Wow! Here is a 60 page transcription of the Nov. 1983 Chicago Distributors/Dealers Meeting.
You will read the story according to Stan Leitner and Jim Bede, in their own words, of the beginnings of the Litestar project and the trials and tribulations, the success and the many failures. The several foreign investors and manufacturers from Mid-America to South America to Asia to Australia who wanted build their Litestar.
Also listen to the dealers who questioned Bede and Leitner's promises, as they watched a professional 'song and dance' and pondered their investments in Tomorrow Corp.
It is a riveting read and Stan is a salesman's salesman who attempts to assure his dealer network that just beyond the horizon, their dreams will come true if only they will hang in there and ... if possible, send him a few more dollars to keep Tomorrow Corp. afloat.
Perhaps this meeting was called by Stan Leitner because the dealer/investors were beginning to question the whole project....... Tomorrow Corp., Jim Bede, Stan Leitner and Scranton Mfg. Co. Stan was really trying to smooth out the ruffles.....it was sink or swim time.
We applaud all the efforts of Stan, Jim, and all the investors, who without their vision and funding, this project would have never gotten off the ground.
NOW ATTEND THE MEETING FOR YOURSELF and hear all about Stan's project...
Litestar ..."the Technicolor Dream"
November 17, 1983
Stan Leitner is out of town and asked me to send you the enclosed transcript from the November 6, 1983, Dealer/Distributor meeting.
This is being sent to all Distributors and Dealers as well as the principals of Scranton Manufacturing of Scranton, Iowa and VaunGarde, Inc. of Owosso, MI
Jerry & Patricia Reynolds
Armin & Elsie Jocz
Don & Martha Rose
Steve Heide & Nancy Kaster
Harry & Jo Auffenberg
Jim & Bev Trout
Webmaster Note: Julie McAllister, Tomorrow Corp. employee, compiled the following transcription from a tape recording of which some parts were unintelligiable.
Nov. 6, 1983
STAN LEITNER: Good morning ... thank you for coming ........ obviously a Sunday meeting is difficult because thats generally family time, time for your respective religions and leisure ... But there are problems that need to be addressed that I want all of you to know about and they are not the type of problems to put in a letter on a couple of pages. They require elaboration.
If theres to be a theme for this meeting I think it should be that in evaluating the rose bush you don't really get too involved with the number of thorns - . . instead you must look to the quality of the roses. I'm a winner . . . virtually everyone in this room, from my viewpoint, is a winner.
There are some people here that perhaps should not he here. Jim Bede should be here, I should be here and most of you should be here. But today I want to separate the ones that should he here from the ones that shouldn't be here. And I don't mean by that to make the typical distinction between winners and losers because there's a gray area in between where people either don't have the commitment or the dedication or the confidence or whatever else it takes in the aggregate to deal with the complexities and the problems that emerge. To those people who are not losers but who are people who can't focus in on what we're really all about I have a standing offer, and that is to take them out.
I made the offer at Innsbrook and I make the offer now. The difference was that at Innsbrook I could have written the check. Today we'll have to play with match-sticks and redeem them at some point in the future. But I don't want anyone to be a loser as a consequence of this situation. If you don't feel comfortable with it by the end of the day, tell me that you don't feel comfortable, I'll have Nancy Teel, V.P. of Finance, check your accounting, make a determination as to what your expenditures have been and we'll bring you even with the board.
To the rest of you that want to stay with the program, this is a business opportunity of a lifetime, but it is not a business guarantee. I've never had a guarantee and I've never offered any.
At this time I'd like Jim Bede to take us through the engineering up to this point, the entire evolution since the first prototype vehicle. Jim......
Actually, there are two areas that I wanted to cover first thing this morning and later on, after the whole meeting is over, if there are people who have specific technical questions, I'll be around and be happy to answer any of those. The first area that I wanted to go over so that everybody has an understanding of it at this point, and that is going to be the technical differences between the demonstrator vehicles that are coming out now and the first production vehicles. This is not a big thing but on the other hand it's an opportunity to pass this on.
For all of you that should be aware of it, the demonstrator vehicles are being made not exactly to specifications that we will have on the production vehicles. Of course, they don't have to meet any DOT requirements. They do have to meet state requirements but they don't have to meet federal requirements because they're not being offered for resale to the general public. So there were a few little latitudes that we were able to take and shortcuts on the demonstrators which we will not do on the production vehicles. When I say production, I'm talking about the very first month or two. There will he continued improvements going along on the vehicle but the very first ones have to meet minimum requirements and minimum specifications. I'll run through these real fast for anyone who wants to copy them down. Otherwise we'll get them in a letter form.
We're changing the rear wheel and tire and the hub assembly so that the rear wheel and tire are identical to the front wheel and tire. On the demonstrators this is not the case. We have a 13" automobile wheel and tire on the front but a 15" on the back. They'll both be 13" which changes the outside diameter of the back wheel slightly, but not enough to notice anything. The main reason is the availability of the wheels and of the tires. It is essentially a Plymouth Horizon wheel that is actually used on there. Therefore that wheel can be obtained from a Chrysler dealership in the future. The tire is pretty much of a standard type tire ... it can be a radial tire or does not have to be a radial tire. You can use snow tires on the back or mud tires.
The canopy track and the canopy slide on the full production ones, we're expecting them to be longer tracks. Some of you who have seen the demonstrators and those of you who will, will find that when the canopy is open an inch or two it shakes and rattles more than I would like it to. There are ways of putting little cushions around there so that it doesn't make as much noise, but it's not anything that's dangerous and it's not anything that will break, it's just that the track is too small and it overhangs and is not very comfortable. We expect by the time the first production ones come out that the larger tracks will be on there. Also, if it were needed in an emergency there will be a release mechanism on that canopy track. The demonstrators are just screwed right down, but if you were in some sort of an accident or crack up you could not open it that way. You'd have to unscrew it or you'd have to break the canopy. On all productions there will he a release (emergency) pin. You reach in there and pull a couple pins and the canopy can be just lifted out.
The larger outrigger wheels and associated fairings will he on all production vehicles. All demonstrator vehicles on the other hand are using the smaller original type go-cart wheels. They also have a brace on the bottom that is a part of the suspension system. That's on the demonstrators and it is noticeable if you're behind the vehicle. That will not be the case on any of the production vehicles.
We do expect to have the safety glass windshield on all production vehicles and that also means the windshield wipers will be available, there will be a mechanical parking brake on all production vehicles as opposed to the hydraulic one you'll have on your demonstrators. The hydraulic valve is a little cumbersome to use, but mostly it doesn't meet federal requirements. So we'll have a separate mechanical system for that.
There's a small air scoop right in front of the front wheel on all the demonstrators. It's a little scoop that sticks down and that's where the air comes into the cabin. On all productions that will be a flush NACA scoop. You won't see this unless you get down on the ground and look up.
We will have reverse gear on the initial production ones. At this point I think we'll have our first operational one in about three weeks. We will do it in our own shop. We'll assemble it in our shop.
On our present demonstrators the fan for the oil cooler runs all the time. All production ones will be equipped with a thermostat so that it's automatic. As soon as the oil temperature gets up to 270 degrees the thermostat turns the blower on. We do have a separate switch however.
Also, on all production ones we'll have a mechanical speedometer which is a very simple, easily maintained system while on the demonstrators it's an electric speedometer.
Another area I want to talk about is the area of the whole engineering program. I'm really disappointed this morning because one of my buddies isn't here today and that's Bob Briggs from up in Oregon. The reason I call him my buddy is because in the last week or so I've had a couple of phone calls, long, lengthy ones and that's the only time I've talked to Bob since our regional meeting last March or something like that back up in Mundelein, IL which is the first time I met Bob and the last time I had any conversation with him.
Most of you probably aren't aware of it, but Bob, in the last couple weeks became somewhat caustic about my activities and my engineering work that we're doing up in Mundelein.
My first reaction was that I was a little upset by it in the fact that he based a lot of these opinions on information that he'd gotten from other sources and never bothered to give me a call and ask me what I thought about them or whether they were right or wrong. But he does hit upon a key point and I think a little discussion should be made here and that is the fact that we are talking about a business here, we are talking about a lot of money that everyone has invested, we're talking about a lot of money that could be made in the future and this is not just fun and games.
This is quite serious work and any delays, any problems affect all of us and why they are there and what caused them is of interest to all of us. Sometimes there are problems that we can forsee and try to correct them before they become serious. Sometimes problems crop up at the last minute and we don't even realize that they're there.
Sometimes you take a calculated risk on something. We think this might work, the advantages are so good it's worth trying, but we have no certainty that it will work and we go further down the line. When they do work nobody knows about it, when they do not work everybody knows about it. That is a typical R & D engineering program and that's the way you have to go.
But I think that since any of you got into this program there were different time schedules, different dates given as to when certain vehicles would be done, when demonstrators would be done, when production would start, etc., etc., and those things have changed and changed and changed and unfortunately, it isn't one reason like the fact that we used ink on our drawings that evaporated after a week and all the drawings disappeared.
If it was just one simple problem it wouldn't be too difficult to correct. Obviously there are a great number of problems and a big variety as to why these delays have occurred. But I think that if I could go through some of this a little bit and give you a brief history as to how things started and what we were trying to accomplish and why we try to do it, you get a little better understanding as to what did happen and where we are right today.
All I want to do here is go back to August of 1982 and just to give you a capsule summary or where this thing is. The reason I pick August is ... about the first week of August 1982 is when we were at a point when we had to make the master model for the body. And one way or another this unit had to be done and nothing else could proceed until that was started. At that time we were working with the group out of Alabama (Phil Bass) who we thought about putting into production and the question was whether or not the master mold should be made by a pattern maker and the best price we got from anybody was $36,000.00.
Most of the quotes we got on that, incidentally, were $70,000, $80,000, $90,000 and in almost all cases it was 10 to 12 weeks. The $36,000 price was actually one of the better companies in Detroit and they said it would take six weeks to do it. Since we did not have the money right at the time to do that, I took our guys, one of them was a motorcycle mechanic (Doug Walsh) and another guy was a craftsman and the third was an industrial engineer who had just graduated from school a couple of months earlier that that . . . I took these fellows and threw them out in the shop with plaster and metal sheets and band saws and stuff like that and said you are now becoming pattern makers and you must make this thing accurately and you must do it right.
Well, the end result is that we did get the pattern done in six weeks, but to he honest with everybody, I was telling Stan that it was going to be done in four weeks ...maybe three and a half. It took us longer. We didn't do it for zero amount of money, but we did it for about 7 or 8 thousand dollars. So there was a significant savings.
By September 15th 1982 the master pattern was done. When this was done we could do something about making bodies. At this point we were going all over looking for various suppliers who could make us RIM tooling, who could make us fiberglass tooling, who could make us vacuum form tooling . . . anything available to get the Litestar bodies done and done rather quickly. Our whole objective was to get quality part, but to find someone who would do it fast and quick for us. The best firm that we found was the VaunGarde (Owosso, MI) people.
They indicated that they could do all of the body parts. They gave us a price that wasn't too bad, they indicated that they could do it rather quickly. We looked at their facilities, they seemed to he totally qualified and everything else. All of that was based upon going to a RIM spray process.
This RIM spray process was told to us at that time that it's new, it's urethane, it's just going to be like the ordinary injection molded urethane, but instead it's sprayed on with a sprayer. The advantage of it was that we were going to go to a very simple tool and the tools could be done, oh, we got a quote from VaunGarde from various concerns, that it could he done in 5 weeks, 6 weeks, 7 weeks, etc.
Somewhere around the early part of October we did have Scranton Manufacturing (Scranton, Iowa) involved in it and Stan and those people from Scranton and I all met at Vaungarde, we sat down and we talked about it.
We were told then that there was a chance that this RIM spray would have a problem because it was new, it had not been used in this manner before, but that everything looked like it should he go. The manufacture of the material said that it should he good, the people who made the equipment said that it should he good. So it was a calculated risk on our part to go with this method. So we did.
That tooling, incidentally, was supposed to be done by the middle of December. Because when the decision was made to go to this RIM spray, and that master model was taken to VaunGarde. Bede Design was gearing itself to do all the engineering on the inside parts, designing the frame, the engine, the attachments, the controls, the seats, all the other stuff that goes with it to fit inside the shape that we now had.
We went ahead and did it. I hired three engineers, hired another shop person and went full speed ahead on designing all those internal parts with the expectation that by the first of the year that our first uretnane bodies from RIM spray would be ready and I would then have all the drawings done so that Scranton Manufacturing could start building frames and start putting these bodies on them.
Well, tne first thing we did, we designed them just like the motorcycle (unintelligable), we used round tubing, we built the test unit and put sandbags on them (I think a lot of you saw photographs) where we out 2,500 lbs. of weight on there and the frame was in absolutely beautiful shape, got all that done, tested it, sent it out to Scranton and let them start working on it.
The first thing they do is come back and say boy! we really have trouble with round tubing. We made up some of these for you, but our equipment does'nt cut some of the little radiuses right and is there any way to use square tubing?
If you use square tubing we could do it a lot faster, we'll cut down on the labor of building it and the cost of the material might be less, etc. etc. We said all right. The first method was all designed and built and tested, but if this is going to save money in production we'll go ahead and do it. We started all over and redesigned the entire frame using square tubing.
