US ELECTRICAR INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 31, 1997
Commission File Number 0-25184

U. S. ELECTRICAR, INC.
(Exact name of registrant as specified in its charter)

California 95-3056150
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)

5 Thomas Mellon Circle, San Francisco, California 94134
(Address of principal executive offices, including zip code)

(415) 656-2400
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of October 23, 1997 was $5,110,000. For purposes of this
calculation only, (i) shares of Common Stock and Series A Preferred Stock are
deemed to have a market value of $0.085 per share, and the Series B Preferred
Stock is deemed to have a market value of $0.57 per share, based on the average
of the high bid and low ask prices of the Common Stock on October 23, 1997, 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 October 23, 1997 was
151,205,668.

Documents Incorporated By Reference:
Part III of this Report incorporates information by reference from the
definitive Proxy Statement for the registrant's annual meeting of shareholders,
which is anticipated to be held in February, 1998.

U.S. ELECTRICAR, INC.

1997 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I

Item 1. Business ............................................................ 3

Item 2. Properties ..........................................................10

Item 3. Legal Proceedings ...................................................10

Item 4. Submission of Matters to a Vote of Security Holders..................10

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.........................................11

Item 6. Selected Financial Data..............................................12

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................13

Item 8. Financial Statements and Supplementary Data..........................17

Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................17

PART III

Item 10. Directors and Executive Officers of the Registrant...................18

Item 11. Executive Compensation...............................................18

Item 12. Security Ownership of Certain Beneficial Owners and Management.......18

Item 13. Certain Relationships and Related Transactions.......................18

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....19

SIGNATURES....................................................................20

The matters addressed in this report on Form 10-K , with the exception of the
historical information presented, may incorporate certain forward-looking
statements involving risks and uncertainties, including the risks discussed
under the heading "Certain Factors That May Affect Future Results" in the
Management's Discussion and Analysis section and elsewhere in this report.

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PART I

Item 1. Business

General

U.S. Electricar, Inc. (the "Company") was incorporated on July 30,
1976, under its original name, "Clover Solar Corporation, Inc." The name of the
Company was changed in June 1979, to "Solar Electric Engineering, Inc.", and was
subsequently changed to "U.S. Electricar, Inc." in January 1994.

Beginning in fiscal year 1994, the Company focused almost exclusively
on the development, manufacture and distribution of battery powered electric
vehicles on a large production scale. A significant portion of the Company's
marketing and sales efforts for on-road electric vehicles (including sedans and
light trucks) in fiscal 1994 and 1995 focused primarily on altering (commonly
referred to as "converting" or "retrofitting") specific internal combustion
vehicles to run on electric battery power for fleet operators. This market
strategy was designed to avoid direct competition with major automobile
manufacturers in the consumer markets. The Company devoted significant attention
toward developing or acquiring technology necessary for this evolving business.
In addition, through one of the Company's wholly-owned subsidiaries, the Company
manufactured and sold a broad line of off-road industrial vehicles and produced
and marketed electric powered on-road buses.

In March 1995, the Company experienced a severe cash shortage due to a
failure to obtain additional anticipated capital funding. In response to this
lack of funding, the Company initiated steps to restructure its organization and
operations in an effort to stabilize and improve the Company's financial
condition. After March 1995, the Company focused its resources on the production
of off-road industrial vehicles and on-road buses. The Company continues
re-evaluating all aspects of its business, including each of its product lines,
in view of its capital constraints as well as competitive market conditions.

During 1996, the Company restructured most of its debt and raised
approximately $5,300,000 in additional funding. Certain facilities were closed,
operations were consolidated and major contracts were terminated. Despite the
additional funding in 1996, the Company's operations continued to be impacted by
an insufficient amount of funds to adequately support its planned sales volumes
and product development programs. In the third quarter of 1996, the Company
curtailed the manufacture and sale of off-road industrial vehicles.

In September 1996, the Company disposed of substantially all of the
assets and properties of the Company's wholly-owned subsidiary, Industrial
Electric Vehicles, Inc.

In October 1996, the Company acquired substantially all the tangible
and intangible assets, and assumed certain liabilities, of Systronix Corporation
("Systronix"), a developer of fully integrated propulsion systems and related
components for electric vehicles, located in Torrance, California. See "Electric
Drive System" on page 6 for a detailed description of this transaction and a
discussion of the business.

In March 1997, the Company completed an agreement with Hyundai Motor
Company ("HMC") and Hyundai Electronics Industries Co., Ltd. ("HEI") whereby HMC
and HEI collectively purchased $3.6 million of the Company's common stock and
secured a technology license for an additional payment of $2.0 million. The
Company received $1,850,000 in cash, and the remaining $150,000 is to be
received over 6 years.

