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
For the fiscal year ended December 31, 1996
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)
975 MARTIN AVENUE
GREEN COVE SPRINGS, FLORIDA 32043
(Address of principal executive offices, including Zip
Code)
Registrant's telephone number, including area code
(904) 529-0092
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 No X
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 February 28, 1998, 53,639,599 shares of the issuer's
Common Stock were outstanding, and the aggregate market
value of the 13,224,710 shares held by non-affiliates was
$1,190,224. The market value of the shares was calculated
based on the closing bid price of such shares on the NASDAQ
Bulletin Board on such date.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's Proxy Statement in connection
with the Annual Meeting of Shareholders filed with the
Securities Exchange Commission with the Definitive Form 14-A on
April 29, 1996, are incorporated by reference into
Items 11 and 12, Part III, hereof as more specifically
described herein.
PART I
ITEM 1. BUSINESS.
GENERAL
Vector Aeromotive Corporation (the "Company" or "Vector")
was incorporated in September, 1987, to acquire
substantially all of the assets of Vector Car, the
predecessor partnership. Vector Car had been in the
development stage since its formation in 1978 during which
time it had been primarily engaged in the design,
manufacture and assembly of exotic sports cars known as the
Vector W8 and Vector WA-8. Twenty-two Vector W8's were
produced and sold between 1988 and 1993 at an
manufacturer's suggested retail price of $283,750.
Production of the Vector W8 was ceased in early 1993.
During fiscal years 1992 and 1993, the Company developed
design concept specifications for a new automobile type
known as the Avtech SC. During 1993 to 1995 the Company's
resources were applied to the design, development,
marketing and manufacture of the Avtech SC. The Avtech was
a two-passenger, mid-engine, rear-wheel drive coupe with an
original suggested retail price of $189,000.
The M12 premiered at the North American Auto Show in
Detroit in January 1996. The first M12 was completed and
sold in March 1996. During 1996, the Avtech SC was
prepared for full scale production as the Vector M12, and
eight production models were produced with an
manufacturer's suggested retail price of $189,000. However,
funds were depleted by November, 1996, after production of
only eight Vector M12's and sale of only four Vector M12's,
and the Company closed its production facilities in Green
Cove Springs, Florida, and suspended operations.
<PAGE>
CHANGES 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 is believed to be controlled by Mr. Hutomo Mandala
Putra, who is also believed to be 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 (and certain of his affiliates)
was initiated in 1993, and as of December 31, 1996,
significant claims and counterclaims were pending in this
litigation. The Company over the years dedicated
significant resources and management time to this ongoing
litigation. The litigation was finally settled by a
Settlement and Release Agreement dated December 19, 1996,
executed on behalf of Gerald Wiegert, Vector Car Limited
and Gerald Wiegert d/b/a Velocity Properties by the Clerk
of the Court pursuant to an Order Re Signing of Settlement
Documents by Clerk of this Court, dated October 9, 1997.
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 $2,370,000, 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 (which option expired
unexercised subsequent to December 31,1996). 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. These options expired
unexercised on April 6, 1997. 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 (which
option expired unexercised subsequent to December 31,1996).
The Company received investment bankers' fairness opinions
with respect to the 1995 and the 1996 transactions, and the
Company believed that these transactions with V'Power were
fair to and in the best interests of the Company.
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.
In a transaction finalized in September 1997, but dated as
of July 22, 1997, American Dream International, Limited
("American Dream") entered into agreements with the Company
and several other related organizations including: V'Power
Corporation , Automobili Lamborghini S.P.A. ("ALSPA") and
Automobili Lamborghini USA ("ALUSA"). V'Power currently
owns a majority of the shares of Common Stock of the
Company (37,333,333 shares as of July 22, 1997).
V'Power's majority interest is subject to right of American
Dream to designate to V'Power a majority of the Board of
Directors of the Company. ALSPA has contracted to provide
the engine for the Vector M12 automobile. In addition,
ALSPA and ALUSA are the largest trade creditors of the
Company.
The transactions among American Dream, the Company,
V'Power, ALSPA and ALUSA are summarized below:
(1) The Company has provided American Dream an option to
purchase 60,000,000 shares of Common Stock of the Company
for a total purchase price of $1,250,000. The option may
be exercised for a period commencing July 22, 1997 and
ending thirty days after the full funding of the initial
line of credit in the amount of $1,250,000 described below.
American Dream also has been granted registration rights
for the Common Stock if purchased.
(2) American Dream assumed control of the Company's Board
of Directors on July 24, 1997, with the election of W. R.
Welty, T. J. Enright and D. Kordek to fill vacancies on the
Company's then existing Board of Directors. In addition, T.
J. Enright also was elected Chief Operating Officer and
Secretary of the Company. Subsequently, D. Kordek resigned
as a member of the Company's Board of Directors , and Lilly
Beter was elected to fill that vacancy and to act as
Treasurer of the Company. V'Power has agreed that, for ten
years after the purchase by American Dream of Common Stock
of the Company pursuant to the option described above, it
will vote in the election of directors for the election of
a majority of directors nominated or designated by American
Dream.
(3) V'Power has agreed to restrict the sale of its Common
Stock of the Company (now owned or later acquired, by
exercise of options or otherwise) for a period of four
years from July 24, 1997. The restriction will be absolute
except (I) V'Power may sell shares under Rule 144A or by
other institutional private placement if each purchaser
agrees in writing to abide by the restrictions on resale
imposed on V'Power and (ii) V'Power may sell all or any
portion of its shares of the Company to American Dream or
its assigns (which can be limited to American Dream's
affiliates if so desired by V'Power). Likewise, American
Dream has agreed to restrict the sale of its Common Stock
of the Company.
(4) American Dream has agreed to provide a loan to the
Company consisting of (i) a line of credit in the amount of
$1,250,000 which converts to a 10-year term loan when it is
fully funded and (ii) a line of credit in the amount of
$2,500,000. The loans bear interest at prevailing
institutional lending rates (10% for the term loan and
prime plus 2% for the line of credit if the loan is made by
American Dream) and are secured by all assets of The
Company. Each loan is payable on demand, except the
$1,250,000 loan becomes payable in monthly installments
upon conversion to a term loan when it is fully funded. The
$2,500,000 line of credit commences on the full funding of
the $1,250,000 loan. American Dream and the Company have
entered into a Loan and Security Agreement, which has been
filed with the Securities and Exchange Commission, setting
forth more fully the terms of the loans.
(5) V'Power has granted to American Dream or its assigns
the option to purchase at any time after December 31, 1997,
any Common Stock of the Company then owned by V'Power at a
purchase price equal to 70% of the market price (the
average of the bid and ask price at the close of the ten
trading days prior to the exercise of the option) on the
regular trading day immediately prior to date of exercise
by American Dream. The option expires four years from the
date that American Dream purchases Common Stock of the
Company under the option described above. American Dream
may exercise the option by written notification to V'Power
at any time specifying the number of shares to be purchased
and the purchase price, and the sale will occur within 30
days of such notification by delivery of the specified
number of shares by V'Power and the payment of the purchase
price in cash.
(6) ALSPA has extended for a minimum of one year its
existing agreement with The Company to supply model year
M12 engines and other Lamborghini components to be used in
the Vector M12 model. The volume of engines to be purchased
by The Company within the twelve month contract term is 15
engines.
(7) In connection with these transactions, ALSPA has
agreed to convert its $424,111 account receivable from the
Company into 4,241 shares of Preferred Stock of the
Company. Similarly, ALUSA has agreed to convert its
$568,577 account receivable from the Company into 5,686
shares of Preferred Stock of the Company. The conversion
is subject to American Dream's exercise of its option to
acquire 60,000,000 shares of the Company's common stock.
Each share of Preferred Stock is issued at a price of
$100.00 per share. The Preferred Stock has certain
mandatory redemption provisions calling for redemption
payments over 19 months. The dividend rate of the
Preferred Stock is based upon the London Interbank Offered
Rate (LIBOR) at the time of the inception of the preferred
stock transaction.
The Board of Directors of the Company has appointed three
individuals designated by American Dream. American Dream
and V'Power have agreed that V'Power will vote its shares
for these or other nominees of American Dream until such
time as American Dream declines to make any discretionary
funding under the $1,250,000 line of credit specified above
or, upon exercise by American Dream of its option to
purchase 60,000,000 shares, for a period of ten years.
Finally, the Company has granted to V'Power a perpetual,
non-exclusive license to use certain technology of the
Company. The license was granted in exchange for a
combination of debt forgiveness and cash in the aggregate
amount of $500,000.
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. 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.
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 a 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. The Company has entered into an Agreement with
Lamborghini to purchase 15 engines prior to July 24, 1998.
The Vector engine manufactured by Lamborghini, however, is
tested and able to be sold only through the calender year
1998. The Company anticipates developing a new engine or
upgrading existing engines with Lamborghini or establishing
a relationship with a new engine manufacturer prior to
December 31, 1998.
Chassis construction utilizes a semi-monocoque structure
with a chrome-moly steel roll cage, while main 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 manufactured 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 facility has remained available to Vector;
however, Vector terminated all production employees and
production operations at the manufacturing facility in
November, 1996, and has recommenced production only on a
limited basis. The Company believes that the manufacturing
facility is capable of supporting the production of 100
cars per year and supporting Vector's production for the
foreseeable future.
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 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
Vector's marketing efforts ceased in the Fall, 1996.
