UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(_x_) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 1997
or
(___) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From __________ To __________.
Commission File No. 0-25184
U.S. ELECTRICAR, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3056150
(State of other jurisdiction of (IRS employer identification number)
incorporation or organization)
5 Thomas Mellon Circle, Suite 254
San Francisco, CA 94134
(Address of Principal Executive Offices and Zip Code)
Indicate by check mark whether he 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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (_X_) No (___)
As of June 10, 1997, there were 152,060,668 shares of Common Stock, no par
value, outstanding.
<PAGE>
INDEX
U.S. ELECTRICAR, INC.
Page No.
--------
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) ............................... 3
Consolidated Balance Sheets:
April 30, 1997 and July 31, 1996 .............................. 3
Consolidated Statements of Operations:
Three and Nine months ended April 30, 1997 and 1996 ............ 4
Consolidated Statements of Cash Flows:
Nine months ended April 30, 1997 and 1996 ...................... 5
Notes to Consolidated Financial Statements:
for the Three and Nine months ended April 30, 1997 and 1996 .... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .............................................. 15
Item 2. Changes in Securities .......................................... 15
Item 3. Defaults upon Senior Securities ................................ 15
Item 4. Submission of Matters to a Vote of Security Holders ............ 16
Item 5. Other Information .............................................. 17
Item 6. Exhibits and Reports on Form 8-K ............................... 17
SIGNATURE .................................................................. 18
EXHIBIT INDEX............................................................... 19
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
U.S. ELECTRICAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
- ----------------------------------------------------------------------------------------------------
<CAPTION>
As of As of
April 30, 1997 July 31, 1996
-------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,177 $ 13
Accounts receivable, net of allowances of $434 and $596 2,407 856
Inventory 1,782 2,387
Prepaids and other current assets 279 184
-------- --------
Total Current Assets 5,645 3,440
PROPERTY, PLANT AND EQUIPMENT - NET 1,152 835
OTHER ASSETS 172 88
-------- --------
TOTAL ASSETS $ 6,969 $ 4,363
======== ========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITES:
Accounts payable $ 2,883 $ 2,868
Accrued payroll and related expense 679 441
Accrued warranty expense 970 1,156
Reserve for lease obligations 49 112
Accrued Interest 458 208
Other accrued expenses 893 721
Customer deposits and deferred revenue 104 323
Capital leases payable 273 0
Bonds and notes payable 5,497 7,283
-------- --------
Total Current Liabilities 11,806 13,112
LONG TERM DEBT 3,987 3,987
SHAREHOLDERS' (DEFICIT):
Series A preferred stock - No par value; 30,000,000
shares authorized; 3,693,000 and 4,010,000 shares
issued and outstanding at 4/30/97 and 7/31/96 2,641 2,983
Series B preferred stock - No par value;
5,000,000 shares authorized;
1,587,000 shares issued and outstanding 3,175 3,175
Stock notes receivable (1,127) (1,061)
Common Stock - No par value; 300,000,000 shares
authorized; 149,068,000 and 120,220,000 shares
issued and outstanding at 4/30/97 and 7/31/96 67,678 59,157
Accumulated deficit (81,191) (76,990)
-------- --------
Total Shareholders' (Deficit) (8,824) (12,736)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 6,969 $ 4,363
======== ========
<FN>
Note: The balance sheet at July 31, 1996 has been derived from the audited
financial statements at that date.
See notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
U.S. ELECTRICAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except for per share and share data)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended April 30, Nine Months Ended April 30,
---------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 2,856 $ 478 $ 3,754 $ 3,489
COST OF SALES 1,007 1,571 2,419 5,060
------------- ------------- ------------- -------------
GROSS MARGIN 1,849 (1,093) 1,335 (1,571)
------------- ------------- ------------- -------------
OTHER COSTS AND EXPENSES:
Research & development 394 413 1,027 1,129
Selling, general & administrative 835 2,503 2,322 5,186
Interest and financing fees 145 453 557 1,366
Impairment of long-lived assets 894 894
Acquisition of a research company 1,630
------------- ------------- ------------- -------------
Total other costs and expenses 1,374 4,263 5,536 8,575
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE GAIN ON DEBT
RESTRUCTURING 475 (5,356) (4,201) (10,146)
GAIN ON DEBT RESTRUCTURING 1,858 2,248
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 475 $ (3,498) $ (4,201) $ (7,898)
============= ============= ============= =============
PER COMMON SHARE:
Income (loss) before gain on debt restructring $ 0.003 $ (0.090) $ (0.033) $ (0.170)
Gain on debt restructuring 0.030 0.040
------------- ------------- ------------- -------------
Net income (loss) per common share $ 0.003 $ (0.060) $ (0.033) $ (0.130)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 137,631,515 62,665,378 128,360,813 56,873,171
</TABLE>
4
<PAGE>
U.S. ELECTRICAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
- --------------------------------------------------------------------------------
Nine Months Ended April 30
--------------------------
1997 1996
---- ----
OPERATIONS
Net loss $(4,201) $(7,898)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and Amortization 394 1,014
Change in allowance for doubtful accounts 170
Provision to reduce inventory values 245 (1,100)
Provision for impairment of long-lived assets 894
Loss on disposal of assets 11 246
Purchase of research and development 1,630
Loss on divestiture of business unit 55
Interest income on stock notes receivable (66) (60)
Accretion on royalties payable (773)
Interest converted to notes payable 8
Interest converted to common stock 194
Change in operating assets and liabilities:
Accounts Receivable (1,916) 219
Inventory 698 3,610
Prepaids and other assets (1) (15)
Accounts payable and accrued expenses 287 426
