage system (the fuel tank) and more expensive and volatile energy cost (the per gallon price of diesel fuel) with our vehicle's higher cost energy storage system (the battery) and lower and more predictable energy cost (the per kilowatt hour price of electricity). We believe these comparisons make our vehicles more attractive to customers than traditional diesel options, particularly during periods of rising fuel prices, even when the social and environmental benefits of our vehicles are ignored.

        We currently design, produce and sell vehicles based on two platforms, the Smith Newton and the Smith Edison, both of which can be configured for multiple applications. The Newton has a GVW of approximately 16,500 to 26,400 pounds, a payload capacity of approximately 6,100 to 16,200 pounds and a range of up to 50 to 150 miles depending on vehicle specification and battery configuration. The Newton, which is sold in the United States and internationally, is used in a wide range of general delivery applications, as well as in specialty applications such as refrigerated delivery, military transport and boom truck. In November 2011, less than 24 months after the first sale of the Smith Newton in the United States, we introduced a second generation Newton, which incorporates our Smith Drive, Smith Power and Smith Link technologies. We also are developing a Newton model that will have a GVW of approximately 33,000 pounds to meet the needs of delivery and transit customers, which we expect to be available in mid-2012.

        The Smith Edison, which is a lighter duty vehicle than the Newton, is sold in the United Kingdom and in other selected markets worldwide. The Edison has a GVW of approximately 7,700 to 10,100

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pounds, a payload capacity of approximately 1,600 to 5,100 pounds and a range of up to 55 to 110 miles depending on vehicle specification and battery configuration. The Edison is used in a wide range of service and delivery applications, as well as specialty applications such as refrigerated delivery, utility boom and shuttle service. We intend to continue to develop and introduce a next generation Smith Edison that utilizes our Smith Drive, Smith Power and Smith Link technologies.

        We also are developing and plan to introduce in early 2012 a Newton model that is configured as a step van. We expect this model will have a GVW of approximately 14,000 to 22,000 pounds, a payload capacity of approximately 2,700 to 10,000 pounds and a range of up to 40 to 120 miles depending on battery configuration. We expect the vehicle will be used primarily for delivery of parcels, uniforms and baked goods. The Newton step van will utilize our Smith Drive, Smith Power and Smith Link technologies.

        Our production operations leverage our supply chain of component manufacturers and allow us to focus on vehicle assembly. This focus contributes to our low capital expenditure requirements and rapidly scalable capacity, and makes our decentralized production strategy financially advantageous. To continue to drive and sustain the economic advantage of our vehicles over diesel trucks, we are working to reduce our materials, operating and production costs, which we expect will reduce the prices of our vehicles and improve our gross margin. We have implemented a three-phased approach to reducing costs, which we refer to as our "cost down" initiative, which we believe will help us achieve these goals. The first phase was focused on transitioning our supply chain from low volume suppliers to a medium-volume automotive-grade supply chain. The second phase involves the transition from battery and powertrain systems produced by third party suppliers to our Smith Power and Smith Drive systems and the implementation of multi-source volume purchasing strategies. The third phase will involve the transition of the supply chain for our ancillary components to higher-volume and lower-cost suppliers. We expect to complete all three phases of our current cost down initiative in the first half of 2012. Thereafter, we expect to pursue continuous improvements in our supply chain and vehicle production costs.

        We have one production, research and development, sales and service facility in Kansas City, Missouri and one outside of Newcastle, England. To execute on our decentralized production strategy, we plan to open sales, service and assembly facilities in targeted urban areas in the United States and abroad, beginning with facilities on the east and west coasts of the United States. We expect to open the first of these facilities in New York City in the first half of 2012. We also have an established service base in the United Kingdom, where we operate four service facilities and a fleet of approximately 100 service vehicles. Our U.K. service teams maintain both electric and traditional diesel vehicles.

        Smith Europe and its predecessor entities have existed since the early 1920s. We were incorporated in Delaware in 2009 and have been operating on a consolidated basis with Smith Europe since January 2011, when we acquired the business of Smith UK. Our corporate headquarters are located in Kansas City, Missouri. We began selling the Smith Newton in the United States in December 2009 and, as of September 30, 2011, have sold 283 vehicles in the United States. Between January 1, 2008 and September 30, 2011, we sold an additional 272 vehicles outside of the U.S. We have approximately 280 employees worldwide. Our revenue for our fiscal years 2008, 2009 and 2010 and the six months ended June 30, 2011 was $32.4 million, $22.9 million, $35.6 million and $37.6 million, respectively. Our revenue consisted of $14.2 million in vehicle revenue and $18.2 million in service and repairs revenue for 2008; $8.2 million in vehicle revenue and $14.6 million in service and repairs revenue for 2009; $23.8 million in vehicle revenue and $11.8 million in service and repairs revenue for 2010; and $31.9 million in vehicle revenue and $5.7 million in service and repairs revenue for the six months ended June 30, 2011. Our revenue has grown from $15.8 million for the six months ended June 30, 2010 to $37.6 million for the six months ended June 30, 2011. We operate our business in two reportable segments: (i) Zero Emission Vehicles and (ii) Maintenance Services. See Note 16,

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"Information about Segments and Geographic Areas" to the combined and consolidated financial statements included elsewhere in this prospectus for information about our revenues on a segment basis and our revenues from the geographic areas in which we sell our vehicles.

Smith UK acquisition

        Smith Europe consists primarily of the Smith UK business we acquired from Tanfield effective January 1, 2011. We believe our acquisition of the Smith UK business provides us with:

    a platform on which we can expand our business internationally, particularly in Europe and Asia, where fuel costs exceed those in the United States;

    enhanced product development capabilities as a result of access to Smith UK's engineering division;

    access to recurring service-related revenues from Smith UK's fleet management services; and

    Smith UK's existing vehicle technologies and the elimination of a royalty obligation to Tanfield. Prior to our acquisition of Smith UK, Tanfield licensed to us the exclusive right to develop, test, manufacture, market, distribute, sell and service electric vehicles in North America under Tanfield's electric vehicle intellectual property (other than trade and service marks). See "Relationships and Related Person Transactions—Tanfield Transactions" for additional information about this license agreement. Smith Europe now owns the intellectual property rights we previously licensed from Tanfield.

OUR MARKET OPPORTUNITY

Medium-duty commercial vehicle market overview

        Our primary market is commercial fleet purchasers of medium-duty vehicles, which are on-road vehicles with GVWs ranging from 14,000 to 33,000 pounds. Medium-duty commercial vehicles are used in, among other things, urban applications such as grocery, package and beverage delivery, utility, and school and shuttle buses. According to J.D. Power and Associates (Q3, 2011 Medium Duty World Truck Sales), global annual sales of on-highway medium-duty commercial trucks are expected to reach 822,197 units in 2011, with a CAGR of 3.3% from 2011 to 2016. Based on our calculations, this equates to greater than a $40 billion total available market for these vehicles worldwide. In relation to the

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overall commercial vehicle market, the medium-duty commercial vehicle segment represents a niche opportunity for many traditional large-scale OEMs.

GRAPHIC


Source: J.D. Power and Associates Global Commercial Vehicles Forecast published September 30, 2011

        According to Fleet Owner Magazine, medium-duty fleet operators have an estimated current installed base of 1.2 million vehicles in the United States. The primary drivers impacting the purchase of these fleets are macroeconomic growth, industrial activity, fuel and maintenance costs and government spending.

Opportunity for commercial electric vehicles

        It is our belief that the traditional medium-duty commercial vehicle market is plagued with industry-wide challenges that incumbent vehicle manufacturers will struggle to address. Incumbent vehicle manufacturers' reliance on diesel-fueled engines as their principal powertrain technology has raised environmental concerns and created dependence on oil largely imported from foreign nations, which has led to increased regulation, and has exposed fleet owners to fuel price volatility and significant operating costs.

        We believe that shifting preferences among commercial vehicle fleet buyers together with increasing government regulation and available government incentives will result in significant growth in the market for commercial grade electric vehicles, especially in our targeted market. We believe many fleet buyers are increasingly willing to consider purchasing electric vehicles due to the economic, environmental, regulatory and national security consequences of using gasoline and diesel-powered vehicles, as well as the performance and cost characteristics exhibited by recently developed, alternative vehicles. We also believe government regulations and incentives are accelerating the growth of the commercial electric vehicle market.

        The medium-duty fleet market represents an opportune target market for us, as we believe vehicles in this segment are often operated within urban centers, are driven at speeds below 50 mph and utilize depot-based routes with predictable distances, typically 50 to 100 miles per day. Additionally, fleet owners tend to maintain a large number of vehicles, typically purchase in volume, and can leverage economies of scale in the operation and servicing of such vehicles. Fleet size varies depending on the company, but large consumer products and package delivery companies such as Frito-Lay, Coca-Cola and FedEx have fleets in excess of 20,000 vehicles, with an average service life of eight years. As a result, fleet owners place significant importance on total cost of ownership, which

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includes a vehicle's upfront cost as well as ongoing operating costs such as fuel and maintenance, and is where electric vehicles provide considerable advantages over both diesel-fueled and hybrid vehicles. Fuel, oil, service and maintenance represent material operating expenditures for commercial fleet owners. Commercial electric vehicles eliminate the need for ongoing fuel and oil consumption and the lower number of overall parts in an electric vehicle reduces the amount of service and maintenance necessary to operate the fleet. According to J.D. Power and Associates, on average, gasoline and diesel trucks in this category have a fuel economy of approximately 8.4 miles per gallon. We estimate that diesel trucks in this category cost between $0.15 and $0.23 per mile to maintain.

        Worldwide, governments are offering subsidies and incentives helping accelerate the adoption of commercial electric vehicles. For example, in the United States, the DOE's Clean Cities program and the EPA's National Clean Diesel Funding Assistance Program provide purchasers of electric vehicles with subsidies and incentives and under the Obama administration's Green Fleet Initiative, by 2015 all new vehicles purchased for America's federal agencies will be electric, gas-electric hybrid, or alternatively fueled. See "—Governmental Programs and Incentives." In Europe, the European Union has passed more restrictive vehicle emissions standards, several countries have instituted direct subsidies and significant tax exemptions for electric vehicles and some cities exempt electric vehicles from congestion charges. In Asia, the Chinese government has established a pilot program that provides subsidies to purchasers of electric vehicles as well as subsidies for infrastructure installation.

Challenges facing incumbent vehicle manufacturers

        Incumbent vehicle manufacturers face significant challenges in continuing to meet the needs of customers in our target market. These challenges include having to redesign vehicles in order to meet newly enacted and proposed environmental and safety regulations and the following:

    Dependence on diesel powertrains.  While a limited number of manufacturers have invested in a plug-in electric vehicle program, we believe a majority of incumbent commercial vehicle manufacturers continue to emphasize investment in diesel engine technologies over investment in fully electric technologies because of their need to support their existing revenue base and core competencies.

    Limited electric powertrain expertise.  To date, incumbent commercial vehicle manufacturers have pursued multiple fuel technologies, including hydrogen fuel cell, hybrid and electric powertrain technologies. We believe that exploring such a diverse range of programs while simultaneously continuing to invest in legacy diesel engine platforms has to date inhibited their ability to focus on a specific alternative fuel powertrain technology. As a result, we believe incumbent commercial vehicle manufacturers currently have relatively limited electric powertrain expertise, especially with respect to sophisticated battery cooling, power, safety and management systems.

    Significant re-engineering and new product development.  New product launches by incumbent vehicle manufacturers historically have required significant capital investments and lengthy time periods between initial development and production. We believe the development process for an electric vehicle program could be particularly expensive for incumbent vehicle manufacturers given their need to develop an entirely new powertrain and the sophisticated battery cooling, power, safety and management systems necessary to support such a program. Additionally, manufacturers of commercial electric vehicles must produce vehicles of sufficient grade, weight and capability to service the needs of a diverse range of end markets, such as the food and beverage, military, parcel delivery, utilities and commuter transport markets. These diverse needs historically have added complexities for manufacturers of diesel-fueled vehicles and further complicate engineering for those designing vehicles with new technologies, such as all-electric powertrains.

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    Lack of robust supply chain for medium-duty electric vehicles.  The medium-duty commercial vehicle market represents a niche market to several traditional large scale OEMs, some of which have exited the market entirely over the last several years. This limited emphasis on medium-duty commercial vehicles has made it more difficult to develop and mature the supply chain in the electric vehicle market.

    Inability to scale production as a result of high upfront cost of vehicles.  The relatively high initial cost of commercial electric vehicles has limited adoption, resulting in a lack of meaningful production volumes and manufacturers' inability to increase capacity to recognize substantial cost reductions. Expensive battery technology and powertrain components combined with early stage production ramps have limited vehicle manufacturers' ability to reduce costs and deliver a competitively priced option to market. While the fuel and maintenance cost advantages of electric vehicles remain compelling, high upfront costs and low volumes have limited vehicle sales to early market entrants.

OUR COMPETITIVE STRENGTHS

        We believe that focusing our business model on developing and integrating advanced vehicle technologies, manufacturing vehicles using a decentralized, low cost assembly strategy, and establishing a base of customer advocates that can accelerate the development of the commercial electric vehicle industry, distinguishes us from our competitors and will assist us in maintaining our leadership position in the medium-duty commercial electric vehicle market. We believe that this focus and the following strengths position us well to capitalize on the expected growth in demand for medium-duty electric commercial vehicles:

    Focus on commercial electric vehicles.  We believe that adoption of electric vehicles will be fastest in commercial applications where the economic benefits are greatest, and which have predictable routes and centralized charging, thereby avoiding range anxiety and dependence on development of public infrastructure to support electric vehicle fleets. We believe our position as a leading provider of commercial electric vehicles enables us to benefit from this trend.

    First mover with established major commercial fleet relationships in the United States, Europe and Asia.  We believe we are the only vehicle manufacturer selling to major commercial fleets in the United States and Europe that exclusively produces electric vehicles. We have sold trucks to and are currently negotiating additional orders with customers such as Staples, Frito Lay/PepsiCo, Coca-Cola, TNT Express and DHL, some of which are among the largest purchasers of medium-duty trucks in the world. We believe that our established relationships with large customers position us to receive additional orders from them, which will increase the recognition of our products with prospective customers and reinforce our brand equity.

    Proven ability to reduce the cost of our vehicles.  We believe that wider adoption of commercial electric vehicles can be achieved by reducing their cost. We believe our component sourcing strategy coupled with our engineering expertise will allow us to continue to reduce the cost of our vehicles and increase their attractiveness to customers.