Between August 1, 1997, and December 31, 1997, Vector sold
three cars. Once full production is recommenced, 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 plans to 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, two of which filed lawsuits against
the Company for the return of one or more Vector M12 cars.
See "Item 3. LITIGATION". The Company believes that any
problems raised in the lawsuits do not relate to material
engineering or production shortcomings. The Company
currently has two dealers.
As the Company's production levels increase, the Company
intends to reactivate or develop up to 12 to 14 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 prior dealer arrangements, each dealer
was required to purchase and carry two Vector M12's in
inventory. Future dealer arrangements for the purchase of
vehicles may change. 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
The Company at December 31, 1996, and September 30, 1997,
had no backlog of unfilled purchase orders. The company
ceased production in November, 1996, and has not commenced
full time production as of December 31, 1997, although the
Company produced 4 vehicles between July 24, 1997, and
December 31, 1997.
PRODUCT DEVELOPMENT
The Company has expended to date since initial design work
began in mid-1993 an aggregate of $7,565,521 on research
and development of the Vector M12, none of which was
customer-sponsored. There was no research and development
expense in 1997. Research and development expense totaled
$975,521, $4,427,000, $260,000, and $1,180,000 for the
years ended December 31, 1996 and 1995, three month's ended
December 31, 1994 and fiscal years ended September 30,
1994, respectively.
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, BMW, 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 1999 model year light-duty vehicles.
California has its own OBD requirements
which are more stringent 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 objectiveterms.
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
1997 through 2000 will not be substantial related to
compliance with these regulations.
EMPLOYEES AND CONSULTANTS
At December 31, 1996, the Company had no employees. D.
Peter Rose, the President of the Company, was a consultant
of the Company when he resigned as President as of November
11, 1997. The Company currently has contracted with
unaffiliated third parties to provide management services
and labor. The primary function of all of the Company's
current labor force is to build the financial and
accounting knowledge to facilitate the recommencement of
production activities and the raising of additional funds.
YEAR 2000
The Company, like most owners of computer software, will be
required to modify portions of its software so that it will
function properly in the year 2000. Due to the use of
standard computer software packages, management does not
expect the amounts required to be expensed over the next
two years to have a material effect on the Company's
financial position or results of operations.
ITEM 2. PROPERTIES.
The Company currently leases on a month-to-month basis
22,500 square feet of office, manufacturing, assembly and
warehouse space in Green Cove Springs, Florida, at a cost
of $6,075 per month from an unrelated party. This facility
serves as the Company's manufacturing and assembly facility
and since August 1997, the Company's principal executive
office. During 1996 the Company leased 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. That lease was
terminated in 1997.
ITEM 3. LITIGATION
As described below, the Company and Gerald A. Wiegert are
parties to certain legal proceedings which arose, among
other things, 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 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, (Case
Number BC77567) 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.
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
were pending in 1996. These claims sought monetary damages
in an amount to be proven at trial. Mr. Wiegert also
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 were asserted in
a separate action filed in the Superior Court of
California, Los Angeles County, on September 27, 1993
captioned Gerald A. Wiegert v. Vector Aeromotive
Corporation (Case Number BC089889). Mr. Wiegert's
complaint was dismissed by the court on April 23, 1997.
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 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.
In another action filed by Mr. Wiegert as general partner
of Vector Car entitled Vector Car v. Vector Aeromotive
Corporation, et al., filed in the Superior Court of
California, Los Angeles County (Case Number BC106893) on or
about June 15, 1994, Mr. Wiegert alleged 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. This action was referred to the declaratory
relief case with Gerald Wiegert, Case Number BC77567,
referenced above.
The litigation with Mr. Wiegert was finally settled by a
Settlement and Release Agreement dated December 19, 1996,
executed on behalf of Gerald Wiegert, Vector Car Limited
and Gerald Wiegert d/b/a Velocity Properties by the Clerk
of the Court pursuant to an Order Re Signing of Settlement
Documents by Clerk of this Court, dated October 9, 1997.
As part of the settlement, the Company transferred to Mr.
Wiegert certain assets of Vector, none of which are
necessary to Vector's continued operations, and signed a
non-opposition to Mr. Wiegert's trademark application for
the mark "Avtech". Mr. Wiegert transferred to the Company
his trademark rights to the marks "Vector" and "Vector W8".
The Company has granted Mr. Wiegert a license to use the
name "Vector" in the sale of certain Hot Wheels toy cars by
Mattel Toys. The settlement did not involve the payment of
money by any party.
In Vector Aeromotive Corporation v. Merrill Lynch, Pierce,
Fenner & Smith, Inc. (Case Number BC092389), filed on
November 2, 1993, in the Superior Court of California, Los
Angeles County, the Company alleged 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 contended 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), filed
on or about July 21, 1993, in the Superior Court of
California, Los Angeles County, Merrill Lynch interpled
those funds which remained in the accounts. This action
was referred to the declaratory relief case with Gerald
Wiegert, Case Number BC77567 referenced above. 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 sought 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. The arbitration panel found in favor of
Merrill Lynch.
In Vector Aeromotive Corporation v. Tokai Bank of
California (Case Number BC092534), filed in the Superior
Court of California, Los Angeles County, on or about
November 4, 1993, the Company alleged 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 sought 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. The case was settled in 1997 by the payment to the
Company of $50,000; however, the check has not been
negotiated due to a dispute over legal fees owed to Richard
J. Aprahamian, a former officer and director of the
Company, and his law firm. The Company is unable at this
time to determine when it will have access to these
settlement funds.
In Vector Aeromotive Corporation v. David Kostka (Case
Number BC091267), filed on or about October 15, 1993, in
the Superior Court of California, Los Angeles County, the
Company seeks to recover disbursements made by Messrs.
Wiegert and Kostka through the Merrill Lynch and 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 is seeking
damages therefore of approximately $20,000, which the
Company intends to vigorously defend if pursued by Mr.
Kostka. The case was submitted to binding arbitration, but
was not pursued by either party. The case was dismissed
April 23, 1997.
In Vector Aeromotive Corporation v. Barash & Hill, et al.
(Case No. BC092390), filed on or about November 2, 1993, in
the Superior Court of California, Los Angeles County, the
Company alleged 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 case
was dismissed April 23, 1997.
In Albert Burtoni v. Vector Aeromotive Corporation, (Case
Number CV761178), filed on or about October 22, 1996, in
the Superior Court, Santa Clara County, California, Albert
Burtoni filed suit against the Company for breach of
contract. The case arises out of delivery of automobiles
to Albert Burtoni under a dealer agreement. In summary,
Albert Burtoni seeks damages for untimely delivery of two
automobiles and delivery of unsalable automobiles. The
Complaint seeks damages of $176,618.90, plus $1,000 per
month from September 22, 1996. The Company intends to
vigorously defend this action. This matter is in binding
arbitration and a hearing is expected on March 24, 1998.
In Ron Tonkin Gran Turismo, Inc., v. Vector Aeromotive
Corporation (Case Number 9701-00160), filed on or about
January 8, 1997, in the Circuit Court, Multnomah County,
Oregon, Ron Tonkin Gran Turismo, Inc. ("Ron Tonkin") filed
suit against the Company for breach of contract, unlawful
trade practices and fraud. The claims centered around the
delivery or attempted delivery of two automobiles to Ron
Tonkin under a dealer agreement. In summary, Ron Tonkin
seeks a return of his cost of the two M12 cars, plus
interest. The total amount sought was $330,262, plus
interest. The Company assisted Ron Tonkin in selling one
of the automobiles subject to the suit for $157,000, and
has settled the dispute relating to the second car for a
cash payment and the sale of the car.
In T-n-A Custom Auto Trim, Inc., v. Vector Aeromotive
Corporation (Case Number 96-2539-CA-CV-G), filed on or
about May 28, 1996, in the Circuit Court, Duval County,
Florida, T-n-A Custom Auto Trim, Inc. ("Custom Trim") seeks
damages for breach of contract arising out of a contract
for Custom Trim to provide material and labor for
components of automobiles manufactured by the Company,
which never were manufactured. The amount of damages
sought is unspecified and to be determined at trial. The
Company is vigorously defending this case. A jury trial
has been set for April 20,1998.
In Clay County Port, Inc., v. Vector Aeromotive Corporation
(Case Number 96-2335-CA-B), filed on or about November 21,
1996, in the Circuit Court, Clay County, Florida, Clay
County Port, Inc., filed suit against the Company to
collect delinquent rent on the Company's production
facility. Clay County Port, Inc., also obtained on
November 25, 1996, a Distress Writ subjecting all assets of
the Company located at 975 Martin Avenue, Green Cove
Springs, Florida, which is substantially all the assets of
the Company, to a lien for rent in favor of Clay County
Port, Inc., the landlord, and enjoining the Company from
damaging, disposing of, secreting or removing any of the
property subject to the Writ. In August, 1997, the Company
settled the litigation with a lump-sum payment and periodic
payments to satisfy the lease obligations. The Company
currently uses the facilities at 975 Martin Avenue, Green
Cove Springs, Florida, as its principal office and
production plant.
