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TABLE OF CONTENTS 2

As filed with the Securities and Exchange Commission on September 6, 2012

Registration No. 333-177876

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549



AMENDMENT NO. 7
TO
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

  Amount to be
Registered(1)

  Estimated
Maximum Offering
Price Per Share(2)

  Estimated Maximum
Aggregate Offering
Price(3)

  Amount of
Registration
Fee(4)(5)

 

Common Stock, $0.001 par value (including Preferred Stock Purchase Rights(5)(6))

  5,117,500   $18.00   $92,115,000   $10,556.38

 

(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(a) under the Securities Act of 1933.

(3)
Includes the offering price of shares issuable upon exercise of the underwriters' over-allotment option.

(4)
Previously paid.

(5)
Each share of Common Stock will include one preferred stock purchase right, or right, that entitles the holder to purchase from the registrant one ten-thousandth of one share of the registrant's Series A Junior Participating Preferred Stock, par value $0.001 per share, at a purchase price of $94.00. See "Description of Capital Stock—Anti-Takeover Considerations—Stockholder Rights Plan" for further details. Because the rights trade together with the registrant's Common Stock, the registration fee for the Common Stock also covers the rights.

(6)
The rights initially will trade together with the registrant's Common Stock. No separate consideration will be payable for the rights.

          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 September 6, 2012

Preliminary Prospectus

4,450,000 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 4,221,804 of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional 228,196 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 $16.00 and $18.00 per share.

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

        We are an "emerging growth company" under the federal securities laws and will be subject to reduced public company reporting requirements.

        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 18 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 667,500 shares of our common stock at the public offering price, less underwriting discounts and commissions, 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, after underwriting discounts and commissions but before expenses, will be $            .



UBS Investment Bank   Deutsche Bank Securities   Barclays



CRT Capital

Delivery of the shares will be made on or about                                    .


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PHOTOS


        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, 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

  18

Forward-Looking Statements

  50

Use of Proceeds

  51

Dividend Policy

  52

Capitalization

  53

Dilution

  56

Selected Historical Financial Data

  59

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

  62

Business

  94

Management

  127

Executive Compensation

  135

Relationships and Related Person Transactions

  146

Principal and Selling Stockholders

  152

Shares Eligible for Future Sale

  154

Description of Capital Stock

  157

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

  164

Underwriting

  168

Legal Matters

  175

Experts

  175

Where You Can Find More Information

  176

Index to Consolidated and Combined 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, or Tanfield, which was operated by SEV Group Ltd. and Saxon Specialist Electric Vehicles, a wholly owned subsidiary and division, respectively, of Tanfield. 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 and government publications, surveys and forecasts, including those generated by LMC Automotive (formerly known as J.D. Power and Associates), R.L. Polk & Co., KPMG International and Pike Research LLC. Certain target market sizes presented in this prospectus have been calculated by us (as further described below) based on such data. We have not independently verified the correctness and truthfulness of such data. 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 and technologies 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, of between approximately 14,000 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, in the first quarter of 2012 we introduced a Newton model in the United States that is configured as a step van.

        We believe our vehicles provide a lower total cost of ownership, which includes a vehicle's upfront cost as well as ongoing costs such as fuel and maintenance, than that of conventional diesel vehicles. Our vehicles feature a battery system that is scalable to meet the varying range and economic needs of commercial fleets. We believe electric vehicles are ideally suited for the return-focused 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 have an advantage in mechanical simplicity, requiring less maintenance than diesel vehicles due to the smaller 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.

        During the year ended December 31, 2011 and the six months ended June 30, 2012, we sold 270 and 90 vehicles, respectively. Based on our order backlog of 444 vehicles as of August 31, 2012, customers' ordering forecasts and anticipated supply chain capacity, we currently expect to produce approximately 380 vehicles during 2012, approximately 60% of which we expect will be produced in the

 

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fourth quarter. Based on similar factors and our expectations for customer demand, we expect to significantly increase our production in 2013 and in future years. These expectations do not, however, represent guarantees that we will achieve our expected levels of orders, production or sales. Our order backlog is not necessarily indicative of future sales. As of June 30, 2012, we had produced 79 vehicles during 2012.

        For our fiscal years 2011, 2010 and 2009 and six months ended June 30, 2012, we had revenue of $49.9 million, $35.6 million, $22.9 million and $16.8 million, respectively, and we incurred net losses of $52.5 million, $30.3 million, $17.5 million and $27.3 million, respectively. We have received a report from our independent registered public accounting firm on our 2011 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 sufficient capital, raise substantial doubt about our ability to continue as a going concern.

        Our current customers include operators of some of the largest fleets of medium-duty commercial delivery vehicles in the world and leading early adopters that are incrementally transitioning portions of their fleets to commercial electric vehicles. We have focused on building deep relationships with our customers to understand their needs and to develop vehicles that satisfy those needs. Our goal is to provide these customers with high quality vehicles that meet their range and operational needs, which we believe, over time, will lead to repeat orders and sustainable order volume growth. We expect that attaining higher order volumes will enable us to move production of components from low-volume suppliers to medium-volume automotive grade manufacturers which, in turn, will position us to accelerate our cost reduction strategies and continue to expand sales to existing customers and attract new customers.

        We sell our vehicles through our direct sales force, as well as limited third party distribution agreements. Our vehicles are utilized by 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 assisting customers to identify and take advantage of limited availability government assistance programs in the near term, the development of a multi-year purchasing forecast to help the customer systematically integrate our vehicles into its fleet and analytics that project the expected economic and environmental impact of fleet conversion. We believe that our strategy of targeting industry-leading companies and providing them with individualized sales and service solutions has elevated our public profile, enhanced the credibility of our vehicles in the marketplace and turned our customers into advocates of our sales approach and our vehicles, all of which enhance our ability to obtain repeat orders and sell vehicles to new customers.

 

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        We intend to build Smith brand equity by seeking to deliver to customers strong returns on their investment in our vehicles. Our current vehicle price, which includes both the base vehicle and battery system, is, however, higher than the price of a diesel-fueled vehicle with a comparable GVW. Therefore, as a part of our sales strategy, we separately present to our customers the base vehicle price and the battery system price, which allows customers to compare the relative merits of a diesel truck's low cost energy storage system (the fuel tank) and higher and more 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 14,000 to 26,400 pounds, a payload capacity of approximately 6,100 to 16,200 pounds and a range of up to 40 to 150 miles on a single charge 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. During the first quarter of 2012, we introduced a Newton model in the United States that is configured as a step van. The Newton step van has a GVW of approximately 14,000 to 22,000 pounds and a payload capacity of approximately 2,700 to 10,000 pounds. 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, which we expect to be available in 2013.

        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 on a single charge 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.

        During the year ended December 31, 2011 and the six months ended June 30, 2012, we had a gross loss of $19.6 million and $12.3 million, respectively. We anticipate that we will continue to sell our vehicles at a gross loss through the fourth quarter of 2012, turning to a positive gross margin in the first quarter of 2013, although there are no assurances that we will not continue to sell our vehicles at a gross loss after 2012. Our gross loss as a percentage of revenue has increased in each of our last three fiscal years. To improve the economic advantage of our vehicles over diesel trucks and our gross margin, we are working to reduce our material, operating and production costs, which we expect will enable us to further reduce the prices of our vehicles while improving our sales volume. We have implemented a global framework consisting of three interrelated cost reduction strategies, which we refer to as our "cost down" initiative, that we believe will help us achieve these goals and, in turn, achieve profitability.

        The first strategy is focused on transitioning the highest cost portions of our supply chain from low volume suppliers to a medium-volume automotive grade supply chain. This strategy relates principally to the components used in our battery system and powertrain. We have transitioned our U.S. battery module supply to A123 Systems, Inc., or A123, and we are working with Magnetic Systems Technology Limited, or MagTec, our development partner for our Smith Drive system, to transfer production of our key Smith Drive components to a medium-volume supplier, which we expect to occur in the fourth

 

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quarter of 2012. In connection with this transition, we have validated the technical capabilities and production capacity of Alliance Contract Manufacturing Sdn Bhd, or ACM, a contract manufacturer based in Malaysia, and have completed the technology transfer necessary for ACM to begin production of the motor, gearbox and control electronics unit that comprise our Smith Drive system. The second strategy 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. We transitioned our U.S.-produced Newton to our Smith Power and Smith Drive systems in the fourth quarter of 2011, transitioned our U.K.-produced Newton to our Smith Drive system in the first half of 2012 and expect to transition our U.K.-produced Newton to our Smith Power system in the second half of 2012 and our Edison vehicles to these systems in the first half of 2013. As we proceed in this transition, we expect to qualify additional suppliers that can meet our specifications. For example, we have qualified an alternative supplier for the battery modules used in our U.S.-produced Newton vehicles and the battery systems used in our U.K.-produced Newton and Edison vehicles. The third strategy involves the transition of the supply chain for our ancillary components to higher volume and lower-cost suppliers. This strategy relates principally to certain components of our chassis and cab, such as battery control and junction boxes, battery enclosures, compressors and harnesses. For many of these components we have completed the engineering, specifications and vendor selection.

        We generally are pursuing all three cost down strategies concurrently and expect to complete our current cost down initiative in the first quarter of 2013 for the Newton and in the second quarter of 2013 for the Edison. As a result of our cost down initiative, we expect our material cost to decrease by approximately 30% and 18%, compared to the second quarter of 2012, by the end of the second quarter of 2013 for our Newton chassis cab with an 80 kilowatt hour battery pack and our Edison platform, respectively. Thereafter, we expect to pursue continuous improvements in our supply chain and vehicle production costs. There is no guarantee, however, that our cost down initiative will reduce our material costs to the extent or within the timeframe we expect. Our ability to timely complete our cost down initiative is largely dependent on our ability to raise sufficient capital to assure new suppliers that we will have the ability to meet our financial commitments and to fund necessary research and development, the purchase of tooling equipment and pre-production activities, both internally and for our new suppliers, and on our exhaustion of higher-cost components currently held in inventory.

        We have production, research and development, sales and service facilities in Kansas City, Missouri and outside of Newcastle, England. 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 scalable capacity, which we believe will make our decentralized production strategy financially advantageous. 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 entered into a lease agreement for a New York facility in August 2012 and anticipate opening this facility during the fourth quarter of 2012. We also are pursuing joint ventures with local market participants to produce, sell and/or service Smith-branded vehicles in promising international markets where we see opportunities that we believe can be better realized through joint venture arrangements than through Smith-owned facilities. We 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 LMC Automotive (Q2, 2012 Medium Duty World Truck Sales), global annual sales of on-highway medium-duty commercial trucks are expected to reach 815,831 units

 

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in 2012, with a compound annual growth rate, or CAGR, of 4.7% from 2012 to 2016. Within this market, according to Pike Research LLC, approximately 4,000 and 16,000 medium-duty commercial battery electric trucks are expected to be sold globally in 2012 and 2016, respectively, reflecting a CAGR of 41.4%. While Pike Research LLC expects growth in sales of medium-duty commercial battery electric trucks to outpace growth in the overall medium-duty commercial truck market, the percentage share of that market that electric vehicles are forecasted to command is expected to remain small in the near term (less than 1% in 2012, growing to approximately 1.6% in 2016). Also, in relation to the overall commercial vehicle market, the medium-duty commercial vehicle segment represents a niche opportunity for many traditional large-scale original equipment manufacturers, or OEMs.

        According to R.L. Polk & Co., there are an estimated 11.5 million total commercial vehicles in the U.S., of which 3.3 million are medium-duty trucks. Europe represents a smaller market, with an estimated 2.7 million commercial vehicles according to KPMG International. The primary drivers impacting new purchases by medium-duty fleet operators 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, have poor fuel economies and utilize depot-based routes with numerous stops and predictable distances, typically 50 to 100 miles per day. In addition, fleet owners tend to maintain a large number of standardized 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 PepsiCo's Frito-Lay division, or Frito-Lay, Coca-Cola, UPS and FedEx each 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. According to LMC Automotive, on average, gasoline and diesel trucks in this category have a fuel economy of approximately 8.4 miles per gallon. According to Pike Research LLC, diesel trucks in this category have an operating cost of $0.72 per mile, compared to an operating cost of $0.22 per mile for an all-electric vehicle in this category.

OUR COMPETITIVE STRENGTHS

        We believe that the following strengths position us well to capitalize on the expected growth in demand for medium-duty commercial electric 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. For example, we believe that electric vehicles provide a more compelling alternative to commercial fleet operators than to passenger car owners because the lifetime fuel cost of a diesel powered truck compared to the cost of the truck is significantly higher than the lifetime fuel cost of a passenger car compared to its purchase price. We believe our exclusive focus on and 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, Europe and Asia 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, FedEx 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.

    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

 

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      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 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 commercial trucks due to the relatively limited sales volume opportunity. We believe that as an early entrant with exclusive focus on medium-duty commercial vehicles, we are well positioned to avoid direct competition with the much larger organizations that produce heavy- and light-duty trucks.

Despite our competitive strengths and market growth expectations, there is no guarantee that such expected growth will occur or that we will be able to capitalize on any growth that does occur.

OUR STRATEGY

        We intend to be a leading global producer of medium-duty commercial electric vehicles. We believe that macro-level conditions affecting the commercial vehicle industry, such as 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, are favorable and should drive adoption of commercial electric vehicles generally, and our vehicles specifically. However, our growth has been constrained by our strategic decision in the first quarter of 2012 to reduce our planned 2012 production in order to focus on meeting the needs of our existing customers, our limited cash, and 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 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 have resulted in high initial vehicle costs when compared to diesel powered trucks of comparable GVWs, all

 

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of which impact customer satisfaction and limit the broader adoption of commercial electric vehicles. Key elements of our strategy to address these challenges and be a leading global producer of medium-duty commercial electric vehicles include the following.

    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, validate the economic benefit of our vehicles 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 our 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. Additionally, in the future we may leverage our technology and key components supply chain to provide customers an option of paying us to retrofit and convert their existing diesel powered vehicles into electric powered vehicles.

    Assuming control over manufacturing of key components.  We are transitioning the manufacturing of key components in our Smith Drive and Smith Power systems from low-volume suppliers to medium-volume automotive grade suppliers. We expect this transition to result in higher-quality components, faster and more reliable production and delivery, and a lower cost of production.

    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 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 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. We entered into a lease for a facility in New York City in August 2012, which we anticipate will open during the fourth quarter 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. We believe that these localized facilities also will provide us access to regional, governmental and municipal fleets and allow us to economically accept the smaller orders typically placed by these customers. We also are pursuing joint ventures with local market participants to produce, sell and/or service Smith-branded vehicles in promising

 

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      international markets where we see opportunities that we believe can be better realized through joint venture arrangements than through Smith-owned facilities.

    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.

Notwithstanding the key elements discussed above, there is no guarantee that our strategy will be effective in addressing the challenges we face or that we will become a leading global producer of medium-duty commercial electric vehicles.

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 18. For example,

    we have had a history of losses and expect to incur net losses for the remainder of 2012, 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 may 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;

    if we are unable to establish and maintain confidence that we have sufficient access to liquidity and positive long-term business prospects we may not be able to meet our cost down goals, increase our production or expand our business and our prospects, financial condition and operating results may 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;

 

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    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;

    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 material and production costs;

    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 quantity or quality at reasonable prices, including as a result of the recent bankruptcy filing by Valence Technology, Inc., or Valence, which produces the battery systems for our U.K.-produced vehicles, the financial issues affecting A123 or the operational and financial issues affecting Enova Systems, Inc. or Enova, which produces the principal powertrain components for our Edison vehicles;

    we are transitioning the powertrains and battery systems used in our 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, including any failure by A123 to timely replace at its cost potentially defective battery modules it has supplied to us, 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;

    the unavailability, reduction, elimination or adverse application of government subsidies, incentives and regulations, including the exhaustion of amounts available for customer incentives under the Smith Electric Vehicles Medium-Duty Electric Vehicle Demonstration Project, or the EV Demonstration Project, could have an adverse effect on our business, prospects, financial condition and operating results;

    if we are unable to remediate our material weaknesses in our internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired, which could negatively impact our operating results, ability to operate our business and investors' views of us;

    our ability to sell our vehicles in Europe and other international markets depends on our receipt of certain regulatory approvals and if we are unable to obtain these approvals, our business and operating results could be substantially harmed; and

    upon completion of this offering, Tanfield will beneficially own approximately 23% of our outstanding shares of common stock, par value $0.001 per share, or common stock, assuming the underwriters do not exercise their over-allotment option, and approximately 21% of our outstanding shares of common stock, if the underwriters' over-allotment option is exercised in full, and Tanfield's ownership percentage may depress the trading price of our common stock or prevent new investors from influencing significant corporate decisions.

RECENT DEVELOPMENTS

Bridge Note Financing

        Between July 16, 2012 and August 31, 2012, we entered into privately negotiated senior promissory notes, or bridge notes, having a maximum aggregate principal amount of $16.5 million with Tanfield, Continental Casualty Company and certain other third parties. We have borrowed $11.5 million in the aggregate under these bridge notes and expect to borrow up to an additional $2.0 million under the bridge notes in the third quarter of 2012. We may, however borrow additional amounts as our business needs dictate. We have the right to borrow up to the maximum principal amount of the bridge notes

 

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subject to our compliance with the covenants specified in the notes and there not having occurred a material adverse change in our business. The bridge notes accrue interest at a per annum rate of 8.00% and mature on the earlier of 180 days from the date of issuance and the closing of this offering. Our obligations under the bridge notes are secured by substantially all of the assets of Smith Electric Vehicles Corp. As of September 6, 2012, we believe we are in compliance with the conditions for borrowing under the bridge notes.

Lease Agreement for New York Facility

        In August 2012, we entered into a lease agreement for a production facility located in New York City. The lease for our New York facility provides for rent of approximately $889,200 for the first year of the term, with a three percent annual escalation thereafter. The lease requires us to maintain a $1.0 million letter of credit as a security deposit, unless, as of the fifth anniversary of the lease commencement date, we meet certain net worth thresholds, in which case either the amount of the letter of credit will be reduced to $500,000 or we will be able to provide the landlord with a cash deposit equal to three months of rent in lieu of a letter of credit. The term of the lease runs until June 30, 2023 unless earlier terminated in accordance with its terms, and we have the option to extend the term of the lease for two five-year extension terms. We incurred $0.3 million in closing costs in connection with our entry into the lease and expect to incur an additional approximately $2.2 million of expenditures during 2012 related to our New York facility, consisting of $1.5 million of improvements and equipment and approximately $0.7 million of costs to extend our infrastructure. However, there can be no assurance that, unless we complete this offering, we will have sufficient cash to fund all anticipated capital expenditures.

Letter of Intent with Enova

        In order to help secure our supply of powertrain systems and related components used in our Edison vehicles, on August 23, 2012, we entered into a non-binding letter of intent with Enova for the purchase of powertrain systems and related components in the third and fourth quarters of 2012. In the event that Enova is unable to meet our supply requirements under accepted purchase orders, we and Enova agreed to work in good faith to agree on the terms of a non-exclusive right to manufacture the powertrain systems used in the Edison through March 31, 2013. There are no assurances, however, that we will be able to complete the transactions contemplated by the letter of intent.

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;

    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

  4,221,804 shares (4,555,554 shares, if the underwriters exercise their over-allotment option in full)

Common stock offered by the selling stockholders

 

228,196 shares (561,946 shares, if the underwriters exercise their over-allotment option in full), including 23,530 shares issuable upon stock option exercises

Over-allotment option

 

667,500 shares (333,750 of which are new shares to be issued by us and 337,500 of which are currently outstanding shares to be sold by Tanfield)

Common stock to be outstanding after this offering

 

23,144,529 shares (23,478,279 shares, if the underwriters exercise their over-allotment option in full)

Use of proceeds

 

We intend to use the net proceeds to us from this offering to pay $13.7 million of principal and interest expected to be outstanding under our bridge notes; $1.3 million owed by Smith Europe to Her Majesty's Revenue and Customs, or HMRC, in the United Kingdom; and $0.5 million owed to Tanfield in connection with our acquisition of our Smith UK business. 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 51 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 18 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 June 30, 2012 and excludes:

    1,824,158 shares of our common stock issuable upon the exercise of stock options outstanding as of June 30, 2012 at a weighted average exercise price of $11.18 per share;

    140,000 shares of our common stock issuable upon the exercise of stock options to be granted upon the closing of this offering at an exercise price equal to the price at which we offer shares of our common stock to the public in this offering; 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.

 

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        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, Series C convertible redeemable preferred stock, par value $0.001 per share, or our Series C preferred stock, and Series D preferred stock into 4,808,979 shares, 2,431,170 shares and 946,420 shares, respectively, of our common stock, in each case, on a one-to-one basis, immediately prior to the closing of this offering;

    the automatic exercise, on a net exercise basis, of all of the warrants issued in our 2011 convertible notes financing and in our Series D preferred stock financing for an aggregate of 204,697 shares of our common stock upon the pricing of this offering, based on an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus;

    the issuance of 23,530 shares of our common stock upon stock option exercises by selling stockholders for sale in this offering;

    the filing of our fifth 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.

