SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1996
Commission File Number 0-25184
U. S. ELECTRICAR, INC.
(Exact name of registrant as specified in its charter)
California 95-3056150
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5 Thomas Mellon Circle, San Francisco, California 94134
(Address of principal executive offices, including zip code)
(415) 656-2400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of November 5, 1996 was $8,465,402. For purposes of this
calculation only, (i) shares of Common Stock and Series A and B Preferred Stock
are deemed to have a market value of $0.27 per share, the average of the high
bid and low ask prices of the Common Stock on November 5, 1996, and (ii) each of
the executive officers, directors and persons holding 5% or more of the
outstanding Common Stock (including Series A and B Preferred Stock on an as
converted basis) is deemed to be an affiliate.
The number of shares of Common Stock outstanding as of November 5, 1996 was
127,168,477.
Documents Incorporated By Reference:
Part III of this Report incorporates information by reference from the
definitive Proxy Statement for the registrant's annual meeting of shareholders
to be held in February, 1997.
U.S. ELECTRICAR, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business ......................................................... 3
Item 2. Properties ....................................................... 12
Item 3. Legal Proceedings ................................................ 12
Item 4. Submission of Matters to a Vote of Security Holders............... 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 13
Item 6. Selected Financial Data........................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 15
Item 8. Financial Statements and Supplementary Data....................... 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................... 19
PART III
Item 10. Directors and Executive Officers of the Registrant................ 20
Item 11. Executive Compensation............................................ 20
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 20
Item 13. Certain Relationships and Related Transactions.................... 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 21
SIGNATURES ................................................................ 22
The matters addressed in this report on Form 10-K , with the exception of the
historical information presented, may incorporate certain forward-looking
statements involving risks and uncertainties, including the risks discussed
under the heading "Certain Factors That May Affect Future Results" in the
Management's Discussion and Analysis section and elsewhere in this report.
2
Item 1. Business
General
U.S. Electricar, Inc. (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.
Beginning in fiscal year 1994, the Company focused almost exclusively
on the development, manufacture and distribution of battery powered electric
vehicles on a large production scale. A significant portion of the Company's
marketing and sales efforts for on-road electric vehicles (including sedans and
light trucks) in fiscal 1994 and 1995 focused primarily on altering (commonly
referred to as "converting" or "retrofitting") specific internal combustion
vehicles to run on electric battery power for fleet operators. This market
strategy was designed to avoid direct competition with major automobile
manufacturers in the consumer markets. The Company devoted significant attention
toward developing or acquiring technology necessary for this evolving business.
In addition, through one of the Company's wholly-owned subsidiaries, the Company
manufactured and sold a broad line of off-road industrial vehicles and produced
and marketed electric powered on-road buses.
In March 1995, the Company experienced a severe cash shortage due to a
failure to obtain additional anticipated capital funding. In response to this
lack of funding, the Company initiated steps to restructure its organization and
operations in an effort to stabilize and improve the Company's financial
condition. After March 1995, the Company focused its resources on the production
of off-road industrial vehicles and on-road buses. The Company continues
re-evaluating all aspects of its business, including each of its product lines,
in view of its capital constraints as well as competitive market conditions.
During 1996, the Company restructured most of its debt and raised
approximately $5,300,000 in additional funding. Certain facilities were closed,
operations were consolidated and major contracts were terminated. Despite the
additional funding in 1996, the Company's 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. In September
1996, the Company disposed of a substantial portion of the assets and properties
of the Company's wholly-owned subsidiary, Industrial Electric Vehicles, Inc. In
October 1996, the Company acquired the assets of Systronix Corporation, a
developer of fully integrated propulsion systems and related components for
electric vehicles.
Debt Restructuring
In March 1995, as a result of the Company's insolvency, the Company
entered into agreements in March and April 1995 with the holders of its Series S
and Series I secured convertible Bonds and with Itochu Corporation, to
restructure this debt in the aggregate amount of approximately $22 million. The
Company, Itochu and the holders of more than 75% of the outstanding principal
under the Series S Bonds agreed to add the unpaid interest to principal, reset
the maturity dates of the Series S Bonds and Itochu's note to March and April
1996, respectively, and for most of the debt establish a new conversion rate to
common stock of $0.30 per share. They also agreed that conversion shall occur
upon (1) a restructuring/repayment workout plan accepted by the Company's
unsecured creditors holding 80% or more of the Company's unsecured trade debt,
which plan has been approved by the Company, 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. In June 1996, following
satisfaction of the conditions precedent to such conversion as discussed below,
approximately $13,000,000 of the Series S Bonds and Itochu secured notes were
converted into the Company's common stock at $.30 per share.
In April 1995, an informal committee of the Company's unsecured trade
creditors was established, and in August 1995, this committee recommended for
approval a voluntary restructuring of the Company's unsecured debt existing as
of March 17, 1995. The terms of the restructuring plan were presented to all of
the unsecured creditors in the second quarter of 1996 for their review and
acceptance or rejection. The shareholders of the Company approved the issuance
of the Company's Series B Preferred Stock in furtherance of this restructuring
at the Company's annual shareholders meeting held in February 1996. As of
February, 1996, the aggregate amount of the Company's outstanding unsecured
debt, including principal and interest, was approximately $14,000,000, and there
were approximately 600 unsecured creditors of the Company.
3
The unsecured debt restructuring plan divided the creditors into two
classes. Creditors are members of a class based on whether they qualify under
applicable securities laws to receive restricted preferred stock of the Company
in a private placement. Each creditor that did not so qualify was entitled to
receive if the creditor so elected at the closing of the restructuring (i) cash
in the amount of 10% of such creditor's debt, subject to available funds at that
time, and, to the extent funds were not available, a three year promissory note,
and (ii) a promissory note of the Company in an amount equal to 65% of its debt
(the "Large Note"). This promissory note is payable over a twenty year period,
and is secured with a "sinking fund" escrow account. The Company is required to
deposit 10% of the proceeds of all financings during the twenty year period into
the escrow account, subject to investor approval. Currently, approximately
$720,000 has been deposited by the Company into the escrow account and paid to
creditors.
Each creditor who was eligible under securities laws to receive
restricted preferred stock was entitled to receive if the creditor so elected at
the closing (i) cash in the amount of 15% of such creditor's debt, subject to
available funds at that time, and, to the extent funds were not available, a
three year promissory note, and (ii) shares of Series B Convertible Preferred
Stock ("Series B Preferred Stock") of the Company having a value equal to the
balance of its debt, at a conversion price of $2.00 per share. Each share of
Series B Preferred Stock is initially convertible into 6.66 shares of Common
Stock (subject to adjustment for stock splits, combinations, reclassifications
and the like). The Series B Preferred Stock has certain liquidation and dividend
rights prior and in preference to the rights of the Common Stock and Series A
Preferred Stock.
The Company will be required to make accelerated payments under the
promissory notes if it is able to raise additional funds from investors, but
only with the consent of such investors. In addition, the Company will not be
allowed to pay any dividends on its outstanding shares of capital stock or to
repurchase shares without the consent of a majority of the then outstanding
principal held by creditors under the Large Note. The Company's Series B
Preferred Stock shareholders have the right to elect two members to the
Company's Board of Directors.
As of October 15th, 1996, the Company had obtained settlements for
approximately $11.7 million of approximately $14 million of unsecured trade debt
obligated prior to March 18th, 1995. The Company has issued approximately
$800,000 of three year and $3.3 million of 20 year promissory notes and 1.5
million shares of Series B Preferred Stock valued at $3.2 million. As of October
15th, 1996, approximately 280 creditors representing approximately $2.5 million
in unsecured trade debt have not participated in the debt restructuring plan.
TO THE EXTENT THAT THE COMPANY IS UNABLE TO COMPLETE THE VOLUNTARY
RESTRUCTURING OR OTHERWISE REFINANCE OR CONVERT SUCH DEBT AND ADDITIONAL FUNDING
IS NOT AVAILABLE, THE COMPANY WOULD BE FORCED TO SEEK PROTECTION UNDER
APPLICABLE BANKRUPTCY AND INSOLVENCY LAWS. IN ADDITION, SIGNIFICANT ADDITIONAL
FUNDING WILL BE NEEDED THROUGHOUT FISCAL 1997 AND BEYOND TO CONTINUE OPERATIONS.
Environmental Initiatives and Legislation
United States
Following the state and federal elections in November, 1994, the
changed legislative climate in the United States resulted in extensions and
modifications to federal and state legislation which had defined the early
market for alternative fuel and zero emission vehicles. Most significantly, the
state of California decided to amend its timing for the mandated introduction of
zero emission vehicles ("ZEV"). The amendment is defined below:
4
California State Mandates for Zero-Emission Vehicles
Applicable to Large & Intermediate-Volume Vehicle Manufacturers
Percentage of Vehicle Sales Which Must be ZEV
================================================================================
Year Previous Legislation Current Legislation as Amended
- --------------------------------------------------------------------------------
1998 2% Provision for ZEV credits toward 2003
1999 2% Provision for ZEV credits toward 2003
2000 2% Provision for ZEV credits toward 2003
2001 5% Provision for ZEV credits toward 2003
2002 5% Provision for ZEV credits toward 2003
2003 10% 10%
================================================================================
The U.S. Department Of Energy ("DOE") also modified their rules governing how
state fleets and utility fleets covered by the Energy Policy Act of 1992
("EPAct") must comply with the EPAct's Alternative Fuel Transportation Program
by making certain a percentage of light-duty vehicle purchases
alternatively-fueled. Light-duty, for the purposes of the EPAct, is 8,500 lbs
Gross Vehicle Weight Rating before aftermarket conversion. The rules went into
effect on April 15, 1996 and the major revisions include:
1. A one-year shift in the statutory alternative fueled vehicle acquisition
schedules.
2. An automatic exemption to allow time for a State to apply for an obtain
approval of an Alternative State Plan for State fleets.
3. A revised definition of the statutory term "substantial portion" that omits
smaller refiners from acquisition requirements and includes large,
integrated producers and importers.
4. The addition of "neat" biodiesel to the list of "alternative fuels".
5. A provision for the allocation of credits to State government fleets and
covered fuel providers for newly-acquired medium- and heavy-duty
alternative fueled vehicles (AFV's).
A fleet is covered by the EPAct if the fleet has 50 or more light-duty vehicles,
not counting officially excluded vehicles (a category including such vehicles as
law enforcement, emergency vehicles, and non-road vehicles).
The current revised acquisition formula as follows:
================================================================================
Model Year Covered Utility/Fuel State Government
Provider Fleets Fleets
- --------------------------------------------------------------------------------
1997 30% 10%
1998 50% 15%
1999 70% 25%
2000 90% 50%
2001 90% 75%
================================================================================
The Company believes that electric vehicle technology continues to offer a
solution to achieve zero emission performance and to comply with current "clean
air" legislation implementation deadlines. Electric vehicle performance
requirements that are likely to be established will include vehicle range, load
capacity, speed and acceleration characteristics, refueling/recharging time and
operating cost per mile.
5
Relationships of Affiliated Companies
In July 1993, the Company acquired all of the outstanding capital stock
of Industrial Electric Vehicles, Inc. ("IEV"). IEV manufactured a broad line of
off-road industrial electric vehicles, including three-wheeled supervisor carts,
small trucks, inventory carriers and pickers, various personnel carriers and
many other specialty type vehicles. IEV also developed and marketed a line of
on-road electric buses. Effective as of September 5th, 1996, the Company
disposed of substantially all of the assets of IEV. The assets sold included
inventory, receivables, work-in-process, parts, furniture, fixtures, machinery,
tools, tooling, supplies, computers, software, sales and marketing material, and
equipment related to the industrial business. The Company retained certain
international rights to market the industrial product line, and all rights to
continue developing and marketing on-road electric buses. The sale was made to
Legend Electric Vehicles, Inc., a California corporation. The principals of
Legend include several former employees of the Company, including the manager of
IEV.
The fixed purchase price for the assets of IEV was One Million Eighty
Thousand Dollars ($1,080,000). An additional, contingent amount not to exceed
One Hundred Seventeen Thousand Dollars ($117,000), which reflects a portion of
receivables collections, may also be paid. The fixed purchase price payment was
made as follows:
1. Buyer assumed, and was credited with, the principal amount of
$1,004,504.00 outstanding under a Promissory Note ("Note") owed by the Company
to the previous owners of the business, from whom the Company purchased the
business. The previous owners, as holders of the Note, approved the assignment
and assumption of the Note, and have released the Company from all obligations
thereunder. The Note was secured by substantially all of the assets of IEV
included in the sale transaction. The principal amount including interest
outstanding under the Note was $1,004,504.00 on the date of sale. Since July 31,
1995, the Company had been in default on payment of the Note in the principal
amount of $982,000 which constituted a portion of the purchase price for IEV's
stock.
2. Buyer agreed to assume, and was credited with, up to $88,000 of
outstanding warranty obligations for a period of twelve months on claims
submitted after the date of closing. The credit would not be reduced if actual
warranty claims are less.
Electricar International Limited ("Electricar International"), a
wholly-owned subsidiary of the Company, operates as the distribution affiliate
for the Company in certain countries, primarily countries in the Pacific Rim and
Middle East regions (the "International Countries"). Pursuant to an
International Distribution Agreement ("IDA"), the Company had granted certain
rights in the International Countries to one of the previous owners of
Electricar International with respect to the distribution of the Company's and
Electricar International's electric vehicles. On January 19th, 1996, the Company
terminated the IDA based on the insolvency of the distributor, and based on the
distributor's prior material breaches and defaults which were not cured after
receipt of written notice from the Company.
Livermore Research and Engineering Corporation ("Livermore R & E"), a
wholly-owned subsidiary of the Company based in California, has been a research
organization which has developed a comprehensive electric vehicle
crashworthiness simulation capability. Livermore R & E uses DYNA3D, a non-linear
computer generated crashworthiness testing and impact analysis software licensed
to the Company, in designing computer generated analytical models to simulate
physical crash tests on both metal and composite chassis/body systems on the
Company's vehicles. The Company has been granted a non-exclusive license to use
and modify the DYNA3D software. DYNA3D and any modifications to the software
(other than certain special-purpose technical features and add-ons designed to
improve its simulation capability for electric vehicle crashworthiness) remain
the property of the grantor of the software and may not be redistributed outside
the Company. Due to the Company's financial constraints, the activities of this
subsidiary have been suspended.
The two individuals from whom the Company purchased Livermore R & E
were the lead developers of DYNA3D, and these individuals became employees of
the Company in December 1993 to design the computer generated analytical models
for the Company's vehicles. In June 1995, these employees resigned from the
Company. The Company has continued association with these former employees
through a consulting arrangement on an as-needed basis.
6
Products
The Company's electric vehicle products presently include two converted
on-road vehicles, a Geo Prism sedan and a Chevrolet S-10 pickup truck, a
purpose-built on-road electric bus, a purpose-built light delivery truck, and
specialty off-road vehicles such as inventory carriers and pickers and various
personnel carriers.
On-Road Vehicles
The Company's existing sales of on-road electric vehicles arise
primarily from the Company's past focus on fleet niche markets. The Company's
strategy in this business was to select specific, existing, internal combustion
powered vehicles for conversion to electric power for large fleet users. The
conversion first entails a redesign of significant components of the vehicle,
including the power train and battery pack. The Company then converts these
vehicles into electric vehicles for sale to fleet users. The Company selected
Chevrolet S-10 trucks and Geo Prizm sedans for this program. As of July 31,
1996, the Company had converted and delivered to its customers approximately 210
on-road vehicles. The Company is re-evaluating its on-road conversion business
in order to determine the continued viability of this product line. The Company
currently intends, subject to available financial resources, to finish
converting and selling its existing inventory of on-road vehicles.
The Company has had discussions with several foreign manufacturers and
government entities to develop and manufacture electric vehicles pursuant to
license agreements, including a world light truck delivery vehicle, for specific
worldwide markets and applications. The focus of these potential alliances is to
develop products primarily for "in country" applications, whereby the goods
manufactured would be used in the same local and regional area in which they
were produced. The Company believes that the demand for electric vehicles in
these markets will be influenced to a large extent by further developments in
electric power infrastructure and government incentives in these markets. As of
July 31, 1996, no such ventures or products exist.