On or about September 19, 1997, the Tax Collector filed
against the Company an Amended Petition by the Clerk of the
Circuit Court to enforce a Notice of Delinquent Taxpayer
for Validation of Tax Warrants,In Re The Petition of Jimmy
Weeks, in his official capacity as Tax Collector of Clay
County, Florida, Case No. 97-2393-CA-E, in the Circuit
Court, Clay County, Florida. The action seeks to impose a
Florida tax lien on the assets of the Company to pay 1996
Florida tangible personal property taxes. The Tax
Collector determined that the Company owed $15,549.31 in
tangible personal property taxes. A Final Judgment
authorizing the Tax Collector to seize and sell personal
property of the Company sufficient to pay the tax was
entered November 4, 1997, and recorded in the Public
Records on November 14, 1997. The Company was unaware of
the Tax Warrant or the action until January, 1998, because
all notices and information concerning this case was sent
to the Company's former offices at Lamborghini, U.S.A.,
Inc., and not forwarded. The Company has paid the taxes.
In Puresport Engineering, Ltd. v. Vector Aeromotive
Corporation (Case Number 96-005394-CA), filed on or about
October 14, 1996, in the Circuit Court, Duval County,
Puresport Engineering, Ltd., is seeking $77,191.63, plus
interest, for engineering and consulting services.
Defendant filed a Motion to Dismiss or in the alternative a
Motion to Stay based on failure of Puresport Engineering,
Ltd., to obtain authorization to do business in Florida. A
Final Order of Dismissal was filed on August 26, 1997.
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 1996 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.
Until September 11, 1996, the Company's Common Stock was
traded on the NASDAQ SmallCap Market under the symbol VCAR.
On September 11, 1996, the National Association of
Securities Dealers (NASD) deleted the Company's Common
Stock from listing on the NASDAQ SmallCap Market. Since
that time the Company's Common Stock has been traded on the
over-the-counter market on NASDAQ Bulletin Board. 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 and in the
in over-the-counter market for 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
CALENDAR 1995
First Quarter .56 .44
Second Quarter .50 .34
Third Quarter 1.00 .47
Fourth Quarter 1.25 .53
CALENDAR 1996
First Quarter .97 .50
Second Quarter .81 .47
Third Quarter .72 .22
Fourth Quarter .34 .03
On June 30, 1997, there were 3,566 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. The
Company currently has no funds from which to pay dividends
and as of December 31, 1996, the Company's shareholders'
deficit was $2,015,871. The Company intends to retain all
earnings for use in its business for the foreseeable future
except as required by the Company's preferred stock when
issued to ALSPA and ALUSA. The Board of Directors, at its
discretion, may elect to pay dividends in the future based
upon, among other factors, the level of the Company's
earnings, capital and future prospects.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial
information of the Company for each of the periods
indicated. This data should be read in conjunction with
the financial statements of the Company and the notes
thereto appearing elsewhere herein.
SUMMARY FINANCIAL INFORMATION
(AMOUNTS IN 000'S EXCEPT FOR PER SHARE AMOUNTS)
THREE
YEARS ENDED MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994 1993 1992
------------------- ---- -------------
STATEMENTS OF LOSS DATA:
Sale......$ 839 $ - $360 $ 48 $1,467 $1,288
Gross Profit
(Loss)..(2,368) (108) - 22 517 313
Operating
Loss....(5,475)(7,514) (818) (4,521) (4,094) (4,233)
Net Loss..(5,595)(7,653) (765) (4,471) (3,890) (4,307)
Net Loss
per Share.(.11) (.19) (.03) (.21) (.28) (.39)
Dividends
per Share..None None None None None None
Weighted Average
Shares.....52,589 40,919 24,046 21,511 13,690 10,245
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994 1993 1992
------------------ ---- ------------
BALANCE SHEET DATA:
Current Assets.$ 761 $1,093 $ 594 $1,167 $1,326 $2,706
Working Capital
(deficit)......(2,142) (2,257) (274) 461 (311) 1,688
Total Assets.... 887 1,907 1,295 1,898 1,698 4,483
Total
Liabilities...2,903 3,350 933 771 1,737 1,591
Shareholders' Equity
(deficit)..... (2,016)(1,443) 361 1,126 (39) 2,892
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.
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. Nevertheless
the Company suspended operations in November 1996 due to
lack of funds. The Company currently has funds available
only to fund limited production and has current liabilities
that exceed current assets. Partially because of the amount
of money spent on development of the M12 without profits,
the Company under its new management recommenced limited
operations and plans to proceed gradually to conserve its
financial resources.
In addition, because of the Company's lack of sales in 1994
and 1995, the commencement of production activities in the
fourth quarter of 1994 and the suspension of all production
activities in November 1996, 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
years 1994 through 1996, 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 sold four cars by the end
of 1996; however, three cars subsequently were returned to
the Company or became the subject of litigation with the
Company's dealers. By November, 1996, due to lack of
funds, the Company had ceased substantial activities. It
was not until August, 1997, that the Company recommenced
any meaningful business activities, and only on a limited
basis.
Litigation with the Company's former President, Gerald
Wiegert, who was termination in March 1993, and related
lawsuits consumed significant capital and management
attention in calender years 1994 through 1996. For further
information with respect to this litigation, see Note 10 of
Notes to Financial Statements included elsewhere herein.
Legal fees totaled $179,078, $546,101, $67,779 and $772,994
for the years ended December 31, 1996 and 1995, the three
months ended December 31, 1994, and the fiscal year ended
September 30, 1994, respectively. Those legal fees
generally were paid to a then director of the Company,
Richard J. Aprahamian, or his law firm.
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 $21.5 million in net
offering proceeds from the sale of equity securities and
options through December 31, 1996, compared to the
Company's aggregate sales of $2.71 million during the same
period. Nevertheless the Company had no funds remaining
for operations by November, 1996.
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, which expired unexercised in
April 1997. 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, which expired unexercised in April 1997. 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, which expired unexercised.
The Company received investment bankers' fairness opinions
with respect to the 1995 and the 1996 transactions, and the
Company believed that these transactions with V'Power were
fair to and in the best interests of the Company. The
Company does not believe 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.
Notwithstanding the sale of equity securities of $6,000,000
in the first quarter of 1995 and $5,000,000 in the first
quarter 1996, at December 31, 1995 and 1996, the Company
had cash and cash equivalents of $12,370 and $33,864,
respectively. Net cash used by the Company in 1996 totaled
$4,075,757 for research and development and operating
activities. Net cash used by the Company in 1995 totaled
$6,565,000, consisting of among other things $5,892,000
used for research and development and operating activities
and $673,000 used in the purchase of capital assets
including tooling. Net cash used by the Company in the
year ended September 30, 1994, totaled $5,309,000
consisting of among other things $4,754,000 used for
research and development and operating activities and
$555,000 used in the purchase of capital assets including
tooling. The Company currently is cautiously proceeding to
restore and stabilize operations and did not spend any
material amounts in 1997 for capital equipment or research
and development.
The Company's only source of capital at the present time is
a loan from American Dream International, Limited, which is
provided on a discretionary basis. There can be no
assurance that this financing source will be sufficient to
provide cash necessary for the Company to recommence
production in full, to pay existing commitments such as
rent or pay all or any significant portion of the existing
creditors of the Company. The Company currently has no
other commitment from others to provide additional capital,
and there can be no assurance that such funding will be
available if or 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 again cease business activities altogether.
The lack of liquidity and capital resources raise
substantial doubt about the Company's ability to continue
as a going concern. However, the Company has initiated the
following actions which it believes will allow the Company
to resume profitable operations.
(a) As more fully described in "CHANGES OF CONTROL AND
FINANCING TRANSACTIONS" the Company has entered into an
agreement with American Dream for additional capital as
well as restructuring its debt to an affiliated company.
(b) The Company has consolidated all operations into the
plant in Green Cove Springs, Florida.
(c) The Company has settled litigation which has endured
for several years.
(d) The Company has resumed operations with a new
management team. The objective of this team is to
significantly reduce operating expenses while continuing to
produce the Vector M12.
RESULTS OF OPERATIONS
At December 31, 1996, the Company had an accumulated
deficit of $39,338,376. For the years ended December 31,
1996 and 1995, the three months ended December 31, 1994,
and the fiscal year ended September 30, 1994, the Company
had a net loss of $5,594,993, $7,652,565, $764,738 and
$4,471,032, respectively. The loss equaled a total of
$18,483,328 for the three years and three months, with
total aggregate revenues during the same period of
$1,247,098. The Company's net loss for the year ended
December 31,1997 was $213,016. The future success of the
Company will be influenced 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.
Similarly, total general and administrative expenses
decreased again in 1996 from $2,979,000 to $1,800,958 for
the year ended December 31, 1996, primarily due to the
Company suspended operations beginning approximately
August, 1996. 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 1996, 1995 and 1994, non-cash compensation
expense relating to granting stock options below market
value was recorded totaling $-0-, $133,440, $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.
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 increased from $1,179,000 in
fiscal year 1994 to $4,427,000 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. Research and
development was $975,521 for the year ended December 31,
1996. Research and development ceased with other
operations by November, 1996, and has not been revitalized
to date.
Other income (expense) was ($120,000), ($138,000), $53,000
and $50,000 for the year ended December 31, 1996 and 1995,
the transition period ended December 31, 1994, and the year
ended September 30, 1994. Miscellaneous expenses and legal
settlements are included, offset by investment earnings on
invested funds in 1995 and 1994.
The Company has various deferred tax assets totaling
$14,238,000 as of December 31, 1996. Due to the
uncertainty of the realization of these tax assets the
Company has offset these deferred tax assets with a
valuation allowance. However, the Company could realize
benefit from some of these tax assets to offset future tax
liabilities, in any.
