UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(_x_) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 1996
or
(__) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From __________ To _________.
Commission File No. 0-25184
U.S. ELECTRICAR, INC.
---------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3056150
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
5 Thomas Mellon Circle, Suite 305, San Francisco, CA 94134
----------------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code: (415) 656-2400
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 12, 1996, there were 70,662,488 shares of Common Stock, no par value,
outstanding.
Exhibit Index appears on Page 21.
Page 1/63
INDEX
U.S. ELECTRICAR, INC.
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets:
July 31, 1995 and April 30, 1996................................................................3
Consolidated Statements of Operations:
Three and Nine months ended April 30, 1995 and 1996.............................................4
Consolidated Statements of Cash Flows:
Nine months ended April 30, 1995 and 1996.......................................................5
Notes to Consolidated Financial Statements:
for the Three and Nine months ended April 30, 1995 and 1996.....................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................17
Item 2. Changes in Securities..........................................................................17
Item 3. Defaults upon Senior Securities................................................................17
Item 4. Submission of Matters to a Vote of Security Holders............................................17
Item 5. Other Information..............................................................................18
Item 6. Exhibits and Reports on Form 8-K...............................................................18
SIGNATURE ...............................................................................................19
Exhibit Index ...............................................................................................20
Page 2/63
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. ELECTRICAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
As of As of
July 31, 1995 April 30, 1996
-------------- ---------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 319 $ 1,810
Accounts receivable, net of allowances of $503 and $672 1,364 976
Inventory 4,832 2,321
Prepaids and other current assets 375 138
-------------- ---------------
Total Current Assets 6,890 5,245
PROPERTY, PLANT AND EQUIPMENT - NET 3,112 990
INTANGIBLE ASSETS - NET 29
OTHER ASSETS 199 451
-------------- ---------------
TOTAL ASSETS $ 10,230 $ 6,686
============== ===============
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 11,082 $ 3,523
Accrued payroll and related expense 410 526
Accrued warranty expense 1,358 1,339
Reserve for lease obligations 770 156
Accrued Interest 1,378 2,732
Other accrued expenses 1,086 1,128
Customer deposits 763 445
Bonds and notes payable 17,370 14,208
-------------- ---------------
Total Current Liabilities 34,217 24,057
LONG TERM DEBT 8,898
ROYALTIES PAYABLE 773
SHAREHOLDERS' (DEFICIT):
Series A preferred stock - No par value; 30,000,000
shares authorized; 6,275,000 and 4,688,000 shares
issued and outstanding at 7/31/95 and 4/30/96 5,148 3,565
Series B preferred stock - No par value; 5,000,000 shares
authorized; 1,507,000 issued and outstanding at 4/30/96 3,015
Stock notes receivable (987) (1,043)
Common Stock - No par value; 300,000,000 shares authorized;
55,223,000 and 70,053,000 shares issued and outstanding
at 7/31/95 and 4/30/96 38,715 43,728
Accumulated deficit (67,636) (75,534)
-------------- ---------------
Total Shareholders' (Deficit) (24,760) (26,269)
-------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 10,230 $ 6,686
============== ===============
<FN>
Note: The balance sheet at July 31, 1995 has been derived from the audited financial statements at that date.
See notes to consolidated financial statements.