    Low capital intensity of production.  We believe our ability to achieve a relatively low level of capital intensity with respect to our production operations will enable us to expand more rapidly and deliver high returns on invested capital. We assemble our vehicles using components manufactured by pre-qualified third party vendors using our specifications and designs. By purchasing components and focusing on assembly, we are able to leverage medium-volume automotive-grade suppliers who have already achieved economies of scale, allowing us to avoid significant fixed costs and capital investment.

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    Our vehicle and system design facilitates component-based cost reduction and protection of our trade secrets and know-how.  We believe our component-based approach allows us to achieve lower costs when compared to buying entire systems, which typically carry higher margins for suppliers, and more easily and fairly fosters competition among multiple suppliers, as greater sourcing options exist for components as compared to systems. For example, our recently introduced Smith Power battery management system allows us to purchase battery modules, rather than entire battery systems, and over time we expect to purchase battery cells and assemble our own battery modules into packs, thereby further reducing our costs. Our powertrain provides us the ability to purchase at either a system or component level, such that we are able to purchase motors, inverters, controllers and transmissions separately from suppliers. Our approach also allows us to continuously develop our intellectual property and to better protect our trade secrets and know-how because no one supplier has access to our complete system design.

    Modular battery system design that allows customers to configure each truck's range based on its application and significantly impact the total cost of vehicle operation.  We have designed our battery system to be modular so the same vehicle can accept battery packs with different capacities. For example, the Smith Newton has multiple battery pack options depending on the customer's range requirements and duty cycle. The flexibility to correctly size each vehicle's battery pack allows customers to select the most cost effective solution for their particular application, with the option to add additional capacity in order to repurpose vehicles for new applications in the future. Together, we believe these options allow our customer to maximize each vehicle's economic return, thereby increasing the attractiveness of our vehicles.

    Focus on medium-duty commercial vehicles positions us well to avoid direct competition with heavy-duty truck and light-duty automotive OEMs.  Incumbent heavy-duty truck manufacturers and light-duty automotive OEMs generally are not as focused as we are on sales of medium-duty trucks due to the relatively limited sales volume opportunity. We believe that as an early entrant with exclusive focus on medium-duty vehicles, we are well positioned to avoid direct competition with the much larger organizations that produce heavy- and light-duty trucks.

OUR STRATEGY

        We intend to be a leading global producer of medium-duty commercial electric vehicles. Key elements of our strategy include:

    Focusing on large, well-recognized commercial operators to establish long-term customer advocates.  We are focusing our sales efforts on industry-leading companies and government entities that operate substantial, well-recognized, medium-duty commercial vehicle fleets. These entities have not only the resources available to purchase our vehicles, but also the corporate or public commitment to support and sustain the development of the commercial electric vehicle industry. We believe this strategy will increase our sales and provide us with market credibility. Additionally, these customers typically have well-defined fleet replacement strategies that strengthen our visibility with respect to customers' purchasing cycles and future supply needs.

    Leveraging our existing vehicle technologies and platforms to diversify applications and sales channels.  We are leveraging our current vehicle technologies and platforms to diversify applications in both the United States and Europe. We anticipate these new vehicle models will broaden our reach within our addressable market and result in increased sales to our existing customers. In addition to offering vehicles with a wider range of GVWs, we are working with several truck and bus body manufacturers to provide specialized vehicles, including a step van, shuttle and school buses, aircraft ground service and military transportation. These relationships will not only allow us to offer specialized models to our commercial fleet customers, but also could open new sales channels for us, as these manufacturers also may purchase our vehicles for

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      resale to the end users. For example, in October 2011, Trans Tech Bus, a division of Transportation Collaborative Inc., unveiled its Newton eTrans electric Type-A school bus prototype, which is based on the Newton platform.

    Continuing to focus on technological innovation to reduce the initial cost of our vehicles.  We are focused on improving our vehicle technologies and broadening our proprietary intellectual property rights over systems and components incorporated into our vehicles. These strategies are intended to improve our vehicle performance and reliability, strengthen our competitive position and lower our vehicle costs. For example, our recently introduced Smith Power battery management system allows us to purchase battery modules, and ultimately will allow us to purchase lithium-ion cells, from various pre-qualified manufacturers. We expect that this ability to source from multiple suppliers will enable us to reduce the cost per kilowatt hour of the batteries used in our vehicles and improve reliability.

    Establishing sales, service and assembly facilities in selected local markets.  We intend to establish sales, service and assembly facilities in select urban areas in different regions of the United States and abroad. Our initial plans include opening facilities on the east and west coasts of the United States, including a facility in New York City, which we anticipate will open in the first half of 2012. In addition to increasing our production capacity, these new facilities will allow us to provide localized sales and service and will significantly reduce costs associated with shipping completed trucks from our existing U.S. and U.K. locations to our customers.

    Supporting and leveraging our customers' brands through branding synergies and co-promotions.  We intend to continue helping our customers build and achieve corporate sustainability objectives and enhance their brand images. Our efforts include co-promotional media and joint presentations at industry conferences and other public events that highlight the ongoing replacement of our customers' legacy diesel fleets with our environmentally-friendly, 100% electric vehicles.

    Providing customized battery acquisition models to our customers.  We intend to provide purchasing options for the battery system used in our vehicles that meet our customers' varying purchasing strategies. For example, we intend to provide our customers with the flexibility to purchase complete vehicles that include battery systems or to purchase base vehicles and separately acquire battery systems through leasing arrangements with third parties. In the future we may offer battery leasing arrangements to our customers.

    Working with federal and state governments to promote the electric vehicle industry.  We work with government authorities to promote the adoption of electric vehicles and believe we are well-positioned to benefit from support for commercial electric vehicles. Government support for the development and use of commercial electric vehicles can accelerate their adoption. Such support ranges from tax incentives, to end-user rebates for the purchase of electric vehicles, to consortium tenders for the purchase of electric vehicles in volume.

OUR VEHICLES

        Our primary business is the development, production, sale and service of zero emission commercial electric vehicles. We aim to produce commercial vehicles that are robust, economical and easy to drive. We currently produce and sell vehicles based on two platforms, the Smith Newton and the Smith Edison, both of which can be configured for multiple applications.

Smith Newton

        The Smith Newton is designed for predictable route, depot-based applications and is used in a wide range of general delivery applications, as well as in specialty applications such as refrigerated

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delivery, military transport and boom truck. The Newton has a GVW of approximately 16,500 to 26,400 pounds, a payload capacity of approximately 6,100 to 16,200 pounds and a range of up to 50 to 150 miles depending on vehicle specification and battery configuration. We produce and sell the Smith Newton in the United States and in the United Kingdom for use in the medium-duty commercial vehicle market, and our vehicles currently are in use in the food & beverage delivery, utility, telecommunications, retail, office products, grocery, parcel delivery, school transportation, military and government, facilities management and airport operations sectors. Additionally, the Smith Newton is the only all-electric commercial vehicle in the 21,000 to 28,000 pound GVW range on the United States Government Services Administration schedule, which provides a streamlined procurement process for federal customers wishing to purchase vehicles from us.

        The Smith Newton is designed as a chassis cab and can be configured with:

    a flat bed,

    a cargo box,

    an electric boom for utility work that includes ancillary power options,

    a refrigeration unit that provides a cooled compartment, and

    transit, shuttle, or school bus seating.

        The Smith Newton battery system generally requires six to eight hours to fully recharge using a 240-volt power source and is available in the following five configurations to meet our customers' maximum range and economic needs:

    40 kilowatt hour, which provides a range of up to 50 miles on a single charge;

    60 kilowatt hour, which provides a range of up to 70 miles on a single charge;

    80 kilowatt hour, which provides a range of up to 90 miles on a single charge;

    100 kilowatt hour, which provides a range of up to 110 miles on a single charge; and

    120 kilowatt hour, which provides a range of up to 150 miles on a single charge.

        We plan to introduce a Newton model that is configured as a step van and incorporates our Smith Drive, Smith Power and Smith Link technologies in early 2012. We expect this model to have a GVW of approximately 14,000 to 22,000 pounds, a payload capacity of approximately 2,700 to 10,000 pounds and a range of up to 40 to 120 miles depending on battery configuration. We expect the vehicle will be used primarily for delivery of parcels, uniforms and baked goods.

        We also are developing a Newton model that will have a GVW of approximately 33,000 pounds to meet the needs of delivery and transit customers.

Smith Edison

        The Smith Edison is used in a wide range of service and delivery applications, as well as specialty applications such as refrigerated delivery, utility boom and shuttle service. The Edison has a GVW of approximately 7,700 to 10,100 pounds, a payload capacity of approximately 1,600 to 5,100 pounds and a range of up to 55 to 110 miles depending on vehicle specification and battery configuration. We currently produce and sell the Smith Edison only through Smith Europe, although in the future we plan to introduce in selected international markets a second generation Smith Edison that incorporates our Smith Drive, Smith Power and Smith Link technologies to address customers' needs for a smaller commercial electric vehicle than the Smith Newton. The Smith Edison currently is in use in the postal and parcel delivery, logistics, facilities management, grocery, utility, airport operations and government sectors.

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        The Smith Edison utilizes a Ford Transit chassis and is available from us as a chassis cab, panel van or 12 to 17 seat minibus. The Edison chassis cab has a 40 kilowatt hour battery system, which provides a range of up to 60 miles on a single charge. The Edison panel van and minibus are available with 36 and 50 kilowatt hour battery systems, which provide ranges of up to 60 miles and 110 miles, respectively, on a single charge. The Smith Edison battery system generally requires six to eight hours to fully recharge using a 240-volt power source and we also offer a four hour fast-charging option.

OUR TECHNOLOGY

        Our research and development efforts are focused on improving our existing vehicle technologies to improve vehicle performance and reduce cost. As of September 30, 2011, we have 36 employees engaged primarily in vehicle engineering and development activities. While we undertake a number of research and development activities on various aspects of our vehicles' performance, we have focused our research and development efforts on our Smith Drive, Smith Power and Smith Link technologies.

Smith Drive

        Smith Drive is our physical vehicle drive and control system, which features a configurable drive controller with integrated inverters for the management of auxiliary systems; permanent magnet motors, which increase motor efficiency; and an integrated control protocol with Smith Power that supports a common diagnostic interface. Beginning in November 2011, we include this technology in all new vehicles we produce in the United States. We anticipate including this technology in all new Smith Newtons we produce in the United Kingdom beginning in the first half of 2012.

Smith Power and existing battery technology

        Smith Power is our battery system, which provides:

    a battery management system with the capability to manage power at the battery cell level;

    a pack integration strategy that facilitates the use of battery cells of varying sizes from different manufacturers;

    active thermal management at the battery cell level;

    the flexibility to allow for battery packs having varying energy storage capacities to meet specific vehicle applications; and

    an integrated control protocol with Smith Drive.

        We have designed our Smith Power system to permit flexibility with respect to battery cell chemistry, form factor and vendor that we adopt for battery cell supply. We maintain a database of the many available lithium-ion cell vendors and chemistry types. We intend to incorporate into our battery systems the battery cells that provide the best value and performance, and we expect this to continue over time as battery cells continue to improve in energy storage capacity, longevity, power delivery and cost. We believe this flexibility will enable us to continue to evaluate new battery cells as they become commercially viable, and thereby optimize battery pack system performance and cost for our current and future vehicles. We believe our ability to change battery cell chemistries and vendors while retaining our existing investments in software, electronics, testing and vehicle packaging, will enable us to quickly deploy various battery cells into our products and leverage the latest advancements in battery cell technology.

        Beginning in November 2011, we include our Smith Power technology in all new vehicles we produce in the United States. We anticipate including this technology in all new Smith Newtons we produce in the United Kingdom beginning in the first half of 2012.

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        The battery technology and control mechanisms we currently use in our vehicles are designed to monitor, measure and control battery cells to prevent rapid releases of the energy contained in the cells. The power system we currently use in our U.K.-produced vehicles and our Smith Power technology are based on a chemistry selected for its stability, and the cells incorporated into these systems contain current separation mechanisms and venting technologies that passively contain any single cell's release of energy, which minimizes the spread of energy to neighboring cells.

        The batteries installed in our vehicles generally require six to eight hours to fully recharge using a 240-volt power source. The charging duration is proportional to the starting state of charge, which is the amount of unused battery capacity at the time charging begins. Factors that affect the amount of time needed to recharge the battery include the size of the battery, the available power source for the charger at the charge location and the size of the charger. We align the size of the charger installed in our vehicles to the customer's chosen battery pack size in order to limit the required charging time to six to eight hours using a 240-volt power source.

Smith Link

        Smith Link is an onboard system that monitors and transmits the vehicle's vital statistics by general packet radio service (GPRS) to a central server, allowing remote vehicle monitoring, diagnostics and reporting. Smith Link eliminates reactive service calls with effective, real time data, diagnostics and performance information, which allows for more efficient fleet management. The operational data collected by Smith Link also supports continuous vehicle development and improvements. We install Smith Link in all of the vehicles we produce.

        Smith Link provides:

    fleet operators the ability to: (i) monitor the location and previous routes of their vehicles, (ii) analyze the performance of their vehicles on a daily basis, (iii) proactively manage service, which reduces vehicle down time, (iv) better educate drivers about the performance of their vehicles and (v) calculate and track return on investment and carbon emissions.

    our service technicians the ability to remotely monitor customer fleets and individual vehicle systems to identify possible future system issues, and remotely diagnose vehicle system faults and identify faulty components.

    our engineering department the ability to identify failure modes and collect vehicle data that supports continuous technology improvement.

        We have established a data warehousing platform to maintain the information collected by Smith Link, which will allow us to carefully analyze vehicle performance over time in order to improve our technologies and help our customers maximize the productivity of their electric vehicles.

MANUFACTURING

Vehicle assembly

        We currently assemble the vehicles we sell in the United States and Canada in our Kansas City, Missouri production facility. We assemble the vehicles we sell in the rest of the world in our production facility located outside of Newcastle, England. Our Kansas City production facility is an approximately 85,100 square foot repurposed facility located at the Kansas City International Airport. We currently have in place in this facility two production lines configured to produce a total of 100 vehicles per month operating on a single production shift, assuming the timely availability of components. We are currently working with vendors in our supply chain to increase their capacity so that we may ramp to this production level by mid-2012. Our U.K. production facility is an 80,000 square foot facility located outside of Newcastle, England. Historically we have produced at an average rate of approximately

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seven vehicles per month in this facility, which we plan to increase to approximately 14 vehicles per month beginning in 2012.

