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 January 31, 1998
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 or other jurisdiction of (IRS employer identification number)
incorporation or organization)
19850 South Magellan Drive
Torrance, CA 90502
----------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter 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 March 10, 1998, there were 151,205,668 shares of Common Stock, no par
value, outstanding.
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INDEX
U.S. ELECTRICAR, INC.
Page No.
--------
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) .............................. 3
Consolidated Balance Sheets:
January 31, 1998 and July 31, 1997 ............................ 3
Consolidated Statements of Operations:
Three and Six months ended January 31, 1998 and 1997 .......... 4
Consolidated Statements of Cash Flows:
Six months ended January 31, 1998 and 1997 .................... 5
Notes to Consolidated Financial Statements:
for the Three and Six months ended January 31, 1998 and 1997 .. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 10
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 ........... 15
Item 5. Other Information ............................................. 16
Item 6. Exhibits and Reports on Form 8-K .............................. 16
SIGNATURE ............................................................... 17
EXHIBIT INDEX ........................................................... 18
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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
January 31, 1998 July 31, 1997
---------------- -------------
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 88 $ 333
Accounts receivable, net of allowances of $115 and $115 464 829
Inventory 991 1,812
Prepaids and other current assets 115 258
-------- --------
Total Current Assets 1,658 3,232
PROPERTY, PLANT AND EQUIPMENT - NET 458 1,099
OTHER ASSETS 180 182
-------- --------
TOTAL ASSETS $ 2,296 $ 4,513
======== ========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITES:
Accounts payable $ 2,655 $ 2,335
Accrued payroll and related expense 663 634
Accrued warranty expense 539 564
Reserve for lease obligations 0 28
Accrued Interest 918 598
Other accrued expenses 251 337
Customer deposits and deferred revenue 138 44
Current maturities of obligations under capital lease 0 209
Bonds and notes payable 5,420 5,220
-------- --------
Total Current Liabilities 10,584 9,969
LONG TERM DEBT 3,639 3,639
SHAREHOLDERS' (DEFICIT):
Series A preferred stock - No par value; 30,000,000 shares authorized;
3,621,000 shares issued and outstanding at 1/31/98 and 7/31/97 2,543 2,543
Series B preferred stock - No par value; 5,000,000 shares authorized;
1,340,000 shares issued and outstanding at 1/31/98 and 7/31/97 2,682 2,682
Stock notes receivable (1,194) (1,149)
Common Stock - No par value; 300,000,000 shares authorized; 151,206,000
and 151,068,000 shares issued and outstanding at 1/31/98 and 7/31/97 68,354 68,354
Accumulated deficit (84,312) (81,525)
-------- --------
Total Shareholders' (Deficit) (11,927) (9,095)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 2,296 $ 4,513
======== ========
</TABLE>
Note: The balance sheet at July 31, 1997 has been derived from the audited
financial statements at that date. See notes to consolidated financial
statements.
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<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 January 31, Six Months Ended January 31,
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 360 $ 371 $ 1,000 $ 898
COST OF SALES 1,171 649 1,705 1,412
------------- ------------- ------------- -------------
GROSS MARGIN (811) (278) (705) (514)
------------- ------------- ------------- -------------
OTHER COSTS AND EXPENSES:
Research & development 69 467 210 633
Selling, general & administrative 770 887 1,552 1,487
Interest and financing fees 159 373 320 412
Acquisition of a research company 1,630
------------- ------------- ------------- -------------
Total other costs and expenses 998 1,727 2,082 4,162
------------- ------------- ------------- -------------
NET LOSS $ (1,809) $ (2,005) $ (2,787) $ (4,676)
============= ============= ============= =============
NET LOSS PER COMMON SHARE $ (0.012) $ (0.016) $ (0.018) $ (0.038)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 151,205,668 126,196,062 151,194,173 123,725,462
</TABLE>
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U.S. ELECTRICAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
================================================================================
Six Months Ended January 31
---------------------------
1998 1997
------- -------
OPERATIONS
Net loss $(2,787) $(2,671)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and Amortization 137 164
Provision to reduce inventory values 734 5
Loss on disposal of equipment 319 0
Purchase of a research company 0 1,630
Interest income on stock notes receivable (45) (19)
Change in operating assets and liabilities:
Accounts Receivable 365 (280)
Inventory 87 201
Prepaids and other assets 145 94
Accounts payable and accrued expenses 530 76
Customer deposits and deferred revenue 94 29
------- -------
Net cash used by operating activities (421) (771)
------- -------
INVESTING:
Repayments on advances to Systronix Corporation 0 209
Purchases of property, plant and equipment (8) 0
------- -------
Net cash provided (used) by investing
activities (8) 209
------- -------
FINANCING:
Payments on notes payable 0 (172)
Payments on capital leases (16) 0
Borrowings on notes payable 200 472
Proceeds from issuance of common stock 0 300
------- -------
Net cash provided (used) by financing
activities 184 600
------- -------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (245) 38
CASH AND EQUIVALENTS:
Beginning of period 333 13
------- -------
End of period $ 88 $ 51
======= =======
5
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<TABLE>
U.S. ELECTRICAR, INC, AND SUBSIDIARIES
CONSOLIDATED STSTEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
(In thousands)
====================================================================================================================================
<CAPTION>
Six Months Ended January 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Series A preferred stock to common stock -- $ 140