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 adoption of SFAS No. 121 had no material
effect on the Company's financial condition or results of
operations.
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
adoption of SFAS No. 123 had no material effect on the
Company's financial condition or results of operations.
In March 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). SFAS 128, which is
effective for financial statements issued for periods
ending after December 15, 1997, simplifies the standards
for computing earnings per share ("EPS") and makes them
comparable to international earnings-per-share standards.
This statement replaces the presentation of primary EPS and
fully diluted EPS with a presentation of basic EPS and
diluted EPS, respectively. Basic EPS excludes dilution and
is computed by dividing earnings available to common
stockholders by the weighted average number of common
shares outstanding for the period. Similar to fully diluted
EPS, diluted EPS reflects the potential dilution of
securities that could share in the earnings. This statement
is not expected to have a material effect on the Company's
reported earnings-per-share amounts.
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), and No. 131,
"Disclosure about Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 130 establishes standards for
reporting and displaying comprehensive income, its
components and accumulated balances. SFAS 131 establishes
standards for the way that public companies report
information about operating segments in annual financial
statements and requires reporting of selected information
about operating segments in interim financial statements
issued to the public. Both SFAS 130 and SFAS 131 are
effective for periods beginning after December 15, 1997.
The Company has not determined the impact that the adoption
of these new accounting standards will have on its future
financial statements and disclosures.
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.
Name Position
W. R. Welty Director
T. J. Enright Director
Chief Operating Officer
Secretary
Lilly Beter Director
Chief Financial Officer
Michael J. Kimberley Director
Lilly Beter (age 63) has been a director of Vector since
August 4, 1997, and Chief Financial Officer since September
11, 1997. For the past five years, Ms. Beter has been
President of Lilly Beter Capital Group, Inc., a
lobbyist and financial consultant. Ms. Beter was elected
a director pursuant to the terms of a Loan Agreement dated
July 22, 1997, under which American Dream, formerly known
as Tradelink International, Ltd., has agreed to fund
discretionary lines of credit in the aggregate amount of
$3,750,000, and a Shareholders Agreement and Option dated
July 22, 1997, under which the majority shareholder of the
Company, V'Power Corporation, has agreed to vote as
director certain nominees of American Dream.
T. J. Enright (age 52) has been a director of the Company
since July 22, 1997. Mr. Enright was appointed Chief
Operating Officer and Secretary of the Company on August 4,
1997. For the past five years, Mr. Enright has been acting
as a business consultant through Sinclair Management, Ltd.,
a corporation organized under the laws of The Bahamas. In
1994, Mr. Enright acting as a business consultant wrote a
business plan for Vector in which he evaluated Vector's
operations and business prospects. Mr. Enright also has
been employed in various executive positions by Group Lotus
plc, the manufacturer of Lotus sports cars, and certain of
its affiliated companies. Mr. Enright was elected a
director pursuant to the terms of a Loan Agreement dated
July 22, 1997, under which American Dream, formerly known
as Tradelink International, Ltd., has agreed to fund
discretionary lines of credit in the aggregate amount of
$3,750,000, and a Shareholders Agreement and Option dated
July 22, 1997, under which the majority shareholder of the
Company, V'Power Corporation, has agreed to vote as
director certain nominees of American Dream. Mr. Enright
has been responsible for the day-to-day management of
Vector since August 4, 1997.
Michael J. Kimberley (age 59) has served as a director of
the Company since May 1994. Since January, 1997, Mr.
Kimberly has been an executive advisor to the national
automobile industry in Indonesia. From April 15, 1994, to
December, 1997, Mr. Kimberley served as president of
Lamborghini. From January 1992 to April 1994, he was the
Executive Vice President of General Motors Overseas
Corporation for Malaysia. Prior to that time, Mr.
Kimberley had been employed in various executive positions
by Group Lotus plc, the manufacturer of Lotus sports cars,
and certain of its affiliated companies. Mr. Kimberley
also has acted as an unpaid technical consultant to Vector
since January 1, 1997.
W. R. Welty (age 51) has been a director of the Company
since July 22, 1997. Mr. Welty was elected a director
pursuant to the terms of a Loan Agreement dated July 22,
1997, under which American Dream, formerly known as
Tradelink International, Ltd., has agreed to fund
discretionary lines of credit in the aggregate amount of
$3,750,000, and a Shareholders Agreement and Option dated
July 22, 1997, under which the majority shareholder of the
Company, V'Power Corporation, has agreed to vote as
director certain nominees of American Dream. American
Dream also has the right to purchase sufficient shares of
common stock of the Company to make American Dream the
majority shareholder of the Company. Mr. Welty is the
majority shareholder of American Dream. Mr. Welty owns and
operates a series of businesses in California oriented to a
mature, adult customer that employ or contract with in the
aggregate approximately 500 people. These business
entities are as follows: A-Z Books, Inc., (bookstore); Bar
Venture, Inc. (leases bar equipment); Gale Turnbull, Inc.
(dance bar); Kona Bar & Grill, Inc. (bar and grill); Manta
Management, Inc. (dance bar); T & A Video (video rental,
book store and dance bar). In addition, Mr. Welty is an
owner in Associated Construction Services, Inc. (insurance
consultant on catastrophic events) and Quicksilver
Enterprises, Inc. (manufactures ultra light aircraft). Mr.
Welty has been actively involved in the development of the
Company's business strategy and in important implementation
decisions.
Section 16(a) Beneficial Ownership Reporting Compliance
In January, 1996, V'Power purchased from the Company
10,000,000 newly issued shares of common stock and an
option, which has since expired, to acquire an additional
50,000,000 shares of common stock of the Company. The
current management of the Company is not aware based upon
the Company's records that a Form 4 was filed by V'Power
reporting this common stock purchase, although the
transaction was reported on a Form 8-K by the Company and
the Company obviously was aware of the purchase. In
addition, the records of the Company reflect that the
common stock owned by Setdco Engineering Corporation may
have been reduced from 5,000,000 shares to 3,000,000 shares
at some time between March 31, 1995, and June 30, 1997;
however the Company has no record of the filing of a Form 4
or Form 5 describing the reduction in ownership. The
records of the Company received by current management,
however, may not accurately reflect the actual records of
the Company at a specific time in 1996 because some
corporate records are believed to have been lost, misplaced
of inadvertently destroyed between the time that the
Company suspended operations due to lack of funds and the
time that current management of the Company received the
records of the Company.
ITEM 11. EXECUTIVE COMPENSATION.
For the year ended December 31, 1996, the Company paid D.
Peter Rose salary of $117,500 and paid a consulting company
believed to be owned by D. Peter Rose consulting fees of
$16,000. D. Peter Rose was President of the Company until
his resignation effective November 11, 1997. For the year
ended December 31, 1996, the Company paid its chief
financial officer, Janna Connolly, salary of $64,026. The
current management is not aware of the grant of any stock
options or other compensation paid to executive employees
in 1996.
For years prior to the year ended December 31, 1996,
information is incorporated by reference from the
definitive proxy statement filed with the Securities
Exchange Commission with the Definitive Form 14-A on April
29, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners.
(1) (2) (3) (4)
Title of Name and address Amount and nature Percent
Class of beneficial of of
owner beneficial Class
ownership
Common V'Power Corporation 37,333,333(a) 69.6%
Wisma Antars 3rd Floor
JLN Medan Selatan #17
Jakarta 10110 Indonesia
Common Sedtco 3,000,000 5.6%
Engineering Corp.
c/o Eagle Holding Ltd.
Leppo Plaza 3rd Floor
J L Jenl Sudi Amakav 25
Jakarta 12920 Indonesia
Common American Dream 37,333,333(b) 69.6%
International Limited
c/o One Independent Drive
Suite 3131
Jacksonville, FL 32202
Common W. R. Welty(c) 37,333,333(b) 69.6%
c/o One Independent Drive
Suite 3131
Jacksonville, FL 32202
Common American Dream 60,000,000(d) 52.8%(d)
International Limited
c/o One Independent Drive
Suite 3131
Jacksonville, FL 32202
Common W. R. Welty(c) 60,000,000(d) 52.8%(d)
c/o One Independent Drive
Suite 3131
Jacksonville, FL 32202
_______________________
(a) Management believes that V'Power may have the right to
acquire or has acquired the common stock owned by Sedtco
Engineering Corp., in which case the total number of shares
beneficially owned by V'Power would be 40,333,333 and the
percent of ownership would be 75.2%, although this
transaction has not been confirmed by the Company.
(b) American Dream has certain rights to acquire and
certain rights to vote or direct the vote of common stock
of the Company owned by V'Power as more fully described
above under the caption "Item I. BUSINESS - General".
(c) W. R. Welty owns and controls American Dream. See
notes (b) above and (d) below.
(d) American Dream has certain rights to acquire authorized
but unissued shares of common stock of the Company as more
fully described above under the caption "Item I. BUSINESS -
General". The percent of ownership assumes the issuance of
the additional 60,000,000 shares by the Company, in which
case the percent of ownership of other beneficial owners
would decrease accordingly, and the only other five percent
owner known to the Company would be V'Power, which would
own 32.5% based on 37,333,333 shares.
Security Ownership of Management.
