<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] for the transition period from
to
Commission file number 0-17303
VECTOR AEROMOTIVE CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 33-0254334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7601 CENTURION PARKWAY
JACKSONVILLE, FLORIDA 32256
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code (904) 645-0505
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, $.01 PAR VALUE PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of March 19, 1996, 53,083,191 shares of the issuer's Common Stock were
outstanding and the aggregate market value of the 10,737,301 shares held by
non-affiliates was $7,301,365. The market value of the shares was calculated
based on the closing bid price of such shares on the NASDAQ SmallCap Market on
such date.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's Proxy Statement in connection with the Annual
Meeting of Shareholders tentatively scheduled to be held in May 1996 are
incorporated by reference into Part III hereof, as more specifically described
herein.
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PART I
ITEM 1. BUSINESS.
GENERAL
Vector Aeromotive Corporation (the "Company") is a Nevada corporation
formed in 1987 that designs, manufactures and markets exotic sports cars.
During fiscal years 1992 and 1993, the Company developed design concept
specifications for the Vector M12 (formerly known as the Avtech). Since 1994,
the Company has been engaged in design, development, marketing and manufacturing
of the M12, a two-passenger, mid-engine, rear-wheel drive coupe with a suggested
retail price of $184,000. All development, testing and pre-production
activities were completed in 1995. The M12 premiered at the North American Auto
Show in Detroit in January 1996. The first M12 was completed and sold in March
1996. The Company anticipates that it will produce at a rate of up to 12 cars
per month by the end of 1996.
The Company purchased the assets of its predecessor in 1987 and from 1987
to early 1993 designed and produced a total of 22 of its first production
model, the Vector W8. Production of the Vector W8 was ceased in early 1993.
CHANGE OF CONTROL AND FINANCING TRANSACTIONS
In a series of transactions from July 1992 through January 1996, Setdco
Engineering Corporation ("Setdco") and V'Power Corporation ("V'Power") acquired
9% and 70%, respectively, of the Company's outstanding shares of Common Stock.
V'Power also has the right to acquire an additional 106,000,000 shares of
Common Stock pursuant to presently exercisable options. Exercise of these
options would give V'Power ownership of approximately 90% of the Company's
outstanding shares of Common Stock. V'Power is controlled by Mr. Hutomo
Mandala Putra, who is also the controlling stockholder of Automobili
Lamborghini, S.p.A. ("Lamborghini"), the manufacturer of the Italian exotic
sports car, and 50% shareholder of Automobili Lamborghini U.S.A., Inc.
("Lamborghini U.S.A."), the American importer and distributor of Lamborghini
products.
In March 1993, the Company terminated the employment of Gerald A. Wiegert,
who was the Company's founder, and Mr. Wiegert was removed from his positions
as President and Chief Executive Officer of the Company. Litigation between
the Company and Mr. Wiegert was initiated in 1993, and significant claims and
counterclaims are currently pending in this litigation. The Company has
dedicated significant resources and management time to this ongoing litigation.
See "Item 3. Legal Proceedings."
V'Power has provided funds to the Company in the past through the purchase
of additional shares of Common Stock and options to purchase Common Stock. In
April 1994, for an aggregate of $2,250,000, V'Power acquired 3,000,000 shares
of Common Stock and an option expiring April 1996 to purchase an additional
6,000,000 shares of Common Stock with a $.75 per share exercise price. In
January and April 1995, for an aggregate of $6,000,000, V'Power acquired
18,333,333 shares of Common Stock and an option to purchase an additional
50,000,000 shares of Common Stock with a $.43 per share exercise price. This
option expires in April 1996. In January 1996, for an aggregate of $5,000,000,
V'Power acquired 10,000,000 newly-issued shares of Common Stock and an option
expiring
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January 1997 to acquire an additional 50,000,000 shares of Common Stock with a
$.45 per share exercise price.
The Company received investment bankers' fairness opinions with respect to
the 1995 and the 1996 transactions, and the Company believes that these
transactions with V'Power were fair to and in the best interests of the
Company. There can be no assurance that V'Power will provide additional funds
to the Company, either through purchase of additional equity securities from
the Company or exercise of the existing options.
In February 1996, a registration statement filed by the Company with the
Securities and Exchange Commission became effective. In addition to
registering the shares of the Company's Common Stock issuable upon exercise of
the Company's outstanding publicly traded warrants, this registration statement
registered for resale in the market or public or private transactions all
6,000,000 shares of the Company's Common Stock held by Setdco and 10,000,000 of
the shares of the Company's Common Stock held by V'Power.
RELATIONSHIP WITH LAMBORGHINI
The Company has identified and established mutually beneficial
relationships with Lamborghini and Lamborghini U.S.A. To date, these
arrangements include joint development, and manufacture by Lamborghini of the
engine for the Vector M12 and the sub-lease of a facility in Jacksonville,
Florida, by the Company from Lamborghini U.S.A. for the Company's executive
offices. Potential conflicts of interest exist between the Company and
Lamborghini and Lamborghini U.S.A. with respect to competition for dealers and
customers.
Michael J. Kimberley, a director of the Company, serves as managing
director of Lamborghini. In addition, Sudjaswin E.L., a director of the
Company, is a managing director of Lamborghini.
THE EXOTIC SPORTS CAR MARKET
The exotic sports car market consists of automobiles with suggested retail
prices ranging from $110,000 to $1,000,000 and that are capable of sustained
speeds in excess of 160 miles per hour. In addition to differentiation from
other sports cars by price and speed, exotic sports cars are distinguished by
appearance, driving performance, technologically superior, high performance
components and hand manufacturing. To the Company's knowledge, there are no
other United States-based manufacturers of exotic sports cars, although Ford
Motor Company owns Aston-Martin.
Management estimates that the worldwide market for exotic sports cars is
approximately 3,500 cars per year and that the United States market is 900 per
year. The largest competitor in the United States and world markets is
Ferrari, which the Company estimates sold 3,000 cars worldwide and 700 in the
United States in 1995. Other competitors include Aston-Martin and Lamborghini.
See "Competition."
North American sales of exotic sports cars are concentrated in large
metropolitan areas. In particular, urban areas of New York, Florida, Texas,
California and Illinois account for a large percentage of all sports car sales,
including exotic sports cars. The Company also believes that significant
markets exist in Western Europe, Southeast Asia and South America.
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THE VECTOR M12
Preliminary development work on the Vector M12 began in mid-1994. The
Company's development and engineering efforts since that time have focused on
the M12, and production commenced in late 1995. The M12 features new body
styling and more competitive pricing than its predecessor, the Vector W8. The
M12 nevertheless continues to reflect the Company's commitment to producing
exotic sports cars with design, engineering and performance characteristics
which are equal or superior to other cars in the M12 class.
The M12 is a two-passenger, mid-engine, rear wheel drive coupe fitted with
driver and passenger side airbags. The M12 features an all new Vector engine
jointly developed by Lamborghini and the Company and manufactured by
Lamborghini. The aluminum alloy, V-12 four valve engine generates a maximum of
492 horsepower at 6,800 revolutions per minute and maximum torque of 425 pounds
feet at 5,200 revolutions per minute. The M12 uses a 5-speed, manual
transaxle.
Chassis construction utilizes a semi-monocoque structure with a
chrome-moly steel roll cage, while body construction is of one-piece glass and
carbon fiber/epoxy composite. Front suspension consists of independent,
unequal length A-arms, concentric coil springs and shock absorbers and
anti-dive characteristics. Rear suspension is also by unequal length A-arms
using concentric coil springs with adjustable shock absorbers and anti-squat
characteristics.
The M12 employs a hydraulic braking system with vacuum power assistance,
twin cylinder calipers and ventilated discs in both front and rear. Steering
is rack and pinion with power assistance. The ignition system uses a computer
engine management system complete with function warning devices. The emission
control system utilizes multi-point fuel injection, plus catalytic converters
with lambda sensors. The cooling system uses pressurized twin aluminum
radiators with automatic electric fan for cooling assistance.
Dimensions of the M12 include a 108-inch wheelbase; front track of 62.625
inches and rear track of 64.10 inches; overall length, width and height of 186
inches, 79.90 inches and 43 inches, respectively; ground clearance is 5 inches;
and curb weight approximately 3,500 pounds.
The M12 is capable of a maximum speed in excess of 190 miles per hour and
acceleration from 0 to 60 miles per hour in less than 4.5 seconds.
MANUFACTURING AND ASSEMBLY
The Company manufactures the chassis and all body parts of the Vector M12
at its 22,500 square foot manufacturing, assembly and warehouse facility in
Green Cove Springs, Florida. The Company currently employs 70 manufacturing
and assembly workers at this facility. The Company anticipates that no
significant increase in the existing levels of staffing will be required for
attaining the desired 1996 production levels.
The Vector M12 was placed into production in October 1995, with the first
production vehicles completed in March 1996. The Company anticipates that it
will produce at a rate of up to 12 cars per month by the end of 1996.
The Company contracts with third parties for the manufacture of certain
major components and subsystems. For example, the Vector engine was
co-designed and is produced by Lamborghini, the M12 gearbox is produced by RBT
Transmission Inc., and the steering rack is produced by Adwest
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Engineering, Ltd. In addition, the Company purchases a variety of other
components, subsystems and equipment from a number of other suppliers.
The use of Lamborghini and others as suppliers of the Vector engine and
other components and subsystems allows the Company to limit its investment in
production assets . This practice, however, also subjects the Company to risks
associated with delivery schedules and quality control. For example, the
Company's ability to obtain timely delivery of components meeting the Company's
specifications could materially delay the Company's ability to produce and
deliver automobiles. The duration of any such delay and the resulting negative
impact on the Company's operations would increase significantly if alternative
suppliers are not readily available. The Company currently believes that
Lamborghini will be capable of supplying engines and that there will be
alternative sources for other components and subsystems. There can be no
assurance, however, that the delays and quality control problems described
above will not be experienced from time to time.
MARKETING
The Vector M12 will be sold at retail by dealers that have entered into
sales and service agreements with the Company and that will purchase automobiles
and parts from the Company for sale to retail customers. The Company will rely
heavily on the development of a dealer network in marketing the Vector M12, and
the strength and quality of the dealer network will have an important impact on
future sales. As of March 15, 1996, the Company had three active dealers
located in Fort Lauderdale, Florida, Gilroy, California, and Portland, Oregon.
