INFORMATION STATEMENT
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934 (Amendment No. _________________)
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[x] Definitive Information Statement
VECTOR AEROMOTIVE CORPORATION
(Exact name of registrant as specified in its charter)
Commission file number 0-17303
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
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
<PAGE>
MESSAGE FROM THE PRESIDENT
During 1996 the Company struggled to bring the M12 "into production" and
sadly were unable to iron out production teething problems before cash resources
ran out in November 1996. Ironically the major hurdles relating to the
engineering, homologation, and production of an exotic sports car had already
been surmounted and a dealer appointment program was in place. However, the
facility at Green Cove Springs, Florida was closed, staff laid off and for all
intents and purposes that was the end of Vector Aeromotive Corporation. In
December 1996 our current Chairman, Mr. W.R. Welty, learned of the plight of the
Company and became determined to do all he could to stop Vector from sinking
into oblivion. Mr. Welty and myself teamed up and after six months of difficult
negotiations with the controlling shareholders we were able to take control of
Vector. In August, 1997 we re-opened the manufacturing facility and re-started
production. Since then the Company has sold 5 M12s and has produced a profit,
albeit a very small profit. We consider this a major turning point in the
Company's history.
To celebrate this change of fortune the Company has decided to change it's
logo to the emblem you see on the front cover of this report. This emblem we
feel reflects the true spirit of the American super car.
In 1998 the Company embarked on a racing program in the Professional
Sportscar Racing series. Our first appearance at Sebring 12 Hours in March was a
"look see" event from which we learned a great deal. In April we made a serious
effort at the Toshiba Nevada Grand Prix in Las Vegas where we were rewarded with
a third place in the GT-2 class - our first trophy!
Our racing adventure has given us exposure in many notable automotive
magazines and TV. In addition, we have gained valuable engineering information.
All of us here at Vector are proud of our achievements and are positive that our
current success is only the start of greater events to come.
Regards,
/S/ Timothy J. Enright
- ----------------------
Timothy J. Enright
President
Vector Aeromotive Corporation
1
<PAGE>
VECTOR AEROMOTIVE CORPORATION
975 Martin Avenue
Green Cove Springs, FL 32043
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
June 20, 1998
To the Shareholders:
The Annual Meeting of Shareholders of VECTOR AEROMOTIVE CORPORATION will be
held at the the Vector Hospitality Chalet at Road Atlanta, 5300 Winder Highway,
Braselton, Georgia, on Saturday, June 20, 1998, at 10:30 a.m. Eastern Daylight
Time, for the following purposes:
1. To elect a board of four directors;
2. To consider and act upon a proposal to ratify the appointment of BDO
Seidman as independent auditors for the Company for the fiscal year
1998; and
3. To consider and act upon such other matters as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 10, 1998, as
the record date for the determination of shareholders entitled to notice of and
to vote at such meeting and any adjournment thereof. The Company is not
soliciting proxies for the Annual Meeting of Shareholders, and you are requested
not to send us a proxy.
All shareholders are cordially invited to attend the meeting. The Annual
Meeting of Shareholders is being held at the selected location and date because
the Company plans to participate in the Sports Car Grand Prix of Atlanta at Road
Atlanta, Braselton, Georgia. The Annual Meeting will held at Road Atlanta. The
Company will provide each shareholder who attends the Annual Meeting of
Shareholders admission to the qualifying session. In addition, the Company
anticipates having a production model of the Vector M12 available for viewing.
By order of the Board of Directors,
\s\ Thomas Hallquest
------------------------
Thomas Hallquest
Secretary
Green Cove Springs, Florida
May 30, 1998
2
<PAGE>
THE PRODUCT
The M12 has the classical design configuration for an ultra high
performance automobile. The engine is mid mounted in a longitudinal layout
directly behind the passenger compartment. This engine was developed by
engineers from Vector and Automobili Lamborghini working in close collaboration
to achieve Vector's high performance specification. The V12 engine delivers over
490 horsepower and more than 425 foot pounds of torque from its' 5.7 liters
capacity. This assures that the driver has all the power ever needed.
Transmitting all this power is a 6 speed (including reverse) manual transaxle
mounted directly behind the engine.
The M12's chassis, while being unorthodox, is an extremely efficient
design. Being both lighter and stiffer than the chassis of the 1994 prototype
Avtech SC, the structure is also economical to produce. At the rear, a tubular
carbon steel frame carries the powertrain and suspension loads. This mates with
a zinc plated monocoque passenger compartment that is also protected by a
tubular carbon steel roll cage. Forward of the front bulkhead, foam filled
aluminum box sections provide progressive and carefully controlled vehicle
deceleration in the event of a frontal impact. Suspension is by classical
unequal length A-arms at both front and rear. The front geometry provides a
beneficial level of anti dive while the rear geometry is designed to provide
anti squat characteristics.
