UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(_x_) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 1998
--------------
or
(___) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From _______________ To _______________.
Commission File No. 0-25184
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U.S. ELECTRICAR, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3056150
---------- ----------
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
19850 South Magellan Drive
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Torrance, CA 90502
--------------------------
(Address of Principal Executive Offices and Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (_X_) No (___)
As of June 10, 1998, there were 151,205,668 shares of Common Stock, no par
value, outstanding.
1
<PAGE>
INDEX
U.S. ELECTRICAR, INC.
Page No.
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) .................................. 3
Consolidated Balance Sheets:
April 30, 1998 and July 31, 1997 .................................. 3
Consolidated Statements of Operations:
Three and Nine months ended April 30, 1998 and 1997 ............... 4
Consolidated Statements of Cash Flows:
Nine months ended April 30, 1998 and 1997 ......................... 5
Notes to Consolidated Financial Statements:
for the Three and Nine months ended April 30, 1998 and 1997 ....... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 14
Item 2. Changes in Securities ............................................. 14
Item 3. Defaults upon Senior Securities ................................... 14
Item 4. Submission of Matters to a Vote of Security Holders ............... 15
Item 5. Other Information ................................................. 15
Item 6. Exhibits and Reports on Form 8-K .................................. 15
SIGNATURE ................................................................. 16
EXHIBIT INDEX ............................................................. 17
2
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PART 1. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
U.S. ELECTRICAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------
<CAPTION>
As of As of
April 30, 1998 July 31, 1997
-------------- -------------
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 164 $ 333
Accounts receivable, net of allowances of $115 and $115 316 829
Inventory 885 1,812
Prepaids and other current assets 54 258
-------- --------
Total Current Assets 1,419 3,232
PROPERTY, PLANT AND EQUIPMENT - NET 417 1,099
OTHER ASSETS 156 182
-------- --------
TOTAL ASSETS $ 1,992 $ 4,513
======== ========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITES:
Accounts payable $ 2,719 $ 2,335
Accrued payroll and related expense 662 634
Accrued warranty expense 532 564
Reserve for lease obligations 0 28
Accrued Interest 1,076 598
Other accrued expenses 266 337
Customer deposits and deferred revenue 231 44
Current maturities of obligations under capital lease . 0 209
Bonds and notes payable 5,420 5,220
-------- --------
Total Current Liabilities 10,906 9,969
LONG TERM DEBT 3,639 3,639
SHAREHOLDERS' (DEFICIT):
Series A preferred stock - No par value; 30,000,000 shares authorized;
3,621,000 shares issued and outstanding at 4/30/98 and 7/31/97 2,543 2,543
Series B preferred stock - No par value; 5,000,000 shares authorized;
1,340,000 shares issued and outstanding at 4/30/98 and 7/31/97 2,682 2,682
Stock notes receivable (1,216) (1,149)
Common Stock - No par value; 300,000,000 shares authorized; 151,206,000
and 151,068,000 shares issued and outstanding at 4/30/98 and 7/31/97 68,354 68,354
Accumulated deficit (84,916) (81,525)
-------- --------
Total Shareholders' (Deficit) (12,553) (9,095)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 1,992 $ 4,513
======== ========
<FN>
Note: The balance sheet at July 31, 1997 has been derived from the audited financial statements at that date.
See notes to consolidated financial statements.