Customer deposits and deferred revenue (354) (319)
------- -------
Net cash used by operating activities (3,016) (3,586)
------- -------
INVESTING:
Repayments on advances to Systronix Corporation 209
Purchases of property, plant and equipment, net
of disposals (35)
------- -------
Net cash provided by investing activities 174 0
------- -------
FINANCING:
Payments on notes payable (2,372) (40)
Payments on capital leases (94)
Borrowings on notes payable 3,122 2,388
Proceeds from issuance of common stock 3,350 2,701
Excercise of options and warrants 28
------- -------
Net cash provided by financing
activities 4,006 5,077
------- -------
NET INCREASE IN CASH AND EQUIVALENTS 1,164 1,491
CASH AND EQUIVALENTS:
Beginning of period 13 319
------- -------
End of period $ 1,177 $ 1,810
======= =======
5
<PAGE>
U.S. ELECTRICAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
(In thousands)
- -------------------------------------------------------------------------------
Nine Months Ended April 30,
---------------------------
1997 1996
---- ----
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Series A preferred stock to
common stock $ 342 $ 1,583
Conversion of Series S bonds to common stock 3,000 701
Preferred stock issued in connection with debt
restructuring 3,015
Notes payable issued in connection with debt
restructuring 4,017
Conversion of convertible notes to common stock 600
Assumption of notes payable in connection with
acquisition 800
Note issued in connection with acquisition 830
Note assumed by buyer in connection with diverstiture (1,013)
Conversion of accrued interest to notes payable 139
Acquisition of capital assets through capital leases 361
Decrease in accounts receivable from divestiture of IEV 365
Decrease in inventory from divestiture of IEV 470
Decrease in accounts payable and accrued expenses
from divestiture of IEV (172)
Increase in inventory from acquisition of Systronix
Corporation (499)
Increase in prepaids from acquisition of Systronix (94)
Increase in accounts payable and accrued expenses
from acquisition of Systronix (361)
Increase in customer deposits from acquisition of
Systronix 135
6
<PAGE>
U. S. ELECTRICAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
For the Three and Nine Months Ended April 30, 1997 and 1996
NOTE 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared from the
records of the Company without audit, and in the opinion of management, include
all adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position at April 30, 1997 and the interim results
of operations and cash flows for the three and nine month periods ended April
30, 1997 and 1996. The balance sheet at July 31, 1996, presented herein, has
been prepared from the audited financial statements of the Company for the
fiscal year then ended.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
affecting the reported amounts of assets, liabilities, revenues and expenses,
and the disclosure of contingent assets and liabilities. The July 31, 1996 and
April 30, 1997 inventories are reported at market value. The inventory valuation
adjustments are estimates based on sales of inventory subsequent to July 31,
1996, and the projected impact of certain economic, marketing and business
factors. Warranty reserves and certain accrual expenses are based upon an
analysis of future costs expected to be incurred in meeting contracted
obligations. The amounts estimated for the above, in addition to other estimates
not specifically addressed, could differ from actual results; and the difference
could have a significant impact on the financial statements.
Accounting policies followed by the Company are described in Note 1 to the
audited financial statements for the fiscal year ended July 31, 1996. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted for purposes of the interim financial statements. The
financial statements should be read in conjunction with the audited financial
statements, including the notes thereto, for the year ended July 31, 1996, which
are included in the Company's Form 10-K Annual Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 as filed with the Securities and
Exchange Commission.
The income or loss per common share is based on the weighted average of common
shares outstanding. Potential dilution exists in earnings per share for the
three months ended April 30, 1997 if common stock equivalents, consisting of
unexercised stock options and warrants, were included in the calculation. The
resulting dilution in earnings per share, when compared to the $.003 currently
reflected in the financial statements, would be insignificant and, therefore,
has not been calculated.
The results of operations for the three and nine month periods presented herein
are not necessarily indicative of the results to be expected for the full year.
NOTE 2 - Going Concern
The Company has experienced recurring losses from operations and use of cash
from operations and had an accumulated deficit of $76,990,000 at July 31, 1996
and $81,191,000 at April 30, 1997. A substantial portion of the losses are
attributable to research, development and other start-up costs associated with
the Company's focus on the development and manufacture of electric vehicles,
including electric powered buses, the conversion of gas powered cars and light
trucks to electric power and off-road electric powered industrial vehicles.
During the three years ended July 31, 1996, the Company obtained approximately
$45 million (net of debt repayments) in cash from financial activities through
private placements of common stock and Series A preferred stock, the exercise of
options and warrants, and the issuance of convertible subordinated notes payable
and secured convertible bonds and notes. During the nine months ended April 30,
1997, the Company raised an additional $750,000, net of repayments, through the
issuance of secured convertible debt.
7
<PAGE>
It is management's intention to complete its debt restructuring and to seek
additional financing through private placements as well as other means. In
March, 1997, the Company completed an agreement with Hyundai Motor Company
("HMC") and Hyundai Electronics Industries Co., Ltd. ("HEI") whereby HMC and HEI
collectively invested $3.6 million in the Company and reached agreement to
secure a technology license for an additional payment of $2.0 million. The
Company received $555,000 of the funds for the license agreement in April, 1997.