The aggressive cab forward design layout provides the driver and passenger
with a commanding view and a feeling of intimate involvement with the road
ahead. The ergonomically designed cockpit is attractively trimmed in the finest
leather. Luxurious lambswool carpeting completes the trim. The vehicle is
further equipped with driver and passenger side air bags, a fully automatic
climate control system and the sophistication of a premium Pioneer sound system.
The M12 does indeed provide the most discerning owner with the appropriate
environment to encourage the fuill exploration of its enormous performance
potential. THE MARKET
The market for exotic sports cars is worldwide, but the biggest single
opportunity for the M12 is the domestic market. With a maximum annual production
target for the M12 of almost 60 vehicles in 1999, Vector is recognizing the
value of domestic and international demand that will always be slightly ahead of
production.
Breaking with the Company's history in yet another area, a national dealer
network will sell Vector products in all the major domestic markets. It is the
Company's intention that this network will be limited in size to balance the
conflicting requirements of attractive sales volume for the dealer versus
convenience for future owners. These premium dealerships are also being
carefully selected and qualified to assure the owner that buying an M12 will be
a rewarding experience.
Creating market demand is Vector's responsibility. Designing and developing
a product that is as exciting and compelling as the M12 is just the first step.
The message must be broadcast in such a way that the vehicle becomes an obvious
candidate for the potential buyer's shortlist, and the Company has developed a
marketing plan to achieve this. Careful but enthusiastic exposure through the
recognized media, association with the appropriate personalities and events, and
a fully sponsored race program all play a role in further stimulating the
already enthusiastic demand.
The image of a company producing exotic supercars is in itself a marketable
product. Vector will seize this opportunity with both hands to ensure that a
much broader market population can be part of the thrill, the presence and the
mystique surrounding the Company. Marketing the full range of Vector products,
from the M12 to complimentary items of merchandise, will take a variety of forms
including the development of a web site on the Internet.
The future market success of the M12 and more importantly, the
profitability of the Company, is the entire focus of the management team. The
two go hand in hand, and the time is now. FIVE YEAR SUMMARY OF SELECTED
FINANCIAL DATA (in 000's, except for per share amounts)
3
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Years Ended
Years Ended December 31, December 31, September 30,
1997 1996 1995 1994 1994 1993
Balance Sheet Data
<S> <C> <C> <C> <C> <C> <C>
Current Assets $ 440 $ 761 $ 594 $ 594 $ 1,167 $ 1,326
Working Capital (deficit) (1,371) (2,142) (2,257) (274) 461 (311)
Total Assets 549 887 1,907 1,295 1,898 1,698
Total Liabilities 2,778 2,903 3,350 933 771 1,737
Shareholders' Equity (deficit) (2,229) (2,016) (1,443) 361 1,126 (39)
Statements of Loss Data
Sales $ 332 $ 839 $-- $ 360 $ 48 $ 1,467
Gross Profit (loss) 103 (2,368) 108 -- 22 517
Operating Loss (676) (5,475) (7,514) (818) (4,521) (4,094)
Net Loss (213) (5,595) (7,653) (765) (4,471) (3,890)
Net Loss per Share $ (.01) (.11) (.19) (.03) (.21) (.28)
Cash Dividends per Share None None None None None None
Weighted Average Shares 53,640 52,589 40,919 24,046 21,511 13,690
</TABLE>
Securities Information
Vector Aeromotive Corporation's common shares are traded in the over-the-counter
market on NASDAQ Bulletin Board. The table below sets forth the range of high
and low bid prices for the Company's common shares, as reported by the National
Association of Securities dealers, Inc. Quotations listed do not necessarily
represent actual transactions and do not reflect retail markups, markdowns or
commissions.
Calender 1997 Calender 1996
High Low High Low
First Quarter $.23 $.11 $.97 $.50
Second Quarter .17 .07 .81 .47
Third Quarter .22 .11 .72 .22
Fourth Quarter .17 .065 .34 .03
There were approximately 3,567 shareholders of record as of May 10, 1998. No
dividend has been paid on the common shares since inception and none is
contemplated at any time in the foreseeable future.
4
<PAGE>
VECTOR AEROMOTIVE CORPORATION
975 Martin Avenue
Green Cove Springs, FL 32043
INFORMATION STATEMENT
1998 Annual Meeting of Shareholders
To Be Held on June 20, 1998
INTRODUCTION
This Information Statement is being provided by the Board of Directors of
VECTOR AEROMOTIVE CORPORATION, a Nevada corporation (the "Company" or "Vector"),
which has its principal executive offices at 975 Martin Avenue, Green Cove
Springs, Florida 32043. The information in this Information Statement is being
provided in connection with the Annual Meeting of Shareholders of the Company to
be held at the Vector Hospitality Chalet at Road Atlanta, 5300 Winder Highway,
Braselton, Georgia, on Saturday, June 20, 1998, at 10:30 a.m. The approximate
date on which this Information Statement was first sent or given to shareholders
was May 30, 1998.