</FN>
3
U.S. ELECTRICAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except for per share and share data)
Three Months Ended April 30, Nine Months Ended April 30,
-------------------------------- ------------------------------
1995 1996 1995 1996
--------------- --------------- -------------- --------------
NET SALES $ 897 $ 478 $ 10,794 $ 3,489
COST OF SALES 3,209 1,571 18,298 5,060
--------------- --------------- -------------- --------------
GROSS MARGIN (2,312) (1,093) (7,504) (1,571)
--------------- --------------- -------------- --------------
OTHER COSTS AND EXPENSES:
Research & development 1,080 413 6,057 1,129
Selling, general & administrative 4,248 2,503 13,042 5,186
Interest and financing fees 1,708 453 5,417 1,366
Impairment of long-lived assets 894 894
Provision for facility closures,
liquidation of inventory,
consolidation of operations
& contract terminations 2,594 5,372
--------------- --------------- -------------- --------------
Total other costs and expenses 9,630 4,263 29,888 8,575
--------------- --------------- -------------- --------------
LOSS BEFORE GAIN ON DEBT
RESTRUCTURING (11,942) (5,356) (37,392) (10,146)
GAIN ON DEBT RESTRUCTURING 1,858 2,248
--------------- --------------- -------------- --------------
NET LOSS $ (11,942) $ (3,498) $ (37,392) $ (7,898)
=============== =============== ============== ==============
PER COMMON SHARE:
Loss before gain on debt
restructuring $ (0.63) $ (0.09) $ (2.08) $ (0.17)
Gain on debt restructuring 0.03 0.04
--------------- --------------- -------------- --------------
Net loss per common share $ (0.63) $ (0.06) $ (2.08) $ (0.13)
=============== =============== ============== ==============
WEIGHTED AVERAGE SHARES
OUTSTANDING 18,933,774 62,665,378 17,953,724 58,803,907
4
U.S. ELECTRICAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended April 30
--------------------------
1995 1996
------------ -----------
OPERATIONS
Net loss $(37,392) $ (7,898)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and Amortization 5,887 1,014
Change in allowance for doubtful accounts 677 170
Provision to reduce inventory values 3,145 (1,100)
Provision for facilities closure, consolidation of operations
and contract terminations 3,239
Provision for impairment of long lived assets 894
Loss on disposal of assets 246
Stock issued for services 186
Stock option compensation 634
Interest income on stock notes receivable (62) (60)
Royalties payable 35 (773)
Change in operating assets and liabilities:
Accounts Receivable 126 219
Inventory (1,561) 3,610
Prepaids and other assets 756 (15)
Accounts payable and accrued expenses, net of
debt restructuring 8,593 426
Customer deposits (810) (319)
------------ -----------
Net cash (used) by operating activities (16,547) (3,586)
------------ -----------
INVESTING:
Purchases of property, plant and equipment, net of disposals (735)
------------ -----------
Net cash (used) provided by investing activities (735)
------------ -----------
FINANCING:
Payments on notes payable (264) (40)
Borrowings on notes payable 2,197 2,388
Borrowings on bonds 12,000
Bond issuance costs (1,860)
Proceeds from issuance of common stock 2,701
Exercise of options and warrants 158 28
------------ -----------
Net cash provided by financing activities 12,231 5,077
------------ -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (5,051) 1,491
CASH AND EQUIVALENTS:
Beginning of period 5,327 319
------------ -----------
End of period $ 276 $ 1,810
============ ===========
5
U.S. ELECTRICAR, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
(In thousands)
NINE MONTHS ENDED APRIL 30,
---------------------------
1995 1996
----------- ----------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Series A preferred stock to common stock $ 1,792 $ 1,583
Conversion of Series S bonds to common stock 701
Value of warrants issued in connection with convertible bonds 1,920
Issuance of common stock for notes receivable 28
Preferred Stock issued in connection with debt restructuring 3,015
Notes payable issued in connection with debt restructuring 4,017
6
U. S. ELECTRICAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
For the Three and Nine Months Ended April 30, 1995 and 1996
NOTE 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared from the
records of the Company without audit, and in the opinion of management, include
all adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position at April 30, 1996; the interim results of
operations for the three and nine month periods ended April 30, 1995 and 1996;
and cash flows for the nine month periods then ended. The balance sheet at July
31, 1995, 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, 1995 and
April 30, 1996 inventories are reported at market value. The inventory valuation
adjustments are estimates based on sales of inventory subsequent to July 31,
1995, and the projected impact of certain economic, marketing and business
factors. Warranty reserves and certain accrual expenses are based upon on
analyses 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, 1995. 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, 1995, 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.
Effective with fiscal 1996, the Company adopted FASB No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of"
and, accordingly, reduced the carrying values of assets used for the manufacture
of off-road industrial vehicles to estimated fair values in connection with the
curtailment of the manufacture and sale of such vehicles during the quarter.
