Less Than $7,600, No Sooner Than 4th Qtr 2016

[JEBar]

I have no clue as to the mechanics .... looking forward to hearing what you find out

 

[Elio Amazed]

I liked your post because I found it thought-provoking, not because I want it to happen like that. I haven't read the SEC document closely enough to track the ownership of all the debt, so I have to take your word for it that Stu Lichter has been the sponsoring "angel" so far. I don't see what good it would do him to call the debt at this point; all it would do is bust EM and PE with a nasty stink and not get back any money.

Depends on his motivation. If it's purely the bucks, he might decide to call it and take the loss. If it's the project itself, and/or Paul, he might either say "**** it, I'll personally make sure this thing launches," forgive the debt, and underwrite some more, or he might force Paul out and try managing the show himself -- though what Paul's done that's incompetent, I don't know. Finally, Stu might play the string out til there's no wiggle room left, and THEN step in -- the angel of last resort Paul hints at from time to time.

Either way, as John Painter points out, it's better than watching any reality show on the tube.

I believe that Stu already has, has had, and will continue to have, a substantial amount of control.
That is, if you believe that one doesn't become that huge of a partner without having a lot of influence.

He's been a board member for quite some time.
Calling in his loans would be of no financial benefit to him.
There are no liquid assets there to collect.

About the only thing he'd get would be the keys to a half-finished dream.
One that he would have just caused a massive and possibly fatal credibility hit to.
To continue, he'd likely have to either finance everything on his own or lose his total investment.
As others have said, we don't have complete disclosure of all the deals that have been made.
We just don't know all that Stu may, or may not, have to gain if EM (in it's current form) succeeds

I think that stu is a little like a lot of us.
He hasn't invested more than he's willing to lose.
He will benefit greatly from the EM's success.
He's savey, has a gut feeling, and has patience.

He's got an ego, like all of us, and while we want to look smart and cool in our Elio's...
Stu wants to look even cooler than he already does in the history books and on Wikipedia.

'Course, I'm speculating and assuming.
Stu could be an idiot.

I don't think an idiot becomes, and continues to be, the world's #1 realtor worth billions.

Like most of us, I think he's willing to hang in there to the end.


thread edited to remove insulting/inflammatory comment

 

[Ekh]

Paul stipulating $7,600 for the SEC stock application insures that his final sale price is NOT HIGHER than the filing information, otherwise, it would be considered grievously misleading by the federal regulators. Beating an estimate is fine, misleading potential investors is not. It also indicates how far Elio is from ever reaching a $6,800 retail base price goal and how foolish it was to make such a pricing statement before it was actually known how much it cost to realistically produce the Elio.

Regardless, $7,600 is still a bargain price and probably indicative that the actual delivered price will be somewhere between it and $6,800. Too little margin will doom Elio much faster than any disappointment from buyers that the projected price point wasn't attainable. Most buyers won't buy a bare-bones model anyways any more than they buy bare-bones of any manufacturer. A higher percentage of initial "all-in" buyers will buy a stick shift model, but that will change quickly as it catches on with a broader base of buyers as sticks are barely 5% of the most sporty cars (like BMWs and even the Audi R8, as the computer controlled automatic manual transmission is king). I would suspect that the average Elio hits the street at closer to $9,500 -$10K plus shipping and taxes as applicable.

Paul has said, several times, that they're currently $500 over cost target, which equates to a $7,300 sales price. They (and we) are hoping for better.

 

[Ekh]

I just signed up. Is this were we can ask PE questions live?

theoretically

 

[Rob Croson]

The audited financial statement including in Elio's Reg A initial filing takes the guess work away.

It indicates massive amount of refinanced debt at high interest rates, and no cash reserves to pay for development costs.

No offense intended here, but I just have to ask: What else did you expect?

Companies make money in, basically, one of two ways: Sell stuff or license ideas. Elio Motors has nothing to sell until that first car rolls off the line. And since it uses nothing new, with no patents, it has nothing to license. The current financial state of the company is exactly as should be expected: Lots of debt, with little to no assets.

PE has been saying for years that it will take ~$250 million at least to get the company started. That's $250 million in debt the company will need to accumulate before it ever makes the first dollar in income, let alone thinking about starting to earn a profit. If you think their debt looks bad now, what do you think it will look like on that first day of production, when they've had to pay for all the material it will take to build the first few tens of thousands of Elios, and all those salaries, utilities, insurance payments, etc.