The Board of Directors of the Company knows of no business other than that
specified in Items 1 and 2 of the Notice of Annual Meeting that will be
presented for consideration at the Annual Meeting.
NO SOLICITATION OF PROXY
We Are Not Asking You for a Proxy and
You are Requested Not To Send Us a Proxy.
VOTING SECURITIES
Holders of record of the Company's Common Shares at the close of business
on May 10, 1998, are entitled to notice of, and to vote at, the Annual Meeting.
As of the record date, there were 53,639,599 Common Shares issued, outstanding
and entitled to vote shown on the stock record books of the Company. On all
matters properly presented to the meeting, the holders of the Common Shares will
vote together, as a single class, with each share entitled to one vote.
Cumulative voting is not permitted by the Company's Articles of Incorporation.
ATTENDANCE AT THE ANNUAL MEETING
The Annual Meeting of shareholders will be held at the Vector Hospitality Chalet
in the Road Atlanta facility. The qualifying session of the Sports Car Grand
Prix of Atlanta will be held at the same time as the Annual Meeting. As a
result, each shareholder attending the Annual Meeting will need to gain
admission to the qualifying session of the Sports Car Grand Prix of Atlanta. The
Company has made arrangements for that admission. The Company will have a
shareholders' booth outside the admission gate at which shareholders can obtain
an admission ticket. To obtain the admission ticket, each shareholder will need
to show evidence that he/she was a shareholder or represents a shareholder of
the Company on May 10, 1998, the record date of shareholders entitled to vote at
the Annual Meeting. The Company will accept as satisfactory evidence of
shareholder status, among other evidence, presentment of this Information
Statement or the mailing label that is on the envelope in which this Information
Statement was mailed, identification on the Company's shareholder list and a
valid proxy of a shareholder entitled to vote at the Annual Meeting.
5
<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 Vector'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.
("ALSPA"), the manufacturer of the Italian exotic sports car, and 50%
shareholder of Automobili Lamborghini U.S.A., Inc. ("ALUSA"), the former
American importer and distributor of Lamborghini products.
V'Power has provided funds to Vector 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, which expired in
January 1997, to acquire an additional 50,000,000 shares of Common Stock with a
$.45 per share exercise price.
In a transaction finalized in September 1997, but dated as of July 22,
1997, American Dream entered into agreements with Vector and several other
related organizations including: V'Power, ALSPA and ALUSA. V'Power then owned
and management believes currently owns a majority of the shares of Common Stock
of Vector (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 Vector. ALSPA has contracted to provide the engine for the
Vector M12 automobile. In addition, ALSPA and ALUSA were and remain the largest
trade creditors of Vector. The transactions among American Dream, Vector,
V'Power, ALSPA and ALUSA are summarized below:
(1) Vector has provided American Dream an option to purchase 60,000,000
shares of Common Stock of Vector 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 Vector'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 Vector's then existing Board of Directors. In
addition, T. J. Enright also was elected Chief Operating Officer and
Secretary of Vector. Subsequently, D. Kordek resigned as a member of
Vector's Board of Directors , Lilly Beter was elected to fill that
vacancy and to act as Treasurer of Vector, Mr. Enright was elected
President of Vector and Thomas Hallquest was elected Secretary of
Vector. V'Power has agreed that, for ten years after the purchase by
American Dream of Common Stock of Vector 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 Vector
(now owned or later acquired, by exercise of options or otherwise) for a
period of four years from July 24, 1997. The restriction is 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 Vector 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 Vector. (4) American Dream has agreed to
provide a loan to Vector 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 Vector. 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 Vector 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.
There was outstanding as of April 30, 1998, on the $1,250,000 loan the
amount of $436,652.
(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 Vector
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 Vector 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
Vector 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 Vector 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 Vector into 4,241 shares of Preferred
Stock of Vector. Similarly, ALUSA has agreed to convert its $568,577
account receivable from Vector into 5,686 shares of Preferred Stock of
Vector. The conversion is subject to American Dream's exercise of its
option to acquire 60,000,000 shares of Vector'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 Vector has appointed three individuals designated by
American Dream: W. R. Welty, T. J. Enright and Lilly Beter. 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.
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION OF DIRECTORS
The Board of Directors of the Company has nominated four individuals for
election as a director of the Company at the Annual Meeting of Shareholders,
each of whom currently serves as a director of the Company: Timothy J. Enright,
W. R. Welty, Michael J. Kimberley, and Lilly Beter. Each director will hold
office until the next annual meeting and until the director's successor is
elected and qualified. The Company has no reason to believe that any of the
director nominees will be unable or unwilling to serve if elected to office.
The names of the Company's directors and executive officers, together with
certain other information, is set forth below.
Name Age Position
Timothy J. Enright 52 Director, President
Lilly Beter 63 Director, Treasurer
W. R. Welty 51 Director
Michael J. Kimberley 59 Director
Thomas Hallquest 45 Secretary
TIMOTHY J. ENRIGHT. Mr. Enright has served as a director since July 1997
and as President since April 1, 1998. 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.