Subsequent to April 30, 1997, in May, 1997, the Company received the remaining
$1,295,000 then due for the license agreement. The remaining $150,000 is to be
received over 6 years.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. Cash flows from operations for the
foreseeable future may not be sufficient to enable the Company to meet its
obligations. Market conditions and the Company's financial position may inhibit
its ability to achieve profitable operations.
These factors as well as the future availability or inadequacy of financing to
meet future needs, could force the Company to delay, modify, suspend or cease
some or all aspects of its planned operations, and/or seek protection under
applicable state and federal bankruptcy and insolvency laws.
NOTE 3 - Inventories
Inventories are comprised of the following (in thousands):
April 30, 1997 July 31, 1996
-------------- -------------
(unaudited)
-----------
Finished Goods $648 $1,000
Work-in-process 398 710
Raw materials 1,012 1,450
Valuation adjustment (276) (773)
-------- -------
$1,782 $2,387
======== =======
8
<PAGE>
U.S. ELECTRICAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4 - Notes and Bonds Payable, Long-Term Debt and Other Financing
<TABLE>
Notes and bonds payable and long-term debt are comprised of the following (in
thousands):
<CAPTION>
April 30, 1997 July 31, 1996
-------------- -------------
<S> <C> <C>
Series S secured convertible bonds, interest at
10%; principal and interest due March 1997,
secured by the personal property of the parent
company. $3,000
Convertible secured notes under a Supplemental
Loan Agreement with ITOCHU Corporation; interest
at 10%, principal and interest due April 1998,
secured by the personal property of the parent
company. $3,000 3,000
Convertible secured note (acquisition of
Nordskog); due January 1997, with interest at 9%
payable quarterly; secured by certain machinery
and equipment of the subsidiary; in September
1996, the assets associated with the previous
acquisition of Nordskog were sold in exchange for
the assumption of this note - 1,013
Secured promissory note - Credit Managers
Association of California ("CMAC") as exclusive
agent for Non-Qualified Creditors; interest at 3%,
with principal and interest due April 1999;
secured with an interest in a sinking fund escrow
consisting of 10% of any financing received
subsequent to April 1996; the Board of Directors
may waive the sinking fund set aside on a
case-by-case basis 95 95
Secured subordinated promissory note - CMAC as
exclusive agent for Qualified Creditors; interest
at 3%, with principal and interest due April 1999;
secured with an interest in a sinking fund escrow
as noted above 560 560
Secured subordinated promissory note - CMAC as
exclusive agent for Non-Qualified Creditors;
interest at 3% for the first 5 years, 6% for years
6 and 7, and then at prime plus 3% through date of
maturity; interest payments are made upon payment
of principal, with principal and interest due no
later than April 2016; secured with an interest in
a sinking fund escrow as noted above; payments on
this note are subordinated to payment in full on
all principal and accrued interest owed on the
above 3-year non-qualified and qualified notes 3,332 3,332
Promissory note - accrued interest on Nordskog
convertible secured note converted to a new note;
due upon receipt of additional financing by the
Company, with interest at 9%. 147 -
9
</TABLE>
<PAGE>
<TABLE>
April 30, 1997 July 31, 1996
---------------- -------------
<CAPTION>
<S> <C> <C>
NOTE 4 - Long-Term Debt (Continued)
Promissory note payable to principals of Systronix
Corporation in connection with the acquisition of
Systronix; interest at 10%, due May 1997. 130 -
Convertible secured promissory note payable to
Itochu Corporation; interest at 10%, due December
1997; convertible into common stock at $0.30 per
share. 1,300 -
Convertible secured promissory note payable to
Fontal International, Ltd.; interest at 10%, due
July, 1997; convertible into common stock at $0.30
per share. 800 -
Other 120 270
________ ________
9,484 11,270
Less current maturities 5,497 7,283
_________ ________
$3,987 $ 3,987
========= ========
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters addressed in this report, with the exception of the historical
information presented, incorporate certain forward-looking statements involving
risks and uncertainties, including the risks discussed in the report under the
heading "Certain Factors That May Affect Future Results", as reported by the
Company in the Form 10-K filed with the Commission on November 12, 1996.
GENERAL
U.S. Electricar, Inc. and Subsidiaries (the "Company") develops, converts,
assembles, manufactures and distributes battery-powered electric vehicles,
including on-road pick-up trucks, passenger cars, buses and delivery vehicles,
and a variety of off-road industrial vehicles. The Company's product lines
included converted vehicles (originally built to be powered by internal
combustion engines) and vehicles that are built specifically to be battery
powered. The Company's fiscal year ends July 31. All year references refer to
fiscal years.
During 1994 and the first half of 1995, the Company's approach to its business
was to establish manufacturing, marketing and support functions of a large scale
company so that the transition from development and prototype activities to
volume production of on-road electric vehicles could be made as quickly as
possible once component parts design, systems integration and assembly processes
were developed. The Company raised approximately $38 million to fund its
activities during this period. However, the Company was not able to achieve
volume production primarily because the development of such designs and
processes were not completed prior to the company's capital becoming severely
depleted which occurred in the second half of 1995. The Company incurred losses
totaling $62,586,000 during 1994 and 1995.
The Company was forced to severely curtail its activities in the second half of
1995 due to a lack of funds. Certain facilities were closed and operations were
consolidated, and the Company initiated programs to restructure its debt and
raise interim funding.
During 1996, the Company restructured a significant portion of its debt and
raised approximately $5 million in interim funding. However, its operations
continued to be impacted by an insufficient amount of funds to adequately
support its planned sales volumes and product development programs. The Company
curtailed the manufacture and sale of off-road industrial vehicles in the third
and fourth quarters of 1996 and reduced the carrying values of the assets
associated with this product line. In 1996, the Company incurred a loss of
$9,354,000.
