SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1998
Commission File Number 0-25184
U. S. ELECTRICAR, INC.
(Exact name of registrant as specified in its charter)
California 95-3056150
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
19850 South Magellan Drive, Torrance, California 90502
(Address of principal executive offices, including zip code)
(310) 527-2800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of October 23, 1998 was $1,886,000. For purposes of this
calculation only, (i) shares of Common Stock and Series A Preferred Stock are
deemed to have a market value of $0.033 per share, and the Series B Preferred
Stock is deemed to have a market value of $0.147 per share, based on the average
of the high bid and low ask prices of the Common Stock on October 23, 1998, and
(ii) each of the executive officers, directors and persons holding 5% or more of
the outstanding Common Stock (including Series A and B Preferred Stock on an as
converted basis) is deemed to be an affiliate.
The number of shares of Common Stock outstanding as of October 23, 1998 was
151,789,681.
1
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U. S. ELECTRICAR, INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business ............................................................3
Item 2. Properties ..........................................................7
Item 3. Legal Proceedings ...................................................7
Item 4. Submission of Matters to a Vote of Security Holders .................7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters .........................................8
Item 6. Selected Financial Data .............................................9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................10
Item 8. Financial Statements and Supplementary Data ........................14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .....................14
PART III
Item 10. Directors and Executive Officers of the Registrant .................15
Item 11. Executive Compensation .............................................16
Item 12. Security Ownership of Certain Beneficial Owners and Management .....19
Item 13. Certain Relationships and Related Transactions .....................21
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...22
SIGNATURE ....................................................................23
The matters addressed in this report on Form 10-K , with the exception of the
historical information presented, may incorporate certain forward-looking
statements involving risks and uncertainties, including the risks discussed
under the heading "Certain Factors That May Affect Future Results" in the
Management's Discussion and Analysis section and elsewhere in this report.
2
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PART I
Item 1. Business
General
U. S. Electricar, Inc. and Subsidiaries (collectively, the "Company")
was incorporated on July 30, 1976, under its original name, "Clover Solar
Corporation, Inc." The name of the Company was changed in June 1979, to "Solar
Electric Engineering, Inc.", and was subsequently changed to "U.S. Electricar,
Inc." in January 1994.
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 in this program consist
primarily of supporting customers with vehicle integration and proof of concept
vehicles. The Company, however, is retrofitting long life vehicles for the U.S.
Postal Service electric vehicle research and development program.The Company's
fiscal year ends July 31. All year references refer to fiscal years.
In 1997, the Company made two significant moves to adjust and
strengthen its overall product base and realign its operations. In September
1996, the Company sold substantially all the assets and properties of the
Company's wholly owned subsidiary, Industrial Electric Vehicles, Inc. In October
1996, the Company acquired substantially all the tangible and intangible assets,
and assumed certain liabilities of Systronix Corporation ("Systronix"), a
developer of fully integrated propulsion systems and related components for
electric vehicles, located in Torrance, California.
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 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.
In 1998, the Company restructured its top management, realigned its
product base and concentrated on the reduction of overall company operating
costs. Facilities have been closed, operations streamlined and personnel
reduced. Headcount decreased from 51 employees at July 31, 1997 to 26 employees
at July 31, 1998, yet the Company has maintained its core engineering
capabilities. The Company is now primarily focused on the development and
manufacture of a family of electric vehicle drive trains, designated Panther(TM)
systems, to include 60 kw, 90 kw and 120 kw systems for light vehicles, medium
duty vehicles and large trucks and buses, respectively. Hyundai Motor Company
has adapted a customized version of the Panther(TM) 60 for their production
electric vehicle. The Company is actively engaged in developing related electric
vehicle components, vehicle systems integration and the performance of various
engineering contracts. The Company is extending the Panther(TM) drive system to
hybrid vehicle applications in projects sponsored by Hyundai. These hybrid
systems will be applied to light and medium duty transportation vehicles. The
Company is also offering the modular drive systems to OEM manufacturers and
other customers. These drive systems have been installed in various vehicles.
The Company offers other components such as air conditioning, heat pump units,
electro-hydraulic power steering units and battery management units to OEMs. The
Company is developing a Plastic Lithium Ion battery for a vehicle operation
funded by an agency of the U.S. government. The Company is also developing a
high power charger for a major auto manufacturer, and the Company has several
contracts from Hyundai Motor Company to design, develop and test electric drive
train projects and related components.
Debt Restructuring
In March 1995, as a result of the Company's insolvency, the Company
developed and implemented a voluntary debt restructuring plan with the
cooperation of its secured creditors and, through an informal committee of the
Company's unsecured creditors, with the cooperation of its unsecured creditors.
Under this plan, approximately $16,000,000 of secured debt was converted to
common stock at $.30 per share. The maturity date of the remaining $3,000,000
debt was extended to April 17, 1998. Negotiations to extend the maturity date of
the debt were initiated, but to date no agreement has been reached.
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The restructuring plan for the unsecured creditors was finalized on
March 31, 1996. To date, approximately $1,095,000 has been paid on this plan by
the Company and distributed to creditors. As of October 23, 1998, the Company
had obtained settlements for approximately $11.8 million out of approximately
$14 million of unsecured debt obligated prior to March 18, 1995. The Company has
outstanding $307,000 of three year and $3.3 million of 20 year promissory notes
and 1.6 million shares of Series B Preferred Stock. As of October 23, 1998,
approximately 280 creditors representing approximately $2.5 million in
antecedent trade debt have not participated in the debt restructuring plan.
TO THE EXTENT THAT THE COMPANY IS UNABLE TO COMPLETE THE VOLUNTARY
RESTRUCTURING OR OTHERWISE REFINANCE OR CONVERT SUCH DEBT AND ADDITIONAL FUNDING
IS NOT AVAILABLE, THE COMPANY WOULD BE FORCED TO SEEK PROTECTION UNDER
APPLICABLE BANKRUPTCY AND INSOLVENCY LAWS. IN ADDITION, ADDITIONAL FUNDING WILL
BE NEEDED IN FISCAL 1999 TO CONTINUE OPERATIONS.
Environmental Initiatives and Legislation
Federal legislation was enacted to promote the use of alternative fuel
vehicles, including electric vehicles. Several states have also adopted
legislation that sets deadlines for the introduction of zero emission vehicles
("ZEV"). The State of California delayed the mandated introduction of ZEV from
1998 to 2003, but still retained the original required percentage of ZEV
vehicles for 2003 at 10%. The U.S. Department of Energy also modified their
rules governing how state fleets and utility fleets must comply with the Energy
Policy Act of 1992 on alternative fuel transportation programs.
Products
The Company completed the restructuring of its product base during
1998. The Company is concentrating its product base to focus primarily on
electric propulsion systems and components for electric and hybrid vehicles. The
Company has developed a family of electric propulsion systems consisting of a 60
kw drive system for light vehicles, a 90 kw drive system for medium size
vehicles and a 120 kw drive system for larger trucks and buses.
The Company is no longer involved in product sales of conversion
vehicles, industrial electric vehicles or light electric delivery trucks. The
Company is attempting to sell the international manufacturing rights for a 1.5
ton electric delivery truck previously built for international markets.
Strategic Partnering And Technology Developments
The Company has made efforts to establish third-party licensing and/or
distribution arrangements and align itself with various technology development
companies and electric vehicle component manufacturers to complement its own
expertise in the electric vehicle market. The Company has continued its efforts
to implement a strategy to be a "systems integrator" by seeking to establish
relationships to utilize other independently developed technology. The Company
believes that its competitive advantage may be its ability to identify, attract
and integrate the latest technology available to produce state of the art
products at competitive prices. The Company believes this strategy could reduce
capital and research and development costs to the extent other companies or
organizations will fund these expenses.
The Company believes that two of the principal component technologies
relevant to a cost effective electric vehicle are the electric drive system and
the battery/charging system. Pursuant to an agreement with the Hyundai Group of
Korea, the Company has received investments to cooperate in the development of
advanced drive-train technology and related systems. It is the Company's
strategy to continuously review emerging technological developments and seek
alliances with or, if sufficient additional capital funding can be obtained,
complete acquisitions with companies that it perceives own the best proven
technologies for incorporation into its electric vehicles. The Company's
progress and current plans for each system are described below.
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Electric Drive System
The electric drive system consists of an electric motor and electronic
controls that regulate the flow of electricity to and from the batteries (at
various voltages and amperages) to propel the vehicle. Auxiliary vehicle
functions (e.g., radio, lights, windshield wipers, etc.) are also powered by
stored electrical energy similar to that of an internal combustion drive system.
On October 25, 1996, the Company acquired all of the assets and certain
liabilities of Systronix Corporation, located in Torrance, California. Systronix
Corporation was a development stage company which was incorporated in September,
1994, and began research and development operations in January, 1995. Its goal
was to become a leading developer of technologically advanced electric
propulsion systems for electric vehicles. The Hyundai Group of Korea has
recognized this advanced technology and has invested in the Company and licensed
the drive system technology for production in Korea. The Company has fully
validated its first propulsion system product, the Panther(TM) 60 alternating
current (AC) drive train for light duty vehicles. Also under development are the
Panther(TM) 90 and Panther(TM) 120 systems for buses and heavy duty vehicles,
and the C20(TM) offboard charging system, the first of an intended family of
rapid chargers for all sizes of electric vehicles.
The Company continues to be awarded a number of engineering contracts
with HMC for the development of various types of drive trains and related
systems.
Hybrid Vehicles
The Company is developing for HMC an electric hybrid system for a
vehicle to be introduced at the Seoul, Korea Auto Show in April 1999. The
Company is extending the Panther drive system to the hybrid vehicle application
by adapting the Panther(TM) 120 as the drive system and the Panther(TM) 60 as
the induction generator for a series hybrid bus project sponsored by HMC. The
Company is also developing a parallel hybrid drive system and a dual-mode hybrid
drive system utilizing the Panther controller and the BLDC motor. The Company is
working to introduce a hybrid drive system for light duty and medium duty
transportation applications in conjunction with a major auto manufacturer.
Battery Management and Charging System
Pursuant to a United States Department of Defense/ ARPA program, the
Company is working with numerous battery manufacturers to "beta test" their new
battery technologies. The Company believes that these new systems will allow
design advantages in battery placement, weight distribution, and car
crashworthiness. Additionally, the Company is monitoring other battery
innovations that may extend an electric vehicle driving range by up to 50% and
permit a shorter recharging time. The Company is developing Plastic Lithium Ion
("PLI") batteries in collaboration with a major battery OEM. The PLI battery
project is sponsored by DARPA, and the project is in two phases. The early
bi-cell testing of this technology is very promising and delivers an energy
density of 130 Ahr/Kg.
The Company is also developing a 40 kW high power charger under
contract for a major auto manufacturer. The high power charger is based on the
modular Panther system technology, and it is sufficiently precise that it could
also be used for battery conditioning.
Components
The Company is offering the modular drive system and components to OEMs
and other customers. The Panther(TM) 60, Panther(TM) 90 and Panther(TM) 120
drive systems have been installed in various vehicles and are under evaluation
by customers and potential customers. HMC has adapted a customized version of
the Panther(TM) 60 for their production electric vehicle. The Company also
offers an air conditioning heat pump, an electro-hydraulic power steering unit
and a safety disconnect unit for utilization by OEMs. The Company is also
offering BatteryCare(TM), a battery management system, to OEMs. This battery
management system is utilized in the U.S. Postal Service electric vehicle, and
it is capable of providing communication to both inductive and conductive
chargers simultaneously and managing the on-board and off-board charging systems
with multiple technologies. This battery care unit is also being utilized to
upgrade the electric vehicles in the DARPA battery testing program in Hawaii. It
makes these vehicles compatible with the high power charging stations utilizing
the SAE standards.
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Competitive Conditions
The competition to develop and market electric vehicles has increased
during the last fiscal year and is expected to continue to increase. The
competition consists of development stage companies as well as major U.S. and
international companies. MOST OF THESE COMPANIES HAVE FINANCIAL, TECHNICAL,
MARKETING, SALES, MANUFACTURING, DISTRIBUTION AND OTHER RESOURCES VASTLY GREATER
THAN THOSE OF THE COMPANY. The Company's future prospects will be highly
dependent upon the successful development and introduction of new products that
are responsive to market needs and can be manufactured and sold at a profit.
There can be no assurance that the Company will be able to successfully develop
or market any such products.
