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When I was a young newspaper reporter, I worked with a very experienced editor of the business section who also had a wry sense of humor. I remember him saying only half jokingly that if anyone ever actually read a stock prospectus, they'd never invest in any company.
That's because the prospectus has to list everything that can possibly go wrong so investors can't say they weren't warned. But even without reading the prospectus, it's easy to think of some reasons for caution with Damon Motorcycles, which began trading on the NASDAQ exchange this week.
Instead of an initial public offering of stock, Damon completed a "business combination agreement" with Grafiti Holding, Inc., a U.K.-based company, and then the new entity renamed itself Damon Inc.
The prospectus gives us some new pieces of information about Damon, and naturally it lays out dozens of warnings about all the ways things could go sideways and you, as an investor, could lose your money. But beyond the usual warnings, such as economic downturns, changing consumer tastes, problems with advanced technology, lawsuits, warranty claims, etc., here are five items specific to Damon from the Securities and Exchange Commision documents that might give an investor pause.
- Damon was formed in 2017 and made some splashy presentations of its promised technology, including its claims of 200 horsepower, 200 mph top speed, and 200 miles of range on a single charge (still seen in the newly released video above), which are benchmarks nobody else in the industry has achieved (see note below). But it has yet to produce and deliver a single motorcycle to a customer and the company now estimates production won't begin until 2026.
- A press release announcing the beginning of trading on the NASDAQ stated that Damon has more than $100 million (U.S. currency) in reservations. More specifically, as stated in the SEC documents, as of the end of June this year, fully refundable deposits had been made for 3,323 motorcycles. Since those deposits can be canceled without penalty, the $100 million figure only adds up if all of those deposits result in a sale some day. Some buyers, who have been waiting for years, have already gotten refunds. As the documents note, "the number of reservations has significant limitations as a measure of demand for Damon’s products."
- If you've been following the Damon story, you may remember that the company previously was planning a factory in British Columbia, Canada. Currently, while the company is still headquartered in western Canada, it is leasing space in San Rafael, California, and plans to build motorcycles there, once it eventually begins production. One of the uses of the money raised by the stock offering is to pay a settlement with the management company of the facility in British Columbia which said Damon owed it $4.3 million (Canadian currency) for breaching the lease for the factory. The two sides reached a settlement last summer and Damon agreed to pay that settlement in three installments after the business combination with Grafiti was completed and the new stock was issued.
- Damon may be a publicly traded company now, but it is still largely founder Jay Giraud's company. His shares are called "Multiple Voting Shares" and have seven votes per share while the rest are "Subordinate Voting Shares" and have one vote per share. So while Giraud owns a single-digit percentage of the outstanding shares on a diluted basis, he personally has 30% of the voting power when it comes to setting corporate policy. He's also due a salary of $350,000 (U.S. currency), a bonus of between $195,000 and $450,000, and an additional $1 million "listing bonus" if he sticks around for a year and 10 days.
- Damon has already lost more than $140 million and since it won't be producing and selling motorcycles until 2026, by its own estimate, this is not likely to be the last time Damon issues equity or borrows money. So if you buy shares today, expect them to be diluted by further issuances. How's the stock holding up so far? In its press release announcing the completion of the business combination with Grafiti, Damon estimated the share price would be about $12 (U.S.). When trading opened this week, shares opened around $4, quickly hit a high of $4.95, and have been sliding since. Shares closed yesterday at $1.50.
Damon has raised a lot of interest with its promises of unmatched performance (in terms of range and speed) and features such as its collision detection system and its adjustable ergonomics. It has also raised a lot of skepticism, not just from delays in beginning to produce any motorcycles but also in other questionable moves, such as that time a Damon promotional video featured a Ducati.
Damon says it wants to transform not just the electric motorcycle segment, but motorcycling in general. If it can deliver on its 200/200/200 promises, it will at least have pushed the performance envelope further than anyone else. I have serious doubts that those goals are attainable. For now, Damon has a lot to prove.
Editor's note: Lightning Motorcycles CEO Richard Hatfield disputes the comment above that nobody has achieved the 200/200/200 claim Damon is making. He says the Lightning LS-218 with the optional larger battery pack produces more than 200 horsepower, has a top speed above 200 mph, and can go more than 200 miles at a sustained 60 mph on a charge. He's offered us the opportunity to test an LS-218 so we can see if my doubts are wrong.
An earlier version of this article stated, in the third bullet point above, that Damon was sued over the breach of the lease for the factory in Canada. Damon CEO Jay Giraud says the two parties settled the issue without any actions being filed in court. The word "lawsuit" was removed from the article and the wording was adjusted to reflect the nature of the settlement.
