1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Nine Months Ended Commission File Number September 30, 1995 00-17303 VECTOR AEROMOTIVE CORPORATION (Exact name of registrant as specified in its charter) NEVADA 33-025-4334 (State of Incorporation) (I.R.S. Employer Identification No.) 7601 CENTURION PARKWAY JACKSONVILLE, FLORIDA 32256 (Address of principal executive offices) (904) 645-0505 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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 [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Common Stock, $.01 par value per share; 42,664,699 shares outstanding as of November 10, 1995 2 Vector Aeromotive Corporation Condensed Balance Sheets (Unaudited) September 30, December 31, 1995 1994 ------------- ------------ Assets - ---------------------------------------- Current assets: Cash and cash equivalents $896,485 $7,809 Inventories 464,527 286,347 Prepaid expenses 16,903 12,789 Accounts receivable 0 50,000 Other receivable 5,868 232,804 ----------- ----------- Total current assets 1,383,783 589,749 Property and equipment 915,819 567,861 Other assets 137,931 137,180 ----------- ----------- $2,437,533 $1,294,790 =========== =========== Liabilities and Stockholders' Equity - ---------------------------------------- Current liabilities: Accounts payable $528,379 $528,170 Accrued expenses 462,144 114,886 Interest payable 47,207 47,207 Note payable to related party 178,200 178,200 Customer deposits 48,900 65,000 ----------- ----------- Total current liabilities 1,264,830 933,463 ----------- ----------- Contingencies (Note 6) ----------- ----------- Total liabilities 1,264,830 933,463 Stockholders' Equity Common stock, par value $.01 per share, 423,746 240,463 600,000,000 shares authorized; issued and outstanding: 42,374,699 in 1995 and 24,046,366 in 1994 Capital in excess of par value 31,668,309 26,211,740 Accumulated deficit (30,919,352) (26,090,876) ----------- ----------- Total stockholders' equity 1,172,703 361,327 ----------- ----------- $2,437,533 $1,294,790 =========== =========== See accompanying notes to unaudited condensed financial statements. 1 3 Vector Aeromotive Corporation Condensed Statements of Operations Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 -------------------------- ------------------------------- (Unaudited) (Unaudited) Automobile sales - - - - Other sales - $0 - $48,420 Cost of sales - $0 - 26,730 -------------------------- ------------------------------- Gross profit - 0 - 21,690 Costs and expenses Salaries and wages $266,894 113,605 $478,994 367,048 Rental expense 18,315 (8,543) 89,250 92,459 Utilities 1,548 14,823 3,241 27,916 Research and development 1,009,055 233,322 2,742,824 1,179,545 Depreciation and amortization 66,824 77,935 154,930 224,220 Advertising and promotion 33,772 50,677 40,881 124,129 Professional fees 108,925 617,848 497,740 1,069,755 General and administrative 314,439 407,654 941,844 945,767 Other expense - 255,938 - 255,938 -------------------------- ------------------------------- Total costs and expenses 1,819,772 1,763,259 4,949,704 4,286,777 -------------------------- ------------------------------- Operating loss (1,819,772) (1,763,259) (4,949,704) (4,265,087) Other income (expense) Interest and other income 33,014 81,205 221,228 133,169 Other expense - (188,327) (214,114) Litigation expense (100,000) (125,000) (100,000) (125,000) -------------------------- ------------------------------- Net loss ($1,886,758) ($1,995,381) ($4,828,476) ($4,471,032) ========================== =============================== Net loss per share ($0.04) ($0.08) ($0.12) ($0.21) ========================== =============================== Weighted average common shares outstanding 42,379,699 24,046,366 40,851,921 21,510,629 ========================== =============================== See accompanying notes to unaudited condensed financial statements. 2 4 Vector Aeromotive Corporation Condensed Statement of Shareholders' Equity (Unaudited) Common Stock --------------------- Capital in Excess Accumulated Shares Amount of Par Value Deficit Total --------------------------------------------------------------------------- Balance, December 31, 1994 24,046,366 $240,463 $26,211,740 ($26,090,876) $361,327 Forfeiture of shares (5,000) (50) 50 $0 Issuance of shares for cash 18,333,333 183,333 5,316,667 5,500,000 Issuance of option to purchase common stock 500,000 500,000 Issuance of options for services 70,240 70,240 Stock offering costs (430,388) (430,388) Net loss (4,828,476) (4,828,476) -------------------------------------------------------------------------- Balance, September 30, 1995 42,374,699 $423,746 $31,668,309 ($30,919,352) $1,172,703 ========================================================================== See accompanying notes to unaudited condensed financial statements. 