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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For Annual and Transition Reports
Pursuant to Sections 13 or 15(d) of the
Securities and Exchange Act of 1934
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from August 1, 1999 to December 31, 1999
Commission File No. 0-25184
U. S. ELECTRICAR, INC.
(Exact name of registrant as specified in its charter)
California 95-3056150
---------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
19850 South Magellan Drive, Torrance, California 90502
(Address of principal executive offices, including zip code)
(310) 527-2800
(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 and non-voting stock held by
non-affiliates of the registrant as of March 27, 2000 was $13,515,672. For
purposes of this calculation only, (i) shares of Common Stock and Series A
Preferred Stock are deemed to have a market value of $0.41 per share, and the
Series B Preferred Stock is deemed to have a market value of $1.37 per share,
based on the average of the high bid and low ask prices of the Common Stock on
March 27, 2000, 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 March 27, 2000 was
257,575,000.
1
U.S. ELECTRICAR, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business...................................................................................3
Item 2. Properties.................................................................................8
Item 3. Legal Proceedings..........................................................................8
Item 4. Submission of Matters to a Vote of Security Holder.........................................8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matter.......................9
Item 6. Selected Financial Data...................................................................10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.....11
Item 7a. Quantitative and Qualitative Disclosures about Market Risk................................15
Item 8. Financial Statements and Supplementary Data...............................................15
Item 9. Changes in Disagreements with Accountants on Accounting and Financial Disclosure..........15
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................16
Item 11. Executive Compensation...................................................................18
Item 12. Security Ownership of Certain Beneficial Owners and Management...........................20
Item 13. Certain Relationships and Related Transactions...........................................22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.........................23
SIGNATURE..........................................................................................26
2
PART I
The matters addressed in this report on Form 10-K , with the exception
of the historical information presented, may contain certain forward-looking
statements involving risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under the heading
"Certain Factors That May Affect Future Results" in the Management's Discussion
and Analysis section and elsewhere in this report.
Item 1. Business
General
U. S. Electricar, Inc., a California Corporation (the "Company"), was
incorporated on July 30, 1976, under its original name, "Clover Solar
Corporation, Inc." The name of the Company was changed in June 1979, to "Solar
Electric Engineering, Inc.", and was subsequently changed to "U.S. Electricar,
Inc." in January 1994. In November, 1999, the Company began doing business as
Enova Systems.
The Company develops, designs and manufactures electric,
hybrid-electric and fuel cell powered drive systems and related components, such
as energy management systems and chargers, performs vehicle system integration
and performs various engineering contracts to penetrate global markets.
On January 19, 2000, the Company changed it fiscal year end from July
31 to December 31. All year references refer to calendar years unless otherwise
noted.
In 1998, the Company restructured its top management, realigned its
product base and concentrated on the reduction of overall company operating
costs. Facilities were closed, operations streamlined and personnel reduced.
Headcount decreased from 51 employees at July 31, 1997 to 26 employees at July
31, 1998, yet the Company has maintained its core engineering capabilities. The
Company has since begun to hire additional personnel as is warranted by new
contracts and orders. At December 31, 1999, the Company had increased its
headcount to 33 employees and three independent contractors.
During 1999, the Company continued to concentrate on the reduction of
operating costs and outstanding debt. The Company's business activities are
focused on the development of electric and hybrid electric drive-trains and
related components, fuel cell systems, vehicle systems integration and the
performance of various engineering contracts. The Company has several key
contracts with the U. S. Government's Defense Advanced Research Project Agency
or DARPA and the Department of Transportation or DOT, including the analysis of
a new plastic lithium ion vehicle battery concept, testing of advanced vehicle
batteries and development of an airport electric passenger tram system. The
Company has enhanced its relationship with Hyundai Motor Company, or HMC of
Korea, the world's seventh largest automobile manufacturer, with several
engineering contracts to design, develop and test electric and hybrid electric
drive systems and related products. Hyundai Motor Company has contracted with
the Company for the development of an advanced charging unit and a parallel
hybrid production vehicle, as well as continuing to produce the family of
Panthertm drive system for their electric vehicles. The Company is extending the
PantherTM drive system to hybrid vehicle applications in projects sponsored by
Hyundai. These hybrid systems will be applied to light, medium and heavy duty
transportation vehicles. The Company offers other components such as air
conditioning, heat pump units, electro-hydraulic power steering units and
battery management units to OEMs, both domestic and international. The Company
has also developed a high power charger for use with its drive systems. HMC has
adapted a customized version of the PantherTM 60 for their production electric
vehicle. The Company is offering the modular drive systems to Original Equipment
Manufacturers or OEMs and other customers. These drive systems have been
installed in various vehicles. The Company has entered into a contract with a
domestic supplier for low voltage electric drive system components for use by a
major North American automotive manufacturer.
The Company has completed the sale of a license to certain proprietary
PantherTM Drive System software and hardware, for the Republic of Korea, to
Hyundai Heavy Industries or HHI for further design and development of electric
drive systems. The Company anticipates deriving further development contracts
from this new
3
relationship with HHI. Furthermore, the Company has entered into an agreement
with Hyundai Electric Industries or HEI to manufacture the Company's drive
systems for international sales.
The Company is pursuing various avenues of revenue generation to
increase its cash flow. These include further developing its relationship with
the Hyundai Group of Korea, joint venturing with global vehicle and bus
manufacturers to utilize its electric drive train system, and developing a
comprehensive marketing plan to penetrate various alternate niche markets for
its drive system and its components. The Company is also looking at
non-automotive applications for its products.
The Company received a capital investment from Jagen, Pty, Ltd. in the
amount of $2,500,000 on June 4, 1999 and from Anthony Rawlinson in the amount of
$500,000 on July 30, 1999, which have enabled the Company to further develop its
hybrid drive systems as well as embark on other in-house funded research and
development.
Debt Restructuring
The Company's debt restructuring plan has progressed during 1999.
Overall, the Company has reduced outstanding indebtedness and liabilities by
approximately $7,000,000 in the last year. With the addition of capital as
discussed above, the Company retired the $307,000, three-year debt due to the
Credit Managers Association of California or CMAC. The CMAC's $3.3 million,
20-year promissory note becomes due and payable in 2016. In March 1999, the
Company's Chief Executive Office and President purchased all of the Company's
outstanding debt due to Itochu Corporation, which was $4,300,000 plus accrued
interest. As of December 31, 1999, this individual has forgiven $3,000,000 in
principal and $1,510,506 in accrued interest. This effectively reduced the
Company's total outstanding obligation including interest to $1,300,000 from
$5,810,506. In December of 1999, the Company converted the Fontal International,
Ltd. (or Fontal) debt of $1,000,000 in principal and $247,000 in accrued
interest into 4,246,000 shares of common stock at $0.30 per share. The Company
has also been reducing its outstanding past due accounts payable. The Company
intends to continue to pursue a strategy of negotiating settlements on these
outstanding payables where prudent.
Environmental Initiatives and Legislation
Federal legislation was enacted to promote the use of alternative fuel
vehicles, including electric vehicles. Several states have also adopted
legislation that sets deadlines for the introduction of zero emission vehicles
("ZEV"). The State of California delayed the mandated introduction of ZEVs from
1998 to 2003 and established a required percentage of ZEV and new
hybrid-electric vehicles for 2003 at 10% of total new vehicle sales in
California from the six major automobile manufacturers. The State of California
estimates that a combination of approximately 100,000 electric and hybrid
electric vehicles will be required to meet the State's 2003 mandate. The U.S.
Department of Energy also modified their rules governing how state fleets and
utility fleets must comply with the Energy Policy Act of 1992 on alternative
fuel transportation programs.
Products
The Company enhanced and expanded its product line during 1999. The
Company is concentrating its product base to focus primarily on electric and
hybrid-electric propulsion systems and components for electric and hybrid drive
systems and fuel cell technologies. The Company produces a family of electric
propulsion systems consisting of a 60kW drive system for light vehicles, a 90kW
drive system for medium size vehicles and a 120kW drive system for larger trucks
and buses. Additionally, the Company has completed the development and
prototyping of both a Series and Parallel Hybrid drive system in conjunction
with HMC. The Company has begun to develop, under contract with HMC, a
production parallel hybrid drive system. The Company has developed various
components for integration into the drive systems or as stand-alone systems such
as the Battery Care Unit, the Safety Disconnect Unit and the Electric Power
Steering unit.
The Company is moving to expand its product base into new markets
outside of the traditional electric and hybrid-electric automotive fields. Key
areas under investigation are energy management in the
4
telecommunications industry, distributed generation in the utility industry, and
stand-by/backup power generation in the commercial electronics industry. All
three of these markets can be served with our existing energy management and
power control products.
Strategic Partnering And Technology Developments
The Company has positioned itself to be a supplier of electric
propulsion systems and components for global markets. Originally focusing on
pure electric drive systems, the Company has pursued the development of its
electric drive systems for hybrid and fuel cell applications. The Company's
drive system technology can be adapted to battery, electric-hybrid or fuel cell
energy sources.
The Company has established third-party licensing and/or distribution
arrangements and aligned itself with various technology development companies
and electric vehicle component manufacturers to complement its own expertise in
the electric vehicle market. For instance, the Hyundai Group of Korea and the
Company are partnering in the development of advanced drive-train technology and
related systems. The Company has continued its efforts to implement a strategy
to be a "systems integrator" by seeking to establish relationships to utilize
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 will reduce capital and research and
development costs to the extent other companies or organizations will fund these
expenses.
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 Hyundai Group of Korea has invested in the Company and licensed the
drive system technology for production in Korea. The Company has validated its
propulsion system product, the Panther(TM) 60 alternating current (AC) drive
train for light duty vehicles. The Company has continued to develop a family of
electric drive systems with the PantherTM 90 and Panther(TM) 120 systems for
buses and heavy-duty vehicles, and the 40kW off-board charging system, the
second generation in a family of rapid chargers for all sizes of electric
vehicles.
Hybrid Vehicles
The Company completed its development for HMC of a Series Hybrid System and
Parallel Hybrid System for vehicles introduced by HMC at the 1999 Seoul Auto
Show. The Company is extending the Panther drive system to the hybrid vehicle
application by adapting the PantherTM 120 as the drive system and the PantherTM
60 as the induction generator for a series hybrid bus project sponsored by HMC.
The Company has also developed a parallel hybrid drive system and a dual-mode
hybrid drive system utilizing the Panther controller and the brushless DC motor.
Battery Management and Charging System
A significant part of the Company's technology is in the area of
battery management, charging systems and components applications. Pursuant to a
DARPA program, the Company has completed a "beta test" of new battery
technologies from various battery manufacturers. These new battery systems are
intended to allow design advantages in battery placement, weight
5
distribution, and vehicle crashworthiness. Additionally, the Company is
monitoring other battery innovations that may extend an electric vehicle driving
range by up to 50% and permit a shorter recharging time. The Company is
developing and testing Plastic Lithium Ion ("PLI") batteries in collaboration
with a major battery OEM. The Company has also developed a 40 kW high power
charger for HMC. The high power charger is based on our modular Panther system
technology, and the Company believes that it could also be used for battery
conditioning.
Components
The Company is offering the modular drive system and components to OEMs
and other customers. The PantherTM 60, PantherTM 90 and PantherTM 120 drive
systems have been installed in various vehicles and are under evaluation by
customers and potential customers. HMC has adapted a customized version of the
PantherTM 60 for their production electric vehicle. The Company also offers an
air conditioning/heat pump, an electro-hydraulic power steering unit and a
safety disconnect unit for utilization by OEMs. The Company is also offering
BatteryCareTM, a battery management system, to OEMs. This battery management
system is utilized in the U.S. Postal Service electric vehicle, and it is
capable of providing communication to both inductive and conductive chargers
simultaneously and managing the on-board and off-board charging systems with
multiple technologies. This battery care unit is also being utilized to upgrade
the electric vehicles in the DARPA battery testing program in Hawaii. It makes
these vehicles compatible with the high power charging stations utilizing the
Society of Automotive Engineering standards.
Competitive Conditions
The competition to develop and market electric vehicles has increased
during the last year and the Company expects this trend to continue. The
competition consists of development stage companies as well as major U.S. and
international companies. 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 hybrid-electric and alternative fuel vehicles, such
as compressed natural gas, fuel cells and hybrid cars poses a competitive threat
to the Company in markets for low emission vehicles or LEVs but not in markets
where government mandates call for zero emission vehicles or ZEVs. The Company
is involved in the development of hybrid vehicles and fuel cell systems in order
to meet future requirements and applications.
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 both consumer and commercial markets. The
critical role of technology in this market is demonstrated through several
product offerings. Applied technologies range from direct current (DC) motor
drives to alternate current (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 itself as a long term competitor in this industry by focusing on
vehicle electric drive systems and related sub systems, component integration,
technology application and strategic partnerships. The Company believes that
this strategy will enhance the Company's position as an electric drive train
system supplier because, whether the OEMs build electric, hybrid-electric or a
fuel cell powered vehicles, its electric drive system will be a component.
Research and Development
The Company believes that timely development and introduction of new
technology and products is essential to maintaining a competitive advantage. The
Company is currently focusing its development efforts primarily in the following
areas:
*Technical and product development under DARPA/DOT and Hyundai Group
Contracts;
6
*Power Control and Drive Systems and related technologies;
*Shuttle and Transit Bus integration and development; and
*Subsystem development (i.e., climate control, power management).
