HydroPhi Technologies Group, Inc.

Beginning subsequent to 2015, we also provide surface transportation (including long-haul freight transportation), delivery and logistics services that can be retrofitted with our HydroPlant™ technology system to a diverse group of customers and consumers throughout the continental United States. Our operation is based in Oak Brook, Illinois. These service offerings include transportation of full-truckload containerized freight, which we directly transport utilizing owner-operated vehicles, third party contracted vehicles or our company-controlled revenue equipment with independent contractor drivers.  We do not currently have standing arrangements with the major North American rail carriers to transport freight in containers or trailers.  We also have the capability to provide customized freight movement, revenue equipment, labor, systems and delivery services tailored to meet individual customers’ requirements, particularly to service long-term contracts.  We do not typically utilize third-party carriers or provide stand-alone transportation and logistics services.  In addition to full-load, dry-van operations, we may rely on unrelated outside carriers to provide flatbed, refrigerated, less-than-truckload and other specialized equipment, drivers, and services.

We also are subject to potential increases in various costs and other events that are outside of our control that could materially reduce our profitability if we are unable to increase our rates sufficiently. Such cost increases include, but are not limited to, fuel and energy prices, taxes and interest rates, tolls, license and registration fees, insurance premiums, revenue equipment and related maintenance costs, and healthcare and other benefits for our employees. We could be affected by strikes or other work stoppages at our service centers or at customer, port, border, or other shipping locations. Changing impacts of regulatory measures could impair our operating efficiency and productivity, decrease our revenues and profitability, and result in higher operating costs. In addition, declines in the resale value of revenue equipment can also affect our profitability and cash flows. From time to time, various federal, state, or local taxes may also increase, including taxes on fuels. We cannot predict whether, or in what form, any such cost increase or event could occur. In addition, we cannot predict future economic conditions, fuel price fluctuations, or how consumer confidence could be affected by actual or threatened armed conflicts or terrorist attacks, government efforts to combat terrorism, military action against a foreign state or group located in a foreign state, or heightened security requirements. Enhanced security measures could impair our operating efficiency and productivity and result in higher operating costs. The occurrence of any of the foregoing factors, events or circumstances could have a material adverse effect on our business, operating results and financial condition.

Fuel costs can be very volatile. We have a fuel surcharge revenue program in place with the majority of our customers, which has historically enabled us to recover the majority of higher fuel costs. Most of these programs automatically adjust weekly depending on the cost of fuel. However, there can be timing differences between a change in our fuel cost and the timing of the fuel surcharges billed to our customers. In addition, we incur additional costs when fuel price increases cannot be fully recovered due to our engines being idled during cold or warm weather and empty or out-of-route miles that cannot be billed to customers. Rapid increases in fuel costs or shortages of fuel could have a material adverse effect on our operations or future profitability. As of December 31, 2015, we had no derivative financial instruments to reduce our exposure to fuel-price fluctuations.

Insurance and claims expenses could significantly reduce our earnings.

Mr. Israeli is an entrepreneur bringing to the Company an expertise in management, logistics, retail commerce and sales. Mr. Israeli founded a successful distribution company that served the sovereign territory of Israel in its entirety. Following his tenure as an active duty Special Operatives officer in the Israeli military, he completed studies in economics and international business before immigrating to the United States. In 1999, he began his career in the gemstone industry, focusing on wholesale diamond sales. In 2002, he founded his own company with a focus on diamond manufacturing and wholesale sales of loose diamonds and jewelry, which rapidly became one of the largest diamond companies specializing in fancy color and fancy cut diamonds, with offices in New York, Los Angeles, Florida and Ohio. Meanwhile, he also aggressively invested in the turnaround of distressed restaurant enterprises. In 2013, Mr. Israeli began investing in the transportation industry through the purchase of long-haul freight trucks. Mr. Israeli was appointed the Chief Operating Officer of the Company on April 29, 2016.

Effective March 1, 2016 the Company acquired all of the outstanding capital stock of each of Pro Star Freight Systems Inc. (“PSF”) and Pro Star Truck Center Inc. (“PTC”) (collectively, “Pro Star”), pursuant to the Stock Purchase Agreement, dated as of November 23, 2015, by and among the Company, Pro Star and Prostar Holdings Trust.  The purchase price for Pro Star consists of (i) up to an aggregate of $1,512,500 in cash, payable in installments as set forth in the Purchase Agreement (“Closing Cash”), (ii) a promissory note in the principal amount of $2,500,000, which is convertible into 4.9% of the issued and outstanding capital stock of the Company on a fully-diluted basis (the “Note”), (iii) Series A preferred stock of the Company, which will be convertible into 80% of the issued and outstanding capital stock of the Company on a fully-diluted basis (the “Preferred Stock”) valued as of March 1, 2016 (the date of closing) at $4,209,862 and (iv) a form of warrant that will be exercisable for a number of shares of common stock of the Company necessary to ensure that the Note and Preferred Stock collectively result in the issuance of 84.9% of the issued and outstanding capital stock of the Company on a fully-diluted basis (the “Goldenshare”).  Following the eighteen month anniversary of the issuance of the Preferred Stock, holders of Preferred Stock shall be entitled to dividends at the rate of 5% per annum, payable quarterly.  Holders of Preferred Stock shall vote together as a single class with holders of common stock of the Company.

PSF was formed on March 16, 2012. PSF is a long haul freight transportation company based in Illinois located near Chicago’s O’Hare Airport serving customers in the United States.