        We expect to issue up to an additional 1,095,588 shares of our common stock upon the closing of this offering as a result of the conversion of up to the entire $14.9 million of principal and interest outstanding under our Series A debentures. Our Series A debentures are convertible, at the option of the holder, upon the closing of this offering at an assumed conversion price of $13.60, which is 80% of the mid-point of the price range listed on the cover page of this prospectus.

 

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SUMMARY HISTORICAL FINANCIAL DATA

        The summary consolidated and combined financial data below 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 2011, 2010 and 2009 from our audited financial statements appearing elsewhere in this prospectus. We derived the statement of operations data for the six months ended June 30, 2012 and 2011 and the balance sheet data as of June 30, 2012 from our unaudited interim financial statements appearing 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, 2012 and results of operations for the six months ended June 30, 2012 and 2011. Operating results for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

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  Years ended December 31,   Six months ended
June 30,
 
 
  2011   2010   2009   2012   2011  
 
   
   
   
  (Unaudited)
 
 
  (in thousands, except per share amounts)
 

Consolidated and Combined Statement of Operations Data:

                               

Revenue

                               

Vehicle(1)

  $ 38,944   $ 23,827   $ 8,223   $ 12,290   $ 31,930  

Service and repairs(2)

    10,983     11,767     14,631     4,472     5,672  
                       

Total revenue

    49,927     35,594     22,854     16,762     37,602  
                       

Cost of revenue

                               

Vehicle

    57,702     33,117     13,370     24,307     40,035  

Service and repairs

    11,848     12,175     14,421     4,777     5,945  
                       

Total cost of revenue

    69,550     45,292     27,791     29,084     45,980  
                       

Gross loss

    (19,623 )   (9,698 )   (4,937 )   (12,322 )   (8,378 )

Research and development expense

    5,427     2,550     1,126     3,636     1,457  

Selling, general and administrative

    16,990     13,307     10,697     10,400     7,031  
                       

Total operating expenses

    22,417     15,857     11,823     14,036     8,488  

Operating loss

    (42,040 )   (25,555 )   (16,760 )   (26,358 )   (16,866 )

Other expense (income)

                               

Interest expense

    7,090     3,699     696     984     1,881  

Loss on extinguishment of debt

    1,353                 971  

Government grant reimbursements

    (2,214 )   (688 )   (18 )   (178 )   (205 )

Other (income) expense, net

    4,266     1,698     60     184     1,763  
                       

Net loss

  $ (52,535 ) $ (30,264 ) $ (17,498 ) $ (27,348 ) $ (21,276 )
                       

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

  $ (5.06 ) $ (2.95 ) $ (1.89 ) $ (2.63 ) $ (2.05 )
                       

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

    10,381     10,258     9,271     10,381     10,381  
                       

Pro forma net loss per share of common stock(4)

  $ (3.45 ) $     $     $ (1.42 ) $    
                       

Shares used in computing pro forma net loss per share of common stock(4)

    14,867                 18,563        
                       

(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 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

 

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    shares of common stock would have reduced our per share loss (antidilutive) and, therefore, were excluded from the calculation.

(4)
Pro forma net loss was $(51.3) million and $(26.5) million for the year ended December 31, 2011 and six months ended June 30, 2012, respectively. Pro forma net loss per share of common stock includes (i) an aggregate of 8,186,569 shares of our common stock issuable upon the automatic conversion of all of the then-outstanding whole shares of our Series B preferred stock, our Series C preferred stock and our Series D preferred stock into shares of our common stock, in each case, at a one-to-one conversion ratio, immediately prior to the closing of this offering, assuming that such conversion occurred at the later of the beginning of the period and the date on which such preferred shares were issued; (ii) the issuance of 23,530 shares of our common stock upon stock option exercises by selling stockholders for sale in this offering; and (iii) 204,697 shares of our common stock upon the exercise, on a net exercise basis, of the warrants issued in connection with our 2011 convertible notes financing and our Series D preferred stock financing, based on an assumed initial public offering price of $17.00 per share, which is the mid-point of the price range listed on the cover page of this prospectus, in each case, assuming such exercise occurred at the later of the beginning of the period and the date on which such warrants were issued. Pro forma net loss per share of common stock takes into account the adjustment, as of December 31, 2011, of the fair value of our warrant liability to reflect an assumed initial public offering price of $17.00 per share, which is the mid-point of the price range listed on the cover page of this prospectus, which decreased pro forma net loss by $0.8 million for the year ended December 31, 2011, and, for the six months ended June 30, 2012, the exclusion from pro forma net loss of a $0.8 million charge to expense to adjust the warrant liability to fair value as of June 30, 2012. Pro forma net loss per share of common stock also takes into account the repayment, as of January 1, 2011, of all of our outstanding indebtedness using the net proceeds to us of this offering, as described under "Use of Proceeds." Therefore, interest expense of $0.4 million and less than $0.1 million for the year ended December 31, 2011 and the six months ended June 30, 2012, respectively, has been excluded from our pro forma net loss per share of common stock calculation for these periods. Interest expense of $0.1 million and less than $0.1 million related to a promissory note we issued to Jefferies & Company, Inc., or Jefferies, and $0.3 million and less than $0.1 million related to the outstanding deferred purchase price owed to Tanfield was excluded from the pro forma net loss and pro forma net loss per share of common stock calculations for the year ended December 31, 2011 and six months ended June 30, 2012, respectively.

The following table summarizes our consolidated balance sheet as of June 30, 2012:

    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 whole shares of preferred stock into an aggregate of 8,186,569 shares of our common stock, in each case, based on a one-to-one conversion ratio;

    the issuance of 204,697 shares of our common stock upon the exercise, on a net exercise basis, of the warrants issued in connection with our 2011 convertible notes financing and our Series D preferred stock financing, based on an assumed initial public offering price of $17.00 per share, which is the mid-point of the price range listed on the cover page of this prospectus; and

    the issuance of 23,530 shares of our common stock upon stock option exercises by selling stockholders for sale in this offering; and

    on a pro forma, as adjusted basis to reflect:

 

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      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 $17.00 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";

      our entry into our bridge notes; and

      the issuance of 1,095,588 shares of our common stock upon the assumed conversion of $14.9 million of principal and accrued interest outstanding under our Series A debentures at an assumed conversion price of $13.60, which is 80% of the mid-point of the price range listed on the cover page of this prospectus. For each $1.0 million of principal and accrued interest under our Series A debentures that is not converted into shares of our common stock, the number of shares of common stock outstanding pro forma, as adjusted will decrease by approximately 73,500, and our pro forma, as adjusted stockholders' equity will decrease by $1.0 million.

 
  As of June 30, 2012  
 
  Actual   Pro forma   Pro forma, as
adjusted
 
 
  (Unaudited)
(in thousands)

 

Consolidated Balance Sheet Data:

                   

Cash and cash equivalents(1)

  $ 838   $ 838   $ 60,073  

Property, plant and equipment, net

    5,216     5,216     5,216  

Working (deficit) capital(2)

    (9,958 )   (4,808 )   55,991  

Total assets

  $ 30,589     30,589     85,354  

Warrants

    5,150          

Notes payable—other

    1,512     1,512      

Series A debentures(3)

    13,762     13,762      

Series A payable-in-kind accrued interest

    3,481     3,481      

Series B convertible redeemable preferred stock

    56,688          

Series C convertible redeemable preferred stock

    29,473          

Series D convertible redeemable preferred stock

    13,569          

Total stockholders' (deficit) equity

    (121,742 )   (16,862 )   61,180  

(1)
The $59.2 million increase in pro forma, as adjusted cash and cash equivalents as of June 30, 2012 compared to actual cash and cash equivalents and pro forma cash and cash equivalents as of June 30, 2012 is primarily the result of our receipt of $63.6 million of net cash proceeds from this offering, after deducting underwriting discounts and commissions and offering expenses payable by us, and $13.4 million of net cash proceeds from borrowings under our bridge notes, less our use of $1.2 million of cash to pay current and past due amounts owed by Smith Europe to HMRC and $1.1 million of cash to pay amounts owed by us to Jefferies, and our use of an aggregate of $15.5 million of the net proceeds to us from this offering to pay $13.7 million of principal and interest outstanding under our bridge notes, $1.3 million owed by Smith Europe to HMRC and $0.5 million owed to Tanfield, as described under "Use of Proceeds."

(2)
The $5.2 million reduction in the pro forma working capital deficit as of June 30, 2012 compared to the actual working capital deficit as of June 30, 2012 is primarily the result of pro forma conversion of warrants issued in connection with our 2011 convertible notes financing and our Series D preferred stock financing, which resulted in the elimination of our actual warrant liability as of June 30, 2012. The $60.8 million increase in pro forma, as adjusted working capital as of June 30, 2012 compared to the pro forma working capital deficit as of June 30, 2012 is primarily the result of our receipt of $65.6 million of net cash proceeds from this offering, after deducting underwriting discounts and commissions but excluding offering expenses payable by us, partially offset by the reclassification to stockholders' equity of our $4.2 million of prepaid offering expenses.

(3)
Consists of Series A debentures, net of discount, and Series A conversion feature.

 

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        Based on our sale in this offering of 4.2 million shares of common stock, each $1.00 increase or decrease in the assumed initial public offering price of $17.00 per share (the mid-point of the price range set forth on the cover page of this prospectus) would increase or decrease our gross cash proceeds from this offering by approximately $4.2 million and increase or decrease the related underwriting discounts and commissions payable by us by approximately $0.3 million, resulting in an increase or decrease, as applicable, in our pro forma, as adjusted cash and cash equivalents, additional paid-in capital and stockholders' equity of approximately $3.9 million.

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

    1,824,158 shares of our common stock issuable upon the exercise of options outstanding as of June 30, 2012 at a weighted average exercise price of $11.18 per share;

    140,000 shares of our common stock issuable upon the exercise of stock options to be granted upon the closing of this offering at an exercise price equal to the price at which we offer shares of our common stock to the public in this offering; 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, 2012 have an accumulated deficit of $132.8 million. We have had net losses in each quarter since our inception. Our net losses for the years ended December 31, 2011, 2010 and 2009 and for the six months ended June 30, 2012 were $52.5 million, $30.3 million, $17.5 million and $27.3 million, respectively. We expect that we will continue to incur net losses through the second quarter of 2013. We expect to incur significant future expenses as we continue to invest in our cost down initiative and developing our Smith Drive and Smith Power technologies and to 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 $51.6 million, $14.0 million, $13.4 million and $14.4 million for the years ended December 31, 2011, 2010 and 2009 and the six months ended June 30, 2012, respectively. We anticipate that we will continue to have negative cash flow from operating and investing activities for the foreseeable future, given that we expect to sell our vehicles at a gross loss through the fourth quarter of 2012, although there can be no assurance that we will not continue to sell our vehicles at a gross loss thereafter, and that we expect to incur increased research and development, sales and marketing, and general and administrative expenses and make significant capital expenditures to open sales, service and assembly facilities. Our business also will at times require significant amounts of working capital to support our growth and our cost down activities, particularly as we acquire inventory to support our anticipated increase in production. 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. There can be no assurance we will achieve positive cash flow in the forseeable future.

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We may need access to additional financing, which may not be available to us on acceptable terms or at all. We have received a report from our independent registered public accounting firm on our 2011 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 sufficient capital, raise substantial doubt about our ability to continue as a going concern. 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. Our research and development activities to support our cost down initiative also will require continued investment. We have received a report from our independent registered public accounting firm on our 2011 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 sufficient capital, raise substantial doubt about our ability to continue as a going concern. Based on an operating plan that assumes we do not receive net proceeds from this offering, we expect that our cash and cash equivalent balances, together with amounts drawn or available to be drawn under our bridge notes and our anticipated cash from operating activities, will be sufficient to fund our operating activities through the third quarter of 2012. However, based on such funding, we will not have the ability to pursue all of the cost down initiatives and the capital expenditures related to our New York facility that we would otherwise pursue under our operating plan. Based on an operating plan that assumes we receive net proceeds from this offering, we expect that our cash and cash equivalent balances, together with such net proceeds, amounts drawn under our bridge 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, for at least the next 12 months. However, if our operating costs exceed our expectations, particularly if we fail to achieve our cost down goals, or if we incur any significant unplanned expenses, we may need to raise additional funds 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 June 2012. 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.

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If we are unable to establish and maintain confidence that we have sufficient access to liquidity and positive long-term business prospects we may not be able to meet our cost down goals, increase our production or 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 suppliers, customers and within our industry. Our ability to transition our supply chain from low-volume suppliers to medium-volume automotive grade suppliers is largely dependent on our access to sufficient capital to ensure our new suppliers that we have the ability to meet our financial commitments and to fund pre-production activities. If we are unable to raise this capital, for example, we will be unable to transition the production of our key Smith Drive components from our development partner to a medium-volume supplier, which, in turn, will prevent us from meeting our cost down and production goals and adversely affect our ability to achieve profitability.

        Furthermore, 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 find it much more difficult to maintain their vehicles and obtain 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, 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 suppliers, customers 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;

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

    loss of government financial support via grants or contracts.

        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, prevent us from achieving profitability and make it more difficult to raise additional funds when needed.

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

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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 or natural gas-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 and terms of financing options for purchases of vehicles and, for commercial electric vehicles, financing options for battery systems;

    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;

    the cost and availability of other alternatives to diesel fueled vehicles, such as vehicles powered by natural gas;

    corporate sustainability initiatives;

    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 related infrastructure costs, 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

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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.

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 our Zero Emission Vehicles segment customers. For the years ended December 31, 2011 and 2010 and the six months ended June 30, 2012, two, four and two, respectively, of our Zero Emission Vehicles customers collectively accounted for approximately 50%, 40% and 42%, respectively, of our total revenue; and 64%, 60% and 57%, respectively, of our vehicle revenue. Frito-Lay accounted for 46% of our total revenue and 59% of our vehicle revenue for the year ended December 31, 2011. Staples, Inc. accounted for 16% of our total revenue and 24% of our vehicle revenue for the year ended December 31, 2010. FedEx, Frito-Lay and FreshDirect, LLC accounted for 24%, 18% and 9%, respectively, of our total revenue and 33%, 25% and 12%, respectively, of our vehicle revenue for the six months ended June 30, 2012.

        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.

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 material 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 material and production costs to the point where the cost to produce our vehicles allows us to price our vehicles, excluding the impact of government subsidies and incentives, at a level that represents an attractive 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, including as a result of the recent bankruptcy filing by Valence, the financial issues affecting A123 or the operational and financial issues affecting Enova.

        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. 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 modules for our U.S.-produced vehicles from A123 and the battery system for our U.K.-produced vehicles from Valence; the charger for the Smith Newton from EDN Group S.r.l., or EDN, located in Italy, and the charger for the Smith Edison from BRUSA Electronik AG, located in Switzerland; and the principal powertrain components for our Newton vehicles from MagTec, located in the United Kingdom, and the principal powertrain components for our Edison vehicles from 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, or cannot meet our quality or volume requirements.

        In May 2012 A123 announced that it had retained a strategic advisory firm to assist it in exploring strategic alternatives and, in August 2012, A123 announced that it had entered into a nonbinding memorandum of understanding with Wanxiang Group Corporation, or Wanxiang. According to A123's announcement, the memorandum of understanding provides for Wanxiang to invest up to $450 million in A123, although the portion of the investment that exceeds $25 million is subject to the satisfaction of certain conditions, including the receipt of certain governmental and third party approvals, some or all of which may not be able to be obtained or otherwise satisfied. Given the non-binding nature of the memorandum of understanding and the conditions associated with a significant portion of the proposed investment, there is no guaranty that a significant portion or any of this investment will be consummated. A123 also announced in August 2012 that it had received a notice of delisting from The NASDAQ Stock Market because A123's share price had closed below the minimum $1.00 per share requirement for continued listing on NASDAQ for 30 consecutive business days. Furthermore, Valence filed a voluntary petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in July 2012 and Enova recently announced that it had received a notice from NYSE MKT notifying Enova that its securities were subject to delisting from NYSE MKT because the company no longer complies with the exchange's continued listing standards. Enova previously had announced that as part of cost cutting measures, in excess of 80% of its workforce had left the company, and that the company was continuing to evaluate strategic opportunities to leverage its resources and assist with its continuing operations.

        If, for any reason, A123 is unable to continue to supply us with the battery modules we use in the U.S.-produced Newton or Valence is unable to supply us with the battery systems we use for our U.K.-produced vehicles, we will need to quickly shift our battery supply to a new supplier, which we may not be able to do in a timely manner, on acceptable terms, or at all. While we have qualified an additional supplier for the battery modules supplied to us by A123 and identified an alternative supplier for the battery systems we obtain from Valence, shifting our battery supply would require us to incur engineering and tooling costs and there is no guarantee that any alternate supplier would have capacity available at that time to timely meet our production needs. Similarly, if we are unable to complete, for any reason, the inventory purchases contemplated under our letter of intent with Enova, we will need

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to quickly shift our Edison powertrain supply. Given that we currently do not have an alternate supplier for the powertrain components we use in our Edison vehicles, we may not be able to do so in a timely manner, on acceptable terms or at all.

        Additionally, 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. See "Business—Manufacturing—Supply chain" for additional information about our supply chain and sole source suppliers.

We are transitioning the powertrains and battery systems used in our 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 upfront cost of our commercial electric vehicles to a level that, even without the benefit of government subsidies and incentives, represents an attractive premium to the cost of diesel-fueled vehicles with comparable GVWs and to achieve profitability. In connection with this transition, we are moving to a new supply chain, including suppliers with which we have limited or no prior experience, and working to certify multiple suppliers for our key vehicle components. Further, we are transitioning production of certain key components of these systems to new, higher production suppliers. We cannot be certain that any of these third parties will be willing or able to supply materials and components in adequate quality and 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.

        On March 26, 2012, A123 announced that battery modules produced using prismatic cells manufactured at A123's Livonia, Michigan facility contain manufacturing defects due to a miscalibrated welding machine used in module production which can result in premature failure of the battery module and reduced battery life. Based on A123's review of the root cause of the failure, A123 has represented that this defect does not present a safety concern. We have qualified an additional supplier for the battery modules used in our second generation Newton; however, we currently source all of these battery modules from A123. Based on a review by A123, we believe it is likely that substantially all of the battery modules we sourced from A123 prior to January 2012 contain one or more defective cells. Battery modules sourced from A123 prior to January 2012 have been installed in 78 vehicles that have been delivered to customers or upfitters. To date, we are not aware that any of the A123 modules installed in these vehicles has experienced a premature failure. We expect that A123 will replace all defective battery modules supplied to us at A123's cost. After correcting the welding machine process error, A123 resumed providing us with battery modules in May 2012, which we are using to meet our

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production needs. As our production needs and A123's supply permits, we are replacing potentially defective modules previously installed in vehicles. The timeframe in which all potentially defective battery modules will be replaced and whether ultimately we will bear any associated costs currently is uncertain. On May 15, 2012, A123 announced that it expects to be capacity constrained over its next several quarters. However, based on our current production schedule for 2012 and our communications with A123, we do not at this time expect this issue will affect our production or operating results for the third quarter of 2012. There can be no assurance, however, that these predicted supply constraints will not adversely impact our fourth quarter 2012 production and operating results, and we currently are unable to predict the magnitude of such impact, if any.

        Additionally, we did not have a consistent supply of our key Newton powertrain components during the first half of 2012, which limited the number of vehicles we were able to produce in that period and adversely impacted management's ability to project our vehicle production and sales during 2012. We are in the process of transitioning substantially all of our supply requirements for the motor, gearbox and control electronics unit that comprise our Smith Drive system to ACM, and expect to complete this transition in the fourth quarter of 2012. In connection with this transition, we have validated ACM's technical capabilities and production capacity, and have completed the technology transfer necessary for ACM to begin production of our Smith Drive system. Our purchase and installation in ACM's manufacturing facility of a limited amount of production equipment and tooling are the principal items remaining in order to complete this transition. Due primarily to cash constraints, we have not been able to complete this transition as quickly as we previously expected, which has caused us to reduce the number of vehicles we expect to produce in 2012. If, for any reason, this transition is further delayed, we will need to further reduce our anticipated 2012 production.

        If any of our suppliers are unable to scale to meet our production, cost and quality requirements or the transition of our supply chain to higher volume suppliers is delayed for any reason, including as a result of the A123 battery issue discussed above, our current production and sales forecasts may be adversely impacted, we may be unable to adequately forecast our anticipated production and sales and our business, prospects, financial condition and operating results could be adversely affected.