</FN>
</TABLE>
3
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<TABLE>
U.S. ELECTRICAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except for per share and share data)
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended April 30, Nine Months Ended April 30,
---------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 379 $ 2,856 $ 1,379 $ 3,754
COST OF SALES 492 1,007 2,197 2,419
------------- ------------- ------------- -------------
GROSS MARGIN (113) 1,849 (818) 1,335
------------- ------------- ------------- -------------
OTHER COSTS AND EXPENSES:
Research & development 41 394 251 1,027
Selling, general & administrative 292 835 1,844 2,322
Interest and financing fees 158 145 478 557
Acquisition of a research company 1,630
------------- ------------- ------------- -------------
Total other costs and expenses 491 1,374 2,573 5,536
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (604) $ 475 $ (3,391) $ (4,201)
============= ============= ============= =============
NET INCOME (LOSS) PER COMMON SHARE $ (0.004) $ 0.003 $ (0.022) $ (0.033)
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 151,205,668 137,631,515 151,198,005 128,360,813
</TABLE>
4
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<TABLE>
U.S. ELECTRICAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Nine Months Ended April 30
--------------------------------------
1998 1997
-------------- -----------------
OPERATIONS
<S> <C> <C>
Net loss $ (3,391) $ (4,201)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and Amortization 172 394
Provision to reduce inventory values 754 245
Loss on disposal of equipment 325 11
Purchase of a research company 0 1,630
Loss on divestiture of business unit 0 55
Interest income on stock notes receivable (67) (66)
Interest converted to notes payable 0 8
Interest converted to common stock 0 194
Change in operating assets and liabilities:
Accounts Receivable 538 (1,916)
Inventory 173 698
Prepaids and other assets 205 (1)
Accounts payable and accrued expenses 759 287
Customer deposits and deferred revenue 187 (354)
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Net cash used by operating activities (345) (3,016)
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INVESTING:
Repayments on advances to Systronix Corporation 0 209
Purchases of property, plant and equipment (8) (35)
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Net cash provided (used) by investing activities (8) 174
-------------- -----------------
FINANCING:
Payments on notes payable 0 (2,372)
Payments on capital leases (16) (94)
Borrowings on notes payable 200 3,122
Proceeds from issuance of common stock 0 3,350
-------------- -----------------
Net cash provided by financing activities 184 4,006
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NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (169) 1,164
CASH AND EQUIVALENTS:
Beginning of period 333 13
-------------- -----------------
End of period $ 164 $ 1,177
============== =================
</TABLE>
5
<PAGE>
<TABLE>
U.S. ELECTRICAR, INC, AND SUBSIDIARIES
CONSOLIDATED STSTEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
(In thousands)
- --------------------------------------------------------------------------------
<CAPTION>
Nine Months Ended April 30,
---------------------------
1998 1997
---------- ---------
NONCASH INVESTING AND FINANCING ACTIVITIES:
<S> <C> <C>
Conversion of Series A preferred stock to common stock -- $ 342
Conversion of Series S bonds to common stock -- 3,000
Conversion of convertible notes to common stock -- 600
Assumption of notes payable in connection with acquisition -- 800
Note issued in connection with acquisition -- 830
Note assumed by buyer in connection with divestiture -- (1,013)
Conversion of accrued interest to notes payable -- 139
Acquisition of capital assets through capital leases -- 361
Decrease in accounts receivable from divestiture of IEV -- 365
Decrease in inventory from divestiture of IEV -- 470
Decrease in accounts payable and accrued expenses from
divestiture of IEV -- (172)
Increase in inventory from acquisition of Systronix Corporation -- (499)
Increase in prepaids from acquisition of Systronix -- (94)
Increase in accounts payable and accrued expenses from
acquisition of Systronix -- (361)
Increase in customer deposits from acquisition of Systronix -- 135
Decrease in capital lease payable due to cancellation 190 --
</TABLE>
6
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U. S. ELECTRICAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
For the Three and Nine Months Ended April 30, 1998 and 1997
NOTE 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared from the
records of the Company without audit, and in the opinion of management, include
all adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position at April 30, 1998 and the interim results
of operations and cash flows for the three and nine month periods ended April
30, 1998 and 1997. The balance sheet at July 31, 1997, presented herein, has
been prepared from the audited financial statements of the Company for the
fiscal year then ended.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
affecting the reported amounts of assets, liabilities, revenues and expenses,
and the disclosure of contingent assets and liabilities. The July 31, 1997 and
April 30, 1998 inventories are reported at market value. The inventory valuation
adjustments are estimates based on sales of inventory subsequent to July 31,
1997, and the projected impact of certain economic, marketing and business
factors. Inventories have been valued on the basis that they would be used,
converted and sold in the normal course of business. Warranty reserves and
certain accrual expenses are based upon an analysis of future costs expected to
be incurred in meeting contracted obligations. The amounts estimated for the
above, in addition to other estimates not specifically addressed, could differ
from actual results; and the difference could have a significant impact on the
financial statements.