Debt Restructuring

In March 1995, as a result of the Company's insolvency, the Company
entered into agreements in March and April 1995 with the holders of its Series S
and Series I secured convertible Bonds and with its largest creditor, Itochu
Corporation, to restructure this debt in the aggregate amount of approximately
$22 million. The Company, Itochu and the holders of more than 75% of the
outstanding principal under the Series S Bonds agreed to add the unpaid interest
to principal, reset the maturity dates of the Series S Bonds and Itochu's note
to March and April 1996, respectively, and for most of the debt establish a new
conversion rate to common stock of $0.30 per share. They also agreed that
conversion shall occur upon (1) a restructuring/repayment workout plan accepted
by the Company's unsecured creditors holding 80% or more of the Company's
unsecured trade debt, which plan has been approved by the Company, or (2)
Itochu's sole election to cause conversion of this

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debt. In March 1996, the maturity dates of the Series S and Series I bonds were
extended to March 25, 1997 and April 17, 1997. In June 1997, following
satisfaction of the conditions precedent to such conversion as discussed below,
approximately $13,000,000 of the Series S Bonds and Itochu secured notes were
converted into the Company's common stock at $.30 per share. In March, 1997, the
balance of $3,000,000 of Series S Bonds was converted to 10 million shares of
common stock at $.30 per share, and accrued interest of $219,452 was also
converted to 731,507 shares of common stock. In April, 1997, the maturity date
of the $3,000,000 Itochu secured notes was extended to April 17, 1998.

In April 1995, an informal committee of the Company's unsecured trade
creditors was established, and in August 1995, this committee recommended for
approval a voluntary restructuring of the Company's unsecured debt. The terms of
the restructuring plan were presented to all of the unsecured creditors in the
second quarter of 1996 for their review and acceptance or rejection. The
shareholders of the Company approved the issuance of the Company's Series B
Preferred Stock in furtherance of this restructuring at the Company's annual
shareholders meeting held in February 1996. As of February, 1996 , the aggregate
amount of the Company's outstanding unsecured debt, including principal and
interest, was approximately $14,000,000 , and there were approximately 600
unsecured creditors of the Company.

The unsecured debt restructuring plan divided the creditors into two
classes. Creditors are members of a class based on whether they qualify under
applicable securities laws to receive restricted preferred stock of the Company
in a private placement. Each creditor that did not so qualify was entitled to
receive if the creditor elected at the closing of the restructuring (i) cash in
the amount of 10% of such creditor's debt, subject to available funds at that
time, and, to the extent funds were not available, a three year promissory note,
and (ii) a promissory note of the Company in an amount equal to 65% of its debt
(the "Large Note"). This promissory note is payable over a twenty year period,
and is secured with a "sinking fund" escrow account. The Company is required to
deposit 10% of the proceeds of all financings during the twenty year period into
the escrow account. To date, approximately $1,095,000 has been deposited by the
Company into the escrow account and paid to creditors.

Each creditor who was eligible under securities laws to receive
restricted preferred stock was entitled to receive if the so creditor elected at
the closing, (i) cash in the amount of 15% of such creditor's debt, subject to
available funds at that time, and, to the extent funds were not available, a
three year promissory note, and (ii) shares of Series B Convertible Preferred
Stock ("Series B Preferred Stock") of the Company having a value equal to the
balance of its debt, at a conversion price of $2.00 per share. Each share of
Series B Preferred Stock is initially convertible into 6.66 shares of Common
Stock (subject to adjustment for stock splits, combinations, reclassifications
and the like). The Series B Preferred Stock has certain liquidation and dividend
rights prior and in preference to the rights of the Common Stock and Series A
Preferred Stock.

The Company will be required to make accelerated payments under the
promissory notes if it is able to raise additional funds from investors, but
only with the consent of such investors. In addition, the Company will not be
allowed to pay any dividends on its outstanding shares of capital stock or to
repurchase shares without the consent of a majority of the then outstanding
principal held by creditors under the Large Note. The Company has agreed to use
its best efforts to nominate and cause to be elected to the Company's Board of
Directors two persons selected by the unsecured creditors.

As of October 20, 1997, the Company had obtained settlements for
approximately $11.8 million of approximately $14 million of unsecured trade debt
obligated prior to March 18, 1995. The Company has issued approximately $830,000
of three year and $3.3 million of 20 year promissory notes and 1.6 million
shares of Series B Preferred Stock valued at $3.2 million. As of October 20,
1997, approximately 280 creditors representing approximately $2.5 million in
antecedent trade debt have not participated in the debt restructuring plan.

TO THE EXTENT THAT THE COMPANY IS UNABLE TO COMPLETE THE VOLUNTARY
RESTRUCTURING OR OTHERWISE REFINANCE OR CONVERT SUCH DEBT AND ADDITIONAL FUNDING
IS NOT AVAILABLE, THE COMPANY WOULD BE FORCED TO SEEK PROTECTION UNDER
APPLICABLE BANKRUPTCY AND INSOLVENCY LAWS. IN ADDITION, SIGNIFICANT ADDITIONAL
FUNDING WILL BE NEEDED THROUGHOUT FISCAL 1998 AND BEYOND TO CONTINUE OPERATIONS.