        We believe that we will be able to increase the production rates at our existing production facilities through improvements in our assembly process and adding additional shifts. Long term, however, we intend to expand our vehicle assembly operations through our network of sales, service and assembly facilities, rather than significantly increasing the production capabilities of our existing facilities. Once a sales, service and assembly facility is open in a geographic market, vehicle assembly for sales made in that geographic market generally would be performed at that facility.

        Our commercial electric vehicles are designed and assembled on what we refer to as a systems basis, which means that our assembly line is configured to facilitate vehicle assembly system by system. Our assembly process consists of configuring an existing vehicle body and rolling chassis with the following systems:

    the powertrain, which consists of the motor, transmission, inverter, gearbox and controller;

    the battery system;

    high voltage ancillary components, such as power steering, coolant and air conditioning;

    a low level coolant energy recovery system; and

    central control systems that use a dedicated electronic vehicle module to control the vehicle's high voltage ancillary components and regenerative braking, as well as vehicle-based items such as stability and traction control.

        We believe that our systems-based approach to vehicle assembly allows us to be responsive to customer requirements, vehicle duty cycles and our customers' individual subsystem specifications to ensure that energy efficiency is optimized while costs are minimized. Furthermore, we believe that our design and assembly process results in a vehicle that has the appearance and familiarity of an internal combustion vehicle with the economy and user appeal of an all-electric vehicle. We believe that this approach maintains operator familiarity and thereby accelerates the adoption of electric vehicle technology.

        Our assembly process leaves intact the vehicle's existing electrical system and all base vehicle functionality, but provides enhancements that optimize energy usage. For example, the vehicle's brakes remain completely unchanged except for the addition of an electric pneumatic pump that allows for braking powered by our installed battery pack. All built-in safety features on the base vehicle continue to comply with applicable regulatory requirements.

        Assembly of the Smith Edison differs somewhat from assembly of the Newton. We also assemble the Edison on a systems basis, however, unlike the Newton, where we begin the assembly process with an unpowered cab and chassis, we begin assembly of the Edison with a complete Ford Transit vehicle. We remove the traditional powertrain and powered components of the vehicle and replace them with our electric components. We then return the unused traditional vehicle components to Ford in exchange for price discounts on the purchased vehicle.

Supply chain

        Our production operations depend on obtaining systems, components, raw materials, parts, manufacturing equipment and other supplies and services from reliable suppliers in adequate quality and quantity in a timely manner. Our current supply chain is located globally, with approximately 31% of our suppliers located in North America and 68% located in Europe. See "—Key Suppliers" for information regarding our relationships with our significant system and component suppliers.

        We obtain components and raw materials from multiple sources whenever possible, similar to other vehicle manufacturers, however, certain of our primary vehicle systems and the components and raw

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materials used in our vehicles are purchased by us from a single source. We refer to these suppliers as our sole source suppliers. For example, we source the over 530 parts that comprise the U.S.-produced Smith Newton from over 35 suppliers, including 22 sole source suppliers. We generally purchase materials pursuant to purchase orders placed from time to time and have a limited number of long-term contracts or other guaranteed supply arrangements with our sole or limited source suppliers.

        We also are subject to fluctuations in the prices of the components and raw materials we use in our business as a result of our practice of purchasing systems, components and raw materials through purchase orders. Prices for the systems, components and raw materials we use in our business fluctuate depending on market conditions and global demand. We believe that we have adequate supplies or sources of availability of the systems, components and raw materials necessary to meet our production and supply requirements.

        We are implementing enterprise resource planning and management software to automate and improve our procurement and inventory processes and integrate them with our financial accounting and business planning. We plan additional investment in our management systems to support further growth in our operations.

        In connection with our cost down initiative and transition to our Smith Power and Smith Drive systems, we have moved to a new supply chain, including suppliers with which we have limited or no prior experience. While we experienced disruptions in our supply chain during the transition, over the long term, we do not believe the transition or any associated disruption will materially and adversely affected our business.

Quality control

        Our quality control efforts are divided between product quality and supplier quality, both of which are focused on designing and producing products and processes with high levels of reliability. We have four dedicated quality control employees that work with our engineering team and our suppliers to help ensure that the product designs meet functional specifications and durability requirements. Our quality control employees also work with our suppliers to ensure that their processes and systems are capable of delivering the parts and components we need at the required quality level, on time, and on budget. Smith Europe received its ISO 9001 certification in August 2011. We are currently working to meet the requirements for ISO certification for our U.S. operations.

Warranty policies

        We sell our vehicles with standard component-based warranties under which each vehicle component is covered for a specific period of time. The powertrain, cab and chassis are covered for 36 months, the air conditioning system and the low voltage batteries that operate ancillary systems in the vehicle are covered for 12 months and the primary battery system is covered for 60 months from the date on which we release the vehicle for shipment, in each case, subject to certain exclusions and exceptions. See "—Key Suppliers" for information about the warranty terms provided by our suppliers for our key systems and components.

MAINTENANCE, SERVICE AND OTHER

        We provide maintenance services for traditional diesel-fueled vehicle fleets and, as part of our legacy Smith UK business, distribute forklifts for warehouse use through Smith Europe. From time to time we also may enter into agreements to retrofit customers' existing vehicle fleets by replacing traditional truck components with our electric components.

        After sale, we generally maintain and service our customers' vehicles. Through Smith Europe, we also provide fleet maintenance services to operators of traditional diesel-fueled vehicle fleets. This fleet maintenance business generated $11.7 million in revenue in 2010 for Smith UK. We believe that our

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fleet maintenance business provides us with consistent cash flows and with opportunities to market our commercial electric vehicles to our fleet maintenance customers. We enter into fleet maintenance contracts with certain of our customers under which we provide maintenance and repair services at rates that are agreed upon at the time we enter into the contract. These contracts typically are for six-month periods. We also offer service-for-fee arrangements for services not covered under a fleet maintenance contract or under warranty, which are priced at the time such services are provided.

        In addition to our facility located outside of Newcastle, England, we have four service facilities and a fleet of approximately 100 service vehicles throughout the United Kingdom that maintain our customers vehicles. We currently service the commercial electric vehicles we have sold in the United States by sending technicians from our Kansas City, Missouri facility to the customer's location. Services not covered under warranty are contracted for on an as needed basis and are priced at that time. Once we have established a sales, service and assembly facility in a geographic area, that facility will be responsible for servicing the Smith vehicles operating in that area. We do not, however, expect to open sales, service and assembly facilities in all of the geographic areas in which our existing and potential customers may operate our vehicles. In order to address the service needs of customers that are not in close geographic proximity to a sales, service and assembly facility, we plan to deploy technicians from our closest facility to service the vehicles at the customer's location.

KEY SUPPLIERS

        Our key suppliers and, where applicable, descriptions of our supply agreements with our key suppliers, follows.

Key suppliers with supply agreements

A123 Systems, Inc.

        Since June 2011 we have purchased lithium-ion battery modules from A123 under a product sales agreement that became effective in March 2011. Although we currently purchase five kilowatt hour modules, under the product sales agreement, we have the option to instead purchase battery cells which we can then package into modules of varying sizes. We are entitled to volume purchasing discounts on battery modules and cells we purchase under the agreement and pricing terms have been established through 2013. A123 provides us with a 48-month warranty period on products it supplies to us, which can be extended for an additional two year period of more limited warranty coverage. The agreement does not otherwise have a stated term. A123 has a right of first refusal under the agreement to supply us with certain annual volume requirements and has committed to supply us with a specified minimum number of battery modules or cells determined based on rolling 12-month forecasts.

Avia Ashok Leyland Motors S.R.O.

        Avia supplies the chassis and cab on which our Smith Newton platform is based. We purchase the chassis and cab and related components for the Smith Newton exclusively from Avia under a supply agreement we entered into in October 2010 that covers the United States, Canada and Mexico. We purchase the chassis and cab for Smith Newton vehicles produced in the United Kingdom from Avia under purchase orders. The supply agreement has an initial five-year term, which may be extended for an additional five years upon mutual agreement of the parties. Under the supply agreement, Avia granted us the exclusive right to sell and market Avia's products within the electric vehicle market in the United States, Canada and Mexico, subject to minimum purchase requirements. It is likely that we will not meet the minimum purchase requirements for 2011, and, as a result, Avia will become a non-exclusive supplier in 2012. See "Risk Factors—Our business, prospects, financial condition and operating results could be adversely affected if we lose our exclusive rights to Avia chassis and cabs in North America." Avia also has granted us the right to assemble chassis in the United States for use with Avia's cab. If we exercise this right, Avia will work with us to provide us the rights to the

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know-how and design technology required for production. Pricing under the agreement is established annually and our engineering and procurement departments work closely to reduce the manufacturing and assembly costs of Avia's products. Additionally, we act as Avia's exclusive master spare-parts and service parts distributor for electric vehicle parts to our customers in the United States, Canada and Mexico. We have branding rights over all products purchased from Avia for use in the electric vehicle market in the United States, Canada and Mexico. Avia provides us with an eight-year anti-corrosion warranty on the cabs, a two-year warranty on axles and a one-year warranty on all other parts supplied to us, subject, in the case of parts supplied to us, to certain exceptions for ordinary wear and tear.

Ford Motor Company

        Ford supplies the Transit vehicles on which our Smith Edison platform is based. Our purchases of Ford Transit vehicles are governed by Ford's limited fleet special terms and conditions. The current terms and conditions under which we purchase Ford vehicles are effective through December 31, 2011 and we anticipate entering into a new set of terms and conditions with Ford for 2012 prior to the end of 2011. We are entitled to volume pricing discounts for vehicles we purchase from Ford. Vehicles we purchase from Ford benefit from a Ford-provided three year / 100,000 mile bumper-to-bumper warranty.

Impact Clean Power Technology S.A.

        We developed our Smith Power technology in collaboration with CPTS. In September 2010, we entered into a development, supply and license agreement with CPTS under which CPTS granted us an exclusive, non-transferable, sublicensable (to subcontractors or vendors that manufacture, fabricate or supply components or parts to us) license to the technology and know-how related to the battery management system and battery pack assembly that comprises Smith Power for use in commercial electric vehicles in the United States, Canada and Mexico. The agreement has an initial term of ten years and we have the option to extend the term for an unlimited number of additional two-year terms, provided we and CPTS agree on a royalty structure for such additional two-year terms. Subject to CPTS's agreement, we have the ability to expand the scope of the license to cover additional territories. This license allows us to develop, manufacture, improve, use and sell battery pack assemblies and management systems, and includes rights in related hardware and software. CPTS currently manufactures our battery management system and assemblies, although we have the right under the development, supply and license agreement to assume control of manufacturing, either by manufacturing these components ourselves or by shifting production to third party contract manufacturers. We are required to begin manufacturing battery modules for which the design is licensed to us by CPTS within 24 months of the date of the agreement, or September 30, 2012, unless our failure to do so is a result of CPTS's failure to perform under the agreement. The agreement may be terminated by either party upon a material breach by the other. We pay CPTS royalties on the products manufactured by or on our behalf under the license and also will pay fees through September 2012 for technical support and engineering services in connection with manufacturing. In November 2011, we also granted CPTS an option to purchase 50,000 shares of our common stock. CPTS is prohibited from selling the products supplied under the agreement for use in commercial electric vehicles within the territory covered by the agreement, which initially is the United States, Canada and Mexico. CPTS is permitted to sell such products outside of such field of use and territory. We have branding rights over all products created under the license agreement that are sold in United States, Canada and Mexico. CPTS does not provide us warranty coverage for the products it supplies to us.

Magnetic Systems Technology Limited

        MagTec began supplying us with powertrain components for the Smith Newton in May 2011 and Smith Europe entered into a license and manufacturing agreement with MagTec in November 2011. The agreement has an initial ten-year term, which continues thereafter unless terminated by either us

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or MagTec on at least 12 months' notice. Under the agreement, MagTec granted us an exclusive worldwide license, with limited sublicensing rights, to manufacture and use its permanent magnet traction motor, gearbox unit and power controller, each of which are integral components of Smith Drive. MagTec initially is manufacturing the motor, gearbox and controller for us, although we have the right under the license agreement to assume control of manufacturing, either by manufacturing these components ourselves or by shifting production to third party contract manufacturers. We have the right to sublicense the rights granted to us under the agreement to subcontractors in the United States, Malaysia or the European Union, subject to certain exceptions, and in other territories with MagTec's written consent. We anticipate shifting production of these components to a contract manufacturer by the first half of 2012. Once we assume control of manufacturing, we will pay MagTec a royalty based on the number of Smith Drive systems manufactured using the licensed technology. MagTec warrants the products it manufactures and supplies to us against design and manufacturing defects and warrants the products we manufacture using MagTec's design against design defects for 12 months from the product's first use, subject to a maximum warranty period of 18 months from the date on which the product is delivered to us. We agreed to grant MagTec an option to purchase 30,000 shares of our common stock in connection with our entry into the license and manufacturing agreement. MagTec granted us a right of first refusal in connection with any sale of a controlling interest in its stock or substantially all of business to a competitor of ours, subject, in each case, to an existing right of first refusal previously granted by MagTec to a third party that is not a competitor of ours.

Sensor-Technik UK Ltd.

        Sensor-Technik UK Ltd., or Sensor-Technik, developed, based on specifications supplied by us, the technology and supplies the hardware components for our Smith Link technology. In January 2011, we entered into a development, supply and license agreement with Sensor-Technik under which we own the worldwide rights to all intellectual property and know-how related to the hardware components and software supplied by Sensor-Technik. We granted Sensor-Technik the right to manufacture and sell the hardware components and software to customers outside of the commercial electric vehicle market and outside of the United States. The agreement has a perpetual term and permits us, upon 90 days' written notice to Sensor-Technik, to manufacture the hardware components and software covered by the agreement.

Key suppliers without supply agreements

BRUSA Electronik AG

        BRUSA Electronik AG, or BRUSA, supplies chargers for use in the Smith Edison. We have not entered into a long-term contract with BRUSA, but purchase these components through purchase orders on an as needed basis. BRUSA provides a 24-month warranty on the components it supplies to us.

EDN Group S.r.l.

        EDN supplies the chargers used in the Smith Newton. We have not entered into a long-term contract with EDN, but we purchase these components through purchase orders on an as-needed basis. EDN provides a 24-month warranty on the chargers it supplies to us.

Enova Systems Inc.