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 $67,636,000 at July 31, 1995
and $75,534,000 at April 30, 1996. A substantial portion of the losses are
attributable to product development and high start-up costs incurred in
connection with the Company's activities related to the development, manufacture
and sale of battery powered electric vehicles, including buses, small delivery
vehicles and off-road industrial vehicles, and the conversion of gas powered
cars and light trucks to electric power.
7
U. S. ELECTRICAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
During the three years ended July 31, 1995, the Company obtained approximately
$42 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 the nine months ended April 30,
1996, the Company raised an additional $2.4 million through the issuance of
secured convertible debt and $2.7 million through sales of unregistered common
stock.
Through April 1996, the Company had obtained settlements for $11.3 million of
approximately $14 million of unsecured trade debt obligated prior to March 18,
1995. Most of this debt was settled as part of an initial closing of the
Company's Debt Restructuring Plan. In connection with this closing, the Company
issued $781,000 of three year and $3.2 million of 20 year promissory notes and
1.5 million shares of Series B Preferred Stock valued at $3.0 million. The
Company also paid $249,000 to the unsecured creditors who agreed to accept the
20 year promissory note as part of the settlement for their claims. In addition,
the Company obtained one year extensions to March 25 and April 17, 1997 of the
maturities of $13.0 of convertible debt.
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
June 12, 1996, however, the Company had no firm commitments to provide
significant additional financing to the Company.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. Cash flows from operations for the
foreseeable future may not be sufficient to enable the Company to meet its
obligations. Market conditions and the Company's financial position may inhibit
its ability to achieve profitable operations.
These factors as well as the future availability or inadequacy of financing to
meet future needs, could force the Company to delay, modify, suspend or cease
some or all aspects of its planned operations, and/or seek protection under
applicable state and federal bankruptcy and insolvency laws.
NOTE 3 - Inventories
Inventories are comprised of the following (in thousands):
July 31, April 30,
1995 1996
----------- -----------
(unaudited)
Finished goods $ 2,503 $ 1,132
Work-in-process 1,566 601
Raw materials 4,007 2,733
Valuation adjustment (3,244) (2,145)
----------- -----------
$ 4,832 $ 2,321
=========== ===========
8
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):
July 31, April 30,
1995 1996
------------- ------------
(unaudited)
Series S secured convertible bonds, interest at 10%, principal and interest due
March 25, 1997, secured by personal property of the parent Company. $ 8,500 $ 7,870
Convertible subordinated note - ITOCHU Corporation, interest at prime rate,
principal and interest due June 10, 1997, unsecured. 4,880 4,880
Convertible secured notes under a Supplemental Loan Agreement with ITOCHU
Corporation, interest at 10%, principal and interest due April 17, 1997, secured
by the personal property of the parent Company. 1,856 3,000
Series I secured convertible bonds, interest at 10%, principal and interest due
March 25, 1997, secured by the personal property of the parent Company. 1,000 2,144
Convertible secured note, interest at 9% payable quarterly, principal due
January 31, 1997, secured by certain machinery and equipment of acquired
subsidiary, Industrial Electric Vehicles, Inc. 982 979
Secured promissory note - Credit Managers Association of America ("CMAC") as
exclusive agent for the Non-Qualified Creditors, interest at 3%, principal and
interest due April 22, 1999, secured with an interest in a sinking fund escrow
held by CMAC. 249
Secured subordinated promissory note - CMAC as exclusive agent for the Qualified
Creditors, interest at 3%, principal and interest due April 22, 1999, secured
with an interest in a sinking fund escrow held by CMAC. 532
Secured subordinated promissory note - CMAC as exclusive agent for the
Non-Qualified Creditors, interest at 3% for five years, 6% for two years and
prime rate plus 3% for thirteen years, principal and interest due April 22,
2016, secured with an interest in a sinking fund escrow held by CMAC. 3,237
9
U. S. ELECTRICAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4 - Notes and Bonds Payable, Long-term Debt and Other Financing
(Continued)
July 31, April 30,
1995 1996
-------------- ---------------
(unaudited)
Other 152 215
-------------- ---------------
Total notes and bonds payable 17,370 23,106
Less current portion 17,370 14,208
-------------- ---------------
Total long-term debt $ -0- $ 8,898
============== ===============
In August 1995, the Company issued $1,144,000 of Series I secured convertible
bonds and received a matching $1,144,000 from Itochu Corporation pursuant to a
Supplemental Loan Agreement dated April 13, 1995 between Itochu and the Company,
whereby Itochu agreed to lend to the Company amounts equal to funds the Company
receives from other outside lenders or investors up to a maximum of $3,000,000.