For the five months ended December 31, 1999, the Company spent $262,000
and $73,000 respectively on internal research and development activities. For
the fiscal years ended July 31, 1999, 1998 and 1997, the Company spent $499,000,
$445,000 and $1,218,000, respectively, on internal research and development
activities. The Company is continually evaluating and updating the technology
and equipment used in developing each of its products. The electric vehicle
industry, while still in its infancy, has rapidly changing technology.
Intellectual Property
The Company currently holds one patent and has submitted applications
for another patent and several trademarks or service marks in the United States.
Currently, the Company is reviewing and appending its protection of proprietary
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 patent applications filed by the Company will result in patents
being issued. Moreover, there can be no assurance that third parties will not
assert claims against the Company with respect to existing and future products.
Although the Company intends to protect its rights vigorously, there can be no
assurance that these measures will be successful. In the event of litigation to
determine the validity of any third party claims such litigation could result in
significant expense to the Company. Additionally, the laws of certain countries
in which the Company's products are or may be developed, manufactured or sold
may not protect the Company's products and intellectual property rights to the
same extent as the laws of the United States.
Employees
As of December 31, 1999, the Company had 33 employees, of whom 23 are
full-time and 10 are part-time. Three individuals are independent contractors,
employed on an hourly basis, one domiciled in South Korea. The departmental
breakdown of these individuals include 2 in administration, 1 in sales, 22 in
engineering and research and development, and 8 in production.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
7
Item 2. Properties
The Company's corporate offices are located in Torrance, California, in
leased office space of approximately 20,000 square feet. This facility houses
the Company's various departments, including engineering, operations, executive,
legal, finance, planning, purchasing, investor relations and human resources.
This lease terminates in February, 2000. As of March 17, 2000, the Company has
renewed it lease for another three year period. The monthly lease expense is
$13,500.
Item 3. Legal Proceedings
As previously disclosed in the Company's periodic reports filed with
the Securities and Exchange Commission, the Company restructured approximately
$22 million in debt to vendors and lenders. A creditor's committee was formed of
substantially all the vendors and lenders at that time. Nineteen creditors, at
that time, chose not to join the creditor's committee, instead opting to pursue
their legal remedies individually. The total outstanding dollar value of these
lawsuits is approximately $550,000.00.
In February 1999, the Company became a defendant in a lawsuit filed by
an individual alleging personal injury by a vehicle manufactured by a prior
subsidiary of the Company, Nordskog Electric Vehicles, Inc., a.k.a. Industrial
Electric Vehicles, Inc. The matter has been referred to the insurance company
which has assumed legal liability and is proceeding to defend the matter. As of
March 29, 2000, the potential liability to the Company is unknown, however, due
to the insurance coverage, it is believed to be minimal.
A workers compensation claim in the amount of approximately $169,000
has been asserted against the Company by the former owners of Nordskog Electric
Vehicles, which had been acquired by the Company and renamed Industrial Electric
Vehicles or IEV. IEV was sold by the Company in 1997. The claim alleges that the
Company agreed to indemnify Nordskog for such liabilities when the Company
acquired Nordskog. The Company has not yet assessed the validity of this claim
or its likely outcome.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
8
PART II
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
High Price Low Price Volume
---------------------- -------------
Fiscal 1998
- -----------
First Quarter.......................... $0.120 $0.045 104,692
Second Quarter......................... $0.085 $0.039 71,019
Third Quarter.......................... $0.047 $0.031 16,094
Fourth Quarter......................... $0.048 $0.040 22,739
Common Stock Average Daily
High Price Low Price Volume
---------------------- -------------
Fiscal 1999
- -----------
First Quarter.......................... $0.048 $0.020 72,223
Second Quarter......................... $0.031 $0.029 134,535
Third Quarter.......................... $0.031 $0.029 58,224
Fourth Quarter......................... $0.190 $0.031 427,624
Common Stock Average Daily
High Price Low Price Volume
---------------------- -------------
Calendar 1999
- -------------
First Quarter.......................... $0.031 $0.029 62,842
Second Quarter......................... $0.130 $0.029 338,623
Third Quarter.......................... $0.125 $0.075 263,886
Fourth Quarter......................... $0.812 $0.120 814,770
On March 27, 2000, the last reported high bid price of the Common Stock
was $0.40 and the last reported low asking price was $0.40. As of March 27,
2000, there were approximately 1,698 holders of record of our Common Stock. As
of March 27, 2000, the Company's Series A Preferred Stock was held by
approximately 121 shareholders, many of who are also Common Stock shareholders.
The Company's Series B Preferred Stock was held by approximately 36 shareholders
as of March 27, 2000. 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. 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 December 31, 1999, the Company had an accumulated deficit of
approximately $86,406,000 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 asset and other tests under Section 500 et.
seq. of the California Corporations Code.
9
Item 6. Selected Financial Data
As of and for the five months ended December 31, Fiscal Years ended July 31, (in
thousands, except per share data)
1999 1998 1999 1998 1997
---- ---- ---- ---- ----
NET SALES $ 629 $ 867 $ 2,774 $ 1,938 $ 4,484
COST OF SALES 377 389 1,460 2,765 2,042
------------ ----------- ----------- -----------
GROSS MARGIN 252 478 1,314 (827) 2,442
------------ ----------- ----------- -----------
OTHER COSTS AND EXPENSES
Research and Development 262 73 499 445 1,218
Selling, general and administrative 796 691 1,141 1,697 3,116
Interest and financing fees 244 264 724 665 792
Other expense (income) 125 (35) (41) (67) 274
Acquisition of research and development 1,630
Gain on Warranty Reevaluations (474)
------------ ----------- ----------- ----------- -----------
Total other costs and expenses 1,427 993 1,849 2,740 7,030
------------ ----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS (1,175) (515) (535) (3,567) (4,588)
LOSS FROM DISCONTINUED OPERATIONS
GAIN ON DEBT RESTRUCTURING 214 140 42 53
------------ ----------- ----------- ----------- -----------
NET LOSS $ ( 961) $( 515) $( 395) $ (3,525) $ (4,535)
============ =========== =========== =========== ===========
PER COMMON SHARE:
Loss from continuing operations $ (0.01) $ (0.01) $ (0.01) $ (0.02) $ (0.03)
Gain on debt restructuring
------------ ----------- ----------- ----------- -----------
Net loss per common share $ (0.01) $ (0.01) $ (0.01) $ (0.02) $ (0.03)
============ =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 251,994 151,265 152,077 151,265 133,806
============ =========== =========== =========== ===========
Total Assets $ 2,697 $ 1,286 $ 3,940 $ 1,658 $ 4,513
============ =========== =========== =========== ===========
Long-term debt $ 3,332 $ 3,332 $ 3,332 $ 3,332 $ 3,639
============ =========== =========== =========== ===========
Shareholders' equity (deficit) $ (5,015) $(13,120) $( 7,316) $(12,615) $ (9,095)
============ =========== =========== =========== ===========
10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read this Management's Discussion and Analysis of Financial Condition
and Results of Operations in conjunction with our 1999 Financial Statements and
Notes thereto. The matters addressed in this Management's Discussion and
Analysis of Financial Condition and Results of Operations, with the exception of
the historical information presented contains certain forward-looking statements
involving risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under the heading "Certain Factors
That May Affect Future Results" and elsewhere in this report.
OVERVIEW
The financial statements present the financial condition of U.S.
Electricar, Inc. (the "Company") as of December 31, 1999 and the results of
operations and cash flows of the Company for the five months then ended and the
three preceding fiscal years ended July 31, 1999.
The audit opinion from our independent auditors no longer contains an
explanatory paragraph expressing substantial doubt about the Company's ability
to continue as a "going concern."
During 1999, the Company continued to concentrate on the reduction of
operating costs and outstanding debt. The Company's business activities are now
focused primarily on the development of electric and hybrid electric
drive-trains and related components, fuel cell systems, vehicle systems
integration and the performance of various engineering contracts. The Company
has several key contracts with the U.S. government's Defense Advanced Research
Project Agency or DARPA and the Department of Transportation or DOT, including
the analysis of a new plastic lithium ion vehicle battery concept, testing of
advanced vehicle batteries and development of an airport electric passenger tram
system. The Company also has several engineering contracts with Hyundai Motor
Company or HMC to design, develop and test electric drive trains and related
products. HMC is contracting with the Company for the development of an advanced
charging unit and a hybrid vehicle development, as well as preparing to produce
the family of Panthertm drive system for their electric vehicles. The Company is
extending the PantherTM drive system to hybrid vehicle applications in projects
sponsored by Hyundai. These hybrid systems will be applied to light, medium and
heavy duty transportation vehicles. The Company is also offering the modular
drive systems to Original Equipment Manufacturers or OEM manufacturers and other
customers. These drive systems have been installed in various vehicles. The
Company offers other components such as air conditioning, heat pump units,
electro-hydraulic power steering units and battery management units to OEMs,
both domestic and international. The Company is also developing a high power
charger for use with its drive systems. HMC has adapted a customized version of
the PantherTM 60 for their production electric vehicle.
The Company has completed the sale of a license to certain proprietary
PantherTM Drive System software and hardware, for the Republic of Korea, to
Hyundai Heavy Industries or HHI for further design and development of electric
drive systems. The Company anticipates deriving further development contracts
from this new relationship with HHI as well as utilizing HHI to manufacture the
Company's drive systems for international sales.
The Company is pursuing various avenues of revenue generation to
increase its cash flow. These include further developing its relationship with
the Hyundai Group, joint venturing with global vehicle and bus manufacturers to
utilize its electric drive train system, and developing a comprehensive
marketing plan to penetrate various alternate niche markets for its drive system
and its components. The Company is further looking at non-automotive
applications for its products.
The Company received a capital investment from Jagen, Pty, Ltd. in the
amount of $2,500,000 on June 4, 1999 and from Anthony Rawlinson in the amount of
$500,000 on July 30, 1999, which have enabled the Company to further develop its
hybrid drive systems as well as embark on other in-house funded research and
development.
11
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced recurring cash flow shortages due to
operating losses primarily attributable to research, development, administrative
and other costs associated with the Company's efforts to become an international
manufacturer and distributor of electric vehicles. Cash flows from operations
have been negative and have not been sufficient to meet the Company's
obligations as they came due. The Company has therefore had to raise funds
through numerous financial transactions. 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 products profitably, it will
need to continue to rely extensively on cash from external financing. The
Company anticipates that it will require additional outside financing for at
least one more year.
During the five months ended December 31, 1999, the Company's
operations required $692,000 more in cash then was generated. This was primarily
the result of additional administrative and research and development costs, as
further explained. Accounts receivable decreased by $185,000 as the Company
completed and collected on various engineering contracts from Hyundai Motor
Company and the U.S. Government. Customer Deposits increased by $102,000 as the
Company received an advance payment from one of its customers for engineering
services to be performed. Inventory increased by $33,000. The increase was due
to the Company purchasing raw materials for current and pending contract
obligations.
The operations of the Company during 1999 were financed primarily by
the funds received on engineering contracts and partly on funds received in from
the sale of a technology license to Hyundai Heavy Industries. In June and July
1999 the Company received $3,000,000 from two investors, Jagen. Pty., Ltd. in
Australia and Anthony Rawlinson for the purchase of Common Stock and warrants to
Purchase Common Stock. In January 2000, the Company received an additional
equity infusion of $1,000,000 from Kafig Pty, Ltd for the purchase of common
stock.
It is management's intention to continue its debt restructuring,
support current operations through sales of products and technology consulting,
as well as seek additional financing through private placements and other means
to increase research and development. As of March 27, 2000, the Company has no
firm commitments for significant additional financing.
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 $629,000 for the five months ended December 31, 1999
decreased $238,000 or 27% from $867,000 during the same period in 1998. The
decrease was due to the Company increasing in-house engineering, development and
testing of electric and hybrid drive trains and related components during the
latter part of 1999. Of the Company's total sales for the five months ended
December 31, 1999, $597,000, or 95% were revenues realized on engineering
contracts with the DOT and the Hyundai Group of Korea.
Net sales of $2,774,000 for the fiscal year ended July 31, 1999
increased $836,000 or 43% from $1,938,000 during the fiscal year in 1998. Two
primary factors caused the increase. In 1999, the Company sold a technology
license to HHI for $600,000. Secondly, the Company increased engineering,
development and testing of electric and hybrid drive trains and related
components in conjunction with HMC and the U.S. Government through United States
Postal Service, DARPA and DOT programs. Of the Company's total sales for 1999,
$1,954,000, or 70% were revenues realized on engineering contracts with DARPA,
the Hyundai Group of Korea and other customers.
Net sales of $1,938,000 for fiscal 1998 decreased $2,546,000 or 57%
from $4,484,000 in fiscal 1997. Two primary factors caused the decrease. In
1997, the Company sold a technology license to HMC and HEI for $2,000,000, and
there were no such corresponding sales of a technology license in 1998.
Secondly, the Company discontinued the sales of electric vehicles in 1998 and
focused on the engineering, development and testing of electric drive trains and
related components.
12
Cost of sales of $377,000 for the five months ended December 31, 1999
decreased $12,000 or 3% from $398,000 during the same period in 1998.
Cost of sales as a percentage of sales decreased to 53% in fiscal 1999
from 143% in fiscal 1998. Sales revenue for fiscal 1999 included a sale of a
technology license of $600,000. Excluding the sale of the technology license,
cost of sales for fiscal 1999 was 67% of sales.
