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 October 31, 1999
or
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From _________________ To _________________.
Commission File No. 0-25184
U.S. ELECTRICAR, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3056150
- ------------------------------ ----------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
19850 South Magellan Drive Torrance, CA 90502
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(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (310) 527-2800
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 December 15, 1999, there were 251,992,218 shares of Common Stock, no par
value, outstanding.
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INDEX
U.S. ELECTRICAR, INC.
Page No.
--------
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)......................................3
Consolidated Balance Sheets:
October 31, 1999 and July 31, 1999....................................3
Consolidated Statements of Operations:
Three months ended October 31, 1999 and 1998..........................4
Consolidated Statements of Cash Flows:
Three months ended October 31, 1999 and 1998..........................5
Notes to Consolidated Financial Statements:
for the Three months ended October 31, 1999 and 1998..................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................10
Item 3. Quantitative and Qualitative Disclosure about Market Risk............15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................................16
Item 2. Changes in Securities and Use of Proceeds............................16
Item 3. Defaults upon Senior Securities......................................16
Item 4. Submission of Matters to a Vote of Security Holders..................17
Item 5. Other Information....................................................17
Item 6. Exhibits and Reports on Form 8-K.....................................17
SIGNATURE ....................................................................18
EXHIBIT INDEX ................................................................19
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
U.S. ELECTRICAR, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
As of As of
October 31, July 31,
1999 1999
-------- --------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,933 $ 2,467
Accounts receivable 357 751
Inventory 245 223
Stockholder receivable 0 50
Prepaids and other current assets 81 92
-------- --------
Total Current Assets 2,616 3,583
PROPERTY, PLANT AND EQUIPMENT - NET 249 282
OTHER ASSETS 75 75
-------- --------
TOTAL ASSETS $ 2,940 $ 3,940
======== ========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITES:
Accounts payable $ 209 $ 507
Accrued payroll and related expense 224 290
Accrued Interest 701 593
Other accrued expenses 37 232
Bonds and notes payable 4,127 4,427
-------- --------
Total Current Liabilities 5,298 6,049
LONG TERM PAYABLES 1,867 1,875
LONG TERM DEBT 3,332 3,332
SHAREHOLDERS' (DEFICIT):
Series A preferred stock - No par value; 30,000,000 shares authorized;
3,259,000 shares issued and outstanding at 10/31/99 and 7/31/99 2,190 2,191
Series B preferred stock - No par value; 5,000,000 shares authorized;
1,242,000 shares issued and outstanding at 10/31/99 and 7/31/99 2,486 2,486
Stock notes receivable (1,149) (1,149)
Common Stock - No par value; 500,000,000 shares authorized; 251,992,000
shares issued and outstanding at 10/31/99 and 7/31/99 71,502 71,501
Paid in capital 3,100 3,100
Accumulated deficit (85,686) (85,445)
-------- --------
Total Shareholders' (Deficit) (7,557) (7,316)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 2,940 $ 3,940
======== ========
</TABLE>
Note: The balance sheet at July 31, 1999 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. See notes to consolidated
financial statements.
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U.S. ELECTRICAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except for per share and share data)
- --------------------------------------------------------------------------------
Three Months Ended October 31,
-------------------------------
1999 1998
------------- -------------
NET SALES $ 361 $ 417
COST OF SALES 226 357
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GROSS MARGIN 135 60
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OTHER COSTS AND EXPENSES:
Research & development 124 93
Selling, general & administrative 395 283
Interest and financing fees 108 180
Other (income)/expense (113) 0
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Total other costs and expenses 514 556
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LOSS FROM CONTINUING OPERATIONS (379) (496)
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INTEREST INCOME 15 --
GAIN ON DEBT RESTRUCTURING 123 --
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NET LOSS $ (241) $ (496)
============= =============
PER SHARE
Loss from continuing operations $ (0.001) $ (0.003)
Gain on debt restructuring $ -- $ --
------------- -------------
Net loss per common share (0.001) (0.003)
============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 251,992,218 151,773,014
============= =============
See notes to consolidated financial statements.