In September 1996, a substantial portion of the assets of Industrial Electric
Vehicles, Inc., (formerly Nordskog Electric Vehicles, Inc. (Nordskog), prior to
its acquisition by the Company) were sold. Consideration for this sale included
the assumption of, and release of liability for, the note payable that totaled
$1,013,000 at July 31, 1996 to Nordskog.
On October 25, 1996, the Company acquired substantially all the tangible and
intangible assets, and assumed certain liabilities, of Systronix Corporation
(Systronix), for stock, a note and cash.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant recurring cash flow shortages due to
operating losses primarily attributable to research, development ,administrative
and other expenses associated with the Company's efforts to become an
international manufacturer and distributor of electric vehicles. Cash flows from
operations have been extremely negative and have not been sufficient to meet the
Company's obligations as they came due. The Company has therefore had to raise
11
<PAGE>
funds through numerous financial transactions and from various resources. At
least until the Company reaches break-even volume in sales and develops and/or
acquires the capability and technology necessary to manufacture and sell its
electric vehicles profitably, it will need to continue to rely extensively on
cash from debt and equity financing. The Company anticipates that it will
require substantial additional outside financing for at least two more years.
During the nine months ended April 30, 1997, the Company spent $3,016,000 in
cash on operating activities to fund the net loss of $4,201,000 resulting from
factors explained in the following section of this discussion and analysis.
Accounts receivable, exclusive of the divestiture of the industrial electric
vehicles business, increased by $1,916,000. The reduction of accounts receivable
attributable to this divestiture was $365,000, net of allowances. Included in
the April 30, 1997 balance of accounts receivable is $1,320,000 due from HMC for
the license agreement. Inventory, net of the divestiture of the industrial
electric vehicles business, which reduced inventory by $470,000, and the
acquisition of Systronix Corporation, which increased inventory by $499,000,
decreased by $698,000.
The operations of the Company during the nine months ended April 30, 1997 were
financed primarily by the issuance of promissory notes, the issuance of
convertible secured promissory notes, the sale of common stock and the sale of a
technology license. The Company received $472,000 from the issuance of
promissory notes. In addition, $1,350,000 was received from Fontal
International, Ltd. and $1,300,000 was received from Itochu Corporation, for the
issuance of convertible secured promissory notes. Sales of common stock totaling
$3,600,000 were made to Hyundai Motor Company ("HMC") and Hyundai Electronics
Industries Co., Ltd. ("HEI"). A technology license was sold to HMC and HEI for
$2,000,000. During the period, the promissory notes were repaid in full, and
repayments were made on the convertible secured promissory notes in the amount
of $1,150,000. In addition, payments of $700,000 were made during the period
against the $829,978 promissory note issued to the principals of Systronix
Corporation, the payment schedule was amended, and the maturity date of the note
was extended to May, 1997. Subsequently, in June 1997, the remainder of the
principal balance and accrued interest was paid in full.
IF THE COMPANY IS UNABLE TO RESTRUCTURE ITS DEBT OR OTHERWISE REFINANCE OR
CONVERT SUCH DEBT, AND ADDITIONAL FUNDING IS NOT AVAILABLE, THE COMPANY WOULD BE
FORCED TO SEEK PROTECTION UNDER APPLICABLE STATE AND FEDERAL BANKRUPTCY AND
INSOLVENCY LAWS.
SIGNIFICANT ADDITIONAL FUNDING WILL BE NEEDED IN 1998. AS OF JUNE 10, 1997, THE
COMPANY HAD NO COMMITMENTS FROM ANY PERSON OR ENTITY TO PROVIDE CAPITAL, AND
THERE CAN BE NO ASSURANCE THAT ADDITIONAL FUNDS WILL BE AVAILABLE FROM ANY
SOURCE AT THE TIME THE COMPANY WILL NEED SUCH FUNDS. THE INABILITY OF THE
COMPANY TO OBTAIN ADDITIONAL FUNDING ON TERMS ACCEPTABLE TO THE COMPANY WILL
HAVE A MATERIAL ADVERSE EFFECT ON ITS BUSINESS. THE FUTURE AVAILABILITY OR
INADEQUACY OF FINANCING TO MEET FUTURE NEEDS COULD FORCE THE COMPANY TO DELAY,
MODIFY, SUSPEND OR CEASE SOME OR ALL ASPECTS OF ITS PLANNED OPERATIONS, AND/OR
SEEK PROTECTION UNDER APPLICABLE STATE AND FEDERAL BANKRUPTCY AND INSOLVENCY
LAWS.
RESULTS OF OPERATIONS
Net sales increased $2,378,000, or 497%, in the third quarter of 1997 from the
third quarter of 1996, and increased $265,000, or 8%, in the first nine months
of 1997 from the same period of 1996. The increase in sales in the third quarter
was primarily due to the sale of a technology license to Hyundai Motor Company
and Hyundai Electronics Industries Co., Ltd. For first nine
12
<PAGE>
months of 1997, the increase due to the license sale was offset by decreases in
sales due to the Company's lack of available capital, and resultant inability to
pursue sales opportunities. While the Company intends to pursue opportunities to
license its technology in the future, there can be no assurance that any
additional revenues will be realized from this activity.