The development of hybrid and alternative fuel vehicles, such as
compressed natural gas, fuel cells and hybrid cars poses a competitive threat to
the Company in markets for low emission vehicles (LEVs) but not in markets where
government mandates call for zero emission vehicles (ZEVs). The Company is
directly involved in the development of hybrid vehicles in order to meet future
requirements and applications
To date, various providers of electric vehicles have proposed products
or offer products for sale in this emerging market. These products encompass a
wide variety of technologies aimed at various markets, both consumer and
commercial. The critical role of technology in this market is demonstrated
through several product offerings. Applied technologies range from DC motor
drives to AC induction motor drives, from conversion vehicles to purpose-built
(OEM) vehicles, from lead-acid batteries to more advanced power storage
technologies and from traditional materials to more advanced "composite"
materials. As the industry matures, key technologies and capabilities are
expected to play critical competitive roles. The Company's goal is to position
the Company as a long term competitor in this industry by focusing on vehicle
electric drive systems and related sub systems, component integration,
technology application and strategic partnerships.
Research and Development
The Company believes that continued timely development and introduction
of new products are essential to establishing and maintaining a competitive
advantage. The Company is currently focusing its development efforts primarily
in the following areas:
*Technical proposal and program development under ARPA;
*Power Control and Drive Systems and related technology;
*Bus development;
*Subsystem development (i.e., climate control, power management).
Company funded research and development expense charged to operations
in fiscal years 1998, 1997 and 1996 were $445,000, $1,218,000 and $1,401,000,
respectively.
The Company is continually evaluating and updating the technology and
equipment used in developing each of its products. The electric vehicle industry
has only recently come into existence, and the technology involved in the
industry is rapidly changing. There is limited experience in the operation and
testing of electric vehicles and components, and the development of electric
vehicle technology therefore involves inherent risks.
Licenses, Patents and Trademarks
The Company currently holds one patent, and it has submitted
applications for another patent and several trademarks or servicemarks in the
United States. As the Company further develops its own technology, particularly
relating to its proprietary drive train and component technology, the Company
may apply for patents or for other appropriate statutory protection. The status
of patents involves complex legal and factual questions, and the breadth of
claims allowed is uncertain. Accordingly, there can be no assurance that any
patent application filed by the Company will result in patents being issued. In
addition, the laws of any foreign country in which the Company elects to conduct
business may not protect the Company's products and intellectual property rights
to the same extent as the laws of the United States.
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Backlog
As of July 31, 1998, the Company's backlog of orders was approximately
$1,571,000. As of July 31, 1997, the Company's backlog of orders was
approximately $1,800,000. Backlog consists of orders for which shipments have
not yet been made and unfilled portions of orders for which partial shipments
have been made.
Employees
As of July 31, 1998, the Company had 26 employees, including 5 in
administration, 8 in engineering and research and development, and 13 in
manufacturing.
Item 2. Properties
The Company's corporate offices are located in Torrance, California, in
leased office space of approximately 20,000 square feet. The Company's
administrative departments and senior level operations, including executive,
legal, finance, planning, purchasing, personnel, engineers and operations
personnel, are housed in this location. These facilities are leased through
February, 2000.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
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PART II
<TABLE>
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock is presently traded in the over-the-counter
market and quoted on the National Association of Securities Dealers (NASD)
"Bulletin Board" under the symbol "ECAR." The following table sets forth the
high and low prices of the Common Stock as reported on the NASD Bulletin Board
by the National Quote Bureau for the fiscal quarters indicated. The following
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
<CAPTION>
Common Stock Average Daily
High Price Low Price Volume
-------------------------- -------------
<S> <C> <C> <C>
Fiscal 1997
-----------
First Quarter ............................... $0.450 $0.180 169,815
Second Quarter .............................. $0.280 $0.100 92,990
Third Quarter ............................... $0.320 $0.130 131,467
Fourth Quarter .............................. $0.150 $0.080 60,959
Common Stock Average Daily
High Price Low Price Volume
-------------------------- -------------
Fiscal 1998
-----------
First Quarter ............................... $0.120 $0.045 104,692
Second Quarter .............................. $0.085 $0.039 71,019
Third Quarter ............................... $0.047 $0.031 16,094
Fourth Quarter .............................. $0.048 $0.040 22,739
</TABLE>
On October 23, 1998, the last reported high bid price of the Common
Stock was $0.033 and the last reported low asking price was $0.035. As of
October 23, 1998, there were approximately 1,624 holders of record of the Common
Stock. As of October 23, 1998, the Company's Series A Preferred Stock was held
by approximately 106 shareholders, many of whom are also Common Stock
shareholders. The Company's Series B Preferred Stock was held by approximately
43 shareholders as of October 23, 1998. The number of holders of record excludes
beneficial holders whose shares are held in the name of nominees or trustees.
Dividend Policy
To date, the Company has neither declared nor paid any cash dividends
on shares of its Common Stock or Series A or B Preferred Stock. The Company
presently intends to retain all future earnings for its business and does not
anticipate paying cash dividends on its Common Stock or Series A or B Preferred
Stock in the foreseeable future. However, the Company is required to pay
dividends on its Series A and B Preferred Stock before dividends may be paid on
any shares of Common Stock. At July 31, 1998, the Company had an accumulated
deficit of approximately $85,050,000 and, until this deficit is eliminated, will
be prohibited from paying dividends on any class of stock except out of net
profits, unless it meets certain asset and other tests under Section 500 et.
seq. of the California Corporations Code.
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<TABLE>
Item 6. Selected Financial Data
As of and for the fiscal year ended July 31, (in thousands, except per share data)
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET SALES $ 1,938 $ 4,484 $ 4,209 $ 11,625 $ 5,787
COST OF SALES 2,765 2,042 5,370 20,210 6,372
----------- ------------ ------------ ------------ -----------
GROSS MARGIN (827) 2,442 (1,161) (8,585) (585)
----------- ------------ ------------ ------------ -----------
OTHER COSTS AND EXPENSES
Research and Development 445 1,218 1,401 6,697 7,724
Selling, general and administrative 1,697 3,116 5,608 13,952 12,638
Interest and financing fees 665 792 1,890 5,732 339
Other expense (income) (67) 274 740 449 17
Acquisition of research and development 1,630
Market development expense 77 3,718
Facility closures and consolidations
of operations 701 2,378
----------- ------------ ------------ ------------ -----------
Total other costs and expenses 2,740 7,030 10,340 29,285 24,436
----------- ------------ ------------ ------------ -----------
LOSS FROM CONTINUING OPERATIONS (3,567) (4,588) (11,501) (37,870) (25,021)
LOSS FROM DISCONTINUED OPERATIONS
GAIN ON DEBT RESTRUCTURING 42 53 2,147 305
----------- ------------ ------------ ------------ -----------
NET LOSS $ (3,525) $ (4,535) $ (9,354) $(37,565) $(25,021)
=========== ============ ============ ============ ===========
PER COMMON SHARE:
Loss from continuing operations $ (0.02) $ (0.03) $ (0.17) $ (1.88) $ (2.61)
Loss from discontinued operations
Gain on debt restructuring 0.03 0.02
----------- ------------ ------------ ------------ -----------
Net loss per common share $ (0.02) $ (0.03) $ (0.14) $ (1.86) $ (2.61)
=========== ============ ============ ============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 151,265 133,806 67,906 20,156 9,571
=========== ============ ============ ============ ===========
Total Assets $ 1,658 $ 4,513 $ 4,363 $ 10,230 $ 21,306
=========== ============ ============ ============ ===========
Long-term debt $ 3,332 $ 3,639 $ 3,987 $ 9,980
=========== ============ ============ ============ ===========
Shareholders' equity (deficit) $(12,615) $ (9,095) $(12,736) $(24,760) $ 1,605
=========== ============ ============ ============ ===========
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The matters addressed below, with the exception of the historical information
presented, may incorporate certain forward-looking statements involving risks
and uncertainties, including the risks discussed under the heading "Certain
Factors That May Affect Future Results" and elsewhere in this report.
GENERAL
U. S. Electricar, Inc. and Subsidiaries (collectively, 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 in this program consist primarily of supporting customers with
vehicle integration and proof of concept vehicles. The Company, however, is
retrofitting long life vehicles for the U.S. Postal Service electric vehicle
research and development program.The Company's fiscal year ends July 31. All
year references refer to fiscal years.
In September 1996, a substantial portion of the assets of Industrial Electric
Vehicles, Inc., (formerly Nordskog Electric Vehicles, Inc. (Nordskog), prior to
its acquisition in July 1993 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.
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.
In 1998, the Company aggressively concentrated on the reduction of operating
costs. Headcount has been reduced from 51 employees at July 31, 1997 to 26
employees as of July 31, 1998. The Company is now focused primarily on the
development of a family of electric drive trains, to include 60kw, 90kw and
120kw systems, and related components, vehicle systems integration and the
performance of various engineering contracts. The Company has several important
contracts with the U. S. Defense Advanced Research Project Agency ("DARPA"),
including the development of a new 120kw AC bus, a new plastic lithium ion
battery for automotive use and testing of advanced vehicle batteries. The
Company also has several engineering contracts with the Hyundai Motor Company to
design, develop and test electric drive train products and related components.
Hyundai Motor Company is contracting with the Company for the development of a
hybrid vehicle and is preparing to produce the Panther(TM) drive system for
their electric vehicles.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced recurring cash flow shortages due to operating
losses primarily attributable to research, development, administrative and other
costs associated with the Company's effortd to become an international
manufacturer and distributor of electric vehicles. Cash flows from operations
have been 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 breakeven volume in sales and develops and/or acquires
the capability and technology necessary to manufacture and sell its products
profitably, it will need to continue to rely extensively on cash from external
financing. The Company anticipates that it will require additional outside
financing for at least one more year.
During 1998, the Company spent $274,000 in cash on operating activities to fund
the net loss of $3,525,000, resulting from the factors explained in the
following section of this discussion and analysis. Accounts receivable decreased
by
10
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$753,000 as many of the Company's engineering contracts were funded in advance.
This also resulted in the increase of $343,000 in customer deposits. Inventory
decreased by $371,000, net of write-downs of $949,000. The Company has
discontinued production activity on certain products, with the result that the
inventories for these products was no longer expected to be used, converted and
sold in the normal course of business. The value of these inventories was
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, and an
additional charge to operations of $215,000 in the quarter ended July 31, 1998.
The operations of the Company during 1998 were financed primarily by the funds
received on engineering contracts and partly on funds received in the prior year
from the sale of a technology license. In January, 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 continue its debt restructuring and to seek
additional financing through private placements as well as other means. As of
October 23, 1998, however, the Company had no firm commitments to provide
significant additional financing to the Company.
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.
ADDITIONAL FUNDING WILL BE NEEDED DURING 1999. AS OF OCTOBER 23, 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. 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 UNAVAILABILITY 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 of $1,938,000 for 1998 decreased $2,546,000, or 57% from $4,484,000 in
1997. Two primary factors caused the decrease. In 1997, the Company sold a
technology license to HMC and HEI for $2,000,000, and there were no such
corresponding sales of a technology license in 1998. Secondly, the Company
discontinued the sales of electric vehicles in 1998 and focused on the
engineering, development and testing of electric drive trains and related
components. Of the Company's total sales for 1998, $1,218,000, or 63% were
revenues realized on engineering contracts with DARPA, the Hyundai Group of
Korea and other customers.
Net sales of $4,484,000 for 1997 increased $275,000, or 7% from 1996. Sales of
converted sedans and light trucks decreased by 39% from 1996. The Company was
working down its backlog of these vehicles in 1997. The Company realized
revenues of $525,000 in 1997 from various engineering contracts of its
Components division, acquired in October, 1996. Sales revenue for this product
line also included the sale of a $2,000,000 technology license to HMC and HEI.
Sales of off-road industrial electric vehicles decreased significantly from 1996
because the Company sold the assets and certain liabilities of the Industrial
Electric Vehicles business in September, 1996.
In 1998, cost of sales as a percentage of sales increased to 143%. The increase
in cost of sales is largely due to charges of $949,000 related to the write-down
of inventory to market value. Since the Company discontinued the production of
some product lines in 1998, market value represented liquidation prices for some
of the inventory. The Company has continued to achieve cost reductions.
Cost of sales as a percentage of sales decreased to 46% in 1997 from 128% in
1996. Sales revenue for 1997 included a sale of a technology license of
$2,000,000. Excluding the sale of the technology license, cost of sales for 1997
was 82.2% of sales. As the Company worked down its backlog of retrofit vehicles
and delivered them to customers, some of the obsolescence and liability reserves
proved to be larger than the costs incurred in completing the work. The
11
<PAGE>
adjustment of these reserves to appropriate current levels at the end of 1997
resulted in a reduction in reported cost of sales
Research and development expense decreased in 1998 to $445,000 from $1,218,000,
a decrease of $773,000, or 63%. While the Company's efforts to reduce staff and
cut costs has reduced spending in all areas, the new focus of the Company is
centered on research and development. The product development cost incurred in
the performance of engineering development contracts is charged to cost of sales
for this contract revenue. Non-funded development costs are reported as research
and development expense. Research and development expense of $1,218,000 in 1997
declined $183,000, or 13% from 1996. The decline was the result of a
continuation of the reduction of technical resources by the Company, although
this was offset by the October, 1996 acquisition of Systronix Corporation, which
is primarily a research company.