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 supply chain and on our ability to execute on our decentralized production strategy. For more information about the risks associated with our supply chain, see "—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, including as a result of the recent bankruptcy filing by Valence, the financial issues affecting A123 or the operational and financial issues affecting Enova" and "—We are transitioning the powertrains and battery systems used in our 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" above. 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

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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, including as a result of supply chain constraints, we may be unable to meet our customers' vehicle quality and quantity requirements or our forecasted production schedule or lower our cost of revenue. For example, our inability to obtain a consistent supply of powertrain components for the Newton has and, if we are unable to complete the transition of our supply of these components to ACM (or another medium-volume supplier) in the timeframe we anticipate or at all, will continue to limit the number of vehicles we are able to produce. 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.

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 on the availability and amounts of these subsidies and incentives. Any reduction, elimination or adverse 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, 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 $55,000, $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. Based on our current production schedule, we expect that we will exhaust the remaining $10.3 million of funding available under the EV Demonstration Project during 2013. Once available funds under the EV Demonstration Project are exhausted or lost, our customers will lose the ability to recoup up to $71,000 of the purchase price of a Smith Newton through participation in the EV Demonstration Project, which may adversely affect their willingness to purchase our vehicles in the future, particularly if our cost down initiative does not provide the cost savings we anticipate. As a result, our business, prospects, financial condition and operating results may suffer.

        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 fiscal crises and budgetary constraints, which could result in the elimination of programs, subsidies and incentives that encourage the purchase of electric vehicles. In addition, grants made by the Department of Energy, or 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 in part due to 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 or eliminated, our business, prospects, financial condition and operating results could be adversely affected.

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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 and, as of August 31, 2012, we and our customers have received approximately $21.3 million of incentives under the project, and we have requests for $0.4 million of customer incentives outstanding. Funds may be shifted between the development reimbursement grant and the customer incentive grant. In the first quarter of 2012, we and the DOE agreed to re-allocate funds remaining under the development reimbursement grant to the customer incentive grant; in the third quarter of 2012, we and the DOE agreed to revert the funds to the original allocation. We currently anticipate using $0.1 million of the remaining funding under the EV Demostration Project for development reimbursements and the remainder for customer incentives. 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.

        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. Moreover, our ability to obtain funds under state programs will depend on the continued availability of state funding for such programs.

        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. Based on additional information provided by us to the DOE, the DOE confirmed in February 2012 that it would resume reimbursements for qualified indirect costs and overhead costs. If 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 $10.3 million of funding available under the project as of August 31, 2012.

        Additionally, in order for purchasers of our Edison vehicles to be eligible to receive grants under the recently-announced U.K. Department of Transport Plug-In Van Grant, the vehicles will need to satisfy certain regulatory criteria. Obtaining vehicle type approvals for our Edison platform under E.U. Directive 2007/46/EC is one method of satisfying that criteria. We have received whole vehicle type

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approval under the Directive for our Edison chassis cab and our 7,700 pound GVW Edison panel van and have applied for whole vehicle type approval for our larger Edison panel vans and our Edison mini bus. We anticipate that we will receive such approval in the second half of 2012. However, if we are unable to obtain such approval purchasers of our larger Edison panel vans would not be eligible to receive grants under the Plug-In Van Grant program in connection with purchases of those vehicles, which could adversely affect our ability to sell these vehicles in the United Kingdom. See "—We are subject to substantial regulation, which is evolving, and unfavorable changes or any failure by us to comply with such regulations could substantially harm our business and operating results."

        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%, of the total cost of our project prior to November 30, 2014, the termination date of the project. As of August 31, 2012, we have $10.3 million of funding obligations remaining under the project. If we are unable to fund our share of these projects, 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.

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

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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 generally 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 (which, 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.

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 experienced maintenance problems, which resulted in increased service costs and management time spent to address the customer relationship. We believe we responded promptly to and appropriately addressed our customers' maintenance concerns; however, in some cases our relationship with our customers was impaired as a result of these issues. Further, in the past we have experienced performance issues with the powertrain system previously used in the U.S.-produced 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

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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. We also have worked with our current supplier of key Smith Drive components to correct technical and performance issues discovered in prototypes and in testing. However, 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, 2012, have a warranty reserve of $6.3 million. During the year ended December 31, 2011 and the six months ended June 30, 2012, we recognized $3.2 million and $1.3 million of expense, respectively, or approximately 8.1% and 10.8%, respectively, of our vehicle revenue, to cover our estimated 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 prior to 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. Certain of our warranties are based on the underlying original manufacturer's warranty, and if the original manufacturer is unable to fulfill its future warranty obligations, we may be required to incur such costs. 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.

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.

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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 have introduced or in some cases 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. Many of our customers have purchased vehicles using one or more of these technologies for use in their fleets. 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 14,000 to 26,400 pound truck (by GVW), while in the United Kingdom and in 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 introduced in the first quarter of 2012 a Newton model that is configured as a step van and plan to further 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.

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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 purchase prices, 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.

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 2011, 2010 and 2009 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 we identified for the year ended and as of December 31, 2011 were as follows:

    We did not maintain adequate segregation of duties and, as a result, we had an increased risk of fraud. For example, we did not have appropriate segregation of duties between transaction origination and account reconciliation and compensating controls, and robust account reconciliations had not been adequately implemented to provide for the timely identification of fraudulent activity.

    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 U.S. generally accepted accounting principles, or GAAP. For example, we did not have a fully documented close process or a structured set of account reconciliations and we had not established information technology control policies.

    Due to inadequate financial accounting systems reporting functionality, our financial accounting system did not provide system generated reports that would allow us to analyze data to evaluate the accounting and financial reporting implications for certain business transactions in a timely manner, and increased the risk of error. For example, the lack of inventory reporting requires us to perform significant manual analysis of inventory movements and warranty reserve calculations.

        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.

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        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 and our remediation efforts, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting."

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 in the second half of 2012. In addition to upgrading our systems, we will need to extend our accounting, information technology and other systems to cover our New York City facility beginning in the fourth quarter of 2012. Our new and extended 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, our accounting system has failed on multiple occasions, which has prevented us from timely posting payables and receivables and has delayed our monthly and quarterly closing processes. As a result, we have upgraded our accounting system to the current version and added supplemental modules, but we may nevertheless need to replace this system over time. 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.

We are an "emerging growth company" under the recently enacted JOBS Act and may elect to comply with reduced public company reporting requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.

        The recently enacted Jumpstart Our Business Startups Act of 2012, or the JOBS Act, is intended to reduce the regulatory burden on "emerging growth companies." As defined in the JOBS Act, a public company whose initial public offering of common equity securities occurred after December 8, 2011 and whose annual gross revenues are less than $1.0 billion will, in general, qualify as an emerging growth company until the earliest of:

    the last day of its fiscal year following the fifth anniversary of the date of its initial public offering of common equity securities;

    the last day of its fiscal year in which it has annual gross revenue of $1.0 billion or more;

    the date on which it has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; and

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    the date on which it is deemed to be a "large accelerated filer," which will occur at such time as the company (a) has an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of its most recently completed second fiscal quarter, (b) has been required to file annual and quarterly reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, for a period of at least 12 months, and (c) has filed at least one annual report pursuant to the Exchange Act.

        Under this definition, we will be an emerging growth company upon completion of this offering and could remain an emerging growth company until as late as December 31, 2017.

        The JOBS Act provides that, so long as a company qualifies as an emerging growth company, the company will, among other things:

    be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that its independent registered public accounting firm provide an attestation report on the effectiveness of its internal control over financial reporting;

    be exempt from the "say on pay" provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the "say on golden parachute" provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, and certain disclosure requirements of the Dodd-Frank Act relating to compensation of its chief executive officer;

    be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act and instead provide a reduced level of disclosure concerning executive compensation;

    be able to delay adopting certain new or revised accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies; and

    be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor's report on the financial statements.

        We currently intend to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us under the JOBS Act for as long as we qualify as an emerging growth company. For example, we will take advantage of the provisions of Section 107 of the JOBS Act that permit emerging growth companies to delay the adoption of certain new or revised accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies. As a result of this election, our financial statements may not be comparable to those of other companies that comply with such accounting standards based on the public company effective dates. Furthermore, our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting while we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. As a result, investor confidence in our company and the market price of our common stock may be adversely affected.

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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-fueled vehicles, we do not provide, and currently do not have commercial arrangements with a third party that provides, such financial services and we do not believe such financial services are available to the same extent as credit or leasing arrangements for diesel-fueled vehicles. We believe the current limited availability of credit or leasing solutions for our vehicles 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 Chief Executive Officer and our President and Chief Technology Officer. 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 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, and we may continue to experience, significant changes in our senior management team. Our current senior management team has only limited experience working together as a group. Specifically, seven of the eleven members of our senior management team have joined us since November 2010 and only one of these new executives has any experience in the electric vehicle industry. Our Chief Financial Officer, Vice

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President of Human Resources and Administration, General Counsel and Vice President, Corporate Controller are the only four 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 and another joined the board in March 2012. 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 both our management team's ability to quickly and efficiently respond to problems, effectively manage our business and accurately forecast our results, including our vehicle production and sales, 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, particularly in connection with our potential joint ventures in China and Brazil and in other regions of the world that are prone to economic and political instability. These risks may increase our costs, impact our 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;

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    our ability to enforce our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as do the United States 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, nationalization or changes in social, political or labor conditions;

    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.

Our global strategy includes pursuing joint ventures that we cannot operate solely for our benefit, subjecting us to risks that could adversely affect our business, prospects, financial condition and operating results.

        We are pursuing, and in the future expect to continue to pursue, joint ventures with overseas partners for the production, sale and servicing of our vehicles in our joint venture partners' local markets. We have entered into non-binding letters of intent or term sheets for joint ventures in China and Brazil and are in discussions regarding a potential joint venture in Colombia. We anticipate that any joint ventures we enter into will help decrease our global supply chain costs, although there are no assurances that we will enter into any joint ventures or that we will recognize any cost down or other benefits of joint ventures we enter into. In any joint venture we enter into, we will share ownership and management of a company with one or more parties that may not have the same goals, strategies, priorities, or resources as we do. As such, we will not be able to operate any joint venture for our sole benefit and may be required to make decisions for the joint venture that are adverse to our interests. The operation of any joint venture we enter into also may divert our management's attention from our business, given that we would need to make decisions jointly with our joint venture partners, which can be a time-consuming process, and that we would need to manage our relationship with both our joint venture partners and the joint venture itself. Furthermore, our relationship with and interest in a joint venture could be adversely affected if any of our joint venture partners transfers its interest in the joint venture to a third party. Our entry into any joint venture would subject us to risks, including the risk that our joint venture partners fail to meet their obligations under joint venture agreements, conflicts with our joint venture partners, the possibility of a joint venture partner misappropriating any technology, information or other assets we contribute to the joint venture and the risk that the joint venture could not access the capital markets or other third party funding sources, which could result in us making significant capital contributions to support the joint venture's operations. If any of the foregoing risks materialize and are not successfully addressed, our business, prospects, financial condition and operating results could be adversely affected.

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We may not complete our proposed joint venture with Wanxiang and, even if we do, the proposed joint venture may subject us to financial and legal risks that, if realized, could adversely affect our business, prospects, financial condition and operating results.

        On February 17, 2012, we entered into a non-binding letter of intent with Wanxiang Group, or Wanxiang, a Chinese company, regarding the formation of a joint venture to develop, manufacture and commercialize all-electric school buses and commercial vehicles for multiple industries in China. See "Business—Our Strategy" for a description of this letter of intent. We are in discussions with Wanxiang regarding the financial and other terms of the proposed joint venture and there are no assurances that the joint venture will be formed. If we and Wanxiang are unable to establish the proposed joint venture, we will not realize the incremental cost reductions in our supply chain that could result from increased component order volume associated with the joint venture.

        If we do establish the proposed joint venture, our business, financial condition and operating results may be adversely affected if we are required to make substantial contributions to fund the joint venture's operations, the joint venture is not profitable or our participation in the joint venture diverts our management's attention from our other business concerns. Although we believe that there is emerging demand for adoption of commercial electric vehicles in China, there are no assurances that the joint venture would be able to overcome challenges such as developing a market for its products, obtaining requisite governmental approvals and permits, implementing an untested business plan and securing adequate funding for working capital and growth, in order to meet that demand. Furthermore, we anticipate that the vehicles produced by the joint venture would incorporate our Smith Drive, Smith Power and Smith Link technologies and that we would provide know how to the joint venture to enable it to produce vehicles using our technologies. There are substantial uncertainties regarding the interpretation and application of Chinese laws and regulations concerning the protection of intellectual property rights and any intellectual property we provide to the joint venture may not receive the protections accorded to it in the United States and United Kingdom. If any of the foregoing risks were to materialize, our business, prospects, financial condition and operating results may 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 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 any 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

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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, E.U. Batteries Directive 2006/66/EC, or E.U. Directive 2008/68/EC 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.

        Our ability to continue to sell our Edison and Newton vehicles in Europe and in certain other international markets is dependent, in part, on our obtaining "whole vehicle type approval" for our vehicles under E.U. Directive 2007/46/EC. This Directive establishes an E.U.-wide framework for the approval of motor vehicles and the systems, components and separate technical units intended to be used in such vehicles. Under the Directive, a vehicle manufacturer generally cannot rely on prior regulatory approvals to continue to market vehicles in a particular vehicle category after the effective date of the Directive for that vehicle category. Subject to limited exceptions, such vehicles must receive a vehicle type approval specified in the Directive to remain marketable in Europe. The effective dates of the Directive for the vehicles that we offer in Europe range from October 29, 2011 to October 29, 2014. We have received whole vehicle type approval (one of the vehicle type approvals specified in the Directive) for our Edison chassis cab, 7,700 pound GVW Edison panel van and Newton. We have applied for whole vehicle type approval for our Edison mini bus and larger Edison panel vans and anticipate that we will receive such approvals in the second half of 2012. We are unable to sell our larger Edison panel vans and Edison mini bus until we receive approval for those vehicle types (other than a limited number of vehicles that we are able to sell in the United Kingdom because they were pre-registered under the U.K.'s prior vehicle approval system). Additionally, purchasers of our Edison vans having GVWs in excess of 7,700 pounds will not be eligible to receive grants under the recently-announced U.K. Department of Transport Plug-In Van Grant until we have obtained a vehicle type approval for these vehicles. Furthermore, we believe that certain governmental bodies and large European fleet operators expect us to obtain whole vehicle type approval for our vehicles, even if the effective date of Directive 2007/46/EC for that vehicle type is in the future. As such, any failure to obtain whole vehicle type approval for the vehicles we offer in Europe could have an adverse effect on our business, prospects, financial condition and operating results.

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

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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. 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). Additionally, the site of our New York facility is the subject of a voluntary cleanup agreement between the New York State Department of Environmental Conservation and Consolidated Edison Company of New York, Inc., a prior owner of the property, as a result of the presence of residual contamination on the site. Given the production-based nature of our business, facilities that we, or joint ventures in which we are a member, open in the future also may have a history of contamination and/or generation, storage, release or disposal of hazardous substances.

        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 Directive 2008/1/EC on Integrated Pollution Prevention Control, the European Pollutant Release and Transfer Register, Directive 1999/13/EC on Solvent Emissions, Directive 2004/42/EC on Paints 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

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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 and successfully execute on our strategy to enter into joint ventures 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 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 provides that, because we did not meet certain minimum purchase requirements under the agreement in 2011, Avia may sell its chassis and cabs to other electric vehicle manufacturers in North America, including to our competitors, while we are required to exclusively purchase Avia chassis and cabs for the duration of the supply agreement. The initial term of the supply agreement expires in October 2015 and the term may be extended for an additional five years upon mutual 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.

        Additionally, if we are unable to obtain rights that are sufficient for our Smith Power and Smith Link technologies to be included in vehicles produced by any joint ventures we enter into, we will not be able to realize the supply chain cost savings we expect from such joint ventures.

        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

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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 recently filed applications to register our adopted marks with the USPTO and have filed applications for international trademark registration under the Madrid Protocol in the European Union and China and in Canada for the mark "Smith." We also are in the process of filing applications to register our other 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.

        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

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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 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. More recently, a limited number of side-impact tests carried out by the National Highway Traffic Safety Administration on non-commercial passenger vehicles containing lithium-ion batteries and thermal management systems containing liquid coolant have resulted in post-collision fires under certain

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conditions. These events have raised questions about the suitability of lithium-ion cells for automotive applications. There can be no assurance that a field failure of our battery packs will not occur, particularly if one of our vehicles is involved in a collision, 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.

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 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.

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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, particularly after we are no longer an emerging growth company under the JOBS Act. These requirements include compliance with Section 404 and other 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 and/or warranty 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;

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    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;

    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 23% of our outstanding shares of common stock, assuming the underwriters do not exercise their over-allotment option, and approximately 21% 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 17,875,550, or approximately 77%, 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 23,144,529 shares of common stock outstanding after this offering, assuming the underwriters do not exercise their over-allotment option, and 23,478,279 shares of common stock outstanding after this offering, assuming the underwriters exercise their over-allotment option in full. We will have an additional 1,095,588 shares outstanding after this offering if all of our Series A debentures are converted into shares of our common stock, based on an assumed conversion price of $13.60, which is 80% of the mid-point of the price range listed on the cover page of this prospectus. 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 17,875,550 shares (or 18,616,612 shares, assuming the full conversion of our Series A debentures) 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 beginning on the date of this prospectus, except with the prior written consent of each of UBS Securities LLC and Deutsche Bank Securities Inc. After the

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expiration of the 180-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, and after giving effect to the automatic exercise, on a net exercise basis, of the warrants issued in connection with our 2011 convertible notes financing and our Series D preferred stock financing upon the pricing of this offering and the conversion of our Series B preferred stock, Series C preferred stock and Series D preferred stock into common stock immediately prior to the closing of this offering, stockholders owning an aggregate of 17,847,271 shares 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 4,767,688 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, 1,744,158 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.

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        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.

        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 $15.17 in net tangible book value per share from the price you paid. Additionally, following this offering, purchasers in this offering will have contributed 40% of the total consideration paid by our stockholders to purchase shares of common stock, in exchange for acquiring approximately 18% of our total outstanding shares as of June 30, 2012, after giving effect to this offering, the automatic exercise, on a net exercise basis, of the warrants issued in connection with our 2011 convertible notes financing and Series D preferred stock financing upon the pricing of this offering at an assumed exercise price of $17.00, which is the mid-point of the price range listed on the cover page of this prospectus, the conversion immediately prior to the closing of this offering of all of the outstanding whole shares of our Series B preferred stock, Series C preferred stock and Series D preferred stock and the issuance of 23,530 shares of our common stock upon stock option exercises by selling stockholders for sale in this offering. If the issuance of 1,095,588 shares of common stock upon the assumed conversion of our Series A debentures at an assumed conversion price of $13.60, which is 80% of the mid-point of the price range listed on the cover page of this prospectus, also is taken into account, purchasers of our common stock in this offering will incur immediate dilution of $14.55 in net tangible book value per share from the price they paid, and following this offering will have contributed 37% of the total consideration paid by our stockholders to purchase shares of common stock, in exchange for acquiring approximately 17% of our total outstanding shares as of June 30, 2012. Any additional exercise of outstanding stock options 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 in the future 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

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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.

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 the net proceeds to us from this offering to pay $13.7 million of principal and interest expected to be outstanding under our bridge notes, $1.3 million owed by Smith Europe to HMRC and $0.5 million owed to Tanfield in connection with our acquisition of our Smith UK business 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, project costs and plans and objectives for future operations, production and sales projections and statements pertaining to future development activities and costs, including, without limitation, the impact of our cost down initiative. 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

        Based on an assumed initial public offering price of $17.00 per share (the mid-point of the price range listed on the cover page of this prospectus), we estimate we will receive gross proceeds of approximately $71.8 million and the selling stockholders will receive gross proceeds of approximately $3.9 million from this offering. We estimate that we will pay approximately $8.2 million in underwriting discounts and commissions and offering expenses, and we estimate our selling shareholders will pay approximately $0.2 million in underwriting discounts and commissions. As a result, we will receive net proceeds from this offering of approximately $63.6 million and the selling stockholders will receive net proceeds from this offering of approximately $3.7 million

        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. We will pay the offering expenses incurred by the selling stockholders, and the underwriting discounts and commissions payable by two of the selling stockholders, in connection with the sale of these shares. The selling stockholders include certain of our executive officers and entities affiliated with or controlled by members of our board of directors.

        We intend to use the net proceeds to us from this offering:

    to pay the entire principal and interest outstanding at closing of this offering under our bridge notes. The bridge notes permit an aggregate maximum principal of $16.5 million, bear interest at 8% per annum and require all outstanding principal and interest to be paid upon the closing of this offering. A portion of the proceeds of the bridge notes, which were issued in July 2012, were used to pay $1.1 million outstanding under a promissory note we issued to Jefferies in connection with litigation, which was settled in August 2011, related to Jefferies' provision of financial advisory services to us. This note bore interest at 9% per annum and matured on July 31, 2012.

    to pay $1.3 million owed by Smith Europe to HMRC discussed under "Business—Legal Proceedings".

    to pay Tanfield the remaining $0.5 million of the purchase price owed to it in connection with our acquisition of our Smith UK business. The unpaid portion of the purchase price accrues interest at a rate equal to 4% above the base rate established by Barclay's Bank plc and all unpaid purchase price and accrued interest thereon becomes due upon the closing of this offering.