Sales of converted sedans and light trucks increased to 8 units in the third
quarter of 1997 from none in the third quarter of 1996, while unit sales for the
first nine months of 1997 were down 39% to 23 units from 38 units in the first
nine months of 1996. Total revenue from this product line was $286,000 in the
third quarter of 1997 and $801,000 in the first nine months. Sales for the first
nine months of 1997 were down $460,000, or 37%, from the corresponding period of
1996. There were no sales of industrial vehicles and associated parts and
service in the third quarter of 1997, since this business was sold on September
5, 1996. Sales for this product line in 1996 were $370,000 in the third quarter
and $1,711,000 in the first nine months. The Company realized revenues of
$154,000 in the third quarter and $298,000 for the year to date of 1997 from
various engineering contracts of the Components Division, acquired in October,
1996.
Exclusive of the sale of the technology license, cost of sales as a percent of
sales decreased to 118% in the third quarter of 1997 from 329% in the third
quarter of 1996, and cost of sales as a percent of sales decreased to 138% in
the first nine months of 1997 from 145% in the first nine months of 1996. In the
third quarter of 1996, production activities were severely curtailed for several
weeks due to a shortage of funds. This resulted in highly unfavorable costs
relative to the low sales levels. Margins in 1997 are still impacted by the low
levels of production and high costs from purchasing parts in small quantities.
Efforts to reduce manufacturing overhead continue, but the costs are still high
relative to the low levels of production.
Research and development expense decreased in the third quarter of 1997 by
$19,000, or 5%, from the third quarter of 1996. For the first nine months of
1997, research and development expense decreased $102,000, or 11% from the first
nine months of 1996. The Company has reduced its technical staff and curtailed
purchasing engineering services due to a severe lack of funds. In October, 1996,
the Company acquired substantially all the tangible and intangible assets of
Systronix Corporation, which is primarily a research company. The acquisition
brought technical capability and knowledge into the Company. In the acquisition,
$1,630,000 was previously expensed and reported in the first quarter as the
acquisition of a research company.
Selling, general and administrative expense decreased $1,668,000, or 67% in the
third quarter of 1997, and decreased $2,864,000, or 55% in the first nine months
of 1997, from the corresponding periods in 1996. This was primarily as a result
of a significant reduction in staff and outside services due to the
aforementioned lack of funds.
Interest and financing fees in the third quarter of 1997 declined $308,000, or
68%, from the third quarter of 1996. For the first nine months of 1997, interest
and financing fees decreased $809,000, or 59% from the first nine months of
1996. During 1996, the Company converted $15,548,000 of principal and accrued
interest to common stock, resulting in a significant decrease in interest
expense. In March, 1997, the Company converted $3,219,000 of principal and
accrued interest on a Series S convertible secured bond to common stock.
As a result of the sale of the technology license and the foregoing changes in
net sales, cost of sales, other costs and expenses, the acquisition of a
research company, and the Company realized net income of $475,000 in the third
quarter of 1997, compared to a loss of $3,498,000 in the third quarter of 1996.
For the first nine months of 1997, the net loss decreased $3,697,000, or 47% to
$4,201,000 from $7,898,000 in the first nine months of 1996.
13
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Future trends for the Company's revenue and profitability remain difficult to
predict. The Company operates in a rapidly changing and developing market that
involves a number of risks, some of which are beyond the Company's control. In
addition, as previously disclosed in this Form 10-K, the Company's financial
condition remains extremely precarious. The following discussion highlights
certain of these risks.
Going Concern / Net Operating Losses. The Company has experienced recurring
losses from operations and had an accumulated deficit of $81,191,000 at April
30, 1997. There is no assurance, however, that any net operating losses will be
available to the Company in the future as an offset against future profits for
income tax purposes. A substantial portion of the losses are attributable to
product development and other start-up costs associated with the Company's
business focus on the development, production and sale of battery powered
electric vehicles. Cash flows from future operations may not be sufficient to
enable the Company to achieve profitable operations. Market conditions and the
Company's financial position may inhibit its ability to achieve profitable
operations. These factors, as well as others, indicate the Company may be unable
to continue as a going concern unless it is able to obtain significant
additional financing and generate sufficient cash flows to meet its obligations
as they come due and sustain its operations. As of June 10, 1997, the Company
had no firm commitments from any person or entity to provide capital, and there
can be no assurance that additional funds will be available from any source at
the time the Company will need such funds.
Continued Losses. For the fiscal years ended July 31, 1994, 1995 and 1996, the
Company had substantial net losses of $25,021,000, 37,565,000 and $9,354,000,
respectively on sales of $5,787,000, $11,625,000 and $4,209,000, respectively,
and a net loss of $4,201,000 for the nine months ended April 30, 1997.
Nature of Industry. The electric vehicle ("EV") industry is in its infancy.
Although the Company believes that it has manufactured a significant percentage
of the electric vehicles sold in the United States based upon its own knowledge
of the industry, there are many large and small companies, both domestic and
foreign, now in, poised to enter, or entering this industry. This EV industry is
subject to rapid technological change. Most of the major domestic and foreign
automobile manufacturers (1) have produced design-concept electric vehicles,
and/or (2) have developed improved electric storage, propulsion and control
systems, and/or (3) are now entering or planning to enter the field. Various
non-automotive companies are also developing improved electric storage,
propulsion and control systems. Growth of the present limited demand for
electric vehicles depends upon (a) future regulation and legislation requiring
more use of non-polluting vehicles, (b) the environmental consciousness of
customers and (c) the ability of electric vehicles to successfully compete with
vehicles powered with internal combustion engines on price and performance.