Selling, general and administrative expense of $1,697,000 decreased
significantly in 1998, by $1,419,000, or 46%, from $3,116,000 in 1997. Continued
and significant reductions in headcount, facility costs and spending were
responsible for the decline. Selling, general and administrative expense of
$3,116,000 in 1997 declined $2,492,000, or 44% from 1996, as the Company reduced
headcount and spending and consolidated operations.
Interest and financing fees in 1998 decreased $127,000, or 16% to $665,000 from
$792,000 in 1997. The conversion of debt to common stock in June 1996, October
1996 and March 1997, plus the payment of some debt in March 1997, resulted in
lower levels of outstanding debt for all of 1998. In 1997, interest and
financing fees decreased to $792,000 from $1,890,000 in 1996, a decline of 58%.
The conversion of $15,000,000 of debt to common stock in June, 1996
significantly reduced the amount of outstanding debt for the Company for 1997
and 1998. An additional $3,600,000 of debt was converted to common stock during
1997. The Company paid off $3,021,000 of debt in 1997, further reducing the
outstanding debt.
In connection with the settlement of $11.8 million of unsecured trade debt under
the Company's Debt Retructuring Plan, several unsecured creditors agreed to
settle their claims for amounts less than the original debt owed to them. The
reductions from the original amounts owed and the settlement amounts resulted in
a gain on debt restructuring of $2,147,000 in 1996. Additional settlements
resulted in a gain on debt restructuring of $53,000 in 1997 and $42,000 in 1998.
As a result of the foregoing changes in net sales, cost of sales, other costs
and expenses and gain on debt restructuring, the net loss of $3,525,000
decreased $1,010,000, or 22% from the $4,535,000 loss in 1997, while the net
loss for 1997 decreased $4,819,000 or 52% from $9,354,000 in 1996. These results
reflect a significant change in the operating condition of the Company. The cost
structure and operating conditions of the Company are now more in line with the
sales volume and the scope of business. While the Company is not yet operating
at a profit, the fixed costs have been reduced significantly, and the Company is
now approaching a position where it will be able to sustain its current level of
operations through self-funding.
Year 2000 Computer Software Problem Could Adversely Impact Operations. The
Company is aware of the issues associated with the programming code in existing
computer systems as the Year 2000 approaches. The "Year 2000" problem is
concerned with whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company, like most owners of computer software, will be required to
modify significant portions of its software so that it will function properly in
the Year 2000. The Company plans to replace its current accounting system
software in the near future with new software that is compliant with Year 2000
requirements. The particular software system has not been identified yet, but
preliminary estimates of the total costs to be incurred by the Company to
resolve this problem range from $10,000 to $20,000. The Company mainly uses
third party "off the shelf" software, and it does not anticipate a problem in
resolving the Year 2000 problem in a timely manner. The Company is currently
taking steps to ensure that its computer systems and services will continue to
operate on and after January 1, 2000. However, there can be no assurance that
Year 2000 problems will not occur with respect to the Company's computer
systems.
The Year 2000 problem may impact other entities with which the Company transacts
business, and the Company cannot predict the effect of the Year 2000 problem on
such entities or the economy in general, or the resulting effect on the Company.
As a result, if preventative and/or corrective actions by the Company and those
companies with
12
<PAGE>
whom the Company does business are not made in a timely manner, the Year 2000
issue could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company has not yet developed a
contingency plan to operate in the event that any noncompliant critical systems
are not remedied by January 1, 2000, but it intends to develop such a plan in
the near future.
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 $85,050,000 at July 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 October 23, 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, 1998, 1997 and 1996, the
Company had substantial net losses of $3,525,000, $4,535,000 and $9,354,000,
respectively on sales of $1,938,000, $4,484,000 and $4,209,000, respectively.
Nature of Industry. The electric vehicle ("EV") industry is still 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 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.
13
<PAGE>
Item 8. Financial Statements and Supplementary Data
The response to this Item is submitted as a separate section of this Form 10-K.
See Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
14
<PAGE>
PART III
<TABLE>
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information with respect to the
Directors and executive officers of the Company:
<CAPTION>
====================================================================================================================
<S> <C> <C>
Name Age Position
- --------------------------------------------------------------------------------------------------------------------
Carl D. Perry 66 Chairman of the Board and Chief Executive
Officer
- --------------------------------------------------------------------------------------------------------------------
Edwin O. Riddell (1) (2) 56 Director
- --------------------------------------------------------------------------------------------------------------------
David A. Ishag (1) (2) 31 Director
- --------------------------------------------------------------------------------------------------------------------
Donald H. Dreyer (2) 62 Director
====================================================================================================================
<FN>
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
</FN>
</TABLE>
Carl D. Perry, Chairman of the Board and Chief Executive Officer. Mr.
Perry served as a Director and as an Executive Vice President of the Company
from July 1993 until November 1997. In November 1997, Mr. Perry was elected as
Chairman of the Board and Chief Executive Officer of the Company. Prior to
joining the Company, he was an international aerospace and finanancial
consultant, from 1989 to July 1993. From 1984 until 1988, Mr. Perry served as
Executive Vice President of Canadair Ltd., Canada's largest aerospace
corporation, where he conducted strategic planning, worldwide marketing, and
international joint ventures. From 1979 to 1983, Mr. Perry served as Executive
Vice President of the Howard Hughes Summa Corporation's Helicopter Company, now
known as McDonnell Douglas Helicopters, where he was responsible for general
management, worldwide business development, and international operations.
Edwin O. Riddell, Director. Mr. Riddell has served as a Director of the
Company since June 1995. From January 1991 to the present, Mr. Riddell has
served as Manager of the Transportation Business Unit in the Customer Systems
Group at the Electric Power Research Institute in Palo Alto, California, and
from 1985 until November 1990, he served with the Transportation Business Unit
as Vice President, Engineering, working on electric public transportation
systems. From 1979 to 1985, he was Vice President and General Manager of Lift U,
Inc., the leading manufacturer of handicapped wheelchair lifts for the transit
industry. Mr. Riddell has also worked with Ford, Chrysler, and General Motors in
the area of auto design (styling), and has worked as a member of senior
management for a number of public transit vehicle manufacturers. Mr. Riddell has
been a member of the American Public Transit Association's ("APTA") Association
Member Board of Governors for over 15 years. He has also served on APTA's Board
of Directors.
David A. Ishag, Director. Mr. Ishag was elected a Director of the
Company in September 1995. In 1994, Mr. Ishag founded, and continues as a
general partner of the firm Hirsch & Cie, an external financial advisor to Union
Bancaire Privee (CGI-TDB) in Geneva, Switzerland, where his principal activities
are private banking and asset allocation. From 1991 to 1994, Mr. Ishag conducted
asset management and general banking
15
<PAGE>
duties for the Republic National Bank of New York (Geneva), and also had
marketing responsibility for building clientele portfolios. From 1988 to 1991,
Mr. Ishag was associated with European Investments & Development Group PLC, a
London property investment company, acting as a Director of portfolio
management. From 1986 to 1988, Mr. Ishag was with Barclays de Zoete Wedd Ltd., a
graduate banking program, working with mergers and acquisitions in the Corporate
Finance department.
Donald H. Dreyer. Mr. Dreyer was elected a Director of the Company in
January 1997. Mr. Dreyer is President and CEO of Dreyer & Company, Inc., a
consultancy in credit, accounts receivable and insolvency services, which was
established in 1990. Mr. Dreyer has served as Chairman of the Board of Credit
Managers Association of California during the 1994 to 1995 term and continues to
serve as a member of the Advisory Committee of that organization. Mr. Dreyer is
currently the co-Chair of the Creditors Committees' Subcommittee of the American
Bankruptcy Institute and is a member of the Western Advisory Committee of Dun &
Bradstreet, Inc.
Relationships Among Directors or Executive Officers
There are no family relationships among any of the Directors or
executive officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's Directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file reports of ownership and
changes in ownership of the Company's Common Stock to the Securities and
Exchange Commission ("SEC"). Copies of these reports are also required to be
delivered to the Company.
The Company believes, based solely on its review of the copies of such
reports received or written representations from certain Reporting Persons, that
during fiscal 1998, all Reporting Persons complied with all applicable filing
requirements.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth all compensation earned by the Company's
Chief Executive Officer and former Chief Executive Officer, and each of the
other most highly compensated executive officers of the Company whose annual
salary and bonus exceeded $100,000 for the years ended July 31, 1998, 1997, and
1996 (collectively, the "Named Executive Officers"). There are no Officers or
Executives of the Company whose salary currently exceeds $100,000.00.
16
<PAGE>
<TABLE>
Summary Compensation Table
<CAPTION>
Name and Principal Position Annual Compensation
- --------------------------- --------------------------------------------------------------
Long-Term Compensation
----------------------
Year Awards
---- ------
Securities
Underlying
Salary Bonus Options/SARs
($) ($) (#)
------ ----- ------------
<S> <C> <C> <C> <C>
Roy Y. Kusumoto (2) 1998 17,308 -- --
Former Chief Executive Officer 1997 50,000 -- --
and President 1996 50,000 -- --
Carl D. Perry (1) 1998 55,770 -- --
Chief Executive Officer 1997 75,000 -- --
1996 75,000 -- --
<FN>
(1) Mr. Perry was elected as Chief Executive Officer in November 1997.
Amounts paid to Mr. Perry for all periods shown were paid to Mr. Perry
as an Executive Vice President of the Company. Mr. Perry's current
salary is $50,000 per year.
(2) Mr. Kusumoto became Chief Executive Officer of the Company in April
1995 and ceased to be a Director or officer of the Company in November
1997.
</FN>
</TABLE>
Option/SAR Grants
No grants of stock options or stock appreciation rights ("SARs")
were made during fiscal 1998 to the Named Executive Officers.
Option Exercises and Option Values
<TABLE>
The following table sets forth information concerning option
exercises during 1998, and the aggregate value of unexercised options as of July
31, 1998, held by each of the Named Executive Officers:
<CAPTION>
Aggregated Option/SAR Exercises in 1998
and Option Values at July 31, 1998
Number of Securities
Aggregate Underlying Unexercised Value of Unexercised
Option Options at In-the-Money Options at
Exercises in 1998 July 31, 1998 July 31, 1998 (1)
----------------- ------------------- --------------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carl D. Perry -- -- 1,092,000 108,000 $ -- $ --
Roy Y. Kusumoto -- -- 2,000,000 -- $ -- $ --
<FN>
(1) Calculated on the basis of the average of the high bid and low ask prices
of the Common Stock on July 31, 1998 of $0.045 per share, minus the
exercise price.
</FN>
</TABLE>
17
<PAGE>
Compensation of Directors
Directors of the Company do not receive any compensation for their
services as Directors. All Directors are reimbursed for expenses incurred in
connection with attending Board and committee meetings. One Director, Donald H.
Dreyer is paid a consulting fee for attendance at Company Board meetings. In
1998, the total amount paid to Mr. Dreyer was approximately $4,000 for Board
meetings and other consulting activities.
Each nonemployee Director of the Company is entitled to participate in
the Company's 1994 Director Stock Option Plan (the "Director Option Plan"). The
Board of Directors and the shareholders have authorized a total of 150,000
shares of Common Stock for issuance under the Director Option Plan. The Director
Option Plan provides for the grant of nonstatutory options to nonemployee
Directors of the Company. The Director Option Plan is designed to work
automatically and not to require administration; however, to the extent
administration is necessary, it will be provided by the Board of Directors.
The Director Option Plan provides that each eligible Director is
granted an option to purchase 1,000 shares of Common Stock for each Board
meeting attended in person. Options granted under the Director Option Plan have
a term of five years unless terminated sooner upon termination of the optionee's
status as a Director or otherwise pursuant to the Director Option Plan. No
option granted under the Director Option Plan is transferable by the optionee
other than by will or the laws of descent and distribution, and each option is
exercisable, during the lifetime of the optionee, only by such optionee. The
Director Option Plan provides that the options become exercisable in full
immediately upon the grant of such options.
The exercise price of all stock options granted under the Director
Option Plan is equal to the fair market value of a share of the Company's Common
Stock on the date of grant of the option. Fair Market Value is defined under the
Director Option Plan as the average of the bid and asked prices of the Common
Stock in the over-the-counter market on the date of grant, as reported by the
National Association of Securities Dealers Automated Quotation System.
In the event of a merger of the Company with or into another
corporation or a sale of substantially all of the Company's assets, the Director
Option Plan requires that each outstanding option be assumed or an equivalent
option substituted by the successor corporation. The Director Option Plan will
terminate in December 2004. The Board of Directors may amend or terminate the
Director Option Plan; provided, however, that no such action may adversely
affect any outstanding options, and the provisions of the Director Option Plan
affecting the grant and terms of options granted thereunder may not be amended
more than once in any six-month period. Executive officers of the Company are
not eligible to participate in the Director Option Plan.