(1) (2)
(3) (4)
Title of Name Amount and nature Percent
Class of beneficial of of
owner beneficial Class
ownership
----------------------------------------------------------
Common W. R. Welty(a) 37,333,333(a) 69.6%
Common W. R. Welty 81,556 *
Common T. J. Enright 37,333,333(b) 69.6%
Common W. R. Welty(c) 60,000,000(c) 52.8%(c)
Common T. J. Enright 60,000,000(d) 52.8%(d)
Common Michael J. Kimberley 95,000(e) *
-----------------------------------
* Less than 1%
(a) W. R. Welty owns and controls American Dream. See
notes (a) and (b) above under the caption "Security
Ownership of Certain Beneficial Owners."
(b) T. J. Enright is an executive officer of American
Dream. See notes (a) and (b) above under the caption
"Security Ownership of Certain Beneficial Owners."
(c) W. R. Welty owns and controls American Dream. See note
(d) above under the caption "Security Ownership of Certain
Bneficial Owners."
(d) T. J. Enright is an executive officer of American
Dream. See note(d) above under the caption "Security
Ownership of Certain Bneficial Owners."
(e) Includes 95,000 shares acquirable upon exercise of
presently exercisable options.
D. Peter Rose, Sudjaswin E.L., George J. Fencl and Richard
J. Aprahamian were directors of the Company on December 31,
1996, and D. Peter Rose was President of the Company on
December 31, 1996. The security ownership of these
individuals is incorporated by reference from the Company's
Proxy Statement in connection with the Annual Meeting of
Shareholders filed with the Securities Exchange Commission
with the Definitive Form 14-A on April 29, 1996. All
options held by these directors have expired in 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The related transactions are described above under the
caption "Item I. BUSINESS - General". At the time the
transactions with V'Power were entered into, V'Power was an
affiliate of one or more directors of the Company. In
addition, current management believes that the Company paid
to an affiliate of a then director, Sudjaswin E.L.,
consulting fees of $590,000 in connection with one or more
financing transaction between V'Power, also an affiliate of
Sudjaswin E.L., and the Company over a two year period.
The current management of the Company believes that the
chief financial officer of the Company during the part of
1996 in which the significant portion of the operating loss
occurred was a relative of Sudjaswin E.L.
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:
Report of Independent Certified Public Accountants
Balance Sheets - December 31, 1996, December 31, 1995 and
September 30, 1994
Statements of Operations for the years ended December 31,
1996 and 1995, the Transition Period Ended December 31,
1994, and the year ended September 30, 1994
Statement of Common Stockholders' Equity for the years
ended December 31, 1996 and 1995, the Transition Period
Ended December 31, 1994, and the year ended September 30,
1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995, the Transition Period Ended
December 31, 1994, and the year ended September 30, 1994
Notes to Financial Statements for the years ended December
31, 1996 and 1995, the Transition Period Ended December 31,
1994, and the year ended September 30,1994
(2) FINANCIAL STATEMENT SCHEDULES:
Report of Independent Certified Public Accountants
Schedule II/Valuation and Qualifying Accounts
<PAGE>
(B) REPORTS ON FORM 8-K
Since September 30, 1996, the Company has filed four
current reports on Form 8-K: Form 8-K dated October 14,
1997, reporting under Item 1, Changes in Control of
Registrant, and Item 5, Other Events; Form 8-K dated
November 3, 1997, reporting under Item 5, Other Events;
Form 8-K dated November 7, 1997, reporting under Item 5,
Other Events; Form 8-K dated November 14, 1997, reporting
under Item 6, Resignation of Registrant's Directors.
(C) EXHIBITS
EXHIBIT NO. DOCUMENT
*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 Exhibit 4.1.2 to
the Company's Registration Statement on Form S-1 File No.
33-39281)("Form S-1 No. 33-39281")
*4.2 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)
*4.3 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)
*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)
*10.13 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)
*10.14 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)
*10.15 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)
*10.16 Share Purchase Agreement, including form of option
and registration rights agreements, dated July 22, 1997 by
and between the Company and American Dream International
Limited, formerly known as Tradelink International Limited
(incorporated by reference to Exhibit 1 to the Company's
Current Report on Form 8-K dated October 14, 1997)
*10.17 Option Agreement, dated July 22, 1997 by and
between the Company and American Dream International
Limited, formerly known as Tradelink International Limited
(incorporated by reference to Exhibit 2 to the Company's
Current Report on Form 8-K dated October 14, 1997)
*10.18 Shareholder Agreement and Option, dated July 22,
1997 by and among the Company, V'Power Corporation and
American Dream International Limited, formerly known as
Tradelink International Limited (incorporated by reference
to Exhibit 3 to the Company's Current Report on Form 8-K
dated October 14, 1997)
*10.19 Registration Rights Agreement, dated July 22, 1997
by and between the Company and American Dream International
Limited, formerly known as Tradelink International Limited
(incorporated by reference to Exhibit 4 to the Company's
Current Report on Form 8-K dated October 14, 1997)
*10.20 Debt Conversion and Preferred Stock Agreement,
dated July 22, 1997 by and between the Company and
Automobili Lamborghini, S.p.A.(incorporated by reference
to Exhibit 5 to the Company's Current Report on Form 8-K
dated October 14, 1997)
*10.21 Debt Conversion and Preferred Stock Agreement,
dated July 22, 1997 by and between the Company and
Automobili Lamborghini U.S.A., Inc.(incorporated by
reference to Exhibit 6 to the Company's Current Report on
Form 8-K dated October 14, 1997)
*10.22 Debt Forgiveness and Technology Agreement, dated
July 22, 1997 by and between the Company and V'Power
Corporation (incorporated by reference to Exhibit 7 to the
Company's Current Report on Form 8-K dated October 14,
1997)
*10.23 Loan and Security Agreement, including form of
promissory notes, dated July 22, 1997 by and between the
Company and American Dream International Limited, formerly
known as Tradelink International Limited (incorporated by
reference to Exhibit 8 to the Company's Current Report on
Form 8-K dated October 14, 1997)
*10.24 Promissory Note in the amount of $2,500,000, dated
July 22, 1997 made by the Company to American Dream
International Limited, formerly known as Tradelink
International Limited (incorporated by reference to
Exhibit 9 to the Company's Current Report on Form 8-K dated
October 14, 1997)
*10.25 Promissory Note in the amount of $1,250,000, dated
July 22, 1997 made by the Company to American Dream
International Limited, formerly known as Tradelink
International Limited (incorporated by reference to
Exhibit 10 to the Company's Current Report on Form 8-K
dated October 14, 1997)
27.1 Financial Data Schedule (for SEC use only)
----------------------------------
*Incorporated by reference.
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/ T. J. Enright
T. J. Enright,
Chief Operating Officer
Dated: March 24, 1998
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:
/s/ T. J. Enright
T. J. Enright
Director and Chief Operating Officer
March 24, 1998
/s/ W. R. Welty
W. R. Welty Director
March 26, 1998
/s/ Michael J. Kimberley
Michael J. Kimberley, Director
March 28, 1998
/s/ Lilly Beter
Lilly Beter, Director and Principal Financial Officer
March 27, 1998
Vector Aeromotive Corporation
Index
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
VECTOR AEROMOTIVE CORPORATION
Financial Statements
As of December 31, 1996 and 1995
And For The Years Ended December 31, 1996 and 1995,
The Three Months Ended December 31, 1994, and
The Year Ended September 30, 1994
Index
Financial Statements
Report of
Independent Certified Public Accountants F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Equity (Deficit) F-5
Statements of Cash Flows F-6 F-7
Notes to Financial Statements F-8 F-26
Report of Independent Certified Public
Accountants on Financial Statement Schedule S-1
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts S-2
All other schedules have been omitted because they are
either not required, not applicable or the information has
otherwise been supplied.Report of Independent Certified
Public Accountant
F-1
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, 1996 and 1995 and
the related statements of operations, shareholders' equity
(deficit) and cash flows for each of the years then ended,
the three months ended December 31, 1994 and the year ended
September 30, 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,
1996 and 1995 and the results of its operations and its
cash flows for each of the years ended December 31, 1996
and 1995, the three months ended December 31, 1994 and for
the year ended September 30, 1994 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As described in Note 3 to the financial statements, the
Company has experienced significant operating losses, has a
working capital deficit and has a shareholders' deficit as
of December 31, 1996. These conditions raise substantial
doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are
also described in Note 3. The financial statements do not
include any adjustments that might result from the outcome
of this uncertainty.
BDO SEIDMAN, LLP
Orlando, Florida
February 28, 1998
F-2
VECTOR AEROMOTIVE CORPORATION
Balance Sheets
December 31, 1996 1995
-----------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 33,864 $ 12,370
Accounts receivable - trade 155,000 -
Inventories (Note 4) 556,612 601,560
Prepaid expenses and other 15,628 279,306
--------------------------------------------------------------
Total current assets 761,104 1,093,236
Property and equipment,
net (Note 5) 123,999 618,083
Other 1,850 195,250
-----------------------------------------------------------
$ 886,953 $1,906,569
===========================================================
Liabilities and Shareholders' Deficit
Current liabilities:
Notes payable (Note 7) $ 250,000 $ -
Accounts payable:
Trade 710,212 814,932
Related parties 1,416,107 683,735
Accrued expenses (Note 6) 501,505 632,891
Loans payable to
related parties (Note 7) - 1,178,200
Customer deposits 25,000 40,000
-----------------------------------------------------------
Total current liabilities 2,902,824 3,349,758
-----------------------------------------------------------
Commitments and contingencies
(Notes 3, 8, 12, 13, 14 and 15) - -
-----------------------------------------------------------
Shareholders' deficit:
Preferred stock,
par value $.10 per share;
5,000,000 shares authorized;
none issued (Note 15) - -
Common stock,
par value $.01 per share;
600,000,000 shares authorized;
issued and outstanding
53,639,599 and
42,664,699 (Note 9) 536,396 426,646
Capital in excess
of par value 36,786,109 31,873,608
Accumulated deficit (39,338,376) (33,743,443)
-----------------------------------------------------------
Total shareholders' deficit(2,015,871) (1,443,189)
-----------------------------------------------------------
$ 886,953 $1,906,569
See accompanying notes to financial statements.