3 5 Vector Aeromotive Corporation Condensed Statements of Cash Flows (Unaudited) Nine Months Nine Months Ended Ended Sept. 30, 1995 Sept. 30, 1994 -------------- -------------- Cash flows from operating activities: Net loss ($4,828,476) ($4,471,032) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 154,930 224,220 Gain on sale of fixed assets - (3,059) Issuance of warrants and options for services 70,240 255,938 Increase (decrease) from changes in Inventories (178,180) 41,975 Other receivable 226,936 10,100 Prepaid expenses and other assets 45,135 (23,765) Accounts payable 209 (283,323) Court bond receivable - (232,803) Accrued expenses 347,258 (237,587) Customer deposits (16,100) (35,000) ----------- ----------- Net cash from operating activities (4,178,048) (4,754,336) Cash flows used in investing activities: Acquisition of property and equipment (502,888) (612,578) Decrease in note receivable - 25,000 Decrease in other assets - 32,725 ----------- ----------- Net cash used in investing activities (502,888) (554,853) Cash flows from financing activities: Proceeds from issuance of common stock, - options and warrants 6,000,000 5,380,500 Stock offering costs (430,388) - Decrease in changes in net settlement payable - (185,000) ----------- ----------- Net cash from financing activities 5,569,612 5,195,500 Net increase (decrease) in cash and cash equivalents 888,676 (113,689) Cash and cash equivalents, beginning of period 7,809 377,694 ----------- ----------- Cash and cash equivalents, end of period $896,485 $264,005 =========== =========== See accompanying notes to unaudited condensed financial statements. 4 6 NOTES TO FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of the Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Notes to Financial Statements contained in the Company's Annual Report on form 10-K for the year ended September 30, 1994. On October 3, 1994 the Company changed its fiscal year-end from September 30 to December 31. A transition report was filed on Form 10-Q for the period ended December 31, 1994. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 1995 are not necessarily indicative of the results that may be expected for the year ended December 31, 1995. 2. Inventories The components of inventory consist of the following: Sept. 30, Dec. 31, 1995 1994 --------- --------- Raw Material $284,527 $286,347 Finished Goods $180,000 - -------- -------- Total $464,527 $286,347 ======== ======== During the first quarter of 1995, the Company repurchased one of its Vector W8 automobiles from Lamborghini USA for cash. 5 7 3. Stock Issuances Effective as of January 5, 1995, the Company entered into a Share Purchase Agreement and Option Agreement with V'Power Corporation ("VPC"). Pursuant to these agreements, the Company issued VPC on January 15, 1995, 18,333,333 shares of Common Stock for $5.5 million and on April 17, 1995 sold to VPC for $500,000 a twelve-month option to acquire an additional 50 million shares of Common Stock for $.43 per share. Fees for legal, investment banking, consulting and advisory services incurred for the stock offering totaling $430,388 were charged against capital in excess of par. In November, 1995, VPC notified the Company that it is partially exercising its option and is purchasing 2,325,581 shares of Common Stock at an exercise price of $.43 per share. In October, 1995, the Company entered into an agreement with a consulting firm to perform certain services for the Company for one year in exchange for i) $30,000 in cash, ii) 640,000 shares of Common Stock (290,000 of which were issued in October, 1995 and 350,000 of which are issuable in April, 1996) and iii) options to purchase 500,000 shares of Common Stock at prices ranging from $.50 to $1.75 per share. The options expire ratably through April, 1998. In November, 1990, the Company issued warrants to purchase 400,000 shares of Common Stock, "the 1990 Warrants." Under their original terms, the 1990 Warrants were exercisable for one share of Common Stock each for an exercise price of $4.68 and were to expire on November 14, 1995. In October, 1995, the Company modified the terms of the 1990 Warrants. As modified, the 1990 Warrants are exercisable for one share of Common Stock for an exercise price of $1.50 and expire August 12, 1996. In August, 1995, the Company's Board of Directors approved the issuance of options to certain of its employees and directors under its 1994 Omnibus Plan for an aggregate of 439,000 shares of Common Stock with an exercise price of $.38 per share, 70% of the trading price of the Company's Common Stock at the time. The Company has recorded compensation expense of $70,240 during the third quarter of 1995 as a result. 