Itochu had previously loaned the Company $1,856,000 under this agreement during
the year ended July 31, 1995.
In April 1996, the Company issued two promissory notes due April 22, 1999, for
$249,000 and $532,000 and one promissory note due April 22, 2016 for $3,237,000
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.
The Company has not paid six interest payments due quarterly from January 31,
1995 through April 30, 1996 totaling approximately $133,000 causing an event of
default on the convertible secured note issued in connection with the
acquisition of Industrial Electric Vehicles, Inc. (formerly Nordskog Electric
Vehicles, Inc.). As of June 12, 1996, the note holder has not yet exercised 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 has been
classified as a current liability as of July 31, 1995 and April 30, 1996 due to
the event of default.
10
ITEM 2. 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") develop,
convert, assemble, manufacture and distribute battery-powered electric vehicles,
including on-road pick-up trucks, passenger cars, buses and delivery vehicles,
and a variety of off-road industrial vehicles. The Company's product lines
include converted vehicles (originally built to be powered by internal
combustion engines) and vehicles that are built specifically to be battery
powered. The Company's fiscal year ends July 31. All year references refer to
fiscal years.
During 1994 and the first half of 1995, the Company's approach to its business
was intended to establish manufacturing, marketing and support functions of a
large scale company so that the transition from development and prototype
activities to volume production of on-road electric vehicles could be made as
quickly as possible once component parts design, systems integration and
assembly processes were developed. The Company raised approximately $38 million
to fund its activities during this period. However, the Company was not able to
achieve volume production primarily because the development of such designs and
processes was not completed prior to the Company's capital becoming severely
depleted, which occurred in the second half of 1995. The Company incurred losses
totaling $62,586,000 during 1994 and 1995 and $7,898,000 during the first nine
months of 1996.
The Company was forced to severely curtail its operations in the second half of
1995 due to a lack of funds. Certain facilities were closed, operations were
consolidated and major contracts were terminated. The Company initiated programs
to restructure its debt and raise interim funding which continued through the
first nine months of 1996.
During the first nine months of 1996, the Company restructured most of its debt
and raised approximately $5 million in interim funding. However, its operations
continued to be impacted by an insufficient amount of funds to adequately
support its planned sales volumes and product development programs. In the third
quarter of 1996, the Company curtailed the manufacture and sale of off-road
industrial vehicles and reduced the carrying values of the assets associated
with this product line.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant recurring cash flow shortages due to
operating losses. Cash flows from operations have been extremely negative and
have not been sufficient for the Company to meet its obligations as they came
due. The Company has therefore had to raise funds through numerous financial
transactions and from various resources. At least until the Company reaches
break-even volume in sales and develops and/or acquires the capability and
technology necessary to manufacture and sell its electric vehicles profitably,
it will need to continue to rely extensively on cash from debt and equity
financing. The Company
11
anticipates that it will require substantial additional outside financing for at
least the next two fiscal years.
During the nine months ended April 30, 1996, the Company spent $3,586,000 in
cash on operating activities to fund the net loss of $7,898,000 resulting from
factors explained in the following section of this discussion and analysis. In
addition, during the third quarter of 1996, the Company used $335,000 for
advances on the purchase of certain intellectual property assets. Inventories
declined during the nine months ended April 30, 1996 by approximately $2.5
million primarily as a result of the Company's efforts to reduce its inventory
of converted sedans and light trucks, and its inability to replenish stocks of
raw material needed for current production due to a chronic shortage of
available funds.