Through its IEV subsidiary, the Company produces on-road electric
buses, including a 22 passenger shuttle bus. This bus uses light-weight
composite panels to reduce weight and increase driving range. As of July 31,
1996, 22 of these buses have been sold and are presently operating.
Off-Road Vehicles
The Company's line of off-road specialty electric vehicles produced by
IEV include inventory carriers and pickers, various personnel carriers and other
electric off-road specialty type vehicles. The Company is re-evaluating this
product line in order to determine its continued viability. However, the Company
continues, subject to financial resources to develop a line of purpose-built
(OEM) vehicles (such as those used for airline ground support) for testing and
evaluation that may lead to a new product line of off-road vehicles. As of
October 15, 1996, the Company has converted 6 airport ground support vehicles as
part of a program with Southwest Airlines. In addition, the Company has also
entered into prototype production of a 1.5 ton off-road electric delivery truck
with initial marketing activities anticipated to occur in Mexico City.
Strategic Partnering And Technology Developments
The Company has also made efforts to establish third-party distribution
arrangements and align itself with various technology development companies and
electric vehicle component manufacturers to complement its own expertise in the
electric vehicle market. The Company has continued its efforts to implement a
strategy to be a "systems integrator" by attempting to establish relationships
to use other independently developed technology. The Company believes that its
competitive advantage may be its ability to identify, attract and integrate the
latest technology available to produce state of the art products at competitive
prices. The Company believes this strategy may, if successful, at least in the
near term, reduce capital and research and development expenses to the extent
other companies or organizations will fund these expenses.
The Company believes that two of the principal component technologies
relevant to a cost effective electric vehicle are the electric drive system and
the battery/charging system. It is the Company's strategy to continuously review
emerging technological developments and seek alliances with or, if sufficient
additional capital funding can be obtained, complete
7
acquisitions with companies that it perceives own the best proven technologies
for incorporation into its electric vehicles. The Company's progress and current
plans for each system are described below.
Electric Drive System
The electric drive system consists of an electric motor and electronic
controls that regulate the flow of electricity to and from the batteries (at
various voltages and amperages) to propel the vehicle. Auxiliary vehicle
functions (e.g., radio, lights, windshield wipers, etc.) are also powered by
stored electrical energy similar to that of an internal combustion drive system.
The Company presently utilizes drive systems for on-road cars and light trucks
that employ either direct current ("DC") or alternating current ("AC"). The
Company's buses and industrial vehicles presently use DC-powered drive systems.
On October 25, 1996, the Company acquired all of the assets and certain
liabilities of Systronix Corporation, located in Torrance, California. Systronix
Corporation is a development stage company which was incorporated in September,
1994, and began research and development operations in January, 1995. Its goal
was to become a leading developer of technologically advanced electric
propulsion systems for electric vehicles. As a result of the acquisition, the
Company is now in the process of validating its first propulsion system product,
the Panther(TM) 60 alternating current (AC) drive train for light duty vehicles.
Also under development is the Panther(TM) 120 system for buses and heavy duty
vehicles, and the C20(TM) offboard charging system, the first of an intended
family of rapid chargers for all sizes of electric vehicles. The aggregate
purchase price for the Systronix assets acquired by the Company include the
following terms of payment:
1. The Company was credited with the amount of $1,020,000 towards the
purchase price, which the Company had previously delivered to Systronix as a
pre-payment of the purchase price;
2. The Company delivered to Systronix a Promissory Note in the
principal amount of $829,978.39, secured by the acquired assets pursuant to a
security agreement. The Note bears interest at the rate of six percent (6% ) per
annum and is due and payable (A) on, or before, November 19, 1996 and (B) in the
amount of 45% of any additional financing received by the Company until paid in
full, whichever occurs first. IN THE EVENT SAID NOTE IS NOT PAID IN FULL AS
DISCUSSED ABOVE, SYSTRONIX HAS THE RIGHT TO RESCIND THE TRANSACTION THROUGH
FORECLOSURE ON THE ASSETS.
3. The Company delivered to Systronix a share certificate representing
2,700,000 shares of the Company's Common Stock, and to an Escrow Agent for the
benefit of Systronix under an escrow arrangement a share certificate
representing 1,100,000 shares of the Company's Common Stock;
4. The Company was credited with certain loans, trade payables and
other liabilities assumed in the approximate amount of $ 1,150,000, of which
$500,000 owed to a non-U.S. person was converted into common stock pursuant to
Regulation S at $0.30 per share in October, 1996.
5. The Company issued pursuant to Regulation S as a finder fee a
"cashless" exercise warrant for 2,000,000 shares of the Company's Common Stock.
The terms and conditions of this warrant are substantially similar to the terms
and conditions of the cashless exercise warrants discussed in Note 10 of the
Notes to the Financial Statements, page F-27, below.
6. In conjunction with this transaction, the Company has employed
substantially all of the then-existing employees of Systronix Corporation.
Pursuant to such employment, the Company has granted to these employees
qualified and non-qualified stock options under the Company's 1996 Stock Option
Plan. The options granted in the aggregate total approximately 10,400,000
options at an exercise price of $0.30 cents per share, subject to various
vesting schedules with a substantial portion of the options vesting in 6-12
months. The Plan has been approved by the Board of Directors of the Company, and
the Company anticipates presenting the Plan for shareholder approval at its next
annual meeting.
Battery/Charging System
Pursuant to a United States Department of Defense/ ARPA program, the
Company is working with numerous battery manufacturers to "beta test" their new
battery technologies. The Company believes that these new systems will allow
design advantages in battery placement, weight distribution, and car
crashworthiness. Additionally, the Company is monitoring other
8
battery innovations that may extend an electric vehicle driving range by up to
50% and permit a shorter recharging time. For electric buses, the Company has a
"switch-out battery system" that allows for battery replacement in approximately
ten (10) minutes, similar to the battery replacement on a cellular phone or
portable drill.
International Market
The Company believes that the international market for electric
vehicles could become a significant source of revenue. In addition, the Company,
in conjunction with one of its major international shareholders, has in
development, and in prototype production, a light delivery truck that the
Company believes may have broad market applications worldwide. Subject to
existing valid and enforceable agreements, if any, the Company intends to test
market its light delivery truck and several industrial vehicle lines in these
international markets to evaluate the viability of continuing to develop these
product lines.
Warranties/Customer Service Plan
The Company believes that customer service and technical support
capabilities should be important competitive factors for its business. The
Company presently provides a limited one-year parts and labor warranty as a
basic standard on all electric vehicle models, including the Geo Prism sedans.
The Company attempts to obtain warranty coverage from its third-party suppliers
which it would then be authorized to pass on to its customers. In addition, the
Company has offered an extended limited warranty of up to three years under
certain sales contracts for its Chevrolet S-10 trucks. The Company is now
reviewing this warranty coverage for possible modification. At the present time,
subject to available capital resources, it is also anticipated that Company
maintenance personnel will continue to be available for field service calls as
part of this warranty coverage for buses and conversion vehicles, with
dealerships providing warranty service for industrial vehicles.
Market Profile
The Company believes that the electric vehicle fleet market may offer a
substantial available market for converted electric vehicles. For example, a
1988 study by the Center for the Biology of Natural Systems revealed that the
average daily mileage of the federal government's 370,000 cars, vans and light
trucks ranged from 25 to 50 miles per day. About 20% of this total fleet is
replaced annually. In fiscal year 1992, the Federal government purchased about
80,000 light-duty cars, vans and trucks.
The Company believes that during the period from 1993 through 1998, the
major California investor-owned utilities will spend in excess of $300 million
for electric vehicle and associated infrastructure development. In addition,
utilities outside of California as well as many governmental entities are
planning to spend significant funds for the development of the electric vehicle
business. The California Council on Science and Technology in its 1992 Project
California Report estimated that the size of the market in the U.S. for electric
vehicles will grow to $8 billion in 2003 and to $24 billion in 2007.
Competitive Conditions
The competition to develop and market electric vehicles has increased
during the last fiscal year and is expected to continue to increase. The
competition consists of development stage companies as well as major U.S. and
international companies, including automobile manufacturers, utilities, and
component and material suppliers. MANY OF THESE COMPANIES HAVE FINANCIAL,
TECHNICAL, MARKETING, SALES, MANUFACTURING, DISTRIBUTION AND OTHER RESOURCES
VASTLY GREATER THAN THOSE OF THE COMPANY. The Company's future prospects will be
highly dependent upon the successful development and introduction of new
products that are responsive to market needs and can be manufactured and sold at
a profit. There can be no assurance that the Company will be able to
successfully develop or market any such products.
The development of other nonconventionally powered vehicles, such as
compressed natural gas, poses a competitive threat to the Company in markets for
low emission vehicles (LEVs) but not in markets where government mandates call
for zero emission vehicles (ZEVs). Such nonconventionally powered vehicles have
initial advantages over electric vehicles primarily in the areas of range, cost
and weight. These advantages may decline over time as electric vehicles' costs
decline with increased production and as advances in battery technology are
made. An inherent disadvantage of LEVs versus ZEVs is that LEVs emit pollutants,
even though at much lower levels than gasoline/diesel powered vehicles.
9
To date, various providers of electric vehicles have proposed products
or offer products for sale in this emerging market. These products encompass a
wide variety of technologies aimed at various markets, both consumer and
commercial. The critical role of technology in this market is demonstrated
through several product offerings. Applied technologies range from DC motor
drives to AC induction motor drives, from conversion vehicles to purpose-built
(OEM) vehicles, from lead-acid batteries to more advanced power storage
technologies and from traditional materials to more advanced "composite"
materials. As the industry matures, key technologies and capabilities are
expected to play critical competitive roles. The Company's goal is to position
the Company as a long term competitor in this industry by focusing on vehicle
component integration, technology application and strategic partnerships.
There are many entities, including governmental, quasi-governmental,
non-profit and private organizations, involved in advancing research and
development of electric vehicle and low-emission vehicle technologies. In
addition, several consortia have formed to fund research on electric vehicle
batteries: the United States Advanced Battery Consortium, an organization
committed to funding a total of $260 million for battery research by 1998, which
is financed by the United States Department of Energy, General Motors, Ford,
Chrysler, and the Electric Power Research Institute; the Advanced Lead-Acid
Battery Consortium, funded by North American lead manufacturers; and the New
Energy Development Organization, a Japanese consortium funded by the Japanese
government and certain Japanese battery manufacturers.
The Company now competes in three broad product areas of the electric
vehicle industry; (1) on-road cars and light trucks, (2) off-road trucks, (3)
on-road buses and (4) off-road specialty industrial vehicles.
On-Road Cars and Light Trucks
The Company competes with several other electric vehicle companies as
well as the major automobile manufacturers, most all of whom have electric
vehicle development programs. In addition, the major automobile manufacturers
have resources vastly greater than the Company's and, as a result of various
government mandates, are under pressure to develop and produce electric
vehicles. As a result, they pose a significant competitive threat as well as
opportunity for the Company. The Company's approach has been to attempt to work
closely with the major automobile manufacturers so that the Company is
positioned as an important resource for these major automobile manufacturers. As
a result, the Company has been contracted by an off-shore OEM to explore the
possibility of developing electric sedans.
The conversion of gasoline powered cars and light trucks to electric
power allowed the Company to enter the electric vehicle market sooner than if it
had limited itself to purpose-built (OEM) electric vehicles; however, such
conversions are expensive. Two major elements in the Company's plan to reduce
the cost of its on-road electric vehicles were (i) to work with the major
automobile manufacturers to provide the Company factory built vehicles without
engines, transmissions and fuel systems (gliders), and (ii) to develop and
manufacture light-weight, purpose-built (OEM) electric vehicles. To date, the
Company has not been able to solidify the elements of this plan.
Off-Road Trucks
The Company's customer and industry research in Mexico, the primary and
initial market for the Company's light trucks, indicates there are four prime
factors which are weighed most prominently in a new truck purchase decision:
speed, payload, range and life-cycle cost. The Company's light truck is believed
to be competitive, when compared to the current electric truck offerings of
competitors, including Taylor-Dunn and Cushman.
The Company believes that in Mexico, where the light truck will operate as an
"on-road" vehicle, penetration of the internal-combustion engine (ICE) truck
market is also feasible. This is believed to be a 100,000 annual unit market in
Mexico.
10
On-Road Buses
The Company is presently aware of over ten companies intending to
produce electric buses, approximately half of which are currently producing
vehicles. CALSTART, a non-profit consortium of manufacturers, public utilities
and local, state and federal agencies formed to promote the manufacture of
electric vehicles in California, has contracted to have APS Systems and Bus
Manufacturing, Inc. produce several electric buses. Specialty Vehicle
Manufacturing Crop. currently offers several electric bus models. In addition,
the Company expects the large bus manufacturers, such as Bluebird, Carpenter and
Gillig, to become competitors.
Off-Road Industrial Vehicles
The Company believes that the industrial off-road electric vehicle
market is a mature, marginally differentiated industry with all of the top
competitors offering comparable products at comparable prices. As a result, the
Company divested its interests in the industrial business as previously
discussed above. There are four prime U.S. competitors, the largest of which is
Taylor-Dunn, holding approximately 50% of the market share, followed by Cushman,
with approximately 25% of the market share, EZ-GO, with approximately 8% of the
market share, and the Company, which held approximately 5% of the market share.
Following the divesture of the industrial business, the Company continues to
develop and market a select group of specialty vehicles including an in-factory
delivery vehicle for express delivery companies, and airline ground support
vehicles.
Research and Development
The Company believes that continued timely development and introduction
of new products are essential to establishing and maintaining a competitive
advantage. The Company is currently focusing its limited development efforts
primarily in the following areas:
*Technical proposal and program development under ARPA;
*Power Control and Drive Systems and related technology;
*Bus development;
*Technology safety development/crash worthiness/structural analysis; and
*Subsystem development (i.e., climate control, power management).
Company funded research and development expense charged to operations
in fiscal years, 1994, 1995 and 1996 were $7,724,000, $6,697,000 and $1,401,000,
respectively.
The Company is continually evaluating and updating the technology and
equipment used in developing each of its products. The electric vehicle industry
has only recently come into existence, and the technology involved in the
industry is rapidly changing. There is limited experience in the operation and
testing of electric vehicles and components, and the development of electric
vehicle technology therefore involves inherent risks. Due to financial
constraints, there is no assurance that the Company shall have the ability to
stay competitive through its research and development efforts.
Department of Commerce Funding Award for Composite Components Development
The Company was notified in November 1994 that it had been selected to
receive an award of matching funds from the National Institute of Standards and
Technology ("NIST") of the United States Department of Commerce in connection
with a 5-year, $21.8 million program to stimulate development of a
cost-effective composite manufacturing process for use in the production of
lightweight, affordable, and safe electric vehicles. The Company and the other
companies involved in the program have been unable to negotiate a suitable joint
venture agreement as required by NIST. Due to the Company's financial
difficulties, the Company withdrew from the NIST program in fiscal 1996.
Licenses, Patents and Trademarks
The Company does not currently hold any patents, although it has
submitted applications for a patent and several trademarks or servicemarks in
the United States. For the foreseeable future, the Company believes that its
success will not rely on its patent and trademark proprietary position. As the
Company develops its own technology, the policy of the Company will be to apply
for patents or for other appropriate statutory protection when it develops
valuable new or improved technology. The status of patents involves complex
legal and factual questions and the breadth of claims allowed is uncertain.
Accordingly, there can be no assurance that any patent application filed by the
Company will result in patents being issued. In addition, the laws of
11
any foreign country in which the Company elects to conduct business may not
protect the Company's products and intellectual property rights to the same
extent as the laws of the United States.
Backlog
As of July 31, 1996, the Company's backlog of orders was approximately
$1,200,000, of which approximately $200,000 was related to the off-road
industrial electric vehicle business, which was sold by the Company in
September, 1996. Most of the remaining backlog consisted of orders to finish
converting and delivering the Company's existing inventory of on-road vehicles.
As of July 31, 1995, the Company's backlog of orders was approximately
$1,000,000. Backlog consists of orders for which shipments have not yet been
made and unfilled portions of orders for which partial shipments have been made.
Employees
As of July 31, 1996, the Company had 35 employees, including 15 in
administration, 6 in engineering, research and development, 12 in manufacturing,
and 2 in sales and service. This represents a reduction from a total of 86
employees as of July 31, 1995.