W. R. WELTY. Mr. Welty has served as a director of the Company since July
1997, pursuant to the terms of a loan agreement dated July 22, 1997, under which
American Dream, formally known as Tradelink International Limited, has agreed to
fund discretionary lines of credit and a Shareholder Agreement and Option dated
July 22, 1997, under which the majority shareholder of the Company, V'Power has
agreed to vote as director certain nominees of American Dream. See "CHANGE OF
CONTROL AND FINANCING TRANSACTIONS."
MICHAEL J. KIMBERLEY. Mr. Kimberley has served as a director of the Company
since May 1994. Since April 15, 1994, Mr. Kimberley has served as a managing
director of Lamborghini. From January 1992 to April 1994, he was the Executive
Vice President of General Motors Overseas Corporation for Malaysia. From 1969
through December 1991, he was employed in various executive positions by Group
Lotus plc, the manufacturer of Lotus sports cars, and certain of its affiliated
companies.
LILLY BETER. Ms. Beter has served as a director of the Company since August
1997, and as Chief Financial Officer since September 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
has agreed to fund discretionary lines of credit and a Shareholder Agreement and
Option dated July 22, 1997, under which the majority shareholder of the Company,
V'Power has agreed to vote as director certain nominees of American Dream. See
"CHANGE OF CONTROL AND FINANCING TRANSACTIONS."
THOMAS HALLQUEST. Mr. Hallquest has served as secretary of the Company
since April 1, 1998. For the past five years, Mr. Hallquest has been self
employed as a Certified Public Accountant in Southern California in the Los
Angeles area.
BOARD COMMITTEES
The Compensation Committee is a committee of the Board of Directors that is
responsible for establishing the compensation payable to the Company's executive
officers. The Compensation Committee also administers the Company's various
stock option plans. As of the date hereof, the members of the Compensation
Committee are Messrs. Welty and Kimberley and Ms. Beter.
The Executive Committee is a committee of the Board of Directors that is
responsible for making the management decisions of the Board of Directors
between meetings of the Board of Directors. As of the date hereof, the members
of the Executive Committee are Messrs. Welty, Enright and Hallquest.
The Audit Committee is a committee of the Board of Directors that is
responsible
for acting as a liason with the Comapny's auditors, reviewing the Company's
annual audit, reviwing the management letter prepared by the Company's auditors
and engaging the Company's auditors. As of the date hereof, the members of the
Audit Committee are Messrs. Welty and Hallquest.
During calendar year 1997, the Board of Directors held thirteen meetings
and acted by unanimous written consent in lieu of a meeting on one occasion. Mr.
Kimberley, the only incumbent director who was a director for the entire year of
1997, attended eight of the Board of Director meetings, primarily due to his
international schedule and the attempt by current management to conserve
financial resources. The Board of Directors held two meetings during the time
Ms. Beter has been a director, and she attended one. Messrs. Welty and Enright
have attended all meetings of the Board of Directors since their becoming a
member. The current management of the Company is not aware of any committee
meetings held during 1997.
EXECUTIVE COMPENSATION
For the year ended December 31, 1997, the Company paid a consulting company
believed to be owned by D. Peter Rose consulting fees of $47,019. D. Peter Rose
was President of the Company until his resignation effective November 11, 1997.
The Company also paid Sinclair Management $21,000 for the services of T. J.
Enright, the chief operating officer of the Company in 1997. The current
management is not aware of the grant of any stock options or other compensation
paid to executive employees in 1997.
The services of T. J. Enright have been since January 1, 1998, supplied by
American Dream without reimbursement by Vector. On April 30, 1998, the Company
granted as compensation to each of T. J. Enright and Thomas Hallquest an option
to purchase 1,000,000 shares of Common Stock pursuant to the 1994 Omnibus Stock
Plan at a purchase price of $.09 per share, which was fifty percent (50%) of the
market price of the Common Stock on the date of grant. The option is exercisable
beginning October 30, 1998, until April 30, 2008, with certain limitations
contained in the 1994 Omnibus Stock Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Shares as of May 10, 1998, by (i) each person who is known
to the Company to be the beneficial owner of more than 5% of any class of the
Company's voting securities, which is composed solely of Common Shares, (ii)
each director, (iii) the Company's executive officers, and (iv) all executive
officers and directors as a group. Beneficial ownership of Common Shares has
been determined for this purpose in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934. Except as otherwise noted, and except as
community property laws apply, the Company believes that each person has sole
voting, dispositive and investment power with respect to the shares shown.
Security Ownership of Certain Beneficial Owners
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 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(a) 69.6%
International Limited 60,000,000(c) 52.8%
c/o One Independent Drive
Suite 3131
Jacksonville, FL 32202
Common W. R. Welty(b) 37,333,333(a) 69.6%
c/o One Independent Drive 60,000,000(c) 52.8%
Suite 3131
Jacksonville, FL 32202
- -----------------------
(a) 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 "CHANGE OF CONTROL AND
FINANCING TRANSACTIONS".