F-3
VECTOR AEROMOTIVE CORPORATION
Statement of Operations
Three
Year Year Months Year
Ended Ended Ended Ended
December 31,December 31,December 31,September 30,
1996 1995 1994 1994
-----------------------------------------------------------
Sales,
net $ 838,678 $ - $ 360,000 $ 48,420
-----------------------------------------------------------
Operating costs and expenses:
Manufacturing,
research and
development 4,512,869 4,535,463 620,219 1,206,275
General and
administra-
tive 1,800,958 2,978,871 557,630 3,363,149
-----------------------------------------------------------
Total operating
costs and
expenses 6,313,827 7,514,334 1,177,849 4,569,424
-----------------------------------------------------------
Operating
loss (5,475,149)(7,514,334) (817,849) (4,521,004)
-----------------------------------------------------------
Other income
(expense) (119,784) (138,231) 53,111 49,972
-----------------------------------------------------------
Net loss $(5,594,933)$(7,652,565 $ (764,738)$(4,471,032)
===========================================================
Net loss per share
(Note 11) $ (.11) $ (.19) $ (.03)$ (.21)
===========================================================
Weighted average
common shares
outstanding 52,589,257 40,919,421 24,046,366 21,510,629
===========================================================
See accompanying notes to financial statements.
F-4
VECTOR AEROMOTIVE CORPORATION
Statement of Shareholders' Equity
Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit Total
-----------------------------------------------------------
Balance,
October 1,
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)
Issuance
of common
stock 10,000,000 100,000 4,104,733 - 4,204,733
Issuance
of stock
option
for cash - - 500,000 - 500,000
Issuance
of common
stock as
payment of
consulting
fees 350,000 3,500 171,500 - 175,000
Exercise
of common
stock
options 102,400 1,024 27,246 - 28,270
Exercise
of common
stock
warrants 522,500 5,226 109,022 - 114,248
Net loss
for the
year - - - (5,594,933)(5,594,933)
-----------------------------------------------------------
Balance,
December 31,
1996
53,639,599 $536,396 $36,786,109 $(39,338,376)$(2,015,871)
===========================================================
See accompanying notes to financial statements.
F-5
VECTOR AEROMOTIVE CORPORATION
Statements of Cash Flows
Three
Year Year Months Year
Ended Ended Ended Ended
December 31, December 31, December 31, September 30,
1996 1995 1994 1994
-----------------------------------------------------------
Cash flows from operating activities
Net loss $(5,594,933)$(7,652,565) $(764,738) $(4,471,032)
Adjustments to
reconcile net loss
to net cash used in
operating activities:
Depreciation
and
amortization 153,670 165,546 30,819 224,220
Gain on sale of
equipment - - - (3,059)
Abandonment of
property and
equipment 352,631 394,482 - -
Issuance of common
stock for
services 175,000 145,000 - -
Issuance of common
stock warrants and
options for
services - 133,440 - 255,938
Loss on litigation
settlement 18,479 - - -
Increase (decrease)
from changes in:
Related party account
receivable - 50,000 (50,000) -
Accounts receivable -
trade (155,000) - - -
Inventories (10,548)(515,213) 360,000 41,975
Prepaid expenses
and other
assets 263,678 (262,170) 6,629 (13,665)
Court bond
receivable - 232,803 - (232,803)
Accounts
payable 627,652 970,497 234,473 (283,323)
Accrued
expenses (72,569) 470,798 (72,479) (237,587)
Customer
deposits (15,000) (25,000) - (35,000)
-----------------------------------------------------------
Net cash used in
operating
activities (4,256,940)(5,892,382) (255,296)(4,754,336)
-----------------------------------------------------------
Cash flows from investing activities
Acquisition of
property and
equipment (12,217) (610,251) (900) (612,578)
Decrease in notes
receivable - - - 25,000
Proceeds from
sale of property
and equipment - - - 9,725
(Increase) decrease
in other
assets 180,900 (62,417) - 23,000
-----------------------------------------------------------
Net cash provided by (used in)
investing
activities 168,683 (672,668) (900) (554,853)
-----------------------------------------------------------
F-6
Three
Year Year Months Year
Ended Ended Ended Ended
ecember 31, December 31, December 31, September 30,
1996 1995 1994 1994
-----------------------------------------------------------
Cash flows from
financing
activities
Decrease from
changes in
settlement
receivable/
payable,
net - - - (185,000)
Proceeds from
issuance
of note
payable 250,000 - - -
Proceeds from
loans
payable to
related
party - 1,000,000 - -
Exercise of
stock
options 28,270 - - 3,010,500
Exercise of
stock
warrants 114,248 - - -
Net proceeds
from the
issuance of
common
stock
options 500,000 464,134 - -
Net proceeds
from the
issuance of
common
stock 3,217,233 5,105,477 - 2,370,000
-----------------------------------------------------------
Net cash provided
by financing
activities 4,109,751 6,569,611 - 5,195,500
-----------------------------------------------------------
Net increase
(decrease)
in cash and
cash
equivalents 21,494 4,561 (256,196) (113,689)
Cash and cash
equivalents,
beginning of
period 12,370 7,809 264,005 377,694
-----------------------------------------------------------
Cash and cash
equivalents,
end of
period $ 33,864 $ 12,370 $ 7,809 $ 264,005
===========================================================
See accompanying notes to financial statements.
F-7
VECTOR AEROMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 is stated at cost. Depreciation is
provided over the estimated useful asset lives using the
straight-line method.
Revenue Recognition
-------------------
Revenues resulting from automobile sales are recognized
when the automobiles are delivered. Customer deposits
received in advance of delivery are recorded as a liability
until revenue is recognized.
Income Taxes
------------
The Company accounts for income taxes in accordance with
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 measure-
ment of deferred income tax assets being reduced by
available tax benefits not expected to be realized.
Research and Development Costs
------------------------------
Research and development costs are expensed as incurred.
Research and development costs totaled $976,000,
$4,427,000, $260,000 and $1,180,000 for the years ended
December 31, 1996 and 1995, the three months ended
December 31, 1994 and fiscal year ended September 30, 1994.
F-8
Warranty Expense
----------------
The Company offers a limited 24-month warranty covering
defects in material and workmanship on its Vector M12.
Costs related to product warranty are estimated and
included in cost of sales at time of sale.
Financial Instruments
---------------------
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about
financial instruments. Fair value estimates discussed
herein are based upon certain market assumptions and
pertinent information available to management as of
December 31, 1996.
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.
F-9
Impairment of Long-Lived Assets
-------------------------------
Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," issued by the
Financial Accounting Standards Board establishes new
guidelines regarding when impairment losses on long-lived
assets, which include property and equipment and certain
identifiable intangible assets and goodwill, should be
recognized and how impairment losses should be measured.
The adoption of this standard had no material effect on the
Company's financial position or results of operations.
Recent Pronouncements
---------------------
In March 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). SFAS 128, which is
effective for financial statements issued for periods
ending after December 15, 1997, simplifies the standards
for computing earnings per share ("EPS") and makes them
comparable to international earnings-per-share standards.
This statement replaces the presentation of primary EPS and
fully diluted EPS with a presentation of basic EPS and
diluted EPS, respectively. Basic EPS excludes dilution and
is computed by dividing earnings available to common
stockholders by the weighted average number of common
shares outstanding for the period. Similar to fully diluted
EPS, diluted EPS reflects the potential dilution of
securities that could share in the earnings. This statement
is not expected to have a material effect on the Company's
reported earnings-per-share amounts.
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), and No. 131,
"Disclosure about Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 130 establishes standards for
reporting and displaying comprehensive income, its
components and accumulated balances. SFAS 131 establishes
standards for the way that public companies report
information about operating segments
F-10
in annual financial statements and requires reporting of
selected information about operating segments in interim
financial statements issued to the public. Both SFAS 130
and SFAS 131 are effective for periods beginning after -
December 15, 1997. The Company has not determined the
impact that the adoption of these new accounting standards
will have on its future financial statements and
disclosures.
Reclassification
----------------
Certain items have been reclassified in the 1995 financial
statements to conform to the 1996 presentation.
2. NATURE OF BUSINESS
Vector Aeromotive Corporation (the "Company") is engaged in
the design, development, manufacturing and marketing of
exotic sports cars. The Company has been engineering,
developing and testing the Vector M12 automobile since
1994. Limited production of the first M12s commenced in
October 1995.
Production of the Vector W8, the Company's first production
model, ceased in 1993.
The Company suspended operations in November 1996. Note 3
describes activities since November 1996 and steps the
Company is taking to resume operations.