4

Environmental Initiatives and Legislation

The legislative climate has changed in California and at the federal
level in regard to alternative fuel and zero emmission vehicles ("ZEV"). Most
significantly, the State of California decided to amend its timing for the
mandated introduction of ZEV from 1998 to 2003. 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.

Relationships of Affiliated Companies

In July 1993, the Company acquired all of the outstanding capital stock
of Industrial Electric Vehicles, Inc. ("IEV"). IEV manufactured a broad line of
off-road industrial electric vehicles, including three-wheeled supervisor carts,
small trucks, inventory carriers and pickers, various personnel carriers and
many other specialty type vehicles. IEV also developed and marketed a line of
on-road electric buses. Effective as of September 5th, 1996, the Company
disposed of substantially all of the assets of IEV. The assets sold included
inventory, receivables, work-in-process, parts, furniture, fixtures, machinery,
tools, tooling, supplies, computers, software, sales and marketing material, and
equipment related to the industrial business. The Company retained certain
international rights to market the industrial product line, and all rights to
continue developing and marketing on- road electric buses. The sale was made to
Legend Electric Vehicles, Inc., a California corporation. The principals of
Legend include several former employees of the Company, including the manager of
IEV.

The fixed purchase price for the assets of IEV was One Million Eighty
Thousand Dollars ($1,080,000). An additional, contingent amount not to exceed
One Hundred Seventeen Thousand Dollars ($117,000), which reflects a portion of
receivables collections, may also be paid. The fixed purchase price payment was
made as follows:

1. Buyer assumed, and was credited with, the principal amount of
$1,004,504 outstanding under a Promissory Note ("Note") owed by the Company to
the previous owners of the business, from whom the Company purchased the
business. The previous owners, as holders of the Note, approved the assignment
and assumption of the Note, and have released the Company from all obligations
thereunder. The Note was secured by substantially all of the assets of IEV
included in the sale transaction. The principal amount including interest
outstanding under the Note was $1,004,504 on the date of sale. Since July 31,
1995, the Company had been in default on payment of the Note in the principal
amount of $982,000 which constituted a portion of the purchase price for IEV's
stock.

2. Buyer agreed to assume, and was credited with, up to $88,000 of
outstanding warranty obligations for a period of twelve months on claims
submitted after the date of closing. The credit would not be reduced if actual
warranty claims are less.

Products

The Company's electric vehicle products include electric propulsion
(drive systems), charging systems, two converted on-road vehicles, a
purpose-built on-road electric bus, a purpose-built light delivery truck, and
specialty off-road vehicles.

On-Road Vehicles

The Company's existing sales of on-road electric vehicles arise
primarily from the Company's past focus on fleet niche markets. The Company's
strategy in this business was to select specific, existing, internal combustion
powered vehicles for conversion to electric power for large fleet users. In
1997, 35 converted vehicles were sold, so that as of July 31, 1997, the Company
had converted and delivered to its customers a total of approximately 245
on-road vehicles since the inception of the Company. The Company is
re-evaluating its on-road conversion business in order to determine the
continued viability of this product line. The Company currently intends, subject
to available financial resources , to finish converting and selling its existing
inventory of on-road vehicles.

5

The Company has discussed with several foreign manufacturers and
government entities the development and manufacture of electric vehicles
pursuant to license agreements, including a world light truck delivery vehicle,
for specific worldwide markets and applications. The focus of these potential
alliances is to develop products primarily for "in country" applications,
whereby the goods manufactured would be used in the same local and regional area
in which they were produced. The Company believes that the demand for electric
vehicles in these markets will be influenced to a large extent by further
developments in electric power infrastructure and government incentives in these
markets. As of July 31, 1997, no such ventures or products exist.

Additionally, the Company produces on-road electric buses, including a
22 passenger shuttle bus. This bus uses light-weight composite panels to reduce
weight and increase driving range. As of July 31, 1997, 22 of these buses have
been sold and are presently operating.

Off-Road Vehicles

The Company divested its interest in the industrial electric vehicles
business in 1997. However, the Company did retain the international
manufacturing rights for certain of these off-road vehicles. In addition, the
Company continues, subject to financial resources, to develop a line of
purpose-built (OEM) vehicles (such as those used for airline ground support) for
testing and evaluation that may lead to a new product line of off-road vehicles.
The Company has converted 6 airport ground support vehicles as part of a program
with Southwest Airlines, and the Company has built a special industrial vehicle
for Federal Express Company. In addition, the Company has also entered into
prototype production of a 1.5 ton off-road electric delivery truck with initial
marketing activities to occur in Mexico City. This delivery vehicle is currently
being evaluated by several distribution companies in Mexico City.