6 8 4. Other Receivable In January, 1995, a settlement was reached for $125,385 regarding the 1992 complaint against the Company for breach of contract. The balance of the $357,000 appeal bond was returned to the Company. 5. Commitments In November 1994, the Company and automobili Lamborghini, S.p.A. ("Lamborghini") entered into an agreement whereby Lamborghini would develop and sell to the Company a suitable engine to power the Avtech which will be completed during 1995 in exchange for certain consideration. In addition, the Company shall pay to Lamborghini the cost of tooling used to manufacture the engine. Upon successful development of the engine suitable for installation and operation, the Company also agreed to purchase a minimum number of engines through 1997 for a pre-determined price (subject to increases in cost of production). The Company may, upon prior written notice to Lamborghini, terminate the agreement at any time. 6. Contingencies On March 22, 1993, the Company's Board of Directors (The Board) determined that Gerald A. Weigert's (the former President of the Company) employment as an officer and employee of the Company should be terminated. Mr. Weigert disputed the Board's authority to terminate his employment and refused to relinquish control over the Company's assets and operations. This dispute between the Company, acting through its Board and certain executive officers, and Mr. Weigert is the subject of an ongoing civil lawsuit which was commenced by the Company on March 24, 1993. On September 14, 1993, the Company obtained a court order confirming the validity of Mr. Weigert's termination, and control of the Company's assets and business affairs has been returned to the Board. Significant claims made by the Company against Mr. Weigert, and by Mr. Weigert against the Company, seeking monetary damages, are pending. In the opinion of management, these claims will not have a material adverse effect on the Company's financial condition. Mr. Weigert also alleges that the Company has failed to pay principal and accrued interest under two promissory notes allegedly payable by the Company to Vector Car, a partnership controlled by Mr. Weigert. At March 31, 1994, the Company 7 9 had recorded amounts due relating to the promissory notes mentioned above totaling $178,200 plus accrued interest of $47,207. This claim is being disputed by the Company. In June 1994, Thomas E. King, an individual both in his name and under his "dba," "King and Associates" (the "Plaintiff"), filed a complaint against the Company in the Los Angeles County Superior Court. The complaint sets forth six claims for breach of contract, fraud, negligent misrepresentation, breach of implied covenant of good faith and fair dealing, restitution and quantum merit. The complaint alleges that Plaintiff performed services with respect to a public offering and that under the terms of a finder's agreement, the Plaintiff is entitled to compensation for services allegedly rendered in connection with the public offering. The Plaintiff is seeking special damages of $155,000 plus interest from August 19, 1991. The Company has negotiated a settlement of this case for the sum of $100,000 payable in nine installments. The agreement is expected to be executed prior to November 13, 1995. In 1994, Mr. Weigert, as general partner of Vector Car, filed an action alleging that the Company assumed a Vector Car debt to him, in the approximate sum of $325,000. Vector Car has also alleged that the Company has a promissory note due in the amount of $250,000 to Vector Car. The Company will vigorously defend this action believing that it has performed on all agreements with Vector Car. Mr. Weigert has filed an application with the United States Patent and Trademark Office to register "Avtech" as a trademark. The Company is opposing Mr. Weigert's application. 