The operations of the Company during the nine months ended April 30, 1996 were
financed primarily by $1,144,000 received from the issuance of Series I secured
convertible bonds, a matching $1,144,000 received from Itochu Corporation
pursuant to a Supplemental Loan Agreement dated April 13, 1995 and $2.7 million
received from sales of unregistered common stock under Regulation S. In
accordance with the Supplemental Loan Agreement, Itochu agreed to lend to the
Company amounts under secured convertible notes equal to funds the Company
receives from other outside lenders or investors up to a maximum of $3,000,000.
Itochu had previously loaned the Company $1,856,000 under this Agreement during
the preceding fiscal year.
The Company has not paid six interest payments due quarterly from January 31,
1995 through April 30, 1996 totaling approximately $133,000 causing an event of
default on the convertible secured note issued in connection with the
acquisition of Industrial Electric Vehicles, Inc. (formerly Nordskog Electric
Vehicles, Inc.). As of June 12, 1996, the note holder has not yet exercised any
of its remedies with respect to acceleration of the principal and interest nor
the collateral securing this note. However, discussions have been initiated
regarding a restructuring of this debt.
During 1995, the Company, the holders of its Series S and Series I secured
convertible bonds and Itochu Corporation entered into agreements to restructure
approximately $22 million of convertible debt. In July 1995, $8,200,000 of this
debt was converted to common stock at $0.30 per share. Maturity dates of much of
this debt were set or reset for either March 25 or April 17, 1996, and the
conversion rate to acquire common stock for most of this debt was established at
$0.30 per share. They also agreed that conversion of the remaining debt shall
occur upon (1) the Company's election after a Debt Restructuring Plan has been
accepted by the Company's unsecured creditors holding 80% or more of the
Company's unsecured trade debt, or (2) Itochu's sole election to cause
conversion of this debt. In March 1996, the maturity dates of the Series S and
Series I bonds were extended to March 25, 1997 and the maturity dates of the
convertible secured notes due Itochu were extended to April 17, 1997.
During 1995, the Company fell behind significantly in its payments to suppliers
and other creditors due to a chronic shortage of cash. In March 1995, an
unofficial Creditors Committee under the auspices of the Credit Managers
Association of California ("CMAC") was established to represent the interests of
the unsecured creditors in structuring a workout of trade debt incurred before
March 18, 1995 ("Debt Restructuring Plan"). In May 1995, the Company granted
CMAC, as trustee for the unsecured creditors of the Company whose claims arose
prior to March 18, 1995, a security interest in certain collateral of the
Company.
At the Annual Meeting of Shareholders held in February 1996, the Company's
shareholders gave approval for an increase in the number of authorized shares of
12
common stock to 300 million and for authorization of a new series of preferred
stock needed for its Debt Restructuring Plan.
Through April 1996, the Company had obtained settlements for $11.3 million of
approximately $14 million of unsecured trade debt obligated prior to March 18,
1995. Most of this debt was settled as part of an initial closing of the
Company's Debt Restructuring Plan. In connection with this closing, the Company
issued $781,000 of three year and $3.2 million of 20 year promissory notes and
1.5 million shares of Series B Preferred Stock valued at $3.0 million. The
Company also paid $249,000 to the unsecured creditors who agreed to accept the
20 year promissory note as part of the settlement for their claims. In addition,
during the twelve months prior to the initial closing of the Debt Restructuring
Plan, the Company had paid $284,000 to certain unsecured creditors in full
settlement of their claims.
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
June 12, 1996, however, the Company had no firm commitments to provide
significant additional financing to the Company.
IF THE COMPANY IS UNABLE TO COMPLETE THE VOLUNTARY RESTRUCTURING OF 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.
IN ADDITION, SIGNIFICANT ADDITIONAL FUNDING WILL BE NEEDED DURING THE REMAINDER
OF 1996 AND IN 1997 AND 1998. AS OF JUNE 12, 1996, 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 declined $419,000, or 47%, in the third quarter of 1996 from the third
quarter of 1995 and declined $7,305,000, or 68%, in the first nine months of
1996 from the first nine months of 1995. These declines in sales in the periods
reported for 1996 were primarily due to the Company's inability to raise the
funds necessary to support its operations at levels comparable to the
corresponding periods of 1995.