Accounting policies followed by the Company are described in Note 1 to the
audited financial statements for the fiscal year ended July 31, 1997. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted for purposes of the interim financial statements. The
financial statements should be read in conjunction with the audited financial
statements, including the notes thereto, for the year ended July 31, 1997, which
are included in the Company's Form 10-K Annual Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 as filed with the Securities and
Exchange Commission.
The loss per common share is based on the weighted average of common shares
outstanding. Potential dilution exists in earnings per share for the three and
nine months ended April 30, 1998 if common stock equivalents, consisting of
unexercised stock options and warrants, were included in the calculation. The
resulting dilution in the net loss per share, when compared to the loss of
$0.022 currently reflected in the financial statements for the nine months ended
April 30, 1998, would be insignificant and, therefore, has not been calculated.
The results of operations for the three and nine month periods presented herein
are not necessarily indicative of the results to be expected for the full year.
NOTE 2 - Going Concern
The Company has experienced recurring losses from operations and use of cash
from operations and had an accumulated deficit of $81,525,000 at July 31, 1997
and $84,916,000 at April 30, 1998. A substantial portion of the losses are
attributable to investments in research, development and other start-up costs
associated with the Company's original focus on the development and manufacture
of electric vehicles, including electric buses, the conversion of gas powered
cars and light trucks to electric power and off-road electric powered industrial
vehicles.
7
<PAGE>
During the three years ended July 31, 1997, the Company obtained approximately
$23 million (net of debt repayments) in cash from financial activities through
private placements of common stock and Series A preferred stock, the exercise of
options and warrants, and the issuance of convertible subordinated notes payable
and secured convertible bonds and notes. During the nine months ended April 30,
1998, the Company received $200,000 from a European investor group in the form
of a short term, non-interest bearing promissory note.
It is management's intention to complete its debt restructuring and to seek
additional financing through private placements as well as other means. In
March, 1997, the Company completed an agreement with Hyundai Motor Company
("HMC") and Hyundai Electronics Industries Co., Ltd. ("HEI") whereby HMC and HEI
collectively purchased $3.6 million of the Company's common stock for cash and
secured a technology license for an additional payment of $2.0 million. For the
technology license, the Company received $1,850,000 in cash and the remaining
$150,000 is to be received over 6 years.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. It is possible that the cash flows
from operations for the foreseeable future may not be sufficient to enable the
Company to meet its obligations. Market conditions and the Company's financial
position may inhibit its ability to achieve profitable operations.
These factors as well as the future availability or inadequacy of financing to
meet future needs, could force the Company to delay, modify, suspend or cease
some or all aspects of its planned operations, and/or seek protection under
applicable state and federal bankruptcy and insolvency laws.
NOTE 3 - Inventories
Inventories are comprised of the following (in thousands):
April 30, 1998 July 31, 1997
-------------- -------------
(unaudited)
--------------
Finished Goods $ 468 $ 667
Work-in-process 228 375
Raw materials 346 1,062
Valuation adjustment (157) (292)
------- -------
$ 885 $ 1,812
======= =======
8
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U.S. ELECTRICAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4 - Notes and Bonds Payable, Long-Term Debt and Other Financing
Notes and bonds payable and long-term debt are comprised of the following (in
thousands):
April 30, 1998 July 31, 1997
-------------- -------------
Convertible secured notes under a
Supplemental Loan Agreement with ITOCHU
Corporation; interest at 10%, principal and
interest due April 1998, secured by the
personal property of the parent company. $3,000 3,000
Secured promissory note - Credit Managers
Association of California ("CMAC") as
exclusive agent for Qualified Creditors;
interest at 3%, with principal and interest
due April 1999; secured with an interest in
a sinking fund escrow consisting of 10% of
any financing received subsequent to April
1996; the Board of Directors may waive the
sinking fund set aside on a case-by-case
basis. 307 307
Secured subordinated promissory note - CMAC
as exclusive agent for Non-Qualified
Creditors; interest at 3% for the first 5
years, 6% for years 6 and 7, and then at
prime plus 3% through date of maturity;
interest payments are made upon payment of
principal, with principal and interest due
no later than April 2016; secured with an
interest in a sinking fund escrow as noted
above; payments on this note are
subordinated to payment in full on all
principal and accrued interest owed on the
above 3-year qualified note. 3,332 3,332
Convertible secured promissory note payable
to ITOCHU Corporation; interest at 10%, due
December 1997; convertible into common stock
at $0.30 per share. 1,300 1,300
Convertible promissory note payable to
Fontal International, Ltd.; interest at 10%,
due July, 1997; convertible into common
stock at $0.30 per share. 800 800
Promissory note payable to a European
investor group; no interest. 200 --
Other 120 120
------ ------
9,059 8,859
Less current maturities 5,420 5,220
------ ------
$3,639 $3,639
====== ======
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The matters addressed in this report, with the exception of the historical
information presented, incorporate certain forward-looking statements involving
risks and uncertainties, including the risks discussed herein and in the report
under the heading "Certain Factors That May Affect Future Results", as reported
by the Company in the Form 10-K filed with the Commission on October 29, 1997.