Now, it isn't just a matter of taking the design and erasing all the round lines and putting square lines on there, this means calculating the stresses again, the joints are different, you have to build the thing all over again:, you have to load it up, you have to test it and it wasn't as good with square tubing, not nearly as good. We had to beef it up, change this, etc. etc. So all through the months of October and November and December, Bede Design was working in that particular area.
But on December 1, 1982 I was at Vaungarde and I found out then that our tooling wasn't going to be done by the middle of December, but instead would be done somewhere around January 15 and at that time there was also brought in another firm that could do a type of tooling that would use the injection molded RIM urethane, not the spray up, but the injection molded and that individual was there at David Vaughn's office in Owosso, Michigan and this was December 1, and he told me in front of Dave and everybody else that at the end of five weeks, the end of January, that tooling would be none. This meant that it was going to be two weeks later than when we expected the original tooling to be done. I called Stan on the phone and told him that I had already made this commitment to do this because they proved to me that this was the best way to go, but it was one major part of the tooling of the body will be two weeks later than the rest. But that is the best way to go and let's go with it.
He agreed and we did. Even though we were frustrated and mad that we had a two week delay. Little did we know at that time that as it turned out we never got any body parts until the end of January 1983. These are the spray on RIM body parts. The early weeks of February are when various parts came in. It was about the middle part of February before we got enough parts to sort of put together.
Incidentally, that tooling for the outrigger that was supposed to be done the first week of January was still somewhere out there ... but nobody was really worried about that because the main things that were supposed to be done the middle of December, they were not finished yet. So that was what we were all running around in circles trying to get done.
It was also at this time that David Schwartz had committed himself to the Chicago Auto Show, we had to have a vehicle ready for that, we needed one for testing; so with some sort of accidental luck, somebody said, well look, lets make a fiberglass body at least for that first unit. So the same tooling was used and a fiberglass body was made, it was sent to us and a unit was put together by Scranton and we made the first white demonstrator unit that was taken to the Chicago Auto Show.
(Note: Doug Walsh said he and Don Rudney built this vehicle for the Auto Show)
Vaungarde worked very hard at trying to make that thing work. There were times when it was very frustrating because RIM spray ten, they call it, was quite brittle so they said it's too brittle. So use five, Oh, we don't have five. Well, when are you going to get it? Well, we have to order a barrel of it. It'll take two weeks to get here. Then finally after two weeks when we asked them to air freight it in, it got there in maybe 10 days.
RIM five now is too flexible, it's no good. So we were losing a lot of time now on some very poor planning, you might say, from that standpoint. But at least the effort and the interest were there.
In the meantime, our engineering department is going ahead and doing as much as they can, designing everything around this RIM spray body. Now, that doesn't sound like much, but one thing is very certain, this material, when you spray it, shrinks and over the whole vehicle it makes the vehicle an inch and a quarter shorter. This means all the parts that you have in there have to be made to fit the final piece.
The fiberglass body that we got for David Schwartz's first vehicle wasn't, it was full sized one. So those parts had to be made a little bit bigger to fit all of that. Well, after a lot of body parts were sent to us and a lot of body parts were sent to Scranton, by the middle of March it became obvious that that RIM spray was not going to work at all, that it was just absolutely no good, it was flexible, it broke, it warped in heat and a whole bunch of other things like that, and we were not going to be able to have anything done.
I think some of you might remember that at that point Scranton Manufacturing was told to go ahead and make some more fiberglass demonstrators and they actually thought that by the first or second week of April that they would have a couple demonstrators. As it turned out, when we had our meeting at Innsbrook, they did deliver us two units and we had the white unit ourselves and it was the first time that we literally had various vehicles driving with the 450 automatic with the planned production system on it.
So from September 15, when we started this whole thing, expecting to have body parts by the middle of December, the end result is that it isn't until the end of February that all the previous work that we had done was pretty much by the wayside. That doesn't mean that you throw everything away, but it does mean that you start all over again, start working on it. So I had to take all the engineering people, get them to redesign, change the drawings.
Now if you really change the drawing and you have a part that's 10 feet long and you want to make it 12 feet long, you redraw it, put the dimensions on it, but if you also have to make it 10 feet and 1/8"; longer, it takes just as much work to change that drawing. In fact, it sometimes takes longer to change a drawing in a subtle way than in a big one. So that's where you can make a mistake. That's were you can add one extra quarter inch onto it and forget that the part you have to attach it to should now he a quarter inch longer.
But an interesting thing too ... the first week in January is when we got Don Rudney on board and brought him into the company as the project manager of the operations end and gave him authority - full authority ... he could call all the shots he wanted to. He could show me what he was doing, I would oversee everything but no matter what happened, no matter where I was, if there was a decision to be made, he had the authority to make the decision. We tried to get another shop person, we actually found one of our engineering people not nearly as competent as we thought he should be and Don recommended that we let him go. He had the authority to bring in a new pcrson in and found it really wasn't quite necessary to do at that point.
But from February all through March until the middle of April, Scranton Manufacturing was trying to set up building these 15 vehicles and it was so new for them, so different for them, that they basically begged us to not only have one person there, but to move the entire engineering department there. And that, in essence, is what we did.
All through Feburary, March and the middle of April Don Rudny, Doug Walsh, all of our people lived in Scranton, Iowa. They worked in their offices right there. Now all of that effort, all of the engineering time and everything else was being spent on changing those drawings over to the fiberglass ones, changing the sguare tubing and making various other modifications that would fit Scranton's production methods.
The vehicle would have been suitable engineering-wise prior to this, but they wanted these changes to be in there so they could do it better, and we agreed. Let's try to do it for them, let's try to make it better. So all that period of time that effort was being done.
Practically nothing new was being created or accomplished. There's a real complication with the production facility in Iowa and the engineering facility in Chicago. But at the same time we trade problems, if we make one change to the other. And that is, when our people were there in Scranton trying to do some engineering, we had daily phone calls where I had other people back in the office look up sources of supplies and cables and special bolts and materials, etc.
Things could not be followed at all. Many, many times we would have to run down to the local hardware store and literally use just any kind of a screw they had that would be near to the size we wanted. That's not a very good way to engineer something, but we were doing everything we could to get the job done quickly and the vehicles done.
We wanted to get those demonstrators out as quickly as possible and we all know the reason why. We took a lot of shortcuts trying to do that, but those were calculated shortcuts.
After testing of initial vehicles in May - June 1983, they were worried about the way the front end suspension system worked, they were worried about the brake system, they were worried about a bunch of other things. To say that this was somewhat of a shock is an understatement. It very definitely was a shock. I won't go into a lot of detail on that, but I think it needs to be pointed out that some guys are salesmen, are fantastic salesmen and every once in awhile they get cold feet and they can't do their job as well.
Well, there's engineering people who can take on engineering problems and solve almost any engineering problem because they have confidence in their ability to do that. And that's what engineering people are supposed to do, incidentally, is solve problems. Sales people and you people, you're supposed to get out there and sell, be optimistic, go after a prospect and get the job done.
Engineers work with problems all the time. Well, several of our people started worrying about these problems so much that they let the pendulum swing from an optimistic side to a very pessimistic side. Pretty soon they needed to put suspenders on the pants they were wearing even though they had belts on because they were worried about their pants falling down and pretty soon they wanted to have safety locks on their suspenders and I think it almost got to the point where they wanted to be neutered just in case their pants fell down anyway.
It did get a little bit excessive there and we did look at the situation, however, and saw that redesigning could take place and a redesign would end up making a better vehicle. It was going to take time, it was going to cost money and it was going to produce a lot of difficulty for a lot of people, but the end result would be that we would end up with a better vehicle.
That is what happened. We redesigned it, we went back and made a new front end, had to do all the testing, do all these changes, eventually had to change some people, but now we do have what definitely is a significantly better vehicle than we had before. Another thing though, when we first started out, reverse gear, air conditioning, safety glass, all these things were optional and they were not supposed to be on the demonstrator and originally I was interpreting they were not even going to be on the first production vehicles ... they would be when we could get them. But as we all went along and started talking to prospective buyers, we all found those things were real important and the decision was made that the reverse gear, the safety glass, all these things, should be made standard and I agree.
But these were new engineering requirements that needed to be incorporated early in the game and they had to be brought in so people ordering these demonstrators were capable of installing them. As I said before, I'm a little disappointed that Bob Briggs isn't here because for the first time I think that Bob would be able to gain some first hand information as to what was actually happening and what was actually going on.
All you people would like as well as I would, and I know Stan would and the rest of them, that we could produce a real quality piece of equipment. We definitely cannot turn out a piece of junk. But what is quality? How far do you go? Let's look at both ends of the scale.
We are not General Motors. We cannot come across with LED instrument displays right now and all kind of electronic devices and automatic equipment and robotics to boost the production line and all the other stuff that goes with that. We just cannot do that. We're a small company. And there's no way that there's enough money or enough time to incorporate all of that. When General Motors, Ford or Chrysler want to bring out a new model most of you are aware of how long it takes to incorporate that.
When the government was forcing new regulations on them, we all knew how long it took to get some of those new requirements to be brought into the new models... years, literally years. And that's an organization that is set up with engineers and tooling people, with production people, with all of the knowhow there is and it does take a long period of time.
I don't know if any of you have ever owned small sports cars from Europe, I had a Lotus for a while. It's well known that Lotus was known for its good engineering, etc. Some parts of that Lotus had fantastic engineering. But I'll tell you another thing. There were some parts on that Lotus that that were so bad that even our yellow vehicle didn't have things that bad on it. I mean really not very good. That's a simple way of putting it.
The clutch and the brake pedal were welded out of steel tubing, one part inside the other rotated. That's all fine, it worked great, until you got in there with snow on your feet and let the floorboard get wet. I saw a case where the thing just literally rusted shut and you could not move the clutch or the brake because the steel tubing rusted itself shut. Now this is a production vehicle that's been worked on three years by very talented people in England.
I'll tell you right now, the Litestar, the demonstrator you get and the production units you get will be of much higher quality than that Lotus ever was. The door hinges on that Lotus ... when I bought that car, I was warned, when you open the door don't ever lean on it or anything. What a lousy, crummy design with crummy workmanship.
Okay, we're not going to be as bad as some of the sportscars and some of the European cars and maybe some of the Japanese cars or we're not going to be as perfect as some of the very giant automobile companies. But we're going to have a very good quality piece of equipment.
Safetywise it's going to be nice and it's going to be good all the way around. But we're going to have our teething problems, there's no question about that. But these things do require some time. You don't just wave your arms and say that you're not going to have any problems or this or that.
As a good example, one of the current problems we're having right now when the first couple demonstrators came out, is that-there was an error made someplace, in the jigs or in the fixtures or welding of the front end assembly and the angle at which the pivoting line goes in the front steering wheel are not the way our wheels are. We have a silver vehicle driving around ... Tony Kaighin has a couple thousand miles on it already ... it drives and handles beautifully. We built a dynamic test vehicle, the whole vehicle without a body over it. We built it right to plans. It's okay, everything's fine, but the first unit that came out that went down to Texas there, apparently when it was driven at high speeds, the whole front end would sway back and forth on them, very unstable.
And when we checked we checked to find out what it was, the dimensional arrangement of this thing was wrong. So we asked Scranton immediately to check their units and they checked theirs. It wasn't as bad, but still not right. Then the second unit was checked. It was bad, not as bad as the first one, but something was wrong. We had to immediately drop everything and go anead and do an engineering fix on that. When I say drop everything, I had people working on a reverse-gear box, I had people working on the outrigger tooling. We had to stop that right then and there and put everyone onto this steering system.
And I had to take the shop guy to take our unit out there, cut it up, modify it and get out there and test it right away and then call up Scranton to tell them what changes they should make. What's really bad is, they go ahead and make the changes and come back and say well, we had this problem. Why didn't you tell me you had that problem in the beginning?
Now, if I was there, it would solve the problem a lot better, if I could get back and forth. But if I was there all the time I'd have other problems. But we aren't General Motors, We can't have everything the way we want it, but we sure are getting things accomplised pretty fast.
I think that's the thing I really want to get across to all of you right now is that we all expected these things to get done a lot sooner but all it took was two or three things to chew up an awful lot of time. Had that RIM spray really worked we would be months and months ahead and it was a calculated gamble that we took and we lost.
There were other things that we have won on and no one's even asked a question about it. Let's take this old front end. In a relatively short period of time Doug Walsh and Don Rudney all came back and gave full time to this. They were not expecting to have the enqineering done on that whole system, all those changes, until the end of October. We had some real heated arguments about it because I knew it could be done faster.
Well, the point is, not only did we do the engineering and build the parts and test the things, but Scranton's already made them that way. I think all you are entitled to some explanation of what it's about and when you end up trying to get your facts and figures from somebody like Bob Briggs, I wish he was here now because anything I'm say now I would say to him, in front of all of you, what I said to him on the phone, not in front of you was a little bit stronger, I don't think that it was anything that Briggs was attempting to do that was wrong, it was just a case of being maximally misinformed and using a great deal of poor judgement and coming to some very poor conclusions.
The engineering on this demonstrator has been done as of the middle of September and the engineering of the production vehicles is essentially done with all these changes I told you about here . . . I mean the first 75 to 150 units. What I'm working on right now are the engineering changes for the next models, the further improvements that go with the thing. And in no time at all we're going to be gaining more and more momentum and six months into production or by next year's models we're going to have something here that's going to be absolutely outstanding even though we have something now that's pretty darn good.