Changed Legislative Climate. Because vehicles powered by internal combustion
engines cause pollution, there has been significant public pressure in Europe
and Asia, and enacted or pending legislation in the United States at the federal
level and in certain states, to promote or mandate the use of vehicles with no
tailpipe emissions ("zero emission vehicles") or reduced tailpipe emissions
("low emission vehicles"). Legislation requiring or promoting zero emission
vehicles is necessary to create a significant market for electric vehicles.
There can be no assurance, however, that further legislation will be enacted or
that current legislation or state imposed mandates will not be repealed or
amended
(as recently occurred in California), or that a different form of zero emission
or low emission vehicle will not be invented, developed and produced, and
achieve greater market acceptance than electric vehicles. Extensions,
modifications or reductions of current federal and state legislation, mandates
and potential tax incentives could adversely affect the Company's business
prospects if implemented.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
On May 20, 1996, a suit was filed by a shareholder against the
Company, one of its former officers, and a third party
individual in the San Francisco Superior Court. The suit
alleges that the individual made fraudulent and negligent
misrepresentations to induce the shareholder to purchase
shares of Company stock for $100,000; that the former officer
concealed material facts from the shareholder; and that
defendants (including the Company) all breached fiduciary
duties to the shareholder. The complaint seeks compensatory
damages, punitive damages, attorneys fees and costs, and other
relief. The Company believes the allegations against it are
without merit. The Company sought dismissal of such claims, by
demurring to the Complaint and the First Amended Complaint.
The demurrer to the First Amended Complaint was sustained
without leave to amend. Judgment was entered in favor of the
Company and its former officer on February 7, 1997. On May 12,
1997 the shareholder filed a Motion for Relief from Order
Sustaining Demurrer. The Motion for Relief was denied on May
20, 1997.
On January 16, 1997, the Company was served a Complaint for
Damages originally filed in San Francisco Superior Court on
September 30, 1996 against the Company by Anthony O. Vicari,
Plaintiff in Propria Persona. The Complaint alleges that on or
about October, 1994, plaintiff and the Company entered into an
oral agreement whereby the plaintiff agreed to seek and
arrange a joint business venture agreement for the manufacture
and sale of of the Company's electric vehicles to Grupo
Industrial CASA, S.A. de C.V., a Mexican Corporation, and that
the Company agreed to compensate the plaintiff for said
services in the amount of one million dollars and to issue to
plaintiff eighty thousand shares of Company stock. The
Complaint further alleges that the Company breached the oral
agreement on or about December 20, 1994. The Complaint seeks
compensatory damages in an unspecified amount, punitive
damages, the issuance of eighty thousand shares of stock, and
attorney fees and costs. On February 18, 1997, the Company
filed an Answer to the Complaint wherein the Company denies
the allegations and seeks dismissal of the Complaint. A date
for trial has been set for September, 1997.
Item 2. Changes in Securities:
None.
Item 3. Defaults Upon Senior Securities:
None.
15
<PAGE>
Item 4. Submission of Matters to a Vote of Securities Holders:
The Company's Annual Meeting of Stockholders was held May
9, 1997. The following matters were voted upon at the annual
meeting.
(a) To provide authorization for the Board of Directors
to effect a reverse stock split of the Company's
common stock in a ratio of up to one-for-twenty, at
any time until the next annual meeting of
shareholders. The results of the voting were as
follows:
Number of Common shares voted FOR 103,053,154
Percentage of Common shares voted FOR 81.0%
Number of Common, Series A and Series B
Preferred shares voted FOR 110,124,203
Percentage of Common, Series A and
Series B Preferred shares
voted FOR 81.1%
(b) Election of nine (9) directors of the Company, each
to serve until the next annual meeting of
shareholders or until their respective successors are
elected and qualified. The results of the voting were
as follows:
Each director received an affirmative vote of over
80.4% of the total number of shares voting.
The Series B director received an affirmative vote of
52.6% of the Series B shares voting.
(c) To ratify the adoption by the Board of Directors of
the Company's 1996 Stock Option Plan under which
shares have been reserved for issuance. The results
of the voting were as follows:
Number of Common, Series A and
Series B Preferred shares
voted FOR 77,345,691
Percentage of Common, Series A
and Series B Preferred shares
voted FOR 72.7%
(d) To ratify the selection of Moss-Adams LLP as
independent auditors of the Company for the fiscal
year ended July 31, 1997. The results of the voting
were as follows:
Number of Common, Series A and
Series B Preferred shares
voted FOR 90,420,354
Percentage of Common, Series A
and Series B Preferred shares
voted FOR 84.9%
16
<PAGE>
Item 5. Other Information:
(a) Fontal Convertible Debt
On April 30, 1997, the Company and Fontal International, Ltd.,
Geneva, Switzerland, executed a Loan Agreement whereby Fontal
extended a loan to the Company in the amount of $200,000. The
Loan was evidenced by a Promissory Note which provides for a
due date of July 9, 1997, an interest rate of ten percent
(10%) per annum, and the right to convert principal and
accrued interest at any time, in one or more installments,
into shares of the Company's common stock at the conversion
rate described below. The note and any shares issuable upon
conversion thereof have not been registered under the
Securities Act of 1933 in reliance upon Regulation S
promulgated thereunder.
The number of shares to be issued pursuant to any election to
convert any or all of the Loan amount shall equal the quotient
obtained by dividing (x) the amount of the loan to be
converted, by (y) the conversion price of $0.30 per share. The
total number issuable pursuant to such conversion of principal
is therefore 666,667 shares.