3. GOING CONCERN CONSIDERATION
As shown in the accompanying financial statements, the
Company has experienced significant operating losses since
inception. The Company's net loss for 1996 was
approximately $5,595,000, the accumulated deficit was
$39,338,000 and current liabilities exceed current assets
by $2,142,000 as of December 31, 1996. The Company
suspended operations in November 1996. These conditions
raise substantial doubt about the Company's ability to
continue as a going concern.
The Company believes that the following actions and plans
will allow it to resume operations on a profitable basis
and meet its obligations:
F-11
As described in Note 15, the Company has entered into an
agreement with American whereby that company can invest and
loan over $5,000,000 to the Company. American has options
to acquire other companies whose operations may be
complimentary to the Company.
All Company activities have been consolidated into the
plant in Green Cove Springs, Florida.
As described in Note 12 to the financial statements, the
Company has settled litigation which it has endured for
several years. The significant effort and expense which
management expended on that matter can now be directed to
restoring and stabilizing operations.
As described in Note 15 to the financial statements, the
Company has restructured its debt to a formerly affiliated
company by exchanging it for preferred stock and selling
that company certain engineering rights.
The Company resumed operations with a small group of part-time employees
and consultants. The Company sold three
vehicles to customers as of December 31, 1997. Operating
costs have been reduced significantly from 1996 levels and
are anticipated to grow at a level commensurate with
production and sales.
The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability
of assets and classification of liabilities that would
result if the Company is unable to continue as a going
concern.
F-12
4. INVENTORIES
Inventories are summarized as follows:
December 31, December 31,
1996 1995
----------------------------------------------------------
Raw materials $223,666 $447,167
Work-in-process 48,666 254,393
Finished goods 284,280 100,000
----------------------------------------------------------
$556,612 $801,560
During 1996, replacement parts with a carrying value of
approximately $255,500 were transferred to the former
President as part of a settlement of a lawsuit with the
former President (see Note 12). During 1995, a discontinued
Vector W8, included in finished goods inventory, and
related replacement parts were written down to estimated
fair market value.
F-13
5. PROPERTY AND EQUIPMENT
<PAGE>
Property and equipment are summarized as follow:
Useful December 31, December 31,
Lives 1996 1995
-----------------------------------------------------------
Leasehold improvements 5 years $ 22,260 $ 22,260
Tooling 5 years 75,000 547,255
Machinery and equipment 5 years 328,359 326,803
Office equipment 5 years 27,536 98,034
Computers 3 years 8,263 139,727
Vehicles 5 years - 30,283
-----------------------------------------------------------
461,418 1,164,362
Less accumulated depreciation 337,419 546,279
-----------------------------------------------------------
$ 123,999 $ 618,083
===========================================================
The Company recorded an impairment loss of $330,371 related
to capitalized tooling in December 1996. The impairment
resulted from the suspension of operations of the Company
in November 1996 and the related reduction in expected
future cash flows for which capitalized tooling costs would
be recovered. In determining the amount of the impairment,
management estimated the fair value of the tooling upon the
resumption of operations in 1997 by considering replacement
costs and expected future cash flows.
F-14
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31, December 31,
1996 1995
----------------------------------------------------------------
Compensation and employee
benefits $ 151,920 $126,038
Interest 6,975 70,324
Legal settlement 218,000 80,000
Other 124,610 356,529
-----------------------------------------------------------
$ 501,505 $632,891
===========================================================
7. NOTES PAYABLE
Notes payable consist of following:
December 31, December 31,
1996 1995
----------------------------------------------------------
Unsecured convertible note
payable to an individual
bearing interest at 9%,
due currently. Convertible
into shares of common stock
at the option of the holder
at a conversion rate of 90% of
the fair market value of the
Company's common stock at the
date of conversion. $250,000 $ -
Unsecured note payable to the
former President of the
Company (see Note 12). - 178,200
Unsecured note payable to a stockholder.
Paid in full with the proceeds
of the 1996 stock offering
(see Note 8). - 1,000,000
---------------------------------------------------------
Total notes payable $250,000 $1,178,200
=========================================================
F-15
8. STOCK OFFERINGS
The Company has entered into share purchase agreements with
V'Power Corporation ("V'Power") as follows:
January 24, January 6, January 14,
1996 1995 1994
----------------------------------------------------------
Shares purchased 10,000,000 18,333,333 3,000,000
Price per share $.45 $.30 $.75
Options granted:
Shares 50,000,000 50,000,000 6,000,000
Exercise price per share $.45 $.43 $.75
Payment for option $500,000 $500,000 $120,000
Offering costs netted
with proceeds $295,267 $430,389 $ -
==========================================================
All common stock options expired one year after the date of
issuance. The 1996 option expired on January 24, 1997.
V'Power purchased the 1996 stock and stock option for
$5,000,000 ($4,000,000 in cash and a $1,000,000 offset of a
note payable by the Company to V'Power).
F-16
9. STOCK OPTIONS AND WARRANTS
The Company has three incentive stock option plans for key
officers and employees, three 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 Company applies APB Opinion 25,
"Accounting for Stock Issued to Employees," and related
interpretations in accounting for the options and stock
appreciation rights. Under APB Opinion 25, if options are
granted or extended at exercise prices less than fair
market value, compensation expense is recorded for the
difference between the grant price and the fair market
value.
The options are generally exercisable over nine years
beginning one year from the date of grant. The plans at
December 31, 1996 are summarized as follows:
Options
Options Available Options
Plan Description Approved for Grant Exercisable
-----------------------------------------------------------
1988 incentive plan 40,000 40,000 -
1988 nonqualified 120,000 106,000 -
1990 incentive plan 100,000 100,000 -
1990 nonqualified 100,000 - -
1992 incentive plan 150,000 150,000 -
1992 nonqualified 150,000 150,000 -
1994 omnibus plan 2,500,000 1,994,000 469,600
-----------------------------------------------------------
3,160,000 2,540,000 469,600
===========================================================
Statement of Financial Accounting Standards No. 123 (FAS
123) "Accounting for Stock-Based Compensation," requires
the Company to provide pro forma information regarding net
income and earnings per share as if compensation cost for
the Company's stock options had been determined in
accordance with the fair value based method prescribed in
FAS 123. The Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option-pricing model
with the following weighted-average
assumptions used for grants: no dividend yield, volatility
ranging from 55% to 73%, risk-free interest rates ranging
from 4.2% to 6.4% and expected lives ranging
F-17
from one to three years.
Under the accounting provisions of FASB Statement 123, the
Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below:
December 31,December 31,December 31,September 30,
1996 1995 1994 1994
-----------------------------------------------------------
Net loss
As
reported $(5,594,933)$(7,652,565) $ (764,738) $(4,471,032)
Pro forma(5,594,933) (7,677,585) (764,738) (4,862,032)
Loss per common
share
As reported $ (.11)$ (.19) $ (.03) $ (.21)
Pro forma (.11) (.19) (.03) (.23)
===========================================================
Changes in stock options outstanding within the above plans
and nonplan options (see Note 14) are summarized as
follows:
Weighted-Average Weighted-Average
Exercise Price Fair Value of
Shares Per Share Options Granted
-------------------------------------------------------
Outstanding,
September 30,
1993 166,000 $.22 $ -
Granted -
equal to
market 170,000 .22 .30
Exercised (48,000) .22 -
-------------------------------------------------------
Outstanding,
September 30,
1994 and
December 31,
1994 288,000 $.22 $ -
Granted -
less than
market 834,000 .38 .19
Granted -
over
market 500,000 1.11 -
-------------------------------------------------------
Outstanding,
December 31,
1995 1,622,000 $.76 $ -
Exercised(102,400) .30 -
Expired (850,000) .49 -
-------------------------------------------------------
Outstanding,
December 31,
1996 669,600 $.61 $ -
=======================================================
F-18
The following table summarizes information about fixed
stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable
-------------------------------- -------------------
Weighted
Average Weighted- Weighted-
Number Remaining Average Number Average
Range Outstanding Contractual Exercise Exercisable Exercise
of at 12/31/96 Life Price at 12/31/96 Price
Exercise
Prices
-----------------------------------------------------------
$ .38 469,600 9.6 $ .38 469,600 $ .38
.85 100,000 .8 .85 100,000 .85
1.75 100,000 .8 1.75 100,000 1.75
A total of 331,600 of the options outstanding at December
31, 1996 expired in 1997 due to the resignation of
employees. The options that will remain after the
expiration in 1997 will have remaining contractual lives of
8.6 years.
Common Stock Options Issued as Compensation
-------------------------------------------
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 year ended December 31, 1996 and the three months
ended December 31, 1994 since no options were granted in
those periods.
F-19
Stock Warrants
--------------
At December 31, 1996, the Company had common stock warrants
exercisable and outstanding summarized as follows:
Number of Exercise Expiration
Date Warrants Price
-------------------------------------------------------
November 12, 1997 6,150,000 $1.50
November 18, 1998 477,500 .22
------------------------------
6,627,500
==============================
During 1996, the expiration date for 6,150,000 warrants was
extended to November 12, 1997. In addition, 522,500 common
stock warrants were exercised at $.22 per share and
1,800,000 common stock warrants with exercise prices
ranging from $1.00 to $1.50 expired.
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.