Item 2. Properties
The Company's corporate offices are located in San Francisco,
California, in leased office space of approximately 6,800 square feet. The
Company's administrative departments and senior level operations, including
executive, legal, finance, planning, purchasing, personnel, and operations
personnel, are housed in this location. These facilities are leased through
October 1998 with early termination provisions at the election of the Company in
October, 1997.
Electricar's IEV subsidiary leased a 107,000 square foot production
facility in Redlands, California. Following the Company's divesture of the IEV
industrial business, this facility's lease, which expired on July 31, 1996, was
assigned to the new owner. Pursuant to a month-to-month sublease, the Company
manufactures specialty vehicles, buses and upfit (conversion) vehicles at this
facility utilizing approximately one-fourth of floor space of the facility.
The production capacity of the current bus manufacturing line is 8
buses per month. The Company is currently not in production. The conversion
production line capacity is estimated at 16 units per month. The Company is
currently converting only vehicles in its existing inventory and is
re-evaluating its conversion business in order to determine the continued
viability of this product line.
Item 3. Legal Proceedings
Nineteen of the unsecured creditors of the Company have brought
independent lawsuits in various courts in California, Connecticut, North
Carolina and New York against the Company in connection with the Company's
default on its debt obligations to such creditors, in the aggregate amount of
approximately $650,000. These lawsuits seek damages for the amount of principal
and interest due by the Company under the debt owed to such creditors, plus
court costs and attorneys' fees. No individual creditor's claims exceed the
amount of $121,700. Nine of the unsecured creditors have obtained judgments
against the Company in the aggregate amount of approximately $450,000. The
remaining suits are pending.
The Company is currently in the process of restructuring its
outstanding unsecured antecedent trade debt. A creditors' committee has been
established to represent the antecedent unsecured creditors (including the
creditors who have brought suit against the Company and other creditors who have
not yet filed legal claims) in negotiating a settlement with the Company. It is
intended and hoped that the restructuring will result in the settlement of a
majority of the lawsuits filed and judgments obtained against the Company in
connection with its unsecured debt. See "Item 1. Business -- Debt
Restructuring."
The Company reported in its report on Form 10-Q filed with the
Commission for the quarterly period ended April 30, 1996 that on May 20, 1996, a
suit was brought in San Francisco Superior Court by a shareholder, alleging that
the shareholder was misled in the purchase of stock in the Company. The
shareholder, Janet Poli, for Janet Poli IRA and for SERP Janet Poli Realty,
named in the suit the Company, Mr. Ted Morgan, a previous officer of the
Company, and Mr. Mark Neuhaus, an individual. The suit alleged 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 sought compensatory damages in an unspecified amount allegedly
exceeding $1,000,000, punitive damages, attorneys fees and costs, and other
relief. The Company and the previous officer of the Company filed a Demurrer to
12
the First Amended Complaint which the Court sustained without leave to amend on
October 15, 1996. On October 29, 1996, counsel for the shareholder filed a
motion for reconsideration. The motion is scheduled for hearing on November 26,
1996. Counsel for the shareholder has also filed a motion to be relieved as
counsel. The motion is scheduled for hearing on November 27, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock is presently traded in the over-the-counter
market and quoted on the National Association of Securities Dealers (NASD)
"Bulletin Board" under the symbol "ECAR." The following table sets forth the
high and low prices of the Common Stock as reported on the NASD Bulletin Board
by the National Quote Bureau for the fiscal quarters indicated. The following
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
Common Stock Average Daily
Fiscal 1995 High/Low Bid - High/Low Asking Volume
- ----------- ------------------------------ -------------
First Quarter . . . . . . $5.14/$3.53 - $7.48/$5.26 *
Second Quarter . . . . . $3.74/$2.08 - $6.01/$3.81 *
Third Quarter . . . . . . $1.43/$0.73 - $3.27/$1.48 *
Fourth Quarter. . . . . . $0.25/$0.10 - $1.85/$0.26 *
Common Stock Average Daily
Fiscal 1996 High/Low Bid - High/Low Asking Volume
- ----------- ------------------------------ -------------
First Quarter . . . . . . $0.15/$0.19 - $0.81/$0.17 *
Second Quarter . . . . . $0.31/$0.35 - $0.91/$0.32 *
Third Quarter . . . . . . $0.29/$0.27 - $0.32/$0.30 *
Fourth Quarter. . . . . . $0.39/$0.37 - $0.42/$0.40 *
*Volume information not available.
On November 5, 1996, the last reported high/low bid prices of the
Common Stock were $0. 23/$0.23 and the last reported high/low asking prices were
$0.27/$0.26. As of November 5, 1996, there were approximately 1,515 holders of
record of the Common Stock. In addition, as of November 5, 1996, the Company's
Series A Preferred Stock was held by approximately 144 shareholders, many of
whom are also Common Stock shareholders. The number of holders of record
excludes beneficial holders whose shares are held in the name of nominees or
trustees.
Dividend Policy
To date, the Company has neither declared nor paid any cash dividends
on shares of its Common Stock or Series A or B Preferred Stock. The Company
presently intends to retain all future earnings for its business and does not
anticipate paying cash dividends on its Common Stock or Series A or B Preferred
Stock in the foreseeable future. However, the Company is required to pay
dividends on its Series A and B Preferred Stock before dividends may be paid on
any shares of Common Stock. At July 31, 1996, the Company had an accumulated
deficit of approximately $77 million and, until this deficit is eliminated, will
be prohibited from paying dividends on any class of stock except out of net
profits, unless it meets certain assets and other tests under Section 500 et
seq. of the California Corporations Code.
13
Item 6. Selected Financial Data
As of and for the fiscal year ended July 31, (in thousands, except per share data)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
NET SALES $ 4,209 $ 11,625 $ 5,787 $ 863 $ 1,220
COST OF SALES 5,370 20,210 6,372 802 848
-------- -------- -------- -------- --------
GROSS MARGIN (1,161) (8,585) (585) 61 372
-------- -------- -------- -------- --------
OTHER COSTS AND EXPENSES
Research and Development 1,401 6,697 7,724 376 56
Selling, general and administrative 5,608 13,952 12,638 1,953 791
Interest and financing fees 1,890 5,732 339 146 80
Other expense (income) 740 449 17 24 24
Market development expense 77 3,718
Facility closures and consolidations
of operations 701 2,378
-------- -------- -------- -------- --------
Total other costs and expenses 10,340 29,285 24,436 2,499 951
-------- -------- -------- -------- --------
LOSS FROM CONTINUING OPERATIONS (11,501) (37,870) (25,021) (2,438) (579)
LOSS FROM DISCONTINUED OPERATIONS (169) (203)
GAIN ON DEBT RESTRUCTURING 2,147 305
-------- -------- -------- -------- --------
NET LOSS $ (9,354) $(37,565) $(25,021) $ (2,607) $ (782)
======== ======== ======== ======== ========
PER COMMON SHARE:
Loss from continuing operations $ (0.17) $ (1.88) $ (2.61) $ (0.54) $ (0.15)
Loss from discontinued operations (0.04) (0.05)
Gain on debt restructuring 0.03 0.02
-------- -------- -------- -------- --------
Net loss per common share $ (0.14) $ (1.86) $ (2.61) $ (0.58) $ (0.20)
======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 67,906 20,156 9,571 4,487 3,871
======== ======== ======== ======== ========
Total Assets $ 4,363 $ 10,230 $ 21,306 $ 5,453 $ 372
======== ======== ======== ======== ========
Long-term debt $ 3,987 $ 9,980 $ 1,020 $ 31
======== ======== ======== ======== ========
Shareholders' equity (deficit) $(12,736) $(24,760) $ 1,605 $ 2,421 $ (424)
======== ======== ======== ======== ========
14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The matters addressed below, with the exception of the historical information
presented, may incorporate certain forward-looking statements involving risks
and uncertainties, including the risks discussed under the heading "Certain
Factors That May Affect Future Results" and elsewhere in this report.
GENERAL
U. S. Electricar, Inc. and Subsidiaries (collectively, the "Company") develops,
converts, assembles, manufactures and distributes battery-powered electric
vehicles, including on-road pick-up trucks, passenger cars, buses and delivery
vehicles and a variety of off-road industrial and specialty 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 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.
The Company was forced to severely curtail its operations in the second half of
1995 due to a lack of funds. Certain facilities were consolidated and major
contracts were terminated. The Company initiated programs to restructure its
debt and raise interim funding which continued through 1996.
During 1996, the Company restructured a significant portion of its debt and
raised approximately $5 million in interim funding. However, its operations
continued to be impacted by an insufficient amount of funds to adequately
support its planned sales volumes and product development programs. The Company
curtailed the manufacture and sale of off-road industrial vehicles in the third
and fourth quarters of 1996 and reduced the carrying values of the assets
associated with this product line. In 1996, the Company incurred a loss of
$9,354,000.
In September 1996, a substantial portion of the assets of Industrial Electric
Vehicles, Inc., (formerly Nordskog Electric Vehicles, Inc. (Nordskog), prior to
its acquisition in July 1993 by the Company) were sold. Consideration for this
sale included the assumption of, and release of liability for, the note payable
that totaled $1,013,000 at July 31, 1996 to Nordskog.
The company also acquired substantially all the tangible and intangible assets,
and assumed certain liabilities, of Systronix Corporation (Systronix) on October
25, 1996. For a description of the transaction, see Item 1, "Electric Drive
System".
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 breakeven volume in sales and develops and/or acquires the capability
and technology necessary to manufacture and sell its electric vehicles
profitably, it will need to continue to rely extensively on cash from debt and
equity financing. The Company anticipates that it will require substantial
additional outside financing for at least the next two fiscal years.
During 1996, the Company spent $4,384,000 in cash on operating activities to
fund the net loss of $9,354,000 resulting from factors explained in the
following section of this discussion and analysis. In addition, during the third
and fourth quarters of 1996, the Company used $1,015,000 for advances on the
purchase of certain intellectual property assets. Inventories declined during
1996 by approximately $4.9 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.
15
The operations of the Company during 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, short term notes totaling $320,000 from private
parties, 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 seven interest payments due quarterly from January 31,
1995 through July 31, 1996 totaling approximately $147,000 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.). In September 1996, the Company sold the assets and certain
liabilities of the industrial electric vehicle business to a group consisting of
former employees of the Company. Part of the consideration for this sale was the
assumption of this note by the buyers and the release of the Company from the
principal amount of the note. The $147,000 accrued interest has been converted
to a new note payable.
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 $.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
$.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. In June
1996, $13 million of the debt was converted to common stock, of which
approximately $12.5 million was issued pursuant to Regulation S.
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
common stock to 300 million and for authorization of a new series of preferred
stock needed for its Debt Restructuring Plan.
Through July 1996, the Company had obtained settlements for $11.7 million of
approximately $14 million of unsecured trade debt obligated prior to March 18,
1995. In connection with the settlements, the Company issued $817,000 of three
year and $3.3 million of 20 year promissory notes and 1.6 million shares of
Series B Preferred Stock valued at $3.2 million. The company also paid $418,000
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
November 5, 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 1997 AND 1998.
AS OF NOVEMBER 5, 1996, THE COMPANY HAD NO FIRM COMMITMENTS FROM ANY PERSON OR
ENTITY TO PROVIDE CAPITAL AND THERE CAN BE NO ASSURANCE THAT ADDITIONAL FUNDS
16
WILL BE AVAILABLE FROM ANY SOURCE AT THE TIME THE COMPANY WILL NEED SUCH FUNDS.
THE INABILITY OF THE COMPANY TO OBTAIN ADDITIONAL FUNDING ON TERMS ACCEPTABLE TO
THE COMPANY WILL HAVE A MATERIAL ADVERSE EFFECT ON ITS BUSINESS. THE FUTURE
UNAVAILABILITY OR INADEQUACY OF FINANCING TO MEET FUTURE NEEDS COULD FORCE THE
COMPANY TO DELAY, MODIFY, SUSPEND OR CEASE SOME OR ALL ASPECTS OF ITS PLANNED
OPERATIONS, AND/OR SEEK PROTECTION UNDER APPLICABLE STATE AND FEDERAL BANKRUPTCY
AND INSOLVENCY LAWS.
RESULTS OF OPERATIONS
Net sales of $4,209,000 for the year declined $7,416,000, or 63.8% from 1995.
These declines in sales 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. Net sales in 1995 increased $5,838,000, or
100.9%, over 1994, and the increase was entirely due to increased sales of light
trucks and sedans, while the sales of buses declined approximately 60%
A decline of $5.8 million in sales of light trucks and sedans accounted for most
of the decrease from 1995 sales. Sales of industrial vehicles, parts and
accessories declined by $1.3 million from 1995. The manufacture and sales for
all product lines was limited in 1996 by the shortage of available funds. The
Company curtailed the manufacture and sale of off-road industrial vehicles in
the third and fourth quarters.
Cost of sales as a percent of sales decreased to 127.6% for the year of 1996
from 173.8% for 1995, after having increased from 110.1% in 1994. These
improvements in cost of sales as a percent of sales for 1996 compared with 1995
were primarily due to lower costs associated with the converted sedans and light
trucks and with buses. Most of these vehicles sold in 1996 were produced in
prior periods and placed in inventory at estimated net realizable values. The
manufacturing costs in excess of estimated net realizable value were expensed in
prior periods. Inventory write-downs for obsolescence impacted the results for
1995. In addition to the inventory write-downs in 1995, the increase in costs
from 1994 was caused by high unit costs for raw materials due to small order
quantities and rush orders and also by higher than normal wastage caused by the
rapid build-up of production and subsequent rapid scaling back of production due
to lack of funds.
Research and development expense of $1,401,000 in 1996 declined $5,296,000, or
79.1% from 1995. The decline is the result of a substantial reduction of
technical resources by the Company. During the last half of 1995 and through
1996, the Company has reduced its engineering staff and decreased its purchasing
of technical services due to a severe lack of funds. Research and development
expense declined approximately 15% in 1995 from 1994, with all of the decline
coming in the second half of 1995 in connection with the downsizing of the
Company as described above.
Selling, general and administrative expense of $5,608,000 in 1996 declined
$8,344,000, or 59.8%, from 1995. The decline was primarily a result of
significant reductions in selling, marketing and administrative staff and
reductions in the purchasing of various outside services and travel due to the
aforementioned lack of funds. Selling, general and administrative expenses
increased $1,314,000 or 10.4%, in 1995 over 1994. This represented a substantial
increase during the first half of 1995 as a result of a continuation of the
Company's expansion efforts and a decline in the second half in connection with
the downsizing of the Company desribed above.
Interest and financing fees for the year of 1996 were $1,890,000, which was a
decline of $3,842,000, or 67.0% from 1995. Interest and financing fees in 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 1996 as all of the fees
were fully amortized by March 1995, the original maturity date of the bonds.
In 1995, interest and financing fees increased 17 times over 1994 to $5,732,000
due to significantly greater borrowings needed to help fund the Company's
aggressive expansion programs. The increase in 1995 was due to a full year of
interest on the $8,980,000 note to Itochu, interest on $12,000,000 of Series S
bonds issued in September 1994, and the amortization of financing fees
associated with these borrowings.
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. In 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
17
vehicles. The assets included were part of the Industrial Electric Vehicle
business which was subsequently sold in September 1996. This reduction resulted
in a charge to operations of $680,000. .
The results for 1996 included a provision of $701,000, and the results for 1995
included a provision of $2,378,000, for facility closures, consolidation of
operations and contract terminations 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 $11.7 million of unsecured trade debt under
the Company's Debt Retructuring Plan, several unsecured creditors agreed to
settle their claims for amounts less than the original debt owed to them. The
reductions from the original amounts owed and the settlement amounts resulted in
a gain on debt restructuring of $2,147,000 in 1996.
As a result of the foregoing changes in net sales, cost of sales, other costs
and expenses and gain on debt restructuring, the net loss of $9,354,000 for the
year decreased $28,211,000 or 74.6% from $37,565,000 in 1995, while the
Company's net loss increased $12,544,000, or 50.1%, from 1994.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Future trends for the Company's revenue and profitability remain difficult to
predict. The Company operates in a rapidly changing and developing market that
involves a number of risks, some of which are beyond the Company's control. In
addition, as previously disclosed in this Form 10-K, the Company's financial
condition remains extremely precarious. The following discussion highlights
certain of these risks.