The largest decline occurred in the converted sedan and light truck product line
where there were no unit sales of vehicles in the third quarter of 1996;
however, there was revenue of $108,000 (principally due to activities under long
term contracts) in the third quarter of 1996, down 69% from the same quarter of
1995. Unit sales of vehicles for the first nine months of 1996 were 38 compared
with 177 in the same period of 1995. Revenue from this product line was
$1,494,000 in the first nine months of 1996, down 80% from the corresponding
period of 1995. There were no sales of buses in the third quarter of 1996
compared with the sale of one bus in
13
the third quarter of 1995. There were sales of two buses in the first nine
months of 1996 for $284,000, down 54% from sales of five buses for $616,000 in
the first nine months of 1995. Sales of off-road industrial vehicles and
associated parts and service were $370,000 in the third quarter of 1996, down
24% from the same quarter of 1995, and sales of off-road industrial vehicles and
associated parts and service were $1,711,000 in the first nine months of 1996,
down 39% from the corresponding period of 1995. During the third quarter of
1996, the Company curtailed the manufacture and sale of off-road industrial
vehicles.
Cost of sales as a percent of sales decreased slightly to 328.7% in the third
quarter of 1996 from 357.7% in the third quarter of 1995 and cost of sales as a
percent of sales decreased to 145.0% in the first nine months of 1996 from
169.5% in the same period of 1995. These improvements in cost of sales as a
percent of sales for the periods in 1996 compared with the same periods in 1995
were primarily due to lower costs associated with the converted sedans and light
trucks and with buses. Most of these vehicles sold in the first nine months of
1996 were produced in prior periods and placed in inventory at estimated net
realizable values. The manufacturing costs in excess of estimated net realizable
values were expensed in prior periods. Cost of sales in the third quarter of
1996 included a charge of $600,000 to increase reserves for inventories of
off-road industrial vehicles in connection with the curtailment of the
manufacture and sale of such vehicles.
Research and development expense in the third quarter of 1996 declined $667,000,
or 62%, from the third quarter of 1995 and declined $4,928,000, or 81%, in the
first nine months of 1996 from the first nine months of 1995 as a result of a
substantial reduction by the Company of its technical resources. Following the
end of the first half of 1995, the Company reduced its engineering staff and
decreased its purchasing of technical services due to a severe lack of funds.
Selling, general and administrative expense in the third quarter of 1996
declined $1,745,000, or 41%, from the third quarter of 1995 and declined
$7,856,000, or 60%, in the first nine months of 1996 from the first nine months
of 1995 primarily as a result of significant reductions in selling, marketing
and administrative staff and in the purchasing of various outside services and
travel due to the aforementioned lack of funds.
Interest and financing fees in the third quarter of 1996 declined $1,255,000, or
73%, from the third quarter of 1995 and declined $4,051,000, or 75%, in the
first nine months of 1996 from the first nine months of 1995. Interest and
financing fees in the third quarter of 1995 included $1,170,000 and in the first
nine months of 1995 included $3,780,000 of amortized fees associated with the
issuance of $12,000,000 of Series S secured convertible bonds in September 1994.
There was no amortization of fees associated with these bonds in the third
quarter and first nine months of 1996 as all of the fees were fully amortized by
March 1995, the original maturity date of the bonds.
The Company adopted FASB No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of" effective in 1996. During
the third quarter of 1996, the Company reduced the carrying values of certain
long-lived assets to their estimated fair values in connection with the
curtailment of the manufacture and sale of off-road industrial vehicles. This
reduction resulted in a charge to operations of $894,000 in the current quarter
for the impairment of long-lived assets.
The third quarter of 1995 included a provision of $2,594,000 and the first nine
months of 1995 included a provision of $5,372,000 for facility closures,
consolidation
14
of operations and contract termination's as a result of the Company's decision
to close many of its facilities and cancel several contracts due to a severe
lack of funds.