Strategic Partnering And Technology Developments

The Company has also made efforts to establish third-party distribution
arrangements and align itself with various technology development companies and
electric vehicle component manufacturers to complement its own expertise in the
electric vehicle market. The Company has continued its efforts to implement a
strategy to be a "systems integrator" by attempting to establish relationships
to use other independently developed technology. The Company believes that its
competitive advantage may be its ability to identify, attract and integrate the
latest technology available to produce state of the art products at competitive
prices. The Company believes this strategy may, if successful, at least in the
near term, reduce capital and research and development expenses to the extent
other companies or organizations will fund these expenses.

The Company believes that two of the principal component technologies
relevant to a cost effective electric vehicle are the electric drive system and
the battery/charging system. Pursuant to an agreement with HMC and HEI, the
Company has received investments to cooperate in the development of advanced
drive-train technology and related systems. It is the Company's strategy to
continuously review emerging technological developments and seek alliances with
or, if sufficient additional capital funding can be obtained, complete
acquisitions with companies that it perceives own the best proven technologies
for incorporation into its electric vehicles. The Company's progress and current
plans for each system are described below.

Electric Drive System

The electric drive system consists of an electric motor and electronic
controls that regulate the flow of electricity to and from the batteries (at
various voltages and amperages) to propel the vehicle. Auxiliary vehicle
functions (e.g., radio, lights, windshield wipers, etc.) are also powered by
stored electrical energy similar to that of an internal combustion drive system.
The Company presently utilizes drive systems for on-road cars and light trucks
that employ either direct current ("DC") or alternating current ("AC"). The
Company's buses and industrial vehicles presently use DC-powered drive systems.

6

On October 25, 1996, the Company acquired all of the assets and certain
liabilities of Systronix Corporation, located in Torrance, California. Systronix
Corporation is a development stage company which was incorporated in September,
1994, and began research and development operations in January, 1995. Its goal
was to become a leading developer of technologically advanced electric
propulsion systems for electric vehicles. As a result of the acquisition, the
Company is now in the process of validating its first propulsion system product,
the Panther(TM) 60 alternating current (AC) drive train for light duty vehicles.
Also under development are the PantherTM 90 and Panther(TM) 120 systems for
buses and heavy duty vehicles, and the C20(TM) offboard charging system, the
first of an intended family of rapid chargers for all sizes of electric
vehicles.

The aggregate purchase price for the Systronix assets acquired by the
Company included the following terms of payment:

1. The Company was credited with the amount of $1,020,000 towards the
purchase price, which the Company had previously delivered to Systronix as a
pre-payment of the purchase price;

2. The Company delivered to Systronix a Promissory Note in the
principal amount of $829,978.39, secured by the acquired assets pursuant to a
security agreement. The Note has been paid in full.

3. The Company delivered to Systronix a share certificate representing
2,700,000 shares of the Company's Common Stock, and to an Escrow Agent for the
benefit of Systronix a share certificate representing 1,100,000 shares of the
Company's Common Stock. Except as set forth below, the Escrow Agreement shall
terminate on December 31, 1998. The shares shall be held as a source of
satisfaction of indemnification claims made by the Company as detailed in the
Purchase Agreement and the separate Escrow Agreement. Within five business days
after the Escrow Termination Date the Escrow Agent shall distribute to Systronix
all of the escrow shares, less the number of shares having an aggregate market
value most nearly equal to the amount of any pending claims asserted by the
Indemnified Parties.

4. The Company was credited with certain loans, trade payables and
other liabilities assumed in the approximate amount of $ 1,150,000;

5. The Company issued pursuant to Regulation S as finder fees a
"cashless" exercise warrant for 2,000,000 shares of the Company's Common Stock.
The terms and conditions of this warrant are substantially similar to the terms
and conditions of the cashless warrants discussed in Note 12 of the Notes to the
Financial Statements, page F-22, below.

6. In conjunction with this transaction, the Company has employed
substantially all of the then-existing employees of Systronix Corporation.
Pursuant to such employment, the Company has granted to these employees
qualified and non-qualified stock options under the Company's 1996 Employee and
Consultant Stock Option Plan ("the Plan"). The options granted in the aggregate
total approximately 10,400,000 options at an exercise price of $0.30 cents per
share, subject to various vesting schedules with all options vested no later
than five (5) years from January 25, 1996. The Plan has been approved by the
Board of Directors of the Company and by the shareholders.

The Company has several engineering contracts with HMC and HEI for the
development of various types of drive trains and related systems.

Battery/Charging System

Pursuant to a United States Department of Defense/ ARPA program, the
Company is working with numerous battery manufacturers to "beta test" their new
battery technologies. The Company believes that these new systems will allow
design advantages in battery placement, weight distribution, and car
crashworthiness. Additionally, the Company is monitoring other battery
innovations that may extend an electric vehicle driving range by up to 50% and
permit a shorter recharging time. For electric buses, the Company has a
"switch-out battery system" that allows for battery replacement in approximately
ten (10) minutes.