Common Shares Reserved
---------------------
----------------------------------------
At December 31, 1996, the Company had reserved common stock
for the following purposes:
-----------------------------------------------------------
Stock option plans 3,009,600
Non-plan stock option
200,000
V'Power stock options
(expired January 1997) 50,000,000
Warrants 6,627,500
-----------------------------------------------------------
Total common shares
reserved 59,837,100
====================================
F-20
10. INCOME TAXES
Financial Accounting Standards No. 109 (FAS 109),
"Accounting for Income Taxes," requires 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:
1996 1995
-----------------------------------------------------------
Deferred tax assets:
Net operating loss
carryforwards $12,954,000 $11,485,000
Tax credit carryforwards 777,000 777,000
Bad debts 179,000 179,000
Litigation accrual 82,000 -
Asset write-offs 76,000 -
Inventory overhead 71,000 149,000
Compensation from stock
options 50,000 50,000
Depreciation 49,000 49,000
Inventory reserves - 70,000
Other - 16,000
-------------------------------------------------------
Gross deferred income
tax assets 14,238,000 12,775,000
Valuation allowance (14,238,000) (12,775,000)
------------------------------------------------------
Total deferred income
tax assets $ - $ -
======================================================
The Company had unused net operating losses for income tax
purposes, expiring in various amounts from 2003 through
2011, of approximately $34,065,000 at December 31, 1996 for
carryforward against future years' taxable income. However,
as a result of the Company's stock offerings (see Note 8),
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 since management cannot determine that
it is more likely than not it will be realized. The
valuation allowance increased by $1,463,000 and $3,086,000
during the years ended December 31, 1996 and 1995,
respectively.
The Company has research and development tax credit
carryforwards of approximately $777,000 which expire
between 2005 and 2008.
F-21
11. NET LOSS PER SHARE
Net loss per share was calculated based on the weighted
average shares outstanding during the year. The effect of
outstanding stock options and warrants was not included in
the calculations as their effect was antidilutive.
12. LITIGATION
Since 1993, the Company has been involved in lawsuits with
its former President. Both sides filed various claims for
monetary damages.
Effective December 19, 1996, the lawsuits were settled.
Vector exchanged various assets for a note payable to the
former President. This settlement was recorded at the
following approximate book values:
--------------------------------------------
Parts inventory for W8 $ 440,700
Less valuation allowance (185,204)
Note payable and accrued interest (237,017)
--------------------------------------------
Net charge to 1996 operations $ 18,479
============================================
All claims for unpaid notes, rent, compensation, etc. have
been dropped by both the Company and the former President.
The Company faces several lawsuits primarily related to
unpaid vendors. Additionally, complaints have been filed by
two former automotive dealers for the Company. The Company
believes adequate provision has been made for any judgments
that may be awarded against the Company.
Legal fees totaled $179,078, $546,101, $67,779 and $772,994
for the years ended December 31, 1996 and 1995, the three
months ended December 31, 1994 and the fiscal year ended
September 30, 1994, respectively. These fees were paid
primarily to a director or his law firm.
F-22
13. LEASES
Leases
------
Prior to suspending operations, the Company had leased
facilities from related parties. Rental expense incurred
under related party leasing arrangements totaled $78,936,
$93,546, $35,145 and $89,799 for the years ended December
31, 1996 and 1995, the three months ended December 31, 1994
and fiscal year ended September 30, 1994. The Company
presently leases office space and its manufacturing
facility from an unrelated party in Green Cove Springs,
Florida under a month-to-month lease at a cost of $6,075
per month.
14. COMMITMENTS
Consulting Agreements
---------------------
The Company entered into an agreement in 1995 with a
consulting firm to perform certain services for the Company
in exchange for i) $30,000 in cash, ii) 640,000 shares of
Company common stock (290,000 of which were issued in 1995
and 350,000 of which were issued 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 which
300,000 have expired as of December 31, 1996 and 200,000
expired in 1997. The fair market value of the common stock
issued was recorded as consulting expense.
The Company paid $150,000 to a related company for
consulting services performed during 1995.
15. SUBSEQUENT EVENTS
On July 22, 1997, the Company agreed to issue 4,241 shares
and 5,686 shares of Series A Cumulative Preferred Stock
(Series A Stock) to Lamborghini S.p.A. and Lamborghini
U.S.A. in exchange for amounts owing to Lamborghini
aggregating $992,668. Each share will be issued for $100.
The Series A stock will have rights senior to any other
security currently issued by the Company.
Dividends will be cumulative and will be paid on a
quarterly basis. The dividend rate is based on the current
LIBOR rate as defined in the agreement.
F-23
The Series A Stock is redeemable at a redemption price of
$100 per share plus any accumulated and unpaid dividends
beginning nine months after the stock is issued at $10,000
per month for eight months and 12 substantially equal
monthly installments thereafter.
So long as any Series A is outstanding, the Company may not
declare any dividend, make a distribution, or purchase,
acquire or set aside any money for the purchase or
redemption of any shares of stock with rights junior to the
Series A Stock unless all Series A dividends have been paid
or duly provided for and all amounts with respect to the
mandatory redemption provisions of the Series A stock have
been paid or duly provided for.
Upon liquidation of the Company for any reason, the holders
of the Series A Stock are entitled to be paid out of the
assets available for distribution to its shareholders
before any payment to other security holders are made. The
amounts to be paid to the Series A stockholders shall
include all unredeemed shares at $100 per share plus all
accumulated and unpaid dividends.
The Company may redeem the Series A Stock at any time at
the redemption price plus any accumulated unpaid dividends.
Under certain circumstances generally related to the sale
of all of the Company's assets or merger or consolidation
of the Company, the holders of the Series A securities may
require the Company to redeem all or any portion of the
outstanding Series A Stock.
The holders of the Series A Stock have no voting power
unless dividends remain unpaid for a period of one and one-half years, at
which time the Series A holders may vote for
the election of up to two directors.
Additionally, on July 22, 1997, the Company agreed to sell
V'Power certain technology rights for $500,000, comprised
of $451,104 owed to V'Power by the Company and a cash
payment of $48,896 by V'Power to the Company.
F-24
On July 22, 1997, the Company entered into an agreement
with American Dream International Ltd. ("American"),
formerly known as Tradelink International Limited, whereby
the Company granted an option to American to purchase
60,000,000 shares of the Company's unissued common stock
for $1,250,000 ($.0208 per share). The 60,000,000 shares
have demand registration rights. American also agreed to
loan the Company up to $3,750,000 under two lending
agreements. Exercise of the option is contingent upon
several factors, including the successful resolution of the
litigation with the Company's former President (see Note
12) and obtaining clear title to the loan collateral.
Line of Credit "1" provides for advances up to $1,250,000
and bear interest at 2% over the prime rate. Advances can
be used by the lender as part of its purchase price of the
Company's common stock as described in the preceding
paragraph and, in certain circumstances, can be converted
to a ten-year term loan with interest at 10%. Unconverted
balances (approximately $310,000 at December 31, 1997) are
due on demand.
Line of Credit "2" provides for advances up to $2,500,000
with interest at 2% over the prime rate and is due on
demand.
Both lines are collateralized by substantially all of the
Company's assets.
At the same time, the Company, American and V'Power entered
into an option agreement whereby V'Power has agreed to vote
their shares (37,333,333 shares) for directors designated
by American comprising a majority of the Board of Directors
of the Company for a period of ten years after July 22,
1997, or if the option is not exercised, for as long as any
unpaid amounts under the loan agreements noted above remain
outstanding.
Subject to various terms and conditions, V'Power has
granted an option to American to purchase any and all
Vector shares owned by V'Power or its affiliates. The
option is exercisable beginning six months from the date
that American exercises its option to purchase the
Company's stock for a period of four years. American may
purchase any or all of the V'Power common stock at 70% of
the market price, as defined, of the shares.
As of February 28, 1998, American has not exercised its
option.
F-25
16. SUPPLEMENTAL CASH FLOW INFORMATION
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.
December 31,December 31,December 31,September 30,
1996 1995 1994 1994
-----------------------------------------------------------
Cash paid
for
interest $ 23,907 $ - $ - $ -
Cash paid
for
income
taxes - - - -
Noncash
financing
and
investing
activities:
Payment of
notes
payable through
issuance of common
stock (see
Note 8) 1,000,000 - - -
Write-off of assets
and liabilities
associated with the
settlement of
litigation with the
Company's former
President
(see
Note 12) 237,017 - - -
===========================================================
F-26
VECTOR AEROMOTIVE CORPORATION
Report of Independent Certified Public Accountants
on Financial Statement Schedule
Board of Directors
Vector Aeromotive Corporation
Green Cove Springs, Florida
The audits referred to in our report to Vector Aeromotive
Corporation dated February 28, 1998, 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, 1996 and 1995, the three months ended
December 31, 1994 and the year ended September 30, 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 28, 1998
S-1
VECTOR AEROMOTIVE CORPORATION
Schedule II Valuation and Qaulifying Accounts
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
-----------------------------------------------------------
Year ended
December 31, 1996
Reserve for loss
contingency $185,024(A) $ - $185,024 $ -
===========================================================
Year ended
December 31, 1995
Reserve for loss
contingency $154,187 30,837 $ - $185,024(A)
===========================================================
Three months ended
December 31, 1994
Reserve for loss
contingency $154,187 $ - $ -$154,187(A)
===========================================================
Year ended
September 30, 1994
Reserve for loss
contingency $ - $154,187 $ -$154,187(A)
==========================================================
(A)Represents a reserve for inventory obsolescence.
S-2
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 33,864
<SECURITIES> 0
<RECEIVABLES> 155,000
<ALLOWANCES> 0
<INVENTORY> 556,612
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0
0
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</TABLE>