GENERAL
U.S. Electricar, Inc. and Subsidiaries (the "Company") originally was
established to develop, convert, assemble, manufacture and distribute
battery-powered electric vehicles, including on-road pick-up trucks, passenger
cars, buses and delivery vehicles, and off-road industrial vehicles. The
Company's product lines originally included converted vehicles (originally built
to be powered by internal combustion engines) and vehicles built specifically to
be battery powered. The Company has refocused and restructured its product base
and is directing its efforts toward 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 relating to the converted vehicle program were discontinued. The
Company's fiscal year ends July 31. All year references refer to fiscal years.
In the years prior to 1996, the Company incurred substantial losses, which
resulted in significant debt. During 1996, the Company restructured a
significant portion of its debt and raised approximately $5 million in interim
funding. However, its operations continued to be impacted by an insufficient
amount of funds and the timeliness of funds to adequately support its planned
sales volumes and product development programs. The Company curtailed production
and sales of off-road industrial vehicles in the third and fourth quarters of
1996.
In September 1996, a substantial portion of the assets of Industrial Electric
Vehicles, Inc., (formerly Nordskog Electric Vehicles, Inc. (Nordskog), prior to
its acquisition by the Company) were sold. Consideration for this sale included
the assumption of, and release of liability for, the note payable that totaled
$1,013,000 at July 31, 1996 to Nordskog.
In October 1996, the Company acquired substantially all the tangible and
intangible assets, and assumed certain liabilities, of Systronix Corporation
(Systronix) for stock, a note and cash. Systronix, a Torrance based company,
developed and built electric vehicle drive systems and components.
In March 1997, the Company completed an agreement with Hyundai Motor Company
("HMC") and Hyundai Electronics Industries Co., Ltd. ("HEI") whereby HMC and HEI
collectively purchased $3.6 million of the Company's common stock for cash and
secured a technology license for an additional payment of $2.0 million. For the
technology license, the Company received $1,850,000 in cash and the remaining
$150,000 is to be received over 6 years.
During the nine months ended April 30, 1998, the Company has continued to
concentrate on the reduction of operating costs. Headcount has been reduced from
51 employees at July 31, 1997 to 25 employees as of April 30, 1998. Business
activities have been scaled back, and the Company is now focused primarily on
the development of electric drive trains and related components, vehicle systems
integration and the performance of various engineering contracts. The Company
has several key contracts with the U. S. government's Defense Advanced Research
Project Agency ("DARPA"), including the development of a new AC bus, a new
plastic lithium ion vehicle battery concept and testing of advanced vehicle
batteries. Contracts from the Hyundai Group include drive train, advanced
charger and hybrid vehicle development.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant recurring cash flow shortages due to
operating losses primarily attributable to research, development ,administrative
and other expenses associated with the Company's efforts to become an
international manufacturer and distributor of electric vehicles. Cash flows from
operations have been negative and have not been sufficient to meet the Company's
obligations as they came due. The Company has therefore had to raise funds
through numerous financial transactions and from various resources. At least
until the Company reaches break-even volume in sales and develops and/or
acquires the capability and technology necessary to manufacture and sell its
electric vehicles profitably, it will continue to rely extensively on cash from
debt and equity financing. The Company anticipates that it will require
substantial additional outside financing for at least one more year.