As the Company's production levels increase, the Company intends to activate an
additional 12 dealers in North American and international markets.
The Company anticipates that it will be able to enter into arrangements
with a sufficient number of quality dealers to implement an effective dealer
network. See "Competition."
Under the Company's dealer arrangements, each dealer is required to
purchase and carry two Vector M12's in inventory. The Company has no present
plans to offer financing to dealers.
The Company intends to market the Vector M12 through publicity in
automotive and lifestyle magazines.
The Vector M12 made its debut at the North American Auto Show in Detroit
January 1996. The M12 has also been presented at IMSA's 24 Hours of Daytona.
The M12 will continue to be publicized through appearances at auto and other
shows and other events. Auto shows will be selected based on a number of
criteria, including the exposure and reputation of each show, the cost of
participation, the desire to support authorized Vector dealers based in the
geographic market in which the show is located, and scheduling considerations.
Among the industry's key auto shows in addition to the North American Auto Show
are the Greater Los Angeles Auto Show, the New York Auto Show, and
international auto shows in Frankfurt, Germany and Tokyo, Japan. The Company
is likely to participate in one to three auto shows per year based on the
criteria above.
BACKLOG
As a result of the requirement that each of the Company's three active
dealers carry two Vector M12's in inventory, the Company at March 15, 1996
had an $813,000 backlog of unfilled purchase orders.
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PRODUCT DEVELOPMENT
The Company has expended to date since initial design work began in
mid-1991 an aggregate of $8.2 million on research and development of the Vector
M12, none of which was customer-sponsored. Research and development expense
totaled $4,822,000, $260,000, $1,180,000 and $723,000 for the year ended
December 31, 1995, three month's ended December 31, 1994 and fiscal years ended
September 30, 1994 and 1993, respectively. The Company anticipates spending
significantly less than 1995 amounts in 1996 for research and development,
focusing on designing and producing a light weight version of the M12 to be used
for racing and for sale to private individuals for racing or road use. Plans for
other production vehicles for future years are currently being formulated.
COMPETITION
The exotic sports car market is highly competitive. The largest volume
competitor in the United States and world markets is Ferrari. Other
competitors include Aston-Martin and Lamborghini. The Company may also be
subject to competition from other firms desiring to enter the exotic sports car
market, such as Porsche, Maserati or other sports car manufacturers. Many of
the Company's competitors have longer operating histories, greater name
recognition and more extensive and well-established dealer networks than the
Company, and certain competitors have greater financial, marketing and
technical resources than the Company. Competition at the retail level is
based upon, among other things, price, performance, styling, reliability,
number and quality of dealers, availability of financing, warranty coverage,
and availability of parts and repair. Competition also exists among exotic
sports car manufacturers for dealers. Competition for dealers is based upon,
among other things, product desirability, price and, to a lesser degree,
financing. Although the Company hopes that its products will gain market
acceptance and believes that it will be able to develop an effective dealer
network, given the Company's limited operating history, there can be no
assurance that the Company will be able to compete effectively for either
dealers or retail customers.
REGULATION
The manufacture and assembly of exotic sports cars such as the Vector M12
are subject to a variety of federal and state regulations concerning emission
controls, safety, fuel economy, noise control and crash worthiness. For
example, all vehicles sold in the United States are subject to Environmental
Protection Agency ("EPA") regulations and Federal Motor Vehicle Safety
Standards ("FMVSS") which are administered by the National Highway Traffic
Safety Administration ("NHTSA"). In addition, any vehicle sold in the State of
California is subject to more stringent regulation developed by the California
Air Resources Board ("CARB"). Other states may adopt vehicle emission
standards identical to those adopted by the State of California. The States of
New York, Massachusetts, Connecticut, Maine, and New Jersey have also adopted
California standards and several other states are considering similar action.
The Company has successfully completed all of the major safety tests required
by the EPA, FMVSS and CARB.
Vehicle Emissions Standards
Under the federal Clean Air Act, auto manufacturers are required, among
other things, to significantly reduce tailpipe emissions of polluting gases
from automobiles and light trucks and are obligated to recall vehicles for
failure to meet emission standards for a period of eight years or 80,000 miles,
whichever occurs first. This Act imposes standards for model years through
2003 that require further significant reductions in motor vehicle emissions.
The Clean Air Act also requires full implementation of on-board diagnostic
systems ("OBD") on 1996 model year light-duty vehicles. California has its own
OBD requirements which are more stringent
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than the federal requirements. These OBD requirements are of concern because
they may cause increased warranty costs and additional recalls.
CAFE
The Motor Vehicle Information and Cost Savings Act, as amended by the
Energy Policy and Conservation Act, requires vehicle manufacturers to provide
vehicles that comply with federally mandated Corporate Average Fuel Economy
("CAFE") standards. Under this Act, a manufacturer earns credits for
exceeding the applicable fuel economy standards. Failure to meet the average
fleet fuel economy standards can result in the imposition of penalties unless a
manufacturer has sufficient fuel economy credits from the preceding three years
or projects that it will generate sufficient credits over the succeeding three
years. In addition, the Energy Tax Act of 1978 imposes a graduated "Gas
Guzzler" tax on automobiles with a fuel economy rating below specified levels,
such as the M12. The Company does not anticipate that the amount of these
penalties and taxes will be material to the Company or purchasers of the
Company's automobiles.
Vehicle Safety
Under the National Traffic and Motor Vehicle Safety Act of 1996, NHTSA is
required to establish federal motor vehicle safety standards that are
practicable, meet the need for motor vehicle safety and are stated in objective
terms. NHTSA has announced its intention to upgrade certain existing standards
and to establish additional standards in the future. The Company expects to be
able to comply with those standards.
Vehicle Recalls
Under the Clean Air Act, the EPA may require manufacturers to recall and
repair vehicles that fail to meet emission standards established under that
Act. Similarly, the Act authorizes the State of California to require recalls
for vehicles that fail to meet its emissions standards.
The Safety Act authorizes NHTSA to investigate reported vehicle problems
and to order a recall if it determines that a safety-related defect exists.
The Company's emissions and safety-related recall costs can be expected to
vary widely from year to year, and could be expensive and require time
consuming modifications in future periods, depending on the corrective action
required to remedy a particular condition and the number of vehicles involved.
Stationary Source Regulation
The Company's assembly, manufacturing and other operations are subject to
environmental regulation under the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, the Pollution Prevention Act of 1990
and the Toxic Substances Control Act, as well as a substantial volume of state
legislation paralleling and, in some cases, imposing more stringent obligations
than the federal requirements. These regulations impose severe restrictions on
air and water-born discharges of pollution from the Company's manufacturing
facility, the handling of hazardous materials at and the disposal of wastes
from this facility. The Company expects its capital requirements for the
period 1996 through 2000 will not be substantial related to compliance with
these regulations.
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EMPLOYEES AND CONSULTANTS
At March 15, 1996, the Company had 86 full-time employees none of whom are
subject to a collective bargaining agreement, and of whom 5 are engaged in
engineering, 70 in manufacturing and assembly, and 11 in administrative
activities.
ITEM 2. PROPERTIES.
The Company currently leases on a month-to-month basis approximately 7,000
square feet of office and warehouse space in Jacksonville, Florida from
Lamborghini USA at a rental rate of $7,176 per month.
The Company also currently leases on a month-to-month basis 22,500 square
feet of manufacturing, assembly and warehouse space in Green Cove Springs,
Florida at a cost of $5,183 per month from an unrelated party. This facility
serves as the Company's manufacturing and assembly facility.
ITEM 3. LITIGATION
As described below, the Company and Gerald A. Wiegert are parties to
certain legal proceedings which arose principally in connection with the
termination in 1993 of Mr. Wiegert as the Company's Chairman, President and
Chief Executive Officer. The Company is also a party to certain legal
proceedings against persons who acted with Mr. Wiegert in defiance of the
Company's Board of Directors.
In order to gain undisputed access and control over the Company's
facilities, assets and business operations, on March 24, 1993, the Company filed
an action in the Superior Court of California, Los Angeles County captioned as
Vector Aeromotive Corporation v. Gerald A. Wiegert, requesting declaratory
relief and a temporary restraining order. On September 14, 1993, the court
granted the Company's motion for summary judgment on the declaratory judgment
contained in the amended complaint. Specifically, the court entered an order (i)
declaring that the Board properly exercised its authority to remove Mr. Wiegert
as an officer of the Company; (ii) enjoining Mr. Wiegert from any further
dealing with the property or interests of the Company; and (iii) calling for an
orderly transfer of day-to-day management of the Company to the Board. To date,
the Company believes that Mr. Wiegert has complied with the September 14, 1993
court order by refraining from participation in Company affairs and by
transferring day-to-day management of the Company to the Board.
Although the court granted summary judgment in favor of the Company on its
claim for declaratory relief and undisputed, physical control of the Company
has been returned to the Board, all other claims in the Company's amended
complaint are pending. These claims seek monetary damages in an amount to be
proven at trial. Mr. Wiegert has asserted various claims against the Company,
including claims for unpaid rent on the Company's former principal facility,
which was leased by the Company from Mr. Wiegert; breach of employment
agreement; and for the return of business assets which Mr. Wiegert alleges are
owned by him rather than by the Company. These claims have been asserted in a
separate action filed in the Superior Court of California for Los Angeles
County on September 27, 1993 captioned Gerald A. Wiegert v. Vector Aeromotive
Corporation. Mr. Wiegert's complaint was dismissed by the court because it
contained claims which should have been asserted as cross-claims within the
Company's original action against Mr. Wiegert.
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In February 1994, Mr. Wiegert filed a cross-complaint against the Company,
its directors, and its outside securities counsel alleging, among other things,
breach of employment contract; breach of covenant of good faith and fair
dealing; intentional and negligent misrepresentation; interference with
contractual advantage and business interest; negligent and intentional
infliction of emotional distress; and libel and slander. The Company has
challenged the legal sufficiency of the cross-complaint, including subsequent
amendments thereof, resulting in elimination of all claims except the claims
concerning breach of employment contract by the Company, unpaid rent,
conversion, libel and slander. The Company plans to file a motion for summary
judgment for the purpose of eliminating Mr. Wiegert's causes of action for
conversion, libel, slander and conspiracy. In another action filed by Mr.