        We intend to use the remainder of such net proceeds for capital expenditures, working capital and other general corporate purposes, including the continued development of our technology, the transition of our supply chain and the 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, the development of our current and anticipated vehicle platforms, and the acquisition of businesses, products and technologies. Other than purchase orders for inventory, we do not currently have any agreements or commitments to acquire any such businesses, products or technologies.

        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 the terms of any Series A debentures that remain outstanding after this offering and 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, 2012:

    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 whole shares of Series B preferred stock, Series C preferred stock and Series D preferred stock into an aggregate of 8,186,569 shares of our common stock, in each case, based on a one-to-one conversion ratio;

    the issuance of 204,697 shares of our common stock upon the exercise, on a net exercise basis, of the warrants issued in connection with our 2011 convertible notes financing and our Series D preferred stock financing, based on an assumed initial public offering price of $17.00 per share, which is the mid-point of the price range listed on the cover page of this prospectus; and

    the issuance of 23,530 shares of our common stock upon stock option exercises by selling stockholders for sale in this offering; 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 $17.00 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";

    our entry into our bridge notes; and

    the issuance of 1,095,588 shares of our common stock upon the assumed conversion of $14.9 million of principal and accrued interest outstanding under our Series A debentures at an assumed conversion price of $13.60, which is 80% of the mid-point of the price range listed on the cover page of this prospectus. For each $1.0 million of principal and accrued interest under our Series A debentures that is not converted into shares of our common stock, the number of shares of common stock outstanding pro forma, as adjusted will decrease by approximately 73,500, and our pro forma, as adjusted stockholders' equity will decrease by $1.0 million.

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        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, 2012  
 
  Actual   Pro forma   Pro forma,
as adjusted
 
 
  (Unaudited)
(in thousands, except share data)

 

Cash and cash equivalents(1)

  $ 838   $ 838   $ 60,073  
               

Series A debentures(2)

  $ 13,762   $ 13,762   $  

Series A payable-in-kind accrued interest

    3,481     3,481      

Series B convertible redeemable preferred stock, $0.001 par value per share; 4,809,008 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          

Series C convertible redeemable preferred stock, $0.001 par value per share; 2,431,170 shares authorized, 2,431,170 shares issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma and pro forma, as adjusted

    29,473          

Series D convertible redeemable preferred stock, $0.001 par value per share; 2,500,000 shares authorized, 946,420 shares issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma and pro forma, as adjusted

    13,569          

Stockholders' deficit:

                   

Common stock, $0.001 par value per share; 200,000,000 shares authorized, 10,507,929 issued and outstanding, actual; 200,000,000 shares authorized, 18,899,195 shares issued and outstanding, pro forma; and 200,000,000 shares authorized, 24,240,117 shares issued and outstanding, pro forma, as adjusted

    11     19     24  

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

    13,029     118,394     197,272  

Accumulated other comprehensive loss

    (1,992 )   (1,992 )   (1,992 )

Accumulated deficit

    (132,790 )   (133,283 )   (134,124 )

Total stockholders' (deficit) equity

    (121,742 )   (16,862 )   61,180  

Total capitalization

  $ (4,769 ) $ 381   $ 61,180  

(1)
The $59.2 million increase in pro forma, as adjusted cash and cash equivalents as of June 30, 2012 compared to actual cash and cash equivalents and pro forma cash and cash equivalents as of June 30, 2012 is primarily the result of our receipt of $63.6 million of net cash proceeds from this offering, after deducting underwriting discounts and commissions and offering expenses payable by us, and $13.4 million of net cash proceeds from borrowings under our bridge notes, less our use of $1.2 million of cash to pay current and past due amounts owed by Smith Europe to HMRC and $1.1 million of cash to pay amounts owed by us to Jefferies, and our use of an aggregate of $15.5 million of the net proceeds to us from this offering to pay $13.7 million of principal and interest outstanding under our bridge notes, $1.3 million owed by Smith Europe to HMRC and $0.5 million owed to Tanfield, as described under "Use of Proceeds."

(2)
Consists of Series A debentures, net of discount, and Series A conversion feature.

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        Based on our sale in this offering of 4.2 million shares of common stock, each $1.00 increase or decrease in the assumed initial public offering price of $17.00 per share (the mid-point of the price range set forth on the cover page of this prospectus) would increase or decrease our gross cash proceeds from this offering by approximately $4.2 million and increase or decrease the related underwriting discounts and commissions payable by us by approximately $0.3 million, resulting in an increase or decrease, as applicable, our pro forma, as adjusted cash and cash equivalents, additional paid-in capital and stockholders' equity of approximately $3.9 million.

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

    1,824,158 shares of our common stock issuable upon the exercise of options outstanding as of June 30, 2012 at a weighted average exercise price of $11.18 per share;

    140,000 shares of our common stock issuable upon the exercise of stock options to be granted upon the closing of this offering at an exercise price equal to the price at which we offer shares of our common stock to the public in this offering; 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, 2012 was $(22.9) million, or $(1.21) 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 whole shares of our Series B preferred stock, Series C preferred stock and Series D preferred stock into common stock immediately prior to the closing of this offering; and

    the issuance of 204,697 shares of our common stock upon the exercise, on a net exercise basis, of the warrants issued in connection with our 2011 convertible notes financing and our Series D preferred stock financing, based on an assumed initial public offering price of $17.00 per share, which is the mid-point of the price range listed on the cover page of this prospectus.

        After giving effect to the sale by us of 4,221,804 shares of our common stock in this offering at an assumed initial public offering price of $17.00 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, 2012 would have been approximately $42.4 million, or $1.83 per share of our common stock. This amount represents an immediate increase in our pro forma net tangible book value of $3.04 per share to our existing stockholders and an immediate dilution in our pro forma net tangible book value of $15.17 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

        $ 17.00  

Pro forma net tangible book value per share as of June 30, 2012

  $ (1.21 )      

Increase per share attributable to this offering

  $ 3.04        
             

Pro forma net tangible book value per share after this offering

        $ 1.83  

Dilution per share to new investors

       
$

15.17
 
             

        An initial public offering price of $16.00 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 $0.17 and would decrease dilution per share to new investors by approximately $0.83, 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 $18.00 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 $0.17 and would increase dilution per share to new investors by approximately $0.83, 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.

        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 $2.03 per share, representing an immediate increase to existing stockholders of $0.20 per share and an immediate dilution of $14.97 per share to new

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investors. If any shares are issued upon exercise of outstanding options, you will experience further dilution.

        The following table summarizes, on a pro forma basis as of June 30, 2012, 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 $17.00 per share, which is the 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(1)

    18,922,725     82 % $ 107,115,666     60 % $ 5.66  

New investors

    4,221,804     18 % $ 71,770,668     40 % $ 17.00  

Total

   
23,144,529
   
100

%
 
178,886,334
   
100

%
     
                         

(1)
Includes 23,530 shares issuable upon stock option exercises

        The percentage of shares purchased from us by existing stockholders is based on 18,922,725 shares of our common stock outstanding as of June 30, 2012, after giving effect to:

    the automatic conversion of all of the outstanding whole shares of our Series B preferred stock, Series C preferred stock and Series D preferred stock into common stock immediately prior to the closing of this offering;

    the issuance of 23,530 shares of our common stock upon stock option exercises by selling stockholders for sale in this offering; and

    the issuance of 204,697 shares of our common stock upon the exercise, on a net exercise basis, of the warrants issued in connection with our 2011 convertible notes financing and our Series D preferred stock financing, based on an assumed initial public offering price of $17.00 per share, which is the mid-point of the price range listed on the cover page of this prospectus.

        The foregoing tables and calculations exclude:

    the issuance of 1,095,588 shares of our common stock upon the assumed conversion of $14.9 million of principal and accrued interest outstanding under our Series A debentures at an assumed conversion price of $13.60, which is 80% of the mid-point of the price range listed on the cover page of this prospectus;

    1,824,158 shares of our common stock issuable upon the exercise of options outstanding as of June 30, 2012 at a weighted average exercise price of $11.18 per share;

    140,000 shares of our common stock issuable upon the exercise of stock options to be granted upon the closing of this offering at an exercise price equal to the price at which we offer shares of our common stock to the public in this offering; 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.

        Assuming the issuance of 1,095,588 shares of common stock upon the conversion of our Series A debentures at an assumed conversion price of $13.60, which is 80% of the mid-point of the price range listed on the cover page of this prospectus, our pro forma net tangible book value as of June 30, 2012 would have been approximately $(5.9) million, or $(0.29) per share of our common stock, and the pro

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forma net tangible book value after giving effect to this offering would have been $2.45 per share, representing immediate dilution in our pro forma net tangible book value per share to new investors of $14.55. Following this offering, new investors will have contributed 37% of the total consideration paid by our stockholders to purchase shares of common stock, in exchange for acquiring approximately 17% of our total outstanding shares as of June 30, 2012.

        If all of our outstanding stock options had been exercised (using the treasury stock method), as of June 30, 2012, our pro forma net tangible book value as of June 30, 2012 would have been approximately $(22.9) million, or $(1.17) per share of our common stock, and the pro forma net tangible book value after giving effect to this offering would have been $1.78 per share, representing dilution in our pro forma net tangible book value per share to new investors of $15.22.

        The sale of 228,196 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 18,694,529, or 81% of the total shares outstanding, and will increase the number of shares of our common stock held by new investors to 4,450,000, or 19% 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 2011, 2010 and 2009 and the balance sheet data as of December 31, 2011 and 2010 from our audited consolidated and combined financial statements appearing elsewhere in this prospectus. The statement of operations data for the six months ended June 30, 2012 and 2011 and the balance sheet data as of June 30, 2012 are derived from our unaudited interim financial statements appearing 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, 2012 and results of operations for the six months ended June 30, 2012 and 2011. Operating results for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

        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 year ended December 31, 2007 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 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 year ended December 31, 2007 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 year ended December 31, 2007, which would be required in order to prepare financial statements for Smith UK from which selected financial data could be derived for that year;

    Tanfield's 2007 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 2007, is not available without unreasonable effort and expense;

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

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  Years ended December 31,   Six months ended
June 30,
 
 
  2011   2010   2009   2008   2012   2011  
 
   
   
   
   
  (Unaudited)
 
 
  (in thousands, except per share amounts)
 

Consolidated and Combined Statement of Operations Data:

                                     

Revenue

                                     

Vehicle(1)

  $ 38,944   $ 23,827   $ 8,223   $ 14,166   $ 12,290   $ 31,930  

Service and repairs(2)

    10,983     11,767     14,631     18,208     4,472     5,672  
                           

Total revenue

    49,927     35,594     22,854     32,374     16,762     37,602  
                           

Cost of revenue

                                     

Vehicle

    57,702     33,117     13,370     21,671     24,307     40,035  

Service and repairs

    11,848     12,175     14,421     18,124     4,777     5,945  
                           

Total cost of revenue

    69,550     45,292     27,791     39,795     29,084     45,980  
                           

Gross loss

    (19,623 )   (9,698 )   (4,937 )   (7,421 )   (12,322 )   (8,378 )

Research and development expense

    5,427     2,550     1,126     9,478     3,636     1,457  

Selling, general and administrative

    16,990     13,307     10,697     5,411     10,400     7,031  
                           

Total operating expenses

    22,417     15,857     11,823     14,889     14,036     8,488  

Operating loss

   
(42,040

)
 
(25,555

)
 
(16,760

)
 
(22,310

)
 
(26,358

)
 
(16,866

)

Other expense (income)

                                     

Interest expense

    7,090     3,699     696         984     1,881  

Loss on extinguishment of debt

    1,353                     971  

Government grant reimbursements

    (2,214 )   (688 )   (18 )       (178 )   (205 )

Other (income) expense, net

    4,266     1,698     60         184     1,763  
                           

Net loss

  $ (52,535 ) $ (30,264 ) $ (17,498 ) $ (22,310 ) $ (27,348 ) $ (21,276 )
                           

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

  $ (5.06 ) $ (2.95 ) $ (1.89 )   N/A   $ (2.63 ) $ (2.05 )
                           

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

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

Pro forma net loss per share of common stock(5)

  $ (3.45 ) $     $     $     $ (1.42 ) $    
                           

Shares used in computing pro forma net loss per share of common stock(5)

    14,867                       18,563        
                           

(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 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

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    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 consolidated and combined financial statements included elsewhere in this prospectus for information regarding our acquisition of Smith UK.

(5)
Pro forma net loss was $(51.3) million and $(26.5) million for the year ended December 31, 2011 and six months ended June 30, 2012, respectively. Pro forma net loss per share of common stock includes (i) an aggregate of 8,186,569 shares of our common stock issuable upon the automatic conversion of all of the then-outstanding whole shares of our Series B preferred stock, our Series C preferred stock and our Series D preferred stock into shares of our common stock, in each case, at a one-to-one conversion ratio, immediately prior to the closing of this offering, assuming that such conversion occurred at the later of the beginning of the period and the date on which such preferred shares were issued; (ii) the issuance of 23,530 shares of our common stock upon stock option exercises by selling stockholders for sale in this offering; and (iii) 204,697 shares of our common stock upon the exercise, on a net exercise basis, of the warrants issued in connection with our 2011 convertible notes financing and our Series D preferred stock financing, based on an assumed initial public offering price of $17.00 per share, which is the mid-point of the price range listed on the cover page of this prospectus, in each case, assuming such exercise occurred at the later of the beginning of the period and the date on which such warrants were issued. Pro forma net loss per share of common stock takes into account the adjustment, as of December 31, 2011, of the fair value of our warrant liability to reflect an assumed initial public offering price of $17.00 per share, which is the mid-point of the price range listed on the cover page of this prospectus, which decreased pro forma net loss by $0.8 million for the year ended December 31, 2011, and, for the six months ended June 30, 2012, the exclusion from pro forma net loss of a $0.8 million charge to expense to adjust the warrant liability to fair value as of June 30, 2012. Pro forma net loss per share of common stock also takes into account the repayment, as of January 1, 2011, of all of our outstanding indebtedness using the net proceeds to us of this offering, as described under "Use of Proceeds." Therefore, interest expense of $0.4 million and less than $0.1 million for the year ended December 31, 2011 and six months ended June 30, 2012, respectively, has been excluded from our pro forma net loss per share of common stock calculation for these periods. Interest expense of $0.1 million and less than $0.1 million related to a promissory note we issued to Jefferies and $0.3 million and less than $0.1 million related to the outstanding deferred purchase price owed to Tanfield was excluded from the pro forma net loss and pro forma net loss per share of common stock calculations for the year ended December 31, 2011 and six months ended June 30, 2012, respectively.


 
  December 31,    
 
 
  June 30,
2012
 
 
  2011   2010   2009   2008  
 
   
   
   
   
  (Unaudited)
(in thousands)

 

Consolidated and Combined Balance Sheet Data:

                               

Cash and cash equivalents

  $ 1,697   $ 1,000   $ 1,183   $ 280   $ 838  

Property, plant and equipment, net

    5,247     3,611     2,912     2,501     5,216  

Working (deficit) capital

    (3,164 )   (29,304 )   (548 )   3,113     (9,958 )

Total assets

    36,105     30,323     16,334     11,804   $ 30,589  

Bridge note detachable warrants

        3,039              

Warrants

    4,209                 5,150  

Notes payable—other

    2,512                 1,512  

Series A debentures, net of discount

    10,205     9,859     8,930         10,378  

Series A conversion feature

    3,381     2,612     1,340         3,384  

Series A payable-in-kind accrued interest

    2,804     1,538     390         3,481  

Series B convertible redeemable preferred stock

    56,688                 56,688  

Series C convertible redeemable preferred stock

    29,473                 29,473  

Series D convertible redeemable preferred stock

                    13,569  

Total stockholders' equity (deficit)

    (99,700 )   (42,431 )   (12,621 )   2,523     (121,742 )

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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. In the first quarter of 2012, we introduced a Newton model in the United States that is configured as a step van, and intend to introduce in the United States in 2013 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 the first half of 2013. 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 fourth quarter of 2012 and entered into a lease for this facility in August 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 also are pursuing joint ventures with local market participants to produce, sell and/or service Smith-branded vehicles in promising international

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markets where we see opportunities that we believe can be better realized through joint venture arrangements than through Smith-owned facilities. In February 2012, we entered into a non-binding letter of intent with Wanxiang regarding a $25.0 million investment by Wanxiang in us and the formation of a joint venture to develop, manufacture and commercialize all-electric school buses and commercial vehicles for multiple industries in China. In June 2012, we entered into a non-binding term sheet regarding a $10.0 million investment in us and the formation of a joint venture in Brazil to develop, manufacture, market and sell Smith-branded all-electric commercial trucks and buses in Brazil. Negotiations regarding the scope and terms of these joint ventures and investments in us are preliminary and ongoing, and there can be no assurance they will ultimately be consummated.

        In the fourth quarter of 2011, we 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.

        As a result of the transition to our next generation technologies and the accompanying suspension of U.S. production, we sold 28 vehicles in the U.S. during the last six months of 2011 compared with sales of 175 vehicles during the first six months of 2011. We sold 90 vehicles worldwide in the first six months of 2012, of which 69 were sold in the United States. Although the decline in sales resulted in a concurrent decline in material costs, our other operating and administrative costs have been stable or increasing. For example, to maintain our investment in the training of our assembled workforce, we determined not to make reductions in our assembly workforce. We also have continued to expand our research and development function to support future technology enhancements and to build out our administrative workforce to position the company for future growth. To maintain liquidity during our U.S. production suspension, we issued $30.0 million of 2011 convertible notes and warrants in October 2011. All of the 2011 convertible notes converted into Series C preferred stock in November 2011. Between January and April 2012, we issued and sold in a private placement shares of our Series D preferred stock and warrants to purchase shares of our common stock for aggregate cash proceeds of $15.3 million. Between July and August 2012, we entered into privately negotiated bridge notes having a maximum aggregate principal amount of $16.5 million. Through September 6, 2012, we have borrowed $11.5 million under such bridge notes. We expect to borrow up to an additional $2.0 million under the bridge notes during the third quarter of 2012, although we may borrow additional amounts as our business needs dictate. See "—Liquidity and Capital Resources—Cash flows—Cash flows provided by financing activities" for additional information about our financing activities.

        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 consolidated and combined 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.

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        We operate our business in two reportable segments: (i) Zero Emission Vehicles and (ii) Maintenance Services. See "—Results of Operations" and Note 17, "Information about Segments and Geographic Areas," to the consolidated and combined 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, our growth has been constrained by our strategic decision in the first quarter of 2012 to reduce our planned 2012 production in order to focus on meeting the needs of our existing customers, our limited cash and 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 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 have resulted 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, in the fourth quarter of 2011, we transitioned our U.S.-produced vehicles, and in the first half of 2012 began transitioning 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. Our ability to complete the transition to our next generation technologies and scale our production is largely dependent on our ability to raise sufficient capital to assure new suppliers that we will have the ability to meet our financial commitments and to fund necessary research and pre-production activities, including the purchase of tooling for both our operations and for our new suppliers.

KEY OPERATING METRICS

        Our management uses order backlog, production slots filled, global throughput, inventory turnover days, and total miles on route as key operating metrics in evaluating our business. The following sections present these operating metrics as of and for the three months ended June 30, 2012.

Order Backlog

        As of June 30, 2012, we have an order backlog of 404 vehicles compared to our backlog of 145 vehicles as of March 31, 2012. We include in our order backlog vehicles yet to be produced that are subject to purchase agreements or written purchase orders that 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. Furthermore, an increase in backlog may not result in a near-term increase in revenue because customers may cancel purchase orders and purchase agreements or submit orders for vehicles with delivery dates in

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subsequent periods, and because we may not have available production capacity to satisfy customer orders until subsequent periods.

        We generally target having an order backlog that represents three months of production. For the third quarter of 2012, our target order backlog represents 87 vehicles, compared to our target backlog of 103 vehicles for the second quarter of 2012. As we increase our production over time, we expect our target backlog of three months of production to represent an increased number of units. Our current backlog may not be indicative of recent trends in our operations given our limited sales history combined with factors such as (i) our current supply chain constraints, (ii) our temporary suspension of U.S. production in the second half of 2011, (iii) the U.S. launch of our second generation Newton in the fourth quarter of 2011 and of the Newton step van in the first quarter of 2012, and the need for our customers to validate these new vehicles, (iv) our renewed focus on our relationships with existing customers and corresponding decrease in available production slots, which is discussed below, and (v) our recent introduction to the purchasing practices and internal processes of certain of our new larger customers.