It's been a dang difficult job to do, it really has. And it's taken a lot of luck to solve some of these problems with a minimal crew of people with a minimum amount of budget to work on and we have lucked out on alot of them and we have lost, like I said before, some of these. In most of these cases they were just cases of those who were involved in it really thought that they could promise us something and did it in good faith and it didn't work out.
William Shakespeare, one of the first car manufacturers, said that the common man dreams in black and white, poets dream in color.
I can't rhyme, but I do dream in color and I believe that many of you also dream in color. A man that had a profound affect on my life once said something to the effect that a dream is an exclusive production without limit for an audience of one.
But I don't think it has to be that way. I believe we all share a common dream. Star Wars was a pacesetter movie that, due to phenomenal special effects, was very unlike its predecessor Hollywood productions. Since Star Wars, there's been a proliferation of movies that have used computer techniques and various other innovative technical advances to create fantastic illusions. But all of those productions are restricted in the sense that it's impossible, no matter how much of a budget you have, and budgets are always limited, you can't always get the cast, the director, the camera crew that you want, you can't always get the exact special effects or the weather, can't get the box office. There are always numerous elements that should go into the mix that are missing.
Not so with a dream. In the dream you can have all of the leading characters. Anyone you want without limitations. You have unlimited funds. You can have special effects that are astounding, never before seen - This might sound a bit trite, but I believe in it emphatically. I believe that there is a dream that is born of this project that will survive and it will endure to the extent that we're going to make a very significant inroad into automotive history.
The first comments that I made this morning were having to do with separating the people who wanted to go forward with the project from those who don't. In order to do that, I'm going to tell you all there is to know about what is wrong. I'm also going to tell you all there is to know about what is right. From my perspective what is right far outweighs what is wrong by a quantum amount.
In a typical corporation you have a chairman of the board, unless he a just titular, then you would have a president, you have senior vice presidents, vice presidents, the various divisions, manufacturing with their hierarchy, you have people down here producing, people down here who are selling and then down here below the chart are the consumers.
This is a unique kind of a company in that it really started from virtually nothing but an idea ... very little capital, no real recognition by anyone out there that we had something that was viable and we had to build on that very humble base. And the net result of that is that the corporation takes on a different look. Essentially you just turn the organizational chart upside down and you start with the customer...the customer being paramount, because if we don't satisfy the customer with what it is we're trying to do, the net result is that the project goes under. There isn't any amount of money or any amount of special effects or other dream stuff that will work. We've got to satisfy the customer.
Next in line to the customer are the people in this room. All of you have to be satisfied. You can't go out and represent something that you don't believe in. You can't represent something that isn't credible, reliable, functional, that doesn't do all of the things that we tell you it will do. We're not going to compromise with the customer, we're not going to compromise with the people in this room.
We're going to turn out a quality product. Now the points that Jim made are all very valid. We don't feel that at the outset we're going to have the optimum vehicle. That would be absurd. But we're going to have something that is going to be good to the extent that we're not going to have to hang our heads. We are going to be able to take pride in it.
A couple of months ago an article appeared in USA Today, the national newspaper, and it was an interesting article in that it was the first really negative article that had been written about the Litestar and I say negative in the sense that the man who wrote the article talked to a couple of industry analysts, automotive industry analysts, and asked them what the prospects for the Litestar were.
These two men in their infinite wisdom said, in effect, that "it wouldn't get off the ground." That's a direct quote. Well, it wasn't really designed to get off the ground ... it was designed to stay on the ground. But nevertheless, he maintained that it wouldn't be successful and he went on to say that if he was the chairman of the board of GM that he wouldn't be concerned about the Litestar. He wouldn't feel that we were a competitive threat.
And the other industry analyst said something that was very similar. A writer from another publication called me after reading the article and asked me if I would respond. Of course I said yes. I said that, first of all, those two industry analysts have never communicated with me, they've never driven the vehicle, they don't know anything about it, to my knowledge, so it seems to me that they should be referred to as industry reactionaries as opposed to industry analysts. I couldn't see that they had sufficient data to make an evaluation.
The interesting thing was that the man who interviewed me from USA Today was extremely positive, he was enamored with it, he drove it, liked it, he was convinced that it was timely and that we had something that was phenomenal. But after he talked to the industry analysts they tainted his own perspective and the net result was that he wrote what they told him. They simply followed the party line and took a position that was inherent in any new situation ... one of finding fault.
More often than not that's a very safe posture because most new things, percentage wise, don't materialize. A negative attitude is therefore generally very safe. I said that those industry analysts were indicative of people that made decisions in the sense that they formed opinions and they had a platform to disseminate those opinions. They wrote in prestigious publications and the media and others called them and asked for their comments. However, they weren't always right with their work mentally; as is evidenced by the cold war with the Russians.
The reporter asked me to respond to that. He said, how is it that you can make a statement like that they're not connected, there's no correlation.
I said, yes there is. Because if the new technologies didn't work at least part of the time we need not be concerned about the Russians since we'd be out of stone's throw range. There's no arrow that will go across the ocean. But the reality is that there are intercontinental ballistic missiles and there are nuclear warheads and there's advanced technology underscoring the threat to our society. It started with the dreamer and expanded to the point where it became reality.
What we are doing does not compare with what has been done before us. We're taking a state-of-the-art motorcycle and we're putting a fairing around it. We're not putting a pill in the gas tank, we don't have some magic potion, we don't know anything that Detroit doesn't. We're just simply creating a vehicle with a very low drag coefficient that has very minimal rolling resistance and air resistance and through the genius of Jim Bede's aeronautical sophistication and expertise, we're creating something that is just unique enough to be just a page ahead of some of the people that are reading the same book.
I'm a very private person. There isn't anybody in this room other than people who have known me prior to this project that know much about me other than what I've said on the few occasions that I've talked to you. But I think in the interest of giving everyone a perspective, I'm going to pierce that veil of privacy and show you the actual evolution of the vehicle.
Again, because I want people to draw lines today, I want them to take sides. Not in favor of Stan Leitner or some dissident faction. But in favor of the Litestar or conversely, on the opposite side. And I think the more facts that you have the more able you're going to be to make that determination.
Most of you know that in April of 1981, as the result of an article that I read in a Columbus, Ohio newspaper, I called Jim Bede and went in and met with him. After seeing the Litestar, I sat down with Jim Bede, who had decided that what he was going to do was to sell plans. He felt that there were a lot of people who would buy the plans and build the vehicle.
I felt that it had greater potential than that and although he agreed, he was in a condition of terminal poverty and was unable to do anything else. So the next best thing was to sell the plans. At any rate, we came to terms. I gave him a check for $25,000 and I bought the exclusive manufacturing and marketing rights to the vehicle.
At that time I had a management consulting firm specializing in remedial management and I had made the immediate determination after meeting him that I was going to stop doing what I had been doing and I was going to get involved in the Litestar on a full time basis. That's how enamored I was and that's how quick I came to that conclusion. There wasn't any deliberation, there wasn't any evaluation, it hit me as being timely, it hit me as being extremely worthwhile and I decided that that's what I wanted to do.
The understanding between Jim and me at that point was that he was going to continue to perfect and refine the vehicle and I was going to basically close up my business. I was involved in a couple projects with some clients and I had to bring them to conclusion.
After that we were going to market the vehicle. He had the prototype which, of course, was very rough. Like all prototypes, it was put together to prove the premise. Hand laid-up fiber glass, a lot of wood, some of the bark was still on the wood, and it was extremely rough. But it wasn't so rough that I cou1dn't see what it was going to be.
About two months after the agreement, I had a personal problem of some magnitude occur.
We Care America was a large multi-level sales company that sold personal care products, home care products, and also sold aerosol tear gas self-defense device. WCA was a company that I had purchased a few years prior to that time. At the time I purchased the company, the company was doing about $300,000 a year in volume and losing several hundred thousand dollars; so it was a company that was in trouble. I bought the company along with another individual and we changed the marketing strategy. It was a franchise concept and we changed the marketing program. In the first year, the first twelve months, we went from that $800,000 in revenues with a several hundred thousand deficit to 3.9 million dollars in sales and roughly $400,000 pretax. Tne second year we went, if memory serves, to about 9.5 million dollars in revenues and well over a million dollars pre-tax.
At that point I sold my interest. The company was accelerating very fast. I had other projects that I was involved in. There was disharmony between myself and my partner. We were philosophically not very well aligned and I sold out for about 2 million dollars. The partner continued to operate the company for about a year or so after that, up to this point in June of 1981. He called me one night. I had been receiving profit and loss statements reflecting great earnings and growth. There were many people that had gotten involved in the distribution process and they kept recruiting others and it just kept building and building and building until they had some 90,000 dealers and distributors throughout tue country and they were doing 3 to 4 million dollars a month.
In 1981, they anticipated that they would round out the year at about $60,000,000 in revenues and about $5,000,000 pre-tax. The problem is that along the way my former partner became very involved with an oppulent life style. He had a chauffeur driven limo, he acquired two DH125 jet planes, which Jim Bede tells me are very inefficient, very expensive, but very inefficient. He had several other prop aircraft, bought a little schoolhouse for $135,000, proceeding to put $1,000,000 of rehabing into it to make it look like a new schoolhouse.
The tennis courts, the olympic size pool, catered meals, the entire catastrophe. Then he decided that he wanted to buy a facility that belonged to the owner of the St. Louis Blues hockey team. So for 3.9 million dollars, much of it out of the cash flow, he bought this sprawling estate. He planned to use that as a workshop for the distributors and dealers that reached a certain level.
Well, that's the backdrop for that meeting. I met with him and his V.P.s and they were all in a state of panic. They thought that the end of the world had come. Outside the plush offices in the parking lot were wall to wall Mercedes and El Dorados and these executives who had been butchers and bakers and candlestick makers were all making $70,000 and $80,000 a year and had fantastic prerecquisites, but they had reached the point where they personified the Peter Principle and my former partner, as a consequence of not having the right kind of people around him in combination with squandering the assets, was in very dire straits.
In addition to that, 20/20, the investigative news program, had done a program on tear gas and the upshot of the program was that it was not effective and that in many cases people had tried to use it and as a consequence had been harmed to a greater extent than if they had simply handed over the handbag or wallet or whatever. So he was getting some repercussions from that.
I went into the company at that time and tried to get a capital infusion. I called the people I knew and tried to structure deals and spent 60 days and 60 nights trying to pull it out to no avail. So it went under. And when it went under it took 2.5 million of my dollars with it, that I would have gotten on an installment sale basis and another $300,000 or so that I put in on an interim basis to try to bail it out.
So the net result was that I was broke. But I'd been there before. I've been a millionaire on three occasions and I've been broke four. Within the next few months I'll be a millionaire again so all of that's historical and it's not of great personal concern.
But just to give you a feel for the background of this project, I then called Jim Bede and said, "Jim, I'm broke, I can't go forward with the program . . . you keep the $25,000 as liquidated damages and you're free to go out and cut whatever deal you can with whomever."
Jim didn't say very much. About a week later he appeared on my doorstep and he said, I still want to do this thing. And I said, well, I appreciate that, but I don't have the wherewithal to do it.
Prior to the 'We Care' debacle I purchased a house for my mother for about $90,000. Naturally, I couldn't make the payments on it so I had to evict her, which is a pretty harsh thing to do, evicting your own mother. I doubt if any of you have had that experience, but it is horrendous. Also, I had a couple of very exotic cars including a new Mercedes SEL, a new 450 SL that were taken away on hooks. I had several other vintage cars. I had, in essence, lost everything. But Jim said I think we can still do it if you want to. I said, alright...I'm the same person that I was before. The difference is that I don't have any money now. So we're going to have to find somebody else to finance the project. But I'll re-commit to it.
I set up headquarters on the porch of my house in September 1981 and for all intents and purposes, had a new deal. Now Bede was not a guy who was going to get royalties and do the engineering, but he was my partner. And we both felt very gratified by that turn of events. I was on the porch for a couple of weeks doing logistical things attendant to putting a company together and I got a call from an old friend who had just put together a company in Los Angeles which was a waste removal company. He had gotten a lot of investment capital from Hollywood types and had a $20,000,000 nucleus, he had purchased a couple of companies and he felt that within the first year they could generate revenues of $50 to 6O million basically through acquisition of companies and assimilating those companies into the network.
I had done all of that a few years prior, having been V.P. Operations for SPA Services which at that time was the second largest company of its type in the country. So he asked me if I would assume the presidency of the company and I flew out there to meet with him. I had to borrow the air fare to go. During the meeting he offered me $150,000 a year, 15% of the stock and total autonomy in terms of running the company. Autonomy, I guess, was as important to me as the money and the stock because I've always been pretty entrepreneurial and liked to follow my own instincts.
I told him I would take it under advisement. Back in St. Louis I talked to Jim Bede and I suggested that perhaps for the short term, in order to generate some money, I should take the position. Bede said, well this thing has been in the garage for this long another six months or so probably won't make any difference. So wnatever your decision is I'll support it.
And I discussed it with my wife, Jan, but I didn't get back to the guy in L.A. About a week later the guy called me and he upped the ante to $200,000. And I decided then that I didn't want it. That seemed to be the critical point, when he offered more money I decided against it. Maybe for the 150K, I would have taken it. But when he offered me $200,000 I rejected it.