Wiegert as general partner of Vector Car entitled Vector Car v. Vector
Aeromotive Corporation, et al., Mr. Wiegert alleges that the Company assumed a
Vector Car debt owed to him of approximately $325,000 and that the Company is
obligated to Vector Car under the terms of a $250,000 promissory note payable
to Vector Car. The Company intends to vigorously defend this action.
The three aforementioned actions between the Company and Mr. Wiegert are
expected to be tried in 1996.
The Company has discovered that Mr. Wiegert has filed an application with
the United States Patent and Trademark Office to register "Avtech" as a
trademark. In December 1994, the Company filed a Notice of Opposition with the
Trademark Trial and Appeal Board with respect to such application. On January
25, 1995, a motion to suspend proceedings was granted pending resolution of
previously discussed actions between the Company and Mr. Wiegert.
Subsequent to the Company's initiation of the litigation described above,
five related civil lawsuits have been filed in the Superior Court of California
for Los Angeles County. In Vector Aeromotive Corporation v. Merrill Lynch,
Pierce, Fenner & Smith, Inc. (Case Number BC092389), the Company alleges that
subsequent to March 22, 1993, Mr. Wiegert and David Kostka, the Company's
former Secretary, acting in cooperation with certain representatives of Merrill
Lynch, opened "money-market" accounts which were used to deposit and disburse
funds of the Company. The Company contends that Merrill Lynch undertook these
activities with knowledge that the Board of Directors' resolutions on which
Merrill Lynch acted in establishing such accounts were invalid and
unauthorized. In a related action, Merrill Lynch, Pierce, Fenner & Smith v.
Vector Aeromotive Corporation (Case No. BC085474), Merrill Lynch interpled
those funds which remained in the accounts. In September 1993, the funds then
remaining in the account were released to the Company pursuant to court order.
Having received the remaining funds in the account, the Company seeks damages
in an amount to be proved at trial. This action was ordered to arbitration and
the Company has submitted a claim to the National Association of Securities
Dealers, Inc. ("NASD") where the dispute will be heard by a three member panel.
Merrill Lynch has filed a motion to dismiss the Company's case before the
NASD. The Company has opposed the motion, but no decision has been rendered.
In Vector Aeromotive Corporation v. Tokai Bank of California (Case Number
BC092534), the Company alleges that Tokai Bank wrongfully, and with knowledge
of the activities of Messrs. Wiegert and Kostka, opened accounts and allowed
Mr. Wiegert to disburse corporate funds for purposes not authorized by the
Board of Directors. The Company seeks recovery from Tokai Bank of funds
wrongfully disbursed to Mr. Wiegert in an amount to be proved at trial. Tokai
Bank filed a motion for summary judgment in its favor which was argued and
was denied.
In Vector Aeromotive Corporation v. David Kostka (Case Number BC091267),
the Company seeks to recover disbursements made by Messrs. Wiegert and Kostka
through the Merrill Lynch and
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Tokai Bank accounts described above. The Company alleges that such accounts
were established based on the certificate of Mr. Kostka as corporate secretary
without the Board of Directors' authorization. Mr. Kostka has filed a
cross-complaint for breach of employment contract and will seek damages
therefore of approximately $20,000.
In Vector Aeromotive Corporation v. Barash & Hill, et al. (Case No.
BC092390), the Company alleges that the law firm of Barash & Hill, the law firm
of Seyfarth, Fairweather & Geraldson, Jerry M. Hill and Anthony H. Barash
committed legal malpractice as a result of the conflicts of interest which such
firms and lawyers encountered in representing the separate interests of Mr.
Wiegert at the expense of the Company and their failure to return funds
belonging to the Company.
The Company intends to vigorously pursue its claims against Mr. Wiegert
and the other defendants identified above, and to vigorously defend against the
counterclaims asserted in such actions. Other than as described above, the
Company is not a party to any material legal proceedings, other than ordinary
routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote security holders through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the NASDAQ SmallCap under the
symbol VCAR. The following table sets forth for the periods indicated the high
and low closing bid prices for the Company's Common Stock as reported on the
NASDAQ SmallCap Market in each calendar quarter for the prior two years. Such
prices are interdealer prices, without retail markup, markdown or commissions,
and may not necessarily represent actual transactions.
High Low
<TABLE>
<S> <C> <C>
CALENDAR 1994
First Quarter 1.00 .78
Second Quarter .78 .50
Third Quarter .62 .44
Fourth Quarter .72 .44
CALENDAR 1995
First Quarter .56 .44
Second Quarter .50 .34
Third Quarter 1.00 .47
Fourth Quarter 1.25 .53
</TABLE>
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On March 19, 1996, there were 3,554 holders of record of Common Stock
(excluding holders whose securities were held in street or nominee name).
The Company has not paid a dividend on Common Stock, and intends to retain
all earnings for use in its business for the foreseeable future. The Board of
Directors, at its discretion, may elect to pay dividends in the future based
upon, among other factors, the level of the Company's earnings, capital
and future prospects.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial information of
the Company for each of the periods indicated. This data should be read in
conjunction with the financial statements of the Company and the notes thereto
appearing elsewhere herein.
SUMMARY FINANCIAL INFORMATION
(AMOUNTS IN 000'S EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31, YEARS ENDED SEPTEMBER 30,
1995 1994 1994 1993 1992 1991
------------ ------------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF LOSS DATA:
Sales $ - $ 360 $ 48 $ 1,467 $1,288 $ 755
Gross Profit (Loss) (108) - 22 517 313 175
Operating Loss (7,909) (818) (4,521) (4,094) (4,233) (5,449)
Net Loss (7,653) (765) (4,471) (3,890) (4,307) (5,376)
Net Loss per Share (.19) (.03) (.21) (.28) (.39) (1.11)
Cash Dividends per Share None None None None None None
Weighted Average Shares 40,919 24,046 21,511 13,690 10,245 4,832
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, AT SEPTEMBER 30,
1995 1994 1994 1993 1992 1991
------------- ------------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets $1,093 $ 594 $1,167 $1,326 $2,706 $5,456
Working Capital (deficit) (2,257) (274) 461 (311) 1,688 4,975
Total Assets 1,907 1,295 1,898 1,698 4,483 7,931
Total Liabilities 3,350 933 771 1,737 1,591 1,974
Shareholders' Equity (deficit) (1,443) 361 1,126 (39) 2,892 5,597
</TABLE>
The Company has not declared or paid any dividend on its Common Shares,
and intends to retain all earnings, if any, for use in its business for the
foreseeable future.
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The design, production and sale of exotic sports cars is a
capital-intensive business. The capital requirements inherent in this
industry, combined with the Company's lack of sales during the development of
the Vector M12, have forced the Company to raise significant capital from time
to time in order to fund continued operations. The Company had no sales in
1995 and sales in calendar 1994 were extremely limited.
Because of the Company's lack of sales in 1994 and 1995 and the
commencement of production activities in the fourth quarter of 1994,
comparisons from period to period have limited meaning.
The Company ceased production activities in early 1993 and re-commenced
production in late 1995. During calendar 1994 and 1995, the Company's efforts
focused on the design, development, marketing and commencement of production of
the Vector M12. Production of the M12 commenced in October 1995, and in March
1996 the Company sold its first M12. The Company plans to produce at a rate
of up to 12 cars per month by the end of 1996.
Litigation with the Company's former President, Gerald Wiegert, has
consumed significant capital and management attention since Mr. Wiegert's
termination in March 1993. For further information with respect to this
litigation, see Note 10 of Notes to Financial Statements included elsewhere
herein.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through the private and public
sale of equity securities. Since October 1, 1992 (the beginning of the
Company's fiscal 1993), the Company received approximately $16.5 million in net
offering proceeds from the sale of equity securities through January 1996,
compared to the Company's aggregate sales of $1.87 million during the same
period.
Since the beginning of fiscal 1993, the Company's principal source of
capital has been the private sale of Common Stock and options therefore to
V'Power and Setdco. In April 1994, for an aggregate of $2,250,000, V'Power
acquired 3,000,000 shares of Common Stock and an option to purchase an
additional 6,000,000 shares of Common Stock with a $.75 per share exercise
price that expires in April 1996. In January and April 1995, for an aggregate
of $6,000,000, V'Power acquired 18,333,333 shares of Common Stock and an option
to purchase an additional 50,000,000 shares of Common Stock with a $.43 per
share exercise price. This option expires in April 1996. In January 1996, for
an aggregate of $5,000,000, V'Power acquired 10,000,000 newly-issued shares of
Common Stock and an option expiring January 1997 to acquire an additional
50,000,000 shares of Common Stock with a $.45 per share exercise price.
The Company received investment bankers' fairness opinions with respect to
the 1995 and the 1996 transactions, and the Company believes that these
transactions with V'Power were fair to and in the best interests of the
Company. There can be no assurance that V'Power will provide additional funds
to the Company, either through purchase of additional equity securities from
the Company or exercise of the existing option, to satisfy the Company's
capital needs.
12
<PAGE> 13
In February 1996, a registration statement was filed by the Company with
the Securities and Exchange Commission. In addition to registering the shares
of the Company's Common Stock issuable upon exercise of the Company's
outstanding publicly traded warrants, this registration statement also
registered for resale in the market or public or private transactions all
6,000,000 shares of the Company's Common Stock held by Setdco and 10,000,000
shares of the Company's Common Stock held by V'Power.
At March 15, 1996, the Company had cash and cash equivalents of
approximately $1.4 million, representing the unapplied balance of the net
proceeds from the private sale to V'Power in January 1996. Net cash used by
the Company in 1995 totalled $6,565,000, consisting of $5,892,000 used for
research and development and operating activities and $673,000 used in the
purchase of capital assets including tooling. The Company anticipates spending
significantly less in 1996 for research and development. Although the Company
received the first proceeds of the sale of M12 automobiles in March 1996 and
anticipates generating an increasing revenue stream from M12 sales, the Company
anticipates continued losses and negative cash flow through mid-1996. The
Company anticipates that its current funds will be adequate until the Company
attains positive cash flow through vehicle sales, the Company may require
additional cash resources in order to continue manufacture of the M12 and
continue research and development on additional models or for a variety of
other reasons. The Company has no commitment from others to provide additional
capital, and there can be no assurance that such funding will be available when
needed, or if available, that its terms will be favorable or acceptable to the
Company. Should the Company be unable to obtain additional capital, when and
if needed, it could be forced to either curtail operations or cease business
activities altogether.