All this work they needed to do just to get things to the point where they have a fully-designed vehicle ready to build costs money. LOTS of money. And with nothing to sell, where do you think that money comes from? Loans. Unsecured or privately secured notes. Private investments. Giving away stock options that could potentially be worthless.

No wonder there's no current news with regards to engine development , they are past due with IAV in the amount of $1.3 million.

I believe that you have read the offering incorrectly. Exhibit 6.12 of the offering shows that Elio Motors owes IAV $1.3 million. They are to pay this back at a rate of $150,000 per month for 9 months, payable on the 15th of the month. Only 6 months have passed, so they can't be any more than $900,000 behind. They definitely owe the money, but they can't be so far behind as you're stating. Give them another couple months to get *that* far behind. (I have no idea how many of these payments they have made/missed.)

Jokes aside, IAV can't have expected to get all that money so quickly. They know that they will get paid when EM gains some income from auto sales. The payments they will get before then will cover their expenses. Just like everyone else, IAV is taking a risk by doing the work, hoping for the big payoff when it succeeds.

Big money investors like Stu Lichter expect a sizable return on their endeavors, and usually will not sit back and allow the investment to expire worthless!

Paul has the Idea, but the Reg A filling indicates Stu has the checkbook.

At the end of the day, Mr Lichter may force Paul to make large concessions to the Elio business plan to protect his huge investment!

You're definitely correct that, to this point, Stuart Lichter is surely the major backer in the company. No surprise there, as this was not a secret. However, Stuart Lichter is not some random investor looking to make a quick buck from a few million in venture. Yeah, he wants to make money, but he also has to have bought into the idea of making a car, and seeing it through to the end. He's not going to call in his notes, or bail on the idea. That would be about the dumbest thing he could do. It would mean he would lose everything he has put in with the various loans/notes he has issued, and *millions* more! (More on that towards the end of this post...) After all, the company is worth less than nothing on paper, and has exactly zero ability to pay him back. Calling in his notes, as some have suggested he could do, is simply not an option.

As I see it, the good news is this: The interest on the notes that Mr. Lichter has issued, and indeed even the face value of the note itself, is essentially meaningless. IMHO no one ever intended for those notes to be paid back. Stuart Lichter will call in those notes if, and only if, the company fails and is going out of business. At that point it's just a damage control formality, as the notes will be worthless anyway. What will happen is that Stuart Lichter (and other note/warrant holders) will hang on to the notes/warrants, and continue to grant extensions on repayment as long as necessary, just like they've already been doing. (Refer to the multiple places in the offering statement where they mention the various extensions and amendments to the existing notes and loans.) The true value of those notes is not the face value of the note, nor the interest that is owed on them. The true value of the notes is that they can be converted into shares of company stock, at a heavily discounted price.

(In reality, the notes themselves are nothing more than a financial mechanism whereby Stuart Lichter secures his interests in the company, but still distances himself from actual ownership. If the company goes under, his possession of notes ensure that he's a creditor, not an owner, and not liable for company debt in any way. But if the company is successful, he can easily convert his notes into a substantial share of a successful company. He gets the benefits, but not the risk. These people aren't stupid.)

The price of stock being offered via the Start Engine offering is $12.00 per share, for up to ~2M shares of stock. From Page 27 of the offering: "Mr. Lichter has the right to convert promissory notes in the principal amount of $1,350,000 into 225,697 shares of common stock." Doing the math: $5.98 per share. Less than half the price everyone else is being offered. If the company succeeds, Stuart Lichter gets double his money back in company stock. If he calls in his notes early, he gets nothing, because the company is worth nothing unless it actually builds the cars.

(The offering statement is a difficult read, as I'm not any kind of financial expert. There also seems to be some option for another 492,432 shares in conversion options. Maybe another statement of Stuart Lichter's conversion of 5% ownership, or conversion of notes into stock?)

In addition, due to the terms of the extensions granted on repayment of those notes Stuart Lichter holds options to purchase another 7% of the company at a fixed price of $10.5 million. This is based on a company valuation of $150,000,000. If he holds on to those options until the company is profitable, he can make a killing, as it will definitely be worth more than $150 million.