As of October 18, 1998, 4,000 options had been granted and remained
outstanding under the Director Option Plan.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Mr. Edwin Riddell, as
Chairman, and Mr. David Ishag. Mr. Riddell was elected Chairman in August 1998.
Mr. Ishag served as a member of the Compensation Committee during all of Fiscal
1998. Malcolm Currie and James Miller, former Directors of the Company, served
on the Compensation Committee until their resignation in 1998.
18
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
<TABLE>
The following table sets forth certain information regarding beneficial
ownership of the Company's stock as of September 30, 1998, (i) by each person
(or group of affiliated persons) who is known by the Company to own beneficially
more than 5% of each class of the Company's stock, (ii) by each of the Company's
Directors, (iii) by each of the Company's Named Executive Officers listed in the
Summary Compensation Table below, and (v) by the Company's Directors and
executive officers as a group. Except as indicated in the footnotes to this
table and subject to applicable community property laws, the persons named in
the table, based on information provided by such persons, have sole voting and
investment power with respect to all shares of stock beneficially owned by them.
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
5% Shareholders, Directors, Officers Common Shares Percentage of Common Shares Voting
and Directors and Officers as a Group Beneficially Owned (1) Beneficially Owned (2) Percentage (3)
- ------------------------------------- ---------------------- --------------------------- --------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Itochu Corporation 51,789,122 (4) 31.18% 29.56%
2-5-1, Kita-Aoyama 2-chome,
Minato-ku, Tokyo
107-77, Japan
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Gerlach & Co. 10,731,507 7.07% 6.67%
c/o Citibank N.A.
111 Wall Street, 8th Floor
New York, NY 10043
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Citibank N.A. 43,508,314 28.66% 27.05%
111 Wall Street, 8th Floor
New York, NY 10043
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Fontal International Ltd. 13,499,999 (5) 8.17% 7.74%
9 Quai des Bergues
Geneva, Switzerland
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Hyundai Motor Company 8,400,000 5.53% 5.22%
140-2 Kye-Dong, Chongro-Ku
Seoul, 110-793 Korea
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Hyundai Electronics Industries 3,600,000 2.37% 2.22%
San 136-1, Ami-ri, Bubal-eub, Ichon-si
Kyoungki-do, 467-701 Korea
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Roy S. Kusumoto 2,000,000 (6) 1.30% 1.23%
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Carl D. Perry 1,132,500 (7) * *
- ----------------------------------------------------------------------------------------------------------------------------
19
<PAGE>
- ---------------------------------------------------------------------------------------------------------------------------
5% Shareholders, Directors, Officers Common Shares Percentage of Common Shares Voting
and Directors and Officers as a Group Beneficially Owned (1) Beneficially Owned (2) Percentage (3)
- ------------------------------------- ---------------------- --------------------------- --------------
- ---------------------------------------------------------------------------------------------------------------------------
Edwin O. Riddell 3,000 (8) * *
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
David A. Ishag 1,000 (9) * *
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Donald H. Dreyer 0 * *
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
All Directors and executive officers as 1,136,500 (10) * *
a group (4 persons)
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
<FN>
* Indicates less than 1%
(1) Number of Common Stock shares includes Series A Preferred Stock, Series
B Preferred Stock and Common Stock shares issuable pursuant to stock
options, warrants and other securities convertible into Common Stock
beneficially held by the person or class in question which may be
exercised or converted within 60 days after September 30, 1998.
(2) The percentages are based on the number of shares of Common Stock owned
by the shareholder divided by the sum of: (i) the total Common Stock
outstanding, (ii) the Series A Preferred Stock owned by such
shareholder; (iii) the Series B Preferred Stock owned by such
shareholder; and (iv) Common Stock issuable pursuant to warrants,
options and other convertible securities exercisable or convertible by
such shareholder within sixty (60) days after September 30, 1998.
(3) The percentages are based on the number of shares of Common Stock owned
by the shareholder divided by the sum of: (i) the total Common Stock
outstanding, (ii) the total Series A Preferred Stock outstanding; (iii)
the total Series B Preferred Stock outstanding; and (iv) Common Stock
issuable pursuant to warrants, options and other convertible securities
exercisable or convertible by such shareholder within sixty (60) days
after September 30, 1998. This percentage calculation has been included
to show more accurately the actual voting power of each of the
shareholders, since the calculation takes into account the fact that
the outstanding Series A Preferred Stock and Series B Preferred Stock
are entitled to vote together with the Common Stock as a single class
on certain matters to be voted upon by the shareholders.
(4) Includes 14,333,333 shares of Common Stock issuable upon conversion of
convertible debt in the amount of $4,300,000 plus accrued interest, at
a conversion price of $0.30 per share.
(5) Includes (i) 2,666,667 shares of Common Stock issuable upon conversion
of convertible debt in the amount of $800,000 plus accrued interest, at
a conversion price of $0.30 per share, and (ii) 10,833,332 shares of
Common Stock issuable pursuant to warrants.
(6) Includes 2,000,000 shares of Common Stock issuable pursuant to stock
options exercisable at a price of $0.40 per share. Mr. Kusumoto
resigned as Chairman and President of the Company and from the Board of
Directors in November 1997.
20
<PAGE>
(7) Includes 1,132,000 shares of Common Stock issuable pursuant to stock
options exercisable at a price of $0.30 per share.
(8) Includes 3,000 shares of Common Stock issuable pursuant to stock
options.
(9) Includes 1,000 shares of Common Stock issuable pursuant to stock
options
(10) Includes 1,136,000 shares of Common Stock issuable pursuant to stock
options exercisable at prices ranging from $0.30 to $0.60 per share.
</FN>
</TABLE>
Item 13. Certain Relationships and Related Transactions
The following are certain transactions entered into between the Company
and its officers, directors and principal shareholders and their affiliates
since August 1, 1997.
Transactions with Secured Creditors and Others:
Itochu Corporation
As of August 1997, there was $3,000,000 of debt outstanding to Itochu,
a principle shareholder of the Company, pursuant to a Supplemental Loan
Agreement. The debt is convertible at the election of Itochu at any time, or
automatically upon the occurrence of certain events, into shares of Common Stock
at a conversion rate of $0.30 per share. The debt is secured by all of the
assets of the Company. The maturity date of the debt was April 1998.
Negotiations to extend the maturity date of the debt were initiated, but to date
no agreement has been reached.
Additionally, Itochu issued $1,300,000 of convertible secured notes to
the Company under a Supplemental Loan Agreement with a maturity date of December
1997. To date, no agreement has been reached on extending the maturity date of
this debt.
Fontal International, Ltd. ("Fontal")
In January 1998, the Company borrowed $200,000 from Fontal, a creditor
and shareholder of the Company, under a short term, non-interest bearing
promissory note, and this amount was outstanding at the end of 1998.
Additionally, there is an outstanding balance of $800,000 on unsecured
convertible bonds held by Fontal at the end of 1998.
The Company believes that the transactions described above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The above referenced transactions were approved by a
majority of the disinterested members of the Board of Directors. All future
transactions between the Company and its officers directors, principal
shareholders and affiliates will be approved by a majority of the Board of
Directors, including, where appropriate, a majority of the disinterested,
nonemployee directors on the Board of Directors, and, where appropriate, will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
21
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)1. Financial Statements
The financial statements filed as a part of this report are
identified in the Index to Consolidated Financial Statements on page 24.
(a)2. Financial Statement Schedules
No financial statement schedules are filed as a part of this
report.
(a)3. Exhibits
The exhibits filed herewith or incorporated by reference to
exhibits previously filed with the Commission are identified in the Exhibit
Index attached hereto on page E-1. The Company shall furnish copies of exhibits
for a reasonable fee (covering the expense of furnishing copies) upon request.
(b) Reports on Form 8-K
None
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf of the undersigned, thereunto duly authorized, on October 27, 1998.
U.S. ELECTRICAR, INC.
By: /s/ Carl D. Perry
-------------------------------------------------------------------------
Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Carl D. Perry, with full power to act
alone, his true and lawful attorneys-in-fact, with full power of substitution,
and re-substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to the annual report on Form 10-K,
and file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact full power and authority to do and perform each and every act
and thing requisite and necessary to be done as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact may lawfully do or cause to be done by virtue
hereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the date indicated.
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Carl D. Perry Chief Executive October 27, 1998
- -------------------------------------------- Officer and Director
Carl D. Perry (Principal Executive
Officer)
/s/ Edwin O. Riddell Director October 27, 1998
- --------------------------------------------
Edwin O. Riddell
/s/ David A. Ishag Director October 27, 1998
- --------------------------------------------
David A. Ishag
/s/ Donald H. Dreyer Director October 27, 1998
- --------------------------------------------
Donald H. Dreyer
</TABLE>
23
<PAGE>
- --------------------------------------------------------------------------------
U. S. ELECTRICAR, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITOR'S REPORT.................................................F-1
CONSOLIDATED BALANCE SHEETS - JULY 31, 1998 AND 1997.........................F-2
CONSOLIDATED STATEMENTS OF OPERATIONS -
YEARS ENDED JULY 31, 1998, 1997 AND 1996................................F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT -
YEARS ENDED JULY 31, 1998, 1997 AND 1996................................F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS -
YEARS ENDED JULY 31, 1998, 1997 AND 1996................................F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...................................F-9
- --------------------------------------------------------------------------------
24
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
U. S. Electricar, Inc.
We have audited the accompanying consolidated balance sheets of U. S.
Electricar, Inc. as of July 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for each of the
three years ended July 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of U. S. Electricar,
Inc. as of July 31, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years ended July 31, 1998,