(b) W. R. Welty owns and controls American Dream. See notes (a) above and
(c) below.
(c) 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 "CHANGE OF CONTROL AND FINANCING TRANSACTIONS". 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
- --------------------------------
Title of Name and address Amount and nature Percent
Class of beneficial of of
owner beneficial Class
ownership
Common W. R. Welty(a) 37,333,333(a) 69.6%
60,000,000(a) 52.8%
81,556 *
Common T. J. Enright 37,333,333(b) 69.6%
60,000,000(b) 52.8%
1,000,000(c) 1.9%
Common Michael J. Kimberly 95,000(d) *
Common Thomas Hallquest 1,000,000(c) 1.9%
27,000 *
*Less than 1%
(a) W. R. Welty owns and controls American Dream. See notes (b) (c) and (d)
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 (c) above under the caption "Security Ownership of Certain
Beneficial Owners."
(c) Includes 1,000,000 shares acquirable upon exercise of options
exercisable beginning October 20, 1998.
(d) Includes 95,000 shares acquirable upon exercise of presently exercisable
options.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common Shares and other equity securities of the
Company. Officers, directors and greater than ten percent shareholders are
required by regulation to furnish the Company with copies of all Section 16(a)
forms they file.
Except as described below, to the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and certain
representations provided to the Company, all Section 16(a) filing requirements
applicable to the Company's officers, directors and greater than ten percent
beneficial owners were complied with during the year ended December 31, 1997. 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 in November, 1996, due to lack of
funds and the time that current management of the Company received the records
of the Company in 1997.
VOTE REQUIRED
The affirmative vote of a majority of the outstanding Common Shares of the
Company present or represented by proxy and entitled to vote at the annual
meeting is required to elect the Board of Directors. Abstentions will be treated
as shares that are present for purposes of determining the presence of a quorum
but as unvoted for purposes of electing directors. If a broker indicates on the
proxy that it does not have discretionary authority as to certain shares to vote
on directors, those shares will not be considered as present and entitled to
vote with respect to election of directors. The Board of Directors expects that
all Common Shares owned by V'Power Corporation will be voted in favor of the
election of the director nominees. Such shares represent approximately 70% of
the Common Shares entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
VOTING "FOR" THE ELECTION OF
W. R. WELTY, TIMOTHY J. ENRIGHT, LILLY BETER AND
MICHAEL J. KIMBERLEY AS A DIRECTOR.
APPROVAL OF AUDITORS
Subject to shareholder ratification, the Board of Directors has reappointed
the firm of BDO Seidman, Certified Public Accountants, Orlando, Florida, as
independent auditors to make an examination of the accounts of the Company for
the fiscal year 1998. One or more representatives of BDO Seidman are expected to
be present at the Annual Meeting, will have an opportunity to make a statement
if they desire to do so and will be available to respond to questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
SUCH RATIFICATION.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the next annual
meeting must be received by the Company for inclusion in the Company's proxy
statement and form of proxy relating to that meeting on or before December 31,
1998.
ADDITIONAL INFORMATION
The Company's Annual Report to Shareholders is being supplied to holders of
the Company's Common Shares together with this Proxy Statement. A copy of the
Company's Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission, will be furnished without charge to shareholders of record upon
written request to: Investor Relations, Vector Aeromotive Corporation, 975
Martin Avenue, Green Cove Springs, Florida 32043.
VECTOR AEROMOTIVE CORPORATION
\s\ Thomas Hallquest
--------------------
Thomas Hallquest
Secretary
Green Cove Springs, Florida
May 30, 1998
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 first 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
terminated 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 13 of Notes to Financial
Statements included elsewhere herein. Legal fees totaled $122,168, $179,078, and
$546,101 for the years ended December 31, 1997, 1996 and 1995, respectively.
Those 1996 and 1995 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,
1996 and 1997, the Company had cash and cash equivalents of $12,370, $33,864 and
$-0-, respectively. Net cash used by the Company in 1996 and 1997 totaled
$4,075,757 and $344,838, respectively, for research and development and
operating activities. 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, 1997, the Company had an accumulated deficit of
$39,576,534. For the years ended December 31, 1997, 1996 and 1995, the Company
had a net loss of $213,016, $5,594,993 and $7,652,565, respectively. The loss
equaled a total of $13,485,716 for the three years, with total aggregate
revenues during the same period of $1,670,578, including $500,000 from the sale
of technology in 1997. 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 $2,978,871 for the
year ended December 31, 1995, to $1,800,958 and $779,325 for the years ended
December 31, 1996 and 1997, respectively. The decreases were primarily due to
the Company suspended operations beginning approximately November, 1996. During
the years ended 1997, 1996 and 1995, non-cash compensation expense relating to
granting stock options below market value was recorded totaling $-0-, $-0- and
$133,440, respectively.
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.
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
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. The adoption of this standard had no effect on earnings per share.