        Enova supplies us with certain powertrain components that we use in the Smith Newton and Smith Edison. We have not entered into a long-term contract with Enova, but purchase these components through purchase orders on an as needed basis. Enova provides a one-year warranty on the components it supplies to us.

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StormMQ Limited

        StormMQ developed the message queuing software that allows for the encryption and decryption of the data collected and transmitted by our Smith Link technology. We have not entered into a definitive contract with StormMQ for the use of this software.

Valence Technology, Inc.

        Valence currently supplies lithium-ion batteries and battery management systems used in the Smith Newton and Smith Edison. Prior to our entry into the A123 product sales agreement discussed above, we purchased all of the battery systems used in our vehicles from Valence. We order battery modules from Valence through purchase orders on an as-needed basis. Valence provides a two year or five year warranty, depending on battery system, on the products we purchase from it.

OUR CUSTOMERS

        Our primary customers are industry-leading companies and government entities that operate substantial, depot-based, medium-duty commercial vehicle fleets in the food & beverage, utility, telecommunications, retail, grocery, parcel and postal delivery, bus, logistics, short haul, facilities management, airport operations and military and government sectors. Our customers include Frito-Lay, Coca-Cola, Staples, Sainsbury's, FedEx, TNT Express, DHL, Dairy Crest Group PLC and the U.S. Army, Navy and Marine Corps. We believe that our customers have the corporate or public commitment and resources to support and sustain the development of the commercial electric vehicle industry.

        A significant portion of our revenue is generated from a limited number of customers. Staples, Inc. and Dairy Crest Group PLC accounted for 16% and 15%, respectively, and together accounted for approximately 31%, of our combined revenue for 2010. Frito-Lay accounted for approximately 56% of our consolidated revenue for the six months ended June 30, 2011.

        We continue to focus on increasing sales to our existing customers and also are working to attract customers in new market segments, such as postal delivery and the public sector, and in the sectors in which we already have customers. As a result of this focus, as of October 31, 2011 we have an order backlog of 120 vehicles, representing vehicle revenue of $15.7 million, and have allocated nearly all of our estimated 540 production slots through July 2012. We expect that our number of available production slots will increase as we transition our supply chain, which will allow us to ramp our production and increase our production capacity. We believe that substantially all of the 120 orders included in our order backlog will not be completed by the end of 2011. We include in our order backlog vehicles yet to be produced that are subject to binding purchase agreements or written purchase orders we have received. Our order backlog excludes vehicles in inventory awaiting additional modifications or delivery to the end customer. We generally manage our production schedule on a rolling six-month forward basis and allocate production slots based on our receipt of binding purchase agreements and purchase orders as well as customers' ordering forecasts. Our allocation of production slots based on customers' ordering forecasts does not represent a guarantee that those customers will place orders, that customers will not alter their forecasted delivery dates when placing orders or that orders made will not be cancelled. Nevertheless, we believe that closely monitoring our projected production schedule allows us to better manage our business, including our inventory levels. Although the backlog of unfilled orders is one of many indicators of market demand, other factors such as changes in production rates, internal and supplier available capacity, new vehicle introductions and competitive pricing actions may affect point-in-time comparisons.

SALES, MARKETING AND DISTRIBUTION

        We primarily market and sell our commercial electric vehicles in the United States and United Kingdom through a direct sales force. We also have limited distribution arrangements with third parties

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in the Faroe Islands, France, Greenland, Hong Kong, Iceland, Ireland and Macau. We also have worked with, and intend to continue working with, with key vehicle up-fitters to jointly market our commercial electric vehicles, allowing us to leverage their sales forces, customer relationships and credibility in a market segment. Furthermore, we have retained a third party public relations firm to help us increase awareness of our company and our vehicles.

        We offer a differentiated approach to commercial vehicle sales and service that departs from traditional truck sales and service models. Our approach involves a comprehensive plan for the pilot and roll-out of our electric vehicles, as well as the ongoing replacement of existing commercial vehicles with our electric vehicles, that is tailored to the individual needs of our customers. As a part of this approach, we offer guidance to our customers regarding how to most effectively use and operate their electric vehicles and on integrating electric vehicles into their existing fleets or transitioning to all-electric vehicle operations. This plan includes the development of a multi-year purchasing forecast to help the customer systematically integrate our vehicles into their fleets, as well as analytics that provide the expected economic and environmental impact of fleet conversion. We believe that our strategy of targeting industry-leading companies and providing them with an individualized sales and service solution has elevated our public profile, enhanced the credibility of our vehicles in the marketplace and made our customers advocates of our sales approach and our vehicles, all of which enhances our ability to sell vehicles to new customers.

        As a part of our sales strategy, we separately present to our customers the base vehicle price and the battery system price. We believe that, in most cases, our base vehicle price is competitive with or a slight premium to the price of a diesel-fueled vehicle with a comparable GVW. Our approach to pricing allows customers to compare the relative merits of a diesel truck's low cost energy storage system (the fuel tank) and more expensive and volatile energy cost (the per gallon price of diesel fuel) with our vehicle's higher cost energy storage system (the battery) and lower and more predictable energy cost (the per kilowatt hour price of electricity). We believe these comparisons make our vehicles more attractive to customers than traditional diesel options, particularly during periods of rising fuel prices.

        Currently, our marketing and sales personnel are located in our Kansas City, Missouri headquarters and our facility outside of Newcastle, England. We intend to expand our marketing and sales force as we open our sales, service and assembly facilities. Each facility will have a team of dedicated marketing and sales employees with responsibility for the geographic region in which the facility is located. As a result, we believe we can efficiently and cost-effectively build out our marketing and sales network.

        We focus our marketing efforts on increasing brand awareness, generating demand for our vehicles, communicating product advantages and generating qualified leads for our sales force. We rely on a variety of marketing vehicles, including participation in industry conferences and trade shows, public relations, industry research and our collaborative relationships with our business partners to share our technical message with customers.

COMPETITION

        The medium-duty commercial vehicle market is highly competitive and we expect it to become even more so in the future as additional companies launch competing vehicle offerings. The medium-duty electric vehicle market, however, is less developed and competitive. In the broader medium-duty commercial vehicle market, we compete with small to large global corporations that provide medium-duty commercial vehicles powered by internal combustion engines, including Ford, PACCAR, Navistar, Hino, Fuso, Volvo, and Isuzu Motors. In the medium-duty commercial electric vehicle market, we compete with companies that produce all-electric commercial trucks or vehicles powered by other alternative energy technologies, such as natural gas and hybrid technologies. These competitors include Ford, which, in partnership with Azure Dynamics, produces the Ford Transit Connect EV®; Navistar, which produces the Navistar eStar®; Freightliner, which produces the

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MT E-CELL; Odyne Systems, which produces plug-in hybrid heavy- and medium-duty trucks; ZeroTruck, which produces an all-electric medium-duty truck; and Electric Vehicles International, which produces an all-electric walk-in van and light- and medium-duty commercial electric trucks.

        We believe that the primary competitive factors within the medium-duty commercial vehicle market are:

    the difference in the initial purchase prices of electric vehicles and comparable vehicles powered by internal combustion engines, both including and excluding the impact of government and other subsidies and incentives designed to promote the purchase of electric vehicles;

    the total cost of vehicle ownership over its expected life, which includes the initial purchase price and ongoing operational and maintenance costs;

    vehicle quality, performance and safety;

    government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;

    the quality and availability of service for the vehicle, including the availability of replacement parts; and

    for electric vehicles, the range over which they may be driven on a single battery charge.

GOVERNMENTAL PROGRAMS AND INCENTIVES

        We believe that the availability of government subsidies and incentives currently is an important factor considered by our customers when purchasing our vehicles, and that our growth depends in part on the availability and amounts of these subsidies and incentives. Over time, we believe that the importance of the availability of government subsidies and incentives will decrease, as we continue to reduce the upfront cost of our vehicles. In order to help ensure that we and our customers benefit from available subsidies and incentive programs in both the United States and in Europe, we have incentive specialists that work directly with our sales team and our customers on these issues.

U.S. programs and incentives

Smith Electric Vehicles Medium-Duty Electric Vehicle Demonstration Project

        In August 2009, the DOE awarded us a $10.0 million grant under the DOE's Transportation Electrification Grant Program in order to fund a portion of the EV Demonstration Project. This grant, which was increased to $32.0 million in April 2010, is comprised of two parts: a development reimbursement grant and a customer incentive grant.

        Under the development reimbursement grant, we are eligible for reimbursement of one-third, or approximately $4.0 million, of the qualifying direct costs, indirect costs, and capital expenditures we incur related to the development of electric vehicle technology. The customer participation grant makes available to us up to $28.0 million of funds from the DOE that we pass through to our customers. The total cost of the EV Demonstration Project is approximately $68.0 million, and we are responsible for funding the $36.0 million not covered by the DOE grant by November 30, 2014, which is the expiration date for the project. We satisfy the majority of our $36.0 million funding responsibility with the proceeds of sales of vehicles that participate in the project. In addition, we are required to deliver 510 vehicles under this program by September 30, 2013. If we are unable to fund our share of the project costs, we will not receive all of the funds that are available to us and our customers and we could be responsible for reimbursing the DOE for amounts funded by it in excess of its agreed upon share of project costs.

        In addition, if we fail to place in service the required 510 vehicles by September 30, 2013, we will be unable to use the full amount available to us under the program.

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        As of September 30, 2011, $17.3 million of the $32.0 million remained available for us and our customers under the grant. As of such date, we have received $1.3 million and $13.4 million in development reimbursements and customer incentives, respectively, and have no outstanding unpaid requests for customer incentives, under the grant.

        The purpose of the customer participation incentive grant is to capture performance data from an all-electric vehicle fleet of at least 500 vehicles that is based on our Newton platform, which data can be used to accelerate production and reduce the costs of, enhance the technology related to, and help procure early acceptance of all-electric vehicle fleets in the U.S. commercial vehicle marketplace. This data is collected using our Smith Link technology, which is installed in all of our vehicles. Under terms of the grant, participating vehicles will be located and operated in varying geographic and climatic regions and will include a diverse range of applications. For example, participating vehicles will include flatbed trucks, trucks with a cargo box, electric boom trucks for utility work with ancillary power options, and refrigerated trucks with a cooled compartment for the food service industry. If a customer chooses to have a vehicle included in the project, the customer and we enter into a program participation agreement that designates the term of the vehicle's inclusion in the project, the obligations of the customer under the project and the amount that the customer will be compensated for participating in the project. Customers generally receive payment of $47,500 for participating in the program for a two year period and $71,000 for participating in the program for a three year period.

        The Defense Contract Audit Agency, or DCAA, is auditing companies who have received funding from the DOE, for DOE. A DCAA audit of us, completed in October 2010, revealed significant deficiencies that are considered to be material weaknesses in our accounting system for accumulating and billing costs under government contracts or financial assistance agreements, including our process for submitting reimbursement claims, our timing for submitting rebates to our customers and our calculation of indirect costs to be reimbursed by the DOE. The DCAA audit report recommended that reimbursement of expenditures for fixed assets, direct labor and overhead be discontinued under the project until we remedy these issues. In January 2011, we responded to the DOE regarding the DCAA audit findings. Based on this response, the DOE confirmed in July 2011 that it would resume reimbursements for qualified fixed asset expenditures and direct labor costs incurred by us in connection with the EV Demonstration Project. We have submitted additional requested information to the DOE and are awaiting a decision on whether the DOE will resume reimbursement of qualified indirect costs and overhead costs. The DOE has continued to fund our customer participation payments throughout the duration of the EV Demonstration Project. If the DCAA concludes that our remedial steps taken in response to the current DCAA audit are insufficient, or a future DCAA audit reflects that we continue to have material weaknesses in our accounting system for accumulating and billing costs under government contracts or financial assistance agreements, the DOE could terminate the EV Demonstration Project and we and our customers would lose access to the remaining $17.3 million of available funding under the project.

        The grant agreement that governs our participation in the EV Demonstration Project provides that, subject to certain conditions, we may elect to retain title to any inventions conceived of or first actually reduced to practice under or during the performance of the agreement. We must, however, grant the U.S. federal government a paid-up, nonexclusive, irrevocable, worldwide license to use (or to authorize third parties to use on behalf of the federal government) such inventions. We do not believe that we are obligated, at this time, to grant the federal government a license to any inventions that are material to our business.

        We are required to provide the DOE with certain data we collect in connection with the EV Demonstration Project, periodic progress, status, financial, scientific, technical and other reports with regard to the project and semi-annual technical briefings that summarize the status, technical results and near-term plans for the project. The grant agreement that governs our participation in the EV Demonstration Project provides that, while we retain the right to use and distribute all data first

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produced in the performance of the grant agreement or delivered to the DOE under the agreement, the federal government has unlimited rights in all such data. The federal government's unlimited rights include the right to use, disclose, reproduce, prepare derivative works, and distribute copies to the public, in any manner and for any purpose, and to have or permit others to do so.

        Finally, we must provide DOE personnel with reasonable access to our facilities, personnel and books and records in connection with DOE audits of us.

California Hybrid Truck and Bus Voucher Incentive Program

        The Smith Newton, in nine different combinations of wheel bases and vehicle weights, is among the vehicles eligible for purchase during 2011 under HVIP. HVIP is a partnership between the California Air Resources Board, or CARB, and CALSTART, the purpose of which is to help speed the early market introduction of clean, low-carbon hybrid trucks. Under HVIP, dealers and fleet operators may request vouchers from HVIP on a first-come first-serve basis, up to the funding amount available for that year, to reduce the cost of purchasing hybrid and zero emission medium- and heavy-duty trucks and buses. HVIP has $18.0 million in funding available to distribute through vouchers for 2011. HVIP vouchers range in amount from $10,000 to $40,000, depending on the gross vehicle weight of the purchased vehicle. The Smith Newton vehicles that are eligible for purchase under HVIP all are eligible for $20,000 vouchers.

        HVIP funds the purchase of only fully commercialized hybrid and zero emission trucks and buses. Vehicles still in the demonstration or evaluation stage are not eligible for inclusion in HVIP. Vehicle manufacturers must apply to have their hybrid and zero emissions trucks and busses included in HVIP's voucher program. Once a make and model is included in the program, the manufacturer is not required to submit a full application for the succeeding year's program unless the vehicle has been modified.