Going Concern / Net Operating Losses. The Company has experienced recurring
losses from operations and had an accumulated deficit of $76,990,000 at July 31,
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 November 5, 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, 1994, 1995 and 1996, the
Company had substantial net losses of $25,021,000, 37,565,000 and $9,354,000,
respectively on sales of $5,787,000, $11,625,000 and $4,209,000, respectively.
Nature of Industry. The electric vehicle ("EV") industry is in its infancy.
Although the Company believes that it has manufactured a significant percentage
of the electric vehicles sold in the United States based upon its own knowledge
of the industry, there are many large and small companies, both domestic and
foreign, now in, poised to enter, or entering this industry. This EV industry is
subject to rapid technological change. Most of the major domestic and foreign
automobile manufacturers (1) have produced design-concept electric vehicles,
and/or (2) have developed improved electric storage, propulsion and control
systems, and/or (3) are now entering or planning to enter the field. Various
non-automotive companies are also developing improved electric storage,
propulsion and control systems. Growth of the present limited demand for
electric vehicles depends upon (a) future regulation and legislation requiring
more use of non-polluting vehicles, (b) the environmental consciousness of
customers and (c) the ability of electric vehicles to successfully compete with
vehicles powered with internal combustion engines on price and performance.
Changed Legislative Climate. Because vehicles powered by internal combustion
engines cause pollution, there has been significant public pressure in Europe
and Asia, and enacted or pending legislation in the United States at the federal
level and in certain states, to promote or mandate the use of vehicles with no
tailpipe emissions ("zero emission vehicles") or reduced tailpipe emissions
("low emission vehicles"). Legislation requiring or promoting zero emission
vehicles is necessary to create a significant market for electric vehicles.
There can be no assurance, however, that further legislation will be enacted or
that current legislation or state imposed mandates will not be repealed or
amended
18
(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.
Item 8. Financial Statements and Supplementary Data
The response to this Item is submitted as a separate section of this Form 10-K.
See Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
19
PART III
Item 10. Directors and Executive Officers of the Registrant
The information regarding directors and executive officers required by Item
10 is incorporated by reference from the information under the captions
"Election of Directors" and "Directors and Executive Officers" in the Company's
definitive proxy statement for its annual meeting of shareholders to be held in
February 1997.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from the
information under the caption "Executive Compensation and Other Information" in
the Company's definitive proxy statement for its annual meeting of shareholders
to be held in February 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference from the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" in the Company's definitive proxy statement for its annual
meeting of shareholders to be held in February 1997.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in the Company's definitive proxy statement for its annual meeting shareholders
to be held in February 1997.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)1. Financial Statements
The financial statements filed as a part of this report are identified
in the Index to Consolidated Financial Statements on page 23.
(a)2. Financial Statement Schedules
No financial statement schedules are filed as a part of this report.
(a)3. Exhibits
The exhibits filed herewith or incorporated by reference to exhibits
previously filed with the Commission are identified in the Exhibit Index
attached hereto on page E-1. The Company shall furnish copies of exhibits for a
reasonable fee (covering the expense of furnishing copies) upon request.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K with the Commission on September 19, 1996
reporting the sale of substantially all of the assets of its wholly-owned
subsidiary, Industrial Electric Vehicles, Inc. The Company filed a report on
Form 8-K with the Commission on August 20 1996 reporting the execution of a
Memorandum of Understanding with Systronix Corporation for the purchase by the
Company of the assets of Systronix.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf of the undersigned, thereunto duly authorized, on November 5, 1996.
U.S. ELECTRICAR, INC.
By: /s/ Roy Kusumoto
---------------------------------------------
Roy Y. Kusumoto, Chief Executive Officer,
President, and Acting Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, severally and not jointly, Roy Kusumoto
and Carl D. Perry, with full power to act alone, his true and lawful
attorneys-in-fact, with full power of substitution, and re-substitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments to the annual report on Form 10-K, and file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact full
power and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Roy Y. Kusumoto President, Chief November 5, 1996
- ---------------------------- Executive Officer,
Roy Y. Kusumoto and Director (Principal
Executive Officer and
Principal Financial
and Accounting Officer).
/s/ Carl D. Perry Executive Vice November 5, 1996
- ---------------------------- President and Director
Carl D. Perry
/s/ James S. Miller Director November 5, 1996
- ----------------------------
James S. Miller
/s/ Malcolm R. Currie, Ph.D. Director November 5, 1996
- ----------------------------
Malcolm R. Currie, Ph.D.
/s/ Edwin O. Riddell Director November 5, 1996
- ----------------------------
Edwin O. Riddell
/s/ David A. Ishag Director November 5, 1996
- ----------------------------
David A. Ishag
22
- --------------------------------------------------------------------------------
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITOR'S REPORT..............................................F-1
CONSOLIDATED BALANCE SHEETS - JULY 31, 1996 AND 1995......................F-3
CONSOLIDATED STATEMENTS OF OPERATIONS -
YEARS ENDED JULY 31, 1996, 1995 AND 1994.............................F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) -
YEARS ENDED JULY 31, 1996, 1995 AND 1994.............................F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS -
YEARS ENDED JULY 31, 1996, 1995 AND 1994.............................F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................F-11
- --------------------------------------------------------------------------------
23
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
U. S. Electricar, Inc., and Subsidiaries
We have audited the accompanying consolidated balance sheets of U. S.
Electricar, Inc., and Subsidiaries (Company), as of July 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' deficit, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
statements of operations, stockholders' equity, and cash flows for the year
ended July 31, 1994, were audited by other auditors whose report on those
statements, dated October 17, 1994, included an explanatory paragraph expressing
substantial doubt about the Company's ability to continue as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated balance sheets as of July 31, 1996 and 1995,
and the related statements of operations, stockholders' deficit and cash flows
for the years then ended, present fairly, in all material respects, the
financial position of the Company as of July 31, 1996 and 1995, and the results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2, the
Company's recurring losses from operations and its inability to generate
sufficient cash flows to sustain operations and meet its obligations, raises
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ MOSS ADAMS LLP
Santa Rosa, California
October 23, 1996, except for Note 3 which is as of October 29, 1996
Page F-1
PRIOR AUDITOR'S REPORT
The Company has been unable to obtain the consent of their prior auditors,
Deloitte & Touche LLP, to include their auditor's report which was dated October
17, 1994, of the consolidated statements of operations, shareholders' equity
(deficit) and cash flows for the year ended July 31, 1994. The original report
was included in Amendment No. 1 to Form 10 as filed with the Securities and
Exchange Commission on January 27, 1995.
Page F-2
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------
July 31, 1996 1995
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13 $ 319
Accounts receivable, net of allowance for
doubtful accounts of $596 and $503 856 1,364
Inventory 2,387 4,832
Prepaids and other current assets 184 375
------- -------
Total current assets 3,440 6,890
PROPERTY, PLANT AND EQUIPMENT 835 3,112
INTANGIBLE ASSETS, net of amortization of $18 in 1995 -- 29
OTHER ASSETS 88 199
------- -------
Total assets $ 4,363 $10,230
======= =======
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page F-3
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except for share and per share data)
- -----------------------------------------------------------------------------------------------------------------
July 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 2,868 $ 11,082
Accrued payroll and related expenses 441 410
Accrued warranty reserve 1,156 1,358
Reserve for lease terminations 112 770
Accrued interest 208 1,378
Other accrued expenses 721 1,086
Deferred revenues 250 --
Customer deposits 73 763
Current maturities of long-term debt 7,283 17,370
-------- --------
Total current liabilities 13,112 34,217
-------- --------
LONG-TERM DEBT, less current maturities 3,987 --
-------- --------
ROYALTIES PAYABLE -- 773
-------- --------
STOCKHOLDERS' DEFICIT
Series A preferred stock - no par value; 30,000,000
shares authorized; 4,010,000 and 6,275,000 shares
issued and outstanding in 1996 and 1995, respectively;
liquidating preference $0.60 per share 2,983 5,148
aggregating $5,612 and $3,765, respectively
Series B preferred stock - no par value; 5,000,000 shares
authorized; 1,587,000 shares issued and outstanding 3,175 --
Stock notes receivable (1,061) (987)
Common stock - no par value; 300,000,000 and
100,000,000 shares authorized in 1996 and 1995,
respectively; 120,220,000 and 55,223,000 shares
issued and outstanding in 1996 and 1995 59,157 38,715
Accumulated deficit (76,990) (67,636)
-------- --------
Total stockholders' deficit (12,736) (24,760)
-------- --------
Total liabilities and stockholders' deficit $ 4,363 $ 10,230
======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------
</FN>
Page F-4
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------------------------------------
Years Ended July 31, 1996 1995 1994
------------
NET SALES $ 4,209 $ 11,625 $ 5,787
COST OF SALES 5,370 20,210 6,372
------------ ------------ ------------
GROSS MARGIN (1,161) (8,585) (585)
------------ ------------ ------------
OTHER COSTS AND EXPENSES
Research and development 1,401 6,697 7,724
Selling, general and administrative 5,608 13,952 12,638
Interest and financing fees 1,890 5,732 339
Other expense 740 449 17
Market development expense -- 77 3,718
Facility closures and consolidation
of operations 701 2,378 --
------------ ------------ ------------
Total other costs and expenses 10,340 29,285 24,436
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (11,501) (37,870) (25,021)
GAIN ON DEBT RESTRUCTURING 2,147 305 --
------------ ------------ ------------
NET LOSS $ (9,354) $ (37,565) $ (25,021)
============ ============ ============
PER COMMON SHARE
Loss from continuing operations $ (0.17) $ (1.88) $ (2.61)
Gain on debt restructuring 0.03 0.02 --
------------ ------------ ------------
Net loss per common share $ (0.14) $ (1.86) $ (2.61)
============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 67,905,941 20,156,417 9,571,134
============ ============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------------------------------------
</FN>
Page F-5
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended July 31, 1996, 1995 and 1994
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK
-------------------------------------
SERIES A SERIES B COMMON STOCK
------------------ --------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ -------- ------ ------ ------ --------
BALANCE, JULY 31, 1993 7,434 $ 4,408 -- $ -- 5,839 $ 4,063
PREFERRED STOCK TRANSACTIONS
Private offerings (net of $291 issuance costs) 2,325 2,615 -- -- -- --
Exercise of warrants 875 862 -- -- -- --
Stock for services 34 28 -- -- -- --
Conversion of subordinated debentures 72 42 -- -- -- --
COMMON STOCK TRANSACTIONS
Asset purchase -- -- -- -- 1,000 1,250
Purchase of research company -- -- -- -- 215 269
Purchase of co-owner's interest in joint venture -- -- -- -- 1,060 2,968
Sales under Regulation S Subscription
Agreement (net of $687 issuance costs) -- -- -- -- 3,141 8,320
Sales to ITOCHU Corporation
(net of $361 issuance costs) -- -- -- -- 2,150 5,659
Exercise of warrants and options
(net of $27 issuance costs) -- -- -- -- 632 538
Conversions of Series A preferred stock (1,387) (837) -- -- 1,387 837
Stock for Services -- -- -- -- 57 82
Other stock sales for cash, notes receivable
and conversion of debt -- -- -- -- 37 35
COMPENSATION RECOGNIZED FOR STOCK OPTIONS -- -- -- -- -- 1,551
INTEREST RECOGNIZED FOR STOCK WARRANTS -- -- -- -- -- 80
INTEREST ON STOCK NOTES RECEIVABLE -- -- -- -- -- --
NET LOSS -- -- -- -- -- --
-------- -------- ------ ------ -------- -------
BALANCE, JULY 31, 1994 9,353 7,118 -- -- 15,518 25,652
COMMON STOCK TRANSACTIONS
Excess of fair market value over
exercise price of warrants -- -- -- -- -- 1,920
Sales under Regulation S Subscription
Agreement (net of $171 issuance
costs) for cash -- -- -- -- 9,000 729
Conversion of note payable (net of
$151 issuance costs) -- -- -- -- 13,667 3,949
Conversion of Series S Convertible Bonds -- -- -- -- 13,667 4,100
Cancellation of Stock Note Receivable
(shares held as collateral) -- -- -- -- (450) (180)
Exercise of warrants and options for
cash and notes receivable -- -- -- -- 664 174
Conversions of Series A preferred stock (3,078) (1,970) -- -- 3,078 1,970
Stock for services -- -- -- -- 79 201
COMPENSATION RECOGNIZED FOR STOCK OPTIONS -- -- -- -- -- 200
INTEREST ON STOCK NOTES RECEIVABLE -- -- -- -- -- --
NET LOSS -- -- -- -- -- --
-------- -------- ------ ------ -------- -------
BALANCE, JULY 31, 1995 6,275 5,148 -- -- 55,223 38,715
<FN>
The accompanying notes are an integral part of these financial statements.
- ---------------------------------------------------------------------------------------------------------------
</FN>
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended July 31, 1996, 1995 and 1994
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------
STOCK NOTES ACCUMULATED
RECEIVABLE DEFICIT TOTAL
---------- ------ -----
BALANCE, JULY 31, 1993 $ (1,000) $ (5,050) $ 2,421
PREFERRED STOCK TRANSACTIONS
Private offerings (net of $291 issuance costs) -- -- 2,615
Exercise of warrants -- -- 862
Stock for services -- -- 28
Conversion of subordinated debentures -- -- 42
COMMON STOCK TRANSACTIONS
Asset purchase -- -- 1,250
Purchase of research company -- -- 269
Purchase of co-owner's interest in joint venture -- -- 2,968
Sales under Regulation S Subscription
Agreement (net of $687 issuance costs) -- -- 8,320
Sales to ITOCHU Corporation
(net of $361 issuance costs) -- -- 5,659
Exercise of warrants and options
(net of $27 issuance costs) -- -- 538
Conversions of Series A preferred stock -- -- --
Stock for Services -- -- 82
Other stock sales for cash, notes receivable
and conversion of debt (14) -- 21
COMPENSATION RECOGNIZED FOR STOCK OPTIONS -- -- 1,551
INTEREST RECOGNIZED FOR STOCK WARRANTS -- -- 80
INTEREST ON STOCK NOTES RECEIVABLE (80) -- (80)
NET LOSS -- (25,021) (25,021)
-------- -------- --------
BALANCE, JULY 31, 1994 (1,094) (30,071) 1,605
COMMON STOCK TRANSACTIONS
Excess of fair market value over
exercise price of warrants -- -- 1,920
Sales under Regulation S Subscription
Agreement (net of $171 issuance
costs) for cash -- -- 729
Conversion of note payable (net of
$151 issuance costs) -- -- 3,949
Conversion of Series S Convertible Bonds -- -- 4,100
Cancellation of Stock Note Receivable
(shares held as collateral) 180 -- --
Exercise of Warrants and options for
cash and notes receivable (16) -- 158
Conversions of Series A preferred stock -- -- --
Stock for services -- -- 201
COMPENSATION RECOGNIZED FOR STOCK OPTIONS -- -- 200
INTEREST ON STOCK NOTES RECEIVABLE (57) -- (57)
NET LOSS -- (37,565) (37,565)
-------- -------- --------
BALANCE, JULY 31, 1995 (987) (67,636) (24,760)
<FN>
The accompanying notes are an integral part of these financial statements.