Conversion of convertible notes to common stock -- 500
Assumption of notes payable in connection with acquisition -- 800
Note issued in connection with acquisition -- 830
Note assumed by buyer in connection with divestiture -- (1,013)
Conversion of accrued interest to notes payable -- 147
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 inventory from accounts payable and accrued
expenses from acquisition of Systronix -- (361)
Increase in customer deposits from acquisition of Systronix -- 135
Decrease in capital lease payable due to cancellation 190 --
</TABLE>
6
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U. S. ELECTRICAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
For the Three and Six Months Ended January 31, 1998 and 1997
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 January 31, 1998 and the interim
results of operations and cash flows for the three and six month periods ended
January 31, 1998 and 1997. The balance sheet at July 31, 1997, 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, 1997 and
January 31, 1998 inventories are reported at market value. The inventory
valuation adjustments are estimates based on sales of inventory subsequent to
July 31, 1997, and the projected impact of certain economic, marketing and
business factors. Inventories have been valued on the basis that they would be
used, converted and sold in the normal course of business. During the period
ended January 31, 1998, the Company has discontinued production activity on
certain products, so that some of the inventory on hand is not expected to be
used in production. These inventories have been revalued to reflect their sale
at liquidation prices. 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, 1997. 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, 1997, 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 loss per common share is based on the weighted average of common shares
outstanding. Potential dilution exists in earnings per share for the three and
six months ended January 31, 1998 if common stock equivalents, consisting of
unexercised stock options and warrants, were included in the calculation. The
resulting dilution in the net loss per share, when compared to the loss of
$0.018 currently reflected in the financial statements for the six months ended
January 31, 1998, would be insignificant and, therefore, has not been
calculated.
The results of operations for the three and six 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 $81,525,000 at July 31, 1997
and $84,312,000 at January 31, 1998. A substantial portion of the losses are
attributable to research, development and other
7
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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, 1997, the Company obtained approximately
$23 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 six months ended January 31,
1998, the Company received $200,000 from a European investor group in the form
of a short term, non-interest bearing promissory note.
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 purchased $3.6 million of the Company's common stock for cash and
secured a technology license for an additional payment of $2.0 million. For the
technology license, the Company received $1,850,000 in cash and 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):
January 31, 1998 July 31, 1997
---------------- -------------
(unaudited)
-----------
Finished Goods $ 481 $ 667
Work-in-process 253 375
Raw materials 394 1,062
Valuation adjustment (137) (292)
------- -------
$ 991 $ 1,812
======= =======
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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>
January 31, 1998 July 31, 1997
---------------- -------------
<S> <C> <C>
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
Secured promissory note - Credit Managers
Association of California ("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
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 307 307
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
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 1,300
Convertible promissory note payable to Fontal
International, Ltd.; interest at 10%, due July,
1997; convertible into common stock at $0.30 per
share. 800 800
Promissory note payable to a European investor
group; no interest. 200 --
Other 120 120
------ ------
9,059 8,859
Less current maturities 5,420 5,220
------ ------
$3,639 $3,639
====== ======
</TABLE>
9
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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 herein and 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 October 29, 1997.
GENERAL
U.S. Electricar, Inc. and Subsidiaries (the "Company") originally was
established to develop, convert, assemble, manufacture and distribute
battery-powered electric vehicles, including on-road pick-up trucks, passenger
cars, buses and delivery vehicles, and off-road industrial vehicles. The
Company's product lines include converted vehicles (originally built to be
powered by internal combustion engines) and vehicles that are built specifically
to be battery powered. Currently, the Company is directing its efforts toward
the development of electric drive trains and related components, vehicle systems
integration and the performance of various engineering contracts. The Company's
efforts relating to the converted vehicle program have been discontinued, and
current efforts consist primarily of selling off the existing inventory. The
Company's fiscal year ends July 31. All year references refer to fiscal years.
In the years prior to 1996, the Company incurred substantial losses which
resulted in significant debt. 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.
The Company also acquired substantially all the tangible and intangible assets,
and assumed certain liabilities, of Systronix Corporation (Systronix) on October
25, 1996, for stock, a note and cash.
10
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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 purchased $3.6 million of the Company's common stock for cash and
secured a technology license for an additional payment of $2.0 million. For the
technology license, the Company received $1,850,000 in cash and the remaining
$150,000 is to be received over 6 years.