To put it simply: There's is no f'ing way that Stuart Lichter is going to pull out now, or substantially interfere with the operation of the company. If Elio Motors fails, Stuart Lichter is *personally liable* for an insane amount debt. For starters, page 18 of the offering statement has this little gem: "A portion of the purchased machinery and equipment secures a promissory note due to CH Capital Lending, LLC in the principal amount of $9,850,000. ... CH Capital Lending, LLC is an affiliate of Stuart Lichter and Mr. Lichter has guaranteed the repayment of this note." i.e. if Elio Motors can't repay the $10M note, Stuart Lichter is personally responsible for paying it back.

(Sidenote: From the opening statement on the second page of the offering PDF: "We reserve the right to accept subscriptions for up to an additional 418,000 shares, for an additional $5,016,000 in gross proceeds." Sounds to me like they could issue up to 2,508,000 shares, for a total price of $30,096,000. This covers the overage in pledges on the StartEngine site over the original $25 million.)

 

[Coss]

Excellent statement Rob Croson; you put a lot of thought and effort in a very reasonable statement.

 

[Elio Amazed]

.
Like most of us, I think he's willing to hang in there to the end.
thread edited to remove insulting/inflammatory comment

Really.....?

Evidently we don't see humor the same way.

And, evidently, a smiley is required to officially determine that humor is present.

My bad.....

Again.

Evidently.

 

[Rickb]

No offense intended here, but I just have to ask: What else did you expect?

Companies make money in, basically, one of two ways: Sell stuff or license ideas. Elio Motors has nothing to sell until that first car rolls off the line. And since it uses nothing new, with no patents, it has nothing to license. The current financial state of the company is exactly as should be expected: Lots of debt, with little to no assets.

PE has been saying for years that it will take ~$250 million at least to get the company started. That's $250 million in debt the company will need to accumulate before it ever makes the first dollar in income, let alone thinking about starting to earn a profit. If you think their debt looks bad now, what do you think it will look like on that first day of production, when they've had to pay for all the material it will take to build the first few tens of thousands of Elios, and all those salaries, utilities, insurance payments, etc.

All this work they needed to do just to get things to the point where they have a fully-designed vehicle ready to build costs money. LOTS of money. And with nothing to sell, where do you think that money comes from? Loans. Unsecured or privately secured notes. Private investments. Giving away stock options that could potentially be worthless.


I believe that you have read the offering incorrectly. Exhibit 6.12 of the offering shows that Elio Motors owes IAV $1.3 million. They are to pay this back at a rate of $150,000 per month for 9 months, payable on the 15th of the month. Only 6 months have passed, so they can't be any more than $900,000 behind. They definitely owe the money, but they can't be so far behind as you're stating. Give them another couple months to get *that* far behind. (I have no idea how many of these payments they have made/missed.)

Jokes aside, IAV can't have expected to get all that money so quickly. They know that they will get paid when EM gains some income from auto sales. The payments they will get before then will cover their expenses. Just like everyone else, IAV is taking a risk by doing the work, hoping for the big payoff when it succeeds.


You're definitely correct that, to this point, Stuart Lichter is surely the major backer in the company. No surprise there, as this was not a secret. However, Stuart Lichter is not some random investor looking to make a quick buck from a few million in venture. Yeah, he wants to make money, but he also has to have bought into the idea of making a car, and seeing it through to the end. He's not going to call in his notes, or bail on the idea. That would be about the dumbest thing he could do. It would mean he would lose everything he has put in with the various loans/notes he has issued, and *millions* more! (More on that towards the end of this post...) After all, the company is worth less than nothing on paper, and has exactly zero ability to pay him back. Calling in his notes, as some have suggested he could do, is simply not an option.

As I see it, the good news is this: The interest on the notes that Mr. Lichter has issued, and indeed even the face value of the note itself, is essentially meaningless. IMHO no one ever intended for those notes to be paid back. Stuart Lichter will call in those notes if, and only if, the company fails and is going out of business. At that point it's just a damage control formality, as the notes will be worthless anyway. What will happen is that Stuart Lichter (and other note/warrant holders) will hang on to the notes/warrants, and continue to grant extensions on repayment as long as necessary, just like they've already been doing. (Refer to the multiple places in the offering statement where they mention the various extensions and amendments to the existing notes and loans.) The true value of those notes is not the face value of the note, nor the interest that is owed on them. The true value of the notes is that they can be converted into shares of company stock, at a heavily discounted price.