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<TABLE>
U.S. ELECTRICAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended October 31
-----------------------------
1999 1998
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<S> <C> <C>
OPERATIONS
Net loss $ (241) $ (496)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and Amortization 36 28
Provision to reduce inventory values 0 9
Change in operating assets and liabilities:
Accounts Receivable 394 (84)
Inventory (22) 86
Note receivable 50 250
Prepaids and other assets 11 28
Accounts payable and accrued expenses (459) 110
Customer deposits and deferred revenue 0 (29)
------- -------
Net cash used by operating activities (231) (98)
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INVESTING:
Purchases of property, plant and equipment, net of disposals (3) 0
------- -------
Net cash provided (used) by investing activities 0 0
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FINANCING:
Payments on notes payable (300) 0
Borrowings on notes payable 0 0
Proceeds from issuance of common stock 0 0
------- -------
Net cash provided (used) by financing activities (300) 0
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NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (534) (98)
CASH AND EQUIVALENTS:
Beginning of period 2,467 266
------- -------
End of period $ 1,933 $ 168
======= =======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
U.S. ELECTRICAR, INC, AND SUBSIDIARY
CONSOLIDATED STSTEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended October 31
-----------------------------
1999 1998
------- -------
<S> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Series A preferred stock to common stock $ -- $ 25
</TABLE>
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U.S. ELECTRICAR, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
For the Three Months Ended October 31, 1999 and 1998
NOTE 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared from the
records of the Company without audit and have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not contain all the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the financial position
at October 31, 1999 and the interim results of operations and cash flows for the
three months ended October 31, 1999 have been included. The balance sheet at
July 31, 1999, 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, 1999 and
October 31, 1999 inventories are reported at market value. 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, 1999. 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, 1999, 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
months ended October 31, 1999 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
$0.001 currently reflected in the financial statements for the three months
ended October 31, 1999, would be insignificant and, therefore, has not been
calculated.
The results of operations for the three-month period presented herein are not
necessarily indicative of the results to be expected for the full year.
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NOTE 2 - Going Concern
The Company has experienced recurring losses from operations and use of cash
from operations and had an accumulated deficit of $85,445,000 at July 31, 1999
and $85,686,000 at October 31, 1999. 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. During the three years ended July 31, 1999, the Company obtained
approximately $3 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
fiscal year ended July 31, 1998, the Company received $200,000 from a European
investor group in the form of a short term, non-interest bearing promissory
note.
Management continues to restructure its debt and shall seek additional financing
through private placements as well as other means. The Company has reduced its
outstanding liabilities through various means thus far, including repayment of
certain debts and re-negotiation of other debts resulting in a total debt
reduction of approximately $3,000,000 thus far. Furthermore, the Company is
continuing to make progress in reducing its outstanding debt and initiate
discussions with outside investors to re-invigorate the Company and allow it to
further develop its current drive systems and expand these technologies into new
markets. In February 1999, the Company completed a sale of a license of certain
technology to Hyundai Heavy Industries of Korea regarding its PantherTM Drive
System.
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 future operations 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):
October 31, July 31,
1999 1999
---- ----
(unaudited)
Raw materials 245 223
$245 $223
==== ====
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U.S. ELECTRICAR, INC. AND SUBSIDIARY
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):
October 31, July 31,
1999 1999
-------- --------
Convertible secured notes under a
Supplemental Loan Agreement with ITOCHU
Corporation; interest at 12%, principal and
interest were due April 1998, the debt was
secured by the Company's personal property
and was acquired by the Company's President
during 1999. $ 1,700 1,700
Secured promissory note - Credit Managers
Association of California ("CMAC") as
exclusive agent for Qualified Creditors;
interest at 3%, with principal and interest
due August 1999. A principal payment of
$300,000 was made in October 1999. The
remaining principal and accrued interest is
being paid over six months beginning November
1999. 7 307
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; with an interest in a
sinking fund escrow with a balance of four
thousand dollars as of July 31, 1999 and
October 31, 1999. The sinking fund escrow
requires the Company to fund the account with
10% of future equity financing, including
convertible debt converted to equity. 3,332 3,332
Convertible secured promissory note payable
to ITOCHU Corporation; interest at 12%;
principal and interest were due in December
1997; convertible into common stock at $0.30
per share. The debt is secured by the
Company's personal property, and was acquired
by the Company's President during 1999. 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
Other 320 320
-------- --------
7,459 7,759
Less current maturities 4,127 4,427
-------- --------
$ 3,332 $ 3,332
======== ========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The following information should be read in conjunction with the consolidated
interim financial statements and the notes thereto in Part I, Item I of this
Quarterly Report and with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual report on
Form 10-K for the year ended July 31, 1999. The matters addressed in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, with the exception of the historical information presented contains
certain forward-looking statements involving risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including the risks discussed herein
and in the report under the heading "Certain Factors That May Affect Future
Results" following this Management's Discussion and Analysis section, and
elsewhere in this report.
GENERAL
U.S. Electricar, Inc., a California Corporation (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. Today, the Company has completely re-defined its
product-line and 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 any efforts toward
that program consist primarily of supporting customers with vehicle integration
and maintenance.