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International Market

The Company believes that the international market for electric
vehicles could become a significant source of revenue. The Company, in
conjunction with one of its major international shareholders, has in
development, and in prototype production, a light delivery truck that the
Company believes may have broad market applications worldwide. Subject to
existing valid and enforceable agreements, if any, the Company intends to test
market its light delivery truck and several industrial vehicle lines in these
international markets to evaluate the viability of continuing to develop these
product lines. The light delivery prototype trucks are currently undergoing
customer evaluation in Mexico and in the United States. The Company also has
established engineering programs with HMC and HEI, Korea for electric drive
trains and related systems development.

Warranties/Customer Service Plan

The Company believes that customer service, warranty and technical
support capabilities should be important competitive factors for its business.
The Company attempts to obtain warranty coverage from its third-party suppliers
which it would then be authorized to pass on to its customers. In addition, the
Company has offered an extended limited warranty of up to three years under
certain sales contracts for its Chevrolet S-10 trucks. The Company is now
reviewing this warranty coverage for possible modification. At the present time,
subject to available capital resources, it is also anticipated that Company
maintenance personnel will continue to be available for field service calls as
part of this warranty coverage for buses and conversion vehicles.

Competitive Conditions

The competition to develop and market electric vehicles has increased
during the last fiscal year and is expected to continue to increase. The
competition consists of development stage companies as well as major U.S. and
international companies, including automobile manufacturers, utilities, and
component and material suppliers. MOST OF THESE COMPANIES HAVE FINANCIAL,
TECHNICAL, MARKETING, SALES, MANUFACTURING, DISTRIBUTION AND OTHER RESOURCES
VASTLY GREATER THAN THOSE OF THE COMPANY. The Company's future prospects will be
highly dependent upon the successful development and introduction of new
products that are responsive to market needs and can be manufactured and sold at
a profit. There can be no assurance that the Company will be able to
successfully develop or market any such products.

The development of other nonconventionally powered vehicles, such as
compressed natural gas, fuel cells and hybrid cars poses a competitive threat to
the Company in markets for low emission vehicles (LEVs) but not in markets where
government mandates call for zero emission vehicles (ZEVs). Such
nonconventionally powered vehicles have initial advantages over electric
vehicles primarily in the areas of range, cost and weight. These advantages may
decline over time as electric vehicles' costs decline with increased production
and as advances in battery technology are made. An inherent disadvantage of LEVs
versus ZEVs is that LEVs emit pollutants, even though at much lower levels than
gasoline/diesel powered vehicles.

To date, various providers of electric vehicles have proposed products
or offer products for sale in this emerging market. These products encompass a
wide variety of technologies aimed at various markets, both consumer and
commercial. The critical role of technology in this market is demonstrated
through several product offerings. Applied technologies range from DC motor
drives to AC induction motor drives, from conversion vehicles to purpose-built
(OEM) vehicles, from lead-acid batteries to more advanced power storage
technologies and from traditional materials to more advanced "composite"
materials. As the industry matures, key technologies and capabilities are
expected to play critical competitive roles. The Company's goal is to position
the Company as a long term competitor in this industry by focusing on vehicle
electric drive systems and related sub systems, component integration,
technology application and strategic partnerships.

The Company now competes in five broad product areas of the electric
vehicle industry; (1) on-road cars and light trucks, (2) off-road trucks, (3)
on-road buses (4) off-road specialty industrial vehicles and (5) electric
propulsion systems.

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On-Road Cars and Light Trucks

The Company competes with several other electric vehicle companies as
well as the major automobile manufacturers, most or all of whom have electric
vehicles in production or electric vehicle development programs. In addition,
the major automobile manufacturers have resources vastly greater than the
Company's and, as a result of various government mandates, are under pressure to
develop and produce electric vehicles. As a result, they pose a significant
competitive threat as well as opportunity for the Company. The Company's
approach has been to attempt to work closely with the major automobile
manufacturers so that the Company is positioned as an important resource for
these major automobile manufacturers. Furthermore, the Company continues to work
with off-shore OEMs to explore the possibility of developing electric sedans.

Off-Road Trucks

The Company's customer and industry market research in Mexico, the
primary and initial market for the Company's light trucks, indicates there are
four prime factors which are weighed most prominently in a new truck purchase
decision: speed, payload, range and life-cycle cost. The Company's light truck
is believed to be competitive, when compared to the current electric truck
offerings of competitors including, Taylor-Dunn and Cushman. Furthermore, the
Company believes that in Mexico, where the light truck will operate as an
"on-road" vehicle, penetration of the internal-combustion engine (ICE) truck
market is also feasible. The Company is demonstrating pre-production vehicles to
the Mexican marketplace. Two major distribution companies are currently testing
the trucks for potential purchase.

Off-Road Industrial Vehicles

The Company believes that the industrial off-road electric vehicle
market is a mature, marginally differentiated industry with all of the top
competitors offering comparable products at comparable prices. As a result, the
Company divested its interests in the off-road industrial vehicle business as
previously discussed above. Following the divesture of the off-road industrial
vehicle business, the Company continued to develop and market a select group of
specialty vehicles, including an in-factory delivery vehicle for express
delivery companies, and airline ground support vehicles. The Company will retain
the international rights for foreign licensing, sales and manufacturing of
selected off-road industrial electrical vehicles.