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.
CORPORATE INFORMATION
Directors Timothy J.Enright W. R. Welty President
of Vector Aeromotive Corporation Consultant
Lilly Beter Michael J. Kimberley
President of Lilly Beter Capital Group, Inc. Consultant
Treasurer of Vector Aeromotive Corporation
Officers
Timothy J. Enright Lilly Beter Thomas Hallquest
President Corporate Treasurer Corporate Secretary
CORPORATE OFFICE
975 Martin Avenue, Green Cove Springs, FL 32043-8354 (904)529-0092
INDEPENDENT AUDITORS
BDO Seidman, LLP, Orlando, FL
STOCK REGISTRAR AND TRANSFER
American Securities Transfer, Inc.
1825 Lawrence Street, Suite 444, Denver, CO 80202
FORM 10-K
A copy of Vector Aeromotive Corporation's annual report on Form 10-K filed with
the Securities and Exchange Commission (excluding exhibits) will be furnished
without charge to shareholders of record upon written request to: Investor
Relations, Vector Aeromotive Corporation, 975 Martin Avenue, Green Cove Springs,
FL 32043-8354.
AGENT ANNUAL MEETING OF SHAREHOLDERS
Saturday, June 20, 1998
10:30 A.M. Eastern Daylight Time Vector
Hospitality Chalet, Road Atlanta,
5300 Winder Highway, Braselton, Georgia
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Vector Aeromotive Corporation
Green Cove Springs, Florida
We have audited the accompanying balance sheets of Vector Aeromotive
Corporation as of December 31, 1997 and 1996 and the related statements of
operations, shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1997. 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, 1997 and 1996 and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1997
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,
1997. 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.
\s\ BDO SEIDMAN, LLP
--------------------
BDO SEIDMAN, LLP
Orlando, Florida
February 28, 1998
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31, 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Note 4)
Current assets:
Cash and cash equivalents $ -- $ 33,864
Accounts receivable - trade -- 155,000
Inventories (Note 5) 439,637 556,612
Prepaid expenses and other -- 15,628
------------ ------------
Total current assets 439,637 761,104
Property and equipment, net (Note 6) 107,914 123,999
Other 1,850 1,850
$ 549,401 $ 886,953
------------ ------------
Liabilities and Shareholders' Deficit Current liabilities:
Note payable (Note 8) $ 250,000 $ 250,000
Accounts payable:
Trade 677,905 710,212
Related parties -- 1,416,107
Accrued expenses (Note 7) 521,709 501,505
Loans payable to related parties (Note 4) 310,974 --
Customer deposits 25,000 25,000
Total current liabilities 1,785,588 2,902,824
Debt to related party (Note 10) 992,700 --
Commitments and contingencies
(Notes 3, 12, 15, 16 and 17) -- --
Shareholders' deficit:
Preferred stock, par value $.10 per share;
5,000,000 shares authorized; none issued (Note 9) -- --
Common stock, par value $.01 per share;
600,000,000 shares authorized; issued and
outstanding 53,639,599 (Note 12) 536,396 536,396
Capital in excess of par value 36,786,109 36,786,109
Accumulated deficit (39,551,392) (39,338,376)
Total shareholders' deficit (2,228,887) (2,015,871)
$ 549,401 $ 886,953
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
Year ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------
Sales, net $ 331,900 $ 838,678 $ --
Operating costs and expenses:
Manufacturing,
research and development 228,181 4,512,869 4,535,463
General and administrative 779,325 1,800,958 2,978,871
Total operating costs and expenses 1,007,506 6,313,827 7,514,334
Operating loss (675,606) (5,475,149) (7,514,334)
Other income (expense):
Sale of technology rights 500,000 -- --
Interest expense (37,410) (16,324) --
Other -- (103,460) (138,231)
462,590 (119,784) (138,231)
Net loss (213,016) (5,594,933) (7,652,565)
Net loss per share (Note 14) $ (.01) $ (.11) $ (.19)
Weighted average common
shares outstanding 53,639,599 52,589,257 40,919,421
</TABLE>
See accompanying notes to financial statements.
<TABLE>
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<CAPTION>
Capital in
Common Stock Excess of Accumulated
Shares Amount Par Value Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 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 29,000 142,100 -- 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)
Net loss for the year -- -- -- (213,016) (213,016)
Balance, December 31, 1997 53,639,599 $ 536,396 $36,786,109 $(39,551,392) $(2,228,887)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (213,016) $(5,594,933) $(7,652,565)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 16,085 153,670 165,546
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
Loss on litigation settlement -- 18,479 --
Related party debt converted to consideration
for sale of technology rights (451,104) -- --
Increase (decrease) from changes in:
Related party account receivable -- -- 50,000
Accounts receivable - trade 155,000 (155,000) --
Inventories 116,975 (10,548) (515,213)
Prepaid expenses and other assets 15,628 263,678 (262,170)
Court bond receivable -- -- 232,803
Accounts payable (4,610) 627,652 970,497
Accrued expenses 20,204 (72,569) 470,798
Customer deposits -- (15,000) (25,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (344,838) (4,256,940) (5,892,382)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Acquisition of property and equipment -- (12,217) (610,251)
(Increase) decrease in other assets -- 180,900 (62,417)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities -- 168,683 (672,668)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from issuance of note payable -- 250,000 --
Proceeds from loans payable to related party 310,974 -- 1,000,000
Exercise of stock options -- 28,270 --
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
Net cash provided by financing activities 310,974 4,109,751 6,569,611
Net increase (decrease) in cash and cash equivalents (33,864) 21,494 4,561
Cash and cash equivalents, beginning of year 33,864 12,370 7,809
Cash and cash equivalents, end of year $ -- $ 33,864 $ 12,370
See accompanying notes to financial statements.