- ---------------------------------------------------------------------------------------------------------------
</FN>
Page F-6
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) (Continued)
Years Ended July 31, 1996, 1995 and 1994
(In thousands)
- --------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK
----------------------------------------------
SERIES A SERIES B COMMON STOCK
------------------- ----------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
PREFERRED STOCK TRANSACTION
Conversion of unsecured debt -- -- 1,587 3,175 -- --
COMMON STOCK TRANSACTIONS
Sales under Regulation S subscription
agreement -- -- -- -- 10,670 2,701
Exercise of warrants -- -- -- -- 220 28
Conversion of Series S Bonds and
accrued interest -- -- -- -- 43,214 12,964
Conversion of Series I Bonds and
accrued interest -- -- -- -- 7,913 2,374
Conversion of Series A preferred stock (2,265) (2,165) -- -- 2,265 2,165
Conversion of debt -- -- -- -- 715 210
INTEREST ON STOCK NOTES RECEIVABLE -- -- -- -- -- --
NET LOSS -- -- -- -- -- --
------- ------- ------- ------- ------- -------
BALANCE, July 31, 1996 4,010 $ 2,983 1,587 $ 3,175 120,220 $59,157
======= ======= ======= ======= ======= =======
STOCK NOTES ACCUMULATED
RECEIVABLE DEFICIT TOTAL
---------- ------- -----
PREFERRED STOCK TRANSACTION
Conversion of unsecured debt -- -- 3,175
COMMON STOCK TRANSACTIONS
Sales under Regulation S subscription
agreement -- -- 2,701
Exercise of warrants -- -- 28
Conversion of Series S Bonds and
accrued interest -- -- 12,964
Conversion of Series I Bonds and
accrued interest -- -- 2,374
Conversion of Series A preferred stock -- -- --
Conversion of debt -- -- 210
INTEREST ON STOCK NOTES RECEIVABLE (74) -- (74)
NET LOSS -- (9,354) (9,354)
-------- -------- --------
BALANCE, July 31, 1996 $ (1,061) $(76,990) $(12,736)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page F-7
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- ---------------------------------------------------------------------------------------------------------------
Years Ended July 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (9,354) $(37,565) $(25,021)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 968 6,864 1,285
Provision for facility closures
and consolidation of operations 701 770 --
Change in allowance for doubtful accounts 93 44 334
Gain on debt restructuring (2,147) (305) --
Changes in valuation allowances and
reserves (1,449) 2,721 448
Purchase of remaining interest in joint
venture -- -- 3,718
Stock issued for services -- 201 110
Stock option compensation -- 200 1,551
Stock warrant interest accretion -- -- 80
Interest income on stock notes receivable (74) (57) (80)
Accretion on royalties payable -- 65 73
Write-off of development costs and
leasehold improvements 137 733 --
Interest converted to common stock 1,575 -- --
Change in operating assets and liabilities:
Accounts receivable 415 143 (1,260)
Inventory 4,916 (837) (6,078)
Prepaids and other current assets 302 838 (368)
Accounts payable and accrued expenses (27) 8,153 5,667
Deferred revenues 250 -- --
Customer deposits (690) (1,006) 1,615
-------- -------- --------
Net cash used by operating activities (4,384) (19,038) (17,926)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to Systronix Corporation (1,000) -- --
Purchases of property, plant and equipment -- (568) (2,385)
Notes receivable -- -- (300)
Purchase of co-owner's interest in EIL
joint venture -- -- (250)
-------- -------- --------
Net cash used by investing activities (1,000) (568) (2,935)
-------- -------- --------
<FN>
The accompanying notes are an integral part of these financial statements.
- ---------------------------------------------------------------------------------------------------------------
</FN>
Page F-8
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
- ----------------------------------------------------------------------------------------------------------------
Years Ended July 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (259) (282) (2,116)
Borrowings on notes payable 2,608 3,853 10,130
Borrowings on debentures and bonds -- 12,000 42
Notes payable and bonds issuance costs -- (1,860) (500)
Proceeds from issuance of common stock 2,701 900 15,048
Proceeds from issuance of Series A preferred
stock -- -- 2,906
Exercise of options and warrants 28 158 1,427
Stock issuance costs -- (171) (1,366)
-------- -------- --------
Net cash provided by financing activities 5,078 14,598 25,571
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (306) (5,008) 4,710
CASH AND CASH EQUIVALENTS:
Beginning of year 319 5,327 617
-------- -------- --------
End of year $ 13 $ 319 $ 5,327
======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
- ---------------------------------------------------------------------------------------------------------------
</FN>
Page F-9
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
- -----------------------------------------------------------------------------------------------------------------
Years Ended July 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH-FLOW INFORMATION:
Cash paid during the year for interest $ 30 $ 106 $ 55
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of debt to common stock $ 210 $ 8,049 $ --
Conversion of debt to Series A preferred stock $ -- $ -- $ 42
Conversion of debt to Series B preferred stock $ 3,175 $ -- $ --
Conversion of Series A preferred stock to
common stock $ 2,165 $ 1,970 $ 837
Notes issued in connection with debt
restructuring $ 4,148 $ -- $ --
Excess of fair market value over exercise price
of warrants issued in connection with
convertible bonds $ -- $ 1,920 $ --
Issuance of common stock for notes receivable $ -- $ 16 $ 14
Purchase of research company - issuance of
common stock $ -- $ -- $ 269
Conversion of Series S bonds to common stock 15,338 $ -- $ --
Asset purchase:
Issuance of common stock $ -- $ -- $ 1,250
Minimum royalty liability -- -- 800
------- ------- -------
Fair value of assets purchased $ -- $ -- $ 2,050
======= ======= =======
Purchase of co-owner's interest in EIL joint
venture:
Issuance of common stock $ -- $ -- $ 2,968
Issuance of short-term notes payable -- -- 500
Cash paid -- -- 250
------- ------- -------
Market development expense $ -- $ -- $ 3,718
======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------
</FN>
Page F-10
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - U. S. Electricar, Inc., previously Solar Electric Engineering,
Inc., a California corporation, was incorporated in 1976. In January 1994, the
Company changed its name to U. S. Electricar, Inc. The Company currently
conducts research and development, and produces and sells electric vehicles.
Principles of consolidation - The consolidated financial statements include the
accounts of U. S. Electricar, Inc., and its wholly owned subsidiaries (the
"Company"). Intercompany transactions and balances have been eliminated.
Cash and cash equivalents - The Company considers all highly liquid investments
with a maturity of three months or less to be cash equivalents.
Inventory - Inventory is comprised of electric vehicles, raw materials and
work-in-process. Inventory is stated at market, which is lower than cost.
Property, plant and equipment - Property, plant and equipment are stated at cost
and depreciated using the straight-line method over the estimated useful lives
of the related assets which range from 3 to 7 years. The Company has adopted
Statement of Financial Accounting Standards No. 121 (FAS121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This Statement requires long-lived assets to be reviewed for impairment
whenever events or changes in circumstances indicates the sum of expected cash
flows from use of the asset is less than its carrying value. Additionally,
long-lived assets that management has committed to sell or abandon are reported
at the lower of carrying amount or fair value less cost to sell.
Intangible assets - Acquired deferred development and technology costs and
goodwill arising from previous business combinations were amortized on a
straight-line basis over their expected useful lives of three to five years. The
unamortized balances of these costs were charged to expense when it was
determined there was no future value for the Company's operations.
Warranties - Estimated electric vehicle warranty costs are provided at the time
of sale. Warranties, in general, are extended for one year from time of vehicle
sale.
Income taxes - Deferred income taxes are recognized using enacted tax rates and
reflect the expected future tax consequences of temporary differences between
financial statement carrying amounts and tax bases of existing assets and
liabilities.
Revenue recognition - Revenue from the sale of electric vehicles is recognized
when the vehicle is delivered to the customer.
Net loss per common share - Net loss per common share is based on the weighted
average number of common shares outstanding during the year. Common stock
equivalents have been excluded from the weighted average shares outstanding
since the effect of these potentially dilutive securities would be antidilutive.
- --------------------------------------------------------------------------------
Page F-11
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Significant estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions affecting the reported amounts of assets, liabilities,
revenues and expenses, and the disclosure of contingent assets and liabilities.
Inventory is reported at market value. The inventory valuation adjustment is an
estimate based on the subsequent sale of inventory and the projected impact of
certain economic, marketing and business factors. Warranty reserves and certain
accrued expenses are based on an analysis of future costs expected to be
incurred in meeting contracted obligations. The amounts estimated for the above,
in addition to other estimates not specifically addressed, could differ from
actual results; and the difference could have a significant impact on the
financial statements.
Fair value of financial instruments - The Company measures its financial assets
and liabilities in accordance with generally accepted accounting principles. The
fair value of a financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties. For certain of
the Company's financial instruments, including cash, accounts receivable and
accounts payable, the carrying amount approximates fair value because of the
short maturities. The carrying amount of the Company's short-term and long-term
debt approximates fair value because interest rates available to the Company for
issuance of similar debt with similar terms and maturities are approximately the
same.
Stock-based compensation - The Financial Accounting Standards Board recently
issued Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation". This Standard will become effective
for the year ending July 31, 1997, although earlier application is permitted.
The Company has determined that it will implement the new standard in 1997.
Under SFAS 123, a fair value method is used to determine compensation cost for
stock options or similar equity instruments. Compensation is measured at the
grant date and is recognized over the service or vesting period. Under the
current accounting standard, compensation cost is the excess, if any, of the
quoted market price of the stock at a measurement date over the amount that must
be paid to acquire the stock.
The new standard would allow the Company to continue to account for stock-based
compensation under the current standard, with disclosure of the effect of the
new standard, or adopt a fair value based method of accounting. The Company has
not yet decided which method will be utilized, nor has it determined the impact,
if any, that adoption of the new standard will have on the financial condition
and results of operations. However, management believes the effect of the new
accounting standard will not be significant.
NOTE 2 - GOING CONCERN
The Company has experienced recurring losses from operations and use of cash
from operations and had an accumulated deficit of $76,990,000 at July 31, 1996.
A substantial portion of the losses is attributable to research, development and
other start-up costs associated with the Company's development and production of
electric vehicles, including the conversion of gas-powered cars and light trucks
to electric power.
- --------------------------------------------------------------------------------
Page F-12
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 2 - GOING CONCERN (Continued)
During the three years ended July 31, 1996, the Company obtained approximately
$47 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 1996, the Company was successful
in restructuring $11,700,000 of its trade debt, and converting $15,300,000 of
its convertible debt to common stock.
It is management's plan to seek additional financing through private placements
as well as other means. Management believes the additional capital it is seeking
will be available in the future and will enable the Company to achieve sales
growth and, ultimately, profitable operations. As of October 23, 1996, the
Company had no commitments from any person or entity to provide additional
financing to the Company.
The consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. Cash flows from future operations
may not be sufficient to enable the Company to meet its obligations, and market
conditions and the Company's financial position may inhibit its ability to
achieve profitable operations.
These factors, as well as the future availability or inadequacy of financing to
meet future needs, could force the Company to delay, modify, suspend or cease
some or all aspects of its planned operations, and/or seek protection under
applicable bankruptcy and insolvency laws.
NOTE 3 - ACQUISITIONS
Asset purchase - In October 1993, the Company purchased from Mosler Auto Care
Center, Inc., certain assets including vehicle molds, plugs used to produce
molds, jigs and other assets for use in the development and manufacture of
composite monocoque integrated chassis and body systems for lightweight
vehicles. The Company issued 1,000,000 shares of unregistered common stock
valued at $1,250,000 for the assets and agreed to pay royalties based on one to
three percent of sales of products (cars and vans) in the United States and
Canada which use the composite monocoque technology.
The net present value of the minimum royalty was recorded as a liability as of
the date of acquisition. There was a minimum royalty of $100,000 per year over
fourteen years ($800,000 net present value).
The acquisition of assets was accounted for as a purchase and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair values as
of the date of acquisition. Because the assets acquired were expected to be used
in the research and development of future vehicle lines or used in other
composite monocoque applications, the excess of purchase price over net assets
acquired of $1,466,000 was initially included in intangible assets as deferred
development costs associated with technology acquired and amortized over a
three-year period on a straight-line basis. In addition, the Company entered
into two-year lease agreements with a minimum annual rent of $148,000 for
approximately 33,000 square feet of manufacturing space and certain equipment
located in Florida.
In 1995, the Company closed the Florida facility and charged to expense the
remaining balances in deferred development costs and certain fixed assets not
relocated to its other facilities.
- --------------------------------------------------------------------------------
Page F-13
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 3 - ACQUISITIONS (Continued)
In 1996, the liability for future royalties was incorporated into the debt
restructuring agreement established under the auspices of the Credit Managers
Association of California (CMAC). The restructured agreement consists of a 20
year note payable of $606,000 and a 3 year note of $17,000 which are both
included in the CMAC notes. (See note 6 for the terms of the CMAC note).
Additionally, the Company paid $76,000 in cash, and approximately $233,000 of
the agreed upon debt was forgiven.
Purchase of a research company - In December 1993, the Company acquired
Livermore Research and Engineering Corporation, a company engaged in the
development and application of computer programs that simulate the effects of
crash testing vehicles, for 215,000 unregistered shares of common stock valued
at $269,000. The full purchase price was included in intangible assets as
software technology associated with computer generated crash testing simulation
models. In 1995, the Company determined there was no further value associated
with the acquired assets and charged the remaining unamortized costs to expense.
Purchase of co-owner's interest in joint venture - In February 1994, the Company
purchased the 60% interest of its co-owner in Electricar International Limited
("EIL"), a joint venture formed in the British West Indies in 1993 to develop
certain international electric vehicle markets for the Company. The Company paid
$250,000 in cash; issued four $250,000 notes bearing interest at 8% per annum,
which were payable in four successive quarters beginning May 1994; and issued
1,000,000 unregistered shares of its common stock. In June 1994, the Company and
its co-owner entered into a subsequent agreement whereby the Company issued
60,000 unregistered shares of its common stock and paid $500,000 in cash as
payment in full, including interest, for the four $250,000 notes. The aggregate
1,060,000 unregistered shares of common stock were valued at $2,968,000. The
total consideration of $3,718,000, after giving retroactive effect for the
subsequent agreement, was recorded effective February 1994. In addition, the
Company issued warrants to purchase 750,000 unregistered shares of its common
stock at $3.50 per share contingent upon successfully completing certain
joint-venture contracts within a two-year period. These warrants expired in
February 1996.
The purpose of EIL was to operate as the international manufacturing and
distribution affiliate of the Company, develop international markets for
electric vehicles, and obtain joint-venture partners with which to research and
develop electric vehicle technologies. No joint ventures have been formed and
EIL has not had any significant operations through July 31, 1996. However,
management believes certain segments of the international electric-vehicle
market are ready to be developed.
In light of the contingent nature of the potential ventures and the
international market, management recorded the total consideration of $3,718,000,
exclusive of the contingent warrants, as market development expense in February
1994.
Asset acquisition subsequent to July 31, 1996 - The Company acquired
substantially all the tangible and intangible assets, and assumed certain
liabilities, of Systronix Corporation (Systronix) on October 25, 1996. Systronix
was a developer of technologically advanced electric propulsion systems for
electric - powered vehicles.
The purchase price, in addition to the assumed liabilities, consisted of a
credit for the $1,020,000 previously advanced to Systronix; an $830,000 secured
note due within 30 days of closing; and 3,800,000 shares of restricted common
stock, with an approximate market value of $0.22 per share at the purchase date.
2,000,000 cashless exercise warrants exercisable at $.30 per share were also
issued pursuant to a finders fee.
- --------------------------------------------------------------------------------
Page F-14
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 3 - ACQUISITIONS (Continued)
In conjunction with this transaction, the Company has employed substantially all
of the then-existing employees of Systronix Corporation. Pursuant to such
employment, the Company has granted to these employees qualified and
non-qualified stock options under the Company's 1996 Employee and Consultant
Stock Option Plan. The options granted in the aggregate total approximately
10,400,000 options at an exercise price of $.30 per share, subject to various
vesting schedules with all options vested in no less than five years. The Plan
has been approved by the Board of Directors of the Company.
The purchase of Systronix will be reported using the purchase method of
accounting and, accordingly, the purchase price will be allocated to the assets
acquired and liabilities assumed based upon the fair values at the date of
acquisition. It is expected that assets resulting from, or to be used in,
research and development will be allocated a significant portion of the
acquisition cost. Research and development costs that have no alternative future
use will be expensed.
The preliminary estimates are that approximately $2,000,000 may be allocated to
research and development. At July 31, 1996, the $1,015,000 (of the eventual
$1,020,000) that had been advanced to Systronix's throughout the year to help
fund its operations was reported as a receivable, and had been fully reserved
since collectibility of the obligation in the event the eventual purchase was
not consummated was highly questionable. The Company considers the advance as a
down payment for research and development that has no future alternative use,
and has charged the advance against income at July 31, 1996.