Production Slots Filled

        We generally manage our production schedule on a rolling six-month forward basis and allocate production slots based on our receipt of purchase agreements and purchase orders and customers' ordering forecasts and on our current supply chain capacity. The number of production slots we have available for a given period reflects management's estimate of the number of vehicles we are able to produce in the period at a high quality level, based on our then existing supply chain and internal capabilities and capacity. Our number of available production slots may change from period to period based on management's judgment of how best to grow our business. For example, following the transition to our second generation vehicle technologies, in the first quarter of 2012, we made the strategic decision to renew our focus on ensuring our existing customers receive both the highest quality vehicles we can produce and comprehensive fleet integration support in order to help ensure the successful deployment of the vehicles they purchase from us. This renewed focus on our existing customers, together with our existing supply chain constraints, resulted in us reducing the number of production slots we estimated to be available for 2012 to approximately 620, of which approximately two-thirds reflected U.S. production capacity. As of June 30, 2012, we further reduced our estimated production for 2012 to approximately 380 vehicles primarily as the result of current cash constraints impacting our ability to expand our supply chain, particularly our ability to transition the production of our key powertrain components from a low-volume to a medium-volume supplier as quickly as we previously expected. We expect that approximately three-fourths of our expected 2012 production will be produced in the U.S. As of June 30, 2012, we have produced 79 vehicles in 2012. Based on our current production schedule, we have allocated all of our production slots for the remainder of 2012. We expect that our number of available production slots will increase in subsequent years following the transition of our supply chain from low-volume suppliers to medium-volume automotive-grade suppliers, which will allow us to ramp our production and increase our production capacity. 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.

Global Throughput

        Global throughput is defined as vehicles for which the assembly and quality testing is complete and which are ready to ship or have shipped to a customer or upfitter. We measure global throughput as a percentage of our estimated production as of the beginning of the relevant period. Throughput

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generally will not be the same as vehicles sold and recognized as revenue during a period. We believe global throughput is a useful operating metric for our business because the accurate forecasting of our near-term production is critical to appropriately managing our inventory level and maximizing our utilization of available cash. Our production schedule called for us to produce 103 vehicles during the three months ended June 30, 2012. Our global throughput as a percentage of plan for the three months ended June 30, 2012 was 37%. We produced fewer vehicles than projected in the second quarter of 2012 primarily as a result of our inability to both purchase required inventory as a result of our limited cash and obtain a consistent supply of our key powertrain components.

Inventory Turnover Days

        Our inventory turnover days for the three months ended June 30, 2012 was approximately 132 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. We believe 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. Management believes that our inventory turnover of 132 days for the three months ended June 30, 2012 indicates that we did not manage our supply chain as effectively as we may be able to after we fully transition the supply chain for our key vehicle components. We anticipate that transitioning our supply chain for the components used in our key vehicle systems, primarily the battery and powertrain, from low-volume suppliers to a medium-volume automotive grade supply chain will increase our ability to obtain high quality components on a timely basis. As a result, we anticipate that we will be able to reduce our days of inventory turnover and better utilize our cash and working capital.

Total Miles on Route

        Total miles on route is a measurement of the total number of miles our customers drove Smith vehicles during the quarter. This information is gathered using our Smith Link telemetry system. We believe that miles on route is a measure of industry adoption of our vehicles and that the metric provides our management with insight into our customers' usage patterns. Our total miles on route for the three months ended June 30, 2012 was approximately 553,500 miles compared to approximately 416,000 miles for the three months ended March 31, 2012.

BASIS OF PRESENTATION

Revenue

        Revenue consists of vehicle revenue and service and repairs revenue.

Vehicle revenue

        We recognize vehicle revenue primarily from the sale of our Newton and Edison vehicles. For the year ended December 31, 2011, vehicle revenue represented approximately 78% of total revenue, compared with 67% and 36% for 2010 and 2009, respectively. For the six months ended June 30, 2012, vehicle revenue represented approximately 73% of total revenue, compared with 85% for the six months ended June 30, 2011. We anticipate that vehicle revenue as a percentage of total revenue will increase for the foreseeable future due to our focus on growing our Zero Emissions Vehicle business rather than our Maintenance Services business. For the years ended December 31, 2011 and 2010 and the six months ended June 30, 2012, two, four and two of our Zero Emission Vehicles customers collectively accounted for approximately 50%, 40% and 42%, respectively, of our total revenue; and

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64%, 60% and 57%, respectively, of our vehicle revenue. For the year ended December 31, 2011, our largest customer, Frito-Lay, accounted for 46% of our total revenue and 59% of our vehicle revenue. For the year ended December 31, 2010, our largest customer, Staples, Inc., accounted for 16% of our total revenue and 24% of our vehicle revenue. For the six months ended June 30, 2012, our largest customer, Fed-Ex, accounted for 24% of our total revenue and 33% of our vehicle revenue. 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.

        The sales prices of our vehicles, excluding the impact of governmental subsidies, significantly exceed the sales prices of diesel-fueled vehicles of comparable GVWs. Through our cost down initiative, we are attempting to reduce our material and production costs to the point where the cost to produce our vehicles allows us to price our vehicles, excluding the impact of government subsidies and incentives, at a level that represents an attractive premium to the upfront price of diesel trucks with comparable GVWs. We expect that our vehicle revenue will increase over time despite anticipated reductions in the sales prices of our vehicles due to increases in our sales volume.

        Smith UK previously sold and leased, and Smith Europe also sells and leases, forklifts to customers. During the years ended December 31, 2011, 2010 and 2009 and the six months ended June 30, 2012, we recognized revenue related to the sale and lease of forklifts of approximately $1.3 million, $1.9 million, $2.7 million and $0.6 million, respectively. See Note 2, "Summary of Significant Accounting Policies," to the consolidated and combined 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 year ended December 31, 2011, service and repairs revenue represented approximately 22% of total revenue, compared with 33% and 64% for the years ended December 31, 2010 and 2009, respectively. For the six months ended June 30, 2012, service and repairs revenue represented approximately 27% of total revenue, compared with 15% for the six months ended June 30, 2011. We anticipate that service and repairs revenue will decrease as a percentage of total revenue over the foreseeable future due to our focus on growing our Zero Emissions Vehicles business, rather than our Maintenance Services business.

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

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we complete our current cost down initiative. Our current cost down initiative is our framework of three strategies to reduce our materials, operating and production costs. The three strategies that comprise our cost down initiative are (1) transitioning the higher cost portions of our supply chain, such as batteries and the powertrain for our vehicles, from low-volume suppliers to a medium-volume automotive grade supply chain, (2) transitioning from battery and powertrain systems produced by third party suppliers to our Smith Power and Smith Drive systems and implementing multi-source volume purchasing strategies and (3) transitioning the supply chain for our ancillary components to higher-volume and lower-cost suppliers. We are pursuing these strategies generally concurrently. We expect to complete our current cost down initiative in the first quarter of 2013 for the Newton and in the second quarter of 2013 for the Edison, which will result in increased component-, and decreased systems-, based purchasing and lower unit costs for our ancillary vehicle components.

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.

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 June 30, 2012, we had 40 full-time employees engaged in research, development, design and engineering. We expense research and development costs as they are incurred. In the near term, following completion of this offering, we expect research and development expenses to increase in absolute dollars 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 vehicles and vehicle technologies. 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 decrease as a percentage of revenue, over time, as our revenue increases.

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 June 30, 2012, we had 65 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.

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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 believe 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.

Other (income) expense, net

        Other (income) expense, net consists primarily of fair value adjustments to financial instruments we have issued. Our Series A debentures, our 12% senior unsecured convertible promissory bridge notes, which we refer to as our bridge notes, and the warrants issued in connection with our 2011 convertible notes financing and our Series D preferred stock financing, 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 our deferred tax assets net of our deferred tax liabilities.

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 consolidated and combined 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 consolidated and combined 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 consolidated and combined 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, inventory valuation, impairment of long-lived assets, 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

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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.

        We have determined to take advantage of the provisions of Section 107 of the JOBS Act that permit emerging growth companies to delay the adoption of certain new or revised accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies. As a result of this election, our financial statements may not be comparable to those of other companies that comply with such accounting standards based on the public company effective dates.

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 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 December 31, 2011 and June 30, 2012, we did not have any material multiple element sales arrangements.

        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 repurchase value that was determined at the inception of the contract. The up-front payment received, net of the expected repurchase payment recorded as a liability, 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 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 consolidated and combined 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. Cost includes material costs, inbound freight, labor and applicable overhead. Included in overhead costs that may be capitalized are facility lease and utility costs, warehousing costs related to receiving and picking activities, purchasing costs to the extent the costs relate directly to the acquisition of raw materials, costs of quality control and inspection, depreciation on production-related assets, and plant administrative expenses. Overhead is capitalized as a percentage of direct labor based on management's analysis of normal production. Normal production is based primarily on forecasted production, taking into consideration forecasted demand and our forecasted ability to obtain the components necessary to

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meet demand on a timely basis, and will change over time. During periods in which we do not achieve normal production, including periods during which we have temporarily suspended production, unallocated overhead costs are charged to cost of revenue as period costs.

        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.

        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.

        As of December 31, 2011 and 2010 and as of June 30, 2012, we had reduced the carrying value of our inventory to market, which was lower than cost, in the amount of $4.5 million, $4.6 million and $5.7 million, respectively. Charges related to these permanent inventory write downs were recognized as a component of cost of revenue on our consolidated and combined statements of operations. We anticipate that we will continue to have additional material permanent inventory write downs until we achieve a positive gross margin.

Impairment of long-lived assets

        We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Circumstances which could trigger a review include, but are not limited to, significant decreases in the market price of the asset; significant adverse changes in the business climate, legal or regulatory factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; or expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future net cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of their carrying value or fair value less cost to sell. Given our current period cash flow combined with a history of operating losses, we evaluated the recoverability of the book value of our property, plant and equipment. As of December 31, 2011 and 2010 and June 30, 2012, we performed an undiscounted cash flow analysis for each identified asset group, the results of which were that the sum of the undiscounted cash flows over the weighted average expected life of the underlying assets exceeds the book value of the property, plant and equipment. Accordingly, no impairment charges were recognized during any period presented. As of December 31, 2011 and June 30, 2012, we had total long-lived assets of $7.7 million and $7.3 million, respectively, comprised of property, plant and equipment, net of $5.2 million and $5.2 million, respectively, an intangible licensing asset of $2.2 million and $1.8 million, respectively, and deferred financing fees of $0.3 million and $0.2 million, respectively.

Warranty

        We estimate and accrue our warranty costs for each vehicle at the time of sale. Because we currently have only two vehicle platforms and limited historical claims experience, estimates are principally based on assumptions regarding the warranty costs. In addition, at the end of each period, the number and magnitude of additional service actions expected to be approved, and actual additional

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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 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 $6.2 million, $6.7 million and $6.3 million as of December 31, 2011 and 2010 and June 30, 2012, 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, bridge note detachable warrants, and the warrants issued in connection with our 2011 convertible notes financing and our Series D preferred stock financing, 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 consolidated and combined financial statements included elsewhere in this prospectus, our measurement of fair value requires management assumptions and estimates as to what inputs market participants would use in pricing an asset or liability. Unobservable inputs used to value these expected term, volatility and the current value of our common stock. The recognized loss for change in fair value for these instruments, in the aggregate, was $3.8 million, $1.7 million and $305,000 for the years ended December 31, 2011 and 2010 and the six months ended June 30, 2012, respectively, and is included as a component of other (income) expense, net.

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RESULTS OF OPERATIONS

Six months ended June 30, 2012 compared to six months ended June 30, 2011

        An analysis of changes in key items included in the statements of operations for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 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, 2012
  Six months ended
June 30, 2011
   
   
 
 
  Amount   % of
Revenues
  Amount   % of
Revenues
  $ Change   % Change  

Revenue

                                     

Vehicle

  $ 12.3     73.2 % $ 31.9     84.8 % $ (19.6 )   (61) %

Service and repairs

    4.5     26.8     5.7     15.2     (1.2 )   (21 )

Total revenue

    16.8     100.0     37.6     100.0     (20.8 )   (55 )

Significant Expenses

                                     

Cost of revenue—vehicle

    24.3     144.6     40.0     106.4     (15.7 )   (39 )

Cost of revenue—service and repairs

    4.8     28.6     6.0     16.0     (1.2 )   (20 )

Total cost of revenue

    29.1     173.2     46.0     122.3     (16.9 )   (37 )

Research and development

    3.7     22.0     1.5     4.0     2.2     147  

Selling, general and administrative

    10.4     61.9     7.0     18.6     3.4     49  

Interest expense

    1.0     6.1     1.9     5.1     (0.9 )   (47 )

Government grant reimbursements

    (0.2 )   (1.2 )   (0.2 )   (0.5 )        

Loss on extinguishment of debt

            1.0     2.7     (1.0 )   (100 )

Other expense, net

    0.2     1.2     1.8     4.8     (1.6 )   (89 )

Provision (benefit) for income taxes

                         

Key Measurements

                                     

Gross loss

    (12.3 )   (73.2 )   (8.4 )   (22.3 )   (3.9 )   (46 )

Operating loss

    (26.4 )   (157.1 )   (16.9 )   (44.9 )   (9.5 )   (56 )

Net loss

    (27.3 )   (162.5 )   (21.3 )   (56.6 )   (6.0 )   (28 )

Impact of foreign currency translation on reported results

        Based on the average exchange rate for each year, the British pound was relatively stable versus the U.S. dollar during the six months ended June 30, 2012 compared to 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 decreased $20.8 million, or 55%, to $16.8 million during the six months ended June 30, 2012 from $37.6 million during the same period of the prior year.

        Vehicle revenue decreased $19.6 million, or 61%, to $12.3 million for the six months ended June 30, 2012 from $31.9 million for the six months ended June 30, 2011. The decline in vehicle revenue is primarily the result of fewer vehicles being sold, due principally to the combination of two factors. The first factor was the phased ramping of production as we validated our standard operating procedures to support the transition of the Newton to our second generation vehicle technologies. The second factor was that, as we transitioned suppliers, we experienced supply shortages related to key components required for our second generation vehicles, primarily powertrain components. We are working closely with our current suppliers to align their capacity with key production requirements. In addition, we continue to work to transition the manufacture of our powertrain components for the Newton to a medium-volume automotive grade supplier. We anticipate we will complete this transition

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by the end of 2012; however, there can be no assurance that such transition will be completed in the time expected.

        Service and repairs revenue decreased $1.2 million, or 21%, to $4.5 million for the six months ended June 30, 2012 from $5.7 million for the same period of the prior year. The decrease in service and repairs revenue is primarily the result of fleet managers continuing 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 predictable volume but lower margins, towards cost plus work not under a service contract, which has less predictable volume but higher margins. In addition, we have used our limited cash resources primarily to support the assembly and sale of our electric vehicles, which has adversely affected our service and repairs revenue. Specifically, our limited access to cash means that, in some instances, we had to turn down repair work as either we were unable to access the necessary parts or, in regions in which we do not have a physical presence, we were unable to hire a subcontractor to complete the repair work.

        Cost of revenue:    Cost of revenue decreased $16.9 million, or 37%, to $29.1 million during the six months ended June 30, 2012 from $46.0 million for the same period of the prior year.

        Vehicle cost of revenue decreased $15.7 million, or 39%, to $24.3 million for the six months ended June 30, 2012 from $40.0 million for the same period of the prior year. This decrease is primarily the result of a decrease in sales volume, which resulted in a decrease in materials and warranty expense of $17.9 million that was partially offset by a $2.6 million increase in production labor and overhead and permanent inventory write-downs. The increase in production labor and overhead is attributable to our building production infrastructure to support an anticipated increase in sales.

        Service and repairs cost of revenue decreased $1.2 million, or 20%, to $4.8 million for the six months ended June 30, 2012 from $6.0 million for the same period of the prior year. The decrease in service and repair cost of revenue is primarily the result of the $1.2 million decrease in service and repairs revenue.

        Gross loss:    Gross loss increased $3.9 million, to $12.3 million for the six months ended June 30, 2012 from $8.4 million for the same period of the prior year. Gross loss as a percentage of revenue was 73.2% for the six months ended June 30, 2012 compared to 22.3% for the six months ended June 30, 2011. The $3.9 million increase in gross loss is primarily attributable to the increase in our production labor and overhead expense and permanent inventory write-downs during the first six months of 2012 as compared with the same period in the prior year. The increase in gross loss as a percentage of revenue is primarily the result of the decrease in vehicle revenue combined with the increase in our production labor and overhead expense and permanent inventory write-downs during the first six months of 2012 compared to the same period of the prior year.

        Research and development expense:    Research and development expense increased $2.2 million, or approximately 147%, to $3.7 million for the six months ended June 30, 2012 from $1.5 million for the same period of the prior year. The increase in research and development expense is primarily related to our cost down efforts, including advancing our battery management system technology so that we are able to source batteries at a component level and engineering our powertrain and battery systems to enable us to move production of components from low-volume to medium-volume automotive grade suppliers, combined with costs related to development of a platform to enable production of step-through vehicles. We anticipate that we will continue to incur research and development expense as we undertake additional projects to improve our electric vehicle technology and to achieve our cost down objectives.

        Selling, general and administrative expense:    Selling, general and administrative expense increased $3.4 million, or approximately 49%, to $10.4 million for the six months ended June 30, 2012 from

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$7.0 million for the same period of the prior year. The increase in selling, general and administrative expense was primarily the result of a $3.3 million increase in compensation expense. The increase in compensation expense is primarily related to an increase in share-based compensation, which was partially offset by a decrease in cash bonuses paid.

        Interest expense:    Interest expense for the six months ended June 30, 2012 was $1.0 million, a decrease of $0.9 million, or approximately 47%, from $1.9 million of interest expense for the same period of the prior year. The decrease was due primarily to the March 2011 conversion of our outstanding bridge notes to Series B preferred stock, as discussed in additional detail under "—Liquidity and Capital Resources" below.

        Government grant reimbursements:    Government grant reimbursements were approximately $0.2 million during both the six months ended June 30, 2012 and 2011. Reimbursements received during both periods were comprised primarily of amounts related to our participation in certain research programs under the United Kingdom's national innovation agency programs sponsored by the U.K. Department for Business, Innovation and Skills.

        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 bridge notes to Series B preferred stock. There was no loss on extinguishment of debt during the six months ended June 30, 2012.

        Other expense, net:    The $0.2 million of other expense, net for the six months ended June 30, 2012 was comprised primarily of $0.3 million of expense recognized due to the change in the fair value of warrants and separable derivative instruments related to our convertible debt, partially offset by a $0.1 million of foreign exchange transaction gain. The $1.8 million of other (income) expense, net for the six months ended June 30, 2011 was comprised primarily of the change in the fair value of warrants and separable derivative instruments related to our convertible debt. The fair value of warrants and separable derivative instruments related to our convertible debt fluctuates based on various factors, including the type of debt obligation and time to maturity and is influenced by the factors discussed in additional detail under "—Liquidity and Capital Resources" below.

        Income tax benefit:    We incurred operating losses in both of the primary jurisdictions in which we have operations during the six months ended June 30, 2012 and 2011. 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 of the six months ended June 30, 2012 or 2011.

        Net loss:    Net loss for the six months ended June 30, 2012 was $27.3 million, an increase of $6.0 million from the $21.3 million net loss for the same period of the prior year. The increase in net loss is primarily the result of higher losses from operating activities, primarily related to our increased gross loss on vehicle sales, increased research and development spending related to our cost down initiative and development of a step-through vehicle, and an increase in share-based compensation expense. These increases were partially offset by a decrease in financing expenses, including $1.4 million decrease in expense related to changes in the fair value of warrants and separable derivative instruments related to our convertible debt, a $0.9 million decrease in interest expense and a $1.0 million charge in the first quarter of 2011 related to the extinguishment of debt.

Segment results

        We have two reportable segments: Zero Emission Vehicles and Maintenance Services. See Note 17, "Information about Segments and Geographic Areas," to the combined and consolidated

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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, decreased by approximately $19.8 million, to $11.8 million, for the six months ended June 30, 2012 from $31.6 million for the six months ended June 30, 2011. Zero Emission Vehicles segment loss, which excludes corporate expenses and certain other unallocated costs, increased approximately $7.0 million, to $19.6 million, for the six months ended June 30, 2012 from $12.6 million for the six months ended June 30, 2011. Zero Emission Vehicles segment revenue decreased during the first six months of 2012 compared to the comparable period of 2011 primarily as the result of fewer vehicles being sold. We sold fewer vehicles in the first six months of 2012 than in the comparable period of 2011 due principally to supply shortages of key components (primarily powertrain components) used in our second generation vehicles, and the phased ramping of production of the Newton as we validated our standard operating procedures to support our second generation vehicle technologies. The second factor was that, as we transitioned suppliers, we experienced supply shortages related to key components required for our second generation vehicles, primarily powertrain components. We are working closely with our current suppliers to align their capacity with our production requirements. In addition, we continue to work to transition the manufacture of our powertrain components for the Newton from a low-volume to a medium-volume automotive grade supplier. We anticipate we will complete this transition during the second half of 2012; however, there can be no assurance that such transition will be completed in the time expected. The increase in Zero Emission Vehicles segment loss is due primarily to a $3.4 million increase in fixed production labor and overhead and administrative costs resulting from an expansion of our production and administrative support infrastructure to accommodate our anticipated increase in production, combined with a $2.2 million increase in research and development expense due to increased expenditures related to our cost down efforts, including advancing our battery management system technology to allow us to source batteries at a component level and engineering our powertrain and battery systems such that we can move production of components from low-volume to medium-volume automotive suppliers, and the development of a platform to enable production of step-through vehicles.