RESULTS OF OPERATIONS
For the year ended December 31, 1995, the Company had a net loss of
$7,653,000 and no revenues. Cost of sales for the year ended December 31, 1995
were $108,000, representing the cost of a W8 write-down to estimated market and
obsolete W8 replacement part inventory written off during the year. In the
three-month transition period from October 1 through December 31, 1994, the
Company had a net loss of $765,000. During this three-month period two W8's
were sold to a related party at cost. During fiscal 1993 four automobiles were
sold for a total of $1,466,000, and during fiscal 1994 sales of $48,000 were
reported for service and repair work. The Company anticipates continued net
losses in each calendar quarter at least through mid-1996. As a firm entering
the production stage, the success of the Company will be affected by expenses,
operational difficulties and other factors frequently encountered in the
development of a business enterprise in a competitive environment, many of which
may be beyond the Company's control.
Total general and administrative expenses decreased from $3,363,000 for
the year ended September 30, 1994 to $2,979,000 for the year ended December 31,
1995, an 11% reduction, primarily due to decreases in professional fees from
$1,070,000 in 1994 to $659,000 in 1995. Professional fees are expected to
continue to decline as various lawsuits are settled or tried. The reduction in
professional fees for 1995 was partially offset by increases in salaries and
wages and related benefits as the workforce was replenished to become fully
operational after the layoffs which occurred in 1994. General and
administrative expenses for 1995 also included a litigation settlement
totaling $100,000. During the years ended 1995, 1994 and 1993, non-cash
compensation expense relating to granting stock options below market value
was recorded totaling $133,000, $37,188 and $-0- respectively. General and
administrative expense in fiscal 1994 included reclassifications from other
income (expense) of $125,000 for litigation expense and $131,000 for
relocation expenses.
Total general and administrative expenses for the year ended September 30,
1993 were $3,189,000, or $174,000 lower than the year ended September 30, 1994.
The increase in general and
13
<PAGE> 14
administrative expense in 1994 was caused primarily by higher professional
fees, including legal fees. During fiscal 1993 the Company recognized an
expense of $698,000 in connection with the relocation of the Company's facility
and the abandonment of certain leasehold improvements and equipment. General
and administrative expenses for the three months ended December 31, 1994
totaling $558,000 were incurred primarily for professional fees, salary and
wages and related benefits and relocation expenses totaling approximately
$100,000.
Research and development has increased from $723,000 in fiscal year 1993
to $4,822,000 for the year ended December 31, 1995 reflecting the expense and
concerted efforts in 1995 to complete the design, engineering, development and
commencement of production of the Vector M12.
Other income (expense) for the year ended December 31, 1995 totaling
$256,000 included $133,000 of interest income on invested funds and
approximately $100,000 of settlements of outstanding obligations. This
compares to other income of $133,000 in fiscal year September 30, 1994
resulting primarily from interest income and fees for usage of Vector cars in
films and commercials, and $263,000 in fiscal year September 30, 1993 which
resulted primarily from the sale of a prototype automobile. Other income
during the three months ended December 31, 1994 was $54,000.
The Company has deferred tax assets at December 31, 1995 totaling
$12,775,000 which have a valuation allowance of equal amount established.
New Accounting Standards
The Company is required to adopt the provisions of Statement of
Financing Accounting Standards No. 121, ("SFAS No. 121"), Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
during its fiscal year ending December 31, 1996. SFAS No. 121 requires the
recognition and measurement of impairment to long-lived assets and certain
identifiable intangible assets whenever events or changes in circumstances
indicate that the carrying amount of those assets may not be recoverable. The
effect of the Company's adoption of SFAS No. 121 has not yet been determined.
The Company is also required to adopt the provisions of Statement of
Financial Accounting Standards No. 123, ("SFAS No. 123"), Accounting for Stock
Based Compensation during its fiscal year ending December 31, 1996. SFAS No.
123, among other things, requires certain added disclosures regarding the fair
value of equity instruments, such as stock options, issued by the Company. In
addition, SFAS No. 123 encourages the recognition of expense for the fair value
of equity instruments issued by the Company.
The Company has not yet determined whether the optional expense
recognition provisions of SFAS No. 123 will be adopted, and therefore, the
effects of adopting SFAS No. 123 have not been determined.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements of the Company are set forth herein beginning on page
F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this Item is incorporated herein by reference from
the definitive proxy statement to be filed in connection with the Company's
Annual Meeting of Stockholders tentatively scheduled to be held in May 1996.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this Item is incorporated herein by reference from
the definitive proxy statement to be filed in connection with the Company's
Annual Meeting of Stockholders tentatively scheduled to be held in May 1996.
14
<PAGE> 15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this Item is incorporated herein by reference from
the definitive proxy statement to be filed in connection with the Company's
Annual Meeting of Stockholders tentatively scheduled to be held in May 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this Item is incorporated herein by reference from
the definitive proxy statement to be filed in connection with the Company's
Annual Meeting of Stockholders tentatively scheduled to be held in May 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM-8-K.
(A) LIST OF FINANCIAL STATEMENTS AND SCHEDULES FILED AS A PART OF THIS
REPORT:
(1) FINANCIAL STATEMENTS:
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants F - 2
Balance Sheets - December 31, 1995, F - 3
December 31, 1994 and September 30, 1994
Statements of Operations for the year F - 4
ended December 31, 1995, the Transition
Period Ended December 31, 1994, and the
years ended September 30, 1994 and
September 30, 1993
Statement of Common Stockholders' F - 6
Equity for the year ended December
31, 1995, the Transition Period
Ended December 31, 1994, and the years
ended September 30, 1994 and September
30, 1993
Consolidated Statements of Cash Flows for F - 7
for the year ended December 31, 1995,
the Transition Period Ended December 31,
1994, and the years ended September
30, 1994 and September 30, 1993
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
Notes to Financial Statements F - 8
for the year ended December 31, 1995,
the Transition Period Ended December 31,
1994, and the years ended September
30, 1994 and September 30, 1993
(2) FINANCIAL STATEMENT SCHEDULES:
Report of Independent Certified Public Accountants S - 1
Schedule II/Valuation and Qualifying Accounts S - 2
</TABLE>
(B) REPORTS ON FORM 8-K
Since September 30, 1995, the Company has filed two Current Reports on
Form 8-K, dated December 20, 1995 and January 31, 1996, reporting under
Item 5. Other Events.
(C) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- -----------------
<S> <C>
*3.1 Articles of Incorporation of the Company, as amended to date (incorporated by reference to Exhibit 3.1.1 to the
Company's Annual Report on Form 10-K for the year ended September 30, 1994, Exhibit 3.1.2 to the Company's
Registration Statement on Form S-1 (File No. 33-35458)("Form S-1 No. 33-35458"), and Exhibit 3.01 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 ("March 1995 Form 10-Q"))
*3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-18
(File No. 33-20456-LA)("Form S-18")
*4.1 Form of specimen certificate for 1991 Warrants of the Company (incorporated by reference to Exhibit4.1.2 to the
Company's Registration Statement on Form S-1 File No. 33-39281)("Form S-1 No. 33-39281")
*4.2 Form of 1991 Warrant Agreement between American Securities Transfer, Inc. and the Company (incorporated by reference
to Exhibit 4.1.3 to the Company's Form S-1 No. 33-39281)
*4.3 Form of Representative's Warrant issued in connection with the 1991 public offering (incorporated by reference to
Exhibit 4.2 to the Company's Form S-1 No. 33-39281)
*4.4 Form of specimen certificate for 1990 Warrants of the Company (incorporated by reference to Exhibit 4.1.2 to the
Company's Registration Statement on Form S-1 No. 33- 35458)
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C>
*4.5 Form of 1990 Warrant Agreement between American Securities
Transfer, Inc. and the Company (incorporated by reference to
Exhibit 4.1.3 to the Company's Form S-1 No. 33-35458)
*4.6 Form of Representative's Warrant issued in connection with
the 1991 public offering] (incorporated by reference to Exhibit
4.2 to the Company's Form S-1 No. 33- 35458)
*4.7 Payment Agreement, including stock options, between the
Company and Corporate Relations Group, Inc. (incorporated by
reference to Exhibit 4.1 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1995)
*4.8 Warrant dated August 1, 1991 entitling Gerald A Wiegert to
purchase 1,000,000 shares of common stock (incorporated by
reference to Exhibit 10.2.6 to the Company's Form S-1 No. 33-
39281)
*10.1 Share Purchase Agreement dated October 28, 1992 between the
Company and Setdco Engineering, Inc. (incorporated by reference to
Exhibit 10.1.1 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1994 ("1994 Form 10-K)
*10.2 Amended Share Purchase Agreement dated April 29. 1994
between the Company and V'Power Corporation (incorporated by
reference to Exhibit 10.1.2 to the Company's 1994 Form 10-K)
*10.3 Share Purchase Agreement dated January 6, 1995 between the
Company and V'Power Corporation (incorporated by reference to
Exhibit to the Company's Form 8-K dated January 12, 1995 ("January
1995 Form 8-K"))
*10.4 Form of Registration Rights Agreement dated January 6, 1995
between the Company and V'Power Corporation (incorporated by
reference to Exhibit to the Company's January 1995 Form 8-K)
*10.5 Form of Option Agreement dated April 18, 1995 between the
Company and V'Power Corporation (incorporated by reference to
Exhibit to the Company's January 1995 Form 8-K)
*10.6 1994 Omnibus Stock Plan (incorporated by reference to
Exhibit 10.2.1 to the Company's 1994 Form 10-K)
*10.7 1992 Incentive Stock Option Plan (incorporated by reference
to Exhibit 10.2.2 to the Company's 1994 Form 10-K)
*10.8 1992 Non-Qualified Stock Option Plan (incorporated by
reference to Exhibit 10.2.3 to the Company's 1994 Form 10-K)
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C>
*10.9 1990 Incentive Stock Option Plan (incorporated by reference
to the Company's Form S-1 No. 33-35458)
*10.10 1990 Non-Qualified Stock Option Plan (incorporated by reference
to the Company's Form S-1 No. 33-35458)
*10.11 1988 Incentive Stock Option Plan (incorporated by reference to the
Company's Form S-18)
*10.12 1988 Non-Qualified Stock Option Plan (incorporated by reference
to the Company's Form S-1 No. 33-35458)
*10.14 Commercial Sublease between the Company and Lamborghini USA, Inc. dated
November 1994 (incorporated by reference to Exhibit 10.3.2 to the
Company's 1994 Form 10-K)
*10.15 Agreed Contract between the Company and Automobili Lamborghini, S.p.A.
for Engine Development Program and Engine Purchase Agreement
(incorporated by reference to Exhibit 10.01 to the Company's March 1995
Form 10-Q and Exhibit 10.01 to the Company's Amendment No. 1 to the
March 1995 Form 10-Q on Form 10-Q/A)
*10.16 Share Purchase Agreement, including form of option and registration
rights agreements, dated December 29, 1995 by and between the Company
and V'Power Corporation (incorporated by reference to Exhibit 99.1 to
the Company's Current Report on Form 8-K dated January 24, 1996)
*10.17 Form of Warrant Agreement with respect to 1993 Officer and Director
Warrant Plan (incorporated by reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-8 (File No. 33-300073)
23.1 Consent of BDO Seidman
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
____________
*Incorporated by reference.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VECTOR AEROMOTIVE CORPORATION
By /s/ D. Peter Rose
-----------------------------
D. Peter Rose, President
Dated: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ D. Peter Rose Director; President March 29, 1996
- --------------------------- (Principal Executive Officer and
D. Peter Rose Principal Financial Officer)
/s/ Richard J. Aprahamian Director March 29, 1996
- ---------------------------
Richard J. Aprahamian
/s/ Sudjaswin E.L. Director March 29, 1996
- ---------------------------
Sudjaswin E.L.