Research and Development

The Company believes that continued timely development and introduction
of new products are essential to establishing and maintaining a competitive
advantage. The Company is currently focusing its development efforts primarily
in the following areas:

*Technical proposal and program development under ARPA;
*Power Control and Drive Systems and related technology;
*Bus development;
*Subsystem development (i.e., climate control, power management).

Company funded research and development expense charged to operations
in fiscal years, 1997, 1996 and 1995 were $1,218,000, $1,401,000 and $6,697,000,
respectively.

The Company is continually evaluating and updating the technology and
equipment used in developing each of its products. The electric vehicle industry
has only recently come into existence, and the technology involved in the
industry is rapidly changing. There is limited experience in the operation and
testing of electric vehicles and components, and the development of electric
vehicle technology therefore involves inherent risks.

Licenses, Patents and Trademarks

The Company does not currently hold any patents, although it has
submitted applications for a patent and several trademarks or servicemarks in
the United States. As the Company develops its own technology, particularly
relating to its

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proprietary drive train technology, the Company will apply for patents or for
other appropriate statutory protection when it develops valuable new or improved
technology. The status of patents involves complex legal and factual questions
and the breadth of claims allowed is uncertain. Accordingly, there can be no
assurance that any patent application filed by the Company will result in
patents being issued. In addition, the laws of any foreign country in which the
Company elects to conduct business may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States.

Backlog

As of July 31, 1997, the Company's backlog of orders was approximately
$1,800,000. As of July 31, 1996, the Company's backlog of orders was
approximately $1,200,000. Backlog consists of orders for which shipments have
not yet been made and unfilled portions of orders for which partial shipments
have been made.

Employees

As of July 31, 1997, the Company had 55 employees, including 13 in
administration, 19 in engineering, research and development, 20 in
manufacturing, and 3 in sales and service.

Item 2. Properties

The Company's corporate offices are located in Torrance, California, in
leased office space of approximately 20,000 square feet. The Company's
administrative departments and senior level operations, including executive,
legal, finance, planning, purchasing, personnel, and operations personnel, will
be housed in this location. These facilities are leased through December, 1999.

The Company's finance department is located in leased office space of
2,000 square feet in San Francisco, California. The facility is leased through
March, 1998.

The Company leases approximately 21,000 square feet of manufacturing
space in Redlands, California. Pursuant to a month-to-month sublease, the
Company manufactures delivery vehicles, buses and upfit (conversion) vehicles at
this facility. The Company is currently converting only vehicles in its existing
inventory and is re-evaluating its conversion business in order to determine the
continued viability of this product line.

Item 3. Legal Proceedings

On June 23, 1997, fourteen shareholders and former shareholders of the
Company filed a lawsuit in a federal district court in California, alleging
violations of the securities laws and asserting eleven federal and state law
claims. On September 29, 1997, the district court dismissed all of the claims
asserted in the plaintiffs' complaint, but allowed leave to amend with respect
to all but one of the claims. On October 20, 1997, the plaintiffs filed an
amended complaint which added several additional shareholders and asserted nine
federal and state law claims. Defense counsel is currently preparing a second
motion to dismiss, which will likely be scheduled for hearing in December 1997.

Item 4. Submission of Matters to a Vote of Security Holders

None

10

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/Low Bid - High/Low Asking Volume
Fiscal 1996
First Quarter.......... $0.25/$0.13 - $0.26/$0.14 *

Second Quarter......... $0.55/$0.13 - $0.57/$0.14 *

Third Quarter.......... $0.49/$0.17 - $0.52/$0.20 *

Fourth Quarter......... $0.56/$0.24 - $0.61/$0.27 *

Common Stock Average Daily
High/Low Bid - High/Low Asking Volume
Fiscal 1997
First Quarter.......... $0.40/$0.18 - $0.45/$0.20 *

Second Quarter......... $0.27/$0.10 - $0.28/$0.15 *

Third Quarter.......... $0.32/$0.13 - $0.35/$0.15 *

Fourth Quarter......... $0.15/$0.08 - $0.16/$0.09 *

*Volume information not available.

On October 23, 1997, the last reported high bid price of the Common
Stock was $0.075 and the last reported low asking price was $0.095. As of
October 23, 1997, there were approximately 1,573 holders of record of the Common
Stock. In addition, as of October 23, 1997, the Company's Series A Preferred
Stock was held by approximately 144 shareholders, many of whom are also Common
Stock shareholders. The number of holders of record excludes beneficial holders
whose shares are held in the name of nominees or trustees.

Dividend Policy

To date, the Company has neither declared nor paid any cash dividends
on shares of its Common Stock or Series A or B Preferred Stock. The Company
presently intends to retain all future earnings for its business and does not
anticipate paying cash dividends on its Common Stock or Series A or B Preferred
Stock in the foreseeable future. However, the Company is required to pay
dividends on its Series A and B Preferred Stock before dividends may be paid on
any shares of Common Stock. At July 31, 1997, the Company had an accumulated
deficit of approximately $81,525,000 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.