During the six months ended January 31, 1998, the Company has continued to
concentrate on the reduction of operating costs. Headcount has been reduced from
51 employees at July 31, 1997 to 30 employees as of January 31, 1998. Business
activities have been scaled back, and the Company is now focused primarily on
the development of electric drive trains and related components, vehicle systems
integration and the performance of various engineering contracts. The Company
has several contracts with the U. S. Defense Advanced Research Project Agency
("DARPA"), including the development of a new AC bus, a new plastic lithium ion
vehicle battery concept and testing of advanced vehicle batteries.
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
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 one more year.
During the six months ended January 31, 1998, the Company spent $421,000 in cash
on operating activities to fund the net loss of $2,787,000 resulting from
factors explained in the following section of this discussion and analysis.
Accounts receivable decreased by $365,000. Inventory decreased by $87,000 net
of write-downs. The Company has discontinued production activity on certain
products, with the result that the inventories for these products is no longer
expected to be used, converted and sold in the normal course of business. The
value of these inventories has been reduced to reflect their sale at liquidation
prices. This reduction resulted in a charge to operations of $734,000 in the
quarter ended January 31, 1998.
The operations of the Company during the six months ended January 31, 1998 were
financed primarily by the funds received in prior periods and funds received on
engineering contracts. During the period the Company received $200,000 from a
European investor group in the form of a short term, non-interest bearing
promissory note.
IF THE COMPANY IS UNABLE TO CONTINUE 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 MARCH 10, 1998, 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
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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 decreased $11,000, or 3%, in the second quarter of 1998 from the
second quarter of 1997, but increased $102,000, or 11% in the first half of 1998
from the first half of 1997. The decrease for the second quarter was due to the
phasing out of the converted vehicles program, mostly offset by an increase in
development contracts. The increase in sales for the first half was attributed
primarily to engineering contracts for various development contracts with
Hyundai Motor Company , Hyundai Electronics Industries and various state and
federal agencies. These development contracts, collectively, accounted for
almost all of the Company's sales for 1998. The increase from the development
contracts was offset by a large decline in sales of converted vehicles. There
were no sales of converted sedans and light trucks in the first half of 1998,
whereas in 1997, three vehicles were sold in the second quarter and a total of
fifteen were sold in the first half.
Cost of sales as a percent of sales increased to 325% in the second quarter of
1998 from 175% in the second quarter of 1997, and increased to 171% in the first
half of 1998 from 157% in the first half of 1997. The extraordinarily high cost
of sales was due to the charge for reduction of inventory values in the second
quarter of 1998. Cost of sales net of this charge was 121% for the second
quarter and 97% for the first half of 1998.
Research and development expense decreased in the second quarter of 1998 by
$398,000, or 85%, from the second quarter of 1997, and decreased by $423,000, or
67% in the first half of 1998 from the first half of 1997. The Company has
sharply reduced its technical staff and curtailed purchasing engineering
services in order to keep costs down. The efforts expended by the technical
staff are directed primarily toward completion of existing engineering
contracts, with the result that less effort and cost is being directed to new
product development.
Selling, general and administrative expense decreased $117,000, or 13% in the
second quarter of 1998, and increased $65,000 in the first half This was
primarily due to the additional overhead and program administration associated
with the drive train engineering, which was formerly Systronix Corporation. In
the first quarter of 1997, the operating results of Systronix Corporation were
consolidated with the Company only for the last six days of October. Legal
expenses relating to the defense of shareholder and other lawsuits were also
significant in the first three months of 1998. In the second quarter of 1998,
the Company was obligated to return a major piece of test equipment, a high
performance dynamometer, to the manufacturer due to an inability to maintain the
lease payments on a capital lease. This resulted in a charge to operations of
$248,000 in the quarter.
Interest and financing fees in the second quarter of 1998 decreased $214,000 or
57%, from the second quarter of 1997. For the first half of 1998, these costs
decreased $92,000, or 22% from the first half of 1997. Interest expenses were
underaccrued in the first quarter of 1997 and adjusted in the second quarter of
1997. Interest costs have decreased because of actions taken to reduce the
amount of outstanding debt. In March 1997, the Company converted $3,000,000 of
Series S Bonds to common stock. In March, 1997, the Company repaid convertible
promissory notes held by Fontal International, Ltd. in the amount of $1,150,000
plus accrued interest. In May, 1997, the Company paid $348,000 against the
outstanding principal balance on two secured subordinated promissory notes held
by the Credit Managers Association of California.