The Company's fiscal year ends July 31. All year references refer to fiscal
years.
During 1999, the Company continued to concentrate on the reduction of operating
costs and outstanding debt. The Company's business activities are now focused
primarily on the development of electric and hybrid electric drive trains and
related components, fuel cell systems, 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") and the Department of Transportation ("DOT"), including the analysis
of a new plastic lithium ion vehicle battery concept, testing of advanced
vehicle batteries and development of an airport electric passenger tram system.
The Company also has several major engineering contracts with HMC to design,
develop and test electric drive trains and related products. Hyundai Motor
Company has contracted with the Company for the development of an advanced
charging unit and a hybrid vehicle development, as well as preparing to produce
the family of Panthertm drive system for their light-duty, medium and heavy-duty
electric vehicles, trucks and buses. The Company is extending the PantherTM
drive system to hybrid vehicle applications in projects sponsored by Hyundai.
These hybrid systems will be applied to light, medium and heavy-duty
transportation vehicles. The Company is also offering the modular electric drive
systems to Original Equipment Manufacturers ("OEM") and other customers on a
worldwide basis. These drive systems have been installed in various sizes and
types of vehicles. The Company offers other
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components such as air conditioning, heat pump units, charging systems,
electro-hydraulic power steering units and battery management units to OEMs,
both domestic and international. The Company is also developing a high power
charger for use with its drive systems. HMC has adapted a customized version of
the PantherTM 60 for their production electric vehicle.
The Company has completed the sale of a license to certain proprietary PantherTM
Drive System software and hardware, for the Republic of Korea, to Hyundai Heavy
Industries ("HHI") for further design and development of electric drive systems.
The Company anticipates deriving further significant development contracts from
this new relationship with HHI as well as utilizing HHI to manufacture the
Company's drive systems for international sales.
During the first quarter of the current fiscal year, the Company continues to
aggressively pursue partners to develop new markets for its products. The
Company has entered into additional contracts with Hyundai Motor Company of
Korea to develop hybrid and fuel cell technologies. The Company has begun
discussions with various manufacturers to develop platforms for its electric and
hybrid drive systems. Joint venturing with global vehicle and bus manufacturers
to utilize its electric drive train system, and developing a comprehensive
marketing plan to penetrate various alternate niche markets for its drive system
and its components are also key elements in the Company's strategic plan. The
Company is also looking at non-automotive applications for its products.
The Company received a capital investment from Jagen, Pty, Ltd. in the amount of
$2,500,000 on June 4, 1999 and from Anthony Rawlinson in the amount of $500,000
on July 30, 1999, which have enabled the Company to further develop its hybrid
drive systems as well as embark on other in-house funded research and
development. The Company intends to explore new markets and develop an
aggressive sales and marketing plan to sell the current product line of drive
trains and components.
Debt Restructuring
The Company's debt restructuring plan has progressed positively during 1999.
With the addition of capital as discussed below, the Company retired the
$307,000, three-year debt due to the Credit Managers Association of California
("CMAC"). The CMAC's $3.3 million, 20-year promissory note becomes due and
payable in 2016. In March 1999, the Company's Chief Executive Office and
President purchased all of the Company's outstanding debt due to Itochu
Corporation, which was $4,300,000 plus accrued interest. As of July 30, 1999,
this individual has forgiven $1,300,000 in principal and $1,393,506 in accrued
interest. This effectively reduced the Company's total outstanding obligation
including interest to $3,000,000 from $5,693,506. The Company has also been
aggressively reducing its outstanding past due accounts payable. The Company
shall continue to pursue a strategy of negotiating settlements on these
outstanding payables where prudent.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced, in the past, 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
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require substantial additional outside financing for at least one more year.
During the three months ended October 31, 1999, the Company spent $534,000 in
cash on operating activities to fund the net loss of $241,000 resulting from
factors explained in the following section of this discussion and analysis.
Accounts receivable decreased by $394,000 as funds were collected on outstanding
receivables and new sales did not replace the accounts receivable balance. The
current year's installment on the unpaid portion of the HMC technology license
was reclassified from long-term to current receivables. Inventory increased by
$22,000.
Accrued expenses were reduced by $459,00 due to recapture of certain accrued
expenses and payments of the same. Interest accruing on notes payable has not
been paid and increased by $108,000 for the three months ended October 31, 1999.
The operations of the Company during the three months ended October 31, 1999
were financed entirely by the funds received in the prior fiscal year and funds
received on engineering contracts.