11

Item 6. Selected Financial Data
As of and for the fiscal year ended July 31, (in thousands, except per share data)

1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------

NET SALES $ 4,484 $ 4,209 $ 11,625 $ 5,787 $ 863
COST OF SALES 2,042 5,370 20,210 6,372 802
--------- --------- --------- --------- ---------
GROSS MARGIN 2,442 (1,161) (8,585) (585) 61
--------- --------- --------- --------- ---------
OTHER COSTS AND EXPENSES
Research and Development 1,218 1,401 6,697 7,724 376
Selling, general and administrative 3,116 5,608 13,952 12,638 1,953
Interest and financing fees 792 1,890 5,732 339 146
Other expense (income) 274 740 449 17 24
Acquisition of research and development 1,630
Market development expense 77 3,718
Facility closures and consolidations
of operations 701 2,378
--------- --------- --------- --------- ---------
Total other costs and expenses 7,030 10,340 29,285 24,436 2,499
--------- --------- --------- --------- ---------
LOSS FROM CONTINUING OPERATIONS (4,588) (11,501) (37,870) (25,021) (2,438)
LOSS FROM DISCONTINUED OPERATIONS (169)
GAIN ON DEBT RESTRUCTURING 53 2,147 305
--------- --------- --------- --------- ---------
NET LOSS $ (4,535) $ (9,354) $ (37,565) $ (25,021) $ (2,607)
========= ========= ========= ========= =========
PER COMMON SHARE:
Loss from continuing operations $ (0.03) $ (0.17) $ (1.88) $ (2.61) $ (0.54)
Loss from discontinued operations (0.04)
Gain on debt restructuring 0.03 0.02
--------- --------- --------- --------- ---------
Net loss per common share $ (0.03) $ (0.14) $ (1.86) $ (2.61) $ (0.58)
========= ========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 133,806 67,906 20,156 9,571 4,487
========= ========= ========= ========= =========
Total Assets $ 4,513 $ 4,363 $ 10,230 $ 21,306 $ 5,453
========= ========= ========= ========= =========
Long-term debt $ 3,639 $ 3,987 $ 9,980 $ 1,020
========= ========= ========= ========= =========
Shareholders' equity (deficit) $ (9,095) $ (12,736) $ (24,760) $ 1,605 $ 2,421
========= ========= ========= ========= =========

12

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The matters addressed below, with the exception of the historical information
presented, may incorporate certain forward-looking statements involving risks
and uncertainties, including the risks discussed under the heading "Certain
Factors That May Affect Future Results" and elsewhere in this report.

GENERAL

U. S. Electricar, Inc. and Subsidiaries (collectively, the "Company") develops,
converts, assembles, manufactures and distributes battery-powered electric
vehicles, including on-road cars and light trucks, passenger cars, buses and
delivery vehicles and certain off-road industrial trucks and specialty vehicles.
The Company's product lines include converted vehicles (originally built to be
powered by internal combustion engines) and vehicles that are built specifically
to be battery powered. The Company's fiscal year ends July 31. All year
references refer to fiscal years.

During 1994 and the first half of 1995, the Company's approach to its business
was intended to establish manufacturing, marketing and support functions of a
large scale company so that the transition from development and prototype
activities to volume production of on-road vehicles could be made as quickly as
possible once component parts design, systems integration and assembly processes
were developed. The Company raised approximately $38 million to fund its
activities during this period. However, the Company was not able to achieve
volume production, primarily because the development of such designs and
processes was not completed prior to the Company's capital becoming severely
depleted, which occurred in the second half of 1995. The Company incurred losses
totaling $62,586,000 during 1994 and 1995.

The Company was forced to severely curtail its operations in the second half of
1995 due to a lack of funds. Certain facilities were consolidated and major
contracts were terminated. The Company initiated programs to restructure its
debt and raise interim funding which continued through 1996.

During 1996, the Company restructured a significant portion of its debt and
raised approximately $5 million in interim funding. However, its operations
continued to be impacted by an insufficient amount of funds to adequately
support its planned sales volumes and product development programs. The Company
curtailed the manufacture and sale of off-road industrial vehicles in the third
and fourth quarters of 1996 and reduced the carrying values of the assets
associated with this product line. In 1996, the Company incurred a loss of
$9,354,000.

In September 1996, a substantial portion of the assets of Industrial Electric
Vehicles, Inc., (formerly Nordskog Electric Vehicles, Inc. (Nordskog), prior to
its acquisition in July 1993 by the Company) were sold. Consideration for this
sale included the assumption of, and release of liability for, the note payable
that totaled $1,013,000 at July 31, 1996 to Nordskog.

The company also acquired substantially all the tangible and intangible assets,
and assumed certain liabilities, of Systronix Corporation (Systronix) on October
25, 1996. For a description of the transaction, see Item 1, "Electric Drive
System".