In connection with the settlement of $11.3 million of unsecured trade debt under
the Company's Debt Restructuring Plan, several unsecured creditors agreed to
settle their claims for amounts less than original debt owed to them. The
reductions from the original amounts owed and the settlement amounts resulted in
a gain on debt restructuring of $2,248,000 in the first nine months of 1996, of
which $1,858,000 was recorded in the third quarter when the Company completed
the initial closing of its Debt Restructuring Plan.
As a result of the forgoing changes in net sales, cost of sales, other costs and
expenses and gain on debt restructuring, the net loss decreased $8,440,000, or
71%, from $11,942,000 in the third quarter of 1995 to $3,498,000 in the third
quarter of 1996, and the net loss decreased $29,494,000, or 79%, from
$37,392,000 in the first nine months of 1995 to $7,898,000 in the first nine
months of 1996.
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-Q, 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, use of cash from operations and had an accumulated deficit of
$75,534,000 at April 30, 1996. 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 12, 1996,
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, 1993, 1994 and 1995, the
Company had substantial net losses of $2,607,000, $25,021,000 and $37,565,000,
respectively, on sales of $863,000, $5,787,000 and $11,625,000, respectively.
Through the first nine months of fiscal 1996, the Company lost an additional
$7,898,000 on sales of $3,489,000.
NATURE OF INDUSTRY. The electric vehicle ("EV") industry is in its infancy.
Although the Company believes that it has manufactured more electric vehicles
than any other company in the United States based upon its own knowledge of the
industry, there are many large and small companies, both domestic and foreign,
15
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 (i) have produced design-concept electric vehicles, and/or (ii)
have developed improved electric storage, propulsion and control systems, and/or
(iii) and 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)
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.
CHANGED LEGISLATIVE CLIMATE. Because vehicles powered by internal combustion
engines cause pollution, there has been significant public pressure in Europe
and Asia, and enacted or pending legislation in the United States at the federal
level and in certain states, to promote or mandate the use of vehicles with no
tailpipe emissions ("zero emission vehicles") or reduced tailpipe emissions
("low emission vehicles"). Legislation requiring or promoting zero emission
vehicles is necessary to create a significant market for electric vehicles.
There can be no assurance, however, that further legislation will be enacted or
that current legislation or state imposed mandates will not be repealed or
amended (as recently occurred in California), or that a different form of zero
emission or low emission vehicle will not be invented, developed and produced,
and achieve greater market acceptance than electric vehicles. Extensions,
modifications or reductions of current federal and state legislation, mandates
and potential tax incentives could adversely affect the Company's business
prospects if implemented.
16
PART 11. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No litigation matters were filed against the Company during the three
month period ending April 30, 1996. See Item 5 below.
ITEM 2. CHANGES IN SECURITIES
The Company has authorized five (5) million shares of a new series of
preferred stock designated as Series B Convertible Preferred Stock ("Series B").
Series B has rights, preferences and privileges senior to the Series A Preferred
Stock and Common Stock of the Company. For a full description of the Series B,
see Exhibit 3.15, Restated and Amended Articles of Incorporation of U.S.
Electricar, Inc., a copy of which is attached hereto and made a part of this
filing by this reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Nordskog: In connection with the acquisition on July 30, 1993 of Nordskog
Electric Vehicles, Inc. (since renamed Industrial Electric Vehicles, Inc.,
hereinafter "IEVI"), the Company issued a $1,000,000 secured convertible
promissory note due January 31, 1997 with interest at 9% payable quarterly (the
"Nordskog Note"). The Nordskog Note is secured by certain machinery and
equipment owned by IEVI. Six quarterly interest payments of $23,000 due on each
of January 31, April 30, July 31, October 31, 1995, and January 31 and April 30,
1996, have not been paid and remained unpaid at June 14, 1996 causing an event
of default under the Nordskog Note. As a result of the event of default, the
holder of the Nordskog Note may, at its option, and upon written notice, declare
the principal balance of the Nordskog Note, together with accrued interest
thereon, to be due and payable immediately. As of June 12, 1996, the holder of
the Nordskog Note has not yet exercised this option or given such written notice
to the company, nor has the holder exercised any of its remedies with respect to
the collateral securing the Nordskog Note.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held February 23, 1996.