Clean Cities

        Our customers have been reimbursed approximately $1.7 million in the aggregate for purchasing our commercial electric vehicles under Clean Cities, a program administered by the DOE's Office of Efficiency and Renewable Energy, Vehicle Technology Program. According to the DOE, the mission of Clean Cities is to advance the energy, economic, and environmental security of the United States by supporting local decisions to adopt practices that reduce the use of petroleum in the transportation sector. Clean Cities is a government-industry partnership. Under the program, public and private stakeholders from businesses, city and state governments, the automotive industry, fuel providers, and community organizations form coalitions throughout the country, which then work with the DOE to establish a plan for reducing petroleum consumption in their respective geographic areas.

        We have been in the past and are currently involved in Clean Cities coalitions in New York, Texas, Missouri and Ohio, which have taken advantage of federal funding for alternative fuel vehicles to create incentives for purchasing electric vehicles, including our commercial electric vehicles. These incentives typically will offset 50% of the cost difference between our commercial electric vehicles and standard vehicles, such as diesel trucks. These incentives have resulted in savings to our customers of between $64,000 to $94,000 per vehicle.

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Diesel Emissions Reduction Act funding

        The National Clean Diesel Funding Assistance Program, which is administered by the EPA National Clean Diesel Campaign, provides funding under the Diesel Emissions Reduction Act for projects that seek to reduce emissions from existing diesel engines. Eligible applicants include U.S. regional, state and local agencies that have jurisdiction over transportation or air quality and certain nonprofit institutions that provide pollution reduction or educational services to owners and operators of diesel fleets or that have as their principal purpose the promotion of transportation or air quality. Among the eligible uses of funding under this program are the purchase of buses and medium and heavy-duty trucks that result in reduced diesel emissions. Approximately $32.0 million of funding was available to be awarded under this program for 2011. We assist our customers in the competitive application process for awards under this program. If a customer's application for a grant is approved, the grant would cover up to 25% of the cost of the customer's vehicle purchase from us.

Congestion Mitigation and Air Quality Improvement Program

        The Congestion Mitigation and Air Quality Improvement program, or CMAQ, which is jointly administered by the DOT Federal Highway Administration and Federal Transit Administration, provides funding to states to support surface transportation projects and other related efforts that contribute air quality improvements and provide congestion relief. CMAQ funding is allocated to the states annually based on a statutory formula that is based on population and air quality classification as designated by the Environmental Protection Agency, or EPA. Each state's transportation department then is responsible for distributing the funds. State transportation departments may spend CMAQ funds on projects that reduce ozone precursors, and at least 16 states have used CMAQ funds for alternative fuel vehicle projects (such as purchasing electric or hybrid vehicles). In June 2010, in partnership with Brown Cargo Van, Dole Refrigerating Co. and Coulomb Technologies, we delivered our first medium-duty, refrigerated, all-electric delivery truck to a company in New York City under a project funded by CMAQ. We have a goal of developing a turnkey project that would allow for the easy roll out of a program similar to HVIP that includes reimbursement of $20,000 of the cost of our vehicles with CMAQ funds.

Other state incentives

        A number of states and municipalities in the United States, as well as certain private enterprises, offer incentive programs to encourage the adoption of alternative fuel vehicles, including tax exemptions, tax credits, exemptions and special privileges. For example, New Jersey and Connecticut exempt the purchase of electric vehicles from state sales tax. Other states, including Colorado, New York, Georgia and Virginia, provide for substantial state tax credits for the purchase of electric vehicles.

E.U. programs and incentives

Low Carbon Vehicle Procurement Programme

        The Low Carbon Vehicle Procurement Programme, or LCVPP, was established by the United Kingdom's Department for Transport, and is administered by its delivery partner, the Centre of Excellence for Low Carbon and Fuel Cell Technologies, in order to accelerate the introduction of lower carbon technologies into the U.K. vehicle market, with the ultimate objective of reducing overall carbon emissions from vehicle fleets. The LCVPP is administered in two phases, the first of which is ongoing with a target completion date of November 2013. All vehicles procured under Phase 1 have been delivered and are now subject to a period of vehicle performance monitoring. Purchases of vehicles under Phase 1 of the program were restricted to public sector organizations and included the City of

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London Corporation, Transport for London, the Metropolitan Police and the Environment Agency, as well as several county councils.

        The Department of Transport provided £20.0 million of funding for Phase 1 of the program between April 2008 and February 2011. Under the program, public sector organizations that purchased electric or low carbon producing vans from participating manufacturers received a rebate from the U.K. government to cover the difference in price between the electric or low carbon producing van and an equivalent sized conventional diesel van. The average rebate for the purchase of our vehicles was £50,000 per vehicle.

        Phase 1 of the program was intended to allow public sector bodies to test electric and low carbon producing vehicles in real-world conditions while simultaneously providing an opportunity for manufacturers to demonstrate the performance of their vehicles in high-profile fleets. We were one of four suppliers of electric vehicles under Phase 1, supplying 43 Edison vans out of a total 197 electric and hybrid vehicles. The U.K. Department of Transport is evaluating whether to proceed with Phase 2 of the program, which would make available additional funds to encourage the adoption of electric and low carbon producing vehicles across the public sector.

Technology Strategy Board initiatives

        The TSB, which was established in 2007 and is sponsored by the U.K. Department for Business, Innovation and Skills, is the United Kingdom's national innovation agency. The TSB's purpose is to accelerate economic growth by stimulating and supporting business-led innovation. The TSB runs competitions that are designed to accelerate innovation in specific sectors and provides partial funding for successful applicants. Generally, these competitions require several organizations to combine their expertise and collaborate to further innovation and development in particular sectors. We participate or have participated in three TSB competitions: DESERVE, EVADINE and E VAN.

        Under the collaboration agreements governing our participation in the three TSB programs, we own all rights to the intellectual property that we develop in the course of the project and jointly own the rights to any intellectual property developed jointly with another project participant. Together with the other project participants, we jointly own the information, know-how, results, inventions, software and intellectual property identified in the course of the project.

Project DESERVE

        We participated in Project DESERVE, which was administered under the Technology Programme "Ultra Low Carbon Vehicle Demonstrator" Competition for Funding, between August 1, 2008 and February 1, 2011 in collaboration with three other successful project applicants. The TSB provided total funding to the project of £384,166, which focused on the development of high energy batteries and high power supercapacitors for electric range van evaluation. We were the lead participant in the project and received individual funding of £64,000 through September 30, 2011.

Project EVADINE

        We have participated in Project EVADINE, which is administered under the Technology Programme "Ultra Low Carbon Vehicle Demonstrator" Competition for Funding, since June 1, 2009 in collaboration with four other successful project applicants. The project runs for five years until May 31, 2014 and focuses on accelerating the development of electric vehicles in northeast England. The TSB will provide aggregate total funding to the project of £5.4 million, of which we will receive approximately £179,000 in order to develop an electric version of the Ford Connect Van and to produce an executive mini-bus based on the Ford Transit vehicle platform. We have received approximately £127,000 under this project through September 30, 2011.

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Project E VAN

        We have participated in Project E VAN, which is administered under the Technology Programme BH004H./.400087 Competition for Funding, as lead participant since October 1, 2009 in collaboration with four other successful applicants. The project runs for three years until September 30, 2012 and focuses on the development of an ultra-high efficiency electrically powered vehicle system to be applied and demonstrated on a medium sized commercial vehicle. In particular, we aim to demonstrate the benefits of permanent magnet traction motors on larger vehicle platforms. The TSB will provide aggregate total funding to the project of £1.4 million, of which we expect to receive approximately £568,000. We have received total funding of approximately £219,000 under this project through September 30, 2011.

GOVERNMENT REGULATION

        Our electric vehicles are designed to comply with a significant number of governmental regulations and industry standards, some of which are evolving as new technologies are deployed. Government regulations regarding the manufacture, sale and implementation of products and systems similar to our electric vehicles are subject to future change. We cannot predict what impact, if any, such changes may have upon our business. We believe that our vehicles are in conformity with all applicable laws in all relevant jurisdictions.

Emission and fuel economy standards

        Government regulation related to climate change is under consideration at the U.S. federal and state levels. The EPA and the National Highway Traffic Safety Administration, or NHTSA, issued a final rule for greenhouse gas emissions and fuel economy requirements for trucks and heavy-duty engines on August 9, 2011, which will have an initial phase in starting with model year 2014 and a final phase in occurring in model year 2017. NHTSA standards for model year 2014 and 2015 will be voluntary, while mandatory standards will first come into effect in 2016.

        The rule provides emission standards for CO2 and fuel consumption standards for three main categories of vehicles: (i) combination tractors, (ii) heavy-duty pickup trucks and vans and (iii) vocational vehicles. We believe that the Smith Newton and Smith Edison would be considered "vocational vehicles" under the rule. According to the EPA and NHTSA, vocational vehicles consist of a wide variety of truck and bus types, including delivery, refuse, utility, dump, cement, transit bus, shuttle bus, school bus, emergency vehicles, motor homes and tow trucks, and are characterized by a complex build process, with an incomplete chassis often built with an engine and transmission purchased from other manufacturers, then sold to a body manufacturer.

        The EPA and NHTSA rule also establishes multiple flexibility and incentive programs for manufacturers of alternatively fueled vehicles, such as the Smith Newton and Smith Edison, including an engine averaging, banking and trading, or ABT, program, a vehicle ABT program and additional credit programs for early adoption of standards or deployment of advanced or innovative technologies. The ABT programs will allow for emission and/or fuel consumption credits to be averaged, banked or traded within defined groupings of the regulatory subcategories. The additional credit programs will allow manufacturers of engines and vehicles to be eligible to generate credits if they demonstrate improvements in excess of the standards established in the rule prior to the model year the standards become effective or if they introduce advanced or innovative technology engines or vehicles.

        The Clean Air Act requires that we obtain a Certificate of Conformity issued by the EPA and a California Executive Order issued by CARB with respect to emissions for our vehicles. The Certificate of Conformity is required for vehicles sold in states covered by the Clean Air Act's standards and the Executive Order is required for vehicles sold in states that have sought and received a waiver from the EPA to utilize California standards. The California standards for emissions control for certain regulated

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pollutants for new vehicles and engines sold in California are set by CARB. States that have adopted the California standards as approved by EPA also recognize the Executive Order for sales of vehicles.

        Manufacturers who sell vehicles in states covered by federal requirements under the Clean Air Act without a Certificate of Conformity may be subject to penalties of up to $37,500 per violation and be required to recall and remedy any vehicles sold with emissions in excess of Clean Air Act standards. In 2009, we received approval from CARB to sell the Smith Newton in California based on our own emissions tests. We were not granted a Certificate of Conformity because CARB had not established a formal certification procedure for heavy-duty, all-electric vehicles.

        The E.U. Directive on the Promotion of Clean Energy Efficient Road Vehicles requires local, regional and national public authorities to take into account operational lifetime energy and environmental impacts when purchasing on-road vehicles. When purchasing vehicles, public authorities must consider the vehicle's energy consumption, carbon dioxide and nitrogen oxide emissions, non-methane hydrocarbons and particular matter emissions, among other environmental impacts.

Vehicle safety and testing

        The National Traffic and Motor Vehicle Safety Act of 1966, or the Safety Act, regulates motor vehicles and motor vehicle equipment in the United States in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not conform to applicable motor vehicle safety standards established by NHTSA. Meeting or exceeding many safety standards is costly, in part because the standards tend to conflict with the need to reduce vehicle weight in order to meet emissions and fuel economy standards. Second, the Safety Act requires that defects related to motor vehicle safety be remedied through safety recall campaigns. A manufacturer is obligated to recall vehicles if it determines that the vehicles do not comply with a safety standard. Should we or NHTSA determine that either a safety defect or noncompliance exists with respect to any of our vehicles, the cost of such recall campaigns could be substantial.

        The E.U. Regulation on the Safety of Motor Vehicles sets safety standards for motor vehicles, such as electronic stability control requirements and braking standards, and imposes noise emission limit values and wet grip requirements for tires. A European Commission Regulation of April 2011 makes mandatory in Europe the safety requirements for battery-powered electric vehicles of UNECE Regulation 100 and its amendments. European standardization bodies also are expected to adopt harmonized standards on the charging of electric vehicles, which could result in additional manufacturing and design costs for electric vehicles marketed in Europe. These requirements and further amendments may restrict the marketing of electric vehicles in Europe.

Battery safety and testing

        Our battery pack conforms to mandatory regulations that govern transport of "dangerous goods," which includes lithium-ion batteries, that may present a risk in transportation. The governing regulations, which are issued by 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 air.

        Our battery module suppliers have completed the applicable transportation tests for our prototype and production battery packs demonstrating our compliance with the UN Manual of Tests and Criteria, including:

    altitude simulation, which involves simulating air transport;

    thermal cycling, which involves assessing cell and battery seal integrity;

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    vibration, which involves simulating vibration during transport;

    shock, which involves simulating possible impacts during transport;

    external short circuit, which involves simulating an external short circuit; and

    overcharge, which involves evaluating the ability of a rechargeable battery to withstand overcharging.

        In Europe, industrial batteries, including the lithium-ion batteries used in electric vehicles, are subject to the requirements of the E.U. Batteries Directive. This Directive, among other things, bans batteries containing more than 0.0005% of mercury and requires manufacturers, including vehicle manufacturers, to pay and provide for the collection, treatment, recycling, reuse and sound disposal of the batteries used in vehicles. We do not believe that the batteries we use in our U.K.-produced vehicles exceed the mercury threshold established under this Directive. The inland transportation of batteries, including lithium-ion batteries, is subject to the requirements of Directive 2008/68 on the Inland Transport of Dangerous Goods, and E.U. waste legislation also imposes stringent restrictions on the handling, intra-E.U. shipment and export to third countries of waste batteries. These requirements may delay the introduction of advanced technology vehicle batteries in Europe and impose significant costs on us. We are exploring arrangements with third parties to dispose of or otherwise recycle used battery packs. Currently, if a customer wishes to return a battery pack from one of our vehicles, we return the battery pack to our supplier for disposal.

        Our European production activities, vehicles and parts marketed in the E.U., as well as those of our suppliers, also are subject to the registration, evaluation, authorization and restrictions procedures of the E.U.'s REACH Regulation for chemicals.

Vehicle dealer and distribution regulation

        Certain states' laws require motor vehicle manufacturers and dealers to be licensed in such states in order to conduct manufacturing and sales activities. To date, we are registered as both a motor vehicle manufacturer and dealer in Missouri. We have not yet sought formal clarification of our ability to manufacture or sell our vehicles in any other states.