Research and development expense increased in the five months ended
December 31, 1999 to $262,000 from $73,000 for the same five month period in
1998. While the Company's has reduced staff and cut costs in all areas, the
focus of the Company continues to be centered on research and development. The
product development costs incurred in the performance of engineering development
contracts is charged to cost of sales for this contract revenue. Non-funded
development costs are reported as research and development expense. Research and
development expense increased in fiscal 1999 to $499,000 from $445,000 in fiscal
1998, an increase of $54,000, or 12%. Research and development expense of
$445,000 in 1998 declined $773,000, or 63% from 1997. The decline was the result
of a continuation of the reduction of technical resources by the Company as the
Company changed from a manufacturer and retrofitter of electric vehicles to a
components developer and producer.
Selling, general and administrative expense increased in the five
months ended December 31, 1999 to $796,000 from $691,000 for the same five month
period in 1998. The increase was due to the Company's continuing efforts to
restructure its balance sheet by eliminating or re-negotiating prior years
liabilities. Selling, general and administrative expense of $1,141,000 in fiscal
1999 continued to decline from $1,697,000, or 33% from fiscal 1998, as the
Company reduced continued to reduce spending and consolidated operations.
Selling, general and administrative expense of $1,697,000 decreased
significantly in 1998, by $1,419,000, or 46%, from $3,116,000 in 1997. Continued
and significant reductions in headcount, facility costs and spending were
responsible for the decline.
For the five months ended December 31, 1999, interest and financing
fees decreased by $20,000 to $244,000. The reduction was due to continued
restructuring of the Company long term debt by retirement, forgiveness or
conversion into equity. In fiscal 1999, interest and financing fees increased
slightly to $724,000 from $665,000 in 1998, an increase of 9% due mainly to
default interest rate on certain notes payable becoming effective. Interest and
financing fees in 1998 decreased $127,000 or 16% to $665,000 from $792,000 in
1997. The forgiveness of $3,000,000 of debt, formerly the Itochu debt, the
conversion of the $1,000,000 of Fontal debt and the scheduled payment of the
$307,000 note to CMAC shall continue to reduce interest expense in the future.
During the five months ended December 31, 1999, several unsecured
creditors agreed to settle their trade debt 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 $214,000
during the five months ended December 31, 1999. Additional settlements resulted
in a gain on debt restructuring of $140,000 in fiscal 1999, $42,000 in 1998 and
$53,000 in 1997.
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 $961,000
increased 86% for the $515,000 loss during the same period in 1998. Although the
loss on a period to period basis was higher, it was a result of various one-time
charges which enabled the Company to further reduce it liabilities. The net loss
for fiscal 1999 of $395,000 decreased $3,130,000 or 89% from the $3,525,000 loss
in 1998, while the net loss for 1998 decreased $1,010,000, or 22% from the
$4,535,000 loss in 1997. These results reflect a significant change in the
operating condition of the Company. The cost structure and operating conditions
of the Company are now more in line with the sales volume and the scope of
business.
13
Year 2000 Concerns
The Company is not aware of any year 2000 issues that have affected its
business. In preparation for the year 2000, the Company incurred internal staff
costs as well as consulting and other expenses. Year 2000 expenses totaled less
than $25,000. It is possible that the Company's computerized systems could be
affected in the future by the year 2000 issue. The Company has computerized
interfaces with third parties that are possibly vulnerable to failure if those
third parties have not adequately addressed their year 2000 issues.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133 will be effective for the company's
fiscal year ending December 31, 2000. Management believes that this statement
will not have a significant impact on the company's financial position, results
of operations or cash flows.
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 precarious. The following discussion highlights
certain of these risks.
Net Operating Losses.
The Company has experienced recurring losses from operations and had an
accumulated deficit of $86,406,000 at December 31, 1999. 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.
Continued Losses. For the five months ended December 31, 1999 and 1998, the
Company had net losses of $961,000 and $515,000, respectively, on sales of
$629,000 and $867,000, respectively.
Nature of Industry. The electric vehicle ("EV") industry is still 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 into
production. 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 or low-emission vehicles, (b) the
environmental consciousness of customers and (c) the ability of electric and
hybrid-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 or low
emission vehicles is necessary to create a significant market for electric
vehicles. There can be no assurance, however, that further legislation will be
enacted or that current legislation or state mandates will not be repealed or
amended (as recently occurred in California), or that a different form of zero
emission or low emission vehicle will not be invented, developed and produced,
and achieve greater market acceptance than electric vehicles. 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.
14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
None.
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.
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15
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information with respect to the
Directors and executive officers of the Company:
================================ ======== ======================================
Name Age Position
- -------------------------------- -------- --------------------------------------
Anthony Rawlinson 45 Chairman of the Board
- -------------------------------- -------- --------------------------------------
Carl D. Perry 67 Chief Executive Officer, President and
Director
- -------------------------------- -------- --------------------------------------
Edwin O. Riddell (1) 58 Director
- -------------------------------- -------- --------------------------------------
Dr. Malcolm Currie (1) 70 Director
- -------------------------------- -------- --------------------------------------
John J. Micek, III (2) 47 Director
- -------------------------------- -------- --------------------------------------
Donald H. Dreyer (2) 63 Director
================================ ======== ======================================
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Anthony Rawlinson, Chairman of the Board. Mr. Rawlinson was appointed
Chairman of the Board in July 1999. Mr. Rawlinson has been Managing Director of
the Global Value Investment Portfolio Management Pte. Ltd., a Singapore based
international fund management company managing discretionary equity portfolios
for institutions, pension funds and clients globally. Mr. Rawlinson is also
Chairman of IXLA Ltd., an Australian public company which is a leader in the
field of PC photography software. He is also Chairman of the Board of its
wholly-owned subsidiary, photohighway.com, an internet portal for PC
photography.
Carl D. Perry, Chief Executive Officer, President and Director. Mr.
Perry served as a Director and as an Executive Vice President of the Company
from July 1993 until November 1997. In November 1997, Mr. Perry was elected as
Chairman of the Board and Chief Executive Officer of the Company, and was
elected President in June 1999. In July 1999, Mr. Perry resigned his position as
Chairman of the Board to allow Mr. Anthony Rawlinson to become Chairman. Mr.
Perry continues as Chief Executive Officer and President and as a Director.
Prior to joining the Company, he was an international aerospace and financial
consultant from 1989 to 1993. Mr. Perry served as Executive Vice President of
Canadair Ltd., Canada's largest aerospace corporation, from 1984 to 1993, where
he conducted strategic planning, worldwide marketing, and international joint
ventures. From 1979 to 1983, Mr. Perry served as Executive Vice President of the
Howard Hughes Helicopter Company, now known as Boeing Helicopter Company, where
he was responsible for general management, worldwide business development, and
international operations.
Malcolm R. Currie, Ph.D, Director. Dr. Currie was re-elected to the
Board of Directors in July 1999. Dr. Currie had served as a Director of the
Company from March 1995 through May 1997. Since 1994, he has served as Chairman
of Electric Bicycle Co., a developer of electric bicycles. From 1986 until July
1992, Dr. Currie served as Chairman and Chief Executive Officer of Hughes
Aircraft Co. (now Hughes Electronics), and from 1985 until 1988, he was the
Chief Executive Officer of Delco Electronics. His career in electronics and
management has included research with many patents and papers in microwave and
millimeter wave electronics, laser, space systems, and related fields. He has
led major programs in radar, commercial satellites, communication systems, and
defense electronics. He served as Undersecretary of Defense for Research and
Engineering, the Defense Science Board, and currently serves on the Boards of
Directors of UNOCAL, Investment Company of America, and LSI Logic, all of which
are publicly traded companies. He is President of the American Institute of
Aeronautics and Astronautics, and is Chairman of the Board of Trustees of the
University of Southern California.
16
John J. Micek III, Director. Mr. Micek was elected a Director of the
Company in April 1999. Mr. Micek served as the Company's Vice President, General
Counsel and Secretary from March 1994 to March 1997. From 1997 to 1999, Mr.
Micek served as Chief Financial Officer of Protozoa, Inc., a private animation
and software production company. From 1997 to the present, Mr. Micek has served
as President of Universal Assurors, Inc. Prior to joining the Company, Mr. Micek
practiced law since January 1989. From 1987 to March 1994, Mr. Micek held
several positions with Armanino Foods of Distinction, Inc., a publicly traded
specialty foods company, including serving as its General Counsel and Chief
Financial Officer from February 1987 to December 1988 and Vice President from
January 1989 to March 1994, and a Director of Armanino Foods from 1988 to 1989.
Mr. Micek served as the President and Director of Catalina Capitol, Inc., a
publicly traded company, from 1990 until its merger into Instant Video
Technologies, Inc. ("IVT"), an interactive multi-media network technology
company, in 1992. Mr. Micek continues to serve as a Director of IVT.
Edwin O. Riddell, Director. Mr. Riddell has served as a Director of the
Company since June 1995. From March 1999 to the present, Mr. Riddell has been
President of CR Transportation Services, a consultant to the electric vehicle
industry. From January 1991 to March 1999, Mr. Riddell has served as Manager of
the Transportation Business Unit in the Customer Systems Group at the Electric
Power Research Institute in Palo Alto, California, and from 1985 until November
1990, he served with the Transportation Group, Inc. as Vice President,
Engineering, working on electric public transportation systems. From 1979 to
1985, he was Vice President and General Manager of Lift U, Inc., the leading
manufacturer of handicapped wheelchair lifts for the transit industry. Mr.
Riddell has also worked with Ford, Chrysler, and General Motors in the area of
auto design (styling), and has worked as a member of senior management for a
number of public transit vehicle manufacturers. Mr. Riddell has been a member of
the American Public Transit Association's ("APTA") Association Member Board of
Governors for over 15 years. He has also served on APTA's Board of Directors.
Donald H. Dreyer, Director. Mr. Dreyer was elected a Director of the
Company in January 1997. Mr. Dreyer is President and CEO of Dreyer & Company,
Inc., a consultancy in credit, accounts receivable and insolvency services,
which was established in 1990. Mr. Dreyer has served as Chairman of the Board of
Credit Managers Association of California during the 1994 to 1995 term and
continues to serve as a member of the Advisory Committee of that organization.
Mr. Dreyer is currently the co-Chair of the Creditors Committees' Subcommittee
of the American Bankruptcy Institute and is a member of the Western Advisory
Committee of Dun & Bradstreet, Inc.
Relationships Among Directors or Executive Officers
There are no family relationships among any of the Directors or
executive officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's Directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file reports of ownership and
changes in ownership of the Company's Common Stock to the Securities and
Exchange Commission ("SEC"). Copies of these reports are also required to be
delivered to the Company.
The Company believes, based solely on its review of the copies of such
reports received or written representations from certain Reporting Persons, that
during fiscal 1999, all Reporting Persons complied with all applicable filing
requirements: Except as follows: (i) Anthony Rawlinson, Chairman of the Board,
inadvertently missed a filing deadline for Form 5 for one transaction effected
in July 1999; the required Form 5 has been filed; (ii) Malcom Currie, a
Director, unintentionally missed a filing deadline for Form 3 that was due
within ten days of his appointment as a Director in July 1999; the required Form
3 has been filed; (iii) John J. Micek, a Director, unintentionally missed a
filing deadline for Form 3 that was due within ten days of his appointment as a
Director in April 1999; the required Form 3 has been filed; and (iv) Directors
and executive officers of the Company inadvertently missed a filing deadline for
Form 5 that was due within forty-five days after the end of the Company's fiscal
year, such reports were filed on February 15, 2000.
17
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth all compensation earned by the Company's
Chief Executive Officer and each of the other most highly compensated executive
officers of the Company whose annual salary and bonus exceeded $100,000 for the
years ended July 31, 1999, 1998, and 1997 (collectively, the "Named Executive
Officers"). Mr. Carl D. Perry is the sole executive officer of the Company whose
salary currently exceeds $100,000.
Summary Compensation Table
Name and Principal Position Annual Compensation
- --------------------------- -----------------------------------------------------------------------
Long-Term Compensation
Awards
Securities
Underlying
Salary Bonus Options/SARs
Year ($) ($) (#)
---- ------ ----- ---
Carl D. Perry (1) 1999 75,000 -- --
Chief Executive Officer 1998 55,770 -- --
And President 1997 75,000 -- --
(1) Mr. Perry was elected as Chief Executive Officer in November 1997. Mr.
Perry's current salary is $110,000 per year.
Option/SAR Grants
No grants of stock options or stock appreciation rights ("SARs")
were made during fiscal 1999 to the Named Executive Officers. However, the
option exercise price, for Mr. Perry's and other employees under the 1996 Stock
Option Plan, was reset to $0.10 per share from $0.30 per share on August 19,
1998 at the direction of the Board of Directors.
Option Exercises and Option Values
The following table sets forth information concerning option
exercises during 1999, and the aggregate value of unexercised options as of
December 31, 1999, held by each of the Named Executive Officers:
Aggregated Option/SAR Exercises in 1999
and Option Values at December 31, 1999
Number of Securities
Aggregate Underlying Unexercised Value of Unexercised
Option Options at In-the-Money Options at
Exercises in 1999 December 31, 1999 December 31, 1999 (1)
----------------- --------------------------- ---------------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ --------- ----------- ------------- ----------- -------------
Carl D. Perry -- -- 1,200,000 -- $393,600 $--
(1) Calculated on the basis of the average of the high bid and low ask prices
of the Common Stock on December 31, 1999 of $0.328 per share, minus the
exercise price.