/s/ Michael J. Kimberley Director March 29, 1996
- ---------------------------
Michael J. Kimberley
/s/ George J. Fencl Director March 29, 1996
- ---------------------------
George J. Fencl
/s/ Janna L. Connolly Chief Accountant March 29, 1996
- --------------------------- (Principal Accounting
Janna L. Connolly Officer)
</TABLE>
19
<PAGE> 20
Vector Aeromotive Corporation
Index
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Certified Public Accountants F-2
Financial Statements
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Equity (Deficit) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-8
Report of Independent Certified Public
Accountants on Financial Statement Schedule S-1
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts S-2
</TABLE>
All other schedules have been omitted because they are either not required, not
applicable or the information has otherwise been supplied.
F-1
<PAGE> 21
Report of Independent Certified Public Accountants
Board of Directors
Vector Aeromotive Corporation
Jacksonville, Florida
We have audited the accompanying balance sheets of Vector Aeromotive
Corporation as of December 31, 1995 and 1994 and September 30, 1994 and the
related statements of operations, shareholders' equity (deficit) and cash flows
for the years ended December 31, 1995, September 30, 1994 and 1993 and the
three months ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vector Aeromotive Corporation
at December 31, 1995 and 1994 and September 30, 1994 and the results of its
operations and its cash flows for the years ended December 31, 1995, September
30, 1994 and 1993 and for the three months ended December 31, 1994 in
conformity with generally accepted accounting principles.
As discussed in the summary of significant accounting policies to the financial
statements, in 1994 the Company changed its financial reporting period from a
fiscal year ending September 30 to a calendar year end.
BDO SEIDMAN, LLP
Orlando, Florida
February 16, 1996
F-2
<PAGE> 22
Vector Aeromotive Corporation
Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1995 1994 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,370 $ 7,809 $ 264,005
Account receivable - related party - 50,000 -
Inventories 801,560 286,347 646,347
Prepaid expenses and other 279,306 17,136 23,765
Court bond receivable - 232,803 232,803
- --------------------------------------------------------------------------------------------------------------
Total current assets 1,093,236 594,095 1,166,920
PROPERTY AND EQUIPMENT, NET 618,083 567,860 597,779
OTHER 195,250 132,833 132,833
- --------------------------------------------------------------------------------------------------------------
$ 1,906,569 $ 1,294,788 $ 1,897,532
==============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable:
Trade $ 814,932 $ 528,170 $ 293,697
Related parties 683,735 - -
Accrued expenses 632,891 162,093 234,572
Loans payable to related parties 1,178,200 178,200 178,200
Customer deposits 40,000 - -
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 3,349,758 868,463 706,469
CUSTOMER DEPOSITS - 65,000 65,000
- --------------------------------------------------------------------------------------------------------------
Total liabilities 3,349,758 933,463 771,469
- --------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 6, 10, 11 and 12) - - -
- --------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, par value $.10 per share;
5,000,000 shares authorized; none issued - - -
Common stock, par value $.01 per share;
600,000,000 shares authorized; issued and
outstanding 42,664,699 and 24,046,366 426,646 240,463 240,463
Capital in excess of par value 31,873,608 26,211,740 26,211,740
Accumulated deficit (33,743,443) (26,090,878) (25,326,140)
- --------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (1,443,189) 361,325 1,126,063
- --------------------------------------------------------------------------------------------------------------
$ 1,906,569 $ 1,294,788 $ 1,897,532
==============================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 23
Vector Aeromotive Corporation
Statements of Operations
<TABLE>
<CAPTION>
Three
Year Months Year Year
Ended Ended Ended Ended
December 31, December 31, September 30, September 30,
1995 1994 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES, net $ - $ 360,000 $ 48,420 $ 1,466,540
COST OF SALES 108,390 360,000 26,730 950,000
- --------------------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) (108,390) - 21,690 516,540
- --------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
General and administrative 2,978,871 557,630 3,363,149 3,189,012
Research and development 4,427,073 260,219 1,179,545 723,115
Abandonment of property
and equipment 394,482 - - 698,066
- --------------------------------------------------------------------------------------------------------------
Total costs and expenses 7,800,426 817,849 4,542,694 4,610,193
- --------------------------------------------------------------------------------------------------------------
OPERATING LOSS (7,908,816) (817,849) (4,521,004) (4,093,653)
- --------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Other income 256,251 54,265 133,169 262,692
Other expense - (1,154) (83,197) (58,766)
- --------------------------------------------------------------------------------------------------------------
256,251 53,111 49,972 203,926
- --------------------------------------------------------------------------------------------------------------
NET LOSS $ (7,652,565) $ (764,738) $ (4,471,032) $ (3,889,727)
==============================================================================================================
NET LOSS PER SHARE $ (.19) $ (.03) $ (.21) $ (0.28)
==============================================================================================================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 40,919,421 24,046,366 21,510,629 13,689,982
==============================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 24
Vector Aeromotive Corporation
Statements of Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Stock Capital in
------------------ Excess of Accumulated
Shares Amount Par Value Deficit Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, September 30, 1992 13,484,443 $ 134,844 $ 19,722,452 $ (16,965,381) $ 2,891,915
Issuance of shares for cash 2,000,000 20,000 700,000 - 720,000
Issuance of stock option
for cash - - 118,000 - 118,000
Issuance of shares for services 336,643 3,367 117,102 - 120,469
Forfeiture of shares (342,457) (3,425) 3,425 - -
Net loss for the year - - - (3,889,727) (3,889,727)
- --------------------------------------------------------------------------------------------------------------
BALANCE, September 30, 1993 15,478,629 154,786 20,660,979 (20,855,108) (39,343)
Issuance of shares for cash 3,000,000 30,000 2,220,000 - 2,250,000
Issuance of stock option
for cash - - 120,000 - 120,000
Exercise of stock options 6,048,000 60,480 2,950,020 - 3,010,500
Issuance of stock warrants and
options for services - - 255,938 - 255,938
Forfeiture of shares (480,263) (4,803) 4,803 - -
Net loss for the year - - - (4,471,032) (4,471,032)
- --------------------------------------------------------------------------------------------------------------
BALANCE, September 30, 1994 24,046,366 240,463 26,211,740 (25,326,140) 1,126,063
Net loss for the period - - - (764,738) (764,738)
- --------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1994 24,046,366 240,463 26,211,740 (26,090,878) 361,325
Forfeiture of shares (5,000) (50) 50 - -
Issuance of common stock 18,333,333 183,333 4,922,144 - 5,105,477
Issuance of stock option
for cash - - 464,134 - 464,134
Issuance of common stock as
payment of consulting fees 290,000 2,900 142,100 - 145,000
Issuance of common stock options
as compensation - - 133,440 - 133,440
Net loss for the year - - - (7,652,565) (7,652,565)
- --------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 42,664,699 $ 426,646 $ 31,873,608 $ (33,743,443) $ (1,443,189)
===============================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 25
Vector Aeromotive Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
Three
Year Months Year Year
Ended Ended Ended Ended
December 31, December 31, September 30, September 30,
1995 1994 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (7,652,565) $ (764,738) $ (4,471,032) $ (3,889,727)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 165,546 30,819 224,220 775,267
Gain on sale of fixed assets - - (3,059) -
Abandonment of property and equipment 394,482 - - 698,066
Issuance of common stock for services 145,000 - - 120,469
Issuance of common stock warrants and
options for services 133,440 - 255,938 -
Increase (decrease) from changes in:
Related party account receivable 50,000 (50,000) - -
Inventories (515,213) 360,000 41,975 1,409,136
Prepaid expenses and other assets (262,170) 6,629 (13,665) 50,014
Court bond receivable 232,803 - (232,803) -
Accounts payable 970,497 234,473 (283,323) 312,117
Accrued expenses 470,798 (72,479) (237,587) 206,493
Customer deposits (25,000) - (35,000) (297,890)
Reserve for loss contingency - - - (395,000)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (5,892,382) (255,296) (4,754,336) (1,011,055)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (610,251) (900) (612,578) (78,493)
Decrease in notes receivable - - 25,000 -
Proceeds from sale of property
and equipment - - 9,725 -
(Increase) decrease in other assets (62,417) - 23,000 -
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (672,668) (900) (554,853) (78,493)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
F-6
<PAGE> 26
Vector Aeromotive Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
Three
Year Months Year Year
Ended Ended Ended Ended
December 31, December 31, September 30, September 30,
1995 1994 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) from changes in
settlement receivable/payable, net - - (185,000) 185,000
Note payable - - - (85,000)
Proceeds (repayment) from loans payable
to related party 1,000,000 - - (4,500)
Exercise of stock options - - 3,010,500 -
Net proceeds from the issuance of
common stock options 464,134 - - -
Net proceeds from the issuance
of common stock 5,105,477 - 2,370,000 838,000
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,569,611 - 5,195,500 933,500
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 4,561 (256,196) (113,689) (156,048)
CASH AND CASH EQUIVALENTS,
beginning of period 7,809 264,005 377,694 533,742
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
end of period $ 12,370 $ 7,809 $ 264,005 $ 377,694
================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 27
Vector Aeromotive Corporation
Notes to Financial Statements
1. Summary of Nature of Business
Significant
Accounting Vector Aeromotive Corporation (the "Company") is
Policies engaged in the design, development and
marketing of exotic sports cars. Beginning in
1994, the Company has been engineering, developing
and testing the Vector M12 automobile. Production
of the first M12s commenced in October 1995.