NOTE 4 - INVENTORIES
(in thousands) 1996 1995
---- ----
Finished goods $1,000 $2,503
Work-in-process 710 1,566
Raw materials 1,450 4,007
------ ------
3,160 8,076
Less valuation adjustment 773 3,244
------ ------
$2,387 $4,832
====== ======
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Page F-15
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
(in thousands) 1996 1995
------ ------
Machinery and equipment $2,141 $2,189
Computers 1,186 1,215
Furniture and office equipment 409 409
Demonstration vehicles 257 578
Leasehold improvements 653 790
Automobiles 40 29
------ ------
4,686 5,210
Less accumulated depreciation and amortization 3,171 2,098
Less adjustment for impairment 680 --
------ ------
$ 835 $3,112
====== ======
Subsequent to July 31, 1996, substantially all of the assets of the Company's
subsidiary, Industrial Electrical Vehicles, Inc. were sold. The Company had
previously committed to a plan of action to sell the assets. The impairment
adjustment reflects a reduction in the carrying value to $195,000 based on the
fair value assigned to the long-lived assets at the time of sale. The impairment
loss is included in facility closures expense in the consolidated statements of
operations.
The results of operations associated with those assets impaired and subsequently
sold for the year ended July 31, 1996 were as follows (in thousands):
Revenues $ 2,089
Cost of sales (2,963)
Other operating costs and allowances (1,616)
Debt forgiveness 233
-------
Net loss $(2,257)
=======
- --------------------------------------------------------------------------------
Page F-16
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT
(in thousands except for shares data) 1996 1995
---- ----
Series S secured convertible bonds, interest at 10%, principal and
interest due March 1997, secured by the personal property of
the parent company; $5,500 was converted to 18,333,000
shares of common stock $3,000 $8,500
Convertible subordinated note - ITOCHU Corporation, interest
at prime rate; converted to 16,267,000 shares of common stock -- 4,880
Convertible secured notes under a Supplemental Loan Agreement
with ITOCHU Corporation, interest at 10%, principal and
interest due April 1997, secured by the personal property of
the parent company 3,000 1,856
Series I secured convertible bonds, interest at 10%, converted to
7,147,000 shares of common stock -- 1,000
Convertible secured note (acquisition of Nordskog); due January
1997, with interest at 9% payable quarterly, secured by
certain machinery and equipment of the subsidiary;
subsequent to July 1996, the assets associated with the
previous acquisition of Nordskog were sold in exchange for
the assumption of this note 1,013 982
Secured promissory note - Credit Managers Association of
California ("CMAC") as exclusive agent for Non-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 95 --
Secured subordinated promissory note - 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 as noted above 560 --
- --------------------------------------------------------------------------------
Page F-17
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT (Continued)
1996 1995
---- ----
Secured subordinated promissory note - CMAC as exclusive agent
for Non-Qualified Creditors; interest at 3% for the first 5 years,
6% for years 6 and 7, and then at prime plus 3% through date of
maturity; interest payments are made upon payment of principal,
with principal and interest due no later than April 2016; secured
with an interest in a sinking fund escrow as noted above;
payments on this note are subordinated to payment in full on all
principal and accrued interest owed on the above 3 year non-
qualified and qualified notes 3,332 --
Convertible secured promissory note, interest at 10%, due November
1996, convertible into common stock at $0.30 a share 100 --
Other 170 152
------- -------
11,270 17,370
Less current maturities 7,283 17,370
------- -------
$ 3,987 $ --
======= =======
In September 1994, the Company issued 120 units of Series S secured convertible
bonds, totaling $12,000,000, and received proceeds of $10,140,000, net of fees
of $1,860,000. Each of the units consisted of $100,000 in principal and a
warrant to purchase 10,000 common shares. The bonds, which bear interest at 10%,
were initially due in March 1995 and were secured by the personal property of
the parent company, excluding securities of its subsidiary. The Company also
issued additional warrants to purchase 1,200,000 common shares representing
additional issuance fees. The warrants are exercisable through July 1997 at an
exercise price of $3.20 per share. The excess of fair-market value over the
exercise price of the warrants of $1,920,000, and the fees of $1,860,000, was
recorded as debt discount and amortized over the initial period of the bonds. In
March 1995, the Company had neither sufficient funds, nor commitments to receive
sufficient funds, to pay the principal and interest. Subsequently, the Company
negotiated an extension of the bonds' maturity to March 1996; the conversion of
$600,000 of the unpaid interest to principal; and a conversion price for most of
the debt of $0.30 per share. In July 1995, the Company converted $4,100,000 of
the Series S bonds to 13,667,000 shares of common stock at $0.30 per share. In
December 1995, the company converted $210,000 of the Series S secured
convertible bonds to 700,000 shares of common stock at $0.30 per share. In March
1996 accrued unpaid interest of $71,000 on the bonds was added to principal.
Also in March 1996, the Company converted $491,000 of the bonds to 1,638,000
shares of common stock at $0.30 per share. In June 1996, the Company converted
$4,870,000 of the Series S secured convertible bonds to 16,233,000 shares of
common stock at $0.30 per share, and accrued interest of $1,111,000 was
converted to 3,704,000 shares of common stock at $0.30 per share. The maturity
date of the remaining Series S secured convertible bonds was extended to March
1997.
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Page F-18
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT (Continued)
The convertible subordinated note from ITOCHU had an original maturity date of
June 1997, with interest payments due semi-annually. The interest payment of
$331,000 due December 1994 was not paid, causing an event of default. In
February 1995, the Company made a partial interest payment of $25,000. In April
1995, the Company and ITOCHU agreed to accelerate the maturity of the note to
April 1996; and change the conversion price from $5.00 to $0.30 per share. In
July 1995, $4,100,000 of the note was converted to 13,667,000 shares of common
stock at $0.30 per share. In June 1996, the company converted the $4,880,000
balance of the convertible subordinated note from ITOCHU to 16,267,000 shares of
common stock at $0.30 per share, and the accrued unpaid interest of $1,612,000
was converted to 5,372,000 shares of common stock at $0.30 per share.
The Company and ITOCHU Corporation entered into a Supplemental Loan Agreement in
April 1995, whereby ITOCHU agreed to lend the Company amounts equal to funds the
Company receives from other outside lenders or investors, up to $3,000,000, at
10% annual interest. The notes are secured by the personal property of the
parent company and are convertible at $0.30 per share into the Company's common
stock. In July 1995, the Company received $1,856,000 under this agreement, with
principal and interest due April 1996. The Company received the remaining amount
of ITOCHU's commitment of $1,144,000 in August 1995. In March 1996, the maturity
date of these convertible secured notes was extended to April 1997.
In March through May 1995, the Company issued $1,000,000 of Series I secured
convertible bonds to investors. Principal and interest were due March 1996, with
the bonds convertible into the Company's common stock at floating conversion
rates. In August 1995, the Company issued an additional $1,144,000 of Series I
convertible bonds. In March 1996, the maturity date of the Series I secured
convertible bonds was extended to March 25, 1997. In June 1996, the Company
converted the total outstanding balance of the Series I convertible bonds of
$2,144,000 to 7,147,000 shares of common stock at $0.30 per share. In addition,
accrued unpaid interest of $230,000 was converted to 766,000 shares of common
stock at $0.30 per share.
ITOCHU and the Series S and Series I bond holders are obligated to convert the
notes and bonds they hold once (1) a restructuring/repayment workout plan has
been accepted by the unsecured creditors holding 80% of the Company's unsecured
debt, and (2) such plan has been approved by the Company in consultation with
ITOCHU Corporation, or (3) upon ITOCHU Corporation's sole election. In June
1996, having completed the initial phase of the debt restructuring with
acceptance of the workout plan by over 80% of the Company's unsecured creditors,
and in consultation with ITOCHU Corporation, the Company effected the conversion
of $11,900,000 of principal and $2,900,000 of accrued interest into 49,489,000
shares of common stock at the rate of $0.30 per share.
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Page F-19
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 6 - LONG-TERM DEBT (Continued)
In connection with the acquisition of Nordskog Electric Vehicles, Inc., renamed
Industrial Electric Vehicles, Inc. (IEV), in July 1993, the Company issued a
$1,000,000 secured convertible promissory note due in January 1997, with
interest at 9% annually and payable quarterly. This note was secured by
machinery and equipment owned by IEV. During 1995, the Company sold some of the
machinery and equipment used to secure the note and used the proceeds of $18,000
to pay down the principal. Quarterly interest payments have not been paid,
causing an event of default. The note holder did not exercise any of its
remedies with respect to the acceleration of the principal and interest nor the
collateral securing this note. The full amount of the note was classified as a
current liability in 1995, due to the event of default. In September 1996, the
Company sold the assets of IEV to a group headed by former employees of the
Company. The buyers assumed the liability for the note and the Company was
released from this liability.
In December 1994, the Company entered into a manufacturing agreement with a
vendor whereby the Company agreed to sell to the vendor sufficient inventory to
complete the conversion of 84 sedans and pick-up trucks to electric power and
then to repurchase the completed vehicles upon completion of the manufacturing
process. The selling price was established at a 10% discount from the repurchase
price; and the terms of the agreement gave the vendor a purchase money interest
in inventory. Due to the repurchase agreement, the Company did not account for
this transaction as a sale. The Company initially accrued the difference between
the selling price and repurchase price as interest expense. However, the
interest expense accrual was later reversed by the Company as a result of an
amendment to the agreement in July 1995, which eliminated the price difference
and required only the refund to the vendor of the net amount of money paid to
the Company under the agreement. During 1995, the vendor paid the Company
$867,000, and the Company paid the vendor $64,000--for a difference of $803,000,
which was recorded as an account payable. Under the July 1995 amendment, and
separate from the debt restructuring process, a portion of anticipated proceeds
from future sales of unsold vehicles in which the vendor had a purchase money
interest was to be paid to the vendor; and the vendor was to ratably release its
interest in such vehicles as they were sold until the $803,000 was fully repaid.
At July 31, 1996, approximately $364,000 remains unpaid and is included in
accounts payable.
In April 1996, and as amended in July 1996, the Company issued two promissory
notes, due April 1999, for $256,000 and $560,000, and one promissory note due
April 2016 for $3,332,000, to the Credit Managers Association of California
("CMAC") as the exclusive agent for certain unsecured creditors who settled with
the Company in connection with its Debt Restructuring Plan. Payments of $161,000
have been made on the secured promissory note.
NOTE 7 - LEASE COMMITMENTS
In November 1995, the Company moved its administrative offices from Santa Rosa,
California and entered into a three-year lease, expiring October 1998, for
administrative offices at its new location in South San Francisco. The lease
provides for an early termination by the Company during the period August 1996
to December 1996, and again in October 1997. Minimum annual lease payments will
be $99,000, $107,000 and $27,000 for the years ending July 31, 1997, 1998, and
1999, respectively.
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Page F-20
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES
As of July 31, 1996, the Company has available for carryforward approximately
$71 million and $26 million of net operating losses for federal and California
income tax purposes, respectively.
The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose
restrictions on the utilization of net operating losses in the event of an
"ownership change" as defined by Section 382 of the Internal Revenue Code of
1986. An "ownership change" occurred at the time of the private placement
memorandums in 1991 and 1992, at the time of the common and preferred stock
issuances in 1993, and upon conversion of certain debt to equity in 1995 and
1996. This change will limit future availability of net operating loss
carryforwards. The extent of the limitation has not been determined.
The following table summarizes the components of the net deferred tax assets (in
thousands):
1996 1995
---- ----
Deferred tax assets
Federal tax loss carryforward $21,797 $18,708
State tax loss carryforward 2,346 2,002
Basis difference in EIL 1,610 1,610
Accumulated depreciation 439 113
Stock option compensation 595 572
Reserves and allowances 38 262
Other, net 393 462
Amortization of goodwill -- 4
------- -------
27,218 23,733
Less valuation allowance 27,218 23,733
------- -------
Net deferred tax asset $ -- $ --
======= =======
A valuation allowance is required for those deferred tax assets that are not
likely to be realized. Realization is dependent upon future earnings during the
period that temporary differences and carryforwards are expected to be
available. Because of the uncertain nature of their ultimate utilization, based
upon the Company's past performance, a full valuation allowance is recorded
against these deferred tax assets.
- --------------------------------------------------------------------------------
Page F-21
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES (Continued)
The net operating losses expire in varying amounts, as follows, for income tax
reporting purposes:
Net Operating Loss
---------------------------------
Date of expiration Federal California
------------------ -------- ----------
1996 $ 58,000 $ 161,000
1997 125,000 558,000
1998 130,000 1,806,000
1999 124,000 1,715,000
2000 51,000 16,730,000
2001 44,000 4,541,000
2002 11,000 --
2003 64,000 --
2004 322,000 --
2005 443,000 --
2006 680,000 --
2007 2,552,000 --
2008 24,221,000 --
2009 33,460,000 --
2010 9,083,000 --
----------- -----------
$71,368,000 $25,511,000
=========== ===========
NOTE 9 - STOCKHOLDERS' DEFICIT
Series A preferred stock - During 1993, stockholders authorized 30,000,000
shares of Series A preferred stock. Series A preferred stock is currently
unregistered and convertible into common stock on a one-to-one basis, at the
election of the holder, or automatically upon the occurrence of certain events,
including: sale of stock in an underwritten public offering; registration of the
underlying conversion stock; or the merger, consolidation or sale of more than
50% of the Company. Holders of Series A preferred stock have the same voting
rights as common stockholders. The stock has a liquidation preference at $0.60
per share plus any accrued and unpaid dividends in the event of voluntary or
involuntary liquidation of the Company. Dividends are non-cumulative and payable
at the annual rate of $0.036 per share if, when, and as declared by, the Board
of Directors. No dividends have yet been declared on the Series A preferred
stock.
In July 1993, the Board of Directors approved a plan for the sale of shares of
Series A preferred stock to certain officers and directors ("Participants") at
$0.60 per share. In general, the Participants could purchase these shares for a
combination of cash, promissory notes payable to the Company, and conversion of
debt and deferred compensation due to the Participants. All shares issued under
this plan are pledged to the Company as security for the notes. The notes
provide for interest at 8% per annum payable annually with the full principal
amount and any unpaid interest due on January 31, 1997.
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Page F-22
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 9 - STOCKHOLDERS' DEFICIT (Continued)
Between August 1993, and January 1994, the Company completed a private offering
of units at $25,000 per unit. Each unit consisted of 20,000 unregistered shares
of Series A preferred stock and warrants to purchase 10,000 unregistered shares
of common stock exercisable at $1.25 per share through December 1993, and then
exercisable at $2.00 through June 1995, which was the original expiration date
of the warrants. In 1995, expiration of the warrants was extended to June 1996,
and the exercise price reduced to $0.30 per share until January 1, 1996, at
which time the exercise price reverts to $2.00 per share. An aggregate of
2,325,000 shares of Series A preferred stock and 1,150,000 warrants to purchase
common stock were issued resulting in proceeds, net of issuance costs, of
$2,615,000.
During 1994, 875,000 shares of Series A preferred stock were issued for cash
equal to the exercise prices ($0.75 to $1.00 per share) of warrants to purchase
common stock, which were surrendered, resulting in proceeds of $862,000.
Further, 34,000 shares of Series A preferred stock were issued in consideration
of $28,000 of services provided by employees and consultants.
A total of 2,264,000, 3,078,355 and 1,387,000 shares of Series A preferred stock
were converted on a one-to-one basis to common stock during 1996, 1995 and 1994,
respectively.
Series B preferred stock - In January 1996, stockholders authorized 5,000,000
shares of Series B preferred stock. Series B preferred stock is currently
unregistered and each share is initially convertible into 6.66 shares of common
stock at the election of the holder. The Series B preferred stock has certain
liquidation and dividend rights prior and in preference to the rights of the
common stock and Series A preferred stock.
In April 1996, the Company issued 1,507,000 shares of Series B preferred stock,
plus a note for $532,000, in settlement of claims of $3,547,000 under the debt
restructuring plan. In July 1996, an additional 80,000 shares of Series B
preferred stock and a note for $28,000 were issued in settlement of an
additional $189,000 of claims.
Common stock - In October 1993, the Company issued 1,000,000 unregistered shares
of common stock valued at $1,250,000 related to the purchase of certain assets
from Mosler Auto Care Center, Inc.