18
Compensation of Directors
In September 1999, the Company's Board of Directors unanimously
approved a compensation package for outside directors consisting of the
following: for each meeting attended in person, each outside director shall
receive $1,000 in cash and $2,000 of stock valued on the date of the meeting at
the average of the closing ask and bid prices; for each telephonic Board
meeting, each outside director shall receive $250 in cash and $250 of stock
valued on the date of the meeting at the average of the closing ask and bid
prices; for each meeting of a Board committee attended in person , the committee
chairman shall receive $500 in cash and $500 of stock valued on the date of the
meeting at the average of the closing ask and bid prices. All Directors are
reimbursed for expenses incurred in connection with attending Board and
committee meetings.
The Director's Stock Option Plan was terminated effective as of July
31, 1999. In partial consideration of the issuance of 409,091 shares of common
stock, 28,000 options granted under this plan were cancelled in September 1999.
As of March 27, 2000, 509,000 shares had been issued under this
directors compensation plan.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Mr. Edwin Riddell, as
Chairman, and Dr. Malcolm Currie. Mr. Riddell was elected Chairman in August
1998. Dr. Currie was elected to the Compensation Committee in July, 1999. Mr.
Ishag served as a member of the Compensation Committee during all of Fiscal
1999. Dr. Malcolm Currie also served on the Compensation Committee during his
prior term as a Director until his resignation in 1998.
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19
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Company's stock as of March 27, 2000, (i) by each person (or
group of affiliated persons) who is known by the Company to own beneficially
more than 5% of each class of the Company's stock, (ii) by each of the Company's
Directors, (iii) by each of the Company's Named Executive Officers listed in the
Summary Compensation Table below, and (v) by the Company's Directors and
executive officers as a group. Except as indicated in the footnotes to this
table and subject to applicable community property laws, the persons named in
the table, based on information provided by such persons, have sole voting and
investment power with respect to all shares of stock beneficially owned by them.
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
5% Shareholders, Directors, Officers and Common Shares Percentage of Common Voting
Directors and Officers as a Group Beneficially Owned (1) Shares Beneficially Owned (2) Percentage (3)
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Jagen, Pty., Ltd. 125,000,000 (4) 36.27 31.68%
9 Oxford Street, South Yorra 3141
Melbourne, Victoria Australia
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Carl D. Perry 38,548,789 (5) 11.19% 14.19%
c/o U.S. Electricar, Inc.
19850 South Magellan Drive
Torrance, CA 90502
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Citibank N.A. 52,342,454 15.18% 19.90%
111 Wall Street, 8th Floor
New York, NY 10043
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Anthony Rawlinson 25,020,149 (6) 7.26% 6.34%
c/o U.S. Electricar, Inc.
19850 South Magellan Drive
Torrance, CA 90502
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
John J. Micek, III 629,994 (7) * *
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Edwin O. Riddell 250,349 (8) * *
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Dr. Malcolm Currie 155,587 (9) * *
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
Donald H. Dreyer 18,182(10) * *
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
All Directors and executive officers as 64,623,050(11) * *
a group (6 persons)
- ------------------------------------------ ----------------------------- ------------------------------ -----------------
* Indicates less than 1%
(1) Number of Common Stock shares includes Series A Preferred Stock, Series
B Preferred Stock and Common Stock shares issuable pursuant to stock
options, warrants and other securities convertible into Common Stock
beneficially held by the person or class in question which may be
exercised or converted within 60 days after February 29, 2000.
(2) The percentages are based on the number of shares of Common Stock,
Series A Preferred Stock and Series B Preferred Stock owned by the
shareholder divided by the sum of: (i) the total Common Stock
outstanding, (ii) the Series A Preferred Stock owned by such
shareholder; (iii) the Series B Preferred Stock owned by such
shareholder; and (iv) Common Stock issuable pursuant to warrants,
options and other convertible securities exercisable or convertible by
such shareholder within sixty (60) days after February 29, 2000.
(3) The percentages are based on the number of shares of Common Stock,
Series A Preferred Stock and Series B Preferred Stock owned by the
shareholder divided by the sum of: (i) the total Common Stock
outstanding, (ii) the total Series A Preferred Stock outstanding; (iii)
the total Series B Preferred Stock outstanding; and (iv) Common Stock
issuable pursuant to warrants, options and other convertible securities
exercisable or convertible by such shareholder within sixty (60) days
after February 29, 2000. This percentage calculation has been included
to show more accurately the actual voting power of each of the
shareholders, since the calculation takes into account the fact that
the outstanding Series A Preferred Stock and Series B Preferred Stock
are entitled to vote together with the Common Stock as a single class
on certain matters to be voted upon by the shareholders.
(4) Includes 41,666,667 shares issuable pursuant to warrants redeemable at
$0.06 per share. Said warrants expire in July, 2001.
(5) Includes 1,200,000 shares of Common Stock issuable pursuant to stock
options issued under a employee stock option plan exercisable at a
price of $0.10 per share. The option exercise price, for Mr. Perry's
and other employees under the 1996 Stock Option Plan, was reset to
$0.10 per share from $0.30 per share on August 19, 1998 at the
direction of the Board of Directors.
(6) Includes 8,333,333 shares issuable pursuant to warrants redeemable at
$0.06 per share. Said warrants expire in July, 2001.
(7) Includes 565,000 shares of Common Stock issuable pursuant to stock
options exercisable at a price of $0.10 per share. The option exercise
price was reset to $0.10 per share from $0.30 per share on June 10,
1999 at the direction of the Board of Directors.
(8) Includes 1,765,000 shares of Common Stock issuable pursuant to stock
options exercisable at prices ranging from $0.10 to $0.60 per share,
and 8,333,333 shares issuable pursuant to warrants redeemable at $0.06
per share. Said warrants expire in July, 2001.
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Item 13. Certain Relationships and Related Transactions
The following are certain transactions entered into between the Company
and its officers, directors and principal shareholders and their affiliates
since August 1, 1998.
Transactions with Secured Creditors and Others:
Carl D. Perry/Itochu Corporation
As of March 1999, there was $3,000,000 of debt outstanding to Itochu, a
former principle shareholder of the Company, pursuant to a Supplemental Loan
Agreement. The debt was convertible at the election of Itochu at any time, or
automatically upon the occurrence of certain events, into shares of Common Stock
at a conversion rate of $0.30 per share. The debt was secured by all of the
assets of the Company. To date, no agreement has been reached on extending the
maturity date of this debt. Additionally, Itochu issued $1,300,000 of
convertible secured notes to the Company under a Supplemental loan Agreement
with a maturity date of December 1997. To date, no agreement has been reached on
extending the maturity date of this debt.
In March 1999, Itochu Corporation sold all of the aforementioned debt
plus accrued interest outstanding ($5,693,400) to Carl D. Perry, the Company's
Chief Executive Officer and President, for $50,000. Itochu also sold all of the
shares of common stock it held to Mr. Perry for $1.00. Mr. Perry forgave
$2,693,400 of accrued interest and principal on July 30, 1999 and an additional
$1,817,000 in accrued interest and principal during the five months ended
December 31, 1999. As of December 31, 1999, there is $1,300,000 in principal
owed by the Company to Mr. Perry under this loan.
In September 1999, the Company entered into a call option agreement
with Carl D. Perry to re-purchase 23,970,000 shares of common stock for
$100,000. The terms of this agreement require the Company to exercise this call
option between March 25, 2000 and March 30, 2000. In addition, Mr. Perry was
also granted the right to sell these shares to the Company for $50,000.
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22
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 Financial Statements on page F-1.
(a)2. Financial Statement Schedule
No financial statement schedules are filed as a part of this report.
(a)3. Exhibits
See Item 14 (C) for Index of Exhibits.
(b) Reports on Form 8-K
The Company filed one report on Form 8-K. The Form 8-K, dated January
21, 2000 and filed January 21, 2000, reported that the Company had
changed its fiscal year end from July 31st to December 31st.
(c) Exhibits
Exhibit Number Description
3.1 Amended and Restated Articles of Incorporation of the Registrant,
filed July 30, 1999 (Filed as Exhibit 3.1 to the Registrant's Annual
Report on Form 10-K for fiscal year ended July 31, 1999, as filed on
October 29, 1999, and incorporated herein by reference).
3.2 Bylaws of Registrant (Filed as Exhibit 3.12 to the Registration
Statement on Form 10 filed on November 29, 1994, and incorporated
herein by reference).
4.1 Cashless Exercise Warrants dated October 25, 1996 issued to Fontal
International, Ltd. (Filed as Exhibit 4.1) to the Registrant's Annual
Report on Form 10-K for the year ended July 31, 1996, as filed on
November 12, 1996, and incorporated herein by reference).
10.1** Form of Stock Option Agreement under 1993 Employee and Consultant
Stock Plan (Filed as Exhibit 10.15 to the Registration Statement on
Form 10 filed on November 29, 1994, and incorporated herein by
reference).
10.2** Form of Solar Electric Engineering, Inc. 1993 Employee and Consultant
Stock Plan (Filed as Exhibit 10.16 to the Registration Statement on
Form 10 filed on November 29, 1994, and incorporated herein by
reference).
10.3 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 certain of its unsecured
trade creditors, including exhibits (Filed as Exhibit 10.91 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
January 31, 1996, as filed on March 18, 1996, and incorporated herein
by reference).
23
10.4 Form of Stock Purchase, Note and Debt Exchange Agreement dated
January 2, 1996 between the Company and certain unsecured trade
creditors (Filed as Exhibit 10.92 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1996, as filed
on March 18, 1996, and incorporated herein by reference).
10.5 Form of Indemnification Agreement (Filed as Exhibit 10.63 to the
Registration Statement on Form 10 filed on November 29, 1994, and
incorporated herein by reference).
10.6 Form of Security Agreement made as of May 31, 1995, between the
Company and Credit Managers Association of California, Trustee (Filed
as Exhibit 10.85 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended April 30, 1996, as filed on June 14, 1996, and
incorporated herein by reference).
10.7 Amended 1996 Employee and Consultant Stock Option Plan(Filed as
Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for
fiscal year ended July 31, 1999, as filed on October 29, 1999, and
incorporated herein by reference).
10.8 Stock Purchase Agreement and Technology License Agreement dated
February 27, 1997, by and between the Company and Hyundai Motor
Company and Hyundai Electronics Industries Co., Ltd. (Filed as
Exhibit 10.98 to the Registrant's Quarterly Report on Form 10-Q for
fiscal quarter ended January 31, 1997, as filed on March 14, 1997,
and incorporated herein by reference).
10.9 Loan Agreement for $400,000 convertible promissory note with Fontal
International, Ltd., dated April 30, 1997(Filed as Exhibit 10.99 to
the Registrant's Quarterly Report on Form 10-Q for fiscal quarter
ended April 30, 10997, as filed on June 13, 1997, and incorporated
herein by reference).
10.10 Agreement of Debt Forgiveness by and between Carl D. Perry and the
Registrant dated July 30, 1999 (Filed as Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for fiscal year ended July
31, 1999, as filed on October 29, 1999, and incorporated herein by
reference).
10.11 Agreement of Terms by and between the Registrant and Carl D. Perry
(Filed as Exhibit 10.11 to the Registrant's Annual Report on Form
10-K for fiscal year ended July 31, 1999, as filed on October 29,
1999, and incorporated herein by reference).
10.12 Securities Purchase Agreement dated as of June 1, 1999, by and
between the Company and Jagen Pty, Ltd. and Anthony Rawlinson (Filed
as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for
fiscal year ended July 31, 1999, as filed on October 29, 1999, and
incorporated herein by reference).
10.13 Shareholders' Agreement dated as of June 1, 1999, by and among Jagen
Pty, Ltd. and Anthony Rawlinson, Carl D. Perry and the Registrant
(Filed as Exhibit 10.13 to the
Registrant's Annual Report on Form 10-K for fiscal year ended July
31, 1999, as filed on October 29, 1999, and incorporated herein by
reference).
10.14 Loan and Security Agreement dated as of June 1, 1999, by and among
the Registrant, Jagen Pty, Ltd. and Anthony Rawlinson (Filed as
Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for
fiscal year ended July 31, 1999, as filed on October 29, 1999, and
incorporated herein by reference).
10.15 Convertible Secured Promissory Note dated June 1, 1999 by the
Registrant in favor of Jagen Pty, Ltd. in the principal amount of
$400,000 (Filed as Exhibit 10.15 to the Registrant's Annual Report on
Form 10-K for fiscal year ended July 31, 1999, as filed on October
29, 1999, and incorporated herein by reference).
10.16*+ Letter of Intent between Registrant and a domestic supplier, dated
December 9, 1999, to design, develop and manufacture low voltage
electric drive system components.
10.17* Put/Call Option to sell Intochu Shares between Registrant and Carl D.
Perry dated September 1, 1999.
23.1* Consent of Moss Adams, LLC, Independent Auditor's
24* Power of Attorney (included on signature page)
27* Financial Data Schedule.
- -----------------------
* Filed herewith.
** Indicates management contract or compensatory plan or arrangement.
+ We have sought confidential treatment from the Commission for
selected portions of this exhibit. he omitted portions will be
separately filed with the Commission.
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 March 29, 2000.
U.S. ELECTRICAR, INC.