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As a result of the foregoing changes in net sales, cost of sales, other costs
and expenses, the net loss of $1,809,000 in the second quarter of 1998 decreased
$196,000, or 10% from the second quarter of 1997. As a result of the foregoing
factors plus the acquisition of a research company in the first quarter of 1997,
the net loss of $2,787,000 for the first half of 1998 decreased $1,889,000, or
40% from the first half of 1997. In the first quarter of 1997, the Company
expensed $1,630,000 in research and development costs associated with the
acquisition of Systronix Corporation. This was a non-recurring expense.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Future trends for the Company's revenue and profitability remain uncertain. 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 the 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 $84,312,000 at January
31, 1998. 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 March 10, 1998, 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, 1997, 1996 and 1995, the
Company had substantial net losses of $4,535,000, $9,354,000 and $37,565,000,
respectively on sales of $4,484,000, $4,209,000 and $11,625,000, respectively,
and a net loss of $2,787,000 for the six months ended January 31, 1998.
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 conciousness of
customers and (c) the ability of electric vehicles to successfully compete with
vehicles powered with internal combustion engines on price and performance.
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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 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 June 23, 1997, fourteen shareholders and former
shareholders of the Company filed a lawsuit against the
Company and three of its former officers in a federal district
court in California, alleging violations of the securities
laws and asserting eleven federal and state law claims. On
September 29, 1997, the district court dismissed all of the
claims asserted in the plaintiffs' complaint, but allowed
leave to amend with respect to all but one of the claims. On
October 20, 1997, the plaintiffs filed an amended complaint
which added several additional shareholders and asserted nine
federal and state law claims. On February 6, 1998, the
district court dismissed all of the federal claims without
leave to amend. The plaintiffs have the right to refile the
state law causes of actions in state court.
Item 2. Changes in Securities:
None.
Item 3. Defaults Upon Senior Securities:
During the period from January 1997 through April 1997, the
Company and Fontal International, Ltd. executed several loan
agreements whereby Fontal extended loans to the Company in the
aggregate amount of $800,000. The loans were evidenced by
promissory notes which provide 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 into
shares of the Company's common stock at the rate of $0.30 per
share. As of March 10, 1998, the principal and accrued
interest due under the notes have not been paid, causing an
event of default under the terms of the notes. Discussions
about extending the maturity date of the notes are underway.
As of March 10, 1998, the holder of the notes had not yet
exercised any of its remedies with respect to the notes.
During the period from December 1996 through February 1997,
the Company and Itochu Corporation executed several loan
agreements whereby Itochu extended loans to the Company in the
aggregate amount of $1,300,000. The loans were evidenced by
promissory notes which provide for a due date of December 26,
1997, an interest rate of ten percent (10%) per annum, and the
right to convert principal and accrued interest at any time
into shares of the Company's common stock at the rate of $0.30
per share. As of March 10, 1998, the principal and accrued
interest due under the notes have not been paid, causing an
event of default under the terms of the notes. Discussions
about extending the maturity date of the notes are underway.
As of March 10, 1998, the holder of the notes had not yet
exercised any of its remedies with respect to the notes.
Item 4. Submission of Matters to a Vote of Securities Holders:
None
15
<PAGE>
Item 5. Other Information:
On November 18, 1997, Roy Y. Kusumoto resigned as Chairman and
President of the Company and from the Board of Directors. Also
on November 18, 1997, Carl D. Perry was elected Chief
Executive Officer and Chairman of the Board, and Don C. Kang
was appointed as a director and was elected President and
Chief Operating Officer. On January 29, 1998, Don C. Kang
resigned as President and Chief Operating Officer and resigned
as a director. On November 18, 1997, James S. Miller resigned
from the Board of Directors, and on February 24, 1998, Dr.
Malcolm R. Currie resigned from the Board of Directors.
On January 8, 1998, the Company received $90,000 from a
European investor group, and on January 22, 1998, the Company
received an additional $110,000 from the same group. These
funds were received under a short term, non-interest bearing
promissory note.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
16
<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 March 10, 1998.
U.S. ELECTRICAR, INC.
(Registrant)
/s/ Carl D. Perry
- --------------------------------------------------------------------------------
By: Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer
(Principal executive officer and principal financial and accounting officer)
17
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule 19
18
<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 JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000922237
<NAME> U.S.ELECTRICAR,INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 88
<SECURITIES> 0
<RECEIVABLES> 464
<ALLOWANCES> 0
<INVENTORY> 991
<CURRENT-ASSETS> 1,658
<PP&E> 458
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,296
<CURRENT-LIABILITIES> 10,584
<BONDS> 3,639
0
5,225
<COMMON> 68,354
<OTHER-SE> (84,312)
<TOTAL-LIABILITY-AND-EQUITY> 2,296
<SALES> 1,000
<TOTAL-REVENUES> 1,000
<CGS> 1,705
<TOTAL-COSTS> 3,467
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320
<INCOME-PRETAX> (2,787)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,787)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,787)
<EPS-PRIMARY> (0.018)
<EPS-DILUTED> (0.018)
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