During the nine months ended April 30, 1998, the Company spent $345,000 in cash
on operating activities to fund the net loss of $3,391,000 resulting from
factors explained in the following section of this discussion and analysis.
Accounts receivable decreased by $538,000 as funds were collected on outstanding
receivables and new sales did not replace the accounts receivable balance. Some
of the Company's sales are in the form of prepaid engineering contracts, and
these sales will not be reflected in accounts receivable. The current year's
installment on the unpaid portion of the HEI and HMC technology license was
reclassified from long-term to current receivables. Inventory decreased by
$173,000, net of write-downs. The inventory write-down of $754,000 resulted
primarily from actions by the Company to discontinue production activity on the
bus and converted vehicle product lines. The inventory for these products was
sold at liquidation prices. Most of the reported loss on disposal of equipment
relates to the return of a high performance dynamometer to the manufacturer and
the cancellation of the capital lease for this equipment. The loss resulting
from this transaction was $248,000.
Another significant factor was the increase in accounts payable and accrued
expenses. Accounts payable increased due to a slowing down of payments to
vendors as a result of a shortage of cash. Interest accruing on notes payable
has not been paid. Custiomer deposits increased due to the receipt of new
prepaid engineering contracts.
The operations of the Company during the nine months ended April 30, 1998 were
financed primarily by the funds received in the prior fiscal year and funds
received on engineering contracts. During the period the Company received
$200,000 from a European investor group in the form of a short term,
non-interest bearing promissory note.
IF THE COMPANY IS UNABLE TO CONTINUE TO RESTRUCTURE ITS DEBT OR OTHERWISE
REFINANCE OR CONVERT SUCH DEBT, AND ADDITIONAL FUNDING IS NOT AVAILABLE, THE
COMPANY WOULD BE FORCED TO SEEK PROTECTION UNDER APPLICABLE STATE AND FEDERAL
BANKRUPTCY AND INSOLVENCY LAWS.
SIGNIFICANT ADDITIONAL FUNDING WILL BE NEEDED IN 1998 AND 1999. AS OF JUNE 10,
1998, THE COMPANY HAD NO COMMITMENTS FROM ANY PERSON OR ENTITY TO PROVIDE
CAPITAL, AND THERE CAN BE NO ASSURANCE THAT ADDITIONAL FUNDS WILL BE AVAILABLE
FROM ANY SOURCE AT THE TIME THE COMPANY WILL NEED SUCH FUNDS. THE INABILITY OF
THE COMPANY TO OBTAIN ADDITIONAL FUNDING ON TERMS ACCEPTABLE TO THE COMPANY WILL
HAVE A MATERIAL ADVERSE EFFECT ON ITS BUSINESS. THE FUTURE AVAILABILITY OR
INADEQUACY OF FINANCING TO MEET FUTURE NEEDS COULD FORCE THE COMPANY TO DELAY,
MODIFY, SUSPEND OR CEASE SOME OR ALL ASPECTS OF ITS PLANNED OPERATIONS, AND/OR
SEEK PROTECTION UNDER APPLICABLE STATE AND FEDERAL BANKRUPTCY AND INSOLVENCY
LAWS.
11
<PAGE>
RESULTS OF OPERATIONS
Net sales in 1998 decreased $2,477,000 in the third quarter, and decreased
$2,375,000 in the first nine months, from the corresponding periods of 1997. In
the current year there have been no sales of converted vehicles and no sales of
technology licenses. The Company discontinued the converted vehicle program in
1998. In 1997 the Company delivered 8 converted sedans and pick-up trucks in the
third quarter and 23 vehicles for the first nine months. The decrease in sales
of converted vehicles was partly offset by an increase in engineering
development contracts with Hyundai Motor Company, Hyundai Electronics Industries
and various state and federal agencies. These development contracts,
collectively, have accounted for almost all of the Company's sales for 1998. In
the third quarter of 1997, the Company sold a technology license to HEI and HMC
for $2,000,000.