</TABLE>
Notes to Financial Statements
i. 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
measurement 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. During the years ended
December 31, 1997, 1996 and 1995, research and development costs were
approximately $-0-, $976,000 and $4,427,000, respectively.
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, 1997.
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.
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 June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS130), 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.
Reclassification
- ----------------
Certain items have been reclassified in the 1996 and 1995 financial statements
to conform to the 1997 presentation. ii. 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's vehicles are sold to dealers in the United States.
The Company suspended operations in November 1996. On July 22, 1997, the Company
entered into a restructuring agreement (see Note 4) which resulted in the
Company resuming operations on a limited basis.
iii. 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 1997
was approximately $213,000, the accumulated deficit was $39,551,000 and current
liabilities exceed current assets by $1,346,000 as of December 31, 1997. The
Company suspended operations in November 1996 and resumed limited operations in
September 1997. 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:
As described in Note 4, 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 15 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 Notes 9 and 10 to the financial statements, the Company has
agreements to restructure its debt to a formerly affiliated company by
exchanging it for preferred stock.
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.
iv. Restructuring Agreement
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 15) and obtaining clear title to the loan collateral. As of February 28,
1998, American has not exercised its options.
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 ($310,974 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.
v. Inventories
Inventories are summarized as follows:
December 31, 1997 1996
Raw materials $ 162,573 $ 223,666
Work-in-process 112,963 48,666
Finished goods 164,101 284,280
$ 439,637 $ 556,612
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 15). During 1995, a discontinued Vector W8,
included in finished goods inventory, and related replacement parts were written
down to estimated fair market value.
vi. Property and Equipment
Property and equipment are summarized as follows:
Useful
December 31, Lives 1997 1996
Leasehold improvements 5 years $ 22,260 $ 22,260
Tooling 5 years 75,000 75,000
Machinery and equipment 5 years 328,359 328,359
Office equipment 5 years 8,263 8,263
Computers 3 years 27,536 27,536
461,418 461,418
Less accumulated depreciation 353,504 337,419
$ 107,914 $123,999
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.
vii. Accrued Expenses
Accrued expenses consist of the following:
December 31, 1997 1996
Compensation and employee benefits $ 106,205 $151,920
Interest 36,126 6,975
Legal settlement 218,000 218,000
Warranty 35,000 20,000
Other 126,378 104,610
$ 521,709 $501,505
viii. Notes Payable
Notes payable consist of following:
December 31, 1997 1996
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 conversion
rate of 90% of the fair market
value of the Company's common
stock at the date of conversion $ 250,000 $ 250,000
Total notes payable $ 250,000 $ 250,000
ix. Preferred Stock
During 1997, the Company designated 9,927 shares of its preferred stock as
Series A cumulative preferred stock (Series A Stock). Upon issuance, Series A
Stock will be redeemable at a redemption price of $100 per share plus any
accumulated and unpaid dividends beginning nine months after the stock is
issued. The Company may redeem the Series A stock at any time at the redemption
price plus any accumulated unpaid dividends. The Series A Stock will have rights
senior to any other security currently issued by the Company and will be
classified as a liability on the Company's balance sheet. Dividends will be
cumulative and are payable on a quarterly basis. The dividend rate is based on
the current LIBOR rate as defined in the agreement. As of December 31, 1997, no
preferred stock has been issued by the Company.
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.
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
x. Related Party Transactions
Technology Rights
- -----------------
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.
Debt to Related Party
- ---------------------
As part of the July 22, 1997 restructuring, the Company entered into a debt
conversion and preferred stock agreement with Lamborghini S.p.A. and Lamborghini
U.S.A. (collectively Lamborghini). Under the terms of the agreement, Lamborghini
agreed to forbear any action to collect Vector's indebtedness of $992,700 and
would convert the indebtedness to Series A preferred stock upon American's
execution of its option to acquire 60,000,000 shares of Vector's common stock.