By: /s/ Carl D. Perry
-----------------------------------------------------------------------------
Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer
Dated: March 29, 2000
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Carl D. Perry, with full power to act
alone, his true and lawful attorney-in-fact and agent, with full power of
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 to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated. 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 Date Title
- --------- ---- -----
/s/ Carl D. Perry
- ---------------------------- Chief Executive March 29, 2000
Carl D. Perry Officer and Director
(Principal Executive Officer)
/s/ Anthony Rawlinson
- ---------------------------- Chairman March 29, 2000
Anthony Rawlinson
/s/ Malcom Currie
- ---------------------------- Director March 29, 2000
Malcom Currie
/s/ Edwin O. Riddell
- ---------------------------- Director March 29, 2000
Edwin O. Riddell
/s/ John J. Micek, III
- ---------------------------- Director March 29, 2000
John J. Micek, III
/s/ Donald H. Dreyer
- ---------------------------- Director March 29, 2000
Donald H. Dreyer
26
- --------------------------------------------------------------------------------
U. S. ELECTRICAR, INC.
INDEPENDENT AUDITOR'S REPORT
AND
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
U. S. ELECTRICAR, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT ......................................... F-1
BALANCE SHEET AT DECEMBER 31, 1999 ................................... F-2
STATEMENT OF OPERATIONS FOR THE
FIVE MONTHS ENDED DECEMBER 31, 1999 ............................. F-4
STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE
FIVE MONTHS ENDED DECEMBER 31, 1999 ............................. F-5
STATEMENT OF CASH FLOWS FOR THE
FIVE MONTHS ENDED DECEMBER 31, 1999 ............................. F-6
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1999 .................... F-7
BALANCE SHEETS AT JULY 31, 1999 AND 1998 ............................. F-17
STATEMENTS OF OPERATIONS FOR THE THREE
YEARS ENDED JULY 31, 1999 ....................................... F-19
STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE THREE
YEARS ENDED JULY 31, 1999 ....................................... F-20
STATEMENTS OF CASH FLOWS FOR THE THREE
YEARS ENDED JULY 31, 1999 ....................................... F-21
NOTES TO FINANCIAL STATEMENTS - JULY 31, 1999, 1998, AND 1997 ........ F-23
MOSS-ADAMS LLP
- --------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
U. S. Electricar, Inc.
We have audited the accompanying balance sheets of U.S. Electricar, Inc., as of
December 31, 1999 and July 31, 1999 and 1998, and the related statements of
operations, stockholders' deficit, and cash flows for the five months ended
December 31, 1999, and for each of the three years ended July 31, 1999. 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.
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 financial statements referred to above present fairly, in
all material respects, the financial position of U. S. Electricar, Inc., as of
December 31, 1999 and July 31, 1999 and 1998, and the results of its operations
and cash flows for the five months ended December 31, 1999, and for each of the
three years ended July 31, 1999, in conformity with generally accepted
accounting principles.
/s/ Moss Adams LLP
Santa Rosa, California
February 17, 2000
U. S. ELECTRICAR, INC.
BALANCE SHEET
December 31, 1999
(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $1,465
Accounts receivable 566
Inventories and supplies 256
Stockholder receivable, current maturities 38
Prepaids and other current assets 71
------
Total current assets 2,396
PROPERTY, PLANT AND EQUIPMENT 226
STOCKHOLDER RECEIVABLE, less current maturities 75
------
Total assets $2,697
======
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page F-2
U. S. ELECTRICAR, INC.
BALANCE SHEET (Continued)
December 31, 1999
(In thousands, except for share and per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 202
Accrued payroll and related expenses 229
Other accrued expenses 156
Current maturities of long-term debt 1,420
Customer deposits 102
--------
Total current liabilities 2,109
ACCRUED INTEREST PAYABLE 439
LONG-TERM PAYABLES 1,832
LONG-TERM DEBT, less current maturities 3,332
--------
Total liabilities 7,712
--------
STOCKHOLDERS' DEFICIT
Series A preferred stock - no par value; 30,000,000 shares
authorized; 3,259,000 shares issued and outstanding;
liquidating preference at $0.60 per share aggregating $1,995 2,166
Series B preferred stock - no par value; 5,000,000 shares
authorized; 1,242,000 shares issued and outstanding 2,486
Stock notes receivable (1,149)
Common stock - no par value; 500,000,000 shares authorized;
252,012,000 shares issued and outstanding 71,526
Common stock subscribed 1,445
Additional paid-in capital 4,917
Accumulated deficit (86,406)
--------
Total stockholders' deficit (5,015)
--------
Total liabilities and stockholders' deficit $ 2,697
========
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
Page F-3
U. S. ELECTRICAR, INC.
STATEMENT OF OPERATIONS
Five Months Ended December 31, 1999
(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------
NET REVENUES $ 629
COST OF REVENUES 377
-------------
GROSS PROFIT 252
-------------
OTHER COSTS AND EXPENSES
Research and development 262
Selling, general and administrative 796
Interest and financing fees 244
Legal settlements 125
-------------
Total other costs and expenses 1,427
-------------
LOSS FROM CONTINUING OPERATIONS (1,175)
GAIN ON DEBT RESTRUCTURING 214
-------------
NET LOSS $ (961)
=============
LOSS PER COMMON SHARE $ (0.01)
=============
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 251,993,533
=============
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page F-4
U. S. ELECTRICAR, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
Five Months Ended December 31, 1999
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK
------------------------------------------------
SERIES A SERIES B COMMON STOCK
--------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ------- ------- ------- ------- -------
BALANCE, July 31, 1999 3,259 $ 2,191 1,242 $ 2,486 251,992 $71,501
COMMON STOCK TRANSACTIONS
Conversion of Series A preferred stock (20) (25) -- -- 20 25
Stock issued for services -- -- -- -- -- --
Conversion of debt -- -- -- -- -- --
Debt forgiveness by stockholder -- -- -- -- -- --
NET LOSS -- -- -- -- -- --
------- ------- ------- ------- ------- -------
BALANCE, December 31, 1999 3,239 $ 2,166 1,242 $ 2,486 252,012 $71,526
======= ======= ======= ======= ======= =======
COMMON STOCK
SUBSCRIBED ADDITIONAL
--------------------- PAID-IN STOCK NOTES ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL
-------- -------- -------- -------- -------- --------
BALANCE, July 31, 1999 -- $ -- $ 3,100 $ (1,149) $(85,445) $ (7,316)
COMMON STOCK TRANSACTIONS
Conversion of Series A preferred stock -- -- -- -- -- --
Stock issued for services 1,317 148 -- -- -- 148
Conversion of debt 4,246 1,297 -- -- -- 1,297
Debt forgiveness by stockholder -- -- 1,817 -- -- 1,817
NET LOSS -- -- -- -- (961) (961)
-------- -------- -------- -------- -------- --------
BALANCE, December 31, 1999 5,563 $ 1,445 $ 4,917 $ (1,149) $(86,406) $ (5,015)
======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
Page F-5
U. S. ELECTRICAR, INC.
STATEMENT OF CASH FLOWS
Five Months Ended December 31, 1999
(In thousands)
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (961)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 60
Gain on debt restructuring (214)
Stock issued for services 148
Interest expense converted to equity 219
Change in operating assets and liabilities:
Accounts receivable 185
Inventories (33)
Stockholder receivable 12
Prepaids and other current assets 21
Accounts payable and accrued expenses (231)
Customer deposits 102
-------
Net cash used by operating activities (692)
-------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment acquisitions (3)
-------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable and capital leases (307)
-------
NET DECREASE IN CASH (1,002)
CASH, July 31, 1999 2,467
-------
CASH, December 31, 1999 $ 1,465
=======
SUPPLEMENTAL CASH-FLOW INFORMATION
Cash paid during the year for interest $ 9
Non-cash investing and financing activities:
Conversion of Series A preferred stock to common stock $ 25
Conversion of debt and accrued interest to equity $ 2,894
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page F-6
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - U. S. Electricar, Inc., is a California corporation that
originally produced and sold electric vehicles. In 1998, the Company began to
focus its efforts on the development of electric drive trains and related
components for electric vehicles and hybrid systems, vehicle systems integration
and the performance of various engineering contracts. The Company retains
development and manufacturing rights to many of the technologies created,
whether such research and development is internally or externally funded. The
Company currently has several engineering contracts to design, develop and test
electric and hybrid electric drive train products and related products,
including contracts with Hyundai Motor Corporation (HMC) and the U.S.
Government. The Company anticipates deriving further development contracts from
a new relationship with Hyundai Heavy Industries, as well as utilizing Hyundai
to manufacture the Company's drive systems for international sales.
Change in fiscal year - Effective December 31, 1999, the Company changed its
fiscal year-end from July 31, to December 31.
Inventory - Inventory is comprised of materials used in the design and
development of electric drive systems under ongoing development contracts, and
is stated at the lower of cost (first-in, first-out) or market.
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 three to seven years. Long-lived assets
are 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. 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.
Income taxes - Deferred income taxes are recognized using enacted tax rates and
are composed of taxes on financial accounting income that is adjusted for
requirements of current tax law and deferred taxes. Deferred taxes are the
expected future tax consequences of temporary differences between the financial
statement carrying amounts and tax bases of existing assets and liabilities.
Revenue recognition - Revenue on engineering and research and development
contracts is recognized at the completion of specified engineering or billing
milestones.
Loss per common share - Loss per common share is computed using the weighted
average number of common shares outstanding. Since a loss from operations
exists, a diluted earnings per share number is not presented because the
inclusion of common stock equivalents in the computation would be antidilutive.
Common stock equivalents associated with Series A and B preferred stock, stock
options, warrants and convertible notes and bonds, which are exercisable into
shares of common stock, could potentially dilute earnings per share in future
years.
Concentrations of risk - Financial instruments potentially subjecting the
Company to concentrations of credit risk consist primarily of bank demand
deposits that may, from time to time, be in excess of FDIC insurance thresholds,
and trade receivables. Demand deposits are placed with known creditable
financial institutions. The Company's largest customer, Hyundai, is also a
stockholder that holds less than 5% of the outstanding common stock. Hyundai
accounted for approximately 54% of total revenues for the five months ended
December 31, 1999, with $383,000 due from Hyundai and included in accounts
receivable at December 31, 1999.
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.
The amounts estimated could differ from actual results, and the difference could
have a significant impact on the financial statements.
- --------------------------------------------------------------------------------
Page F-7
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
- --------------------------------------------------------------------------------
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 fair value of the Company's short-term and long-term debt
may be substantially less than the carrying value since there is no readily
ascertainable market for the debt, given the financial position of the Company.
Stock-based compensation - The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." Under APB No. 25, compensation expense is the excess,
if any, of the fair value of the Company's stock at a measurement date over the
amount that must be paid to acquire the stock. SFAS No. 123 requires a fair
value method to be used when determining compensation expense for stock options
and similar equity instruments. SFAS No. 123 permits a company to continue to
use APB No. 25 to account for stock-based compensation to employees, but
proforma disclosures of net income and earnings or loss per share must be made
as if SFAS No. 123 had been adopted in its entirety. Stock options issued to
non-employees are valued under the provisions of SFAS No. 123.
Recent accounting pronouncements - The Financial Accounting Standards Board has
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives are accounted
for depending on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. SFAS No. 133, which is effective for fiscal years beginning
after June 15, 1999, will not have a material effect on the Company's financial
statements.
NOTE 2 - MANAGEMENT'S PLANS
The Company has experienced recurring losses from operations and use of cash
from operations. A substantial portion of the losses were attributable to
research, development and other costs associated with the Company's development
and production of electric drive systems and components.
During the fiscal year ended July 31, 1999, the Company was successful in
selling $3,000,000 of its common stock, and subsequent to December 31, 1999, the
Company signed a stock purchase agreement to sell 3,333,333 shares of its common
stock for $1,000,000. Additionally, during the fiscal year ended July 31, 1999,
the Company's President acquired approximately $5,694,000 of debt and accrued
interest, plus 37 million shares of stock, from ITOCHU Corporation. Under the
agreement among ITOCHU, the Company, and the Company's President, the acquired
debt is convertible into common stock under the terms of the original notes.
It is management's intention to continue to seek additional financing through
private placements as well as other means for as long as the operating shortfall
exists.
- --------------------------------------------------------------------------------
Page F-8
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
- --------------------------------------------------------------------------------
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT (in thousands)
Computers $ 849
Machinery and equipment 267
Furniture and office equipment 196
Automobiles and demonstration vehicles 142
Leasehold improvements 54
------
1,509
Less accumulated depreciation and amortization 1,283
------
$ 226
======
NOTE 4 - LONG-TERM DEBT (in thousands)
Secured subordinated promissory note - Credit
Management Association of California (CMAC) as
exclusive agent for Non-Qualified Creditors, with
interest at 3% for the first five years, 6% for years
six and seven, 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; the Company is required to
fund a sinking fund escrow with 10% of future equity
financing, including debt converted to equity $ 3,332
Convertible secured notes under a Supplemental Loan
Agreement with ITOCHU Corporation, with interest at
12%; principal and interest were due in December 1997;
the debt, which is secured by personal property, was
acquired by the Company's President in 1999 1,300
Other 120
--------
4,752
Less current maturities 1,420
--------
$ 3,332
========
In March 1999, all notes and accrued interest payable to ITOCHU, totaling
$5,694,000, were acquired by the Company's President in a transaction outside
the Company for $50,000. During the year ended July 31, 1999, the Company's
President forgave debt totaling $2,694,000. An additional $1,817,000 of
principal and interest were forgiven by the Company's President during the five
months ended December 31, 1999. The amounts forgiven have been reported as
additional paid-in capital. The remaining principal and accrued interest is
convertible into the Company's common stock at $0.30 per share at a date
mutually agreed to by the Company and the President
During the period ended December 31, 1999, $1,000,000 of debt and $247,000 of
accrued interest were converted into approximately 4,246,000 shares of common
stock at $0.30 per share.