WHILE THE COMPANY HAS RECENTLY BEEN SUCCESSFUL IN RESTRUCTURING A SIGINIFICANT
PORTION OF ITS SECURED DEBT, IT REMAINS UNABLE TO PAY A SUBSTANTIAL PORTION OF
ITS UNSECURED DEBT AND JUDGEMENT LIEN DEBT, WHICH REMAINS IMMEDIATELY DUE AND
PAYABLE. IF THESE CREDITORS WERE TO DEMAND IMMEDIATE PAYMENT THROUGH COLLECTION
EFFORTS OR OTHERWISE, THE COMPANY MIGHT BE FORCED TO SEEK PROTECTION UNDER
APPLICABLE STATE AND FEDERAL BANKRUPTCY AND INSOLVENCY LAWS. THE COMPANY
BELIEVES THAT ADDITIONAL FUNDING BEYOND ITS CURRENT RESOURCES AS OF DECEMBER 15,
1999, WILL BE REQUIRED IF IT IS TO EVER ACHIEVE PROFITABILITY AND PAY OFF ITS
OUTSTANDING DEBT OBLIGATIONS. THERE IS NO ASSURANCE THAT SUCH ADDITIONAL FUNDS
WILL BE AVAILABLE FROM ANY SOURCE.
RESULTS OF OPERATIONS
Net sales in the three months ending October 31, 1999 decreased $483,000 from
the previous quarter, and decreased $56,000 in the first three months as
compared to the corresponding period of 1999. The decrease was due mainly to the
sale of the technology license to Hyundai Heavy Industries and the completion of
certain milestones in the Company's Hyundai Motor Company and U.S. Government
contracts during the fourth quarter of 1999. Development contracts with Hyundai
Motor Company and the U.S. Government account for almost all of the Company's
sales for 2000.
Cost of sales in the first quarter of fiscal 2000 decreased to $226,000 on sales
of $361,000, compared to cost of sales of $357,000 on sales of $417,000 in the
first quarter of 1999.
Research and development expense increased in the first quarter of 2000 by
$31,000, from the first quarter of 1999. The Company has been hiring new
technical staff in anticipation of additional contracts during fiscal 2000. 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 increased $112,000 in the three
months ended October 31, 1999 from the previous year's comparable period. The
increase in expenses was due to actions by the Company to begin to expand its
operations and additional legal expenses in connection with certain
restructuring transactions, regulatory filing requirements and the annual
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shareholders meeting.
Interest and financing fees decreased significantly to $108,000 in the first
quarter of 2000 from $180,000 in the first quarter of 1999. Interest costs have
decreased because of actions taken to reduce the amount of outstanding debt. In
March 1999, Itochu Corporation sold all of its debt plus accrued interest
outstanding ($5,693,400) to Carl D. Perry, the Company's Chief Executive Officer
and President Mr. Perry forgave $2,693,400 of accrued interest and principal on
July 30, 1999. As of October 31, 1999, there is $3,000,000 in principal owed by
the Company to Mr. Perry under this loan. Additionally, the Company reduced the
outstanding principal due on the CMAC note due August 1999 by $300,000. These
two debt reductions shall reflect continued reduced interest expense in the
future.
The Company incurred a net loss of $241,000 in the first quarter of 2000
compared to a net loss of $496,000 in the first quarter of 1999. The overriding
factor causing the difference was the recapture of certain accrued expenses and
debt forgiveness and the reduction in interest expense.
Impact of Year 2000
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 has replaced its accounting system
software with software that is compliant with Year 2000 requirements. 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 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
This Form 10-Q contains forward looking statements concerning our existing and
future products, markets, expenses, revenues, liquidity, performance and cash
needs as well as our plans and strategies. These forward-looking statements
involve risks and uncertainties and are based on current management's
expectations and we are not obligated to update this information. Many factors
could cause actual results and events to differ significantly from the results
anticipated by us and described in these forward looking statements including,
but not limited to, the following risk factors.
Going Concern / Net Operating Losses. The Company has experienced recurring
losses from operations and had an accumulated deficit of $85,623,000 at April
30, 1999. There is no assurance,
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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 additional financing and generate
sufficient cash flows to meet its obligations as they come due and sustain its
operations.
For the past twelve months, the Company has improved its ability to maintain
operations from current revenues. At present, the Company is able to generate
sufficient cash flow to support its operations on a monthly basis and we believe
we should be able to do so over the next 12 months based on current cash flow
projections. The Company has streamlined its operations sufficiently and has
forecast sales and/or research and development contracts which will provide
income adequate to fulfill these projections. The Company anticipates acquiring
additional research and development contracts from Hyundai Heavy Industries as
well as Hyundai Motor Company. The Company is also in the process of finding new
capital sources to expand its operations along the lines of its main product
line. The Company is in discussions with various strategic partners to develop
commercially viable vehicles for the various state and government agencies.