The Series A preferred stock would be redeemable beginning nine months after the
stock is issued at $10,000 per month for eight months and 12 substantially equal
monthly installments thereafter.
xi. Stock Offerings
The Company has entered into share purchase agreements with V'Power Corporation
("V'Power") as follows:
January 24, January 6,
1996 1995
Shares purchased 10,000,000 18,333,333
Price per share $ .45 $ .30
Options granted:
Shares 50,000,000 50,000,000
Exercise price per share $ .45 $ .43
Payment for option $ 500,000 $ 500,000
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).
xii. 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, 1997 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 2,368,600 95,000
3,160,000 2,914,600 95,000
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 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, 1997 1996 1995
Net loss
As reported $ (213,016) $ (5,594,933) $ (7,652,565)
Pro forma (213,016) (5,594,933) (7,677,585)
Loss per common share
As reported $ (.01) $ (.11) $ (.19)
Pro forma (.01) (.11) (.19)
Changes in stock options outstanding within the above plans and nonplan options
(see Note 17) are summarized as follows:
Weighted-Average Weighted-Average
Exercise Price Fair Value of
Shares Per Share Options Granted
Outstanding, 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 --
Expired (574,600) .85 --
Outstanding, December 31, 1997 95,000 $ .38 $--
The remaining options are held by a director of the Company and expire in 2004.
The following table summarizes information about fixed stock options outstanding
at December 31, 1997:
Options Outstanding Options Exercisable
-------------------------------- --------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Life Price at 12/31/97 Price
- --------------------------------------------------------------------------------
$.38 95,000 7.6 $.38 95,000 $.38
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 since no options were
granted.
Stock Warrants
At December 31, 1997, the Company had common stock warrants exercisable and
outstanding summarized as follows:
Number of Exercise
Expiration Date Warrants Price
- --------------------------------------------------------------------------------
November 18, 1998 477,500 $ .22
During 1996, the expiration date for 6,150,000 warrants was extended to November
12, 1997, at which time they expired. In addition, 522,500 common stock warrants
were exercised in 1996 at $.22 per share and 1,800,000 common stock warrants
with exercise prices ranging from $1.00 to $1.50 expired in 1996.
Common Shares Reserved
At December 31, 1997, the Company had reserved common stock for the following
purposes:
Stock option plans 3,009,600
American Dream stock options 60,000,000
Warrants 477,500
Total common shares reserved 63,487,100
xiii. 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:
1997 1996
Deferred tax assets:
Net operating loss carryforwards $ 13,165,000 $ 12,954,000
Tax credit carryforwards 777,000 777,000
Bad debts -- 179,000
Litigation accrual 82,000 82,000
Asset write-offs -- 76,000
Inventory overhead -- 71,000
Compensation from stock options 50,000 50,000
Depreciation -- 49,000
Gross deferred income tax assets 14,373,000 14,238,000
Valuation allowance (14,373,000) (14,238,000)
Total deferred income tax assets $ -- $ --
The Company had unused net operating losses for income tax purposes, expiring in
various amounts from 2003 through 2012, of approximately $35,000,000 at December
31, 1997 for carryforward against future years' taxable income. However, as a
result of the Company's stock offerings (see Note 11), 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 $135,000 and $1,463,000 during the years
ended December 31, 1997, and 1996, respectively.
The Company has research and development tax credit carryforwards of
approximately $777,000 which expire between 2005 and 2008.
xiv. Net Loss Per Share
The Company adopted Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS 128
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. The adoption of this standard had
no effect on the financial statements.
Net loss per share was calculated based on the weighted average shares
outstanding during the year. The effect of outstanding stock options
representing 95,000; 669,600; and 288,000 shares and warrants representing
477,500; 6,627,500; and 8,950,000 shares as of December 31, 1997, 1996 and 1995
and 500,000 units representing 1,000,000 shares of common stock as of December
31, 1995 was not included in the calculations as their effect was antidilutive.
xv. 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
Loss 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 $122,168, $179,078 and $546,101 for the years ended December
31, 1997, 1996 and 1995, respectively. The 1996 and 1995 fees were paid
primarily to a director or his law firm.
xvi. Leases
Leases
Prior to suspending operations, the Company had leased facilities from related
parties. Rental expense incurred under related party leasing arrangements
totaled $-0-, $78,936 and $93,546 for the years ended December 31, 1997, 1996
and 1995, respectively. 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. xvii. 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. The options
issued under the agreement have expired. 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.
The Company resumed operations subsequent to the July 22, 1997 restructuring
agreement. The Company was operated primarily by consultants during 1997. These
consultants did not have written contracts with the Company and were retained on
a month-to-month basis.
xviii. 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.
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
<S> <C> <C> <C>
Cash paid for interest $ -- $ 23,907 $ --
Cash paid for income taxes -- -- --
Noncash operating, financing and investing activities:
Increase in accounts payable
- related party subsequently
included in consideration for
technology sale 27,697 -- --
Payment of notes payable
through issuance of common
stock (see Note 11) -- 1,000,000 --
Write-off of assets and liabilities
associated with the settlement of
litigation with the Company's
former President (see Note 15) -- 237,017 --
</TABLE>