A week later he called me back and raised it to $250,000. But by then I was very entrenched, I was putting some literature out, we were planning what it was that we were going to do to bring this thing to fruition. That was October, 1981. Between October and January there was a lot of work that was required. In January 1982 we put together the information kits and plans that you're all familiar with and we put a couple of small ads in trade publications slanted to aeronautical types, race car drivers, etc. We got a fantastic response.
Then we heard about a big convention in Daytona Beach, a motorcycle convention that's held in February of every year. Twenty thousand motorcyclists converged on Daytona, Florida and the town was basically theirs for the week ... they had exhibits, races, a range of activities. Even though we were positioning this as an alternative to the automobile, we were curious as to what the reactions would be by the motorcyclists. So we decided to go down there.
Since we couldn't afford a booth we went down to Atlantic Avenue and parked the vehicle next to the hotel where they had the exhibits and gave out literature. We talked to people all night long. They closed their booths at ten and we stayed there until 7 in the morning and then when the crowd thinned we'd go to sleep for a couple of hours and be back there by the time they opened their booths at 9 or 9:30 AM.
We had fantastic response. Ed Weyman saw it on TV. It was in the newspaper. People talked about it. We had brochures because I had a benevolent printer friend who gave us about $7,000 worth of printing. So we were off and running. And the response was tremendous. So much so that we changed our whole attitude in terms or how we would sell this vehicle.
Up to that time I thought that we could sell perhaps 2,000 a year to males 16 - 25 and I felt that that was pretty much the marketplace. When we were down there people or all ages and both sexes became very intrigued with it as well as people who were retired. People in their sixties and seventies were very responsive.
So it became apparent that it was much bigger than we had anticipated. During that period all of the corresporisence was coming in and everything I was sending out was handled by Julie McAllister who worked for a friend of mine, Herb Voremberg. I would drive up to his office every morning and give her the correspondence and she would type it up and she would mail it and that went on for weeks and weeks and weeks, I guess months.
In March of 1982, Nancy Teel, who had been with me for years, arrived on the porch because we were starting to sell vehicles. This vehicle that most people had never seen was getting a tremendous amount of media response and the people were reading about it and sending for information and we were sending them the Year 2000 brochure and an order blank. In a period of about 3 months we sold about $320,000 worth of vehicles. Some of them were the Retro'fit kit, which we later eliminated.
Nancy Teel was there and she was setting up the accounting procedures. The only money coming in was deposits and revenues from information kits and plans. I was totally broke. In April of 1982, I don't know if you can see that figure, $32,807, my wife through the years had collected a lot of antiques and we sold $32,807 worth of antiques and that went into the project.
In April of 1982, I also started putting together the superstructure for the distributor/dealer network and Tallie Jones became the first B dealer. The B dealer, which is something that we don't have anymore, was a dealer who had to sell several vehicles each quarter. In order to become a dealer he merely had to buy two vehicles. So it wasn't very difficult to get in.
But Tallie Jones was the first one that saw the potential in the product and signed on. In April, I picked up another $10,000 by putting a second mortgage on the house and I had two other houses that were in foreclosure. I was able to, as a result of selling one of the houses, get enough equity to get the one that was subject to foreclosure out of that status and put the additional $10,000 into the company.
In May of 1982 the only car that we had left was my wife's Porsche and to show you what kind of a salesman I am, if anyone of you knows anything about a Porsche, I got a $6,000 loan on a Porsche that was only a year old, it cost about $16,000 and was worth maybe $15,000.
In May of 1982, Jerry Reynolds became the first 'A dealer'. I didn't meet Jerry as I didn't meet Tallie, we did everything on the phone and through correspondence.
In June of 1982 we did a deal with Bass Aviation at Fairhope, AL. They were going to manufacture the vehicle and the contract with them had provisions where they were supposed to put certain monies into the company and they were supposed to do certain other things over a three or four month period. It became apparent that they weren't going to comply and so I jetisoned them for failure to perform. The rationale then was that we had to get someone to manufacture the vehicle but it was a Catch 22.
It's very difficult to get someone to manufacture anything uness they know that there's a market for it. In order to prove that there was a market for it, I set out on the great quest for dealers and distributors. In order to make this as palatable as possible I told the people coming in at that time that there wouldn't be any cost, they would just have to apply the monies against their first units and those monies were to be escrowed.
David Schwartz came in about June of 1982. When I met with David in Chicago, I was already talking with somebody about the Illinois distributorship and David convinced me that he was the right guy. I had a sort of tacit understanding with the other man, but had not entered into a contract, had not actually made a commitment. David came out to see me in a chauffeur driven limo, which would have impressed anyone else, but the last guy I knew that had a limo, had cost me $2.5 million, it made me a bit suspect.
What David had to do was come up with $10,000 for the state of Illinois. I had talked to him on the phone and we had pretty well come to terms and I had a contract there for him to sign and when he came in he indicated that he didn't have a check. I said, well, we'll consummate at such time as you do. He said why don't we sign now and I'll send you the check. I said, David, I'm sorry, but I just don't do business that way, I'll have to have the check at the time that we transact the contract.
I'm sure you've all seen David's belt, the big mammouth gold belt that looks like it's from one of the Las Vegas revues. Well, he had the belt on and it had his initials in diamonds encrusted on it, and he said, Will you take my belt?" I said let me see it. So he took the belt buckle off and the two flaps of the belt were flailing about and I took the belt and sort of weighed it in my hand. I said, what's it worth?
David, do I have your permission to reveal the value? Thanks!
He said about $20,000. I said but that's retail. I put the belt down and said what else do you have? He said, well, I've got this watch. He had on a designer watch and like the belt it was encrusted with diamonds and had a gold band that was worth more than the entire Tomorrow Corporation was worth. I said let me take a look at that. So he took the watch off. I said, it's very difficult to evaluate this .... we were in the garage in Mundelein, IL .... in this light, I'll have to take it out in the natural sunlight. I took it outside and resisted the urge to flee the country, went back in and said, all right, that's fine, what is it worth? Even with your permission, David, I won't tell them what the watch was worth, but suffice it to say it was worth more than the buckle. I said, that's a nice ring you have. He had a gold ring and, as you might know, encrusted with diamonds. He took the ring off, pushed it into the middle of the table and said I'11 let you keep all of this until you get the check. I pushed it back and said we'11 sign and the check will be due within two weeks.
I knew that if I would have taken collateral and anything would have happened, there would have been no possible way to ever replace it. Also, it was apparent that David was sincere. So that was David's dedication at that point. About a month later I got back to David and I said, David, as you know, we have some serious financial problems and I'm willing to do a different deal with you than you currently have if you release the $10,000 from escrow.
Also, I need another $40,000. I'm willing to give you four more states. David said that sounded great. We looked for a quiet bar, couldn't find one, and ended up at a bowling alley and basically came to terms on one of the score sheets. David freed the $10,000 from escrow and gave us another $40,000, which was direly needed at that point.
Later on, when I negotiated the deal with the Scranton Manufacturing people, they were a little bit apprehensive, even though we had quite a few dealers in the program by then.
Billy Inmon and Jim Grit, dealers joined, as did Julie McAllister in July of 1982, things were so good on the porch that Julie came in full time. Tony Kaighin, my son-in-law came in at that time, helping Jim and his people up there in Mundelein. Steve and Nancy joined in August of 1982.
I managed to go back to the people and tell them that the $6,000 that they loaned me on the car was less than the book and I got another $500 from them. Steve Charia became a distributor. I got a personal IRS refund for $27,648 and in September of 1982 the Scranton contract.
Now the Scranton contract... these people are extremely wealthy, they have a significant net worth and they have far-flung enterprises. Their principle business is raising Arabian horses. The Scranton Manufacturing plant (Scranton, Iowa) actually was put together by them simply to accomodate their ranches. They needed someplace they could build and repair ranch items they needed. So they founded Scranton Mfg. about 10 years ago.
They're ultra-conservative people and they said that they were very interested, but they wanted a strong equity position in Tomorrow. Jim Bede and I negotiated with them and finally, based on their ultimatum, we walked out of their office. By the time we arrived in Des Moines, we had tentatively resolved the arrangement to what I thought was more equitable . . . 2% of the corporation. We did a deal with them but there was a contingency that we had to meet. The contingency was that we had to come up with a letter of credit that would assure them of at least $500,000 a month in orders. I told them what I thought we were going to be able to sell and they, again being ultra-conservative, thought that that was far in excess of what the market cou1d absorb. They thought that if they had an LC that would guarantee them $6,000,000 in annual sales that they could go forward and put the necessary capital and tooling and laying in the inventory and employing personnel and doing whatever else was required attendant to that manufacturing process.
I went in to see David Schwartz again and explained my situation, told him I needed an LC and I couldn't get it because the Porsche was over-collateralized and when you get a $6,000,000 LC it basically means that you're going to have a lot more net worth than $6,000,000. I met with David's parents and over the course of an afternoon they agreed to commit to an LC in the amount of $500,000 a month. Thanks again, David.
Dealers who joined include: Richard Kline, September 1982; Ed Weyman, September; John Donaldson, September and Bob Briggs in September.
VaunGarde of Owosso was brought in about October 1982. You know what VaunGarde's role has been. So I won't overly protract that. But basically, they had to have a commitment from us for X number of units and after seeing how many people were in the program and recognizing the participation of Scranton, they acquiesced.
Frank DiMatteo and Bill Sostaric, Vonnie, joined in January 1983. By February of 1983, as the result of these various delays, we needed more money, we needed a $150,000 loan, and again, I didn't have the collateral to get the $150,000 loan so I went to some old friends, Jim and Bev Trout, and talked to them about it. They liked the odds and the prospects and they invited two new friends, Harry and Jo Auffenberg, to participate in terms of collateralizing it. They also liked it, and the net result is that we got a $150,000 loan which enabled us to perpetuate the project.
March of 1983..... Chicago Auto Show.
That's when it became a Cinderella story, that was the ball. They had something like 600,000 square feet of automobiles displayed, automobiles from all over the world. They had the very glib carnival barker types expounding on the merits of the respective vehicles and they had all the newest models . . . they had the 1995 proto-types. They had those backdrops that were very elaborate, they spent, certainly in many instances, over a half million dollars just on the booths, not the space cost, which was in addition to that, but the trappings.
David Schwartz had a booth in the basement, that had a couple of placards hanging on a curtain, it was just long enough for the vehicle and was in a terrible position, next to somebody who was hawking taffy & fudge on one side and a Vege-matic guy on the other side.
But that was to their dismay because all of the activity was at the center booth...David's booth. People were there from the time the exhibit opened to the time they closed at night. There was phenomenal TV coverage, media coverage, David soared to instant celebrity status, sold a lot of vehicles and generated a tremendous amount of interest. And I think convinced his mother and father, who prior to that were going on the strength of his adrenalin and his conviction, that this was truly a unique situation and one worthy of their investment.
Below is the Chicago show vehicle. The second vehicle that Doug Walsh built.
March of 1983, I sold a few more antiques for $20,000. Also dealer Jim Blevins (Litestar of New Mexico) came on. Warren Hinderer joined officially in April of 1983, Warren had been working on his own in support of the project from the outset. He put together all of the literature, did all of the things having to do with the marketing end of it. Dealer Sam Renauro signed on in April.
Also in April, after we found that the spray up foam wasn't going to work, we talked to the people at VaunGarde. I was told by the Scranton people that they felt like, after putting substantial dollars in the spray up RIM process, they were very reticent to put any more money out even though VaunGarde offered a solution.
J.B. Rath had put together a proposal for $620,000 for the permanent tooling (molds). I wanted Scranton to commit to that tooling pursuant to their contract. I expected that they would meet me at J.B. Rath the next morning in Detroit and consummate a deal with J.B. Rath to provide the tooling and that they would come up with the monies necessary to accomolish that feat.
Ron Royer (Scranton general manager) was very opposed to it, John McLaughlin (Scranton president) was in a bit of a quandry. When I hung up the phone, the comment I made was that if I didn't see them at the Detroit airport that I would then conclude that they were no longer interested in the project and I would bring some other firm in that was waiting in the wings.
The next morning Jim Bede flew from Chicago to Detroit, I flew from St. Louis to Detroit and we saw John McLaughlin and Ron Royer's smiling faces at the airport. We went to J.B. Rath. You saw at Innsbrook how efficient the J.B. Rath firm is . . . that they make molds for the Big Three, they make molds for foreign car manufacturers and they are really at the pinnacle relative to the state of-the-art. So that commitment was made. It was supposed to take 20 weeks. We communicated that information to all of you.
In April 1983, Michigan dealer Armin Jocz joined. I also managed a personal loan for $20,000. Iowa dealer Carl Coates joined in May, New Hampshire dealer Larry Lemay in May, David and Brad, the Charter Club Seminar at Innsbrook, MO in May, when we thought that we were under way.
And of course, everybody had been waiting for a long time, all of you have made investments and sacrifices, contributions, and that's when the people with the belts and suspenders panic. The net result was that I made the determination that until we were comfortable with the vehicle that we shouldn't go forward with the manufacturing.
Iniana dealer John Stratman in May. Also the franchise moratorium which evolved from the Charter Club Seminar at Innsbrook because we realized that we were going to have very few vehicles at the outset and we didn't want the people who had made the contributions and had gotten in at the early stages to have their numbers unnecessarily diluted, so we took that position.