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2, the
Company's recurring losses from operations and its inability to generate
sufficient cash flows to sustain operations and meet its obligations, raises
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ MOSS ADAMS LLP
Santa Rosa, California
September 24, 1998
Page F-1
<PAGE>
U. S. ELECTRICAR, INC.
CONSOLIDATED BALANCE SHEETS
July 31, 1998 and 1997
(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------
ASSETS
1998 1997
------ ------
CURRENT ASSETS
Cash $ 266 $ 333
Accounts receivable, net of allowance for doubtful accounts
of $108 and $115 108 829
Inventories 492 1,812
Note receivable 250 --
Prepaids and other current assets 124 258
------ ------
Total current assets 1,240 3,232
PROPERTY, PLANT AND EQUIPMENT 318 1,099
OTHER ASSETS 100 182
------ ------
Total assets $1,658 $4,513
====== ======
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page F-2
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
July 31, 1998 and 1997
(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
1998 1997
-------- --------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 2,448 $ 2,335
Accrued payroll and related expenses 358 634
Accrued warranty reserve 474 564
Accrued interest 1,262 598
Other accrued expenses 285 337
Customer deposits 387 44
Current maturities of long-term debt 5,727 5,220
Reserve for lease terminations -- 28
Current maturities of obligations under capital lease -- 209
-------- --------
Total current liabilities 10,941 9,969
-------- --------
LONG-TERM DEBT, less current maturities 3,332 3,639
-------- --------
STOCKHOLDERS' DEFICIT
Series A preferred stock - no par value; 30,000,000 shares
authorized; 3,321,000 and 3,621,000 shares issued and
outstanding at 1998 and 1997, respectively; liquidating
preference $0.60 per share aggregating $1,993 and $2,173,
respectively 2,258 2,630
Series B preferred stock - no par value; 5,000,000 shares
authorized; 1,291,000 and 1,340,000 shares issued and
outstanding at 1998 and 1997, respectively 2,584 2,682
Stock notes receivable (1,149) (1,149)
Common stock - no par value; 300,000,000 share authorized;
151,767,000 and 151,068,000 shares issued and outstanding
at 1998 and 1997, respectively 68,742 68,267
Accumulated deficit (85,050) (81,525)
-------- --------
Total stockholders' deficit (12,615) (9,095)
-------- --------
Total liabilities and stockholders' deficit $ 1,658 $ 4,513
======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
</FN>
</TABLE>
Page F-3
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended July 31, 1998, 1997 and 1996
(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $ 1,938 $ 4,484 $ 4,209
COST OF SALES 2,765 2,042 5,370
------------- ------------- -------------
GROSS MARGIN (827) 2,442 (1,161)
------------- ------------- -------------
OTHER COSTS AND EXPENSES
Research and development 445 1,218 1,401
Selling, general and administrative 1,697 3,116 5,608
Interest and financing fees 665 792 1,890
Other (income)/expense (67) 274 740
Acquisition of research and development -- 1,630 --
Facility closures and consolidation
of operations -- -- 701
------------- ------------- -------------
Total other costs and expenses 2,740 7,030 10,340
------------- ------------- -------------
LOSS FROM CONTINUING OPERATIONS (3,567) (4,588) (11,501)
GAIN ON DEBT RESTRUCTURING 42 53 2,147
------------- ------------- -------------
NET LOSS $ (3,525) $ (4,535) $ (9,354)
============= ============= =============
PER COMMON SHARE
Loss from continuing operations $ (0.02) $ (0.03) $ (0.17)
Gain on debt restructuring -- -- 0.03
------------- ------------- -------------
Net loss per common share $ (0.02) $ (0.03) $ (0.14)
============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 151,265,026 133,805,603 67,905,941
============= ============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
</FN>
</TABLE>
Page F-4
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended July 31, 1998, 1997 and 1996
(In thousands)
- --------------------------------------------------------------------------------------------
<CAPTION>
PREFERRED STOCK
------------------------------------------
SERIES A SERIES B COMMON STOCK
------------------- -------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1995 6,275 $ 5,148 -- $ -- 55,223 $ 38,715
PREFERRED STOCK TRANSACTION
Conversion of unsecured debt -- -- 1,587 3,175 -- --
COMMON STOCK TRANSACTIONS
Sales under Regulation S subscription
agreement -- -- -- -- 10,670 2,701
Exercise of warrants 220 28
Conversion of Series S Bonds and
accrued interest -- -- -- -- 43,214 12,964
Conversion of Series I Bonds and
accrued interest -- -- -- -- 7,913 2,374
Conversion of Series A preferred stock (2,265) (2,165) -- -- 2,265 2,165
Conversion of debt -- -- -- -- 715 210
INTEREST ON STOCK NOTES RECEIVABLE -- -- -- -- -- --
NET LOSS -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
BALANCE, JULY 31, 1996 4,010 2,983 1,587 3,175 120,220 59,157
PREFERRED STOCK TRANSACTION
Conversion of unsecured debt -- -- 42 85 -- --
COMMON STOCK TRANSACTIONS
Sales under Regulation S subscription
agreement -- -- -- -- 12,000 3,600
Systronix acquisition -- -- -- -- 3,800 760
Conversion of Series S Bonds and
accrued interest -- -- -- -- 10,732 3,219
Conversion of Series A preferred stock (389) (353) -- -- 389 353
Conversion of Series B preferred stock -- -- (289) (578) 1,927 578
Conversion of debt -- -- -- -- 2,000 600
INTEREST ON STOCK NOTES RECEIVABLE -- -- -- -- -- --
NET LOSS -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
BALANCE, July 31, 1997 3,621 2,630 1,340 2,682 151,068 68,267
COMMON STOCK TRANSACTIONS
Conversion of Series A preferred stock (300) (372) -- -- 300 372
Conversion of Series B preferred stock -- -- (49) (98) 324 98
Stock for services -- -- -- -- 75 5
NET LOSS -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
BALANCE, July 31, 1998 3,321 $ 2,258 1,291 $ 2,584 151,767 $ 68,742
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
STOCK NOTES ACCUMULATED
RECEIVABLE DEFICIT TOTAL
------------ --------- -------
<S> <C> <C> <C>
BALANCE, JULY 31, 1995 $ (987) $(67,636) $(24,760)
PREFERRED STOCK TRANSACTION
Conversion of unsecured debt -- -- 3,175
COMMON STOCK TRANSACTIONS
Sales under Regulation S subscription
agreement -- -- 2,701
Exercise of warrants -- -- 28
Conversion of Series S Bonds and
accrued interest -- -- 12,964
Conversion of Series I Bonds and
accrued interest -- -- 2,374
Conversion of Series A preferred stock -- -- --
Conversion of debt -- -- 210
INTEREST ON STOCK NOTES RECEIVABLE (74) -- (74)
NET LOSS -- (9,354) (9,354)
-------- -------- --------
BALANCE, JULY 31, 1996 (1,061) (76,990) (12,736)
PREFERRED STOCK TRANSACTION
Conversion of unsecured debt -- -- 85
COMMON STOCK TRANSACTIONS
Sales under Regulation S subscription
agreement -- -- 3,600
Systronix acquisition -- -- 760
Conversion of Series S Bonds and
accrued interest -- -- 3,219
Conversion of Series A preferred stock -- -- --
Conversion of Series B preferred stock -- -- --
Conversion of debt -- -- 600
INTEREST ON STOCK NOTES RECEIVABLE (88) -- (88)
NET LOSS -- (4,535) (4,535)
-------- -------- --------
BALANCE, July 31, 1997 (1,149) (81,525) (9,095)
COMMON STOCK TRANSACTIONS
Conversion of Series A preferred stock -- --
Conversion of Series B preferred stock -- --
Stock for services -- -- 5
NET LOSS -- (3,525) (3,525)
-------- -------- --------
BALANCE, July 31, 1998 $ (1,149) $(85,050) $(12,615)
======== ======== =========
<FN>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------------------------
</FN>
</TABLE>
Page F-5
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended July 31, 1998, 1997 and 1996
(In thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,525) $ (4,535) $ (9,354)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 212 578 968
Provision for facility closures and consolidation
of operations - - 701
Change in allowance for doubtful accounts (7) (319) 93
Provision to reduce inventory values 949 308 -
Gain on debt restructuring (42) (53) (2,147)
Changes in valuation allowances and reserves (368) (1,011) (1,449)
Purchase of research and development - 1,630 -
Stock issued in settlement of legal claim 5 - -
Loss of disposal of equipment 353 - -
Gain on sale of Industrial Electric Vehicles - (158) -
Interest income on stock notes receivable - (88) (74)
Write-off of development costs and leasehold
improvements - - 137
Interest converted to common stock - 194 1,575
Change in operating assets and liabilities:
Accounts receivable 753 (54) 415
Inventories 371 589 4,916
Prepaids and other current assets 191 (53) 302
Accounts payable and accrued expenses 491 (39) (27)
Deferred revenues - - 250
Customer deposits 343 (164) (690)
------------- ------------- -------------
Net cash used by operating activities (274) (3,175) (4,384)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to Systronix Corporation - - (1,000)
Purchases of property, plant and equipment (8) (13) -
Proceeds from sale of equipment 35 - -
Repayments on advances to Systronix Corporation - 209 -
------------- ------------- -------------
Net cash provided (used) by investing activities 27 196 (1,000)
------------- ------------- -------------
<FN>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
</FN>
</TABLE>
Page F-6
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended July 31, 1998, 1997 and 1996
(In thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable - (3,021) (259)
Payments on capital leases (20) (152) -
Borrowings on notes payable 200 3,122 2,608
Proceeds from issuance of common stock - 3,350 2,701
Exercise of options and warrants - - 28
------------- ------------- -------------
Net cash provided by financing activities 180 3,299 5,078
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH (67) 320 (306)
CASH
Beginning of year 333 13 319
------------- ------------- -------------
End of year $ 266 $ 333 $ 13
============= ============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
</FN>
</TABLE>
Page F-7
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended July 31, 1998, 1997 and 1996
(In thousands)
- --------------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH-FLOW INFORMATION:
Cash paid during the year for interest $ 3 $ 162 $ 30
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Series A preferred stock to common stock $ 372 $ 353 $ 2,165
Conversion of Series B preferred stock to common stock $ 98 $ 578 $ -
Decrease in capital lease payable due to cancellation $ 190 $ - $ -
Conversion of investment to note receivable $ 250 $ - $ -
Conversion of debt to common stock $ - $ 600 $ 210
Conversion of debt to Series B preferred stock $ - $ 85 $ 3,175
Notes issued in connection with debt restructuring $ - $ 15 $ 4,148
Conversion of deferred revenues to common stock $ - $ 250 $ -
Conversion of Series S bonds to common stock $ - $ 3,000 $ 15,338
Assumption of notes payable in connection with acquisition $ - $ 800 $ -
Note issued in connection with acquisition $ - $ 830 $ -
Note assumed by buyer in connection with sale of Industrial
Electric Vehicles $ - $ (1,013) $ -
Conversion of accrued interest to common stock $ - $ 219 $ -
Conversion of accrued interest to notes payable $ - $ 139 $ -
Acquisition of assets through capital lease $ - $ 361 $ -
Sale of net assets of Industrial Electric Vehicles $ - $ 858 $ -
Acquistion of certain assets, related debt and research and
development from Systronix Corporation for debt and
stock options, net $ - $ (819) $ -
<FN>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
</FN>
</TABLE>
Page F-8
<PAGE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - U. S. Electricar, Inc. was incorporated in 1976 in California as
Solar Electric Engineering, Inc., and subsequently changed its name to U. S.
Electricar, Inc., in 1994. Prior to fiscal year 1998, the Company produced and
sold electric vehicles. In 1998, the Company focused its efforts on the
development of electric drive trains and related components for electric
vehicles and hybrid systems, vehicle systems integration and the performance of
various engineering contracts. The Company's efforts related to the production
of electric vehicles were discontinued.
Principles of consolidation - The consolidated financial statements include the
accounts of U. S. Electricar, Inc., and its wholly owned subsidiary, Industrial
Electric Vehicles, Inc. Substantially all assets and liabilities of Industrial
Electric Vehicles, Inc., were sold during the year ended July 31, 1997 (see Note
3). All material intercompany transactions and balances have been eliminated in
consolidation.
Inventory - Inventory is comprised of electric vehicles, raw materials and
work-in-process. Inventory is stated at market, which is lower than cost.
Property, plant and equipment - Property, plant and equipment are stated at cost
and depreciated using the straight-line method over the estimated useful lives
of the related assets, which range from three to seven years. Long-lived assets
are reviewed for impairment whenever events or changes in circumstances
indicates the sum of expected cash flows from use of the asset is less than its
carrying value. Long-lived assets that management has committed to sell or
abandon are reported at the lower of carrying amount or fair value less cost to
sell.
Warranties - Estimated electric vehicle warranty costs are provided at the time
of sale. Warranties, in general, are extended for one year from time of vehicle
sale.
Income taxes - Deferred income taxes are recognized using enacted tax rates, and
are composed of taxes on financial accounting income that is adjusted for
requirements of current tax law and deferred taxes. Deferred taxes are the
expected future tax consequences of temporary differences between the financial
statement carrying amounts and tax bases of existing assets and liabilities.
Revenue recognition - Revenue from the sale of electric vehicles was recognized
when the vehicle was delivered to the customer. Revenue on engineering and
research and development contracts is recognized on a percentage of completion
basis.
Loss per common share - The Company has implemented Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128
provides for the calculation of "Basic" and "Diluted" earnings per share
("EPS"). Basic EPS includes no dilution and is computed by dividing income
available to common stockholders, after deduction for cumulative unpaid
dividends, by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution of securities that could
share in the earnings of an entity, similar to fully diluted earnings per share.
The Company's losses for the periods presented cause the inclusion of potential
common stock instruments outstanding to be antidilutive and, therefore, in
accordance with SFAS No. 128, the Company is not required to present a diluted
EPS. Series A and B preferred stock, stock options, warrants and convertible
notes and bonds exercisable into 55,800,000 shares of common stock were
outstanding as of July 31, 1998. These securities were not included in the
computation of diluted EPS because of the losses, but could potentially dilute
EPS in future years.
- --------------------------------------------------------------------------------
Page F-9
<PAGE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of risk - Financial instruments potentially subjecting the
Company to concentrations of credit risk consist primarily of bank demand
deposits that may, from time to time, be in excess of FDIC insurance thresholds.
Cash is deposited with known creditable financial institutions. Two major
customers accounted for 70% of Company sales for the year ended July 31, 1998.
The Company's largest customer is also a stockholder, and accounted for 53% of
total sales. At July 31, 1998, amounts due from this customer, which are
included in accounts receivable, were $39,000.
Significant estimates - 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.
Inventory is reported at market value. The inventory valuation adjustment is an
estimate based on the subsequent sale of inventory and the projected impact of
certain economic, marketing and business factors. Warranty reserves and certain
accrued expenses are based on 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.
Fair value of financial instruments - The Company measures its financial assets
and liabilities in accordance with generally accepted accounting principles. The
fair value of a financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties. For certain of
the Company's financial instruments, including cash, accounts receivable and
accounts payable, the carrying amount approximates fair value because of the
short maturities. The fair value of the Company's short-term and long-term debt
may be substantially less than the carrying value since there is no readily
ascertainable market for the debt, given the financial position of the Company.
Stock-based compensation - The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation". Under SFAS 123, a fair value method is used to
determine compensation cost for stock options or similar equity instruments.
Compensation is measured at the grant date and is recognized over the service or
vesting period. Under the current accounting standard prescribed in Accounting
Principles Board Opinion No. 25 (APB 25), compensation cost is the excess, if
any, of the quoted market price of the stock at a measurement date over the
amount that must be paid to acquire the stock. SFAS 123 permits a company to
continue to use APB 25 to account for stock options, but proforma disclosures of
net income and earnings per share must be made as if SFAS 123 had been adopted.