(c) Certain Debt Maturities
ITOCHU: The Company has outstanding secured notes under a
Supplemental Loan Agreement with ITOCHU Corporation in the
principal amount of $3.0 million. The maturity date on these
notes was extended from April 17, 1997 to April 17, 1998.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
10.99 Loan Agreement for $200,000 convertible
promissory note with Fontal International, Ltd.,
dated April 30, 1997.
(b) Reports on Form 8-K
None.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15 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 on June 10, 1997.
U.S. ELECTRICAR, INC.
(Registrant)
/s/ Roy Y. Kusumoto
- --------------------------------------------------------------------------------
By: Roy Y. Kusumoto, Chief Executive Officer and President
(Principal executive officer)
/s/ Barrett R. Woodruff
- --------------------------------------------------------------------------------
By: Barrett R. Woodruff, Acting Chief Financial Officer
(Principal financial and accounting officer)
18
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
10.99 Loan Agreement for $200,000 convertible promissory note
with Fontal International, Ltd., dated April 30, 1997. 20
27 Financial Data Schedule 24
19
THE SECURITIES REPRESENTED BY THIS INSTRUMENT OR ISSUABLE HEREUNDER HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES
ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION
THEREOF. THE SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION AND QUALIFICATION WITHOUT AN OPINION OF COUNSEL FOR THE
HOLDER, CONCURRED IN BY COUNSEL FOR THE COMPANY, THAT SUCH REGISTRATION AND
QUALIFICATION ARE NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS INSTRUMENT OR ISSUABLE HEREUNDER ARE SUBJECT
TO RESTRICTIONS ON TRANSFER PURSUANT TO REGULATIONS PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED EXCEPT PURSUANT TO THE PROVISIONS UNDER REGULATION S OR PURSUANT
TO REGISTRATION UNDER SUCH ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION.
THE SECURITIES REPRESENTED BY THIS INSTRUMENT OR ISSUABLE HEREUNDER ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THAT CERTAIN JANUARY 15, 1997
SUBSCRIPTION AND LOAN AGREEMENT BETWEEN THE ORIGINAL HOLDER HEREOF AND THE
COMPANY (THE "SUBSCRIPTION AGREEMENT").
U.S. ELECTRICAR, INC.
CONVERTIBLE BOND
TO PURCHASE COMMON STOCK
San Francisco, California
U.S.$200,000 April 30, 1997
U.S. ELECTRICAR, INC., a California corporation (the "Company"), the
principal office of which is located at 5 Thomas Mellon Circle, Ste. 254, San
Francisco, CA 94134, for value received hereby promises to pay to FONTAL
INTERNATIONAL, LTD., or registered assigns, the sum of Two Hundred Thousand
Dollars ($200,000.00) or such lesser amount as shall then equal the outstanding
principal amount hereof on the terms and conditions set forth hereinafter. The
principal hereof and any unpaid accrued interest hereon, as set forth below,
shall be due and payable on July 9, 1997 (the "Due Date"). Payment for all
amounts due hereunder shall be made at the election of the Company by wire
transfer, as instructed by the Holder, or by mail to the registered address of
the Holder. The Holder of the Bond is subject to certain restrictions set forth
in the Subscription Agreement and shall be entitled to certain rights and
privileges set forth in the Subscription Agreement.
The following is a statement of the rights of the Holder of this Bond
and the conditions to which this Bond is subject, and to which the Holder
hereof, by the acceptance of this Bond, agrees:
1. Definitions. As used in this Bond, the following terms, unless the
context otherwise requires, have the following meanings:
a. "Company" includes any corporation which shall succeed to
or assume the obligations of the Company under this Bond.
b. "Holder," when the context refers to a holder of this Bond,
shall mean any person who shall at the time be the registered holder of this
Bond.
20
<PAGE>
2. Interest. Until all outstanding principal and interest on this Bond
shall have been paid in full, interest shall be payable on the outstanding
principal balance of this Bond, in arrears on the Due Date, at the rate of ten
percent (10.0%) per annum accruing from January 15, 1997.
3. Prepayment. The Company may prepay any portion or all of the
principal balance or interest of this Bond upon ten (10) days' prior written
notice. Any prepayment of this Bond will be credited first against accrued
interest then principal.
4. Conversion.
a. Holder's Conversion Rights. So long as any principal
remains outstanding hereunder up to and through the Due Date (the "Conversion
Period"), Holder may, at its option by written notice to the Company, convert
all or any part of the principal and interest due hereunder in increments of
$100,000 or more (or such lesser amount as may remain outstanding under this
Bond at the time of conversion) into Common Stock of the Company at Thirty Cents
($0.30) per share.
b. General Conversion Terms. Upon Holder's election to convert
this Bond, the applicable amount of outstanding principal and interest of this
Bond shall be converted so long as such conversion is exempt from applicable
state and federal registration requirements and the terms and conditions set
forth below. The Company shall not be obligated to issue certificates evidencing
the shares of the securities issuable upon such conversion unless this Bond is
either delivered to the Company or its transfer agent, or the Holder notifies
the Company or its transfer agent that such Bond has been lost, stolen or
destroyed and executes an agreement and provides collateral satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection with
such Bond. The Company shall, as soon as practicable after such delivery, or
such agreement and indemnification, issue and deliver at such office to such
Holder of such Bond, a certificate or certificates for the securities to which
the Holder shall be entitled accompanied by appropriate restrictive legends on
transfer, a check payable to the Holder in the amount of any cash amounts
payable as the result of a conversion into fractional shares of Common Stock, as
the case may be, and a new Bond upon the same terms this Bond for any remaining
principal in the case of a conversion of only a portion of this Bond. Such
conversion shall be deemed to have been made immediately prior to the close of
business of the date of receipt of written notice by the Company causing
conversion. The person or persons entitled to receive Common Stock issuable upon
such conversion shall be treated for all purposes and the record Holder or
Holders of such Common Stock on such date.