Chuck Hansen joined in May, but he said he couldn't become a distributor or a dealer in California at that time because there were certain things that were requisite of Tomorrow Corporation, filings and bureaucratic logistics that had to be accomplished. Also, as a consequence of a pollution control standard in California, we weren't going to be able to comply with that regulation until 1984; so I called Chuck, since had sent some money in, $14,251.50, and I said, Chuck, I can't sign you up now because of all these reasons, but if you will accept me at my word, I will sign you based on the terms that we had talked about, if you will allow me to use that money because, frankly, we have very serious cash flow problems. I'd like to use it on a loan basis. And I didn't know Chuck, met him at Innsbrook, spent a very limited amount of time with him, as I did with most of you. And without hesitation he said fine. I sent him a letter explaining what we had discussed and thats what his contribution was at that point in time.
In June, we did a little more testing . . . we had problems on the front end, braking problems, we had problems that perhaps were not of the magnitude that they may have sounded in the letter but nevertheless it wasn't right and therefore we had to sit back and make it as right as we could.
Also in June, the community of Streator, Illinois, contacted David Schwartz and indicated they were interested in a plant there. I went in and talked to them. They were going to provide us with a plant, a new facility, and in addition, a million dollars in capital. They were going to get this through several governmental agencies. The city was very distressed. They had an unemployment rate of about 26%, 2%- times the national average. I went to the community and met with the mayor and the city officials. A week later Jim Bede came in, waxed poetic in front of a group of citizens who were there welcoming us with banners and streamers. I haven t seen that much crepe paper since the prom.
In any event, a lot of activity and a lot of interest. As it turned out, they couldn't get the job done. I won't take you through all the intricacies, suffice it to say they couldn't do it.
In June of 1983 we signed a contract with a company in South Africa headed by a man who was a General Motors engineer who is now a consultant to them in semi-retirement. He's gone all around the world setting up plants for General Motors, a very astute individual, the man is totally enamored with the project. He came in and met with me and within an hour and a half we had a deal. He's going to fabricate in South Africa.
Also in July of 1983 - we started to communicate with a company in Japan, Fujino Industries. Fujino Industries is a wholly owned subsidiary of Nissan, the Datsun parent, and they wanted to fabricate in the Orient and distribute throughout the Orient. Through the trading corporation, I started negotiating with them and it, again, was not viable and the reasons are not important, but we weren't able to come to terms. However, the trading corporation is extremely high profile and through them we have gotten to Suzuki, Yamaha and Honda, the various motorcycle manufacturers, in our behalf.
Yamaha, at the present time, has sent us a contract to sell us components, just the engines and drive trains. Heretofore, we were buying whole motorcycles from a distributor, we weren't even buying them factory direct, so obviously there was a lot that had to be salvaged and we're looking at 15 to 20 cents on the dollar in the salvage after-market.
So that was a major breakthrough. Theres another dimension on the Yamaha situation that's even more interesting. In July of 1983, Scranton Manufacturing decided they wanted to take over Tomorrow Corporation and so they brought in a fast gun from New York. I met with him and he went through a lot of rhetoric and after about 15 minutes I explained to him, after sitting there and listening to him patiently, that that was dandruff on my shoulders, not hayseed, and that we were not going to capitulate to this unwelcome attempt to acquire the company. Their offer was absurd. It was a merger where they would throw their assets, screw drivers, nuts, bolts, bricks, mortar, things that don't make money, into the collective pot and Tomorrow Corporation would then relocate to Carroll, Iowa, which is hardly the garden spot of the world . . . relocate there, I would remain the president, between me and Jim Bede and the Trouts and Auffenbergs, who were also holders of stock, we would retain 15% of the corporation and they would own the rest of it. And they were going to put a lot of money into it.
But we had come too far and our needs weren't great enough to deal with them on that basis. When I didn't accept their terms they implied that they would dissaffirm the contract and we wouldn't have a manufacturer ... I told them I would welcome that.
In August of 1983 we had another $150,000. We got it through the local banks. Again, the Trouts and Auffenbergs collateralized it and put their assets on the line. So at that point they were into it to the extent of $300,000.
In August of 1983, Salem, Illinois had a plant there, a modern plant, owned by Beatrice Foods. We have had a very good relationship with the people of the city. Unlike their counterparts in Streator, these are people that get things done. They managed to get an IRB commitment for us on a very favorable basis. It's in abeyance right now, we've got to do certain things to trigger it, but in any event, we can acquire that facility on very favorable terms.
Additionally, there's more than a million dollars capital that they are willing to put up through various regulatory agencies, state and federal. Those monies are very soft in terms of the interest cost and the term ... we're talking about 6% money and a 20 year term.
August of 1983, I met with a man from Colombia, South America and I feel that we are very close to doing something there on a significant level where he will probably fabricate for all of South America and handle the sales end too. That will represent a considerable amount of money to the company, not just in terms of residual benefit of the royalties but also up front monies. And that, right now, is very high probability.
September of 1983, prior to the stock offering which we've been talking about for several months, I offered all of you as distributors and dealers an opportunity to buy stock at half of the price that it was going to go on sale to the public. Given the fact that we had some regulations that prohibited selling to very many people and since we had significant capital needs, I had to make the floor 25,000 shares at $2.90 a share . . . we were proposing to go public at $5.00.
Armin Jocz and his wife, Elsie, of Michigan purchased a block of stock. That money went into the collective pot. There were many others of you, I should note, that were interested, but just simply couldn't meet that criteria.
Jules Lederer is a man who is ...could be best known for starting Budget Rent-a-Car, but instead finds himself with the dubious distinction of being Ann Landers' husband. He was married to Ann Landers for about 30 years. Jules came in to meet me, he read about the project in Forbes magazine, came in to meet me and told me he wanted to participate and asked if I would be willing to have a private placing as opposed to a public placing . . . to sell stock to a limited number of people. At that time I told him that I was not interested in doing that. I felt that the public marketplace would he better in terms of generating more proceeds and in terms of not having the same amount of dillution, enabling the principals to wind up with more stock after the fact. He did't ever really quantify the amount of stock that he wanted to buy, but he did tell me that Pete Estes, the former chairman of GM was involved with him and that they were both interested in the project. They were also interested in some management overview perhaps a seat on the board, or even on a day to day basis. They had just put in an offer to RCA for Hertz cars in the amount of $550,000,000. So they obviously have the wherewithal to do something.
Mike Collado was one of the first people who was interested in a distributorship, but because of problems in the state of Connecticut, a statute, he was unable to sign. But we had an understanding that at a point when the law was changed, that I would put him in on the same basis as the people who came in during the early stages. Mike employed the services of a lobbyist who managed to move things along very well in terms of getting that statute changed. He felt comfortable enough so that in September of 1983 he signed a distributorship agreement and placed his initial orders. Mike would be here today except that he has a phobia about flying, but he sent Paul as a surrogate. He wanted me to tell everyone that he's very sorry that he couldn't make it and that anything other than the fear of death would not have kept him from coming.
We're also very far along in negotiations with a group out of Australia which is similar to the Colombian thing in that it will offer a lot of out front money to the corporation plus roya1ties on an ongoing basis.
In October of 1983 we started talking through the trading company to Yamaha with regard to having Yamaha build the vehicle in its entirety. That is to say that they would build the basic unit, the outriggers would be built in this country and they would send the unit in and we would put the outriggers on here. The advantage to that is that the vehicle is quite large, it displaces a lot of space. Since outriggers, it's a lot easier to ship, additionally, there are some more beneficial tariff considerations if you're sending something into the country that's incomplete as opposed to the finished product. So that's something that's close, so close in fact that I'm meeting with the President of the trading company, he's flying in from Tokyo, meeting with me Wednesday of this week. Additionally, the V.P. of Japan shipping lines is coming and someone in the Yamaha hierarchy. They're extremely interested in this vehicle.
Now, that brings us up to the present ... stock offering. There have been a lot of starts and stops on this, it's another situation that I'm not going to take you through in great detail. Suffice it to say that it's a very over-regulated area. Every time I felt that we had complied with one of the provisions of the statute, I found that we were in non-compliance with another. Beyond that, the various state SEC's have tremendous latitude. They can do essentially anything that they want, if they want to follow the statute to the letter that is their prerogative, if they want to waive elements of the statute, they can do that, if they want to add something that's their prerogative. So we have alternately over the past several months determined that they were either going to have a private placement or a public offering and the turning points were always of a nature where we would get to an impasse requiring that we reverse course.
Now we are intending to go public, that's where we are at this point in time. We cannot sell any stock between now and the time we go public. The stock that we sold to Armin and Elsie, of course, notwithstanding as that took place at an earlier time. If we could sell stock I would be pitching stock right now.
I've put $141,955 into the project which, as it turns out, is $141,955 more than I had. We've had loans in the amount of $361,000, sale of the pre-production Litestars ... that doesn't look like a good figure, $30,000.....
Nancy Teel..... those are the three units that have actually been picked up.
Stan Leitner..... I see, the three units sold, literature--25,000, franchises--$127,000
Everyone knows when the change came about and we started selling franchises as opposed to setting up dealers on a quota basis with the escrowed funds. This will remain up here so you can come up and copy it.
But basically, $1,079,000 have gone into it, debt service in the amount of $166,000, Bede Design has either received or will receive $607,000, Scranton has received $56,000, fixed assets in the amount of $43,000, deposits--4,000, expenses, Tomorrow Corporation spent--$197,000.
Jim Bede and I have personally signed as guarantors on $600,000 in addition to what I've put in and I have guaranteed an additional $43,000. I've gotten alot of calls in the last couple of weeks from people who have said, "is Tomorrow Corporation bankrupt?" "What is the nature of the meeting . . . the letter sounded very ominous?"
I'm getting alot of input that Jim Bede isn't working and basically the concerns covered the entire waterfront. Tomorrow Corporation has never been viable from the standpoint of money sitting on the shelf. That's what all of this illustrates. But Tomorrow Corporation is really the Litestar. The viability of the Litestar has been reflected many times over in the community at large by people who are saying, yes, you've got something fantastic and I'll buy it. That's what we really have, that's the value. Now we could have sold that value off a long time ago, we could have sold it for a fragment of what it's worth today and what it's worth today is infinitessimal by contrast to the value six months from now or six years from now. But the company is viable for that reason . . . because of the Litestar, because of each and every one of you.
I have developed over the years what I consider to be six steps of a successful project. The first one is enthusiasm and that's where all of you were at the outset. When you first hear about something that you think is dramatic and can he monitarily rewarding, you are extremely enthusiastic. And with most of us that lasts long enough until we can no see our brother-in-law who basically sets us straight and who dreams in black and white and who tells us that, no, we're wrong, it will never get off the ground and if I was the chairman of G.M. I wouldn't be concerned about the competition.
So after talking to him, the next step of a successful project is disillusionment.
You know, after all, this guys been pumping gas at the Skelly station for 23 years and a lot of people come in that Skelly station. In any event, he talked to all of these people at one time or another and he knows all there is to know about business and even though he hasn't seen the Litestar and doesn't know anything about management, he heard once that Jim Bede did time for child molestation and that Stan Leitner is wanted in 7 states for more significant charges, so the net result is that people become disillusioned.
A lot of that's happening to the people who have attended today, as well as those not in attendance. The next logical step after being disillusioned is panic.
I put my money on the line, what's going to happen to me, am I going to get it back, am I going to lose my ass, what's the story? So panic becomes pervassive, and panic causes you to pick the phone up, because panic isn't any good if you have to endure it alone. You have to call other people. It's insidious, it's pervassive, and you've got to make sure that everybody else is panicking, because if they're not panicking, either they're missing something or you're missing something. So you have be be reassured that your panic is valid. You call other people and these people you call, if they haven't panicked before that, assuming they've gotten through their brother-in-law scenario, all right ... they don't get through your phone call.
After the panic, the next stage is to search for the guilty.
They start pointing fingers. Well, a lot of the fingers have been pointed at Jim Bede, people have said that Jim Bede is involved in the ultra-light project, Jim Bede dilluted the time that he should have spent on this project on various other devices that he was working on, he's a playboy, you can look at him and see he can't be a playboy, but in any event, a lot of things have been said about Jim Bede and a lot of things have been said about me, most of them are pretty favorable; so there's no need to go into that.
But the fact is that you always see through that process of searching for the guilty. If you don't find a culprit, then you're him. Like "Pogo", . . . Walt Kelly's comic chararter said something to the affect that ..."we had met the enemy and he is us."
You've got to make sure that the enemy is not you, you've got to find another enemy. So you search for the guilty, no matter how it ends up, as long as you have a rationale that you can abide by, you can live with . . . everything's fine.
Then, number 5, punishment of the innocent. And that's more of the same. That's after the panic. You call the same people you panicked and you say, all right, let's form a lynching party, let's find who it is that we're going to get because again, if you don't get somebody else you've got to get yourself, got to second guess your conviction, got to second guess your intelligence, you've got to second guess all of the elements that went into making that decision in the first place. And nobody likes to assume the onus of responsibility for anything but success. There is an old adage to the effect that success has many fathers whereas failure is an orphan. And then it works out! Everybody's friends again. And all of the dissidents, all of the people that were taking issue with why it wasn't going to work, why it was dead on the vine and why it should never have been started in the first place ... why, they're all toasting each other and saying we've done a remarkable job. This was a hell of a thing but we did it. We brought it through. But by that point there's been two thousand dollars expended in phone calls.