There is no assurance, however, that any such agreement will be consummated, or
if consummated, on terms favorable to the Company.
Continued Losses. For the fiscal years ended July 31, 1999, 1998 and 1997, the
Company had net losses of $395,000, $3,525,000 and $4,535,000 respectively on
sales of $2,774,000, $1,938,000 and $4,484,000 respectively. The Company
incurred a net loss of $231,000 for the three months ended October 31, 1999 on
sales of 361,000.
Nature of Industry. The electric vehicle ("EV") industry is in its infancy. 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 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. There is 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.
There has been significant public pressure in Europe and Asia, as well, to cause
legislation requiring zero or low emission vehicles. Legislation requiring or
promoting zero emission vehicles is necessary, in part, 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 emission and low
emission vehicle requirements from 1998 to 2003.
14
<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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed in the Company's periodic reports filed with the
Securities and Exchange Commission in 1995, the Company restructured
approximately $22 million in debt to vendors and lenders. A creditor's committee
was formed of substantially all the vendors and lenders at that time. Nineteen
creditors, at that time, chose not to join the creditor's committee, instead
opting to pursue their legal remedies individually. The total outstanding dollar
value of these lawsuits is approximately $650,000.00. At this time, the Company
anticipates minimal impact from the resolution of any of these lawsuits or
judgments as all assets of the Company are collateralized against a priority
security interest.
In February 1999, the Company became a defendant in a lawsuit filed by an
individual alleging personal injury by a vehicle manufactured by a prior
subsidiary of the Company, Nordskog Electric Vehicles, Inc., a.k.a. Industrial
Electric Vehicles, Inc. The matter has been referred to the insurance company
which has assumed legal liability and is proceeding to defend the matter. As of
October 27, 1999, the potential liability to the Company is unknown, however due
to the insurance coverage, it is believed to be minimal.
In April 1999, the City of Napa filed a lawsuit against the Company in the
Superior Court of California, County of Napa, regarding certain electric
vehicles sold by the Company to the City of Napa. The suit alleges that the
vehicles did not meet certain performance specifications and an unspecified
amount in damages is sought. The Company does not concur with the suit's claims
and intends to vigorously defend the suit.
Item 2. Changes in Securities and Use of Proceeds
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 twelve percent (12%) 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 October 31, 1999, the principal due under the notes have not
been paid, causing an event of default under the terms of the notes. During
1999, the Company's President acquired this debt and subsequently forgave all of
the accrued interest to July 31, 1999 and $1,300,000 of the principal. The
remaining principal balance of this note is $1,700,000 at October 31, 1999. As
of December 15, 1999, 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 December 15, 1999, 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 December 15, 1999, the holder of the notes had not
yet exercised any of its remedies with respect to the notes.
16
<PAGE>
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 twelve percent (12%) 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 December 15, 1999, the principal and
accrued interest due under the notes have not been paid, causing an event of
default under the terms of the notes. During 1999, the Company's President
acquired this debt and subsequently forgave all of the accrued interest to July
31, 1999. As of December 15, 1999, 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:
None
(b) Reports on Form 8-K
The Company filed no current reports on Form 8-K during the quarter
ended October 31, 1999.
17
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
Date: December 15, 1999
U.S. ELECTRICAR, INC.
(Registrant)
/s/ Carl D. Perry
- --------------------------------------------------------------------------------
By: Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer
(Duly Authorized Officer, Principal Financial Officer and Principal
Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- --------------------------------------------------------------------------------
27 Financial Data Schedule 19
19
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<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 1,933
<SECURITIES> 0
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<ALLOWANCES> 0
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<CURRENT-ASSETS> 81
<PP&E> 1,508
<DEPRECIATION> 1,259
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<CURRENT-LIABILITIES> 5,298
<BONDS> 5,199
0
4,676
<COMMON> 71,502
<OTHER-SE> (83,735)
<TOTAL-LIABILITY-AND-EQUITY> 2,940
<SALES> 361
<TOTAL-REVENUES> 361
<CGS> 226
<TOTAL-COSTS> 226
<OTHER-EXPENSES> 406
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> (463)
<INCOME-TAX> 0
<INCOME-CONTINUING> (379)
<DISCONTINUED> 0
<EXTRAORDINARY> 123
<CHANGES> 0
<NET-INCOME> (241)
<EPS-BASIC> (0.001)
<EPS-DILUTED> (0.001)
</TABLE>