8 10 PART I - FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION General Testing and development of the M12 (formally known as the Avtech) has progressed during the third quarter to include the successful compliance with more than 7 specific FMVSS test requirements. These included FMVSS 208 and 301 tests that establish thresholds of acceptable performance for occupant injury protection and fuel system integrity in a 30mph frontal impact. Characteristic injury levels measured on the crash dummies were 50% of the maximum allowable level, and fuel integrity was maintained. During July, hot testing and high speed cooling continued to a satisfactory conclusion in southern Italy. A second test vehicle was also shipped to Italy to undergo calibration and drivability tests prior to being returned to the United States to undergo EPA and CARB emission standard testing. These tests are scheduled for completion in early November. The completion of chassis weld fixtures and body lamination tooling were a major focus of activity during the quarter as plans were implemented in preparation for the commencement of production build during the early part of October. Dealer development continued resulting in the internal approval of 8 dealers qualified to meet the Company's retail requirements. This activity will continue in order to achieve the planned 12 dealers by year end. Results of Operations The Company recorded no automobile sales during the nine months ended September 30, 1995 and 1994. Revenues for 1994 consisted of service and repair work. Total costs and expenses for the third quarter of 1995 increased $56,513 or approximately 3% compared to the third quarter of 1994, and increased $684,617 or 16% year-to-date in 1995 compared to 1994, due to the increased research and development activity. Total costs spent on research and development for the third quarter of 1995 were $1,009,055 as compared to $233,322 in 1994, an increase of $775,733. 9 11 Total costs spent on research and development year-to-date in 1995 were $2,742,824 compared to $1,179,545 year-to-date in 1994. Salaries and wages for the third quarter of 1995 increased by $153,289 or 135% from the third quarter of 1994 and increased $111,946 or 30% for the nine months ended September 30, 1995 compared to 1994. These increases reflect the reduction in workforce and termination of most business operations during mid 1993. Additionally, the Company recorded compensation expense of $70,240 in the third quarter of 1995 pursuant to the Board of Director's approval of the issuance of options to certain of its employees and directors. Professional fees have decreased $508,923 or 82% from the third quarter of 1995 compared to the third quarter of 1994 due to legal fees incurred in connection with the Company's litigation with its former President in 1994. Year-to-date these costs were $572,015 lower than last year. General and administrative expenses decreased by $93,215 or 23% in the third quarter of 1995 compared to the third quarter of 1994 as a result of an inventory write-down during 1994 totaling $154,000 for obsolete inventory. Liquidity and Capital Resources As previously reported, the Company entered into an agreement in January 1995 from which $5.5 million, net of stock offering costs, was received. As of September 30, 1995, the balance of the Company's cash and equivalents is approximately $896,000. Cash used during the first nine months of 1995 has been primarily for engineering research and development and tooling and payment of legal costs related to the ongoing litigation with the Company's former President. The Company continues to progress towards planned production launch and sale of the M12 late this year. In November 1995, V'Power Corporation notified the Company that it is partially exercising an option held by it and is purchasing 2,325,581 shares of the Company's Common Stock at $.43 per share, pursuant to their Option Agreement with the Company dated April 17, 1995. The Company believes that this additional funding of $1 million will sustain the Company's operations until early 1996 when it is anticipated that car sales will create positive cash flow. There can be no assurance, however, that additional funds will not be required and the Company is continuing to seek additional funds through private placement of debt or equity securities. 10 12 Exhibits 4.01 Payment Agreement between Vector Aeromotive Corporation and Corporate Relations Group, Inc. 27.01 Financial Data Schedule (for SEC use only) 11 13 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. VECTOR AEROMOTIVE CORPORATION Date: November 14, 1995 By: D. Peter Rose --------------------------- ------------------------------- D. Peter Rose President Date: November 14, 1995 By: Janna L. Connolly --------------------------- ------------------------------- Janna L. Connolly Chief Accounting Officer 12