The following matters were voted upon at the annual meeting.
A. To approve an amendment to the Company's Articles of Incorporation to
increase the authorized number of shares of common stock issuable by
the Company from 100,000,000 to 300,000,000. The results of the voting
were as follows:
Number of common shares voted FOR 39,788,716
Percentage of common shares voted FOR1: 65.5%
Number of Series A Preferred Shares voted FOR 2,934,683
Percentage of Series A shares voted FOR1 55.5%
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- - -------------------------------
1 Based on total number of shares outstanding as of the record date.
B. To approve an amendment to the Company's Articles of Incorporation to
authorize the issuance of Series B Convertible Preferred stock. The
results of the voting were as follows:
Number of common shares voted FOR 37,409,794
Percentage of common shares voted FOR1: 61.6%
Number of Series A Preferred Shares voted FOR 2,900,874
Percentage of Series A shares voted FOR1 54.9%
C. To provide authorization for the Board of Directors to effect a reverse
stock split of the company's common stock in a ratio of up to
one-for-twenty, at any time until the next annual meeting of
shareholders. The results of the voting were as follows:
Number of common shares voted FOR 39,151,561
Percentage of common shares voted FOR1: 64.6%
Number of Series A Preferred Shares voted FOR 2,915,282
Percentage of Series A shares voted FOR1 55.2%
E. Election of seven (7) directors of the Company, each to serve until the
next annual meeting of shareholders or until their respective
successors are elected and qualified. The results of the voting were as
follows:
Each director received an affirmative vote of over 53% of the total
number of shares outstanding.
F. To approve an amendment to the Company's 1993 Employee and Consultant
Stock Plan (the "Plan") to increase the number of shares of common
stock authorized for grant under the terms of the Plan from 15,000,000
to 30,000,000. The results of the voting were as follows:
Number of common and Series A shares voted FOR 41,239,894
Percentage of common and Series A shares voted FOR1: 91.7%
G. To ratify the selection of Moss Adams LLP as independent auditors of
the Company for the fiscal year ended July 31, 1996. The results of the
voting were as follows:
Number of common and Series A shares voted FOR 44,615,671
Percentage of common and Series A shares voted FOR1: 99.1%
ITEM 5: OTHER INFORMATION.
On May 20, 1996, a suit was filed by a shareholder against the
Company, one of its former officers, and a third party individual in the San
Francisco Superior Court. The suit alleges that the individual made fraudulent
and negligent misrepresentations to induce the shareholder to purchase shares of
Company stock for $100,000; that the former officer concealed material facts
from the shareholder; and that defendants (including the Company) all breached
fiduciary duties to the shareholder. The complaint seeks compensatory damages,
punitive damages, attorneys fees and costs, and other relief. The Company has
not yet responded to the complaint; however, the Company believes the
allegations against it are without merit, and the Company intends to seek
dismissal of such claims.
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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits: The exhibits listed on the accompanying Exhibit
Index are filed or incorporated by reference as part of this report and
such Exhibit Index is hereby incorporated herein by reference.
(b) Reports on Form 8-K: Not applicable. The Company did not
file any reports on Form 8-K during the three months ended April 30,
1996
[This space intentionally left blank.]
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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.
U.S. ELECTRICAR, INC.
(Registrant)
/s/ Roy Y. Kusumoto
- - ---------------------------------
By: Roy Y. Kusumoto
Chief Executive Officer, President and Acting Chief Financial Officer
(Principal executive officer and principal financial and accounting
officer)
Date: June 12, 1996
[Exhibit Index follows.]
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EXHIBIT INDEX
Exhibit No. Description Page No.
- - -------------------------------------------------------------------------------------------------------------------
3.15 Restated and Amended Articles of Incorporation of
U.S. Electricar filed March 18, 1996 22
10.93 Regulation S Common Stock Subscription Agreement
dated May 1, 1996, with Gerlach & Co. 34
11. Statement re computation of per share earnings [losses] 62
27. Financial Data Schedule 63
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