Now there's another aspect to this and that is the six steps of an unsuccessful project. It starts out the same way ... enthusiasm . . . and the second step, is the same, disillusionment, third step, panic, no changes so far. Now we have the changes. The fourth step is rumor. Everything that I have done since the beginning of Tomorrow Corporation, the beginning of the Litestar project has been done with full intention to enhance the project.
Every time I talked to a reporter, anytime I pick up the phone to talk to anybody, I tell them very positive things. Now we have problems. We've pointed out those problems. Jim has gone through chapter and verse on the engineering difficulties. I've given you this story. While we have problems . . . those problems are problems that we can control and solve. But once they get outside of this august group, then we lose control and there is an old adage to that effect ... That what goes around comes around.
This is not a case of us and you.... it's a case of us. So you cannot make an attack, wage war against this corporation, this project, without diminishing your own potential.
The fifth step of an unsuccessful project is the same as the fourth except that it has expanded because that's what rumors do. Rumors are somewhat interesting, today engineering has reached a point where they can do some fantastic things. They haven't quite gotten in God's realm of procreation, although some feel they're on the brink of it. But before any of these people got involved in genetic engineering, rumors were growing arms and legs and running around in a helter/skelter fashion.
The sixth step to the unsuccessful project is the same as the fourth and the fifth except it's been magnified and the end result is what I feel can be averted . . . disaster. I don't want anybody in this network that doesn't want to be here. I understand frustration. If you don't think there was frustration getting from there to here, then you didn't pay attention. I worked night and day and I worked weekends and I have done everything humanly possible to make this thing work. That goes for Jim Bede, that goes for everyone else who's been involved in the program.
Nancy and Warren and Vonnie and Tony and Julie and Jim Bede and Bobbie and the people up in Mundelein were not paid this week. Now for the guy that dreams in black and white that means that it's all over. But again, for the ones that dream in color, that just means that it's more of the same. Of course there are problems. We started out with problems. We didn't have anything other than an idea and we've come a long way. And in terms of paydays, while these people haven't been paid this week, I haven't been paid for all of the weeks in 2 years at my involvement. So when there's frustration out there and you pick up that phone and call somebody and think that your $10,000 is at risk, you're really not looking at what is truly at risk.
It's not your $10,000 that's at risk, or your 15 or 20 or in the case of Armin your $100,000 or in the case of David Schwartz, conceivably millions, what is at risk is the loss of what you can make, the loss of what you can realize, the loss of being part of this technicolor dream.
I want to get the rest of the gloom and doom out of the way so we can move on to the more progressive end of the meeting. About two weeks ago, the day before the first pre-production unit was to be picked up, Nancy Teel got a phone call from Bob Watson who is The V.P. Finance for Scranton Manufacturing and he advised her that the pre-production vehicle was going to cost $11,235.05 and explained to her that the accounting was basically taking the first 17 units and factoring into those 17 units all of the labor heretofore, going back in time to January of 1983 and all of the inventory that they've purchased since the outset, and they would divide the labor by 17 units and divide the inventory by 17 units and of course much of their inventory is overpriced ... for example, when we had the gear assembly for the steering made in limited quantities, it cost us $550 to have the first 15 made up and according to Jim Bede, it's going to be a $45 item when we get into production.
Likewise, other components had similar spreads where the actual production version costs would have been significantly less than the limited supply price. So we took the position that we didn't have the wherewithal to offset that. Previously, of course, on the pre-production version we indicated that we would take $5,000 as a deposit and then $5,000 at the time the vehicle was completed. They had not pre-advised us of this development. Again, we didn't have the money to pay them so what happened was that, needless to say, there was a harangue between myself and Ron Royer.
The principals of Scranton weren't available during that period and the net result was that Royer said that they would continue to produce units, but we couldn't get any until such time as we paid the $11,200.
Texas dealers, Don Rose and Ben Scarborough and Arlon Fowler, were involved in a fair in Dallas and they had gotten phenomenal response to the vehicle that they had down there, which was the unit that was in the Chicago Auto Show in March 1983. It had the old front end and it didn't have some of the refinements on it, but nevertheless, they had it.
They were going to drop that unit at Coors in Colorado for a big meeting of Coors distributors. Coors wanted to indicate to their distributors that they wanted them to consider buying the Litestar for advertising sales and promotional purposes. The Coors art department was going to paint the vehicle and put the Coors logo on the side. So they dropped the vehicle off and they drove into Scranton ostensibly to pick up their vehicle. They had previously wire transferred the other $5,000. We didn't find out about the difference in price until they had already gone to Colorado and were headed for Scranton. When the Scranton people wouldn't capitulate to what I requested, which was essentially to take the $5,000 then and the balance after we had the proceeds from the stock issue, it became apparent that we were at an impasse. They wouldn't yield.
Don Rose called me from a phone booth and we talked for a couple minutes and he said, well, I'll come up with the 11.2. I've got to have the vehicle. I've made commitments to the people at the fair, we've had phenomenal response, and we just have to have the vehicle. So it was handled in that fashion.
I then communicated wtih Carl Coates who was next in line, told Carl what the problem was ....
It wasn't Carl?.... Oh, John Donaldson, two and three, three and two, whatever, in any event, I talked to both of them and explained the situation and they said the same thing that Don did, we've got to have the vehicle, we've made some plans, we have people coming to see it, etc., we'll come up with the additional money.
I told them that at such time as we had the offering I would offset the difference between the $5,000 and the 11.2 and then later on, pursuant to the earlier agreement, rebate all of their money at the end of the six month period, or actually apply it to a credit toward the seventh month. So they agreed to that and we pretty much eliminated the standoff that we had with Scranton.
But Scranton has systematically, over the last couple of months, created some serious problems. The most serious ones from my perspective are in the area of fit and finish. Scranton probably, in retrospect, was not the best place to go. These people have an attitude that is somewhat different than people that I am accustomed to doing business with. They have had a very ultra-conservative attitude throughout and that has hurt us.
Now there have been the other delays that Jim has talked about and I am not saying that the root cause of where we are at this point in time is Scranton, but they have contributed. Regarding the vehicle that Arlon picked up, he called me the next day and he told me that there were various problems with the vehicle and I asked him to put it on paper and send it to me. He delineated 8 or 10 items, most of them were in the fit and finish area. The most critical problem was that the vehicle was straying on the road and between conversations with Jim Bede and Don and Arlon they finally determined that there was some misalignment.
I don't know whether that has been resolved yet or not... Don says that it has been...I'd like Don to speak specifically with regard to that situation...in any event I found that out last Friday night and I immediately called Carl and told him not to pick his vehicle up until we were sure that it was to a standard. I called John Donaldson and John's guy had just left enroute back to New Jersey. When it arrived in New Jersey, in a follow-up conversation with John, I found that many of the same problems were existant on his vehicle.
We sent Tony in to Scranton...in the past, we had numerous people there. At one point Jim had, I guess, four of his people in Scranton for a period of a month to six weeks. Jim feels that there is a pattern where they do certain things, make certain errors which are corrected and then surface aqain. Given the historical problems that we've had with Scranton, they may very well not be a part of the future of this company.
At this point in time, we're trying to resolve those problems, we're trying to determine their true intent but they're going to have to maintain a quality control level. Lacking that we're going to do something else. Now, we were always going to do something else that would be augmentative. Supplemental to what they were doing because we know that we need the volume. We need greater capacity than what they're able to provide. But we had hoped that they would give us x number of units per year. Now that's somewhat in doubt. The specific problems...and I'd like at this time, so that you can get a better feel for it, I'd like...
CARL: Darrell Crummet did tell me Friday that they had to replace the rear panel because of just what you said, there's a four inch gap.
STAN: Don, maybe you can talk about your vehicle.
DON ROSE: Well, to begin with, we didn't expect the vehicle to be perfect. Dad told me a long time ago never to accept the first one. David Schwartz was real nice to let me have the first one. (Unintelligible) The canopy didn't fit the hole. The rails were less than rigid. For a show car it didn't really matter, but for demonstration rides it needs to be a little more solid. On the right side of the canopy where it comes up to the windshield, there's a gap of about this much. Of course he spent the last eight hours with them. We kept calling Ron Royer to be sure the car was going to be ready and Ron assured us that it was. It was going to go to the paint shop Monday, dry on Tuesday, Wednesday they'd just have to stick the tape on it and we could pick it up. So at noon Wednesday when Arlon arrived, we stuck to our schedule and found out then the price had gone up and Stan and Ron were having some problems.
Arlon spent 8 hours with them. There was no canopy on it, no plexiglass on the canopy, there was no windshield when he got there, no plexiglass on the headlights or taillights. Everything had to be done and finished. He said that after 8 hours they were getting so sloppy that he decided he would rather take it on home and finish it there. So he loaded the car up and brought it home.
We worked until two the next morning in my shop (unintelligible)...nitpicky stuff. I have a list of twenty some things here. But the first time we drove it we realized it could take up the whole lane. The white car drove real well. Jim Bede said all you got to do is move the front wheel back an inch. It's amazing what an inch will do.
As far as performance, the car out-performs the white car. We checked the 0-60 in 9.2...that's no bull. The car will perform, it will hold the road, it will change lanes, it will do everything we say it will do. The bolts were all just tightened by hand.
(Most of the rest of Don Rose's 15 minutes or so were unintelligible on our tape recording.)
STAN: Thank you, Don.
John, perhaps you want to indicate what you encountered with your vehicle.
JOHN DONALDSON: (unintelligible)
RICHARD KLINE: ...(unintelligible) I found that everything was there, it just wasn't there right. It would probably take about a week of two people that really knew what they were doing to get it ready to present to the public. Vehicles that come out of any manufacturer do not have the problems that this vehicle has in regards to workmanship. If I had to give a conclusion about how I felt about this vehicle without driving it, but just looking at it, the way it's assembled, some of the mechanical/electrical/body work, I would say that it looked like a kit was given to someone that didn't really know what they were doing and were given a short period of time to assemble it and they just slopped it together because it wasn't going to be theirs but yet if you took about a week ... (indicated a report or booklet that he had put together showing pictures and giving comments on things that were not correct) ... so I'll let Frank talk about the car now.
FRANK MARCHESE: Basically, coming into the project and not knowing a whole bunch about the project, what I have to say doesn't amount to too much. I basically was overly impressed with the vehicle. My main concern was safety. So I went over the nuts and bolts, tightened everything up, spent an approximate week and got the car roadable. Other than that, as far as the factory, if you're not going to use the factory, it will not be a problem. The next time you choose somebody, or if you do choose somebody, maybe someone should represent it and some of the documentation so there won't be any mistakes.
There's nothing on the vehicle that can't be altered or fixed and made ready if everybody pulls together. I don't really perceive that many problems with the car. We're going to put the car on the road tomorrow so I'll know a little bit more.
As far as the oil lines, (unintelligible) no problem with heat. Outriggers, I think we've satisfied that... we have the small wheels which will be upgraded to the larger wheels. I'm totally impressed with the vehicle from the standpoint that I knew nothing about it up until approximately a week ago. I think you have to choose someone who can assemble these vehicles in the fashion that they deserve to be assembled.
If there are any questions I'll be available later. I'd like to get together with you others who have your vehicles so we can really isolate some of the major problems. I'm looking forward to driving the vehicle. We're working on the front end problem presently.
Wiring I think was the biggest problem. To get it ready for showing, I cosmetically went over it, added a few more speakers, worked out the canopy, took about 8 hours off and on. We just focused on the things that people would immediately look at a far as getting in, I put some interior incandescant lights in, so in the evening you can turn it on and it illuminates. It gives the car a very futuristic feel. We have a few safety lights here and there, turn signals and running lights just in case (unintelligible) .
On our show cars we spend hours and hours and hours and when we think it's perfect we take it to a show and the first thing they look for is the first nut and bolt or washer (unintelligible) I would have preferred to have gotten the vehicle gutted and assembled it myself. I probably could have saved quite a bit of time. So my first instinct was to totally take the car apart and try to make it better than the manufacturer did, which sometimes we do. But we wanted to get the car out to the public and start generating some interest, especially in the Atlantic City area where there are a lot of high rollers and get some sales. Sales bring money in. Anybody has any questions, I'd be more than glad to answer them.
STAN LEITNER: I think the interesting point that I'm getting from what they're saying is that, yes, there are problems, but they are not insurmountable; table and there is a positive overtone. In each instance they indicated that they're not disenchanted with the vehicle. But we have to solve these problems. If we don't, they'll solve us. And I'm a proponent of the theory that tough times don't last, but tough people do and this is a very tough meeting.
It's tough for me to stand up here and tell all of you something different from what I've told you in the past. It's tough for me to tell you that I don't feel that we're ready when I've told you heretofore that we were ready on numerous occasions. And always, for a variety of reasons, I was proven wrong.
I've been proven wrong again, but I'm tough enough to deal with that and I'm also beyond the point of apologies. I don't feel that an apology is in order. I think that when you really comprehend all that we have done, if you can do that, you'll understand that there was nothing that we could have done that went undone given the structure of the company, the limited funds and a lot of external influences. But we're not ready to go and we are ready to put some more pre-production vehicles out, not like the ones that were just described.
If Scranton can do pre-productions up to a standard, if the fit and finish is there, if they are safe, they're roadable, then we'll go with some pre-production vehicles. That gives us quicker market entry, it enables us to maintain some credibility.
There have been a lot of companies that have tried to do what we're going to do and they've failed. So we have to have some continuum. We can' stop, but we can't go forward on the wrong course either and if Scranton isn't the answer, and right now my feeling is that they may not be, then we'e got to come up with another answer. I've got to come up with another answer.