- --------------------------------------------------------------------------------
Page F-9
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
- --------------------------------------------------------------------------------
NOTE 5 - LEASE COMMITMENTS
The Company has renewed the operating lease of its Torrance, California,
facility. The lease expires in February 2003. Rent expense was $43,000 for the
five months ended December 31, 1999.
Future minimum lease payments are as follows:
Year Ending December 31,
------------------------
2000 $ 148,000
2001 161,000
2002 163,000
2003 27,000
---------
$ 499,000
=========
NOTE 6 - INCOME TAXES (in thousands)
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 subsequent
years. This change will limit future availability of net operating loss
carryforwards. The extent of the limitation has not been determined.
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, and the possible limitation on the future
availability of net operating losses, as discussed above, a full valuation
allowance is recorded against these deferred tax assets.
Deferred tax assets
Federal tax loss carryforward $24,147
State tax loss carryforward 2,378
Basis difference 1,610
Other, net 214
-------
28,349
Less valuation allowance 28,349
-------
Net deferred tax asset $ --
=======
- --------------------------------------------------------------------------------
Page F-10
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
- --------------------------------------------------------------------------------
Net operating losses expire as follows:
Net Operating Loss
---------------------------------
Date of Expiration Federal California
------------------ -------- ----------
2000 $ 51 $ 16,730
2001 44 4,541
2002 11 2,778
2003 64 1,541
2004 322 709
2005 443 655
2006 680 --
2007 2,552 --
2008 24,221 --
2009 33,460 --
2010 9,083 --
2011 5,557 --
2012 2,998 --
2013 1,418 --
2014 1,965 --
-------- --------
$ 82,869 $ 26,954
======== ========
NOTE 7 - STOCKHOLDERS' DEFICIT
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 of $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 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 were pledged to the Company as security for the notes. The notes
provided for interest at 8% per annum payable annually, with the full principal
amount and any unpaid interest due on January 31, 1997. The notes remain
outstanding. The likelihood of collecting the interest on these notes is remote;
therefore, accrued interest has not been recorded.
Series B preferred stock - Series B preferred stock is currently unregistered
and each share is convertible into 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.
- --------------------------------------------------------------------------------
Page F-11
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
- --------------------------------------------------------------------------------
Other significant stock activity - In conjunction with the acquisition of
ITOCHU's debt (see Note 4), the Company's President purchased all of the
outstanding common stock of ITOCHU Corporation, which totaled approximately
37,400,000 shares, for a purchase price of $1.
In July 1999, the Company sold 86,666,666 unregistered shares of its common
stock at $0.03 per share pursuant to a Regulation D Subscription Agreement,
resulting in net proceeds of $2,600,000. Also in July 1999, the Company
converted $400,000 of convertible secured notes to approximately 13,333,000
shares of common stock at $0.03 per share. In July 1999, the Company's
shareholders authorized an additional 200,000,000 shares of no par common stock.
NOTE 8 - STOCK OPTIONS AND WARRANTS
In 1993, stockholders approved the 1993 Employee and Consultant Stock Plan,
which expires in 2003. Under the Plan, the Company has reserved 30,000,000
shares of common stock for incentive and nonstatutory stock options. Options
under the Plan expire over periods not to exceed ten years from date of grant.
Options that expire or are canceled may become available for future grants under
the Plan. In addition, the Company grants other nonstatutory stock options.
Under the 1994 Director Stock Option Plan, the Company 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 that expire or are
canceled may become available for future grants under the Director Option Plan.
The 1996 Stock Option Plan, which was approved by stockholders in 1997, reserves
45,000,000 shares for incentive and nonstatutory stock options during the period
of the Plan, which expires in 2006. Options under the 1996 Plan expire over a
period not to exceed ten years.
The following summarizes common stock option activity (shares in thousands):
Director
1996 Plan 1993 Plan Option Plan Other
------------------------- ------------------------ ------------------------ ------------------------
Shares Price Shares Price Shares Price Shares Price
--------- -------------- --------- -------------- ---------- ------------- --------- -------------
Balance, July 31, 1999 8,390 $0.10 - 0.30 11,111 $ 0.30-0.60 25 $ 0.20 1,495 $ 0.60-2.80
--------- --------- ---------- ---------
Granted 12,339 $ 0.11 -- -- -- -- -- --
Canceled -- -- -- -- (25) -- -- --
Forfeited (234) $0.11 - 0.30 -- -- -- -- -- --
--------- --------- ---------- ---------
Balance, December 31, 1999 20,495 $0.10 - 0.30 11,111 $ 0.30-0.60 -- $ -- 1,495 $ 0.60-2.80
========= ========= ========== =========
The Company measures its employee stock-based compensation arrangements under
the provisions of APB No. 25. Had compensation costs for the Company's stock
option plans been determined based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed under SFAS
No. 123, the Company's net loss would have increased by approximately $174,000
for the five months ended December 31, 1999. The fair value of options granted
were estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions: (1) dividend yield of 0%, (2) expected
volatility of 164% to 186%, (3) risk-free interest rate of 5.88% to 6.59%, and
(4) an expected life of the options of 5 to 10 years.
- --------------------------------------------------------------------------------
Page F-12
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
- --------------------------------------------------------------------------------
In May 1996, the Company issued approximately 13,333,000 warrants in exchange
for services performed. The warrants were exercisable at $0.30 per share in
cash, or could be exercised without the payment of cash if the average market
value of the Company's common stock for the 20 consecutive trading days
preceding the exercise date was equal to or greater that $0.60 per share, and
the average trading volume was in excess of 100,000 shares per day for the same
preceding 20 trading day period. The warrants expired, by their original terms,
on May 1, 1997. The holders of these warrants have subsequently made claims that
the Company had previously agreed to extend the term of these warrants for as
much as an additional five (5) years. The Company believes these claims are
without merit and that the warrants have expired.
In July 1999, the Company issued 50,000,000 warrants in conjunction with the
sale of common stock. The warrants are exercisable at $0.06 per share for an
equal number of shares of common stock, and expire in July 2001. The Company
determined the fair value of the warrants to be $406,000. Factors used in
determining the fair value included: (1) the effect on the stock price if the
warrants were exercised, (2) the thinly traded nature of the stock, (3) the
market for the warrants, (4) and the rate of return expected by the warrant
holders.
NOTE 9 - RESEARCH AND DEVELOPMENT CONTRACTS
The Company is obligated to perform research and development activities under
development and licensing agreements. The agreements require the Company to
design, develop, and test drive systems and deliver working prototypes. The
Company retains all rights to the products developed and will license their use
to the counter-party. Compensation for these research and development services
is based on specified milestones set forth in each agreement. As of December 31,
1999, the Company had not performed all research and development activities
required by the agreements.
Revenue recognized under the development agreements for the five months ended
December 31, 1999, was approximately $507,000. Related expenses are recorded in
cost of revenues.
NOTE 10 - RELATED PARTY TRANSACTIONS
Accrued compensation of $43,000 was due to two employees. The Company is to
issue 808,000 shares of its common stock as payment on this accrual. The market
value of the stock on the date of settlement was $89,000. The value of the stock
in excess of the accrued compensation was charged to compensation expense during
the period.
Also for the period ended December 31, 1999, the Company's Board of Directors
unanimously approved a compensation package for outside directors consisting of
the following: for each meeting attended in person, each outside director shall
receive $1,000 in cash, reimbursement of economy class travel and lodging, and
$2,000 of common stock valued on the date of the meeting at the average of the
closing ask and bid prices; for each telephonic Board meeting, each outside
director shall receive $250 in cash and $250 in stock valued in the same manner
as an in-person Board meeting; for each meeting of a Board committee attended in
person, the committee chairman shall receive an additional $500 in cash and $500
in stock. Under this plan, the Company was to issue approximately 509,000 shares
of stock with a fair market value of $59,000, which was recorded as an expense
during the period.
- --------------------------------------------------------------------------------
Page F-13
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
- --------------------------------------------------------------------------------
NOTE 11 - CONTINGENCIES
In connection with the Company's default on its debt obligations to unsecured
creditors, 19 of these creditors have obtained judgments against the Company in
the aggregate amount of approximately $650,000. The Company is aggressively
taking steps to eliminate these judgments.
In February 1999, the Company became a defendant in a lawsuit filed by an
individual alleging personal injury by a vehicle manufactured by a prior
subsidiary of the Company, Industrial Electric Vehicles, Inc. The Company's
insurance carrier has assumed all potential liability associated with this
matter.
A workers compensation claim in the amount of approximately $169,000, has been
asserted against the Company by the former owners of Nordskog Electric Vehicles,
which had been acquired by the Company and renamed Industrial Electric Vehicles
(IEV). IEV was sold by the Company in 1997. The claim alleges that the Company
agreed to indemnify Nordskog for such liabilities when the Company acquired
Nordskog. The Company has not assessed the validity of this claim or its likely
outcome.
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.
- --------------------------------------------------------------------------------
Page F-14
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
- --------------------------------------------------------------------------------
NOTE 12 - UNAUDITED SUMMARIZED FINANCIAL STATEMENTS
The unaudited balance sheet and statement of operations as of and for the five
months ended December 31, 1998, are as follows (in thousands):
BALANCE SHEET
Current assets
Cash $ 6
Accounts receivable, net 405
Inventories and supplies 430
Stockholder receivable, current maturities 25
Prepaids and other current assets 73
--------
Total current assets 939
Property, plant, and equipment, net 272
Stockholder receivable, less current maturities 75
--------
Total assets $ 1,286
========
Current liabilities
Accounts payable $ 593
Accrued payroll and related expenses 347
Other accrued expenses 707
Current maturities of long-term debt --
Customer deposits 358
--------
Total current liabilities 2,005
Accrued interest payable 1,525
Long-term payables 1,818
Long-term debt, less current maturities 9,059
--------
Total liabilities 14,407
--------
Stockholders' deficit
Series A preferred stock 2,233
Series B preferred stock 2,584
Stock notes receivable (1,149)
Common stock - no par value; 300,000,000 authorized,
151,767,000 shares issued and outstanding at 1998 68,767
Accumulated deficit (85,556)
--------
Total stockholders' deficit (13,120)
--------
Total liabilities and stockholders' deficit $ 1,287
========
- --------------------------------------------------------------------------------
Page F-15
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1999
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Net revenues $ 867
Cost of revenues 389
------
Gross profit 478
------
Other costs and expenses
Research and development 73
Selling, general and administrative 691
Interest and financing fees 264
Other (income) (35)
------
Total other costs and expenses 993
------
Net loss from continuing operations $ (515)
======
Loss per common share $(0.01)
======
- --------------------------------------------------------------------------------
Page F-16
U. S. ELECTRICAR, INC.
BALANCE SHEETS
July 31, 1999 and 1998
(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------
ASSETS
1999 1998
------ ------
CURRENT ASSETS
Cash $2,467 $ 266
Accounts receivable, net of allowance for
doubtful accounts of $0 and $108 751 108
Inventories and supplies 223 492
Stockholder receivable, current maturities 50 250
Prepaids and other current assets 92 124
------ ------
Total current assets 3,583 1,240
PROPERTY, PLANT AND EQUIPMENT 282 318
STOCKHOLDER RECEIVABLE, less current maturities 75 100
------ ------
Total assets $3,940 $1,658
====== ======
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page F-17
U. S. ELECTRICAR, INC.
BALANCE SHEETS (Continued)
July 31, 1999 and 1998
(In thousands, except for share and per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
1999 1998
-------- --------
CURRENT LIABILITIES
Accounts payable $ 507 $ 540
Accrued payroll and related expenses 290 358
Other accrued expenses 232 285
Current maturities of long-term debt 4,427 5,727
Accrued warranty reserve -- 474
Customer deposits -- 387
-------- --------
Total current liabilities 5,456 7,771
ACCRUED INTEREST PAYABLE 593 1,262
LONG-TERM PAYABLES 1,875 1,908
LONG-TERM DEBT, less current maturities 3,332 3,332
-------- --------
Total liabilities 11,256 14,273
-------- --------
STOCKHOLDERS' DEFICIT
Series A preferred stock - no par value; 30,000,000 shares
authorized; 3,259,000 and 3,321,000 shares issued and
outstanding at 1999 and 1998; liquidating preference
at $0.60 per share aggregating $1,955 and $1,993 2,191 2,258
Series B preferred stock - no par value; 5,000,000 shares
authorized; 1,242,000 and 1,291,000 shares issued and
outstanding at 1999 and 1998 2,486 2,584
Stock notes receivable (1,149) (1,149)
Common stock - no par value; 500,000,000 and 300,000,000
shares authorized at 1999 and 1998; 251,992,000 and
151,767,000 shares issued and outstanding at 1999 and 1998 71,501 68,742
Additional paid-in capital 3,100 --
Accumulated deficit (85,445) (85,050)
-------- --------
Total stockholders' deficit (7,316) (12,615)