5. Bond Confers No Rights of Shareholder. The Holder shall not have any
rights as a shareholder of the Company with regard to the shares issuable
hereunder prior to actual conversion hereunder.
6. Reservation of Shares. The Company agrees at all times during the
Conversion Period to have authorized and reserved, for the exclusive purpose of
issuance and delivery upon conversion of this Bond, a sufficient number of
shares of its Common Sock to provide for the conversion of the rights
represented hereby to the extent ascertainable.
7. Adjustments. If the Company at any time during the Conversion Period
shall, by subdivision, combination or re-classification of securities, change
any of the Company's Common Stock to which purchase rights under this Bond exist
into the same or different
21
<PAGE>
number of securities of any class or classes, this Bond shall thereafter entitle
the Holder to acquire such number and kind of securities as would have been
issuable as a result of such change with respect to the shares hereunder
immediately prior to such subdivision, combination, or re-classification. If
shares of the Company's Common Stock are subdivided into a greater number of
shares of Common Stock, the conversion price for the shares hereunder upon
conversion of this Bond shall be proportionately reduced and such shares be
proportionately increased; and conversely, if shares of the Company's Common
Stock are combined into a smaller number of Common Stock shares, the price shall
be proportionately increased, and the Common Stock shares hereunder shall be
proportionately decreased.
8. Public Offering Lock-Up. For a period of up to one-hundred-eighty
(180) days (the "Stand-off Period"), Holder shall not, if requested by the
Company at any time in contemplation of a public registration, sell, pledge or
otherwise transfer any capital stock acquired hereunder (or any other shares
exchanged therefor), if this Bond has been converted, to any person or entity.
Notwithstanding the foregoing, this lock-up right may be exercised by the
Company only one time.
9. Assignment. Subject to any restrictions on transfer described
elsewhere herein, the rights and obligations of the Company and the Holder of
this Bond shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties hereto.
10. Transfer of this Bond or Securities Issuable on Conversion Hereof.
With respect to any offer, sale or other disposition of this Bond or any
underlying securities, the Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law than in effect, including but not limited to Regulation S
under the Securities Act of 1933, as amended (the "Act")). Furthermore, no such
transfer shall be made unless the transferee meets the same investor suitability
standards set forth in the Subscription Agreement. Promptly upon receiving such
written notice and reasonably satisfactory opinion, if so requested, the
Company, as promptly as practicable, shall notify such Holder that such Holder
may sell or otherwise dispose of this Bond or the underlying securities, as the
case may be, all in accordance with the terms of the written notice delivered to
the Company. If a determination has been made pursuant to this Section that the
opinion of counsel for the Holder is not reasonably satisfactory to the Company,
the Company shall so notify the Holder promptly after such determination has
been made. Each Bond or underlying securities thus transferred shall bear
legends as to the applicable restrictions on transferability in order to ensure
compliance with the Act, unless in the opinion of counsel for the Company such
legend is not required in order to ensure compliance with the Act. The Company
may issue stop transfer instructions to its transfer agent in connection with
such restriction.
11. Notices. All notices, requests, demands, instructions or other
communications required or permitted to be given under this Bond shall be in
writing and shall be deemed to have been duly given upon delivery, if delivered
personally, or if given by prepaid telegram, or if mailed from and to an address
in North America (Canada, United States or Mexico) mailed first-class, postage
prepaid, registered or certified mail, return receipt requested, shall be deemed
to have been given five (5) days after such delivery, to the address set forth
in the Subscription Agreement. Either party hereto may change the address to
which such communications are to be directed by giving written notice to the
other party hereto of such change in the manner above provided.
22
<PAGE>
12. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California, applicable to contracts
between California residents entered into and to be performed entirely with the
State of California. Venue for all purposes in connection with this Bond shall
be San Francisco, California.
13. Attorney's Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Bond, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
14. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Bond.
IN WITNESS WHEREOF, the Company has caused this Bond to be issued as of
the date first set forth above.
U.S. ELECTRICAR, INC.
By: / s / Roy Y. Kusumoto
-----------------------------------
(Signature)
Roy Y. Kusumoto
----------------------------------
(Print Name and Title)
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE ANNUAL REPORT ON FORM 10-Q OF U.S.
ELECTRICAR, INC. FOR THE QUARTER ENDED APRIL 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
<CASH> 1,177
<SECURITIES> 0
<RECEIVABLES> 2,407
<ALLOWANCES> 0
<INVENTORY> 1,782
<CURRENT-ASSETS> 5,645
<PP&E> 1,152
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,969
<CURRENT-LIABILITIES> 11,806
<BONDS> 3,987
0
5,816
<COMMON> 67,678
<OTHER-SE> (81,181)
<TOTAL-LIABILITY-AND-EQUITY> 6,969
<SALES> 3,754
<TOTAL-REVENUES> 3,754
<CGS> 2,419
<TOTAL-COSTS> 5,768
<OTHER-EXPENSES> 1,630
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 557
<INCOME-PRETAX> (4,201)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,201)
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<EPS-PRIMARY> (0.03)
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