The Company purchased the assets of its
predecessor in 1987 and produced a total of 22 of
its first production model, the Vector W8.
Production of the W8 ceased in 1993.
Cash Equivalents
For purposes of the statement of cash flows, all
highly liquid investments with a maturity date
of three months or less are considered to be cash
equivalents. Cash and cash equivalents include
checking accounts and money market funds.
Inventories
Inventories are stated at the lower of cost or
market. Cost is determined by the first-in,
first-out method.
Property and Equipment
Property and equipment consists substantially of
equipment used in the manufacturing process and is
stated at cost. Depreciation is provided over the
estimated useful asset lives using the straight-line
method. Leasehold improvements are being amortized
using the straight-line method over the anticipated
term of the respective lease. Depreciation of
tooling is based on a straight-line method over 5
years.
F-8
<PAGE> 28
Vector Aeromotive Corporation
Notes to Financial Statements
1. Summary of Revenue Recognition
Significant
Accounting Revenues resulting from automobile sales are
Policies recognized when the automobiles are delivered.
(Continued) Customer deposits received in advance of delivery
are recorded as a liability until revenue is
recognized.
Research and Development Costs
Research and development costs are expensed as
incurred.
Stock Options
The difference between the fair market value
and the exercise price, if below fair market value,
of a stock option granted by the Company is charged
to expense in the period in which the option is
granted.
Warranty Expense
The Company offers a limited 24-month warranty
covering defects in material and workmanship on its
Vector M12. The Vector W8 warranty was for a
12-month period. Costs related to product warranty
are estimated and included in cost of sales at time
of sale.
Change in Method of Accounting for Income Taxes
Effective October 1, 1993, the Company adopted
Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," which requires
recognition of estimated income taxes payable or
refundable on income tax returns for the current
year and for the estimated future tax effect
attributable to temporary differences and
carryforwards. Measurement of deferred income tax
is based on enacted tax laws including tax rates,
with the measurement of deferred income tax assets
being reduced by available tax benefits not
expected to be realized.
F-9
<PAGE> 29
Vector Aeromotive Corporation
Notes to Financial Statements
1. Summary of Statement of Financial Accounting Standards No.
Significant 107, "Disclosures about Fair Value of Financial
Accounting Instruments," requires disclosure of fair value
Policies information about financial instruments. Fair value
(Continued) estimates discussed herein are based upon certain
market assumptions and pertinent information
available to management as of December 31, 1995.
The respective carrying value of certain
on-balance-sheet financial instruments approximated
their fair values. These financial instruments
include cash and equivalents, trade receivables,
accounts payable and accrued expenses. Fair values
were assumed to approximate carrying values for
these financial instruments since they are short
term in nature and their carrying amounts
approximate fair values or they are receivable or
payable on demand.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the period reported. Actual results
could differ from those estimates.
Change in Year End
The Company changed its fiscal year end from
September 30 to December 31 during 1994.
Accordingly, the December 31, 1994 statements of
operations, shareholders' equity and cash flows are
for the three months then ended.
Reclassifications
Certain amounts in the September 30, 1994 and
1993 financial statements have been restated to
conform to current year presentations.
F-10
<PAGE> 30
Vector Aeromotive Corporation
Notes to Financial Statements
2. Inventories Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1995 1994 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Raw materials $ 447,167 $ 286,347 $ 286,347
Work-in-process 254,393 - -
Finished goods 100,000 - 360,000
--------------------------------------------------------------------------------
$ 801,560 $ 286,347 $ 646,347
================================================================================
</TABLE>
Raw materials inventory is recorded net of reserve for
inventory obsolescence of $185,024 as of December 31, 1995.
Cost of sales for 1995 includes an $80,000 write down to
market of the value of the discontinued Vector W8 automobile
in finished goods inventory and a write down of related
replacement parts. During the year ended September 30, 1993,
$220,000 was charged against inventories to write off
obsolete materials used in the production of the
discontinued Vector W8 automobile.
F-11
<PAGE> 31
Vector Aeromotive Corporation
Notes to Financial Statements
3. Property Property and equipment are summarized as follows:
and
Equipment
<TABLE>
<CAPTION>
Useful December 31, December 31, September 30,
Lives 1995 1994 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leasehold
improvements 5 years $ 22,260 $ - $ -
Tooling 5 years 547,255 631,982 631,082
Machinery and
equipment 5 years 326,803 310,830 310,830
Office equipment 5 years 98,034 95,214 95,214
Computers 3 years 139,727 117,784 117,784
Vehicles 5 years 30,283 30,283 30,283
-------------------------------------------------------------------------------
1,164,362 1,186,093 1,185,193
Less accumulated
depreciation 546,279 618,233 587,414
--------------------------------------------------------------------------------
$ 618,083 $ 567,860 $ 597,779
</TABLE>
Prior to August 1994, the Company leased its primary operating facility from
its former President. During October 1992, the lease on this facility expired
and the lease, along with leases on other facilities, continued on a month-to-
month basis. As management of the Company anticipated renewing the leases, it
was the Company's policy to amortize leasehold improvements over five years,
the anticipated lease term. As a result of litigation between the Company and
its former President (see Note 10), management of the Company relocated
operations to new facilities in August 1994. Accordingly, included in
abandonment of property and equipment for the year ended September 30, 1993 is
$423,666 representing the net book value of leasehold improvements associated
with the original facilities.
Additionally, during the year ended September 30, 1993, the Company
discontinued production of the model Vector W8. Accordingly, certain tooling
with a net book value of $274,400 specifically related to the Vector W8 was
expensed.
F-12
<PAGE> 32
Vector Aeromotive Corporation
Notes to Financial Statements
4. Accrued Accrued expenses consist of the following:
Expenses
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1995 1994 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Compensation and
employee benefits $ 126,038 $ 42,801 $ 61,112
Interest 70,324 47,207 47,207
Legal settlement 80,000 - -
Other 356,529 72,085 126,253
--------------------------------------------------------------------------------
$ 632,891 $ 162,093 $ 234,572
================================================================================
</TABLE>
5. Loans Payable Loans payable to related parties consist of following:
to Related
Parties
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1995 1994 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Unsecured note payable, bearing
interest at 9%, due on demand.
The Company's ultimate liability
in connection with this note is
subject to dispute (see Note 10). $103,200 $103,200 $103,200
Unsecured note payable, noninterest-
bearing, due on demand. The
Company's ultimate liability in
connection with this note is
subject to dispute (see Note 10). 75,000 75,000 75,000
Unsecured note payable to a
stockholder, bearing interest at
12%. This note was paid in full
from the proceeds of the
Company's 1996 common stock
offering (see Note 6). 1,000,000 - -
--------------------------------------------------------------------------------
Total loans payable to related
parties $1,178,200 $178,200 $178,200
=================================================================================
</TABLE>
F-13
<PAGE> 33
Vector Aeromotive Corporation
Notes to Financial Statements
6. Stock Offerings On July 25, 1992, the Company entered into a letter
of intent with Eagle Holdings Limited (Eagle),
acting on behalf of Setdco Engineering Corporation
(Setdco), pursuant to which Eagle initially
purchased 2,000,000 common shares of the Company for
$.50 per share for a total purchase price of
$1,000,000 and agreed to purchase an additional
2,000,000 common shares. On September 25, 1992, the
letter of intent was supplemented, and Eagle
purchased 1,000,000 common shares for $500,000. The
remaining 1,000,000 common shares were acquired by
Eagle for $500,000 on November 6, 1992.
During fiscal 1993, in connection with a warrant
initially issued to the then- President of the
Company (see Note 7), 1,000,000 common shares were
issued to Setdco for $220,000. Additionally,
effective October 28, 1992, the Company entered into
an option agreement with Setdco whereby in exchange
for $118,000 Setdco was granted an option to
purchase up to 6,000,000 common shares for $.50 per
share. During fiscal 1994, Setdco assigned its
option to V'Power Corporation, a Bahamian
corporation, who exercised the option in full,
thereby purchasing 6,000,000 common shares for
$3,000,000.
On January 14, 1994, the Company entered into a
Share Purchase Agreement with V'Power Corporation
which provided for the Company's issuance of
3,000,000 common shares to V'Power Corporation at a
price of $.75 per share. The Share Purchase
Agreement also provided that the Company, in
exchange for $120,000, enter into an option
agreement whereby the Company issued to V'Power
Corporation an option to acquire 6,000,000
additional common shares at a price of $.75 per
share for a period of one year from the closing
date. During 1995, the expiration date of the
options was extended to April 28, 1996 by the Board
of Directors of the Company.
F-14
<PAGE> 34
Vector Aeromotive Corporation
Notes to Financial Statements
6. Stock Offerings On January 6, 1995, the Company entered into a
(Continued) Share Purchase Agreement with V'Power Corporation
which provided for the Company's issuance of
18,333,333 common shares to V'Power Corporation at a
price of $.30 per share. The Share Purchase
Agreement also provided that the Company, in
exchange for $500,000, enter into an option
agreement whereby the Company issued to V'Power
Corporation an option to acquire 50,000,000
additional common shares at a price of $.43 per
share for a period of one year from the closing
date. The proceeds from the issuance of the common
shares and the option agreement were recorded net of
related offering costs of $394,523 and $35,866,
respectively.
Subsequent to December 31, 1995, the Company
entered into a Share Purchase Agreement with V'Power
Corporation which provided for the Company's
issuance of 10,000,000 common shares to V'Power
Corporation at a price of $.45 per share. The Share
Purchase Agreement also provided that the Company,
in exchange for $500,000, enter into an option
agreement whereby the Company issued to V'Power
Corporation an option to acquire 50,000,000
additional common shares at a price of $.45 per
share expiring on January 24, 1997. The Company
received cash proceeds under this Share Purchase
Agreement of $4,000,000, which was net of the
payment of a $1,000,000 note payable to V'Power
Corporation that was outstanding at December 31,
1995 (see Note 5). See Note 15 for unaudited
proforma effects of the above transaction.