(See Note 3.)
In December 1993, the Company issued 215,000 unregistered shares of common stock
valued at $269,000 related to the purchase of Livermore Research and Engineering
Corporation. (See Note 3.)
In February 1994, the Company issued 1,000,000 unregistered shares of common
stock and subsequently issued an additional 60,000 unregistered shares of common
stock with an aggregate value of $2,968,000 related to the purchase of the
remaining interest in Electricar International Limited.
(See Note 3.)
Between February and June 1994, the Company sold 2,500,000 unregistered shares
of its common stock at $2.80 per share, and an additional 500,000 unregistered
shares of common stock at $3.20 per share, pursuant to a Regulation S
Subscription Agreement. In connection with this offering, under Regulation D,
one investor purchased 110,000 unregistered shares of common stock at $2.80 per
share and another investor purchased 31,000 unregistered shares of common stock
at $3.20 per share. These transactions resulted in proceeds, net of issuance
costs, of $8,320,000. The shares sold in this offering have certain registration
rights.
- --------------------------------------------------------------------------------
Page F-23
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 9 - STOCKHOLDERS' DEFICIT (Continued)
In June 1994, the Company and ITOCHU Corporation entered into agreements whereby
ITOCHU purchased 2,150,000 shares of unregistered common stock for $6,020,000,
and loaned $8,980,000 to the Company under an unsecured subordinated note
convertible into the Company's common stock at $5.00 per share. ITOCHU has
certain registration rights for the shares purchased, and the shares would be
issued upon conversion of the note. In addition, ITOCHU and the Company have
agreed to exchange certain rights and obligations with respect to international
trade and to the formation of international business ventures in the electric
vehicle industry under a related Strategic Alliance Agreement.
In connection with this transaction, the Company paid $361,000 of issuance costs
associated with the shares of common stock purchased, and $500,000 of issuance
costs associated with the subordinated note, which was being amortized over the
life of the note. In April 1995, the Company and ITOCHU agreed to reduce the
conversion price of the unsecured subordinated note from $5.00 to $0.30 per
share. Subsequently, in July 1995, $4,100,000 of the note was converted to
13,667,000 shares of common stock and $151,000 of unamortized issuance costs
associated with the converted amount of the note was transferred to common
stock. In June 1996, the $4,880,000 note balance was converted to 16,267,000
shares of common stock, and $1,612,000 of accrued interest was converted to
5,372,000 shares of common stock.
Warrants and options to purchase 220,000, 664,000 and 632,000 unregistered
shares of common stock were exercised at prices ranging from $0.25 to $2.00 per
share, resulting in proceeds, net of issuance costs, of $28,000, $174,000 and
$538,000 in 1996, 1995 and 1994, respectively.
During 1994, the Company issued 57,000 unregistered shares of common stock
valued at $82,000 in consideration for services rendered, and sold 37,000
unregistered shares of common stock for cash of $21,000 and a nonrecourse note
of $14,000. During 1995, the Company issued 79,000 unregistered shares of common
stock valued at $201,000 in consideration for services rendered.
In June and July 1995, the Company sold 9,000,000 unregistered shares of its
common stock at $0.10 per share pursuant to a Regulation S Subscription
Agreement resulting in net proceeds of $729,000.
In July 1995, $4,100,000 of the Series S secured convertible bonds issued in
September 1994 were converted, at $0.30 per share, to 13,667,000 shares of
common stock. In December 1995, the Company converted $210,000 of the bonds to
700,000 shares of common stock at $0.30 per share. In March 1996, the Company
issued 1,638,000 shares of common stock to convert $491,000 of principal and
accrued interest of the Series S secured convertible bonds at $0.30 per share of
common stock. In June 1996, the Company converted $4,870,000 of Series S bonds
and $1,111,000 of accrued interest to 16,233,000 and 3,704,000 shares,
respectively, of common stock at $0.30 per share.
In September 1994, common stock was credited $1,920,000 for the excess of the
fair-market value over the exercise price of warrants issued in connection with
the sale of the Series S secured convertible bonds.
In May 1995, 450,000 shares of common stock were canceled in connection with the
cancellation of a $180,000 non-recourse note from a participant in the Company's
stock purchase plan, which allowed certain officers and directors to purchase
Series A preferred stock. The common stock canceled was converted from
previously issued Series A preferred stock under this plan.
- --------------------------------------------------------------------------------
Page F-24
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 9 - STOCKHOLDERS' DEFICIT (Continued)
Between December 1995 and April 1996, the Company sold 3,333,000 unregistered
shares of its common stock at $0.15 per share and an additional 7,337,000
unregistered shares at $0.30 per share pursuant to the Regulation S Subscription
Agreement. These transactions resulted in proceeds of $2,701,000.
The shares sold in this offering have certain registration rights.
In June 1996, the Company converted all of the outstanding balance of $2,144,000
of Series I convertible bonds to 7,147,000 shares of common stock at $0.30 per
share. The accrued interest on these bonds of $230,000 was also converted to
766,000 shares of common stock at $0.30 per share.
NOTE 10 - STOCK OPTIONS AND WARRANTS
In 1993, stockholders approved the 1993 Employee and Consultant Stock Plan (the
"1993 Plan") which expires in 2003. Under the 1993 Plan, the Company reserved
10,000,000 shares of common stock for incentive and nonstatutory stock options
as of July 31, 1993. The Company increased the number of shares of common stock
reserved under the 1993 Plan to 15,000,000 in November 1993 and to 30,000,000 in
September 1995. Options under the 1993 Plan expire over periods not to exceed
ten years from date of grant. Options which expire or are canceled may become
available for future grants under the 1993 Plan. In addition, the Company grants
other nonstatutory stock options.
In 1994, stockholders approved the 1994 Director Stock Option Plan (the
"Director Option Plan"). Under this plan, the Company has reserved 150,000
shares of common stock for nonstatutory stock options for nonemployee directors.
Options under this plan are fully vested upon the granting of the options and
expire ten years from the date of grant unless terminated sooner upon
termination of the optionee's status as a director. Options which expire or are
canceled may become available for future grants under the Director Option Plan.
In April 1996, the Company, together with Systronix Corporation, entered into an
agreement with Hyundai Motor Company ("Hyundai") which provided Systronix with
two contracts to perform engineering services and which granted Hyundai the
right to either purchase common stock in the Company or enter into a multi-year
licensing agreement to utilize electric vehicle technology owned by Systronix.
Upon the payment by Hyundai of $250,000 to the Company in July 1996, Hyundai was
granted an option to purchase 12,000,000 shares of common stock at $0.467 per
share. This option expires on March 1, 1997. Upon the full exercise of the stock
purchase option, the Company and Systronix will grant to Hyundai a manufacturing
and distribution license to a proprietary drive train system. If Hyundai decides
not to exercise the stock purchase option, the Company and Systronix will grant
a manufacturing and distribution license system to Hyundai for $1,500,000 plus
royalties equivalent to 4% of Hyundai's procurement cost beginning with systems
sold in the year 2000. The royalty will be reduced to 3% in 2004 and to 2% in
2008, with no royalty due after 2012. The $250,000 option payment will be
applied toward the purchase of the stock or the manufacture and distribution
license if either occurs before March 1, 1997.
- --------------------------------------------------------------------------------
Page F-25
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
The following table summarizes common stock option activity (shares in
thousands):
Director
1993 Plan Option Plan Other
------------------ --------------------- --------------------
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Balance, August 1, 1993 9,910 $ 0.60 -- $ -- 2,055 $ .60-.87
Granted 5,177 .60-5.00 7 6.88 1,043 .75-3.00
Canceled (605) .60-2.80 -- -- (924) .60
Exercised -- -- -- -- (10) .87
Expired -- -- -- -- (95) .75
------ ---- ------
Balance, July 31, 1994 14,482 .60-5.00 7 6.88 2,069 .60-3.00
Granted 8,126 .40-2.97 17 .24-5.88 -- --
Canceled (4,916) .60-2.97 (8) .24-5.88 -- --
Exercised (13) .60-1.25 -- -- -- --
Expired (784) .60-2.80 -- -- -- --
------ ---- ------
Balance, July 31, 1995 16,895 .60-5.00 16 .24-6.88 2,069 .60-3.00
Granted 11,415 0.30 13 0.20 -- --
Canceled (10,034) .60-2.97 -- -- -- --
Exercised -- -- -- -- -- --
Expired (1,007) .60-2.97 (9) .71-6.88 (574) .60-2.80
------ ---- ------
Balance, July 31, 1996 17,269 .30-5.00 20 .20-6.88 1,495 .60-2.80
====== ==== ======
The Company recorded $200,000 and $1,551,000 as compensation expense during 1995
and 1994, respectively, for the difference between the quoted market price and
the exercise price of options at dates of grant amortized over the service
period related to such options.
Warrants in amounts of 1,122,000 in 1991 and 1992, 1,000,000 in 1993, 1,150,000
in 1994 and 2,400,000 in 1995 were issued in conjunction with private placements
of debentures, common stock and bonds. Warrants relating to the 1991 and 1992
private placements are exercisable at the lower of $1.00 or 125% of the market
value of the Company's common stock at date of exercise. The warrants relating
to the 1993 private placement were initially exercisable at $1.25 per share
through December 31, 1994, and $2.00 per share through June 30, 1995, the
expiration date of the warrants. On February 1, 1995, the expiration date was
extended to June 30, 1996, and the exercise price was lowered to $0.30 per share
through December 31, 1995, and then $2.00 through June 30, 1996. In connection
with the purchase of the Company's co-owner's interest in EIL, a joint venture
(Note 3), 750,000 warrants exercisable at $3.50 per share were issued. In 1994,
267,000 warrants exercisable at $3.00 and, in 1995, 20,000 warrants exercisable
at $2.00 were issued in connection with pledges of collateral made by certain
stockholders for bank lines of credit (Note 6). In September 1994, the Company
issued warrants to purchase 2,400,000 common shares representing fees for the
issuance of Series S convertible secured bonds (Note 6). The exercise price of
these warrants is $3.20 per share.
- --------------------------------------------------------------------------------
Page F-26
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
In May 1996, the Company issued 13,333,000 warrants in exchange for services
performed. The warrants are exercisable at $0.30 per share for an equal number
of shares of common stock, and expire on May 1, 1997. If the market value of the
common stock of the Company is equal to or greater than $0.60 per share on the
date of exercise, and if the average trading volume was in excess of 100,000
shares per day for the preceding 20 trading days, the warrants may be exercised
without payment of cash. The warrants may not be exercised in the United States,
and the stock purchased may not be delivered to the United States unless first
registered under the Securities Act or receive an available exemption from
registration.
The following table summarizes warrant activity (in thousands):
Purchase
of
1991 & Co-owner's
1992 1993 1994 Interest Bank Series S
Private Private Private in Joint Lines of Bond
Placements Placement Placement Venture Credit Placement Other
------------- ----------- ----------- ------------- ---------- ----------- ----------
Balance,
August 1, 1993 1,122 1,000 -- -- -- -- --
Granted -- -- 1,150 750 267 -- 247
Expired (100) -- -- -- -- -- --
Exercised (730) (325) (297) -- -- -- (147)
Canceled -- -- -- -- (134) -- --
------- ------- ------- ------- ------- ------- -------
Balance,
July 31, 1994 292 675 853 750 133 -- 100
Granted -- -- -- -- 20 2,400 100
Expired -- (25) -- -- -- -- (25)
Exercised (1) (650) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Balance,
July 31, 1995 291 -- 853 750 153 2,400 175
Granted -- -- -- -- -- -- 13,333
Expired (291) -- (853) -- -- -- (175)
Exercised -- -- -- -- (153) -- --
Canceled -- -- -- (750) -- (220) --
------- ------- ------- ------- ------- ------- -------
Balance,
July 31, 1996 -- -- -- -- -- 2,180 13,333
======= ======= ======= ======= ======= ======= =======
- --------------------------------------------------------------------------------
Page F-27
U. S. ELECTRICAR, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 11 - CONTINGENCIES
In connection with the Company's default on its debt obligations to unsecured
creditors, nineteen of these creditors have brought independent lawsuits to
various courts in California, Connecticut, North Carolina and New York in the
aggregate amount of approximately $650,000. As of October 23, 1996, nine of the
unsecured creditors have obtained judgments against the Company in the aggregate
amount of approximately $450,000. The remaining suits are pending. In addition,
in 1995 four former officers of the Company have threatened actions against the
Company for damages as a result of its failure to pay severance pay under
certain employment contracts in the aggregate amount of $377,000. To date no
actions have been filed.
The Company is also subject to other legal proceedings and claims that have
arisen during the period of restructuring both its debt and operations. The
ultimate resolution of these proceedings is not known, but the final outcomes
are not expected to significantly influence the Company's current financial
position.
NOTE 12 - SUBSEQUENT EVENTS
A substantial portion of the assets of Industrial Electric Vehicles, Inc.,
(formerly Nordskog Electric Vehicles, Inc. (Nordskog), prior to its acquisition
in July 1993 by the Company), were sold in September 1996. Consideration for
this sale included the assumption of the note payable that totaled $1,013,000 at
July 31, 1996 to Nordskog.
As discussed at Note 3, the Company acquired substantially all the assets and
certain liabilities of Systronix Corporation for cash, notes and stock totaling
approximately $2,686,000.
- --------------------------------------------------------------------------------
Page F-28
EXHIBIT INDEX
Exhibit No. Description
================================================================================
3.1(1) Certificate of Amendment of Articles of Incorporation, filed
1/12/94, changing name to U.S. Electricar, Inc.
3.2(1) Certificate of Correction to Amended and Restated Articles of
Incorporation, filed 8/23/93, correcting number of shares of Series
A Preferred stock to 30,000,000.
3.3(1) Amended and Restated Articles of Incorporation, filed 7/26/93,
changing number of authorized Common Stock shares to 60,000,000 and
Preferred Stock shares to 35,000,000, authorizing 3,000,000 Series
A Convertible Preferred Stock shares and establishing rights,
preferences, privileges and restrictions of Series A Preferred
stock.
3.4(1) Amended and Restated Articles of Incorporation, filed 12/29/89,
changing number of authorized Common Stock shares to 20,000,000 and
authorizing 10,000,000 shares of Preferred Stock.
3.5(1) Certificate of Amendment of Articles of Incorporation, filed
3/3/83, authorizing reverse stock split.
3.6(1) Certificate of Amendment of Articles of Incorporation, filed
10/21/81, increasing authorized Common Stock shares to 80,000,000.
3.7(1) Certificate of Amendment of Articles of Incorporation, filed
8/24/79, increasing authorized Common Stock shares to 40,000,000.
3.8(1) Certificate of Amendment of Articles of Incorporation, filed
6/27/79, changing name to Solar Electric Engineering, Inc.
3.9(1) Certificate of Amendment of Articles of Incorporation of Clover
Solar Corporation, Inc., dated 5/9/79, filed 5/17/79, changing name
to Solar Electric Eng., Inc., and increasing authorized Common
Stock shares to 20,000,000 and authorizing a 1/10 Common Stock
split.
3.10(1) Certificate of Amendment of Articles of Incorporation of Clover
Solar Corporation, Inc., dated 2/21/77, filed 3/15/77, increasing
authorized Common Stock shares to 2,000,000, and authorizing a 1/10
Common Stock split.
3.11(1) Articles of Incorporation of Clover Solar Corporation, Inc.
3.12(1) Bylaws of Registrant.
3.13(4) Certificate of Amendment of Restated and Amended Articles of
Incorporation of U.S. Electricar, Inc., filed February 1, 1995,
whereby the number of shares of common stock authorized to issue
was changed from 60,000,000 shares to 100,000,000 shares.
EXHIBIT INDEX
Exhibit No. Description
================================================================================
3.14(4) Certificate of Correction of Certificate of Amendment of Restated
and Amended Articles of Incorporation of U.S. Electricar, Inc.,
filed February 10, 1995, whereby the total number of shares of
Preferred Stock designated as Series A convertible Preferred Stock
was corrected to 30,000,000.
3.15(8) Restated and Amended Articles of Incorporation of U.S. Electricar
filed March 18, 1996.
4.1(1) Specimen Common Stock Certificate.
4.2(1) Specimen Series A Preferred Stock Certificate.