Cost of sales in the third quarter of 1998 decreased to $492,000 on sales of
$379,000, compared to cost of sales of $1,007,000 on sales of $2,856,000 in the
third quarter of 1997. For the first nine months of 1998, cost of sales
decreased to $2,197,000 on sales of $1,379,000, compared to cost of sales of
$2,419,000 on sales of $3,754,000 in the first nine months of 1997. The charge
to operations for inventory write downs and sales at liquidation prices of
$754,000 was the major factor that resulted in the high cost of sales for 1998.
The sale of a technology license for $2,000,000 in the third quarter of 1997
dramatically affected the Company's margins in 1997, since there were no
associated costs to be included in cost of sales.
Research and development expense decreased in the third quarter of 1998 by
$353,000, from the third quarter of 1997, and decreased by $776,000 in the first
nine months of 1998 from the first nine months of 1997. The Company has reduced
its technical staff and curtailed purchasing engineering services in order to
keep costs down. The efforts expended by the technical staff are directed
primarily toward completion of engineering contracts, such as the contracts for
the Hyundai Group and federal and state government agencies.
Selling, general and administrative expense decreased $543,000 in the third
quarter of 1998, and decreased $478,000 in the first nine months. The reduction
in expenses was due to actions by the Company to close facilities, reduce
headcount and consolidate operations in Torrance, California during the second
and third quarters of 1998.
Interest and financing fees increased only slightly to $158,000 in the third
quarter of 1998 from $145,000 in the third quarter of 1997. For the first nine
months of 1998, these costs have decreased $79,000 from the first nine months of
1997. Interest costs have decreased because of actions taken to reduce the
amount of outstanding debt. In March 1997, the Company converted $3,000,000 of
Series S Bonds to common stock. In March, 1997, the Company repaid convertible
promissory notes held by Fontal International, Ltd. in the amount of $1,150,000
plus accrued interest. In May, 1997, the Company paid $348,000 against the
outstanding principal balance on two secured subordinated promissory notes held
by the Credit Managers Association of California.
The Company incurred a net loss of $604,000 in the third quarter of 1998
compared to net income of $475,000 in the third quarter of 1997. The overriding
factor causing the difference was the sale of a technology license in the third
quarter of 1997. The comparative results for the first nine months were affected
by the sale of the technology license and also by the acquisition of Systronix
in 1997. In the first quarter of 1997, the Company expensed $1,630,000 in
research and development costs associated with this acquisition. This was a
non-recurring expense. In the first nine months of 1998, the net loss was
$3,391,000, which is a decrease of $810,000 from the net loss in the first nine
months of 1997.
12
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Future trends for the Company's revenue and profitability remain uncertain. The
Company operates in a rapidly changing and developing market that involves a
number of risks, some of which are beyond the Company's control. In addition, as
previously disclosed in the Form 10-K, the Company's financial condition remains
extremely precarious. The following discussion highlights certain of these
risks.
Going Concern / Net Operating Losses. The Company has experienced recurring
losses from operations and had an accumulated deficit of $84,916,000 at April
30, 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 June 10, 1998, the Company
had no firm commitments from any person or entity to provide capital, and there
can be no assurance that additional funds will be available from any source at
the time the Company will need such funds.
Continued Losses. For the fiscal years ended July 31, 1997, 1996 and 1995, the
Company had substantial net losses of $4,535,000, $9,354,000 and $37,565,000,
respectively on sales of $4,484,000, $4,209,000 and $11,625,000, respectively,
and the Company incurred a net loss of $3,391,000 for the nine months ended
April 30, 1998.
Nature of Industry. The electric vehicle ("EV") industry is in its infancy.
Although the Company believes that it has manufactured a significant percentage
of the electric vehicles sold in the United States based upon its own knowledge
of the industry, there are many large and small companies, both domestic and
foreign, now in, poised to enter, or entering this industry. This EV industry is
subject to rapid technological change. Most of the major domestic and foreign
automobile manufacturers (1) have produced their own design-concept electric
vehicles, and/or (2) have developed improved electric storage, propulsion and
control systems, and/or (3) have entered or are 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) continued and future regulation and
legislation requiring more use of non-polluting vehicles, (b) the environmental
conciousness of customers and (c) the ability of electric vehicles to
successfully compete with vehicles powered with internal combustion engines on
price and performance.