(In reality, the notes themselves are nothing more than a financial mechanism whereby Stuart Lichter secures his interests in the company, but still distances himself from actual ownership. If the company goes under, his possession of notes ensure that he's a creditor, not an owner, and not liable for company debt in any way. But if the company is successful, he can easily convert his notes into a substantial share of a successful company. He gets the benefits, but not the risk. These people aren't stupid.)

The price of stock being offered via the Start Engine offering is $12.00 per share, for up to ~2M shares of stock. From Page 27 of the offering: "Mr. Lichter has the right to convert promissory notes in the principal amount of $1,350,000 into 225,697 shares of common stock." Doing the math: $5.98 per share. Less than half the price everyone else is being offered. If the company succeeds, Stuart Lichter gets double his money back in company stock. If he calls in his notes early, he gets nothing, because the company is worth nothing unless it actually builds the cars.

(The offering statement is a difficult read, as I'm not any kind of financial expert. There also seems to be some option for another 492,432 shares in conversion options. Maybe another statement of Stuart Lichter's conversion of 5% ownership, or conversion of notes into stock?)

In addition, due to the terms of the extensions granted on repayment of those notes Stuart Lichter holds options to purchase another 7% of the company at a fixed price of $10.5 million. This is based on a company valuation of $150,000,000. If he holds on to those options until the company is profitable, he can make a killing, as it will definitely be worth more than $150 million.

To put it simply: There's is no f'ing way that Stuart Lichter is going to pull out now, or substantially interfere with the operation of the company. If Elio Motors fails, Stuart Lichter is *personally liable* for an insane amount debt. For starters, page 18 of the offering statement has this little gem: "A portion of the purchased machinery and equipment secures a promissory note due to CH Capital Lending, LLC in the principal amount of $9,850,000. ... CH Capital Lending, LLC is an affiliate of Stuart Lichter and Mr. Lichter has guaranteed the repayment of this note." i.e. if Elio Motors can't repay the $10M note, Stuart Lichter is personally responsible for paying it back.

(Sidenote: From the opening statement on the second page of the offering PDF: "We reserve the right to accept subscriptions for up to an additional 418,000 shares, for an additional $5,016,000 in gross proceeds." Sounds to me like they could issue up to 2,508,000 shares, for a total price of $30,096,000. This covers the overage in pledges on the StartEngine site over the original $25 million.)

With that said, it doesn't look good for the DOE's ATVM Loan approval since there is little indication that EM has the ability, with no proven product to sell or existing guaranteed future Elio sales revenue needed/required to repay the ATVM Loan if approved.

A week ago I felt that all EM needed to guarantee the DOE ATVM Loan was a successful P5 unveil and after reviewing EM's financials I would be shocked if it was approved. Mr. Lichter may have to invest an additional few hundred million dollars if he is the angel investor Paul Elio references.

 

[slinches]

I don't think anyone outside the DOE knows what standards are being used to judge whether Elio Motors meets the requirements for granting the ATVM loan. That is, at least partially, a political decision of whether there's enough appetite for risk to make a loan to another start up after the success of Tesla and failure of Fisker.

 

[Rob Croson]

With that said, it doesn't look good for the DOE's ATVM Loan approval since there is little indication that EM has the ability, with no proven product to sell or existing guaranteed future Elio sales revenue needed/required to repay the ATVM Loan if approved.

A week ago I felt that all EM needed to guarantee the DOE ATVM Loan was a successful P5 unveil and after reviewing EM's financials I would be shocked if it was approved. Mr. Lichter may have to invest an additional few hundred million dollars if he is the angel investor Paul Elio references.

As slinches says, no one outside the DoE really knows what criteria they will use. As far as I'm concerned, the financial situation of EM is pretty much what I expected it would be. There's no way the DoE could expect any different. You have a company putting out millions of dollars in development costs with no source of income. How could anyone possibly expect them to be financially solvent? For myself, the revealing of the financial statement hasn't changed much.