The Company has chosen to continue to account for stock-based compensation under
APB 25.
- --------------------------------------------------------------------------------
Page F-10
<PAGE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent accounting pronouncements - The Financial Accounting Standards Board
("FASB") has issued SFAS No. 130, "Reporting Comprehensive Income"; SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information"; SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits"; and SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 130 establishes standards for reporting and display of
comprehensive income, its components, and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting
for Segments of a Business Enterprise." SFAS No. 131 establishes standards on
the way that public companies report financial information about operating
segments in annual financial statements, and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosure regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of a company about which separate financial information
is available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance. SFAS No. 132
standardizes the disclosure requirements for pensions and other postretirement
benefits and requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts, and for hedging activities.
SFAS No. 130 and No. 131 are effective for financial statements for periods
beginning after December 15, 1997, and require comparative information for
earlier years to be restated. SFAS No. 132 is effective for years beginning
after December 15, 1997, and requires comparative information for earlier years
to be restated, unless such information is not readily available. SFAS No. 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. The adoption of these statements will have no material impact on the
Company's consolidated financial statements and the results of operations and
financial position will be unaffected by their implementation.
Reclassifications - Certain reclassification have been made to prior years'
financial statements to conform to the current year's presentation.
NOTE 2 - GOING CONCERN
The Company has experienced recurring losses from operations and use of cash
from operations and had an accumulated deficit of $85,050,000 at July 31, 1998.
A substantial portion of the losses are attributable to research, development
and other costs associated with the Company's development and production of
electric vehicles, including the conversion of gas-powered cars and light trucks
to electric power, as well as restructuring the Company's operations.
During the three years ended July 31, 1998, the Company obtained approximately
$9 million (net of debt repayments) in cash from financing 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 1997 the Company was successful
in selling $3,600,000 of its common stock and converting $3,600,000 of its
convertible debt to common stock.
- --------------------------------------------------------------------------------
Page F-11
<PAGE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 2 - GOING CONCERN (Continued)
It is management's plan to seek additional financing through private placements
as well as other means. As of September 24, 1998, the Company had no commitments
from any person or entity to provide additional financing to the Company.
The consolidated 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 future operations
may not be sufficient to enable the Company to meet its obligations, and 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 bankruptcy and insolvency laws.
NOTE 3 - ACQUISITIONS AND SALES
The Company acquired substantially all the tangible and intangible assets and
assumed certain liabilities of Systronix Corporation (Systronix) in October
1996. Systronix was a developer of technologically advanced electric propulsion
systems for electric-powered vehicles.
The purchase price, in addition to the assumed liabilities, consisted of a
credit for the $1,020,000 previously advanced to Systronix; an $830,000 secured
note due within 30 days of closing; and 3,800,000 shares of restricted common
stock, with an approximate market value of $0.20 per share at the purchase date.
Two million cashless warrants, exercisable at $0.30 per share, were also issued
pursuant to a finders fee.
The purchase of Systronix was reported using the purchase method of accounting
and, accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based upon the fair values at the date of acquisition.
Assets associated with research and development, and for which there was no
alternative use, were expensed.
In conjunction with this transaction, the Company employed substantially all of
then-existing employees of Systronix Corporation. Pursuant to such employment,
the Company granted to these employees qualified and non-qualified stock options
under the Company's 1996 Employee and Consultant Stock Option Plan. The options
granted in the aggregate total approximately 10,228,000 options at an exercise
price of $0.30 cents per share, subject to various vesting schedules, with all
options vested no later than five (5) years from date of grant.
The Plan was approved by the Board of Directors of the Company.
In 1997, substantially all assets of the Company's subsidiary, Industrial
Electrical Vehicles, Inc. (formerly Nordokog Electric Vehicles, Inc. (Nordskog)
prior to its acquisition by the Company) were sold to a group headed by former
employees of the Company in exchange for the buyers assuming the Company's debt
to Nordskog. The liabilities assumed by the buyers, including a $1,013,000 note
payable, exceeded the reported values of the assets sold, resulting in a gain of
approximately $155,000.
- --------------------------------------------------------------------------------
Page F-12
<PAGE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 4 - INVENTORIES (in thousands)
1998 1997
-------------------- --------------------
Finished goods $ 120 $ 667
Work-in-process 101 375
Raw materials 437 1,062
-------------------- --------------------
658 2,104
Less valuation adjustment 166 292
-------------------- --------------------
$ 492 $ 1,812
==================== ====================
The Company has approximately $30,000 of inventory in Mexico at July 31, 1998.
In December 1994, the Company entered into a manufacturing agreement with a
vendor whereby the Company agreed to sell to the vendor sufficient inventory to
complete the conversion of 84 sedans and pick-up trucks to electric power and
then to repurchase the completed vehicles upon completion of the manufacturing
process. The selling price was established at a 10% discount from the repurchase
price; and the terms of the agreement gave the vendor a purchase money interest
in inventory. Due to the repurchase agreement, the Company did not account for
this transaction as a sale. The Company initially accrued the difference between
the selling price and repurchase price as interest expense. However, the
interest expense accrual was later reversed by the Company as a result of an
amendment to the agreement in July 1995, which eliminated the price difference
and required only the refund to the vendor of the net amount of money paid to
the Company under the agreement. During 1995, the vendor paid the Company
$867,000, and the Company paid the vendor $64,000--for a difference of $803,000,
which was recorded as an account payable. Under the July 1995 amendment, and
separate from the debt restructuring process, a portion of anticipated proceeds
from future sales of unsold vehicles in which the vendor had a purchase money
interest was to be paid to the vendor; and the vendor was to ratably release its
interest in such vehicles as they were sold until the $803,000 was fully repaid.
At July 31, 1998, approximately $98,000 remains unpaid and is included in
accrued expenses.
<TABLE>
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT (in thousands)
<CAPTION>
1998 1997
---------------- -----------------
<S> <C> <C>
Computers $ 872 $ 1,191
Machinery and equipment 267 470
Furniture and office equipment 196 513
Leasehold improvements 47 106
Construction in progress 7 450
Automobiles and demonstration vehicles - 135
---------------- -----------------
1,389 2,865
Less accumulated depreciation and amortization 1,071 1,766
---------------- -----------------
$ 318 $ 1,099
================ =================
</TABLE>
- --------------------------------------------------------------------------------
Page F-13
<PAGE>
<TABLE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
<CAPTION>
NOTE 6 - LONG-TERM DEBT (in thousands, except for shares data)
1998 1997
-------------------- --------------------
<S> <C> <C>
Convertible secured note under a Supplemental Loan Agreement with ITOCHU
Corporation, with interest at 12%; principal and interest were due in April
1998; secured by the Company's personal
property $ 3,000 $ 3,000
Secured subordinated promissory note - Credit Management Association of
California (CMAC) as exclusive agent for NonQualified Creditors, with
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 with a balance of
$4 thousand and $7 thousand as of July 31, 1998 and 1997, respectively; the
sinking fund escrow requires the Company fund the account with 10% of
future equity financing, including convertible debt converted to equity;
payments on this note are subordinated to payment in full on all principal
and accrued interest owed on the Qualified Creditors promissory note 3,332 3,332
Convertible secured notes under a Supplemental Loan Agreement with ITOCHU
Corporation, with interest at 12%; principal and interest were due in
December 1997; secured by the Company's personal property 1,300 1,300
Convertible bonds with interest at 10%; principal and interest were due
in July 1997 800 800
Secured subordinated promissory note - (CMAC) as exclusive agent for Qualified
Creditors, with interest at 3%; principal and interest are due in April
1999; secured with an interest in a sinking fund escrow
307 307
Other 320 120
-------------------- --------------------
9,059 8,859
Less current maturities 5,727 5,220
-------------------- --------------------
$ 3,332 $ 3,639
==================== ====================
</TABLE>
- --------------------------------------------------------------------------------
Page F-14
<PAGE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT (Continued)
In September 1994, the Company issued 120 units of Series S secured convertible
bonds, totaling $12,000,000, and received proceeds of $10,140,000, net of fees
of $1,860,000. Each of the units consisted of $100,000 in principal and a
warrant to purchase 10,000 common shares. The bonds, which bear interest at 10%,
were initially due in March 1995 and were secured by the personal property of
the parent company, excluding securities of its subsidiary. The Company also
issued additional warrants to purchase 1,200,000 common shares representing
additional issuance fees. The warrants were exercisable through July 1997 at an
exercise price of $3.20 per share. The excess of fair-market value over the
exercise price of the warrants of $1,920,000, and the fees of $1,860,000, were
recorded as debt discount and amortized over the initial period of the bonds. In
March 1995, the Company had neither sufficient funds, nor commitments to receive
sufficient funds, to pay the principal and interest. Subsequently, the Company
negotiated an extension of the bonds' maturity to March 1996; the conversion of
$600,000 of the unpaid interest to principal; and a conversion price for most of
the debt of $0.30 per share. In July 1995, the Company converted $4,100,000 of
the Series S bonds to 13,667,000 shares of common stock at $0.30 per share. In
December 1995, the company converted $210,000 of the Series S secured
convertible bonds to 700,000 shares of common stock at $0.30 per share. In March
1996, accrued unpaid interest of $71,000 on the bonds was added to principal.
Also in March 1996, the Company converted $491,000 of the bonds to 1,638,000
shares of common stock at $0.30 per share. In June 1996, the Company converted
$4,870,000 of the Series S secured convertible bonds to 16,233,000 shares of
common stock at $0.30 per share, and accrued interest of $1,111,000 was
converted to 3,704,000 shares of common stock at $0.30 per share. In March 1997,
the remaining $3,000,000 of Series S Bonds and $219,000 of accrued interest were
converted to 10,732,000 shares of common stock at $0.30 per share.
The Company and ITOCHU Corporation entered into a Supplemental Loan Agreement in
April 1995, whereby ITOCHU agreed to lend the Company amounts equal to funds the
Company received from other outside lenders or investors, up to $3,000,000, at
10% annual interest. The notes were secured by the personal property of the
parent company and were convertible at $0.30 per share into the Company's common
stock. The convertible subordinated note from ITOCHU had an original maturity
date of June 1997, with interest payments due semi-annually. The interest
payment of $331,000 due December 1994 was not paid, causing an event of default.
In February 1995, the Company made a partial interest payment of $25,000. In
April 1995, the Company and ITOCHU agreed to accelerate the maturity of the note
to April 1996, and change the conversion price from $5.00 to $0.30 per share. In
July 1995, $4,100,000 of the note was converted to 13,667,000 shares of common
stock at $0.30 per share. In June 1996, the Company converted the $4,880,000
balance of the convertible subordinated note from ITOCHU to 16,267,000 shares of
common stock at $0.30 per share, and the accrued unpaid interest of $1,612,000
was converted to 5,372,000 shares of common stock at $0.30 per share. The
maturity date was extended to April 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 September 24, 1998, Itochu Corporation had not yet exercised any
of its remedies with respect to the notes.
ITOCHU and the Series S and Series I bond holders were obligated to convert the
notes and bonds they held once (1) a restructuring/repayment workout plan was
accepted by the unsecured creditors holding 80% of the Company's unsecured debt,
and (2) such plan had been approved by the Company in consultation with ITOCHU
Corporation, or (3) upon ITOCHU Corporation's sole election. In June 1996,
having completed the initial phase of the debt restructuring with acceptance of
the workout plan by over 80% of the Company's unsecured creditors, and in
consultation with ITOCHU Corporation, the Company effected the conversion of
$11,900,000 of principal and $2,900,000 of accrued interest into 49,489,000
shares of common stock at the rate of $0.30 per share.
- --------------------------------------------------------------------------------
Page F-15
<PAGE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT (Continued)
In connection with the acquisition of Nordskog Electric Vehicles, Inc., renamed
Industrial Electric Vehicles, Inc. (IEV), in July 1993, the Company issued a
$1,000,000 secured convertible promissory note due in January 1997, with
interest at 9% annually and payable quarterly. This note was secured by
machinery and equipment owned by IEV. During 1995, the Company sold some of the
machinery and equipment used to secure the note and used the proceeds of $18,000
to pay down the principal. Quarterly interest payments had not been paid,
causing an event of default. The note holder did not exercise any of its
remedies with respect to the acceleration of the principal and interest nor the
collateral securing this note. The full amount of the note was classified as a
current liability in 1995, due to the event of default. In September 1996, the
Company sold the assets of IEV to a group headed by former employees of the
Company. The buyers assumed the liability for the note and the Company was
released from this liability.
In April 1996, and as amended in July 1996, the Company issued two promissory
notes, due April 1999, for $256,000 and $560,000, and one promissory note due
April 2016 for $3,332,000, to the Credit Managers Association of California
("CMAC") as the exclusive agent for certain unsecured creditors who settled with
the Company in connection with its Debt Restructuring Plan. In May 1997 the
Company issued an additional promissory note, due April 1999 for $15,000 to CMAC
under the Debt Restructuring Plan.