        We have performed an analysis of the principal laws in the European Union relating to our current distribution model and our future decentralized production, sales and service model and believe that we do now and will continue to comply with such laws; however, we have not performed a complete analysis in all foreign jurisdictions in which we may sell vehicles. Accordingly, there may be laws in jurisdictions we have not yet entered or laws we are unaware of in jurisdictions we have entered that may restrict our business practices. Even for those jurisdictions we have analyzed, the laws in this area can be complex, difficult to interpret and may change over time.

INTELLECTUAL PROPERTY

        Our success depends in part on our ability to protect our core technology, to operate our business without infringing the intellectual property rights of others and to prevent others from infringing our intellectual property rights. To protect our core technology, we rely primarily on trade secrets, including know-how, and employee and third party nondisclosure and non-competition agreements. We also rely on intellectual property licenses, other contractual rights and common law rights to establish and protect our proprietary rights in our technology. We do not own any patents and do not have any patent applications pending with the USPTO or applicable foreign patent filing offices. We have entered into intellectual property licenses with third parties in order to obtain the intellectual property rights necessary to manufacture our vehicles, including for the battery management system and battery pack used in our Smith Power system and the powertrain that forms the basis of our Smith Drive system. See "—Key Suppliers" for a description of these license agreements.

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        We filed applications for trademark protection with the USPTO in July 2011 for the marks "Smith," "Smith Electric," "Smith Link," "Smith Drive," "Smith Power," "Newton" and "Edison," and for the Smith Electric Vehicles logo in November 2011. In August and September 2011, we filed applications for international trademark registration under the Madrid Protocol and in Canada for the mark "Smith". We are in the process of filing applications to register our marks in the European Union and other designated countries around the world.

        The grant agreement that governs our participation in the EV Demonstration Project provides that, subject to certain conditions, we may elect to retain title to any inventions conceived of or first actually reduced to practice under or during the performance of the agreement. We must, however, grant the U.S. federal government a paid-up, nonexclusive, irrevocable, worldwide license to use (or to authorize third parties to use on behalf of the federal government) such inventions. We do not believe that we are obligated, at this time, to grant the federal government a license to any inventions that are material to our business.

        We are required to provide the DOE with certain data we collect in connection with the EV Demonstration Project, periodic progress, status, financial, scientific, technical and other reports with regard to the project and semi-annual technical briefings that summarize the status, technical results and near-term plans for the project. The grant agreement that governs our participation in the EV Demonstration Project provides that while we retain the right to use and distribute all data first produced in the performance of the grant agreement or delivered to the DOE under the agreement, the federal government has unlimited rights in all such data. The federal government's unlimited rights include the right to use, disclose, reproduce, prepare derivative works, and distribute copies to the public, in any manner and for any purpose, and to have or permit others to do so.

        Under the collaboration agreements governing our participation in the DESERVE, EVADINE and E VAN programs sponsored by the Technology Strategy Board, or TSB, we own all rights to the intellectual property that we develop in the course of the project and jointly own the rights to any intellectual property developed jointly with another project participant. Together with the other project participants, we jointly own the information, know-how, results, inventions, software and intellectual property identified in the course of the project. See "—Governmental Programs and Incentives—E.U. programs and incentives—Technology Strategy Board initiatives" for more information about our participation in these collaborations.

EMPLOYEES

        As of September 30, 2011, we had 281 full-time employees, of which 80 were employed by Smith in the United States and 201 were employed by Smith Europe. Seventy-six of our employees are engaged in production, 36 are engaged in research, development, design and engineering, 12 are engaged in sales and marketing, 120 are engaged in service and 37 are engaged in general and administration. None of our U.S. employees are represented by labor unions or are covered by a collective bargaining agreement with respect to their employment, while approximately 17% of our Smith Europe employees are represented by Unite the Union, a U.K. trade union. We have not experienced any work stoppages or strikes and generally believe that our relationships with our unionized and non-unionized employees are good.

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        The following table sets forth the principal functions of our full-time employees as of September 30, 2011.

Principal Function
  Smith   Smith Europe   Total  

Production

    25     51     76  

Research, development, design and engineering

    17     19     36  

Sales and marketing

    6     6     12  

Service

    13     107     120  

General and administration

    19     18     37  
 

Total

    80     201     281  

PROPERTIES

        Our corporate headquarters are located in Kansas City, Missouri. We currently lease or license facilities in Kansas City, Missouri and in the United Kingdom that are used for production, technical, research and development, sales, service and administrative purposes. We currently own two of our facilities located in the United Kingdom. We intend to add new facilities and expand our existing facilities as we add employees, increase our production and open our sales, service and assembly facilities. We believe that suitable additional or alternative space will be available in the future on commercially reasonable terms to accommodate our foreseeable future expansion.

        The following table sets forth the location, approximate size and primary use of our principal owned, leased and licensed facilities:

Location
  Approximate Size
(Building) in
Square Feet
  Primary Use   Owned,
Leased or
Licensed
  Lease/ License
Expiration Date
(if applicable)

Kansas City, Missouri

    8,600 (1) Administration and sales and marketing   Leased   May 31, 2012(1)

Kansas City, Missouri

   
400,000

(2)

Production; research, development, design and engineering; and service

 

Leased

 

September 30, 2012(3)

Washington, Tyne and Wear, England

   
250,000

(4)

Production; research, development, design and engineering; service; administration and sales and marketing

 

Licensed

 

December 31, 2013


(1)
Square footage shown reflects the size of the leased area, rather than the size of the office building. The initial term of this lease expired on May 31, 2011. The lease provides for two one-year renewal terms that may be exercised at our option, the first of which we have exercised.

(2)
We lease approximately 85,100 square feet of this facility from the Kansas City, Missouri government. We have a right of first refusal to lease approximately 72,000 square feet of the remainder of the facility.

(3)
The initial term of this lease expired on September 30, 2010. The lease provides for three one-year renewal terms that may be exercised at our option, two of which we have exercised.

(4)
Smith Europe licenses the right to use approximately 80,000 square feet of this facility from Tanfield. See "Relationships and Related Person Transactions—Tanfield Agreements—Tanfield license agreement" for further information about this license agreement.

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LEGAL PROCEEDINGS

        From time to time, we are subject to various claims arising in the ordinary course of business, including claims that our business activities infringe on the intellectual property rights of third parties, and are party to legal proceedings that constitute ordinary, routine litigation incidental to our business. In our opinion, the disposition of these claims and proceedings, after taking into account recorded accruals and our insurance coverage limits, to date has not had, and in the future will not have, a material effect on our business, financial condition, operating results or cash flows.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

        The following table sets forth information about our executive officers and directors as of November 8, 2011:

Name
  Age   Position

Bryan L. Hansel

    46   President, Chief Executive Officer, Chairman

Paul R. Geist

    48   Chief Financial Officer

Robin J. Mackie

    52   Chief Technology Officer and Senior Vice President, Director

Geoffrey E. Allison

    43   Managing Director, Smith Europe

Angela Strand Boydston

    43   Chief Marketing Officer

Ben Kevin Neal

    51   Vice President of Human Relations and Administration

Jacques D. Schira

    56   General Counsel

Francis H. Striker III

    45   Vice President of Global Operations

John N. Bridge

    69   Director

Robert J. Druten

    64   Director

Darren Kell

    43   Director

Thomas T. Stallkamp

    65   Director

        Bryan L. Hansel has served as our President and Chief Executive Officer and as a director since our inception in January 2009. Mr. Hansel was appointed Chairman of our board of directors in November 2011. Prior to joining us, from October 2004 to August 2008, Mr. Hansel served as the President and Chief Executive Officer and as a director of Evo Medical Solutions, a manufacturer and distributor of home respiratory medical devices.

        Mr. Hansel was selected to serve on our board of directors because of his extensive knowledge of our operations, strategic plan and customers through his service as our President and Chief Executive Officer and as one of our founding stockholders. We believe the experience Mr. Hansel gained through the executive positions he has held throughout his career make him an essential member of our board of directors and a vital interface between our management and the board.

        Paul R. Geist has served as our Chief Financial Officer since November 2010. Prior to joining us, Mr. Geist was employed in various finance roles by American Italian Pasta Company, or AIPC, from October 2004 to November 2010. From January 2008 through November 2010, Mr. Geist served as AIPC's Executive Vice President and Chief Financial Officer. From October 2004 through January 2008, he served as AIPC's Vice President and Corporate Controller and he was named principal accounting officer in August 2006. Previously, Mr. Geist held executive accounting and finance positions with Potbelly Sandwich Works, a privately-owned restaurant company, Westar Energy, Inc., a public electric utility, Panera Bread Company, a public restaurant company and Houlihan's Restaurant Group, Inc., including serving as Chief Financial Officer for Westar Energy, Inc. and Houlihan's Restaurant Group, Inc.

        Robin J. Mackie has served as our Chief Technology Officer and as a director since our inception in January 2009, and as our Senior Vice President since November 2011. Mr. Mackie also has served as Smith Europe's Chief Technology Officer and Senior Vice President since November 2011. From October 2005 to August 2008, Mr. Mackie served as the Director of Product Development of Evo Medical Solutions. Mr. Mackie currently serves as the Chairman of the Board of Governors of Gateshead College in England.

        Mr. Mackie was selected to serve on our board of directors because of his operational, engineering and managerial experience, as well as his extensive knowledge of our operations through his role as one of our initial officers and founding stockholders. We believe that Mr. Mackie's over 25 years of

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engineering experience in the medical and automotive industries and over ten years of experience serving on the boards of directors of technology companies enables Mr. Mackie to provide valuable guidance to our board of directors.

        Geoffrey E. Allison has served as the Managing Director of Smith Europe since we acquired the Smith UK business in January 2011. Prior to joining us, Mr. Allison served as the Managing Director of the Smith UK Zero-Emission Vehicle Division from July 2008 through December 2010. Mr. Allison previously served as Plant Manager of Tanfield's production site outside of Newcastle, England from July 2006 to July 2008. Mr. Allison served on Tanfield's board of directors from July 2008 to December 2010.

        Angela Strand Boydston has served as our Chief Marketing Officer since April 2011. Prior to joining us, Ms. Boydston worked for Proteus Biomedical, a developer of medical and biotechnology devices, where she served as Vice President of Market Development from January 2009 to April 2011 and as Senior Director of Marketing from August 2006 to December 2008.

        Ben Kevin Neal has served as our Vice President of Human Resources and Administration since February 2009. From January 1999 to June 2008, Mr. Neal served as the Vice President, Human Resources for Farmland Foods, Inc., a global food manufacturer and distributor. Mr. Neal serves as a director of the Kansas City & Vicinity Workforce Investment Board and the Kansas City International Airport Community Improvement District Board.

        Jacques D. Schira has served as our General Counsel since March 2009. From March 2006 to March 2009, Mr. Schira served as General Counsel of Medical Industries America, Inc., a medical device manufacturer and distributor. In April 2008, Mr. Schira filed a personal bankruptcy petition, which was discharged in February 2009.

        Francis H. Striker III has served as our Vice President of Global Operations since May 2011. From October 2007 to May 2011, Mr. Striker served as the Vice President of Americas Operations and the Director of the Ottawa Multi-Assembly Unit of Cargotec Solutions, LLC, a provider of cargo handling services and solutions. From May 2006 to October 2007, Mr. Striker served as the Director of Operations of United Rotary Brush Corporation, a manufacturer of road and runway rotary brooms and engineered brush products.

        John N. Bridge has served as a director since August 2009. Dr. Bridge is also Chairman of Inspiredspaces Ltd and Chairman of Integrated Bradford Ltd., companies that manage school building programs in the North East of England, and as a director of Tanfield. Since 2001, Dr. Bridge has provided consulting services to various central and local governmental bodies. From June 2001 to March 2011, Dr. Bridge served as Chairman of Endeavour Plc, a private finance initiative company in the healthcare sector. From October 2006 to June 2010, Dr. Bridge also served as Chairman of the Agriculture and Horticulture Development Board, an organization providing research and development and knowledge transfer services to the agricultural and horticultural sectors in the United Kingdom. Dr. Bridge served as Chairman of Land Trust, an organization that develops land for public use, from September 2004 to June 2010.

        Dr. Bridge was selected to serve on our board of directors because of his economics background and extensive experience in both the public and private sectors. We believe that Dr. Bridge's focus on and experience with issues including change management, risk management and strategic planning contributes important perspective and expertise to our board.

        Robert J. Druten has served as a director since November 2011. Mr. Druten served as the Executive Vice President and Chief Financial Officer of Hallmark Cards, Inc., or Hallmark, from 1994 until his retirement in August 2006. Mr. Druten previously served in various executive and corporate development roles at Hallmark. Prior to joining Hallmark, Mr. Druten served in various corporate development and accounting roles at Pioneer Western Corporation, Kansas City Southern Industries

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and Arthur Young & Co. Mr. Druten currently serves on the boards of directors of Alliance Holdings GP, LP, the managing general partner of Alliance Holdings GP, LLC, which is indirectly engaged in the production and marketing of coal to utilities and industrial users, where he is a member of the audit and conflicts committees; Kansas City Southern, a transportation company, where he is the audit committee chairman, finance committee chairman and a member of the nominating and governance committee; and Entertainment Properties Trust, a real estate investment trust, where he is the chairman of the board and a member of the compensation, nominating and governance, and finance committees. Mr. Druten served as a director of AIPC from December 2007 to July 2010.

        Mr. Druten was selected to serve on our board of directors because of his extensive experience as the principal financial officer and a board member of public companies, which led to his expertise in public accounting, internal controls, financial reporting and the preparation of financial statements. Furthermore, as a member of the Entertainment Properties Trust board of directors, Mr. Druten has helped guide a company through the registration process and its early stages as a public company. We believe that these experiences will enable Mr. Druten to help guide our strategic direction as a public company and our audit committee's oversight of our financial reporting processes.

        Darren Kell has served as a director since August 2009. Mr. Kell has served as the Chief Executive Officer of Tanfield since September 2006 and has served as a Tanfield director since December 2003. Mr. Kell had served as Tanfield's Business Development Director from 2003 to September 2006.

        Mr. Kell was selected to serve on our board of directors because he possesses 20 years of experience in senior management positions at sales and manufacturing companies, during which he has developed expertise in business-to-business sales and marketing strategies, business generation and intellectual property development in connection with commercial electric vehicles. We believe that Mr. Kell's expertise in these areas allows him to meaningfully contribute to the development and review of our strategic plans.