The Scranton people were invited to this meeting. Initially they weren't but at 11:00 o'clock Wednesday I called my arch rival, Ron Royer, and invited him to the meeting and told him that if he couldn't make it, I'd like Darrell Crummett, who is the guy who has the hands on control at the Carroll, Iowa facility (Scranton Manufacturing), but one or the other of them was requested to attend and I explained to him in general terms the nature of the meeting. They didn't elect to attend. Also, some of the people who have been most critical of Tomorrow Corporation and Stan Leitner and Jim Bede and the Litestar are not in attendance today who are in the distributor/dealer ranks.
I always like the frontal attack, whether I'm on the receiving end or whether I'm on the attacking end. Basically, what I wanted to do today was explain to you all the problems, but also point out to you what I feel are the good aspects.
There is a Yamaha out there, be it Yamaha per se, or another company that will do the production and do it to a standard. We can get either Yamaha or that company, but we've got to get from here to there first and in order to get from here to there we need some money.
The stock offering is going to take probably a couple of months. It will take 6 to 8 weeks before the SEC clears the prospectus and it may take some weeks beyond that for us to qualify in the states that we're going to sell in. Once that happens were going to sell $5,000,000 worth of stock. In the interim period we need some capital to sustain the company. This is what the whole meeting was about. To explain to you the problems, to tell you what I feel are the solutions and to make that division between the people who still feel comfortable enough with the project and me and with JIm Bede, with the others that are involved to stay committed to it or to say this is the end of the line, I've gone as far as I'm going to go...no more. And again, to those people, once we have the proceeds from the offering we'll offset whatever money they put into it and we'll part on a very amiable basis ... and to anyone that feels that way, I can certainly understand, support and respect your position.
But what I want at this point in time is something I've never asked for before...some tangible evidence of support. Now there have been a few people that I've gone to. I've mentioned David Schwartz, the various times that I went to him and asked for major consideration and he's always been there and I know that he's going to be on my side of the line at the end of the meeting today. Armin Jocz, Elsie, extremely supportive at over $100,000 in Tomorrow Corporation, not including the money that they put into their own situation. There are various others.
I went to a revival meeting a couple of months ago. It was somewhat awe inspiring. The evangelist had a camera crew there and apparently he was going to, at some point in time, put that particular sermon on TV. He had all of the people in his cadre in color coordinated uniforms: He looked like a New York banker with the Brooks Brothers pin striped suit, and he had on a very expensive watch and rings that were glaring more than the strobe lights. He started talking about his ministry and how expensive it was. He said that in this group, I need fifteen $500 contributors to continue my ministry. And then he said raise your hand if you're willing to contribute $500.
The guy was very good at what he did. Almost caused me to raise my hand but that's the problem with being a salesman, it's pretty easy to be sold. But I resisted the urge because I didn't really believe in a heartfelt way that he was legitimate and also I didn't have $500.
But he had a greater show of hands than requested. He then said, I feel moved to ask for x number of people at $200, more hands, and then he went down to the point where he was taking whatever the market would hear.
I'm making a similar plea. I basically understand that everybody here has put a lot into this. In some instances you've probably put more in than you could afford. In other cases perhaps you've been on the conservative side, but I have always had the ability, when I needed money for something that was important, to come up with it and I think these various indicators, sale of antiques, loan on the car, the various other things that I have done, prove that I was able to do the things that were necessary in that time of need.
I'm asking for some tangible evidence of your support and I'm willing to give you a part of that technicolor dream that you're entitled to. But that's your decision and you have to make it. I'm also going to give something back. I don't think that you can all see this chart but basically the program that I have in mind is one where I'd like the people in this room to make deposits on vehicles, 450 automatics, at $700 apiece.
Now what that does, the benefit to you, of course, is a place in the lineup. After everybody gets one vehicle then you get vehicles predicated on the time the order came in. In addition, I haven't talked to Jim Bede about this, haven't had the opportunity, but we've kind of developed a rapport whereby he commits to something I've always gone along with it and vice versa, so unless I hear a loud shriek, I'll assume that he's in compliance.
For every vehicle that you put a $700 deposit on, I'll give you 100 shares of shock and Jim Bede will give you 100 shares of stock. That's out of our stock! For deposits that aggregate over $10,000 you'll receive a 10% credit. The example: if you would put deposits on 15 units at $700 apiece, that would be a commitment of $10,500. Those 15 units at 200 shares each, assuming the price that it goes out at is $2.50 and if it goes up or down we'll determine the mathematical equivalent so that there's no dillution, 15 units, 200 shares each = 3,000 shares at the issue price of $2.50, that's equivalent to $7,500 plus the 10% credit of the $10,500 represents another $1,050, the value then would be $8,550 in terms of stock and credit.
Now, admittedly, that's futures that I'm talking about now. But those dollars may enable us to have the time that we need to either resolve the Scranton matter or eliminate Scranton and put somebody else in that position. And it will insure the success of the program. That's my preference. We've got several other programs here.
ELSIE JOCZ: Stan, I have a question. Is that new deposits or ones that we've already turned in?
STAN: New deposits. Effective right now.
ELSIE: How does that affect the deposits we have in, in respect to the lineup?
STAN: Anything that is in now would precede this. The next item is options. You can purchase the right of first refusal on another state. We've had the moratorium but the time has come to eliminate that. You can purchase the right of first refusal on another state for 5% of the total cost of the state. That option is exercisable or refundable after one year, option holders choice.
As you know, under the franchise arrangement the state distributorships are going for $8,000 per 100,000 in population. Before we imposed the moratorium we required 25% down; so assuming that we were looking at a state that would cost several hundred thousand dollars, the down stroke would represent $50,000. Now that state could be picked up for a $10,000 option and exercised or refunded at the end of a year, option holder's choice. That's #2.
Number 3, sell additional franchises. To all of those people who are out there waiting in the wings that are interested in franchises I can open the franchise situation back up to them and generate some monies in that regard. I haven't stayed current with that, I can't tell you what that will represent in terms of dollars. I'm sure that it's a significant way of getting some money ...or a way of getting significant money which is more important. The next would be to sell a portion of the company. There are people out there who are interested in buying the company. And the company again is just the asset, the Litestar. If we sell a portion of it at this time, we don't sell it for value. Until we have an operating statement or until we have x number of vehicles out there we're not going to realize out of that type of transaction the monies that I feel it's worth.
The fifth and last option that I feel is available to me and Jim would be to sell the company. If we sell the company, probably what will happen is that the dissident faction will initially be pretty enamored but what they're doing is trading off the problem they think they understand for a new problem that may have different parameters.
I have been very fair from my perspective with all of you. I have, when we've had delays and other problems, tried to come up with some type of an offset, even the contracts, and this is a tribute to the people in this room, the contracts that many of you have are out of date. As I said at Innsbrook, once we get into production, you'll get a new contract and it will commence at that time.
And I indicated that it wouldn’t be a one year contract, it would he a five year contract with a five year option. I don't know what will happen with regard to the future of this company when I'm no longer able to impact that future, if in fact that happens.
All of these points are in the order of preference from my point of view. I don't want to sell the company, I don't want to trade in my technicolor dream for the common black and white variety, but if that's requisite in order to keep it going, keep it viable, and to do with all of you what I'm obligated to do, then that's the answer.
So backing up, and going through them again very quickly, the deposit, the first order of preference, again places you in the lineup, gives you 200 shares of stock for each $700 deposit, 200 shares of stock at $2.50, a $500 value which, admittedly, is arbitrary until such time as it goes public, but whatever number of shares as are required to constitute that $500 you will receive...if the 200 has to become 400, so be it...deposits over $10,000 receive a 10% credit.
Number 2, the options... purchase right of first refusal for another state for 5% and exercisable after one year or refunded...your choice.
Number 3, sell additional franchises, number 4, sell part of the company, number 5, sell all of the company. I am not suhmitting any of this to you hat in hand. What I'm really saying is, what's your pleasure. If you're with the program, if you understand all of what has happened, if you know that we haven't solved all of the problems and you feel that we can solve them, if you're convinced that the future is what I have indicated it is, then I'd like a commitment.
It's a little bit de-classe to follow through with the program that the evangelist used, but at this point in time I don't want to stand on ceremony or protocal. I really want to know which of you are supportive. I also want to know, as I indicated before, which numbers among you don't want to stay with the program and would like us to work out some kind of contractual arrangement to get you out whole. Now as I said, I could always come up with something if the need was great enough.
To some in this august body a $700 deposit may be extremely significant in terms of what it represents to them...the hardship that it incurs, to somebody else like a David Schwartz, who I'm sure is going to go very heavy, 50 times $700 may not be significant. But if you say to me that you're going to come up with $700 it's just as important to me as what David Schwartz may say. So that the bottom line is that I want a show of hands of people that are willing to make the commitment to deposits and I want Nancy and Julie and Vonnie to get with those of you who raise your hands to find out how many you're willing to commit for.
DAVID SCHWARTZ: I've been with the program for about 2 years and I know that for the last year my family and I have (unintelligible) business has been bad because I've been working on the Litestar too much (unintelligible) if Stan should ask for the house, the house is his for the asking. (unintelligible) my parents have rented their million dollar condo, (unintelligible) I'm going to do whatever it takes to come up with money. I will commit to 25 vehicles. We're all in this together and I hear people every day who say, oh it will never get off the ground. If we don't put in as much as we can it never will get off the ground. So I myself will commit to 25 vehicles and in another month or so (unintelligible)
STAN: Thank you, David.
DON ROSE: Stan, two questions, (unintelligible) you know, the paint job on the steering wheel, all over everything, do you think if we worked out the problems with Scranton, do you think there would be a matter of pride there, you know, thats a very important thing, do you think that the attitude of Scranton, do you think that we can actually create more of a pride situation with Scranton, if they're this far down the road right now with a negative attitude? Do you think it's possible for them to come back . . I think it's important that it be there.
STAN: Well, if you're asking what I think...No, I don't think Scranton is the answer. The types of mistakes that we have witnessed over those vehicles I think indicates a lack of management. Management filters down from the top. Unless the guy out there that's supposed to tighten the nuts knows that there's somebody monitoring his work and supervising him and holding him to some standard of excellence, he's not going to do it.
Again, I think the management at Scranton is deficient. Accordingly, I have requested on numerous occcasions that they replace a certain individual and they haven't chosen to do so. I believe that the best that we can expect, the best that I expect, is to get sufficient pre-production units so that we can show people a general facsimile of what it is that we're going to sell, be it only 85% of that preferred level.
Now I know that we can sell that vehicle from brochures, I know that we can sell it from that old prototype, I know we can sell it from almost anything that we put out there and I'm not too opposed to selling somebody something when you don't have it up to the ultimate standards in terms of saying, all right, this is basically what it is. However, I'm opposed to delivering something that is sub-par.
This project can only work if we provide a quality product. I don't think that Scranton has the inclination or the commitment or the understanding of what that constitutes. So I'm really saying that what I want to do is get through this present period, get to a point where the company is able to have a stock offering and then use those proceeds to resolve our differences or seek an alternative manufacturer.
DON ROSE: How definite is the stock offering and how long is it going to take to get another factory into production?
STAN: Well, the understanding that I have with Scranton is such that I don't feel uncomfortable putting the stock offering together on the basis that we have a contract with Scranton. I'm making one gentleman in the room very nervous right now. Terry Lister, who is the attorney with a very prestigious law firm of Lashley, etc., etc., etc., but the fact is that we do have a contract, we haven't absolutely said that we're not going to go forward with them, there is some outside chance that something can be done if their management can understand the requirements, but I'm getting all types of feedback and one of the most upsetting things to me was when Arlon called after he got back to Texas with the vehicle. He said, I drove all night long and the thing that's most upsetting to me was not the things that were going wrong. He realized those could be remedied. But the thing that he couldn’t handle was Ron Royer telling him before he left that he didn't think we were going to sell near as many as Arlon told him he would sell.
Arlon asked how good could these people be if that's their attitude? Warren told me that Jim Bede called late yesterday when I was away from the office and Jim had found out from one of his supplier of rails, I believe, that they had asked for a quotation for 1,000 rails. We're telling them we need 20,000 units the first year. Royer wanted a quotation over a year for 1,000 rails. That's five hundred units.
So that's part of the problem and Carl called me and told me about an article in the paper in Des Moines last week and Royer is quoted as saying, "were going into it in a very slow way and we're not sure what the market is".
Well, that's unadulterated bullshit. He doesn't need to know what the market is because he couldn't sell Kleenex to somebody with a head cold. I know what the market is, you know what it is, our phones were jammed during the Texas show...people were calling saying, I waited 2 hours to see the vehicle and couldn't get to it, I couldn't even get close enough to really see it. Send us some information. He took a lot of orders with 20 and 30% deposits. He had hundreds of people who were interested.
John Donaldson had the prototype at the Miss America Pageant, PM Magazine was there to cover the Miss America Pageant and they decided they wanted to do a segment on the vehicle, spent a whole day filming it, came back with...John, correct me if I'm wrong, there were four people on the crew, the cameraman, a narrator, three of them bought vehicles.
Armin Jocz, Michigan dealer, sold a vehicle to a salesman who came in to sell a yellow pages listing. It's the type of thing that's explosive. Well, we can't have a big explosion with Scranton as the fuse. So we're going to get through that. The types of problems that we have are problems that have solutions. Right now we must sustain this company long enough to do what we have to do. I guess this remains my...well, I'm going to be here when it comes.