4.3(1) Articles of Incorporation Provision Defining Rights of Series A
Preferred Stock.
4.4(4) Form of Solar Electric Engineering, Inc. Subscription Agreement
(regarding April 1993 Private Placement Offering).
4.5(1) Form of Solar Electric Engineering, Inc. Common Stock and Warrants
to Purchase Common Stock Subscription Agreement (regarding
September 1993 Private Placement Offering).
4.6(1) Form of Solar Electric Engineering, Inc. Registration Rights
Agreement (regarding September 1993 Private Placement Offering).
4.7(1) Form of U.S. Electricar, Inc. Subscription Purchase Agreement
(regarding January 1994 Reg S Private Placement Offering).
4.8(1) Form of U.S. Electricar, Inc. S-1 Registration Rights Agreement
(regarding January 1994 Reg S Private Placement Offering).
4.9(1) Form of U.S. Electricar, Inc. Amended S-1 Registration Rights
Agreement (regarding January 1994, Reg S Private Placement
Offering).
4.10(1) Amendment to U.S. Electricar, Inc. Amended S-1 Registration Rights
Agreement, dated November 23, 1994 (regarding January 1994 Reg S
Private Placement Offering).
4.11(1) Letter dated August 8, 1994 from U.S. Electricar, Inc., regarding
registration rights for shares of Common Stock held by Mark
Neuhaus.
4.12(1) Shareholders' Agreement: ITOCHU Corporation, dated June 9, 1994.
4.13(1) Form of U.S. Electricar, Inc. Subscription and Loan Agreement
(regarding September 1994 Reg S Private Placement Offering).
4.14(1) Form of U.S. Electricar, Inc. Secured Convertible Bond to Purchase
Common Stock (regarding September 1994 Reg S Private Placement
Offering).
EXHIBIT INDEX
Exhibit No. Description
================================================================================
4.15(1) Form of U.S. Electricar, Inc. Security Agreement (regarding
September 1994 Reg S Private Placement Offering).
4.16(1) Form of U.S. Electricar, Inc. Warrant to Purchase Common Stock
(regarding September 1994 Reg S Private Placement Offering).
4.17 Cashless Exercise Warrants dated October 25, 1996 issued to Fontal
International, Ltd.
10.1(1) Amendment of Solicitation/Modification of Contract (dated December
15, 1992, between Nordskog Electric Vehicles and the General
Services Administration).
10.2(1) Common Stock Purchase Agreement (dated July 30, 1993, among Solar
Electric Engineering, Inc., Vehicles Holding Company, Inc.,
Nordskog Electric Vehicles and Elinor Nordskog).
10.3(1) Convertible note issued in connection with the purchase of Nordskog
Electric Vehicles.
10.4(1) Amendment to Common Stock Purchase Agreement (dated July 30, 1993,
among U.S. Electricar, Inc. (formerly Solar Electric Engineering,
Inc.), Industrial Electric Vehicles, Inc. (formerly Nordskog
Electric Vehicles), Vehicles Holding Company, Inc., and Elinor
Nordskog).
10.5(1) Asset Purchase Agreement (dated October 31, 1993, among Solar
Electric Engineering, Inc., U.S. Electricar Consulier, Inc., Mosler
Auto Care Center, Inc., Consulier Engineering, Inc., and Warren B.
Mosler).
10.6(3) International Distribution Agreement (dated September 10, 1993,
among Solar Electric Asia Limited, Solar Electric Engineering, Inc.
and Electric Motor Car Company, Limited).
10.7(3) Amendment to International Distribution Agreement (dated February
15, 1994).
10.8(1) Stock Purchase Agreement (dated December 31, 1993, among Bruce E.
Engelmann and Robert G. Whirley and Solar Electric Engineering,
Inc.).
10.9(1) Stock Purchase Agreement (dated February 17, 1994, among U.S.
Electricar, Inc., Energy Resources Limited, EV Resources, Ltd.,
Windlass Holdings, Ltd. and Electric Motor Car Company, Limited).
10.10(1) Form of U.S. Electricar, Inc. Promissory Note (dated February 17,
1994).
10.11(1) Warrant to Purchase Common Stock (dated February 17, 1994, granted
to Energy Resources Limited).
EXHIBIT INDEX
Exhibit No. Description
================================================================================
10.12(1) Agreement for the Electric & Hybrid Electric Vehicle Technology &
Infrastructure Program (EVTI) dated as of 11/24/93 between
Calstart, Inc. and Solar Electric Engineering, Inc.
10.13(1) Codding Bank Revolving Line of Credit Promissory Note.
10.14(1) Letter Confirming Transfer of Solar Home to Earth Options Institute
by Solar Electric Engineering, Inc. (dated December 9, 1992).
10.15(1) Form of Stock Option Agreement under 1993 Employee and Consultant
Stock Plan.
10.16(1) Form of Solar Electric Engineering, Inc. 1993 Employee and
Consultant Stock Plan.
10.17(1) Form of U.S. Electricar, Inc. 1994 Director Stock Option Plan.
10.18(1) Form of Solar Electric Engineering, Inc. Warrant Issued in
Connection with 1992 Private Placement Offering.
10.19(1) Compensation Deferral and Debt Conversion Agreement (Ted D.
Morgan).
10.20(1) Secured, Partially Nonrecourse Promissory Note (Ted D. Morgan).
10.21(1) Pledge Agreement (Ted D. Morgan).
10.22(1) Compensation Deferral and Debt Conversion Agreement (John
Billington).
10.23(1) Secured, Partially Nonrecourse Promissory Note (John Billington).
10.24(1) Pledge Agreement (John Billington).
10.25(1) Compensation Deferral and Debt Conversion Agreement (Harold
Robinson).
10.26(1) Secured, Nonrecourse Promissory Note (Harold Robinson).
10.27(1) Pledge Agreement (Harold Robinson).
10.28(1) Compensation Deferral and Debt Conversion Agreement (Michael
Chobotov).
10.29(1) Secured, Partially Nonrecourse Promissory Note (Michael Chobotov).
10.30(1) Pledge Agreement (Michael Chobotov).
10.31(1) Compensation Deferral and Debt Conversion Agreement (David
Brandmeyer).
EXHIBIT INDEX
Exhibit No. Description
================================================================================
10.32(1) Secured, Partially Nonrecourse Promissory Note (David Brandmeyer).
10.33(1) Pledge Agreement (David Brandmeyer).
10.34(1) Secured, Partially Nonrecourse Promissory Note (James Miller).
10.35(1) Pledge Agreement (James Miller).
10.36(1) Employment Agreement: John J. Micek III (dated January 31, 1994).
10.37(1) Employment Agreement: David Brandmeyer (dated November 1, 1992).
10.38(1) Employment Agreement: Ted D. Morgan (dated November 1, 1992).
10.39(1) Employment Agreement: John A. Billington (dated November 1, 1992).
10.40(1) Employment Agreement: Thomas A. Hakel (dated January 10, 1994).
10.41(1) Employment Agreement: Carl D. Perry (dated July 5, 1993).
10.42(1) Employment Agreement: Michael V. Chobotov (dated July 1, 1993).
10.43(1) Employment Agreement: Robert Garzee (dated July 1, 1993).
10.44(1) Employment Agreement: James B. Boyd (dated April 25, 1994).
10.45(1) Employment Agreement: Chris Crispel (dated July 11, 1994).
10.46(1) Letter Consulting Agreement: Harold H. Robinson.
10.47(1) Nordskog Electric Vehicles New Vehicles One-Year Limited Warranty.
10.48(3) Purchase Order (from U.S. Electricar, Inc. to GM Hughes Electronics
Co. dated December 16, 1993).
10.49(3) Purchase Order (from U.S. Electricar, Inc. to Hawker Energy
Products dated March 11, 1994).
10.50(1) Commercial Lease (dated November 7, 1992, between Daniel and Robbin
Davis and Solar Electric Engineering, Inc.).
10.51(1) Sublease (dated March 16, 1994, between Custodis-Ecodyne, Inc. and
U.S. Electricar, Inc.).
10.52(1) Sublease (dated March 16, 1994, between Custodis-Ecodyne, Inc. and
U.S. Electricar, Inc.).
EXHIBIT INDEX
Exhibit No. Description
================================================================================
10.53(1) Standard Industrial Lease - Net (dated March 11, 1994 between U.S
Electricar, Inc. and Dixie J. Walker and R. Ruth Waltenspeil).
10.54(1) Standard Industrial Lease - Multi-Tenant (dated January 20, 1993,
between Solar Electric Engineering, Inc. and Roberts Business Park
- Sunrise).
10.55(1) Standard Industrial Lease - Multi-Tenant (dated May 11, 1994,
between U.S. Electricar, Inc. and Roberts Business Park - Sunrise).
10.56(1) Lease (dated March 4, 1994, between Warren B. Mosler and U.S.
Electricar Consulier, Inc.).
10.57(1) Standard Industrial/Commercial Single-Tenant Lease - Net (dated
July, 1993, between Elinor T. Nordskog, Elinor T. Nordskog as
Executor of the estate of Robert A. Nordskog, Gerald C. Nordskog,
Carla M. Wales, and Solar Electric Engineering, Inc.).
10.58(3) Joint Venture Agreement (dated as of July 16, 1993 between Solar
Electric Engineering, Inc. and Energy Resources Limited).
10.59(1) Assignment of Deposit Account (Grantor: Jean Schulz, dated January
28, 1994).
10.60(1) Assignment of Deposit Account (Grantor: Ronald A. Nelson, dated
January 28, 1994).
10.61(1) Assignment of Deposit Account (Grantor: James S. Miller, dated
January 28, 1994).
10.62(1) Assignment of Deposit Account (Grantor: Harold H. Robinson, III,
dated January 28, 1994).
10.63(1) Form of Indemnification Agreement.
10.64(1) Negotiated Agreement For Services: High Technology Development
Corporation, an Agency of the Department of Business, Economic
Development and Tourism, State of Hawaii, dated March 1, 1994.
10.65(1) Loan Agreement: ITOCHU Corporation, dated June 9, 1994.
10.66(1) Convertible Subordinated Promissory Note: ITOCHU Corporation, dated
June 10, 1994.
10.67(1) Common Stock Purchase Agreement: ITOCHU Corporation, dated June 9,
1994.
10.68(1) Strategic Alliance Agreement: ITOCHU Corporation, dated June 9,
1994.
EXHIBIT INDEX
Exhibit No. Description
================================================================================
10.69(1) Form of Settlement Agreement between U.S. Electricar, Inc. and Mark
Neuhaus.
10.70(1) Agency Agreement between U.S. Electricar, Inc. and Yorkton
Securities, Inc. (dated September 23, 1994).
10.71(1) Business Venture Agreement between U.S. Electricar, Inc. and Grupo
Industrial Casa, S.A. de C.V. (dated August 11, 1994).
10.72(2) First Amendment to Business Venture Agreement between U.S.
Electricar, Inc. and Grupo Industrial Casa, S.A. de C.V. (dated
December 20, 1994).
10.73(3) License/Collaboration Agreement dated as of July 22, 1994 between
U.S. Electricar, Inc. and The Regents of the University of
California, LLNL.
10.74(4) Second Amendment to Business Venture Agreement, dated February 1,
1995, by and between U.S. Electricar, Inc. and Grupo Industrial
Casa, S.A. de C.V.
10.75(5) Letter dated May 23, 1995 to U.S. Electricar, Inc. from Grupo
Industrial Casa, S.A. de C.V.
10.76(5) Form of Security Agreement dated effective March 30, 1995, by and
among U.S. Electricar, Inc. and the Series I Bond Holders.
10.77(5) Form of Secured Convertible Loan Purchase Agreement, dated
effective March 20, 1995, by and between U.S. Electricar, Inc. and
Investors in Secured Convertible 10% Series I Bonds of the Company.
10.78(5) Form of Secured Convertible 10% Series I Bond to Purchase Common
Stock, dated as of April 21, 1995.
10.79(5) Memorandum dated May 18, 1995 to Itochu Corporation, Citibank
(Switzerland), and Gerlach & Co. re: Amendment to Conversion Terms
of Outstanding Debt.
10.80(5) Supplemental Loan Agreement, entered into as of April 13, 1995, by
and between U.S. Electricar, Inc. and Itochu Corporation.
10.81(5) First Amendment to Loan Agreement entered into as of April 13,
1995, by and between U.S. Electricar, Inc. and Itochu Corporation.
10.82(5) Security Agreement dated April 13, 1995, by and between U.S.
Electricar, Inc. and Itochu Corporation.
10.83(5) Convertible Secured Promissory Note dated April 17, 1995, in the
amount of $500,000 by U.S. Electricar, Inc. to Itochu Corporation.
10.84(5) Amendment to Security Agreement made as of May 31, 1995, by and
between Itochu Corporation and U.S. Electricar, Inc.
EXHIBIT INDEX
Exhibit No. Description
================================================================================
10.85(5) Form of Security Agreement made as of May 31, 1995, between the
Company and Credit Managers Association of California, Trustee.
10.86(5) Form of Common Stock Purchase and Debt Exchange Agreement dated
March 20, 1995, between the Company and Citibank (Switzerland) and
Citibank (Luxembourg).
10.87(6) Standard Industrial/Commercial Multi-Tenant Lease - Gross (dated
September 29, 1995, between U.S. Electricar, Inc. and Salvatore and
Irene Bisagno).
10.88(6) Lease Agreement (dated as of November 1, 1995, between U.S.
Electricar, Inc. and OB-1 Associates).
10.89(6) Form of Secured Convertible Loan Purchase Agreement dated effective
as of August 7, 1995 (including (i) form of Secured Convertible 10%
Series I Bond to Purchase Common Stock, and (ii) form of Security
Agreement), by and between U.S. Electricar, Inc. and Investors in
Secured Convertible 10% Series I Bonds.
10.90(7) Common Stock Purchase Agreement pursuant to Regulation S between
the Company and Gerlach & Co., dated January 8, 1996.
10.91(7) Form of Confidential Private Placement Memorandum and Debt
Restructuring Disclosure Statement of U.S. Electricar, Inc., dated
January 2, 1996, delivered by the Company to its certain unsecured
trade creditors (including exhibits).
10.92(7) Form of Stock Purchase, Note and Debt Exchange Agreement dated
January 2, 1996 between the Company and certain unsecured trade
creditors.
10.93(8) Regulation S Common Stock Subscription Agreement dated May 1, 1996,
with Gerlach & Co.
10.94 Hyundai Agreement
10.95 Agreement for Purchase and Sale of Assets, effective October 25,
1996, by and between U.S. Electricar, Inc. and Systronix
Corporation, and exhibits.
10.96 U.S. Electricar 1996 Employee and Consultant Stock Option Plan.
10.97(9) Agreement for the Purchase and Sale of Assets, effective September
5, 1996, by and between Industrial Electric Vehicles, Inc., U.S.
Electricar, Inc., and Legend Electric Vehicles, Inc.
11 Statement Re: Computation of per share earnings.
21(1) Subsidiaries of the Registrant.
24 Power of Attorney (included on signature page)
27 Financial Data Schedule.
EXHIBIT INDEX
Exhibit No. Description
================================================================================
- ----------------------------
(1) Incorporated by reference to identically numbered exhibits filed
with the Registration Statement on Form 10 filed on November 29,
1994.
(2) Incorporated by reference to identically numbered exhibits filed
with the Amendment No. 1 to Form 10 filed on January 27, 1995.
(3) Incorporated by reference to identically numbered exhibits filed
with the Amendment No. 2 to Form 10 filed on February 28, 1995.
(4) Incorporated by reference to identically numbered exhibits filed
with the Form 10-Q filed on March 17, 1995.
(5) Incorporated by reference to identically numbered exhibits filed
with the Form 10-Q filed on June 14, 1995.
(6) Incorporated by reference to identically numbered exhibits filed
with the Form 10-K for the year ended July 31, 1995, filed on
October 30, 1995.
(7) Incorporated by reference to identically numbered exhibits filed
with the Form 10-Q filed on March 18, 1996.
(8) Incorporated by reference to the identically numbered exhibit filed
with the Form 10-Q filed on June 14, 1996.
(9) Incorporated by reference to Exhibit No. 10.87 filed with the Form
8-K filed on September 19, 1996.
EI