        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 $2.4 million, to $5.6 million, for the six months ended June 30, 2012 from $8.0 million for the six months ended June 30, 2011. The decrease in Maintenance Services revenue is primarily the result of the continuation of the trend of fleet managers bringing service in-house to better control costs, combined with our limited focus on the sale of forklifts. In addition, we have used our limited cash resources primarily to support the assembly and sale of our electric vehicles, which has adversely affected our Maintenance Services revenue. Specifically, our limited access to cash means that, in some instances, we had to turn down repair work as either we were unable to access the necessary parts or, in regions in which we do not have a physical presence, we were unable to hire a subcontractor to complete the repair work. Maintenance Services segment loss, which excludes corporate expenses and certain other unallocated costs, was $0.9 million for the six months ended June 30, 2012 compared to $0.5 million for the six months ended June 30, 2011.

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Year ended December 31, 2011 compared to year ended December 31, 2010

        An analysis of changes in key items included in the statements of operations for the year ended December 31, 2011 compared to the year ended December 31, 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):

 
  Year ended
December 31, 2011
  Year ended
December 31, 2010
   
   
 
 
  Amount   % of
Revenues
  Amount   % of
Revenues
  $ Change   % Change  

Revenue

                                     

Vehicle

  $ 38.9     78.0 % $ 23.8     66.9 % $ 15.1     63 %

Service and repairs

    11.0     22.0     11.8     33.1     (0.8 )   (7 )

Total revenue

    49.9     100.0     35.6     100.0     14.3     40  

Significant Expenses

                                     

Cost of revenue—vehicle

    57.7     115.6     33.1     93.0     24.6     74  

Cost of revenue—service and repairs

    11.9     23.8     12.2     34.3     (0.3 )   (3 )

Total cost of revenue

    69.6     139.5     45.3     127.2     24.3     54  

Research and development

    5.4     10.8     2.6     7.3     2.8     108  

Selling, general and administrative

    17.0     34.1     13.3     37.4     3.7     28  

Interest expense

    7.1     14.2     3.7     10.4     3.4     92  

Loss on extinguishment of debt

    1.4     2.8             1.4     n/m  

Government grant reimbursements

    (2.2 )   (4.4 )   (0.7 )   (2.0 )   (1.5 )   214  

Other expense, net

    4.2     8.4     1.7     4.8     2.5     147  

Provision (benefit) for income taxes

                         

Key Measurements

                                     

Gross loss

    (19.6 )   (39.3 )   (9.7 )   (27.2 )   (9.9 )   (102 )

Operating loss

    (42.0 )   (84.2 )   (25.6 )   (71.9 )   (16.4 )   (64 )

Net loss

    (52.5 )   (105.2 )   (30.3 )   (85.1 )   (22.2 )   (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 2011 compared with 2010 and, as a result, had a negligible impact on our operating results discussed below.

Discussion of operating results

        Revenue:    Revenue increased $14.3 million, or 40%, to $49.9 million for 2011 compared with $35.6 million for 2010. 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.

        Our vehicle revenue and vehicle cost of revenue for 2011 and 2010 were primarily attributable to sales of the Smith Newton in the United States and sales of the Smith Edison and Smith Newton in the United Kingdom. Vehicle revenue increased $15.1 million, or 63%, to $38.9 million for 2011 from $23.8 million for 2010. Vehicle revenue increased in 2011 compared to 2010 due to an increase in the number of vehicles sold. The increase in vehicles sold is primarily the result of the growth in our business in the U.S. market, which we entered in 2010. U.S. vehicle revenue increased by $16.0 million to $29.9 million in 2011 from $13.9 million in 2010, primarily as a result of identifying key customers who placed significant orders. The increase in vehicle revenue is primarily the result of stronger sales during the first half of the year which resulted in vehicle revenue of $31.9 million for the six months ended June 30, 2011, as, during the second half of the year, we temporarily suspended production in order to focus on finalizing our second generation technologies and realigning our supply chain and

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assembly facilities to produce these second generation vehicles. We had vehicle revenue of $7.0 million during the last six months of 2011.

        Service and repairs revenue decreased $0.8 million, or 7%, to $11.0 million for 2011 from $11.8 million for 2010. The decrease in service and repairs revenue is primarily the result of the continued trend of 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, which has less predictable volume but higher margins. Service and repairs revenue is derived primarily from the servicing of diesel trucks in the United Kingdom. As we are focusing our resources on growing our electric vehicle sales, we do not anticipate growth in the servicing of diesel trucks in the foreseeable future. Although we also service electric vehicles that we sell, most of the vehicles we have sold are still under warranty. As a result, we do not anticipate significant revenue growth related to the servicing of electric vehicles in the near term.

        Cost of revenue:    Cost of revenue increased $24.3 million, or 54%, to $69.6 million for 2011 from $45.3 million for 2010.

        Vehicle cost of revenue increased $24.6 million, or 74%, to $57.7 million for 2011 from $33.1 million for 2010, primarily as a result of increased sales. The increase is primarily attributable to a $18.9 million increase in cost of materials and a $4.7 million increase in labor and overhead, as we purchased additional materials and increased our production staffing to support our anticipated sales growth. Vehicle cost of revenue increased more than vehicle revenue as we currently sell vehicles at a loss (so, as our vehicle revenue increases, our vehicle cost of revenue increases at a higher rate) and because our temporary suspension of production during the second half of 2011 had less of an impact on vehicle cost of revenue than vehicle revenue due to fixed costs as well as our decision to maintain our assembly force throughout the period in which we temporarily suspended U.S. production. In addition to these primary factors, our warranty expense related to vehicle sales increased $1.0 million, primarily as a result of the increase in vehicles sold.

        Service and repairs cost of revenue decreased $0.3 million, or 3%, to $11.9 million for 2011 from $12.2 million for 2010. Our service and repairs 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, which has less predictable volume but higher margins. Most of the vehicles remaining on service contracts are older vehicles that require more frequent repairs, and the higher margins on cost plus repair work have been more than offset by higher costs to service vehicles under the service contracts.

        Gross loss:    Gross loss increased $9.9 million, to $19.6 million, for 2011, from $9.7 million for 2010. Gross loss as a percentage of revenue was 39.3% for 2011 compared to 27.2% for 2010. The increase in our gross loss is primarily the result of increased sales volume. We continued to sell vehicles at a loss as we are in the process of building the volume necessary to achieve efficiencies of scale and, as a result of increased vehicles sales, our gross loss also increased. Our gross loss as a percentage of revenue increased primarily due to our decision to temporarily suspend U.S. production during the second half of 2011 combined with our decision to maintain our assembly force during the production suspension. Cost of revenue, the numerator in calculating gross loss, had relatively stable labor and overhead components throughout 2011 and, therefore, declined less during the second half of 2011 than revenue, the denominator in this calculation, which declined substantially during the second half of the year. As a result, gross loss as a percentage of revenue, which had been 22.3% during the first half of the year, increased to approximately 91.2% during the second half of the year.

        Research and development expense:    Research and development expense increased $2.8 million, or approximately 108%, to $5.4 million for 2011, from $2.6 million for 2010. The increase in research

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and development expense is primarily related to increased expenses during 2011 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 $3.7 million, or approximately 28%, to $17.0 million for 2011 from $13.3 million for 2010. The increase in selling, general and administrative expense was primarily the result of a $6.3 million increase in compensation expense combined with a $2.3 million increase in legal and professional fees, partially offset by a $4.0 million decrease in legal settlement charges and a $1.9 million decrease in management charges. The increase in compensation expense is primarily related to a $2.6 million increase in staffing costs due to increased staff in the U.S. to support our growth and increased staff in the U.K. to perform management functions previously performed by Tanfield, combined with a $3.7 million increase in share-based and incentive compensation. The increase in legal and professional fees is primarily related to costs related to our capital raises and expenses indirectly related to our pending initial public offering. The decrease in legal settlements is due to the charge during 2010 for estimated expense to settle pending litigation. The decrease in management charges is due to the elimination of this charge on acquisition of Smith UK effective January 1, 2011.

        Interest expense:    Interest expense for 2011 was $7.1 million, an increase of $3.4 million, or approximately 92%, from $3.7 million of interest expense for 2010. The increase was comprised primarily of the $4.0 million of non-cash interest recognized upon conversion of the 2011 convertible notes, issued in October 2011, to Series C preferred stock combined with a $0.3 million increase due to our acquisition note payable issued on January 1, 2011, partially offset by the $1.2 million decrease in interest related to bridge notes converted to Series B preferred stock during March 2011. The $4.0 million of non-cash interest related to the 2011 convertible notes was comprised of the unamortized initial discount that resulted from the valuation of the related warrants and the beneficial conversion feature that were bifurcated and valued separately from the 2011 convertible notes. See "—Liquidity and Capital Resources" below, and Note 10, "Notes Payable, Convertible Debt and Convertible Redeemable Preferred Stock," to the consolidated and combined financial statements included elsewhere in the prospectus for additional detail regarding our debt placements and conversion of our bridge notes and 2011 convertible notes to preferred stock.

        Loss on extinguishment of debt:    Loss on extinguishment of debt was $1.4 million in 2011 and was primarily comprised of the $1.0 million loss on conversion of the outstanding bridge notes to Series B preferred stock. Also included in loss on extinguishment of debt is the $0.4 million 2011 convertible note debt discount that resulted from the initial value assigned to the warrants issued upon the exchange of the Senior Note and of a portion of the acquisition note payable to Tanfield for 2011 convertible notes. See "—Liquidity and Capital Resources" below, and Note 10, "Notes Payable, Convertible Debt and Convertible Redeemable Preferred Stock," to the consolidated and combined financial statements included elsewhere in the prospectus for additional information.

        Government grant reimbursements:    Government grant reimbursements increased $1.5 million, to $2.2 million for 2011 compared to $0.7 million for 2010, due primarily to the timing of research and development activities. The reimbursements are primarily comprised of the qualified research and development expenditures under the DOE EV Demonstration Project, which increased $1.2 million, to $1.7 million in 2011, from $0.5 million in 2010. Grant reimbursements under the United Kingdom's national innovation agency programs increased $0.2 million to $0.4 million in 2011 from $0.2 million in 2010. See Note 2, "Summary of Significant Accounting Policies—Government Grant Reimbursements," to the consolidated and combined financial statements included elsewhere in this prospectus for additional information regarding the accounting for this grant income.

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        Other expense, net:    Other expense, net for 2011 was $4.2 million, compared to $1.7 million for 2010. The increase in other expense, net, is primarily the result of an increase in the fair value of warrants and separable derivative instruments 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 deferred tax assets. As a result, we did not record any income tax benefit during either 2011 or 2010.

        Net loss:    Net loss for 2011 was $52.5 million, an increase of $22.2 million from the $30.3 million net loss for 2010. The increase in net loss was primarily a result of the continued growth of our business combined with costs related to the financing our growth. As we grew our business during 2011, we increased vehicle sales, which we sell at a loss, resulting in a $9.9 million increase in our gross loss. We also invested in building our supporting administrative infrastructure and research and development, resulting in an additional expense increase of $10.5 million, partially offset by a $4.0 million decrease in litigation expense and a $1.5 million increase in reimbursement income. Costs related to financing our growth resulted in a $4.8 million increase in interest expense and loss on extinguishment of debt and a $2.1 million increase in expense related to the change in fair value of derivative financial instruments.

Segment results

        Zero Emission Vehicles segment revenue, including both external customers and intersegment revenue, increased by approximately $14.7 million, to $38.3 million for 2011 from $23.6 million for 2010. Zero Emission Vehicles segment loss increased $14.0 million, to $29.1 million for 2011 from $15.1 million for 2010. Zero Emission Vehicles segment revenue increased in 2011 compared to 2010 primarily as the result of stronger sales during the first half of the year as, during the second half of the year, we temporarily suspended U.S. production in order to focus on finalizing our second generation technology and realigning our supply chain and assembly facilities to produce these second generation vehicles. We currently sell vehicles at a loss. As a result, the $14.0 million increase in Zero Emission Vehicles segment loss is largely due to a $9.3 million increase in segment gross loss, resulting primarily from an increase in vehicles sold. Our decision to temporarily suspend U.S. production during the second half of 2011, which had less of an impact on vehicle cost of revenue than on vehicle revenue due to fixed costs, as well as our decision to maintain our assembly force during the production suspension, also contributed to the increase in segment gross loss. In addition, our segment loss increased as the result of an approximate $2.8 million increase in segment research and development expense related primarily to the ongoing development of our Smith Power and Smith Drive technologies and an approximate $3.3 million increase in segment selling, general and administrative costs to support the additional infrastructure required to support the growth of our operations. The increase to the Zero Emission Vehicles segment loss was partially offset by a $1.5 million increase in government grant reimbursements related to our increased research and development activities.

        Maintenance Services segment revenue, including both external customers and intersegment revenue, decreased $2.2 million, to $14.4 million for 2011 from $16.6 million for 2010, and Maintenance Services segment loss increased $0.5 million, to a $1.2 million loss for 2011 from a $0.7 million loss for 2010. The decrease in maintenance services external revenue is primarily the result of the continued trend of fleet managers bringing service in-house to better control costs. Additionally, the sale and lease of forklifts decreased as we continued to focus our efforts and resources on our zero emission vehicle segment. The $0.5 million increase in maintenance services segment loss relates primarily to a decrease in profitability on our service contracts as most of the vehicles remaining on service contracts are older vehicles that require more frequent repairs, combined with the decrease in forklift sales and leases. As we currently intend to focus management and resources on growing our

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Zero Emissions Vehicle segment, we do not anticipate growth in our Maintenance Services segment during the foreseeable future.

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

        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.

        Our vehicle revenue and vehicle cost of revenue for 2010 and 2009 were primarily attributable to sales of the Smith Newton in the United States and sales of the Smith Edison and Smith Newton in the United Kingdom. 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 $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.

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        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 than in 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.

        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

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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 consolidated and combined 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 separable derivative instruments 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 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.

LIQUIDITY AND CAPITAL RESOURCES

Sources of liquidity

        Our primary source of cash during the three years ended December 31, 2011 and six months ended June 30, 2012 has been the proceeds from our various capital raises and as well as cash provided by Tanfield during the two years ended December 31, 2010. Cash flows related to our capital raises are discussed in additional detail below in "—Cash flows—Cash flow provided by financing activities." As of June 30, 2012, we had $0.8 million in cash and cash equivalents. Between July and August 2012, we entered into privately negotiated bridge notes having a maximum aggregate principal amount of $16.5 million. We have borrowed $11.5 million under the bridge notes, leaving $5.0 million available to be borrowed. We expect to borrow up to an additional $2.0 million under the bridge notes in the third quarter of 2012, although we may borrow additional amounts as our business needs dictate.

        During the three years ended December 31, 2011 and six months ended June 30, 2012, our operating activities used significant cash. In the six months ended June 30, 2012, we have forgone planned capital, working capital and research and development expenditures as a result of our limited cash balances. Based on an operating plan that assumes we do not receive net proceeds from this offering, we expect that our cash and cash equivalent balances, together with amounts borrowed or available to be borrowed under our bridge notes and our anticipated cash from operating activities, will be sufficient to fund our operating activities through the third quarter of 2012. However, based on such funding, we will not have the ability to pursue all of the cost down initiatives and the capital expenditures related to our New York facility that we would otherwise pursue under our operating plan. Based on an operating plan that assumes we receive net proceeds from this offering, we expect that our cash and cash equivalent balances, together with such net proceeds, amounts drawn under our bridge 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, for at least the next 12 months. However, if our operating costs exceed our expectations, particularly if we fail to achieve our cost down goals, or if we incur any unplanned expenses, we may need to raise additional funds through the issuance of equity, equity-related or debt securities or through obtaining credit from government or financial institutions. We cannot be certain that additional funds will be available to us on favorable terms or at all.

Planned uses of cash

        Our principal planned uses of funds during 2012 include continued development activities for our vehicle technologies in order to support our cost down initiative and to increase our vehicle offerings, the addition of new sales, service and assembly facilities to support our decentralized production strategy and meeting our working capital requirements. We plan to open and begin production at our New York facility in the fourth quarter of 2012. Because our production process consists of the assembly of components and systems, we anticipate that we will be able to use existing structures for our new sales, service and assembly facilities and currently intend to minimize capital requirements by leasing, rather than owning, these facilities. Expenditures related to these facilities will vary depending

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on the size and geographic location of the facility. Planned expenditures include the cost to conform these facilities to our use and to acquire necessary support equipment and tools. In addition, we will incur costs to extend our administrative, information technology and accounting infrastructure to support these facilities. We incurred $0.3 million of closing costs in connection with entering into the lease for our New York facility in August 2012 and we anticipate additional expenditures of approximately $2.2 million during 2012, consisting of $1.5 million of improvements and equipment and approximately $0.7 million of costs to extend our infrastructure. We anticipate that proceeds raised in this offering in combination with our cash on hand, amounts drawn or available to be drawn under our bridge notes and any cash flow provided by operations will provide the funds necessary to open and begin production at the New York facility and to fund any other sales, service and assembly facilities that we may open during 2012. Without the proceeds of this offering, we will not be able to fund all of the anticipated capital expenditures related to our New York facility. Our ability to open sales, service and assembly locations will depend on the availability of adequate capital to support this process and, therefore, we cannot be certain whether any additional expansion will occur as planned or at all.

Cash flows

Summary of cash flows (in thousands)

 
  Six Months ended
June 30,
 
 
  2012   2011  

Net cash used in operating activities

  $ (12,816 ) $ (22,473 )

Net cash used in investing activities

    (1,609 )   (1,707 )

Net cash provided by financing activities

    13,558     30,349  

Cash flows used in operating activities

        Net cash used in operating activities was $12.8 million for the six months ended June 30, 2012. The primary reason for the use of cash in operating activities is that we spend more to produce our vehicles than we receive in revenue, resulting in a loss at the gross margin level. The largest component of our cash used during this period related to our net loss of $27.3 million, which included non-cash charges of $13.7 million related to various items such as warranty expense, which we recognize in the period that the related vehicle is sold but incur the actual expenditures in future periods, depreciation and amortization related to long-lived assets for which we expended the cash outlays in prior period but recognize expense over the period of the estimated useful life of the related long-lived asset, expense recognized to reduce inventory to net realizable value, and expense recognized related to share-based compensation that does not require a cash outlay.

        Significant cash outflows were primarily related to $29.1 million of cost of revenue and $14.0 million of operating expenses, partially offset by the inclusion in these amounts of $4.8 million of share-based compensation expense, $4.9 million of inventory write downs and $1.3 million of warranty charges that did not require the use of cash.

        Significant operating cash inflows were comprised primarily of vehicle revenue of $12.3 million, service and repairs revenue of $4.5 million, and the receipt of $1.0 million in reimbursements from the DOE related to other receivables outstanding at December 31, 2011, partially offset by a $1.0 million increase in accounts receivable. Accounts receivable will fluctuate based on timing of delivery and payment.

        Net cash used in operating activities was $47.6 million for the year ended December 31, 2011. Our use of cash in operating activities for 2011 was primarily the result of us spending more to produce our vehicles than we received in vehicle revenue, which was the primary contributor to our $19.6 million gross loss, as well as the expansion of our infrastructure. The largest component of our cash used

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during 2011 related to our net loss of $52.5 million, which included non-cash charges of $24.9 million related to items such as interest expense related to our Series A debentures that is due and payable in future periods, warranty expense (which we recognize in the period that the related vehicle is sold but incur the actual expenditures in future periods), depreciation and amortization related to long-lived assets (for which we made cash outlays in prior periods but recognize expense over the period of the estimated useful life of the related long-lived asset), interest expense related to our 2011 convertible notes (for which the debt and accrued interest was converted to Series C preferred stock), expense recognized to reduce inventory to net realizable value, expense recognized related to share-based compensation that does not require a cash outlay, and changes in the fair value of financial instruments for which we have not made cash expenditures in prior periods and will not make cash expenditures in future period.

        Significant cash outflows during the year ended December 31, 2011 were primarily related to our (i) $69.6 million of cost of revenue, (ii) $22.4 million of operating expenses, which was partially offset by our receipt of $1.5 million of research and development reimbursements received under governmental programs in which we participate, and (iii) use of funds related to accounts payable of $5.0 million. The $5.0 million reduction in our accounts payable is primarily the result of our temporary suspension of U.S. production, which reduced our need to acquire additional inventory during the second half of 2011, compared to the second half of 2010 when we were building inventory to support our sales growth during the first half of 2011.