JIM TROUT: (Jim told about a meeting at the stock brokers on Friday)
STAN: Yes, we had a very interesting meeting with Harry Newhard who is the head of Newhard Cook, which is a very good brokerage firm and while he didn't commit to us, he indicated some interest. One of the problems that he forsees is that about 60% of their nationwide volume is out of the Missouri area and because of the nature of this offering we can't qualify under the Missouri law to sell the stock.
Terry Lister is going to give you a little bit of an overview ...but beyond that there is a firm that I don't know much about, I talked to the guy on the phone yesterday. I spent 40 minutes with him and he said that if I can support on paper what I told him on the phone he'll do the underwriting. I was going to sell the stock myself and the problems that you encounter with regard to the regulations and exposure are just phenomenal; so I finally decided not to do that.
We've had various brokers throughout the country who have indicated interest. There's been an avalanche of interest as a result of the Forbes article. The articles continue. If you go out to the newsstand in the hotel there are two current items, St. Louis Magazine just did an article and I understand the Globe which is a National Enquirer tabloid type publication has an article on the company.
In Texas over the last week there were 3 different TV channels which did segments, there's been a lot of that type of thing. Once the vehicles are out there's going to be much more. Presently a lot of media types are waiting in the wings. I've had Car and Driver, a couple of the heavy hitter trade publications, want to drive the vehicle and I refuse to let them drive it. I mean, why let them drive it and give us a bad report until we're at a point when we can benefit by it. Once we know that they're going to say the type of things that are supportive, regarding performance, economy and handling, we'll go for it.
John Donaldson, in addition to PM Magazine, is getting a lot of media attention. They're doing a movie in New Jersey that's going to commence shooting in the next couple of weeks and they want to use the vehicle in the movie. There was a movie in Chicago that was just completed, "Greasepaint" ... they used the vehicle. This is the type of thing that captures the imagination of the most mundane, ordinary people. There isn't anybody in this room that's mundane, you're all extraordinary; so your attitudes have to be much more accelerated.
STEVE HEIDE: No matter what happens with the Scranton people, how far are you going to let that go on the pre-production models or are you going to let them do all of them? The reason I want to know that is because it looks like in order to get our pre-production models at this point we have to come up with $11,200 or whatever and that will of course affect the amount of commitment we can make to this program.
STAN: Okay, that's the value judgement you have to make. I think that as far as the pre-production goes, by the time Tony spends some more time there and Armin, who is going up there tomorrow for 3 or 4 days, Jim Bede's going to be in there next week, by the time we resolve these basic problems then the vehicles are going to be fine as far as demonstrator purposes and show purposes. Unless something extremely dramatic changes, I don't think we can look beyond that period.
STEVE HEIDE: But you are going to let them finish the 17 vehicles?
STAN: I think we almost have to at this point because I don't want another stoppage and in terms of the stock offering, as far as I'm concerned, the position is that we have a contract with them and I'm going to tell them we want them to comply ... you see the quality thing the onus is on them. But what I'd like to do, instead of dealing with this after the fact, is have somebody up there and in this instance we're sending Tony up, and unless it meets his approval, you don't pick it up. I don't want another vehicle to go out of that place like that. So if that means that instead of getting a vehicle in the schedule by the middle of next week ... if it means waiting two more weeks and it's right, then that's what we're going to do.
FRANK MARCHESE: (Frank talked about ordering a vehicle without the windshield and some other things and letting the distributor finish it himself, to cut down on the time involved to redo it)
STAN: Well, we really can't do that, Frank, because not everybody has the expertise that you do. So when we send these things out they have to be quality ..... I'm not looking for 100% . . . I am looking for 100% but that's at some future time and it's conditional on them measuring up and getting the right people in there ....indicating that they're with the program or as an alternative . . . having some other firm take over. You can spend an awful lot of time trying to solve a problem when many times the best thing to do is just to go through it, around it, or over it.
JIM BEDE: Besides the fact of having Tony or even some of our other people up there as inspectors on site, what they re supposed to do now ... we're golng to start taking the attitude that if we want a better paint job we're going to have our own people go in there and say, here is the part that you're going to paint and here's how you clean it and then you put a primer on and check the can and make sure it says primer on it and let it dry, now here's the color paint, check the can to make sure it says red, but the red paint, etc., etc. we're going to get down to basics with these people.
STAN: We can do that with 15 some units. We can't do that with actual volume manufacturing. They'll have to do it right. There are people out there that will do that.
JIM TROUT: Get one of Bede's guys to be quality control guy.
STAN: That's the point that I was making. Tony will be up there and next to Jim Bede he knows as much about the vehicle as anyone. We'll need to have somebody there during this period. When we leave we leave for good. But we had people up there for a period of, how many weeks?
JIM BLADE: Six weeks solid, and of course Tony's been there months and months of the time, on and off, but we had six weeks with the entire crew there.
STAN: According to what I've been told, Ron Royer has been telling that the molds are being worked on. I talked to John McLaughlin Tuesday of last week and asked him the status of the molds . . . he said that they're being worked on. I had Jim Bede call J.B. Path to see if they were in fact being worked on and they said that Scranton had not made the second payment and that they had stoppcd working on them.
NANCY KASTER: I don't understand . . . if Scranton was so enthusiastic at one point ... is there a problem that they discovered or something that they happened upon, that made them lose their enthusiasm. I mean, why did they quit?
STAN: Well, I can't really answer that except I believe that it's a combination of their efforts to take over Tomorrow Corp. They know our financial status. I never indicated otherwise. I sat down initially and told them we needed someone to come in and assume that position . . . buying the inventory and paying for the molds, doing all the other things that the contract provides for. Later, after they saw the number of people that showed up at Innsbrook and they saw the degree of enthusiasm, they started looking at this a lot differently. I think the seed was then pretty well planted with regard to their future aspirations. So I believe the takeover is one consideration. If we got to a point where they thought there was no probability of that then maybe they'd revert to a situation where they would just satisfy themselves with just making x number of dollars per unit. But they're going to have to be convinced that that's the case. However, I'm convinced that Ron Royer and company think that we're against the ropes and that we're not going to recover. But I can assure everybody here that if we have to sell the company, we won't sell it to Scranton.
DON ROSE: If you break the contract with Scranton, can they tie this project up, legally?
STAN: They can file a suit, you can always file a suit. I don't believe they would. I have a tacit understanding with John McLaughlin who is, despite all that's transpired, in my opinion, a very moral, ethical and honorable man. He's just not making the decisions. He tentatively agreed to an overture that I made relative to buying them out. And that's what I would propose to do. I'm not looking for warfare, I simply want to solve the problems. I can say this in deference to Scranton. They may very well have an attitude different than the one I feel they have. There has been a lot of bad faith. The relationship has been extremely strained. They may feel that I'm the culprit. However, they had the opportunity to show up today. It seems inconceivable to me that, given the opportunity to appear here and answer some of these charges and state their own case, that they would not have come. This is a situation where, based on the first year's anticipated production, they would pre-tax about 5 million dollars. That's worth a Sunday afternoon. There are numerous aspects to the relationship. Alot of it I'm not going into. It's too encumbered and frankly it doesn't add to the situation. There are answers.
RICHARD KLINE: What are the units going to cost?
STAN: The units, based on their charges for the bill of materials alone is $5,800 ... just for the bill of materials, and this is the unit we were going to sell for $5,097. Our bill of materials is in the range of $3,200. Of course the $5,800 has some inordinate prices because of prototype pieces. But the $3,200 is not the best price. That doesn't entail second sourcing or big volume. So we can improve on that, we will reduce that.
On the pre-production models, when we go to pick them up, what's it going to cost us?
STEVE:Over the $5,000
STAN:That's right. All of those monies will come back to you but at the same time, if anybody here wants to say, on that basis, I don't want the unit, that's certainly understandable.
CLARENCE GREENWOOD: You know, Scranton can build a good product, they have a nice trailer. (Note: Mr. Greenwood is the only person ever killed in a Litestar accident.)
ED BALKAN: I've known Stan for years and I've benefited both personally and financially, I'll commit to 25 units.
STAN:All right, what I'd like to do is get back to where we were and have that show of hands indicating your commitment for one unit up to whatever, based on the first deposit option.
ARMIN JOCZ: Could your lawyer address himself to when the stock offerinq will take place?
STAN: Yes, but if he disputes what I've said, then I just get another lawyer.....
Basically, what I'd like to do at this point is have everybody who intends to do something relative to the deposit indicate by raising their hands.
Nancy and Julie and Vonnie make note of these people so you can talk with them after the meeting. (All hands were ralsed)
JOHN DONALDSON: Stan, as a ball park figure, no matter what happens, which way you go, what's an estimate of production costs regardless of when it is.
STAN: I wish I could fill in the blanks but there are too many x factors. We're going to do it and we're going to do it as quickly as we can but for me to tell you something now is just.....That's the other part of the problem. If Scranton's producing these vehicles and they're up to a standard, I'd still have some great concern about how proficient they could be, how cost effective and how many they would turn out.
It might be easier, if the ones that don't want to commit would raise their hands. (Laughter)
There isn't anybody in this room who can afford to continue to wait. We're better off to solve the problems on a realistic basis so that the overall solution is imminent. Everyone here has to sell vehicles and generate money in order to sustain their operation. Many of you have overheads, facilities that you've rented, you've got people on your payroll and ongoing costs. If it weren't for that fact, if we could take a lower profile, if I could go back to the porch I would consider it. But it's just not viable.
JOHN STRATMAN: Are we collectively deciding which route to take as far as generating monies to operate right now?
STAN: I think that the decision you make is the one that gives me the basis for the decision I must make. If I look at these numbers that Nancy and Vonnie and Julie put together and see that the aggregate deposits are in the range of $10,000, $15,000 then I know that this approach has gone by the boards ... this is not my answer.
My preferred answer is not in actuality the answer. Then I have to think about the next one which is the options. It may very well be that somebody would be more comfortable with the option arrangement rather than deposits and again if anyone is interested in this, indicate by raising your hands.
Okay, the third one, sell additional franchises. That doesn't relate to anyone who is currently in the program. The people who are currently in the program, I am going to give the 5% franchise option deal.
Okay, some of you have flights that you have to catch. I'm going to be available all the rest of the evening for any of you who want private sessions. Also, tomorrow if anyone wants to stay over you can come out to the offices and meet with me or with Jim. Jim gave you some information on the engineering earlier, if there are some of you who have questions I think it would be appropriate at this time to ask them.
Terry Lister has sat here very patiently all day. He is our attorney and he can answer your questions relative do the stock offering and give you an overview in that regard.
TERRY LISTER: Any questions?
ARMIN JOCZ: When can you say that it will be submitted to the SEC, it has been delayed and delayed and every time it's come back with questions.
TERRY LISTER: Basically, I want to give you just a little bit of background for what we're trying to do. We have to prepare a document with the regulatory authorities that will review the document and allow us to sell the stock. That means that the SEC on the federal level and then the various states that Stan and his sales force decide to sell the securities in. That document is called a prospectus. Basically a company works with us and we work with them and we try to write the document that we think will go through the review process as easily as possible.
We now have a document in what I call a semi-final form. The document, in my opinion, is about as finished as can be. We have a lot of blanks that have to be filled in. These blanks have a consistent number of computations that have to be made based on the decision that Stan makes as far as how much he's going to sell the stock for, how much stock he's going to sell and some other factors that he has to take care of. Once that is done it's just a matter of plugging the holes in which should take no more than a few days and I think that if we were to work at this very diligently, he could make the decisions, we could plug the holes and be ready to file the thing in almost the immediate future.
ARMIN: But you’re confident that, that document with those holes plugged will go through the SEC and these others?
TERRY LISTER: I think it will eventually go through the review process at the SEC level and depending on what states he file in, some states don't have any review process, some have minimal review and others have very strict reviews and I think basically . . . the other factor that you have to consider is that if Stan's going to sell this through a broker/dealer. Through a securities brokerage firm. I used to be general counsel for a securities brokerage firm, so I sort of know how they operate from their end and I think that if he arranges for someone to sell this before they do it, because they're undertaking some liability themselves, they're going to want their attorneys to sit down and look at the document as standard procedure. That will not be a lengthy process because normally an issuer does not come with his document already prepared like Stan's is. Usually they come with a business plan and say we want you to sell our company and the underwriter says, okay, let's sit down and prepare a prospectus together. But we have a document that I feel comfortable with and I think that if they look at it in the review process at their end, it should not be very lengthy.
ARMIN JOCZ: Then you think it will be available to sell?
TERRY LISTER: I can't comment on that
because I don't know if we have anyone arranged to sell it yet. We
won't know exactly until we arrange for someone to sell it. The SEC
review process takes, with a developmental stage company like this,
maybe four weeks, six weeks, it may not take that long. They may go
through it in a week, but that's the time they allow themselves to
look at the document. It also depends on the volume of documents being
filed. Any other questions?
(For the final hour Jim Bede fielded questions)
This concludes the Meeting agenda.
According to Doug Walsh, he recalls Stan Leitner as "a real character that reminded me of cross between a Colonel Sanders and a Texas billionaire. He was a large person with a resonant voice and he wore white suits, smoked big cigars and drove a white cadillac convertible with bull horns for a hood ornament."
Dealer Meeting #3....Owosso, MI....February 1985
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