7. Stock Options Common Shares Reserved
and Warrants
At December 31, 1995, the Company had reserved
common stock for the following purposes:
<TABLE>
<S> <C>
------------------------------------------------------------------------------
Stock option plans 1,612,000
V'Power stock options 56,000,000
Consultant stock options 500,000
Consultant common stock 350,000
Warrants 9,950,000
------------------------------------------------------------------------------
Total common shares reserved 68,412,000
==============================================================================
</TABLE>
F-15
<PAGE> 35
Vector Aeromotive Corporation
Notes to Financial Statements
7. Stock Options The Company has three incentive stock option
and Warrants plans for key officers and employees, three
(Continued) nonqualified stock option plans for officers,
employees, directors and consultants and an omnibus
stock plan for employees, consultants and
directors that has issued stock options and is
authorized to issue restricted and unrestricted
common stock and stock appreciation rights. The
options are generally exercisable over nine years
beginning one year from the date of grant. The
plans at December 31, 1995 are summarized as
follows:
<TABLE>
<CAPTION>
Options Option
Options Available Options Price
Plan Description Approved for Grant Exercisable Per Share
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1988 incentive plan 40,000 40,000 - -
1988 nonqualified 120,000 34,000 78,000 $.22
1990 incentive plan 100,000 100,000 - -
1990 nonqualified 100,000 - 60,000 $.22
1992 incentive plan 150,000 150,000 - -
1992 nonqualified 150,000 - 150,000 $.22
1994 omnibus plan 1,000,000 166,000 834,000 $.38
-----------------------------------------------------------------
1,660,000 490,000 1,122,000
=================================================================
</TABLE>
Changes in stock options outstanding within the
above plans are summarized as follows:
<TABLE>
<CAPTION>
Option
Options Price
Per Share
------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, September 30, 1992 210,969 $.22 - 7.50
Granted 40,000 $.22
Canceled (84,969) $.22 - 7.50
------------------------------------------------------------------------------
Outstanding, September 30, 1993 166,000 $.22
Granted 170,000 $.22
Exercised (48,000) $.22
------------------------------------------------------------------------------
Outstanding, September 30, 1994 and
December 31, 1994 288,000 $.22
Granted 834,000 $.38
-------------------------------------------------------------------------------
Outstanding, December 31, 1995 1,122,000 $.22 - .38
===============================================================================
</TABLE>
F-16
<PAGE> 36
Vector Aeromotive Corporation
Notes to Financial Statements
7. Stock Options Common Stock Options Issued as Compensation
and Warrants
(Continued) During the years ended December 31, 1995 and
September 30, 1994, compensation expense of
$133,440 and $37,188, respectively, was recognized
on common stock options granted at less than fair
market value. All such vested options were recorded
as additional paid-in capital. No compensation
expense related to stock options was recorded for
the three months ended December 31, 1994 and the
year ended September 30, 1993 since all options
granted in those periods were at a price equal to
or greater than the market price at the date of
grant.
Stock Warrants
At December 31, 1995, the Company had common
stock and unit warrants exercisable and outstanding
summarized as follows:
<TABLE>
<CAPTION>
Number of Number of Exercise
Expiration Date Warrants Units Price
-------------------------------------------------------------------------------
<S> <C> <C> <C>
August 12, 1996 6,650,000 - $ 1.50
April 11, 1996 300,000 - 1.25
August 1, 1996 1,000,000 - 1.00
August 12, 1996 - 500,000 1.50
November 18, 1998 1,000,000 - .22
---------------------------------------------------------------
8,950,000 500,000
===============================================================
</TABLE>
Upon the exercise of the unit warrants, the
holders will receive one share of the Company's
common stock and one warrant for the purchase of
Company common stock at an exercise price of $1.20
per share.
F-17
<PAGE> 37
Vector Aeromotive Corporation
Notes to Financial Statements
7. Stock Options On September 22, 1992, the Company granted to the
and Warrants then-President of the Company a warrant to purchase
(Continued) an additional 1,000,000 common shares at an
exercise price of $.22 per share which
approximated the then market price. The warrant may
be exercised for a period of four years commencing
on September 22, 1993. On December 23, 1992, the
then-President of the Company assigned his rights
under this warrant to Setdco Engineering Corporation
(see Note 6).
In October 1993, the Company issued 1,000,000
common stock warrants with an exercise price of
$.21875 per share to certain directors and employees
of the Company. The fair market value of the
Company's common stock at the date of issuance of
these warrants was $437,500 ($.4375 per share) for
1,000,000 warrants. The total amount recorded as
expense related to these warrants amounted to
$218,750.
During 1995, the exercise price of 400,000
warrants was reduced from $4.68 per share to $1.50
per share, and the related expiration dates were
extended from November 14, 1995 to August 12, 1996.
Additionally, the expiration date of another 300,000
warrants was extended from January 1, 1996 to April
11, 1996.
Subsequent to December 31, 1995, 332,500
warrants were exercised at an exercise price of $.22
per share.
F-18
<PAGE> 38
Vector Aeromotive Corporation
Notes to Financial Statements
8. Income Taxes The Company adopted Statement of Financial
Accounting Standards No 109 (FAS 109),"Accounting
for Income Taxes," for the fiscal year beginning
October 1, 1993. FAS 109 is an assets and
liability approach that requires the recognition of
deferred tax assets and liabilities for the
expected future tax consequences of events that
have been recognized in the Company's financial
statements or tax returns. The components of the
net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
1995
------------------------------------------------------------------------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 11,485,000
Tax credit carryforwards 777,000
Bad debts 179,000
Inventory reserves 70,000
Inventory overhead 149,000
Compensation from stock options 50,000
Depreciation 49,000
Other 16,000
------------------------------------------------------------------------------
Gross deferred income tax assets 12,775,000
Valuation allowance (12,775,000)
-------------------------------------------------------------------------------
Total deferred income tax assets $ -
===============================================================================
</TABLE>
The Company had unused net operating losses for
income tax purposes, expiring in various amounts
from 2003 through 2010, of approximately $30,522,000
at December 31, 1995 for carryforward against future
years' taxable income. However, as a result of the
Company's stock offerings (see Note 6), these NOLs
will be limited each year under the provisions of
Section 382 of the Internal Revenue Code of 1986, as
amended.
The tax benefit of these losses has been offset
by a valuation allowance due to the uncertainty of
its realization.
The Company has research and development tax
credit carryforwards of approximately $777,000 which
expire between 2005 and 2008.
F-19
<PAGE> 39
Vector Aeromotive Corporation
Notes to Financial Statements
9. Net Loss Net loss per share was calculated based on the
Per Share weighted average shares outstanding during the
year. Shares held in escrow pursuant to an escrow
agreement between the former President of the
Company and the Company have not been included in
the weighted average shares outstanding during the
periods as their inclusion would be antidilutive.
Also, the effect of outstanding stock options and
warrants was not included in the calculations as
their effect was antidilutive.
10. Litigation On March 22, 1993, the Company's Board of
Directors (the Board) determined that Gerald A.
Wiegert's (the former President of the Company)
employment as an officer and employee of the
Company should be terminated. Mr. Wiegert disputed
the Board's authority to terminate his employment
and refused to relinquish control over the
Company's assets and operations. This dispute
between the Company, acting through its Board and
certain executive officers, and Mr. Wiegert is the
subject of an ongoing civil lawsuit which was
commenced by the Company on March 26, 1993.
On September 14, 1993, the Company obtained a
court order confirming the validity of Mr.
Wiegert's termination, and control of the Company's
assets and business affairs has been returned to
the Board. Significant claims made by the Company
against Mr. Wiegert, and by Mr. Wiegert against the
Company, seeking monetary damages are pending.
F-20
<PAGE> 40
Vector Aeromotive Corporation
Notes to Financial Statements
10. Litigation On May 12, 1993, the Company filed an amended
(Continued) complaint with the Los Angeles County Superior
Court. The amended complaint contains ten
separate claims for relief, including claims
based on breach of fiduciary duty; breach of
employment agreement; conversion of Company assets;
and fraud. In general, these claims are based on
allegations that Mr. Wiegert, through a variety of
devices and transactions, has converted for his own
benefit or the benefit of his family members cash,
assets and business opportunities belonging to the
Company. These claims seek monetary damages in an
amount to be proven at trial.
Subsequent to the Company's initiation of the
lawsuit described above, additional civil lawsuits
have been filed wherein the Company seeks damages
from its former corporate secretary, former lawyers
of the Company, and financial institutions holding
Company funds, respectively. In general, these
cases relate to participation of the respective
defendants in transactions or conduct directed by
Mr. Wiegert subsequent to March 22, 1993.
In connection with the above matters,
management of the Company has identified certain
amounts which management believes are due from Mr.
Wiegert and others totalling $475,479 at September
30, 1993. As the ultimate determination of amounts
due are the subject of litigation which is in the
discovery stage and as the ultimate collectibility
of such amounts is uncertain, the balance has been
fully reserved and is included in general and
administrative expense for the year ended September
30, 1993.
F-21
<PAGE> 41
Vector Aeromotive Corporation
Notes to Financial Statements
10. Litigation Mr. Wiegert has asserted various claims against
(Continued) the Company, including claims for unpaid rent
on the Company's former principal facility,
which was leased by the Company from Mr.
Wiegert, and for eviction of the Company from the
facility; breach of employment agreement; and for
the return of business assets which Mr. Wiegert
alleges are owned by him rather than the Company.
The Company intends to contest those matters
vigorously and in the opinion of management, the
ultimate outcome will not have a material impact on
the Company's financial condition. Mr. Wiegert also
alleges that the Company has failed to pay
principal and accrued interest under two promissory
notes allegedly payable by the Company to Vector
Car, a partnership controlled by Mr. Wiegert. At
December 31, 1995, the Company had recorded amounts
due relating to the promissory notes mentioned
above totalling $178,200 plus accrued interest of
$70,324 (see Note 5). This claim is being disputed
by the Company.
In connection with the settlement of a dispute
resulting from the sale of a Vector W8 for $367,360
in 1993, the Company was obligated to pay to the
buyer $410,000. The sale and related cost of sale
were reversed in 1993, and a liability for the
obligation was recorded. During fiscal 1994, the
Company paid the $410,000, and the Vector W8 was
returned to the Company. Included in other expense
for 1993 is $42,640 representing the difference
between the amount received by the Company and the
Company's obligation of $410,000.