-------- --------
Total liabilities and stockholders' deficit $ 3,940 $ 1,658
======== ========
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
Page F-18
U. S. ELECTRICAR, INC.
STATEMENTS OF OPERATIONS
Years Ended July 31, 1999, 1998 and 1997
(In thousands, except for share and per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------- ------------- -------------
NET REVENUES $ 2,774 $ 1,938 $ 4,484
COST OF REVENUES 1,460 2,765 2,042
------------- ------------- -------------
GROSS PROFIT 1,314 (827) 2,442
------------- ------------- -------------
OTHER COSTS AND EXPENSES
Research and development 499 445 1,218
Selling, general and administrative 1,141 1,697 3,116
Interest and financing fees 724 665 792
Gain on warranty accrual reevaluation (474) -- --
Other (income)/expense (41) (67) 274
Acquisition of research and development -- -- 1,630
------------- ------------- -------------
Total other costs and expenses 1,849 2,740 7,030
------------- ------------- -------------
LOSS FROM CONTINUING OPERATIONS (535) (3,567) (4,588)
GAIN ON DEBT RESTRUCTURING 140 42 53
------------- ------------- -------------
NET LOSS $ (395) $ (3,525) $ (4,535)
============= ============= =============
PER COMMON SHARE
Loss from continuing operations $ (0.01) $ (0.02) $ (0.03)
Gain on debt restructuring -- -- --
------------- ------------- -------------
Net loss per common share $ (0.01) $ (0.02) $ (0.03)
============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 152,076,615 151,265,026 133,805,603
============= ============= =============
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
Page F-19
U. S. ELECTRICAR, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended July 31, 1999, 1998 and 1997
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK
---------------------------------------------------
SERIES A SERIES B COMMON STOCK
----------------------- ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- --------- --------- ---------
BALANCE, JULY 31, 1996 4,010 $ 2,983 1,587 $ 3,175 120,220 $ 59,157
PREFERRED STOCK TRANSACTION
Conversion of unsecured debt -- -- 42 85 -- --
COMMON STOCK TRANSACTIONS
Sales under Regulation S subscription
agreement -- -- -- -- 12,000 3,600
Systronix acquisition -- -- -- -- 3,800 760
Conversion of Series S Bonds and
accrued interest -- -- -- -- 10,732 3,219
Conversion of Series A preferred stock (389) (353) -- -- 389 353
Conversion of Series B preferred stock -- -- (289) (578) 1,927 578
Conversion of debt -- -- -- -- 2,000 600
INTEREST ON STOCK NOTES -- -- -- -- -- --
NET LOSS -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
BALANCE, July 31, 1997 3,621 2,630 1,340 2,682 151,068 68,267
COMMON STOCK TRANSACTIONS
Conversion of Series A preferred stock (300) (372) -- -- 300 372
Conversion of Series B preferred stock -- -- (49) (98) 324 98
Stock for services -- -- -- -- 75 5
NET LOSS -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
BALANCE, July 31, 1998 3,321 2,258 1,291 2,584 151,767 68,742
COMMON STOCK TRANSACTIONS
Conversion of Series A preferred stock (62) (67) -- -- 62 67
Conversion of Series B preferred stock -- -- (49) (98) 163 98
Sale of stock -- -- -- -- 83,333 2,375
Conversion of debt -- -- -- -- 16,667 219
Issuance of common stock warrants -- -- -- -- -- --
Debt forgiveness by stockholder -- -- -- -- -- --
NET LOSS -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
3,259 $ 2,191 1,242 $ 2,486 251,992 $ 71,501
========= ========= ========= ========= ========= =========
ADDITIONAL
PAID-IN STOCK NOTES ACCUMULATED
CAPITAL RECEIVABLE DEFICIT TOTAL
-------- ---------- -------- --------
BALANCE, JULY 31, 1996 $ -- $ (1,061) $(76,990) $(12,736)
PREFERRED STOCK TRANSACTION
Conversion of unsecured debt -- -- -- 85
COMMON STOCK TRANSACTIONS
Sales under Regulation S subscription
agreement -- -- -- 3,600
Systronix acquisition -- -- -- 760
Conversion of Series S Bonds and
accrued interest -- -- -- 3,219
Conversion of Series A preferred stock -- -- -- --
Conversion of Series B preferred stock -- -- -- --
Conversion of debt -- -- -- 600
INTEREST ON STOCK NOTES -- (88) -- (88)
NET LOSS -- -- (4,535) (4,535)
-------- -------- -------- --------
BALANCE, July 31, 1997 -- (1,149) (81,525) (9,095)
COMMON STOCK TRANSACTIONS
Conversion of Series A preferred stock -- -- -- --
Conversion of Series B preferred stock -- -- -- --
Stock for services -- -- -- 5
NET LOSS -- -- (3,525) (3,525)
-------- -------- -------- --------
BALANCE, July 31, 1998 -- (1,149) (85,050) (12,615)
COMMON STOCK TRANSACTIONS
Conversion of Series A preferred stock -- -- -- --
Conversion of Series B preferred stock -- -- -- --
Sale of stock -- -- -- 2,375
Conversion of debt -- -- -- 219
Issuance of common stock warrants 406 -- -- 406
Debt forgiveness by stockholder 2,694 -- -- 2,694
NET LOSS -- -- (395) (395)
-------- -------- -------- --------
$ 3,100 $ (1,149) $(85,445) $ (7,316)
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
Page F-20
U. S. ELECTRICAR, INC.
STATEMENTS OF CASH FLOWS
Years Ended July 31, 1999, 1998 and 1997
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (395) $(3,525) $(4,535)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 179 212 578
Change in allowance for doubtful accounts (108) (7) (319)
Provision to reduce inventory values (36) 949 308
Gain on debt restructuring (140) (42) (53)
Changes in valuation allowances and reserves (640) (368) (1,011)
Purchase of research and development -- -- 1,630
Stock issued in settlement of legal claim -- 5 --
Loss of disposal of equipment -- 353 --
Gain on sale of Industrial Electric Vehicles -- -- (158)
Interest income on stock notes receivable -- -- (88)
Interest converted to common stock -- -- 194
Change in operating assets and liabilities:
Accounts receivable (560) 753 (54)
Inventories 329 371 589
Note receivable 250 -- --
Prepaids and other current assets 32 191 (53)
Accounts payable and accrued expenses 678 491 (39)
Customer deposits (387) 343 (164)
------- ------- -------
Net cash used by operating activities (798) (274) (3,175)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (1) (8) (13)
Proceeds from sale of equipment -- 35 --
Repayments on advances to Systronix Corporation -- -- 209
------- ------- -------
Net cash provided (used) by investing activities (1) 27 196
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable -- -- (3,021)
Payments on capital leases -- (20) (152)
Borrowings on notes payable 400 200 3,122
Proceeds from issuance of common stock 2,600 -- 3,350
------- ------- -------
Net cash provided by financing activities 3,000 180 3,299
------- ------- -------
NET INCREASE (DECREASE) IN CASH 2,201 (67) 3,299
CASH
Beginning of year 266 333 13
------- ------- -------
End of year $ 2,467 $ 266 $ 3,312
======= ======= =======
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
Page F-21
U. S. ELECTRICAR, INC.
STATEMENTS OF CASH FLOWS (Continued)
Years Ended July 31, 1999, 1998 and 1997
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
------- ------- -------
SUPPLEMENTAL CASH-FLOW INFORMATION
Cash paid during the year for interest $ -- $ 3 $ 162
NON-CASH INVESTING AND FINANCING ACTIVITIES
Conversion of Series A preferred stock to common stock $ 68 $ 372 $ 353
Conversion of Series B preferred stock to common stock $ 98 $ 98 $ 578
Issuance of warrants $ 406 $ -- $ --
Decrease in capital lease payable due to cancellation $ -- $ 190 $ --
Conversion of investment to note receivable $ -- $ 250 $ --
Conversion of debt to common stock $ 400 $ -- $ 4,069
Conversion of debt to Series B preferred stock $ -- $ -- $ 85
Notes issued in connection with debt restructuring $ -- $ -- $ 15
Assumption of notes payable in connection with acquisition $ -- $ -- $ 800
Note issued in connection with acquisition $ -- $ -- $ 830
Note assumed by buyer in connection with sale of Industrial
Electric Vehicles $ -- $ -- $(1,013)
Conversion of accrued interest to notes payable $ -- $ -- $ 139
Acquisition of assets through capital lease $ -- $ -- $ 361
Sale of net assets of Industrial Electric Vehicles $ -- $ -- $ 858
Acquistion of certain assets, related debt and research and
development from Systronix Corporation for debt and
stock options, net $ -- $ -- $ (819)
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
Page F-22
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1999, 1998, and 1997
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - U. S. Electricar, Inc. was incorporated in 1976 in California as
Solar Electric Engineering, Inc., and in 1994 changed its name to U. S.
Electricar, Inc. Prior to fiscal year 1998, the Company produced and sold
electric vehicles. In 1998, the Company began to focus its efforts on the
development of electric drive trains and related components for electric
vehicles and hybrid systems, vehicle systems integration and the performance of
various engineering contracts. The Company retains development and manufacturing
rights to many of the technologies created, whether such research and
development is internally or externally funded. The Company currently has
several engineering contracts to design, develop and test electric drive train
products and related products for Hyundai Motor Corporation (HMC) and the U.S.
Government. The Company anticipates deriving further development contracts from
a new relationship with Hyundai Heavy Industries, as well as utilizing Hyundai
to manufacture the Company's drive systems for international sales. The
statements of operations, stockholders' deficit, and cash flows for the year
ending July 31, 1997, include the activities of Industrial Electric Vehicles,
Inc. (IEV). Substantially all assets and liabilities of IEV were sold during the
year ended July 31, 1997. All material intercompany transactions affecting the
1997 statements were eliminated in consolidation. IEV is a dormant company and
had no transactions in 1999 and 1998.
Inventory and supplies - Inventory and supplies at July 1999 is comprised of
materials used in the design and development of electric drive systems under
ongoing development contracts. Inventory at July 1998 was comprised of electric
vehicles, raw materials, and work-in-process, and were stated at market, which
was 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 three to seven years. Long-lived assets
are 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. 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.
Warranties - Electric vehicle warranties were provided by the Company and
generally extended for one year from the time of sale. Warranties for
substantially all vehicles sold by the Company have elapsed. As a result, the
Company recognized a $474,000 gain in 1999 concurrent with the reevaluation of
the warranty accrual.
Income taxes - Deferred income taxes are recognized using enacted tax rates and
are composed of taxes on financial accounting income that is adjusted for
requirements of current tax law and deferred taxes. Deferred taxes are the
expected future tax consequences of temporary differences between the financial
statement carrying amounts and tax bases of existing assets and liabilities.
Revenue recognition - Revenue from the sale of electric vehicles was recognized
when the vehicle was delivered to the customer. Revenue on engineering and
research and development contracts is recognized at the completion of specified
engineering or billing milestones.
Loss per common share - Loss per common share is computed using the weighted
average number of common shares outstanding. Since a loss from operations
exists, a diluted earnings per share number is not presented because the
inclusion of common stock equivalents in the computation would be antidilutive.
Common stock equivalents associated with Series A and B preferred stock, stock
options, warrants and convertible notes and bonds, which are exercisable into
shares of common stock, could potentially dilute earnings per share in future
years.
- --------------------------------------------------------------------------------
Page F-23
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
July 31, 1999, 1998, and 1997
- --------------------------------------------------------------------------------
Concentrations of risk - Financial instruments potentially subjecting the
Company to concentrations of credit risk consist primarily of bank demand
deposits that may, from time to time, be in excess of FDIC insurance thresholds,
and trade receivables. Demand deposits are placed with known creditable
financial institutions. The Company's largest customer, Hyundai, is also a
stockholder that holds less than 5% of the outstanding common stock. Hyundai
accounted for approximately 90% of total revenues for the year ended July 31,
1999. Amounts due from Hyundai at July 31, 1999, which are included in accounts
receivable, were $736,000.
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.
The amounts estimated 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 fair value of the Company's short-term and long-term debt
may be substantially less than the carrying value since there is no readily
ascertainable market for the debt, given the financial position of the Company.
Stock-based compensation - The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." Under APB No. 25, compensation expense is the excess,
if any, of the fair value of the Company's stock at a measurement date over the
amount that must be paid to acquire the stock. SFAS No. 123 requires a fair
value method to be used when determining compensation expense for stock options
and similar equity instruments. SFAS No. 123 permits a company to continue to
use APB No. 25 to account for stock-based compensation to employees, but
proforma disclosures of net income and earnings or loss per share must be made
as if SFAS No. 123 had been adopted in its entirety. Stock options issue to
non-employees are valued under the provisions of SFAS No. 123.
Recent accounting pronouncements - The Financial Accounting Standards Board has
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives are accounted
for depending on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. The Company does not expect the adoption of SFAS No. 133,
which is effective for all fiscal quarters of fiscal years beginning after June
15, 1999, to have a material effect on the Company's financial statements.
Reclassifications - Certain reclassification have been made to the July 31, 1998
and 1997 financial statements to conform to the July 31, 1999 presentation.
- --------------------------------------------------------------------------------
Page F-24
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
July 31, 1999, 1998, and 1997
- --------------------------------------------------------------------------------
NOTE 2 - ACQUISITIONS AND SALES
The Company acquired substantially all the tangible and intangible assets and
assumed certain liabilities of Systronix Corporation (Systronix) in October
1996. Systronix was a developer of technologically advanced electric propulsion
systems for electric-powered vehicles. The purchase was reported using the
purchase method of accounting and, accordingly, the purchase price was allocated
to the assets acquired and liabilities assumed based upon the fair values at the
date of acquisition. Assets associated with research and development, and for
which there was no alternative use, were expensed.
In 1997, substantially all assets of the Company's subsidiary, Industrial
Electrical Vehicles, Inc. were sold to a group headed by former employees of the
Company in exchange for the buyers assuming certain defined debt. The
liabilities assumed by the buyers exceeded the reported values of the assets
sold, which resulted in a gain of approximately $155,000.