NOTE 7 - CAPITAL LEASE
Included in the acquisition of certain assets and liabilities of Systronix was
the assumption of a purchase contract for a high performance dynamometer. This
acquisition was financed through a capital lease. The lease required monthly
payments of $22,000 and was scheduled to mature in May 1998. The Company was
unable to continue making the monthly lease payments and the dynamometer was
returned to the manufacturer, who was the holder of the lease. The excess of the
undepreciated capital asset's cost over the remaining liability, which totaled
$249,000, was charged to expense in 1998.
NOTE 8 - LEASE COMMITMENTS
In 1996 the Company moved substantially all their operations from San Francisco
to Torrance, California and assumed the lease of the Torrance facility when it
purchased Systronix. The lease expires in February 2000. Future minimum lease
payments under this lease agreement are $95,000 and $56,000 for the years ended
July 31, 1999 and 2000, respectively.
NOTE 9 - INCOME TAXES (in thousands)
The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose
restrictions on the utilization of net operating losses in the event of an
"ownership change" as defined by Section 382 of the Internal Revenue Code of
1986. An "ownership change" occurred at the time of the private placement
memorandums in 1991 and 1992, at the time of the common and preferred stock
issuances in 1993, and upon conversion of certain debt to equity in 1995, 1996
and 1997. This change will limit future availability of net operating loss
carryforwards. The extent of the limitation has not been determined.
- --------------------------------------------------------------------------------
Page F-16
<PAGE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
A valuation allowance is required for those deferred tax assets that are not
likely to be realized. Realization is dependent upon future earnings during the
period that temporary differences and carryforwards are expected to be
available. Because of the uncertain nature of their ultimate utilization, based
upon the Company's past performance, a full valuation allowance is recorded
against these deferred tax assets.
1998 1997
--------------- --------------
Deferred tax assets
Federal tax loss carryforward $ 23,558 $ 23,682
State tax loss carryforward 2,705 3,394
Basis difference 1,610 1,610
Reserves and allowances 107 153
Other, net 498 233
--------------- --------------
28,478 29,072
Less valuation allowance 28,478 29,072
--------------- --------------
Net deferred tax asset $ - $ -
=============== ==============
Net operating losses expire as follows:
Net Operating Loss
--------------------------------------------
Date of expiration Federal California
-------------------- --------------------
1999 $ 124 $ 1,715
2000 51 16,730
2001 44 4,541
2002 11 2,778
2003 64 1,541
2004 322 -
2005 443 -
2006 680 -
2007 2,552 -
2008 24,221 -
2009 33,460 -
2010 9,083 -
2011 5,557 -
2012 2,998 -
-------------------- --------------------
$ 79,610 $ 27,305
==================== ====================
- --------------------------------------------------------------------------------
Page F-17
<PAGE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 10 - STOCKHOLDERS' DEFICIT
Series A preferred stock - Series A preferred stock is currently unregistered
and convertible into common stock on a one-to-one basis, at the election of the
holder, or automatically upon the occurrence of certain events, including: sale
of stock in an underwritten public offering; registration of the underlying
conversion stock; or the merger, consolidation or sale of more than 50% of the
Company. Holders of Series A preferred stock have the same voting rights as
common stockholders. The stock has a liquidation preference at $0.60 per share
plus any accrued and unpaid dividends in the event of voluntary or involuntary
liquidation of the Company. Dividends are non-cumulative and payable at the
annual rate of $0.036 per share if, when, and as declared by, the Board of
Directors. No dividends have been declared on the Series A preferred stock.
In July 1993, the Board of Directors approved a plan for the sale of shares of
Series A preferred stock to certain officers and directors ("Participants") at
$0.60 per share. In general, the Participants could purchase these shares for a
combination of cash, promissory notes payable to the Company, and conversion of
debt and deferred compensation due to the Participants. All shares issued under
this plan were pledged to the Company as security for the notes. The notes
provided for interest at 8% per annum payable annually, with the full principal
amount and any unpaid interest due on January 31, 1997. The notes remain
outstanding at July 31, 1998. The likelihood of collecting the interest on these
notes is remote, therefore, for the year ended July 31, 1998, accrued interest
was not recorded.
Series B preferred stock - Series B preferred stock is currently unregistered
and each share was initially convertible into 6.66 shares of common stock at the
election of the holder. The Series B preferred stock has certain liquidation and
dividend rights prior and in preference to the rights of the common stock and
Series A preferred stock.
In April 1996, the Company issued 1,507,000 shares of Series B preferred stock,
plus a note for $532,000, in settlement of claims of $3,547,000 under the debt
restructuring plan. In 1997 and 1996, an additional 42,300 and 80,000 shares of
Series B preferred stock, and notes payable for $15,000 and $28,000, were issued
in settlement of $100,000 and $189,000 of claims, respectively.
A total of 49,000 and 289,000 shares of Series B preferred stock were converted
to common stock on a 6.66-to-one basis during 1998 and 1997, respectively.
Other significant stock activity - In July 1995, $4,100,000 of the Series S
secured convertible bonds issued in September 1994 were converted at $0.30 per
share to 13,667,000 shares of common stock. In December 1995, the Company
converted $210,000 of the bonds to 700,000 shares of common stock at $0.30 per
share. In March 1996, the Company issued 1,638,000 shares of common stock to
convert $491,000 of principal and accrued interest of the Series S secured
convertible bonds at $0.30 per share of common stock. In June 1996, the Company
converted $4,870,000 of Series S bonds and $1,111,000 of accrued interest to
16,233,000 and 3,704,000 shares, respectively, of common stock at $0.30 per
share. In March 1997, the remaining $3,000,000 of Series S Bonds, plus accrued
interest, were converted to 10,732,000 shares of common stock at $0.30 per
share.
Between December 1995 and April 1996, the Company sold 3,333,000 unregistered
shares of its common stock at $0.15 per share and an additional 7,337,000
unregistered shares at $0.30 per share pursuant to the Regulation S Subscription
Agreement. These transactions resulted in proceeds of $2,701,000. The shares
sold in this offering have certain registration rights.
- --------------------------------------------------------------------------------
Page F-18
<PAGE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 10 - STOCKHOLDERS' DEFICIT (Continued)
In June 1996, the Company converted all of the outstanding balance of $2,144,000
of Series I convertible bonds to 7,147,000 shares of common stock at $0.30 per
share. The accrued interest on these bonds of $230,000 was also converted to
766,000 shares of common stock at $0.30 per share.
In March 1997, the Company sold 12,000,000 unregistered shares of its common
stock at $0.30 per share pursuant to a Regulation S Subscription Agreement
resulting in net proceeds of $3,600,000. Also in 1997, the Company converted
$600,000 of convertible secured notes to 2,000,000 shares of common stock at
$0.30 per share.
NOTE 11 - STOCK OPTIONS AND WARRANTS
In 1993, stockholders approved the 1993 Employee and Consultant Stock Plan (the
"1993 Plan"), which expires in 2003. Under the 1993 Plan, the Company reserved
10,000,000 shares of common stock for incentive and nonstatutory stock options
as of July 31, 1993. The Company increased the number of shares of common stock
reserved under the 1993 Plan to 15,000,000 in November 1993 and to 30,000,000 in
September 1995. Options under the 1993 Plan expire over periods not to exceed
ten years from date of grant. Options which expire or are canceled may become
available for future grants under the 1993 Plan. In addition, the Company grants
other nonstatutory stock options.
In 1994, stockholders approved the 1994 Director Stock Option Plan (the
"Director Option Plan"). Under this plan, the Company has reserved 150,000
shares of common stock for nonstatutory stock options for nonemployee directors.
Options under this plan are fully vested upon the granting of the options and
expire ten years from the date of grant unless terminated sooner upon
termination of the optionee's status as a director. Options which expire or are
canceled may become available for future grants under the Director Option Plan.
In 1997, in connection with the purchase of Systronix, stockholders approved the
1996 Stock Option Plan (1996 Plan) which expires in 2006. The Company, during
the term of the 1996 Plan, will at all times reserve and keep available such
number of shares of common stock for incentive and non-qualified stock options
as shall be sufficient to satisfy the requirements of the plan. Options under
the 1996 Plan expire over a period not to exceed ten years.
- --------------------------------------------------------------------------------
Page F-19
<PAGE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
<TABLE>
NOTE 11 - STOCK OPTIONS AND WARRANTS (Continued)
<CAPTION>
The following summarizes common stock option activity (shares in thousands):
1996 Plan 1993 Plan
------------------------- -----------------------------
Shares Price Shares Price
------------ ---------- ------------- --------------
<S> <C> <C> <C> <C>
Balance, August 1, 1995 - $ - 16,895 $0.60-5.00
Granted - - 11,415 0.30
Canceled - - (10,034) 0.60-5.00
Exercised - - - -
Expired - - (1,007) 0.60-5.00
------------ -------------
Balance, July 31, 1996 - - 17,269 0.30-.060
Granted 10,367 0.30 - -
Canceled (445) 0.30 (1,135) 0.30
Exercised - - - -
Expired - - (38) 0.30
------------ -------------
Balance, July 31, 1997 9,922 0.30 16,096 0.30-0.60
Canceled (1,403) 0.30 (4,650) 0.30
Expired (80) 0.30 (63) 0.30
------------ -------------
Balance, July 31, 1998 8,439 $ 0.30 11,383 $0.30-0.60
============ =============
</TABLE>
<TABLE>
<CAPTION>
Director
Option Plan Other
--------------------------- ------------------------------
Shares Price Shares Price
----------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance, August 1, 1995 16 $0.24-6.88 2,069 $0.60-3.00
Granted 13 0.20 - -
Canceled - - - -
Exercised - - - -
Expired (9) 0.71-6.88 (574) 0.60-2.80
----------- --------------
Balance, July 31, 1996 20 0.20-6.88 1,495 0.60-2.80
Granted - - - -
Canceled - - - -
Exercised - - - -
Expired - - - -
----------- --------------
Balance, July 31, 1997 20 0.20-6.88 1,495 0.60-2.80
Canceled (16) 0.20-6.88 -
Expired - - -
----------- --------------
Balance, July 31, 1998 4 $0.20-6.88 1,495 $0.60-2.80
=========== ==============
</TABLE>
In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation". This standard requires expanded disclosures of stock-based
compensation arrangements with employees and encourages application of the fair
value recognition provisions in the statement.
SFAS No. 123 does not rescind the existing accounting rules for employee
stock-based compensation. Companies may continue following the rules to
recognize and measure compensation as provided by Accounting Principles Board
Opinion Number 25 (APB No. 25), but companies will now be required to disclose
the pro forma amounts of net income and earnings per share that would have been
reported had the Company elected to follow the fair value recognition provisions
of SFAS No. 123. The Company continues to measure its employee stock-based
compensation arrangements under the provisions of APB No. 25. Had compensation
costs for the Company's stock option plans been determined based upon the fair
value at the grant date for awards under these plans consistent with the
methodology prescribed under SFAS 123, the Company's net loss would have been
increased by approximately $549,900 for the years ended July 31, 1998 and 1997,
respectively, and $307,000 for the year ended July 31, 1996. The fair value of
options granted were estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: (1) dividend yield of 0%,
(2) expected volatility of 164%, (3) risk free interest rate of 5.88% to 6.59%,
and (4) an expected life of the options of 5 years. Options issued during 1997
and 1996 have an estimated weighted average fair value of $0.12 and $0.13,
respectively.
- --------------------------------------------------------------------------------
Page F-20
<PAGE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 11 - STOCK OPTIONS AND WARRANTS (Continued)
In May 1996, the Company issued 13,333,000 warrants in exchange for services
performed. The warrants were exercisable at $0.30 per share for an equal number
of shares of common stock, and expired on May 1, 1997. At September 24, 1998,
negotiations were underway to extend the period of time in which the warrants
could be exercised. If the market value of the common stock of the Company is
equal to or greater than $0.60 per share on the date of exercise, and if the
average trading volume was in excess of 100,000 shares per day for the preceding
20 trading days, the warrants may be exercised without payment of cash. The
warrants may not be exercised in the United States, and the stock purchased may
not be delivered to the United States unless first registered under the
Securities Act or receive an available exemption from registration.
In conjunction with the acquisition of Systronix, the Company issued 2,000,000
cashless warrants as a finders fee. The terms of these warrants are the same as
above, and expired in October 1997. At September 24, 1998, negotiations were
underway to extend the period of time in which the warrants could be exercised.