        Thomas T. Stallkamp has served as a director since November 2011. Since June 2004, Mr. Stallkamp has served as the founder and a principal of Collaborative Management LLC, a private supply chain consulting firm. From June 2004 to December 2010, Mr. Stallkamp served as an industrial partner for Ripplewood Holdings LLC, a private equity firm specializing in the automotive, financial, manufacturing and media sectors. Mr. Stallkamp has held numerous management, executive and board positions with companies including MSX International, Inc., a global provider of technology-driven engineering, business and specialized staffing services; DaimlerChrysler Corporation, including as president of DaimlerChrysler Corporation; and Ford Motor Company. Mr. Stallkamp currently serves on the board of trustees of EntrepreneurShares Series Trust, a registered investment company; and the boards of directors of Baxter International, Inc., where he is a member of the audit and compensation committees; and BorgWarner, Inc., a developer of powertrain technologies, where is a member of the audit committee.

        Mr. Stallkamp was selected to serve on our board of directors because he possesses more than 40 years of experience in the automotive industry in executive and management roles for OEMs and auto manufacturers. Mr. Stallkamp's experience managing complex international organizations, including manufacturing operations and procurement and supply chain logistics for Ford and Chrysler, provide him with the international perspective, industry insight, financial acumen and managerial expertise needed to help lead our board of directors.

BOARD COMPOSITION

        Our board of directors currently consists of six members. Our by-laws permit our board of directors to establish by resolution the authorized number of directors, and seven directors are currently authorized. The members of our board of directors were elected in compliance with the provisions of our amended and restated voting and drag-along agreement. This agreement will

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terminate upon the closing of this offering and there will be no further contractual obligations regarding the election of our directors. We are in the process of identifying additional independent directors to join our board of directors.

        As of the closing of this offering, our certificate of incorporation will provide for a classified board of directors consisting of three classes of directors, as nearly equal in size as is practicable. The members of each class will serve for staggered three-year terms, expiring at the first, second and third regularly-scheduled annual meetings of our stockholders following the closing of this offering. Upon the closing of this offering, the members of the classes will be divided as follows:

    the class I directors will be                    , and their term will expire at the annual meeting of stockholders to be held in 2012;

    the class II directors will be                    , and their term will expire at the annual meeting of stockholders to be held in 2013; and

    the class III directors will be                    , and their term will expire at the annual meeting of stockholders to be held in 2014.

        Upon expiration of the term of a class of directors, directors for that class will be elected for three-year terms at the annual meeting of stockholders in the year in which that term expires. Each director will serve until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal. Our certificate of incorporation and by-laws provide that our directors may be removed only for cause by the affirmative vote of holders of at least a majority of the votes that all of our shareholders would be entitled to cast in an annual election of directors. Any vacancy or on our board of directors, including a vacancy resulting from an increase in the authorized number of directors, may be filled only by the vote of a majority of our directors then in office.

DIRECTOR INDEPENDENCE

        Upon the completion of this offering, we expect that our common stock will be listed on The Nasdaq Global Market. Under Rule 5605(b)(1) of the Nasdaq Stock Market, independent directors must comprise a majority of a listed company's board of directors within one year of listing. Additionally, Nasdaq rules require that, subject to specified exceptions, each member of a listed company's audit, compensation and nominating and governance committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under Nasdaq Stock Market Rule 5605(a)(2), a director will qualify as an "independent director" only if, in the opinion of that company's board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered to be independent for purposes of Exchange Act Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.

        In                    2011, our board of directors undertook a review of its composition, the composition of its committees and the independence of each of our directors. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors determined that none of                                     , representing      of our six directors, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is "independent" as that term is defined under Nasdaq Stock Market Rule 5605(a)(2). In making this determination, our board of directors considered the relationships that each non-employee director has

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with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.

BOARD LEADERSHIP STRUCTURE

        Mr. Hansel, our President and Chief Executive Officer, was appointed as Chairman of our board of directors in November 2011. As our President and Chief Executive Officer since our inception, Mr. Hansel has been a constant and integral part of the leadership of our board and company, and he is the director most familiar with our business, industry and the challenges facing our company. Our board believes that Mr. Hansel is best situated to ensure that the board's attention and efforts are focused on the most critical matters. Mr. Hansel's combined role ensures clear accountability, enables decisive leadership and enhances our ability to communicate our message and strategy clearly and consistently to our stockholders, employees, customers and suppliers, particularly during our transition from being a privately-held company to a public company.

                            was appointed to serve as our "Lead Independent Director" in                    2011. The duties of the Lead Independent Director include: establishing board meeting agendas with the Chairman; presiding at all meetings of the board in the absence of, or upon the request of, the Chairman; calling and presiding at all meetings of the non-management directors in executive session; advising the Chairman and Chief Executive Officer on issues discussed at executive sessions of non-management directors; advising the nominating and corporate governance committee and the Chairman on the membership of the various board committees and the selection of committee chairmen; advising the Chairman on the retention of board advisors and consultants; reviewing with the Chief Executive Officer the non-management directors' annual evaluation of his performance; serving as a liaison between the non-management directors and the Chairman; serving as a liaison between the board and our stockholders; and selecting an interim Lead Independent Director for meetings at which he cannot be present.

        Our board believes that its leadership structure is appropriate because it strikes an effective balance between strategy development, independent leadership and management oversight in the board process.

BOARD COMMITTEES

        Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. Each committee will operate under a charter that has been approved by our board of directors and will have the responsibilities described below. The members of each committee will be appointed prior to the closing of this offering.

Audit committee

        Each director who is appointed to serve on our audit committee will satisfy the requirements for financial literacy of The Nasdaq Stock Market. Our board of directors has determined that Mr. Druten is an audit committee financial expert, as defined by SEC rules, and satisfies the financial sophistication requirements of The Nasdaq Stock Market. Our audit committee's responsibilities include:

    overseeing our accounting and financial reporting processes and the audits of our financial statements;

    reviewing and approving our independent auditor's qualifications and independence;

    evaluating the performance of our internal audit function and the adequacy and effectiveness of our control policies and procedures;

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    ensuring our compliance with tax, legal and regulatory requirements; and

    preparing the report required by SEC rules for inclusion in our annual proxy statement.

Compensation committee

        Our compensation committee's responsibilities include:

    discharging the responsibilities of the board of directors relating to compensation of our executive officers and directors;

    administering our equity and incentive-based compensation plans;

    preparing the annual report on executive compensation for inclusion in our annual proxy statement, in accordance with applicable SEC rules and regulations; and

    reviewing and discussing with management the Compensation Disclosure and Analysis required by rules and regulations of the SEC.

Nominating and corporate governance committee

        Our nominating and corporate governance committee's responsibilities include:

    identifying individuals qualified to become members of the board of directors;

    recommending to the board of directors the persons to be nominated for election as directors at any meeting of our stockholders at which directors are elected;

    developing and recommending a set of corporate governance principles applicable to our board of directors and regularly reviewing and recommending proposed changes to such corporate governance principles;

    recommending the members for each board committee to our board of directors; and

    overseeing the evaluation of the board of directors and management.

CODE OF BUSINESS CONDUCT AND ETHICS

        We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our president and chief executive officer, chief financial officer and other principal executive and senior financial officers. Following this offering, a copy of the Code will be available on our website, which is located at www.smithelectric.com. To the extent permitted by SEC and Nasdaq rules and regulations, we intend to disclose information as to any amendments to the Code and any waivers from provisions of the Code for our principal executive officer, principal financial officer, and certain other officers by posting the information on our website.

DIRECTOR COMPENSATION

        Except as noted in the table below, our directors do not currently receive any cash compensation for their services as directors or as board committee members. Except for the payments to Mr. Stanley identified below, we did not pay any other fees, make any equity awards, or pay any other compensation to our non-employee directors in fiscal year 2010 for their service as directors. The compensation that we paid to our President and Chief Executive Officer, our Chief Technology Officer and Senior Vice President and our former Chief Financial Officer, who also were directors during 2010, is discussed in the "Executive Compensation" section of this prospectus.

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        The following table sets forth information regarding compensation earned by our non-employee directors during 2010:

Name
  Fee Earned or
Paid in Cash ($)
  Total ($)  

John N. Bridge

         

Darren Kell

         

Bruce Shalett(1)

         

Roy Stanley(2)

  $ 74,189   $ 74,189  

(1)
Mr. Shalett resigned from the board of directors effective March 2, 2010.

(2)
During 2010, we paid Mr. Stanley a monthly fee of 4,000 British pounds sterling for his services as a director. The U.S. dollar value was calculated based on the U.S. Internal Revenue Service Yearly Average Currency Exchange Rates for 2010 of 0.647 pounds to the dollar. Mr. Stanley also received a bonus of $100,000 in April 2011 following the successful completion of our Series B preferred stock financing and a bonus of $150,000 in November 2011 following the successful completion of our Series C preferred stock financing and the transition to Smith Power and Smith Drive systems in the U.S. Mr. Stanley resigned from the board of directors effective November 4, 2011.

        In early 2011, management and our board of directors determined that it was advisable for us to implement new arrangements, to be effective upon the closing of this offering, for the compensation of directors who are not employed by us or any of our subsidiaries. We retained Mercer LLC, a compensation consulting firm, to advise us on structuring compensation packages competitive with companies of similar size, in similar industries or markets and at the same stage of maturity as us.

        Mercer analyzed market data compiled from the following companies, which we refer to as our Comparator Group, in order to develop a recommended non-employee director compensation program:

A123 Systems, Inc.   Evergreen Solar, Inc.
American Superconductor Corporation   Fuel Systems Solutions, Inc.
Amyris, Inc.   GT Advanced Technologies, Inc.
Amtech Systems, Inc.   iRobot Corporation
Broadwind Energy, Inc.   Spartan Motors, Inc.
Clean Energy Fuels Corp.   Tesla Motors, Inc.
Ener1, Inc.   Westport Innovations Inc.
Energy Conversion Devices, Inc.   Winnebago Industries, Inc.

        Based on Mercer's recommendation, our board of directors adopted a non-employee director compensation policy that will become applicable to all of our non-employee directors upon the closing

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of this offering. The following table summarizes the terms of the compensation arrangements to which our non-employee directors will be entitled:

Cash compensation

       

Annual cash retainer

  $ 30,000  

Supplemental cash retainer for Chairman

    50,000  

Supplemental cash retainer for Lead Independent Director

    10,000  

Cash retainer for service as board committee chair

       
 

Chair of audit committee

    10,000  
 

Chair of compensation committee

    5,000  
 

Chair of nominating and corporate governance committee

    5,000  

Board meeting fee(1)

    1,500  

Committee meeting fee(2)

    1,250  

Equity compensation

       

Annual equity grant

  $ 60,000  

(1)
Represents the per meeting fee payable for attendance at more than six board meetings per year.

(2)
Represents the per meeting fee payable for attendance at more than six committee meetings per year.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        John N. Bridge, Bruce Shalett and Roy Stanley served on our compensation committee during our fiscal year ended December 31, 2010. Neither Mr. Shalett nor Mr. Stanley currently serves on our board of directors. No such member of our compensation committee is or has been a current or former officer or employee of ours. Messrs. Shalett and Stanley had material interests in transactions with us that are reported under "Relationships and Related Person Transactions." Dr. Bridge did not have any such interests. None of our executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as a director or member of our compensation committee during our fiscal year ended December 31, 2010.

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

        The following discussion and analysis of compensation arrangements of our named executive officers for 2010 and 2011 should be read together with the compensation tables and related disclosures set forth below. This discussion contains forward-looking statements that are based on our current considerations, expectations, and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation programs that we adopt may differ materially from current or planned programs as summarized in this discussion.

Compensation philosophy

        We intend to be a leading global producer of medium-duty commercial electric vehicles. In order to achieve this goal, we must attract, retain and motivate talented, qualified and committed executive officers who share our philosophy and are willing to work toward this goal. However, as an early stage company we often have not been in a position to immediately provide our executive officers with total compensation that is competitive with that offered by the companies with which we compete for talent. Instead, we typically have hired our executive officers at compensation levels that were lower, and in some cases substantially lower, than the compensation paid to similarly situated executives in our industry and geographic market, and increased our executives' compensation following the completion of financing transactions. This is particularly true for the executives who have been with us since early 2009.

        Given our limited operating history, we have not yet developed a formal compensation philosophy or program; however, the following general principles guide our executive compensation decisions:

    Executive compensation should reflect our financial position. Prior to this offering, we have relied on private financings for working capital and have experienced periods of limited cash availability. As a result, we have structured our executives' total compensation to reflect our limited capital resources.

    Our executive team generally should be compensated equitably relative to one another, based upon their respective duties and their relative levels of responsibility and performance.

    Our executives should bear financial risk, and reap financial reward, for the growth and success of our company.

        In early 2011, we retained Mercer to review our existing executive compensation program and work with our management to develop an executive compensation program that positions us to compete for and retain executive talent, grow our business and create stockholder value as a public company. This is an ongoing process, the goals of which include:

    Establishing a compensation program structure to attract and retain highly qualified executive officers.

    Developing compensation guiding principles, including a comparative peer group and targeted market positioning for different compensation elements.

    Harmonizing salary, equity awards, and other compensation benefits for executive officers hired under different circumstances.

    Continuing to align executive officer compensation, both in individual cases and as a team, to the long-term interests of stockholders.

    Developing a flexibility that permits the accommodation of appropriate individual circumstances.

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    Emphasizing clear, easily-measured performance goals to help align executive officer compensation with the long-term interests of stockholders.

Named executive officers

        The following persons are our "named executive officers" for 2010, as determined in accordance with SEC regulations.

Name
  Principal Position

Bryan L. Hansel

  President and Chief Executive Officer

Paul R. Geist(1)

  Chief Financial Officer

Kevin Kelly(2)

  Former Chief Financial Officer

Robin J. Mackie

  Chief Technology Officer and Senior Vice President

Jacques D. Schira

  General Counsel

Ben Kevin Neal

  Vice President of Human Resources and Administration

(1)
Mr. Geist became our Chief Financial Officer on November 22, 2010.

(2)
Mr. Kelly resigned as our Chief Financial Officer effective August 15, 2010.

Historical process for determining compensation for our executive officers

        Compensation for our executive officers historically has been individualized and has been based on a variety of factors, including, in addition to the principles listed above, our need for that particular executive position. Our executive officers' compensation generally is established at the time the executives begin employment with us and is memorialized in an employment agreement or offer letter.