In March 1992, an individual filed a complaint
in the Los Angeles County Superior Court. The
complaint set forth five claims for relief, only
one of which was directed against the Company for
breach of contract. The complaint was based upon
bills submitted by this individual for services
rendered to Mr. Wiegert. The claim for relief
alleged that the Company received the benefits of
the alleged agreement. The action was tried in
December 1993, and in April 1994, the individual
was awarded a judgment of $171,420 plus interest
from July 9, 1990. The Company filed an appeal and
posted an appeal bond of $357,000. During 1995, the
Company reached a settlement related to this action
in the total amount of $125,000 which was recorded
in 1994. The related court bond was returned to the
Company, net of the settlement amount in 1995.
F-22
<PAGE> 42
Vector Aeromotive Corporation
Notes to Financial Statements
10. Litigation In June 1994, an individual and a company (the
(Continued) "Plaintiffs") filed a complaint against the
Company in the Los Angeles County Superior
Court. The complaint set forth six claims for
breach of contract, fraud, negligent
misrepresentation, breach of implied covenant of
good faith and fair dealing, restitution and
quantum merit. The complaint alleged that the
Plaintiffs performed services with respect to a
public offering and that under the terms of a
finder's agreement, the Plaintiffs were entitled to
compensation for services allegedly rendered in
connection with the public offering. The Plaintiffs
were seeking special damages of $155,000 plus
interest from August 19, 1991 and general damages
in the sum of $500,000 plus interest from August
19, 1991. During 1995, the Company reached a
settlement related to this action in the total
amount of $100,000.
In 1994, Mr. Wiegert, as general partner of
Vector Car, filed an action alleging that the
Company assumed a Vector Car debt to him in the
approximate sum of $325,000. Vector Car has also
alleged that the Company has a promissory note due
in the amount of $250,000 to Vector Car. The
Company will vigorously defend this action
believing that it has performed on all agreements
with Vector Car.
Legal fees totaled $546,101, $67,779, $772,994
and $256,013 for the year ended December 31, 1995,
the three months ended December 31, 1994 and the
fiscal years ended September 30, 1994 and 1993,
respectively.
F-23
<PAGE> 43
Vector Aeromotive Corporation
Notes to Financial Statements
11. Leases and Leases
Related-Party
Transactions The Company accepted assignment as lessee
of a lease with the former President of the
Company for operating facilities in the amount of
$6,000 per month. The lease expired in October 1992
and continued on a month-to-month basis through
August 1994 (see Note 10). In August 1994, the
Company relocated operations to Florida. Current
operating facilities consist of office space in
Jacksonville, Florida which is leased from a
related company on a month-to-month basis for
$7,176 per month. Rental expense incurred under
related party leasing arrangements totaled $93,546,
$35,145, $89,799 and $131,547 for the year ended
December 31, 1995, three months ended December 31,
1994 and fiscal years ended September 30, 1994 and
1993, respectively. The Company also leases space
for its manufacturing facility in Green Cove
Springs, Florida under a month-to- month lease at a
cost of $5,183 per month.
12. Commitments Engine Development and Purchase Agreement
In November 1994, the Company and Automobili
Lamborghini, S.p.A. ("Lamborghini") entered into an
agreement whereby Lamborghini and the Company's
engineers would co-develop an engine for the M12
vehicle that Lamborghini would sell to the Company
in exchange for certain consideration during 1995.
In addition, the Company shall pay to Lamborghini
the cost of the Company's tooling used to
manufacture the engine. Upon successful development
of the engine suitable for installation and
operation, the Company also agreed to purchase a
minimum number of engines through 1997 for a
predetermined price (subject to increases in cost
of production). The Company may, upon prior written
notice to Lamborghini, terminate the agreement at
any time.
F-24
<PAGE> 44
Vector Aeromotive Corporation
Notes to Financial Statements
12. Commitments Consulting Agreements
(Continued)
In October 1995, the Company entered into an
agreement with a consulting firm to perform certain
services for the Company for one year in exchange
for i) $30,000 in cash, ii) 640,000 shares of
Company common stock to be issued as services are
rendered (290,000 of which were issued in 1995 and
350,000 of which are issuable in April 1996) and
iii) options to purchase 500,000 shares of common
stock at prices ranging from $.50 to $1.75 per
share. Of the options issued under the agreement,
300,000 expire October 1996 and 200,000 expire
October 1997. The fair market value of the common
stock issued in 1995 was recorded as consulting
expense during the year ended December 31, 1995.
The Company paid $150,000 to a related company
for consulting services performed during 1995.
13. Fourth The Company determined in the fourth quarter
Quarter of 1995 that certain internally
Adjustment developed tooling had no future utility.
Accordingly, the Company wrote off
tooling of $394,284, net of accumulated
depreciation.
F-25
<PAGE> 45
Vector Aeromotive Corporation
Notes to Financial Statements
14. New The Company is required to adopt the provisions
Accounting of Statement of Financing Accounting Standards
Standards No. 121, ("SFAS No. 121"), Accounting for the
Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of during its
fiscal year ending December 31, 1996. SFAS No. 121
requires the recognition and measurement of
impairment to long-lived assets and certain
identifiable intangible assets whenever events or
changes in circumstances indicate that the carrying
amount of those assets may not be recoverable. The
effect of the Company's adoption of SFAS No. 121
has not yet been determined.
The Company is also required to adopt the
provisions of Statement of Financial Accounting
Standards No. 123, ("SFAS No. 123"), Accounting for
Stock Based Compensation during its fiscal year
ending December 31, 1996. SFAS No. 123, among other
things, requires certain added disclosures
regarding the fair value of equity instruments,
such as stock options, issued by the Company. In
addition, SFAS No. 123 encourages the recognition
of expense for the fair value of equity instruments
issued by the Company.
The Company has not yet determined whether the
optional expense recognition provisions of SFAS No.
123 will be adopted, and therefore, the effects of
adopting SFAS No. 123 have not been determined.
F-26
<PAGE> 46
Vector Aeromotive Corporation
Notes to Financial Statements
15. Unaudited The following unaudited proforma condensed
Proforma balance sheet of the Company is based on the
Balance balance sheet of the Company adjusted to give
Sheet effect to the transaction discussed in Note 6 as if
it occurred on December 31, 1995:
<TABLE>
<CAPTION>
Historical Adjustments Proforma
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and
cash equivalents $ 12,370 $ 3,700,000 $3,712,370
Other current assets 1,080,866 - 1,080,866
--------------------------------------------------------------------------------
Total current assets 1,093,236 3,700,000 4,793,236
--------------------------------------------------------------------------------
Property and equipment, net 618,083 - 618,083
Other assets 195,250 - 195,250
--------------------------------------------------------------------------------
$ 1,906,569 $ 3,700,000 $5,606,569
================================================================================
Liabilities and
shareholders' equity
Total current liabilities $ 3,349,758 $ (1,000,000) $2,349,758
--------------------------------------------------------------------------------
Total liabilities 3,349,758 (1,000,000) 2,349,758
--------------------------------------------------------------------------------
Shareholders' equity
(deficit) (1,443,189) 4,700,000 3,256,811
--------------------------------------------------------------------------------
$ 1,906,569 $ 3,700,000 $5,606,569
================================================================================
</TABLE>
Pursuant to a Share Purchase Agreement between
V'Power and the Company on January 24, 1996, V'Power
acquired from the Company for $5,000,000 in cash,
10,000,000 newly-issued shares of common stock and a
one-year option for an additional 50,000,000 shares
with an exercise price of $.45 per share. Of the
proceeds, $1,000,000 was utilized to repay a note
payable to V'Power. Closing costs are estimated to
be $300,000 in the proforma.
F-27
<PAGE> 47
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Board of Directors
Vector Aeromotive Corporation
Jacksonville, Florida
The audits referred to in our report to Vector Aeromotive Corporation dated
February 16, 1996, which is contained in Item 14(a)(1) of this Form 10-K
included the audits of the schedule listed under Item 14(a)(2) for each of the
years ended December 31, 1995, September 30, 1994 and 1993 and the three months
ended December 31, 1994. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.
In our opinion, such schedule presents fairly, in all material respects, the
information set forth therein.
BDO SEIDMAN, LLP
Orlando, Florida
February 16, 1996
S-1
<PAGE> 48
Vector Aeromotive Corporation
Schedule II Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Year Expenses Deductions Year
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1995
Reserve for loss
contingency $ 154,187 $ 30,837 $ - $185,024(2)
================================================================================================
THREE MONTHS ENDED
DECEMBER 31, 1995
Reserve for loss
contingency $ 154,187 $ - $ - $154,187(2)
================================================================================================
YEAR ENDED
September 30, 1994
Reserve for loss
contingency $ - $ 154,187 $ - $154,187(2)
================================================================================================
YEAR ENDED
SEPTEMBER 30, 1993
Reserve for loss
contingency $ 395,000 $ - $ (395,000)(1) $ -
================================================================================================
</TABLE>
(1) A deduction of $175,000 results from the delivery of an automobile on
which a specific reserve had been provided. The remaining deduction of
$220,000 results from a charge against inventories to write off obsolete
materials used in the production of the discontinued Vector W8.
(2) Represents a reserve for inventory obsolescence.
S-2
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Vector Aeromotive Corporation on Form S-3 (File Nos. 33-65335) as amended and
Forms S-8 (File Nos. 333-01331 and 333-00073) and prospectuses included therein,
of our reports dated February 16, 1996, on our audits of the financial
statements and financial statement schedules of Vector Aeromotive Corporation as
of December 31, 1995 and for each of the years ended December 31, 1995,
September 30, 1994, September 30, 1993 and the three months ended December 31,
1994, which reports are included in this Annual Report on Form 10-K.
BDO Seidman, LLP
Orlando, Florida
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 12,370
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 801,560
<CURRENT-ASSETS> 1,093,236
<PP&E> 1,164,362
<DEPRECIATION> (546,279)
<TOTAL-ASSETS> 1,906,569
<CURRENT-LIABILITIES> 3,346,758
<BONDS> 0
0
0
<COMMON> 426,646
<OTHER-SE> (1,869,835)
<TOTAL-LIABILITY-AND-EQUITY> 1,906,569
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 108,390
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,800,426
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,652,565)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,652,565)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,652,565)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> 0
</TABLE>