<TABLE>
The following summarizes warrant activity (in thousands):
<CAPTION>
Bank Series S
Lines of Bond
Credit Placement Other
------------------ ------------------ ------------------
<S> <C> <C> <C>
Balance, August 1, 1995 153 2,400 175
Granted - - 13,333
Expired (153) - (175)
Canceled - (220) -
------------------ ------------------ ------------------
Balance, July 31, 1996 - 2,180 13,333
Granted - - 2,000
Expired - (2,180) -
------------------ ------------------ ------------------
Balance, July 31, 1997 - - 15,333
Granted - - -
Expired - - -
------------------ ------------------ ------------------
Balance, July 31, 1998 - - 15,333
================== ================== ==================
</TABLE>
- --------------------------------------------------------------------------------
Page F-21
<PAGE>
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 12 - CONTINGENCIES
The Company has not yet reviewed its software and hardware components to ensure
its computers and other associated systems are year 2000 compliant. Cost of
compliance, if any, can not be estimated at this time.
In connection with the Company's default on its debt obligations to unsecured
creditors, 19 of these creditors have brought independent lawsuits to various
courts in California, Connecticut, North Carolina and New York in the aggregate
amount of approximately $650,000. As of September 24, 1998, nine of the
unsecured creditors have obtained judgments against the Company in the aggregate
amount of approximately $450,000. The remaining suits are pending. In addition,
four former officers have threatened actions against the Company for damages as
a result of its failure to pay severance pay under certain employment contracts
in the aggregate amount of $377,000.
The Company is also subject to other legal proceedings and claims that have
arisen during the period of restructuring both its debt and operations. The
ultimate resolution of these proceedings is not known, but the final outcomes
are not expected to significantly influence the Company's current financial
position.
- --------------------------------------------------------------------------------
Page F-22
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- --------------------------------------------------------------------------------
3.1(1) Certificate of Amendment of Articles of Incorporation, filed 1/12/94,
changing name to U.S. Electricar, Inc.
3.2(1) Certificate of Correction to Amended and Restated Articles of
Incorporation, filed 8/23/93, correcting number of shares of Series A
Preferred stock to 30,000,000.
3.3(1) Amended and Restated Articles of Incorporation, filed 7/26/93,
changing number of authorized Common Stock shares to 60,000,000 and
Preferred Stock shares to 35,000,000, authorizing 3,000,000 Series A
Convertible Preferred Stock shares and establishing rights,
preferences, privileges and restrictions of Series A Preferred stock.
3.4(1) Amended and Restated Articles of Incorporation, filed 12/29/89,
changing number of authorized Common Stock shares to 20,000,000 and
authorizing 10,000,000 shares of Preferred Stock.
3.5(1) Certificate of Amendment of Articles of Incorporation, filed 3/3/83,
authorizing reverse stock split.
3.6(1) Certificate of Amendment of Articles of Incorporation, filed 10/21/81,
increasing authorized Common Stock shares to 80,000,000.
3.7(1) Certificate of Amendment of Articles of Incorporation, filed 8/24/79,
increasing authorized Common Stock shares to 40,000,000.
3.8(1) Certificate of Amendment of Articles of Incorporation, filed 6/27/79,
changing name to Solar Electric Engineering, Inc.
3.9(1) Certificate of Amendment of Articles of Incorporation of Clover Solar
Corporation, Inc., dated 5/9/79, filed 5/17/79, changing name to Solar
Electric Eng., Inc., and increasing authorized Common Stock shares to
20,000,000 and authorizing a 1/10 Common Stock split.
3.10(1) Certificate of Amendment of Articles of Incorporation of Clover Solar
Corporation, Inc., dated 2/21/77, filed 3/15/77, increasing authorized
Common Stock shares to 2,000,000, and authorizing a 1/10 Common Stock
split.
3.11(1) Articles of Incorporation of Clover Solar Corporation, Inc.
3.12(1) Bylaws of Registrant.
3.13(4) Certificate of Amendment of Restated and Amended Articles of
Incorporation of U.S. Electricar, Inc., filed February 1, 1995,
whereby the number of shares of common stock authorized to issue was
changed from 60,000,000 shares to 100,000,000 shares.
E-1
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- --------------------------------------------------------------------------------
3.14(4) Certificate of Correction of Certificate of Amendment of Restated and
Amended Articles of Incorporation of U.S. Electricar, Inc., filed
February 10, 1995, whereby the total number of shares of Preferred
Stock designated as Series A convertible Preferred Stock was corrected
to 30,000,000.
3.15(8) Restated and Amended Articles of Incorporation of U.S. Electricar
filed March 18, 1996.
4.1(1) Specimen Common Stock Certificate.
4.2(1) Specimen Series A Preferred Stock Certificate.
4.3(1) Articles of Incorporation Provision Defining Rights of Series A
Preferred Stock.
4.6(1) Form of Solar Electric Engineering, Inc. Registration Rights Agreement
(regarding September 1993 Private Placement Offering).
4.8(1) Form of U.S. Electricar, Inc. S-1 Registration Rights Agreement
(regarding January 1994 Reg S Private Placement Offering).
4.9(1) Form of U.S. Electricar, Inc. Amended S-1 Registration Rights
Agreement (regarding January 1994, Reg S Private Placement Offering).
4.10(1) Amendment to U.S. Electricar, Inc. Amended S-1 Registration Rights
Agreement, dated November 23, 1994 (regarding January 1994 Reg S
Private Placement Offering).
4.11(1) Letter dated August 8, 1994 from U.S. Electricar, Inc., regarding
registration rights for shares of Common Stock held by Mark Neuhaus.
4.12(1) Shareholders' Agreement: ITOCHU Corporation, dated June 9, 1994.
4.15(1) Form of U.S. Electricar, Inc. Security Agreement (regarding September
1994 Reg S Private Placement Offering).
4.17(10) Cashless Exercise Warrants dated October 25, 1996 issued to Fontal
International, Ltd.
10.15(1) *Form of Stock Option Agreement under 1993 Employee and Consultant
Stock Plan.
10.16(1) *Solar Electric Engineering, Inc. 1993 Employee and Consultant Stock
Plan.
10.17(1) *U.S. Electricar, Inc. 1994 Director Stock Option Plan.
10.19(1) Compensation Deferral and Debt Conversion Agreement (Ted D. Morgan).
E-2
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- --------------------------------------------------------------------------------
10.20(1) Secured, Partially Nonrecourse Promissory Note (Ted D. Morgan).
10.21(1) Pledge Agreement (Ted D. Morgan).
10.22(1) Compensation Deferral and Debt Conversion Agreement(John Billington).
10.23(1) Secured, Partially Nonrecourse Promissory Note (John Billington).
10.24(1) Pledge Agreement (John Billington).
10.28(1) Compensation Deferral and Debt Conversion Agreement (Michael
Chobotov).
10.29(1) Secured, Partially Nonrecourse Promissory Note (Michael Chobotov).
10.30(1) Pledge Agreement (Michael Chobotov).
10.31(1) Compensation Deferral and Debt Conversion Agreement (David
Brandmeyer).
10.32(1) Secured, Partially Nonrecourse Promissory Note (David Brandmeyer).
10.33(1) Pledge Agreement (David Brandmeyer).
10.34(1) Secured, Partially Nonrecourse Promissory Note (James Miller).
10.35(1) Pledge Agreement (James Miller).
10.46(1) Letter Consulting Agreement: Harold H. Robinson.
10.58(3) Joint Venture Agreement (dated as of July 16, 1993 between Solar
Electric Engineering, Inc. and Energy Resources Limited).
10.59(1) Assignment of Deposit Account (Grantor: Jean Schulz, dated January 28,
1994).
10.60(1) Assignment of Deposit Account (Grantor: Ronald A. Nelson, dated
January 28, 1994).
10.61(1) Assignment of Deposit Account (Grantor: James S. Miller, dated January
28, 1994).
10.62(1) Assignment of Deposit Account (Grantor: Harold H. Robinson, III, dated
January 28, 1994).
10.63(1) Form of Indemnification Agreement.
10.64(1) Negotiated Agreement For Services: High Technology Development
Corporation, an Agency of the Department of Business, Economic
Development and Tourism, State of Hawaii, dated March 1, 1994.
E-3
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- --------------------------------------------------------------------------------
10.65(1) Loan Agreement: ITOCHU Corporation, dated June 9, 1994.
10.66(1) Convertible Subordinated Promissory Note: ITOCHU Corporation, dated
June 10, 1994.
10.68(1) Strategic Alliance Agreement: ITOCHU Corporation, dated June 9, 1994.
10.80(5) Supplemental Loan Agreement, entered into as of April 13, 1995, by and
between U.S. Electricar, Inc. and Itochu Corporation.
10.81(5) First Amendment to Loan Agreement entered into as of April 13, 1995,
by and between U.S. Electricar, Inc. and Itochu Corporation.
10.82(5) Security Agreement dated April 13, 1995, by and between U.S.
Electricar, Inc. and Itochu Corporation.
10.83(5) Convertible Secured Promissory Note dated April 17, 1995, in the
amount of $500,000 by U.S. Electricar, Inc. to Itochu Corporation.
10.84(5) Amendment to Security Agreement made as of May 31, 1995, by and
between Itochu Corporation and U.S. Electricar, Inc.
10.85(5) Form of Security Agreement made as of May 31, 1995, between the
Company and Credit Managers Association of California, Trustee.
10.91(7) Form of Confidential Private Placement Memorandum and Debt
Restructuring Disclosure Statement of U.S. Electricar, Inc., dated
January 2, 1996, delivered by the Company to its certain unsecured
trade creditors (including exhibits).
10.92(7) Form of Stock Purchase, Note and Debt Exchange Agreement dated January
2, 1996 between the Company and certain unsecured trade creditors.
10.95(10) Agreement for Purchase and Sale of Assets, effective October 25, 1996,
by and between U.S. Electricar, Inc. and Systronix Corporation, and
exhibits.
10.96(10) U.S. Electricar 1996 Employee and Consultant Stock Option Plan.
10.98(11) Stock Purchase Agreement and Technology License Agreement dated
February 27, 1997 by and between the Company and Hyundai Motor Company
and Hyundai Electronics Industries Co., Ltd.
10.99(12) Loan Agreement for $400,000 convertible promissory note with Fontal
International, Ltd., dated April 30, 1997.
21(1) Subsidiaries of the Registrant.
E-4
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- --------------------------------------------------------------------------------
24 Power of Attorney (included on signature page)
27 Financial Data Schedule.
- --------------------------------------------------------------------------------
* Indicates management contract or compensatory plan or arrangement.
(1) Incorporated by reference to identically numbered exhibits filed with
the Registration Statement on Form 10 filed on November 29, 1994.
(2) Incorporated by reference to identically numbered exhibits filed with
the Amendment No. 1 to Form 10 filed on January 27, 1995.
(3) Incorporated by reference to identically numbered exhibits filed with
the Amendment No. 2 to Form 10 filed on February 28, 1995.
(4) Incorporated by reference to identically numbered exhibits filed with
the Form 10-Q filed on March 17, 1995.
(5) Incorporated by reference to identically numbered exhibits filed with
the Form 10-Q filed on June 14, 1995.
(6) Incorporated by reference to identically numbered exhibits filed with
the Form 10-K for the year ended July 31, 1995, filed on October 30,
1995.
(7) Incorporated by reference to identically numbered exhibits filed with
the Form 10-Q on March 18, 1996.
(8) Incorporated by reference to the identically numbered exhibit filed
with the Form 10-Q filed on June 14, 1996.
(9) Incorporated by reference to Exhibit 10.87 filed with the Form 8-K
filed on September 20, 1996.
(10) Incorporated by reference to the identically numbered exhibit filed
with the Form 10-K filed on November 12, 1996.
(11) Incorporated by reference to the identically numbered exhibit filed
with the Form 10-Q filed on March 14, 1997.
(12) Incorporated by reference to the identically numbered exhibit filed
with the Form 10-Q filed on June 13, 1997.
E-5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE ANNUAL REPORT ON FORM 10-K OF U.S. ELECTRICAR, INC.
FOR THE QUARTER ENDED JULY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000922237
<NAME> U.S. ELECTRICAR, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 266
<SECURITIES> 0
<RECEIVABLES> 108
<ALLOWANCES> 0
<INVENTORY> 492
<CURRENT-ASSETS> 1,240
<PP&E> 318
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,658
<CURRENT-LIABILITIES> 10,941
<BONDS> 3,332
0
4,842
<COMMON> 68,742
<OTHER-SE> (85,050)
<TOTAL-LIABILITY-AND-EQUITY> 1,658
<SALES> 1,938
<TOTAL-REVENUES> 1,938
<CGS> 2,765
<TOTAL-COSTS> 4,907
<OTHER-EXPENSES> (67)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 665
<INCOME-PRETAX> (3,567)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,567)
<DISCONTINUED> 0
<EXTRAORDINARY> (42)
<CHANGES> 0
<NET-INCOME> (3,525)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