        Significant operating cash inflows during the year ended December 31, 2011 were comprised primarily of vehicle revenue of $38.9 million and service and repairs revenue of $11.0 million, partially offset by a $6.0 million decrease in deferred revenue and a $3.7 million increase in accounts receivable. The decrease in deferred revenue is primarily the result of a vehicle customer that paid for vehicles in December 2010 that were not shipped until January 2011. Accounts receivable will fluctuate based on timing of delivery and payment.

        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 10, "Notes Payable, Convertible Debt and Convertible Redeemable Preferred Stock," to the consolidated and combined 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 14, "Commitments and Contingencies," to the consolidated and combined financial statements included elsewhere in this prospectus for additional information regarding this lawsuit.

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        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.

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 $1.6 million and $1.7 million for the six months ended June 30, 2012 and 2011, respectively. Capital expenditures for the six months ended June 30, 2012 were primarily related to partial payment for licensing rights and the ongoing acquisition of equipment and tooling to support the assembly of vehicles. Capital expenditures for the six months ended June 30, 2011 and 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.

        Capital expenditures for the year ended December 31, 2011 were primarily related to the ongoing acquisition of equipment and computers to support the assembly of vehicles and tooling, which have alternative future uses, to support our research and development activities. Capital expenditures 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, 2012, our cash provided by financing activities amounted to $13.6 million. This source of cash is primarily comprised of $14.8 million of net cash proceeds from the issuance of our Series D preferred stock and related warrants, partially offset by $1.3 million of deferred offering costs. 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, 2011, our cash provided by financing activities amounted to $52.2 million. This source of cash is primarily comprised of $37.8 million of net proceeds from the issuance of our Series B preferred stock, the $25.2 million of net proceeds from issuance of our 2011 convertible notes, and the $2.8 million of proceeds from the issuance of a short-term senior unsecured note, partially offset by $11.8 million of payments made to Tanfield related to our acquisition of Smith UK and $1.6 million of deferred offering and financing 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

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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.

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. We are permitted under the security agreement we entered into in connection with our issuance of the Series A debentures to issue indebtedness, including secured indebtedness, that is senior to the Series A debentures. 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 offered in the private placement are convertible, at the option of the holder, at 80% of the price at which shares of our common stock are valued in an initial public offering or 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. As of June 30, 2012, we have outstanding the $11.1 million in principal amount of Series A debentures, along with accrued interest of approximately $3.5 million. We intend to notify holders of the opportunity to convert their Series A debentures into common stock at price equal to 80% of the public offering price in this offering. We expect that the discounted conversion price will prompt holders to elect to convert. We do not currently intend to prepay prior to maturity any Series A debentures of holders that do not elect to convert. However, we reserve the option under the terms of the Series A debentures to prepay principal and interest on any unconverted Series A debentures at any time.

2010 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.

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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 2010 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 fourth 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.

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 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.

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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 fourth 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.

Series D preferred stock financing

        Between January 30, 2012 and April 2, 2012, we issued and sold in a private placement an aggregate of 946,420 shares of our Series D preferred stock and warrants to purchase 141,946 shares of our common stock for aggregate cash proceeds of $15.3 million. Shares of our Series D preferred stock have the right to vote, on an as-converted basis, together with shares of our Series C preferred stock, 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 C preferred stock and Series B preferred stock and as a separate class, with respect to certain amendments of our fourth amended and restated certificate of incorporation and certain liquidation events. Our Series D preferred stock has a liquidation preference of $16.15 per share (subject to adjustment), which is senior to the liquidation preferences of our Series C preferred stock and Series B preferred stock. Our Series D 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, Series C preferred stock and Series D preferred stock, voting together as a single class, can require us to redeem all outstanding shares of each series of our preferred stock on or after March 1, 2018. Each warrant can be exercised at any time for the number of shares of our common stock equal to 15% of the amount of the holder's investment in the Series D preferred stock financing divided by the exercise price of $16.15. Each 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.

2012 bridge notes financing

        Between July 16, 2012 and August 31, 2012, we entered into five privately negotiated bridge notes having a maximum aggregate principal amount of $16.5 million with Tanfield, Continental Casualty Company and certain other third parties. The bridge notes accrue interest at a per annum rate of 8.00%. All outstanding principal of and accrued interest on the bridge notes will become due and payable upon the earlier of 180 days from the date of issuance and the closing of this offering. Our obligations under the bridge notes are secured by substantially all of the assets of Smith Electric Vehicles Corp.

        We have borrowed $11.5 million in the aggregate under the bridge notes. We have the right to borrow up to an additional $5.0 million under the bridge notes from time to time prior to the maturity of the notes, subject to our compliance with the covenants specified in the notes and there not having

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occurred a material adverse change in our business. The bridge notes restrict our ability to repay indebtedness and to incur additional indebtedness, subject to exceptions for the incurrence and repayment of indebtedness under other bridge notes and certain permitted indebtedness. We also agreed in these bridge notes not to encumber any of our assets, other than with certain permitted liens or, subject to certain exceptions, make certain restricted payments on our equity securities, pay cash bonuses to employees or pay cash severance payments to certain of our executive officers. We agreed in three bridge notes, having an aggregate principal amount of $13.0 million, to modify the terms of those notes to reflect any more favorable terms we agree to in any bridge notes or similar debt instruments we may issue in the future. As of September 6, 2012, we believe we are in compliance with the conditions for borrowing under the bridge notes.

CONTRACTUAL OBLIGATIONS

        The following table shows our contractual payment obligations for our long term debt and future purchase obligations as of December 31, 2011. Our contractual payment obligations as of June 30, 2012 did not materially change from the amounts reflected below as of December 31, 2011. We had $2.6 million of unrecognized tax benefits as of December 31, 2011. Interest on our convertible debt is calculated based on the contractual loan maturity at the stated interest rate in effect at December 31, 2011 (in thousands):

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

Convertible debt

  $ 11,125   $   $ 10,425   $ 700   $  

Interest payable in kind

    6,633         6,227     406      

Interest payable in cash

    130     130              

Operating leases

    1,448     897     520     31      

Notes payable-other

    2,512     2,512              

Purchase orders, primarily for inventory

    18,967     18,967              
                       

Total contractual payment obligations

  $ 40,815   $ 22,506   $ 17,172   $ 1,137   $  
                       

        Subsequent to June 30, 2012, we entered into privately negotiated bridge notes having a maximum aggregate principal amount of $16.5 million. The bridge notes mature on the earlier of 180 days from the date of issuance and the closing of this offering, and accrue interest at a per annum rate of 8.00%. We have borrowed $11.5 million in the aggregate under the bridge notes and have the right to borrow up to an additional $5.0 million under the bridge notes from time to time prior to the maturity of the notes, subject to our compliance with the covenants specified in the notes and there not having occurred a material adverse change in our business.

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. The adoption of this update in the first quarter of 2012 did not have a material impact on our financial position, results of operations, or cash flows.

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OFF-BALANCE SHEET ARRANGEMENTS

        As of December 31, 2011 and June 30, 2012, 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.

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

        As of June 30, 2012, we have issued only $11.9 million fixed rate debt, of which $10.4 million has interest paid-in-kind and $1.5 million has cash interest payments. 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, 2011, 2010 and 2009, we identified material weaknesses in our internal control over financial reporting existing as of December 31, 2011. 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.

        The material weaknesses identified as of December 31, 2011 were as follows:

    We did not maintain adequate segregation of duties and, as a result, we had an increased risk of fraud. For example, we did not have appropriate segregation of duties between transaction origination and account reconciliation and compensating controls, and robust account reconciliations had not been adequately implemented to provide for the timely identification of fraudulent activity.

    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 have a fully documented close process or a structured set of account reconciliations and we had not established information technology control policies.

    Due to inadequate financial accounting systems reporting functionality, our financial accounting system did not provide system generated reports that would allow us to analyze data to evaluate the accounting and financial reporting implications for certain business transactions in a timely manner, and increased the risk of error. For example, the lack of inventory reporting requires us to perform significant manual analysis of inventory movements and warranty reserve calculations.

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        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.

Remediation efforts

        Since December 31, 2011, our remediation efforts, either completed or in process, for these material weaknesses have included:

    completing the implementation of a financial close schedule and standard account reconciliations;

    completing enhancements to the functionality to our accounting system to provide for flexible and timely system generated reporting;

    identifying activities where staffing size or other factors hinder adequate segregation of duties and either modifying the duties of the individuals as we add staff or implementing appropriate monitoring controls to reduce fraud risks;

    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. Two focuses of our remediation efforts have been the addition of personnel to build out our finance and accounting function and upgrading our accounting systems. For example, in the fourth quarter of 2011, we hired a Director of Financial Accounting/Operations and, in the first quarter of 2012, we hired a Director of Corporate Reporting, a Director of Internal Audit, a Senior Accountant, a Staff Accountant and a Plant Controller for our Kansas City production facility. During the first quarter of 2012, we also upgraded our accounting system to the current version and added supplemental modules to increase functionality. During the second quarter of 2012, we established a documented close process and a structured set of account reconciliations. Additionally, we began identifying internal controls across all significant processes and gaps in key controls where more work will be focused. 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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Table of Contents


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 and technologies 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 of between approximately 14,000 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, in the first quarter of 2012 we introduced a Newton model in the United States that is configured as a step van.

        We believe our vehicles provide a lower total cost of ownership, which includes a vehicle's up front cost as well as ongoing costs such as fuel and maintenance, than that of conventional diesel vehicles. Our vehicles feature a battery system that is scalable to meet the varying range and economic needs of commercial fleets. We believe electric vehicles are ideally suited for the return-focused 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 have an advantage in mechanical simplicity, requiring less maintenance than diesel vehicles due to the smaller 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.

        During the year ended December 31, 2011 and the six months ended June 30, 2012, we sold 270 and 90 vehicles, respectively. Based on our current order backlog, customers' ordering forecasts and anticipated supply chain capacity, we currently expect to produce approximately 380 vehicles during 2012, approximately 60% of which we expect will be produced in the fourth quarter. Based on similar factors and our expectations for customer demand, we expect to significantly increase our production in 2013 and in future years. These expectations do not, however, represent guarantees that we will achieve our expected level of orders, production or sales. Our order backlog is not necessarily indicative of future sales. As of June 30, 2012, we had produced 79 vehicles during 2012.

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Table of Contents

        Our current customers include operators of some of the largest fleets of medium-duty commercial delivery vehicles in the world and leading early adopters that are incrementally transitioning portions of their fleets to commercial electric vehicles. We have focused on building deep relationships with our customers to understand their needs and to develop vehicles that satisfy those needs. Our goal is to provide these customers with high quality vehicles that meet their range and operational needs, which we believe, over time, will lead to repeat orders and sustainable order volume growth. We expect that attaining higher order volumes will enable us to move production of components from low-volume suppliers to medium-volume automotive grade manufacturers which, in turn, will position us to accelerate our cost reduction strategies and continue to expand sales to existing customers and attract new customers.

        We sell our vehicles through our direct sales force, as well as limited third party distribution agreements. Our vehicles are utilized by 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

   

FedEx

DHL

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 assisting customers to identify and take advantage of limited availability government assistance programs in the near term, the development of a multi-year purchasing forecast to help the customer systematically integrate our vehicles into its fleet and analytics that project 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 individualized sales and service solutions has elevated our public profile, enhanced the credibility of our vehicles in the marketplace and turned our customers into advocates of our sales approach and our vehicles, all of which enhance our ability to obtain repeat orders and sell vehicles to new customers.

        We intend to build Smith brand equity by seeking to deliver to customers strong returns on their investment in our vehicles. Our current vehicle price, including both the base vehicle and battery system, is, however, higher than the price of a diesel-fueled vehicle with a comparable GVW. Therefore, as a part of our sales strategy, we separately present to our customers the base vehicle price and the battery system price, which allows customers to compare the relative merits of a diesel truck's low cost energy storage system (the fuel tank) and higher and more 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

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approximately 14,000 to 26,400 pounds, a payload capacity of approximately 6,100 to 16,200 pounds and a range of up to 40 to 150 miles on a single charge 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. During the first quarter of 2012, we introduced a Newton model that is configured as a step van in the United States. The Newton step van has a GVW of approximately 14,000 to 22,000 pounds and a payload capacity of approximately 2,700 to 10,000 pounds. 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, which we expect to be available in 2013.

        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 on a single charge 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.

        To improve the economic advantage of our vehicles over diesel trucks and our gross margin, we are working to reduce our material, operating and production costs, which we expect will enable us to further reduce the prices of our vehicles while improving our sales volume. We have implemented a global framework consisting of three interrelated cost reduction strategies, which we refer to as our "cost down" initiative, that we believe will help us achieve these goals and, in turn, achieve profitability.

        The first strategy is focused on transitioning the highest cost portions of our supply chain from low volume suppliers to a medium-volume automotive grade supply chain. This strategy relates principally to the components used in our battery system and powertrain. We have transitioned our U.S. battery module supply to A123 and we are working with MagTec, our development partner for our Smith Drive system, to transfer production of our key Smith Drive components from a low-volume to a medium-volume supplier, which we expect to occur in the fourth quarter of 2012. In connection with this transition, we have validated the technical capabilities and production capacity of ACM, a contract manufacturer based in Malaysia, and have completed the technology transfer necessary for ACM to begin production of the motor, gearbox and control electronics unit that comprise our Smith Drive system. The second strategy 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. We transitioned our U.S.-produced Newton to our Smith Power and Smith Drive systems in the fourth quarter of 2011, transitioned our U.K.-produced Newton to our Smith Drive system in the first half of 2012 and expect to transition our U.K.-produced Newton to our Smith Power system in the second half of 2012 and our Edison vehicles to these systems in the first half of 2013. As we proceed in this transition, we expect to qualify additional suppliers that can meet our specifications. For example, we have qualified an alternative supplier for the battery modules used in our U.S.-produced Newton vehicles and the battery systems used in our U.K.-produced Newton and Edison vehicles. The third strategy involves the transition of the supply chain for our ancillary components to higher-volume and lower-cost suppliers. This strategy relates principally to certain components of our chassis and cab, such as battery control and junction boxes, battery enclosures, compressors and harnesses. For many of these components we have completed the engineering, specifications and vendor selection.

        We generally are pursuing all three cost down strategies concurrently and expect to complete our current cost down initiative in the first quarter of 2013 for the Newton and in the second quarter of 2013 for the Edison. As a result of our cost down initiative, we expect our material cost to decrease by

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approximately 30% and 18%, compared to the second quarter of 2012, by the end of the second quarter of 2013 for our Newton chassis cab with an 80 kilowatt hour battery pack and our Edison platform, respectively. Thereafter, we expect to pursue continuous improvements in our supply chain and vehicle production costs. There is no guarantee, however, that our cost down initiative will reduce our material cost to the extent or within the timeframe we expect. Our ability to timely complete our cost down initiative is largely dependent on our ability to raise sufficient capital to assure new suppliers that we will have the ability to meet our financial commitments and to fund necessary research and development, the purchase of tooling equipment and pre-production activities, both internally and for our new suppliers, and on our exhaustion of higher-cost components currently held in inventory.

        We have production, research and development, sales and service facilities in Kansas City, Missouri and outside of Newcastle, England. 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 scalable capacity, which we believe will make our decentralized production strategy financially advantageous. 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 entered into a lease agreement for a New York facility in August 2012 and we anticipate opening this facility during the fourth quarter of 2012. We also are pursuing joint ventures with local market participants to produce, sell and/or service Smith-branded vehicles in promising international markets where we see opportunities that we believe can be better realized through joint venture arrangements than through Smith-owned facilities. We 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. In December 2009, we sold our first Smith Newton in the United States. Between January 1, 2010 and June 30, 2012, we sold 358 vehicles in the United States and 174 vehicles outside of the United States. We have approximately 315 employees worldwide. Our revenue for our fiscal years 2011, 2010 and 2009 and our six months ended June 30, 2012 was $49.9 million, $35.6 million, $22.9 million and $16.8 million, respectively. Our revenue consisted of $38.9 million in vehicle revenue and $11.0 million in service and repairs revenue for 2011; $23.8 million in vehicle revenue and $11.8 million in service and repairs revenue for 2010; $8.2 million in vehicle revenue and $14.6 million in service and repairs revenue for 2009; and $12.3 million in vehicle revenue and $4.5 million in service and repairs revenue for the six months ended June 30, 2012. Our revenue grew from $22.9 million for the year ended December 31, 2009 to $49.9 million for the year ended December 31, 2011. During the year ended December 31, 2011 and the six months ended June 30, 2012, we had a gross loss of $19.6 million and $12.3 million, respectively. Our gross loss as a percentage of revenue has increased in each of our last three fiscal years. We operate our business in two reportable segments: (i) Zero Emission Vehicles and (ii) Maintenance Services. See Note 17, "Information about Segments and Geographic Areas," to the consolidated and combined 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;

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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. 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 LMC Automotive (Q2, 2012 Medium Duty World Truck Sales), global annual sales of on-highway medium-duty commercial trucks are expected to reach 815,831 units in 2012, with a CAGR of 4.7% from 2012 to 2016. In relation to the overall commercial vehicle market, the medium-duty commercial vehicle segment represents a niche opportunity for many traditional large-scale OEMs. We believe this to be particularly true for the medium-duty commercial electric vehicle market. According to Pike Research LLC, approximately 4,000 and 16,000 medium-duty commercial battery electric trucks are expected to be sold globally in 2012 and 2016, respectively, reflecting a CAGR of 41.4%. Expected 2012 sales of medium-duty commercial battery electric trucks, therefore, represent significantly less than 1% of the total number of medium-duty commercial trucks expected to be sold in 2012. We believe that the CAGR for sales of medium-duty commercial battery electric trucks from 2012 to 2016 is significantly higher than the CAGR for sales of medium-duty commercial trucks during the same period due to the substantially smaller size of the medium-duty commercial battery electric truck market and the expected effects of decreasing battery costs and governmental economic development activities.

GRAPHIC

        According to R.L. Polk & Co., there are an estimated 11.5 million total commercial vehicles in the U.S., of which 3.3 million are medium-duty trucks. Europe represents a smaller market, with an estimated 2.7 million commercial vehicles according to KPMG International. The primary drivers impacting purchases by medium-duty fleet operators are macroeconomic growth, industrial activity, fuel and maintenance costs and government spending.

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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 aging fleets, as commercial fleet operators curtailed vehicle replacements during the economic downturn that began in 2008, increasing government regulation, which we believe is driving an increase in diesel truck prices, and available government incentives will result in significant growth in the market for commercial 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-fueled 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, have poor fuel economies, and utilize depot-based routes with numerous stops and predictable distances, typically 50 to 100 miles per day. Additionally, fleet owners tend to maintain a large number of standardized 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, UPS and FedEx each 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, 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 LMC Automotive, on average, gasoline and diesel trucks in this category have a fuel economy of approximately 8.4 miles per gallon. According to Pike Research LLC, diesel trucks in this category have an operating cost of $0.72 per mile, compared to an operating cost of $0.22 per mile for an all-electric vehicle in this category.

        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.

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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. However, we believe that these incumbent commercial vehicle manufacturers have limited real-world customer experience with commercial vehicles that incorporate electric powertrains and their 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. Given the relatively limited sales volume opportunity in the medium-duty commercial vehicle market compared to the light-duty or heavy-duty truck markets or the passenger vehicles market, we believe the development process for an electric vehicle program could be particularly expensive or not cost-benefit justified for incumbent light-duty, heavy-duty and passenger 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 medium-duty program.

    Limited availability of lease financing for purchasers of commercial electric vehicles.  We believe that lease financing options for operators of commercial electric vehicles historically have been limited compared to the financing options available to operators of diesel trucks. We believe that the primary reasons for this include the relatively limited volume opportunity presented by the commercial electric vehicle market and the limited experience of market participants in determining residual values for commercial electric vehicles or the vehicles' battery systems.

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 position as a leading producer of electric vehicles for the medium-duty commercial 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. There is, however, no guarantee that such expected growth will occur or that we will be able to capitalize on any growth that does occur.

    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 exclusive focus on and 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,

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      TNT Express, FedEx 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.

    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 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 commercial trucks due to the relatively limited sales volume opportunity. We believe that as an early entrant with exclusive focus on medium-duty commercial 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, validate the economic benefit of our vehicles and provide us with market credibility. Additionally, these customers typically have well-defined fleet

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      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 our 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 resale to the end users. For example, in October 2011, Trans Tech Bus, a division of Transportation Collaborative Inc., unveiled its eTrans electric Type-A school bus prototype, which is based on the Newton platform. Additionally, in the future we may leverage our technology and key components supply chain to provide customers an option of paying us to retrofit and convert their existing diesel powered vehicles into electric powered vehicles.

