Smith Electric - The Next Solyndra

NEW YORK ( TheStreet -- Smith Electric Vehicles has backed itself into a corner and is hoping the IPO market will help it navigate its way out. The problem is that Smith could be the next Solyndra.

The Kansas City, Mo.-based company is a maker of commercial electric trucks and has never turned a profit. It is trying to raise $77 million and if Smith doesn't do this offering, it will not be able to operate after the third quarter of 2012, essentially running out of gas.

Revenues and orders are up, but since it costs so much to produce the vehicles, the price per truck is high. Smith has received millions from the Department of Energy, originally used for research, but the DOE has since changed that and insisted the money be used for customer incentives. The DOE is sensitive to helping pay for company development after guaranteeing over $500 million loans to solar panel maker Solyndra, which promptly went bankrupt.

The customers in the U.S. receive generous incentives to buy the trucks, anywhere between $55,000 and $94,000. Smith has $10.3 million in funding remaining in this program, but has applied for more. Considering the fate of Solyndra, it's hard to imagine the federal government sending more money to this company especially with the fiscal cliff looming. The absence of grants could send the company into a tailspin.

It also doesn't help that the DOE audit of Smith in 2010 found "significant deficiencies" in their accounting. Smith managed to address the weaknesses and convince the DOE to resume payments in February of 2012. However, if a future audit finds more "accounting weaknesses," the payments may stop.

Smith's problems started when it put the brakes on production in the fourth quarter of 2011 while shifting to new technology. In order to survive the switch, the company issued $30 million in convertibles that turned into preferred stock in November 2011. Then the company sold private placement shares to the tune of $15 million in early 2012. After that they borrowed $11.5 million from the $16.5 million in bridge notes they had entered into. So now they are up to their hub caps in debt and need this IPO bad.

On top of that, Smith has never achieved positive cash flow and even after the offering, may need additional financing.

Another consideration is that the company is dependent on a limited number of customers such as Frito-Lay, FedEx ( FDX) and Fresh Direct.

Unfortunately for these customers, if something goes wrong with the truck, a technician has to be sent from the home office in Kansas City. Imagine if you are considering buying a fleet of these trucks and your repairman is two plane trips away? Smith signed a lease for a new facility in New York in August, but has no plans for any other facilities at this time.

The competition is fierce, bigger and more capitalized. Ford ( F)., Isuzu and Volvo all have competing electric trucks. Ford is also a supplier to Smith, providing the transit vehicles on which the platform is based.

SmithEurope and some of its previous entities have existed since 1920; however the company's senior management team has only been there since this past June. Smith defining itself as an "emerging growth" company under the JOBs Act (Jumpstart Our Businesses). That means the company will be exempt from Sarbanes-Oxley and can delay adopting certain accounting rules.

Considering the DOE already had issues with Smith's accounting, investors have to be concerned about this. The company itself seems to be feeling the heat. Earlier this month, Smith reportedly lowered its expectations for the IPO. It's now said to be seeking just $76 million, down from an original goal of $125 million when it first filed to go public in November 2011.

The company, whose stock is expected to trade on the Nasdaq under the symbol "SMTH," is said to be looking to sell 4.22 million shares at $16-$18 each. In the related amended S-1 filing, Smith also disclosed it had only produced 79 vehicles through June 30 and said it now anticipates total production of 380 vehicles in 2012, down from its original goal.

What's more, it's aiming to produce 60% of those vehicles in the fourth quarter. That's what they call a tall order, and investors may want to wait and see if they can pull it off before ponying up.

--Written by Debra Borchardt in New York.

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