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"), such as hybrid 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. For
example, the State of California recently extended the deadline for compliance
with mandates for implementation of zero emmission vehicle requirements from
1998 to 2003.
13
<PAGE>
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
On June 23, 1997, fourteen shareholders and former
shareholders of the Company filed a lawsuit in a federal
district court in California, alleging violations of the
securities laws and asserting eleven federal and state law
claims. On September 29, 1997, the district court dismissed
all of the claims asserted in the plaintiffs' complaint, but
allowed leave to amend with respect to all but one of the
claims. On October 20, 1997, the plaintiffs filed an amended
complaint which added several additional shareholders and
asserted nine federal and state law claims. On February 6,
1998, the district court dismissed all of the federal claims
without leave to amend. The plaintiffs have the right to
refile the claims in state court.
Item 2. Changes in Securities:
None.
Item 3. Defaults Upon Senior Securities:
The Company has outstanding secured notes under a Supplemental
Loan Agreement with Itochu Corporation in the principal amount
of $3,000,000, with principal and interest due April 17, 1998.
The notes are secured by personal property of the Company. The
interest rate is ten percent (10%) per annum, and the notes
are convertible into shares of the Company's common stock at
the rate of $0.30 per share. As of June 10, 1998, the
principal and 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 June 10, 1998, the holder of the notes had not
yet exercised any of its remedies with respect to the notes.
During the period from January 1997 through April 1997, the
Company and Fontal International, Ltd. executed several loan
agreements whereby Fontal extended loans to the Company in the
aggregate amount of $800,000. The loans were evidenced by
promissory notes which provide for a due date of July 9, 1997,
an interest rate of ten percent (10%) per annum, and the right
to convert principal and accrued interest at any time into
shares of the Company's common stock at the rate of $0.30 per
share. As of June 10, 1998, the principal and accrued interest
due under the notes have not been paid, causing an event of
default under the terms of the notes. Discussions about
extending the maturity date of the notes are underway. As of
June 10, 1998, the holder of the notes had not yet exercised
any of its remedies with respect to the notes.
During the period from December 1996 through February 1997,
the Company and Itochu Corporation executed several loan
agreements whereby Itochu extended loans to the Company in the
aggregate amount of $1,300,000. The loans were evidenced by
promissory notes which provide for a due date of December 26,
1997, an interest rate of ten percent (10%) per annum, and the
14
<PAGE>
right to convert principal and accrued interest at any time
into shares of the Company's common stock at the rate of $0.30
per share. As of June 10, 1998, the principal and accrued
interest due under the notes have not been paid, causing an
event of default under the terms of the notes. Discussions
about extending the maturity date of the notes are underway.
As of June 10, 1998, the holder of the notes had not yet
exercised any of its remedies with respect to the notes.
Item 4. Submission of Matters to a Vote of Securities Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized on June 10, 1998.
U.S. ELECTRICAR, INC.
(Registrant)
/s/ Carl D. Perry
- --------------------------------------------------------------------------------
By: Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- --------------------------------------------------------------------------------
27 Financial Data Schedule 18
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE ANNUAL REPORT ON FORM 10-Q OF U.S.
ELECTRICAR, INC. FOR THE QUARTER ENDED APRIL 30, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
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<NAME>U.S.ELECTRICAR,INC
<MULTIPLIER>1,000
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> APR-30-1998
<CASH> 164
<SECURITIES> 0
<RECEIVABLES> 316
<ALLOWANCES> 0
<INVENTORY> 885
<CURRENT-ASSETS> 1,419
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<TOTAL-ASSETS> 1,992
<CURRENT-LIABILITIES> 10,906
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0
5,225
<COMMON> 68,354
<OTHER-SE> (84,916)
<TOTAL-LIABILITY-AND-EQUITY> 1,992
<SALES> 1,379
<TOTAL-REVENUES> 1,379
<CGS> 2,197
<TOTAL-COSTS> 4,292
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 478
<INCOME-PRETAX> (3,391)
<INCOME-TAX> 0
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