    Assuming control over manufacturing of key components.  We currently are transitioning the manufacturing of key components in our Smith Drive and Smith Power systems from low-volume suppliers to medium-volume automotive grade suppliers. We expect this transition to result in higher-quality components, faster and more reliable production and delivery, and a lower cost of production.

    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 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 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. We entered into a lease for a facility in New York City in August 2012, which we anticipate will open during the fourth quarter 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. We also are pursuing joint ventures with local market participants to produce, sell and/or service Smith-branded vehicles in promising international markets where we see opportunities that we believe can be better realized through joint venture arrangements than through Smith-owned facilities. In this regard, in February 2012 we entered into a non-binding letter of intent with Wanxiang regarding a $25.0 million investment by Wanxiang in us and the formation of a joint venture to develop, manufacture and commercialize all-electric school buses and commercial vehicles for multiple industries in China. Additionally, in June 2012, we entered into a non-binding term sheet with J3M Empreendimentos e Participacoes Ltda., or J3M, and Nova Africa Comercio Internacional Ltda., or Nova Africa, both of which are Brazilian companies, regarding a $10.0 million investment by J3M and Nova Africa in us and the formation of a joint venture in Brazil to develop, manufacture, market and sell Smith-branded all-electric commercial trucks and buses in Brazil. We are also in discussion regarding a potential joint venture in Colombia. Negotiations regarding the scope and terms of

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      these joint ventures and investments in us are preliminary and ongoing and there are no assurances regarding the timing or terms under which any such transaction may be consummated, if at all, or the realization of expected benefits if consummated.

    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 delivery, military transport and boom truck. The Newton has a GVW of approximately 14,000 to 26,400 pounds, a payload capacity of approximately 6,100 to 16,200 pounds and a range of up to 40 to 150 miles on a single charge 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.

        During the first quarter of 2012, we introduced a Newton model in the United States that is configured as a step van. The Newton step van has a GVW of approximately 14,000 to 22,000 pounds and a payload capacity of approximately 2,700 to 10,000 pounds. We expect the vehicle will be used primarily for delivery of parcels, uniforms and baked goods.

        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,

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    a refrigeration unit that provides a cooled compartment,

    transit, shuttle, or school bus seating, and

    a step van body.

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

    40 kilowatt hour, which provides a range of up to 40 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 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 on a single charge 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.

        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 June 30, 2012, we have 40 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 as compared to our previous induction motor; 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 began including this technology in all new Smith Newtons we produce in the United Kingdom in the first half of 2012 and anticipate including this technology in all new Smith Edisons we produce in the first half of 2013.

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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;

    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 module or 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 incorporate 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 second half of 2012 and in all new Smith Edisons we produce in the first half of 2013.

        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.

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        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 currently do not plan to ramp to this production level until the first quarter of 2013. 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 seven vehicles per month in this facility, which we plan to increase to approximately 35 vehicles per month during the fourth quarter of 2012.

        We believe that we will be able to increase the production rates at our existing production facilities through improvements in our supply chain capacity and our assembly process and by 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.

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        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 or hydraulic 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 re-sell the unused traditional vehicle components to Ford.

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 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 26 sole source suppliers. We currently have alternative sources of supply for the parts we purchase from our sole source suppliers other than for the cab and chassis, our battery management system and assemblies, the hardware used in our Smith Link telemetry system, the message queuing software used in our Smith Link telemetry system (which we license from StormMQ Limited), the principal powertrain components we use in our Edison vehicles and our high voltage battery chargers. As part of our cost down initiative, over time, we plan to implement a multi-source volume purchasing strategy in order to reduce our reliance on 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.

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        In connection with our cost down initiative and transition to our Smith Power and Smith Drive systems, we are transitioning our supply chain, including moving to suppliers with which we have limited or no prior experience, and plan to supplement the existing suppliers of the key components of our Smith Drive and Smith Power Systems with medium-volume automotive grade suppliers. Over time, we plan to transition our supply chain away from low-volume suppliers that we believe are suited for prototype and/or limited commercial production but that we do not believe have the capability or capacity to support our anticipated higher production volumes at consistent quality levels. By leveraging medium-volume automotive-grade suppliers' existing production infrastructure and quality control processes, we believe that we will increase our ability to obtain quality components on a timely basis. While we have 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 and we received ISO certification for our Kansas City facility in May 2012.

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. We believe that our 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

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customers' vehicles. We currently service the 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. For a discussion of certain risks associated with our supply chain, see "Risk Factors—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"; "Risk Factors—We are transitioning the powertrains and battery systems used in our 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" and "Risk Factors—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."

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.

        In May 2012, A123 announced that it had retained a strategic advisory firm to assist it in exploring strategic alternatives and, in August 2012, A123 announced that it had entered into a nonbinding memorandum of understanding with Wanxiang. According to A123's announcement, the memorandum of understanding provides for Wanxiang to invest up to $450 million in A123, although the portion of the investment that exceeds $25 million is subject to the satisfaction of certain conditions, including the receipt of certain governmental and third party approvals, some or all of which may not be able to be obtained or otherwise satisfied. Given the non-binding nature of the memorandum of understanding and the conditions associated with a significant portion of the proposed investment, there is no guaranty that a significant portion or any of this investment will be consummated. A123 also announced in August 2012 that it had received a notice of delisting from The NASDAQ Stock Market because A123's share price had closed below the minimum $1.00 per share requirement for continued listing on NASDAQ for 30 consecutive business days. If, for any reason, A123 is unable to continue to supply us

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with the battery modules we use in the U.S.-produced Newton, we will need to quickly shift our battery supply to a new supplier, which we may not be able to do in a timely manner, on acceptable terms, or at all.

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. We did not meet the minimum purchase requirements for 2011, and, as a result, Avia is not required to exclusively supply us with chassis and cabs during 2012. See "Risk Factors—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." 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 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, 2012. We receive 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 on Ford manufactured components.

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

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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 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 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 in the second 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. In November 2011, we granted MagTec an option to purchase 30,000 shares of our common stock. 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.

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StormMQ Limited

        StormMQ Limited, or 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 entered into a software license agreement with StormMQ effective May 31, 2011 that provides us with an exclusive worldwide license to use the software developed by StormMQ in our telemetry system. The license agreement has a 16-month initial term, which automatically extends indefinitely unless terminated by either party with 90 days' prior written notice. We agreed in the license agreement to exclusively use StormMQ's software for the initial two years of the term of the agreement.

Key suppliers without supply agreements

Alliance Contract Manufacturing Sdn Bhd

        ACM supplies us with certain components incorporated in our Smith Drive powertrain system. We currently purchase components from ACM under purchase orders, although we are in discussions with ACM regarding a long-term supply agreement under which we would purchase our Smith Drive systems from ACM. We are in the process of transitioning substantially all of our supply requirements for the motor, gearbox and control electronics unit that comprise our Smith Drive system to ACM, and expect to complete this transition in the fourth quarter of 2012. In connection with this transition, we have validated ACM's technical capabilities and production capacity, and have completed the technology transfer necessary for ACM to begin production of our Smith Drive system. Our purchase and installation in ACM's manufacturing facility of a limited amount of production equipment, jigs and fixtures are the principal items remaining in order to complete this transition. Once this transition is complete, we expect that ACM will be responsible for all planning, procurement, tooling vendor management, testing and validation activities related to the production of our Smith Drive system. There are no assurances, however, that we will be able to transition the supply of our Smith Drive system and related components to, or complete a supply agreement with, ACM in the timeframe we anticipate, on acceptable terms or at all.

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.

        Enova recently announced that it had received a notice from NYSE MKT notifying Enova that its securities were subject to delisting from NYSE MKT because the company no longer complies with the exchange's continued listing standards. Enova previously had announced that as part of cost cutting measures, in excess of 80% of its workforce had left the company, and that the company was

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continuing to evaluate strategic opportunities to leverage its resources and assist with its continuing operations. In order to help secure our supply of powertrain systems and related components used in our Edison vehicles, on August 23, 2012, we entered into a non-binding letter of intent with Enova for the purchase of powertrain systems and related components in the third and fourth quarters of 2012. In the event that Enova is unable to meet our supply requirements under accepted purchase orders, we and Enova agreed to work in good faith to agree on the terms of a non-exclusive right to manufacture the powertrain systems used in the Edison through March 31, 2013. There are no assurances, however, that we will be able to complete the transactions contemplated by the letter of intent. If we are unable to complete, for any reason, the inventory purchases contemplated under the letter of intent, we will need to quickly shift our Edison powertrain supply, which we may not be able to do so in a timely manner, on acceptable terms or at all.

Valence Technology, Inc.

        Valence currently supplies lithium-ion batteries and battery management systems used in the U.K.-produced 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.

        Valence filed a voluntary petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in July 2012. If, for any reason, Valence is unable to supply us with the batteries and battery management systems we use in our U.K.-produced vehicles, we will need to quickly shift to a new supplier, which we may not be able to do in a timely manner, on acceptable terms, or at all. While we have identified an alternative supplier for the battery systems we obtain from Valence, shifting our battery supply to this supplier would require us to incur engineering and tooling costs and there is no guarantee that this alternate supplier would have capacity available at that time to timely meet our production needs.

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. Frito-Lay accounted for 46% of our consolidated revenue for the year ended December 31, 2011. 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. FedEx, Frito-Lay and FreshDirect, LLC accounted for 24%, 18% and 9%, respectively, of our consolidated revenue for the six months ended June 30, 2012.

        Our primary focus is on meeting the needs of and increasing sales to our existing customers and in sectors in which we already have customers, although we also are working to attract customers in new market segments, which can range from postal and military cargo delivery to school and shuttle bus transport. As of June 30, 2012, we have an order backlog of 404 vehicles, representing vehicle revenue of $50.2 million. We believe that approximately three fourths of the orders included in our order backlog will be completed by the end of 2012. We include in our order backlog vehicles yet to be produced that are subject to purchase agreements or written purchase orders we have received. Our order backlog excludes vehicles in inventory awaiting additional modifications or delivery to the end

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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.

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 in the Faroe Islands, France, Greenland, Iceland, and Ireland. We also have worked with, and intend to continue working 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 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 assisting customers to identify and take advantage of limited availability government assistance programs in the near term, the development of a multi-year purchasing forecast to help the customer systematically integrate our vehicles into its fleet, as well as analytics that project 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 solutions has elevated our public profile, enhanced the credibility of our vehicles in the marketplace and turned our customers into advocates of our sales approach and our vehicles, all of which enhance our ability to obtain repeat orders and sell vehicles to new customers.

        Our current vehicle price, which includes both the base vehicle and battery system, is higher than the price of a diesel-fueled vehicle with a comparable GVW. Therefore, as a part of our sales strategy, we separately present to our customers the base vehicle price and the battery system price, which allows customers to compare the relative merits of a diesel truck's low cost energy storage system (the fuel tank) and higher and more 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.

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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 commercial alternatively fueled 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 alternatively fueled 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 produces the Ford Transit Connect EV®; Navistar, which produces the Navistar eStar®; Freightliner, which produces the MT E-CELL; Odyne Systems, which produces plug-in hybrid heavy- and medium-duty trucks; ZeroTruck, which produces an all-electric medium-duty truck; Electric Vehicles International, which produces an all-electric walk-in van and light- and medium-duty commercial electric trucks; and Boulder Electric Vehicles, which produces all-electric delivery vans, flatbed trucks and service vehicles.

        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 the vehicle's 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.

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        Under the terms of the EV Demonstration Project, 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, and the customer participation grant made available to us up to $28.0 million of funds from the DOE that we pass through to our customers. With the agreement of the DOE, funds may be shifted between the development reimbursement grant and the customer incentive grant. In the first quarter of 2012, we and the DOE agreed to re-allocate funds remaining under the development reimbursement grant to the customer incentive grant; in the third quarter of 2012, we and the DOE agreed to revert to the original allocation. The total cost of the EV Demonstration Project is $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. Qualifying costs that we incur to produce the vehicles that participate in the EV Demonstration Project and qualifying research and development expenditures are used to satisfy our cost share and funding obligations for the project. 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, although we and the DOE may agree to shift a portion of these unutilized funds to the development reimbursement grant.

        As of August 31, 2012, $10.3 million of the $32.0 million remained available for us and our customers under the grant. As of such date, we have received $3.9 million and $17.4 million in development reimbursements and customer incentives, respectively, under the grant, and we have requests for $0.4 million of customer incentives outstanding. We currently anticipate using $0.1 million of the remaining funding for development reimbursements and the remainder for customer incentives.

        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 DCAA audits companies that have received funding from the DOE on behalf of 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 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. Based on additional information provided by us to the DOE, the DOE confirmed in February 2012 that it would resume reimbursements for 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 a future DCAA audit reflects that we continue to have material weaknesses

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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 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 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 a variety of wheel bases and vehicle weights, is among the vehicles eligible for purchase 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 and electric 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 had $18.0 million in funding available to distribute through vouchers for 2011 and has a funding target of $11.0 million for 2012 and $10.0 million for each of 2013 and 2014. HVIP vouchers range in amount from $6,000 to $30,000, depending on the gross vehicle weight of the purchased vehicle and the number of vehicles purchased. The Smith Newton vehicles that are eligible for purchase under HVIP are eligible for vouchers ranging from $20,000 to $55,000.

        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

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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.

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 $30.0 million of funding is available to be awarded under this program for 2012. 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. An electric vehicle buyer incentive program in New York similar to HVIP, which was announced in November 2011, will provide for reimbursement of $20,000 of the cost of our vehicles with CMAQ funds. We expect that this funding will be available beginning in the second half of 2012. Similarly, Oregon has announced an incentive program using CMAQ funding that would provide $20,000 vouchers for the purchase of commercial electric trucks.

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, Maryland has introduced a voucher program that provides financial assistance for the purchase of electric trucks registered in that state, and Arizona exempts use tax and lowers registration fees for the purchase of an electric vehicle. Other states, including Colorado, Georgia and West Virginia, provide for substantial state tax credits for the purchase of electric vehicles.

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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 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 has indicated that Phase 2 of the program will proceed with a reduced budget and will not include funding for electric vehicle manufacturers.

Technology Strategy Board initiatives

        The Technology Strategy Board, or 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 of the intellectual property that we develop in the course of the project and jointly own 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 jointly generated 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 approximately £64,300 through June 30, 2012.

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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 £159,000 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 £138,300 under this project through June 30, 2012.

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 £569,000. We have received total funding of approximately £312,200 under this project through June 30, 2012.

Plug-In Van Grant

        The Plug-In Van Grant was established in 2012 by the United Kingdom's Department for Transport to make the life-of-vehicle costs of a qualifying electric van more comparable to petroleum-based fuel or diesel equivalents. Purchasers of eligible vans can receive a grant of 20% of the cost of the vehicle, up to a maximum of £8,000 per vehicle. The Plug-In Van Grant is expected to continue for the duration of the current U.K. Parliament. Our Edison vehicles will become eligible for participation in this program once we have received a vehicle type approval for them. See "—Government Regulation—Vehicle safety and testing."

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

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"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 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. In 2012, we similarly received approval from CARB to sell our second generation Newton vehicles, including Newtons configured as school buses and step vans, in California. We were not granted a California Executive Order in either year because CARB has not established a formal certification procedure for heavy-duty, all-electric vehicles.

        E.U. Directive 2009/33/EC 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 particulate 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.

        E.U. Directive 2007/46/EC on a Framework for the Approval of Motor Vehicles and their Trailers and the Systems, Components and Separate Technical Units Intended for Such Vehicles provides a

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harmonized approval system for motor vehicles that are marketed in the European Union. The Directive is intended to replace the separate national approval procedures that previously controlled the ability of vehicle manufacturers to market their vehicles in the European Union. Manufacturers of vehicles must ensure that their vehicle types comply with the technical requirements of the Directive and are EC type approved in accordance with the Directive. Under the Directive, E.U. Member States generally may not allow the sale or registration of individual vehicles that are not accompanied by a certificate of conformity that has been issued in accordance with an EC type approval. Directive 2007/46/EC provides for a transitional period for vehicles that were approved in the Member States before specified dates. Member States may continue to allow the registration and sale of individual vehicles from types that were nationally approved until those specified dates. The transition deadlines for the vehicles we offer in Europe range from October 29, 2011 to October 29, 2014. We have received whole vehicle type approval (one of the vehicle type approvals specified in the Directive) for our Edison chassis cab, 7,700 pound GVW Edison panel van and Newton. We have applied for whole vehicle type approval for our Edison mini bus and larger Edison panel vans and anticipate that we will receive such approvals in the second half of 2012.

        E.U. Regulation (EC)661/2009 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. European Commission Regulation (EC)407/20 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.

        In December 2011, the European Commission proposed a new regulation that, if adopted, would impose new noise limits on passenger vehicles, vans and trucks and harmonized requirements for so-called "Acoustic Vehicle Alerting Systems" installed in electric and other low noise vehicles. Under the proposed regulation, manufacturers would not be required to install Acoustic Vehicle Alerting Systems in their vehicles, but if they chose to do so, such systems would need to comply with the requirements of the proposed regulation.

Battery safety and testing

        Our battery packs conform 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 of Tests and Criteria. The requirements for shipments of these goods vary by mode of transportation, such as ocean vessel, rail, truck and 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;

    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

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    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 Directive 2006/66/EC on Batteries and Accumulators. 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/EC 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 (EC)1907/2006 and CLP Regulation (EC)1272/2008 for chemicals. Depending on capacity, any new facilities we open in the E.U. may be subject to the permitting and reporting requirements of E.U. Directive 2010/75/EU on Industrial Emissions (Integrated Pollution Prevention and Control).

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 in the European Union and China and in Canada for the mark "Smith". We are in the process of filing applications to register our other 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 TSB, we own all of the intellectual property that we develop in the course of the project and jointly own 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 jointly generated 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 June 30, 2012, we had 315 full-time employees, of which 116 were employed by Smith in the United States and 198 were employed by Smith Europe. 92 of our employees are engaged in production, 40 are engaged in research, development, design and engineering, 18 are engaged in sales and marketing, 118 are engaged in service and 47 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 June 30, 2012.

Principal Function
  Smith   Smith Europe   Total  

Production

    44     48     92  

Research, development, design and engineering

    18     22     40  

Sales and marketing

    12     6     18  

Service

    15     102     118  

General and administration

    27     20     47  

Total

    116     198     315  

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. In August 2012, we entered into a lease for a facility in New York, New York that we intend to use for production, sales and service 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, 2013(1)

Kansas City, Missouri

   
400,000

(2)

Production; research, development, design and engineering; and service

 

Leased

 

September 30, 2013(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

New York, New York

   
90,000
 

Production, sales and service(5)

 

Leased

 

June 30, 2023


(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, both 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, all 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.

(5)
We anticipate that our New York facility will open in the fourth quarter of 2012.

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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.

        On June 14, 2012, the Commissioners for HMRC in the United Kingdom issued a petition with the High Court of Justice, Chancery Division, Companies Court, or the High Court, in respect of Smith Europe's failure to remit to HMRC approximately $2.1 million (including interest) that was payable by Smith Europe under the U.K.'s National Insurance legislation and PAYE (Pay As You Earn) legislation for the U.K. fiscal year ended April 5, 2012 and the first calendar month of the U.K. fiscal year ended April 5, 2013. The petition alleged that Smith Europe was unable to pay its debts and sought a court order to wind up Smith Europe under the Insolvency Act of 1986. The entire $2.1 million liability was recorded within other current liabilities on our consolidated balance sheet as of June 30, 2012. On July 16, 2012, Smith Europe entered into an oral arrangement with HMRC not contesting the amounts due, but providing for a payment plan that required partial payments, including both current and past due amounts, totaling $1.2 million, which have been paid by Smith, and the balance of the amounts owed within seven days following the closing of our planned public offering. Under this oral arrangement HMRC also agreed to defer further action on its petition in the High Court until September 3, 2012. On August 20, 2012, Smith Europe applied for an order of the High Court adjourning the hearing of HMRC's petition until October 7, 2012, which was subsequently approved by the High Court. Smith Europe intends to pay all outstanding amounts, including accrued interest, owed to HMRC by October 7, 2012. In the event that Smith Europe is unable to pay such amounts by October 7, 2012 or to obtain a further deferral of action on HMRC's petition, the High Court could enter an order granting HMRC's petition.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

        The following table sets forth information about our executive officers, significant employees and directors as of September 6, 2012:

Name
  Age   Position

Bryan L. Hansel

    47   Chief Executive Officer, Chairman

Paul R. Geist

    49   Chief Financial Officer

Robin J. Mackie

    52   President and Chief Technology Officer, Director

Geoffrey E. Allison

    44   Managing Director, Smith Europe

Angela Strand Boydston

    43   Chief Marketing Officer

Daniel Bunting

    50   Vice President of Sales

Douglas W. Fleming

    53   Vice President, Corporate Controller

Ben Kevin Neal

    52   Vice President of Human Relations and Administration

Robert W. Schuller

    51   Vice President and General Counsel

Jacques D. Schira

    56   Vice President, Legal and Commercial Affairs

Francis H. Striker III

    46  <