NOTE 3 - INVENTORIES (in thousands)
1999 1998
---- ----
Raw materials and supplies $223 $437
Finished goods -- 120
Work-in-process -- 101
---- ----
223 658
Less valuation adjustment -- 166
---- ----
$223 $492
==== ====
As of July 31, 1999, all inventory is classified as raw materials and supplies
since the Company no longer manufactures electric vehicles.
In 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 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,
1999 and 1998, approximately $98,000 remained unpaid and was included in accrued
expenses. Subsequent to July 31, 1999, the vendor agreed to accept $27,000 in
complete satisfaction of the outstanding liability.
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Page F-25
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
July 31, 1999, 1998, and 1997
- --------------------------------------------------------------------------------
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT (in thousands)
1999 1998
------ ------
Computers $ 846 $ 872
Machinery and equipment 267 267
Furniture and office equipment 196 196
Leasehold improvements 54 47
Automobiles and demonstration vehicles 142 --
Construction in progress -- 7
------ ------
1,505 1,389
Less accumulated depreciation and amortization 1,223 1,071
------ ------
$ 282 $ 318
====== ======
NOTE 5 - LONG-TERM DEBT (in thousands, except for share data)
1999 1998
------- -------
Convertible secured note under a Supplemental Loan
Agreement with ITOCHU Corporation, with interest at
12%; principal and interest were due in April 1998; the
debt was secured by the Company's personal property
and was acquired by the Company's President during 1999 $ 1,700 $ 3,000
Secured subordinated promissory note - Credit
Management Association of California (CMAC) as
exclusive agent for Non-Qualified Creditors, with
interest at 3% for the first five years, 6% for years
six and seven, and then at prime plus 3% through
date of maturity; interest payments are made upon
payment of principal, with principal and interest due
no later than April 2016; with an interest in a sinking
fund escrow with a balance of $4,000 as of July 31,
1999 and 1998; the sinking fund escrow requires the
Company fund the account with 10% of future equity
financing, including convertible debt converted to
equity; payments on this note are subordinated to
payment in full on all principal and accrued interest
owed on the Qualified Creditors promissory note 3,332 3,332
Convertible secured notes under a Supplemental Loan
Agreement with ITOCHU Corporation, with interest at
12%; principal and interest were due in December 1997;
the debt was secured by the Company's personal property,
and was acquired by the Company's President during 1999 1,300 1,300
Convertible bonds with interest at 10%; principal and
interest were due in July 1997 800 800
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Page F-26
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
July 31, 1999, 1998, and 1997
- --------------------------------------------------------------------------------
1999 1998
------- -------
Secured subordinated promissory note - CMAC, as
exclusive agent for Qualified Creditors, with interest
at 3%; principal and interest are due in August 1999;
secured with an interest in a sinking fund escrow 307 307
Other 320 320
------- -------
9,758 11,057
Less current maturities 4,427 5,727
------- -------
$ 3,332 $ 3,332
======= =======
In September 1994, the Company issued 120 units of Series S secured convertible
bonds totaling $12,000,000. Each of the units consisted of $100,000 in principal
and a warrant to purchase 10,000 common shares. Beginning July 1995 through
March 1997, the Company converted the $12,000,000 in principal and $2,002,000 of
accrued interest into 46,674,000 shares of common stock at $0.30 per share. Of
these amounts, $3,217,000 of principal and accrued interest was converted into
10,732,000 shares of common stock during the year ended July 31, 1997.
The Company and ITOCHU Corporation entered into a Supplemental Loan Agreement in
April 1995, whereby ITOCHU agreed to lend $3,000,000 to the Company. The notes
were secured by the personal property of the parent company and were convertible
at $0.30 per share into the Company's common stock. The principal and accrued
interest due under the notes have not been paid, causing an event of default.
In March 1999, this and all other notes and accrued interest payable to ITOCHU,
totaling $5,694,000, were acquired by the Company's President in a transaction
outside the Company for $50,000. During 1999, the Company's President forgave
debt totaling $2,694,000. Due to the related party nature of the transaction,
this forgiveness was recorded as additional paid-in capital. The remaining
$3,000,000 in notes continues to be in default and accrues interest at 12% per
year. The remaining principal and accrued interest is convertible into the
Company's common stock at $0.30 per share at a date mutually agreed to by the
Company and the President.
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 CMAC, as the exclusive agent for certain unsecured
creditors who settled with the Company in connection with its Debt Restructuring
Plan. In May 1997 the Company issued an additional promissory note, due April
1999 for $15,000 to CMAC, under the Debt Restructuring Plan. The April notes are
in default.
NOTE 6 - CAPITAL LEASE
Included in the acquisition of certain assets and liabilities of Systronix was
the assumption of a purchase contract for a high performance dynamometer. This
acquisition was financed through a capital lease. The lease required monthly
payments of $22,000 and was scheduled to mature in May 1998. The Company was
unable to continue making the monthly lease payments and the dynamometer was
returned to the manufacturer, who was the holder of the lease. The excess of the
undepreciated capital asset's cost over the remaining liability, which totaled
$249,000, was charged to expense in 1998.
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Page F-27
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
July 31, 1999, 1998, and 1997
- --------------------------------------------------------------------------------
NOTE 7 - LEASE COMMITMENTS
The Company assumed the lease of its Torrance facility when Systronix was
purchased. The lease expires in February 2000. Future minimum lease payments
under this lease agreement are $56,000 for the year ended July 31, 2000. Rent
expense was $144,400, $164,500, and $225,000 for the years ended July 31, 1999,
1998, and 1997.
NOTE 8 - INCOME TAXES (in thousands)
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 subsequent
years. This change will limit future availability of net operating loss
carryforwards. The extent of the limitation has not been determined.
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, a full
valuation allowance is recorded against these deferred tax assets.
1999 1998
------- -------
Deferred tax assets
Federal tax loss carryforward $23,574 $23,558
State tax loss carryforward 2,325 2,705
Basis difference 1,610 1,610
Reserves and allowances 118 107
Other, net 215 498
------- -------
27,842 28,478
Less valuation allowance 27,842 28,478
------- -------
Net deferred tax asset $ -- $ --
======= =======
Net operating losses expire as follows:
Net Operating Loss
---------------------------------
Date of Expiration Federal California
------------------ -------- ----------
2000 $ 51 $ 16,730
2001 44 4,541
2002 11 2,778
2003 64 1,541
2004 322 709
2005 443 --
2006 680 --
2007 2,552 --
2008 24,221 --
2009 33,460 --
2010 9,083 --
2011 5,557 --
2012 2,998 --
2013 1,418 --
-------- --------
$ 80,904 $ 26,299
======== ========
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Page F-28
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
July 31, 1999, 1998, and 1997
- --------------------------------------------------------------------------------
NOTE 9 - STOCKHOLDERS' DEFICIT
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 of $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 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 were pledged to the Company as security for the notes. The notes
provided for interest at 8% per annum payable annually, with the full principal
amount and any unpaid interest due on January 31, 1997. The notes remain
outstanding at July 31, 1999. The likelihood of collecting the interest on these
notes is remote; therefore, beginning with the year ended July 31, 1998, accrued
interest has not been recorded.
Series B preferred stock - Series B preferred stock is currently unregistered
and each share is convertible into 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 1999 and 1998, 49,000 shares of Series B preferred stock were converted each
year into common stock on a 3.33 and 6.66-to-one basis, respectively.
Other significant stock activity - In March 1997, the Company sold 12,000,000
unregistered shares of its common stock at $0.30 per share pursuant to a
Regulation S Subscription Agreement resulting in net proceeds of $3,600,000.
Also in 1997, the Company converted $600,000 of convertible secured notes to
2,000,000 shares of common stock at $0.30 per share.
In conjunction with the acquisition of ITOCHU's debt, the Company's President
purchased all of the outstanding common stock of ITOCHU Corporation, which
totaled approximately 37,400,000 shares, for a purchase price of $1.
In July 1999, the Company sold 86,666,666 unregistered shares of its common
stock at $0.03 per share pursuant to a Regulation D Subscription Agreement,
resulting in net proceeds of $2,600,000. Also in July 1999, the Company
converted $400,000 of convertible secured notes to 13,333,000 shares of common
stock at $0.03 per share.
In July 1999, the Company's shareholders authorized an additional 200,000,000
shares of no par common stock.
- --------------------------------------------------------------------------------
Page F-29
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
July 31, 1999, 1998, and 1997
- --------------------------------------------------------------------------------
NOTE 10 - STOCK OPTIONS AND WARRANTS
In 1993, stockholders approved the 1993 Employee and Consultant Stock Plan,
which expires in 2003. Under the 1993 Employee and Consultant Stock Plan, the
Company reserved 10,000,000 shares of common stock for incentive and
nonstatutory stock options. 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 that expire or are canceled
may become available for future grants under the 1993 Plan. In addition, the
Company grants other nonstatutory stock options.
Under the 1994 Director Stock Option Plan, the Company 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 that expire or are
canceled may become available for future grants under the Director Option Plan.
In 1997, in connection with the purchase of Systronix, stockholders approved the
1996 Stock Option Plan , which expires in 2006. The Company, during the term of
the 1996 Plan, will at all times reserve and keep available such number of
shares of common stock for incentive and non-qualified stock options as shall be
sufficient to satisfy the requirements of the Plan. Options under the 1996 Plan
expire over a period not to exceed ten years. In July 1999, the Company's
shareholders authorized an increase in the number of shares available under the
Plan from 15,000,000 to 45,000,000.
The following summarizes common stock option activity (shares in thousands):
1996 Plan 1993 Plan
------------------------- ------------------------
Shares Price Shares Price
--------- -------------- --------- --------------
Balance, July 31, 1996 -- $ -- 17,269 $ 0.30 - 0.60
Granted 10,367 0.30 -- --
Canceled (445) 0.30 (1,135) 0.30
Exercised -- -- -- --
Expired -- -- (38) 0.30
----- ------
Balance, July 31, 1997 9,922 0.30 16,096 0.30 - 0.60
Canceled (1,403) 0.30 (4,650) 0.30
Expired (80) 0.30 (63) 0.30
----- ------
Balance, July 31, 1998 8,439 0.30 11,383 0.30 - 0.60
----- ------
Granted 1,765 0.10 -- --
Canceled (1,765) 0.30 (113) 0.30
Expired (49) 0.30 (159) 0.30
----- ------
Balance, July 31, 1999 8,390 $0.10 - 0.30 11,111 $ 0.30 - 0.60
===== ======
Director
Option Plan Other
------------------------------ ------------------------
Shares Price Shares Price
---------- ------------- --------- -------------
Balance, July 31, 1996 20 $ 0.20 - 6.880 1,495 $ 0.60 - 2.80
Granted -- -- -- --
Canceled -- -- -- --
Exercised -- -- -- --
Expired -- -- -- --
------- -----
Balance, July 31, 1997 20 0.20 - 6.88 1,495 0.60 - 2.80
Canceled (16) 0.20 - 6.88 -- --
Expired -- -- -- --
------- -----
Balance, July 31, 1998 4 0.20 1,495 0.60 - 2.80
------- -----
Granted 21 0.20 -- --
Canceled -- -- -- --
Expired -- -- -- --
------- -----
Balance, July 31, 1999 25 $ 0.20 1,495 $ 0.60 - 2.80
======= =====
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Page F-30
U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
July 31, 1999, 1998, and 1997
- --------------------------------------------------------------------------------
The Company measures its employee stock-based compensation arrangements under
the provisions of APB No. 25. Had compensation costs for the Company's stock
option plans been determined based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed under SFAS
No. 123, the Company's net loss would have been increased by approximately
$640,700, $549,900, and $307,000 for the years ended July 31, 1999, 1998, and
1997. The fair value of options granted were estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions: (1)
dividend yield of 0%, (2) expected volatility of 164%, (3) risk-free interest
rate of 5.88% to 6.59%, and (4) an expected life of the options of 5 years.
In May 1996, the Company issued 13,333,000 warrants in exchange for services
performed. The warrants were exercisable at $0.30 per share for an equal number
of shares of common stock, and expired on May 1, 1997. At September 24, 1998,
negotiations were underway to extend the period of time in which the warrants
could be exercised. 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.
In July 1999, the Company issued 50,000,000 warrants in conjunction with the
sale of common stock. The warrants are exercisable at $0.06 per share for an
equal number of shares of common stock, and expire in June 2004.
The Company determined the fair value of the warrant to be $406,000. Factors
used in determining the fair value included: (1) the effect on the stock price
if the warrants were exercised, (2) the thinly traded nature of the stock, (3)
the market for the warrants, (4) and the rate of return expected by the warrant
holders.
The following summarizes warrant activity (in thousands):
Debt
Conversion Other
---------- -------
Balance, July 31, 1997 -- 15,333
Granted -- --
Expired -- --
------- -------
Balance, July 31, 1998 -- 15,333
Granted 50,000 --
Expired -- (15,333)
------- -------
Balance, July 31, 1999 50,000 --
======= =======
NOTE 11 - RESEARCH AND DEVELOPMENT CONTRACTS
The Company was obligated to perform research and development activities under
development and licensing agreements. The agreements require the Company to
design, develop, and test drive systems and deliver working prototypes. The
Company retains all rights to the products developed and will license their use
to the counter-party. Compensation for the research and development services is
based on specified milestones set forth in each agreement. As of July 31, 1999,
the Company had not performed all research and development activities required
by the agreements.
Revenue received under the development agreements recognized for the period
ended July 31, 1999, was approximately $1,954,000. Related expenses are recorded
in cost of revenues.
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Page F-31