        Prior to offering employment to an executive, our Vice President of Human Resources and Administration reviews multiple subscription-based and public compensation analyses that include data for comparable executive positions in the Midwestern portion of the United States and at companies with which we believe we compete for executive talent. Once we have determined a market compensation range for the position, our President and Chief Executive Officer weighs this information with our financial position, the candidate's experience and then-current compensation, and how the market compensation range compares to the compensation we provide to our other executives, in order to develop a proposed compensation package for the position. This compensation package then is subject to negotiation with the executive officer candidate. Once management and the executive officer candidate have reached agreement on the terms of the candidate's compensation, our President and Chief Executive Officer presents the proposed arrangement to our board of directors for approval. The board retains the discretion to modify the terms of any such proposed arrangement.

        After establishing an executive officer's total compensation at the time of hire, our board of directors, upon the recommendation of our President and Chief Executive Officer, may from time to time increase the executive's compensation. These increases typically follow the completion of financing transactions and have been based on our President and Chief Executive Officer's determination that the increases are merited based on our financial position, the executives' performance and their respective compensation levels relative to the rest of our executive team, and our understanding of the relevant market for the executives' positions. Our board of directors has not, however, historically undertaken a systematic annual review of executive officer compensation.

        We currently do not have any policies for allocating compensation between long-term and short-term compensation or cash and non-cash compensation. Our mix of compensation elements is designed to reward recent results and motivate long-term performance through a combination of cash and equity awards. Prior to 2011, following an initial equity grant in connection with commencement of an executive officer's employment, we have not granted equity awards to our executives on an annual

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or other regular basis. As a result of the historically infrequent grants of equity awards to our executive officers, we have not taken a systematic approach to targeting base salary and cash bonus as a certain proportion of total compensation.

2011 executive employment agreements

        Between September and November 2011, we entered into new employment agreements with each of our named executive officers, other than Robin Mackie, who entered into an employment agreement with Smith Europe in November 2011. We entered into these new agreements in order to more closely align the benefits, including the severance benefits, we provide to, and the restrictive covenants imposed on, our named executive officers. See "—Agreements with Executives" for descriptions of these agreements. The principal economic terms of our arrangements with our named executive officers, such as base compensation, bonus eligibility and severance benefits, were relatively unchanged by our entry into these new employment agreements. The principal differences between the agreements we entered into in 2011 and our named executive officers' prior employment agreements follow:

    the maximum discretionary performance bonus that may be paid to a named executive officer for any year is no longer set at 100% of base salary; instead, this maximum performance bonus payout, as well as the performance targets applicable to the bonus opportunity, are determined annually by our President and Chief Executive Officer or our board of directors or compensation committee;

    we no longer provide any of our named executive officers with severance benefits upon the termination of their employment with us by mutual agreement; and

    in order to receive severance benefits under the new agreement, a named executive officer whose employment with us has terminated is required to execute, deliver to us and not revoke a release of claims agreement.

Compensation elements

        Given that we are an early stage company with limited resources and without publicly-traded equity securities, the primary focus of our executive compensation program has been on attracting and retaining executive talent primarily through cash compensation in the form of base salary and bonuses. However, we also have made limited equity grants in the form of stock options and restricted stock to our named executive officers and provide our named executive officers with severance benefits. Our named executive officers are eligible to participate in our employee benefit plans and we also provide our named executive officers with certain perquisites our management and board of directors determines are reasonable and appropriate. A description and the intended purpose of each of these compensation elements follows.

Base salary

        We use base salaries to recognize the experience, skills, knowledge and responsibilities of our employees, including our named executive officers. Base salaries for our named executive officers are established through negotiation at the time the executive is hired, taking into account the benchmarking data discussed above, the executive's qualifications, experience and prior salary. None of our executive officers is currently party to an employment agreement that provides for automatic or scheduled increases in base salary and no formulaic base salary increases are provided to our named executive officers. Our board of directors does, however, have the discretion to evaluate and adjust upwards the base salary of each named executive officer based on the scope of an executive's responsibilities, individual contribution, prior experience and sustained performance. Any decision regarding salary increases may, but need not, take into account the executive's current salary, equity ownership and the amounts paid to an executive's peers inside our company.

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        In November 2011 our board of directors approved base salary increases of $75,000 for our President and Chief Executive Officer and our Chief Technology Officer and Senior Vice President. In determining to approve these increases, the board considered these executives' significant contributions to growing our company since our inception in January 2009, particularly as related to our recent financing activities, customer wins and transition to our Smith Power and Smith Drive systems in the U.S., and their respective total compensation levels as compared to similarly situated executives at Comparator Group companies.

        The following table sets forth information regarding the annual base salary for fiscal years 2010 and 2011 for our named executive officers. Each named executive officer's base salary, other than Mr. Mackie's base salary, was initially established in his employment agreement. Prior to November 8, 2011, Mr. Mackie provided services to us pursuant to an oral agreement, which included an understanding regarding his base compensation.

Name
  Fiscal 2010 Base Salary   Fiscal 2011 Base Salary  

Bryan L. Hansel(1)

  $ 350,000   $ 425,000  

Paul R. Geist

    265,000     265,000  

Kevin Kelly(2)

    175,000      

Robin J. Mackie(3)

    250,000     325,000  

Ben Kevin Neal

    175,000     175,000  

Jacques D. Schira

    225,000     225,000  

(1)
Mr. Hansel's base salary was increased to $425,000 effective November 4, 2011. Prior to this increase, his base salary was $350,000.

(2)
Mr. Kelly resigned as our Chief Financial Officer effective August 15, 2010.

(3)
Mr. Mackie's base compensation was increased to $250,000 effective April 1, 2010 and to $325,000 effective November 8, 2011. Prior to these increases, his base compensation was $204,167 and $250,000, respectively.

Cash bonuses

        We historically have paid cash bonuses to our executive officers following the completion of financing transactions, as we then have the resources available to do so. These bonuses have been paid at the discretion of our President and Chief Executive Officer and our board of directors, and the amounts paid were determined at the time the bonuses were approved. We use cash bonuses to reward our executive officers for their work in accomplishing our corporate goals and growing our company and to more closely align their total compensation with the compensation paid to similarly situated executives in our industry and geographic market.

        The employment agreements we entered into when we hired our named executive officers (other than Mr. Mackie, who provided services to us pursuant to an oral agreement until November 8, 2011) provided for a discretionary annual performance bonus opportunity equal to 100% of their respective base salaries that would be paid based on the achievement of individual and corporate goals. These goals were established in the executives' employment agreements or were to be determined by our management team and approved by the board of directors prior to the relevant performance year. To date, we have not provided any of our named executive officers with an annual performance bonus opportunity tied to specific performance goals due to our limited financial resources. Our management team annually establishes strategic operational, financial and other goals for our company, which are reviewed and, as needed, revised, quarterly, but these goals are not established or tracked for purposes of determining our executives' bonuses. As discussed under "—2011 executive employment agreements," the employment agreements we and our named executive officers entered into in 2011

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also provide for a discretionary annual performance bonus opportunity that would be paid based on the achievement of individual and corporate goals.

        The following table sets forth the cash bonuses we paid to our named executive officers in 2010. The bonuses were paid following the closing of our Series A debenture financing.

Name
  2010 Bonus Amount  

Bryan L. Hansel

  $ 100,000  

Paul R. Geist(1)

     

Kevin Kelly

    10,000  

Robin J. Mackie

    65,000  

Ben Kevin Neal

    20,000  

Jacques D. Schira

    10,000  

(1)
Mr. Geist was hired as our chief financial officer after bonuses were paid for 2010.

        In order to encourage Mr. Geist to join us, we agreed to pay Mr. Geist two nondiscretionary bonuses based on retention and our achievement of goals related to our initial public offering. Mr. Geist is entitled to a guaranteed bonus of $100,000 if he remains employed by us through October 1, 2011, which we paid to Mr. Geist in October 2011. Additionally, Mr. Geist is eligible to receive a cash bonus equal to 100% of his base salary, with 50% of such bonus becoming due and payable if a registration statement for our initial public offering is filed with the SEC on or prior to October 21, 2012 and the remaining 50% becoming due and payable if we complete our initial public offering by October 21, 2012.

Equity grants

        We offer long-term incentives to our named executive officers through grants of stock options and restricted stock. We primarily use stock options and restricted stock to compensate our named executive officers in the form of initial grants in connection with the commencement of employment. We also made stock option grants to our executive officers in April 2011 and to certain of our executive officers in November 2011, following the closing of our Series B financing and the closing of our 2011convertible notes financing and launch of our second generation Smith Newton, respectively. See "—2011 bonuses and equity awards."

        Prior to this offering, our executives were eligible to participate in our 2009 Incentive Compensation Plan. Following the closing of this offering, our executives will be eligible to receive stock-based awards pursuant to our 2012 Incentive Plan. Under the 2012 Incentive Plan, our executives are eligible to receive grants of stock options, stock appreciation rights, shares of restricted stock, restricted stock units and any other form of stock-based awards. The plan also permits cash incentive awards. See "—Equity Compensation Plans" for a description of the 2009 Incentive Compensation Plan and 2012 Incentive Plan.

        Prior to our November 2011 stock option grants, the stock options and restricted shares we have granted to our executives generally cliff vest on the second anniversary of the grant date, and vesting is accelerated upon a change in control of us, an initial public offering of our stock or the existence of "good reason." The stock options we granted in November 2011 vest as to 50% of the shares covered by the options on the first anniversary of the grant date and vest as to the remaining 50% of the covered shares on the second anniversary of the grant date. Vesting of these options accelerates upon a change of control of us or if "good reason" exists. Good reason generally exists if we (i) materially reduce a named executive officer's compensation or position, duties or responsibilities, (ii) assign duties materially inconsistent with a named executive officer's position, (iii) materially and adversely change a named executive officer's reporting relationships, (iv) require the named executive officer to be based

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at a location more than 75 miles from the office at which the executive was based when the grant was made or (v) materially breach any employment agreement we have entered into with the named executive officer. Vesting is also accelerated if a named executive officer is terminated without cause or as a result of death or disability or if a named executive officer resigns for good reason. In such a case, stock options will become exercisable for the 120 days following the termination of employment. "Cause" generally exists if the named executive officer has (a) been grossly negligent or engaged in willful misconduct, fraud, embezzlement, acts of dishonesty or a conflict of interest relating to our affairs; (b) been convicted of or pleaded nolo contendere to any crime relating to our business affairs; or (c) engaged in a willful violation of any federal or state securities laws. A named executive officer will forfeit all unvested equity awards if he or she is terminated for cause or resigns without good reason. Prior to the exercise of a stock option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights or the right to receive dividends or dividend equivalents.

        We do not have any equity ownership guidelines for our executives, but believe that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our stockholders. In particular, because employees profit from stock options only if our stock price increases relative to the stock option's exercise price, we believe stock options provide meaningful incentives to employees to achieve increases in the value of our stock over time. Additionally, the vesting feature of our equity grants contributes to executive retention by providing an incentive to our executives to remain in our employ during the vesting period.

        We have historically granted stock options at exercise prices of no less than the fair market value of shares of our common stock on the date of grant as determined by our management or, with respect to stock options granted under our 2009 Incentive Compensation Plan, our compensation committee. The exercise price of all stock options granted after the closing of this offering will be equal to the fair market value of shares of our common stock on the date of grant, which generally will be determined by reference to the market price of our common stock. We historically have not had a program, plan or practice of selecting grant dates for equity incentive awards to our executive officers in coordination with the release of material non-public information. As a privately-held company, there has been no market for our common stock. Accordingly, to date we do not have a program, plan or practice pertaining to the timing of stock option grants to executive officers coinciding with the release of material non-public information. Following this offering, we intend for all equity awards we grant to be granted shortly after publication of our quarterly or annual earnings releases.

Severance benefits

        We have agreed in each of our named executive officer's employment agreement, under certain circumstances, to provide such executives severance benefits and/or accelerated vesting of equity awards if their respective employment terminates. We believe that providing these benefits to our named executive officers incentivizes them to, among other things, cooperate in negotiating any change of control, including a change of control in which they believe they may lose their jobs. See "—Potential Payments Upon Termination or Change of Control" and "—Agreements with Executives" for a description of these benefits and our named executive officers' employment agreements.

Benefits and perquisites

        We maintain broad-based welfare benefits that are made available to all employees from time to time and subject to the terms of the applicable plan, including our medical, dental and vision care plans, life and accidental death and dismemberment insurance policies and long-term and short-term disability plans. These benefits are designed to attract and retain employees and provide security for their health and welfare needs. Our named executive officers are eligible to participate in each of these

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programs on the same terms as non-executive employees, except that we pay 100% of the premiums for our U.S.-based named executive officers' medical and dental insurance coverage, whereas we pay only 70% of such premiums for our U.S.-based employees generally. We do not at this time offer any retirement benefits. We also provide our executive officers with perquisites that we believe complement other compensation vehicles and enable us to attract and retain key executives. These perquisites include automobile allowances, company-paid cell phone plans, airline club memberships, use of a corporate apartment and reimbursement of commuting expenses.

2011 bonuses and equity awards

        We paid cash bonuses and granted stock options to our named executive officers in April and to certain of our executive officers in November 2011. Our President and Chief Executive Officer recommended and our board of directors approved cash bonuses and stock option grants to Messrs. Hansel, Mackie, Neal and Schira following the completion of our Series B financing and the completion of our 2011 convertible notes financing and the launch of our second generation Smith Newton. Mr. Geist received stock option and restricted stock grants in April 2011 in respect of a sign-on equity award and we paid Paul Geist a $100,000 retention bonus provided for under his employment agreement in October 2011.

        The options granted to Messrs. Hansel, Mackie, Neal and Schira in April 2011 will vest on March 8, 2013, and the options and restricted shares granted to Mr. Geist in April 2011 will vest on November 22, 2012, or in either case, immediately upon a change of control of us or the completion of this offering or if good reason exists. The stock options we granted in November 2011 vest as to 50% of the shares covered by the options on the first anniversary of the grant date and vest as to the remaining 50% of the covered shares on the second anniversary of the grant date. Vesting of these options accelerates upon a change in control of us or if good reason exists.

        The cash and stock option awards made to our named executive officers to date in 2011, and the mix of cash and options included in the total award amounts, were intended to reward our executives for their efforts in connection with our financing and operational successes, provide our executives significant cash payments at times when we had the resources available to do so and also to foster retention, help further align our executives' interests with those of our stockholders and to motivate our executives to continue to work towards our initial public offering. The stock option grants made to Messrs. Neal and Schira in November 2011 also were intended to return their equity interests in our company to approximately one percent of our fully diluted common stock.

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        The following table sets forth information regarding the cash bonuses paid and restricted stock and stock options granted to our named executive officers to date in 2011.

 
   
  Equity A