In March 1997, the Company completed an agreement with Hyundai Motor Company
("HMC") and Hyundai Electronics Industries Co., Ltd. ("HEI") whereby HMC and HEI
collectively purchased $3.6 million of the Company's common stock and secured a
technology license for an additional payment of $2.0 million. The Company
received $1,850,000 in cash, and the remaining $150,000 is to be received over 6
years.

LIQUIDITY AND CAPITAL RESOURCES

The Company has experienced significant recurring cash flow shortages due to
operating losses. Cash flows from operations have been negative and have not
been sufficient for the Company to meet its obligations as they came due. The
Company has therefore had to raise funds through numerous financial transactions
and from various resources. At least until the Company reaches breakeven volume
in sales and develops and/or acquires the capability and technology necessary to
manufacture and sell its electric vehicles profitably, it will need to continue
to rely extensively on cash from debt and equity financing. The Company
anticipates that it will require substantial additional outside financing for at
least the next two fiscal years.

During 1997, the Company spent $3,175,000 in cash on operating activities to
fund the net loss of $4,535,000 resulting from factors explained in the
following section of this discussion and analysis. In addition, the Company used
$1,630,000 for the purchase of certain intellectual property assets. Inventories
declined during 1997 by approximately $575,000 primarily as a result of the
Company's efforts to reduce its inventory of converted sedans and

13

light trucks, and its inability to replenish stocks of raw material needed for
current production due to a chronic shortage of available funds.

The operations of the Company during 1997 were financed primarily by the
issuance of promissory notes, the issuance of convertible bonds and convertible
secured promissory notes, the sale of common stock and the sale of a technology
license. The Company received $472,000 from the issuance of unsecured promissory
notes. These notes were repaid in full during 1997. In addition, $1,350,000 was
received from Fontal International, Ltd. ("Fontal"), for the issuance of
unsecured convertible bonds. In connection with the acquisition of Systronix
Corporation in October 1996, the Company assumed $800,000 of unsecured
convertible bonds issued to Fontal. During 1997, $300,000 in equity was
reclassified as unsecured convertible debt to Fontal. Repayments were made to
Fontal on the convertible bonds in the amount of $1,150,000 and $500,000 of the
assumed debt was converted to common stock at the rate of $0.30 per share. The
outstanding amount of unsecured convertible bonds held by Fontal at the end of
1997 was $800,000. During 1997, $1,300,000 was received from Itochu Corporation
for the issuance of convertible secured promissory notes, which entire amount
was outstanding at the end of the fiscal year. During 1997, the Company also
sold common stock totaling $3,600,000 to Hyundai Motor Company ("HMC") and
Hyundai Electonics Industries Co., Ltd. ("HEI"), and sold a technology license
to HMC and HEI for $2,000,000.

In September 1996, the Company sold the assets and certain liabilities of its
off-road industrial electric vehicle business to a group consisting of former
employees of the Company. Part of the consideration for this sale was the
assumption by the buyers of the note payable to Nordskog and the release of the
Company from the principal amount of the note. The $147,000 accrued interest was
converted to a new note payable, which was subsequently paid in full by the
Company.

During 1995, the Company, the holders of its Series S and Series I secured
convertible bonds and Itochu Corporation entered into agreements to restructure
approximately $22 million of convertible debt. In July 1995, $8,049,000 of this
debt was converted to common stock at $.30 per share. Maturity dates of much of
this debt were set or reset for either March 25 or April 17, 1996, and the
conversion rate to acquire common stock for most of this debt was established at
$.30 per share. They also agreed that conversion of the remaining debt shall
occur upon (1) the Company's election after a Debt Restructuring Plan has been
accepted by the Company's unsecured creditors holding 80% or more of the
Company's unsecured trade debt, or (2) Itochu's sole election to cause
conversion of this debt. In March 1996, the maturity dates of the Series S and
Series I bonds were extended to March 25, 1997 and the maturity dates of the
convertible secured notes due Itochu were extended to April 17, 1997. In June
1996, $13 million of the debt was converted to common stock, of which
approximately $12.5 million was issued pursuant to Regulation S. The outstanding
balance of $3,000,000 on the Series S bonds was converted to 10 million shares
of common stock on March 25, 1997. The accrued interest of $219,452 on these
notes was converted to 731,507 shares of common stock. In April, 1997, the
maturity date of the Series I convertible bonds was extended to April 17, 1998.

During 1995, the Company fell behind significantly in its payments to suppliers
and other creditors due to a chronic shortage of cash. In March 1995, an
unofficial Creditors Committee under the auspices of the Credit Managers
Association of California ("CMAC") was established to represent the interests of
the unsecured creditors in structuring a workout of trade debt incurred before
March 18, 1995 ("Debt Restructuring Plan"). In May 1995, the Company granted
CMAC, as trustee for the unsecured creditors of the Company whose claims arose
prior to March 18, 1995, a security interest in certain collateral of the
Company.

Through July 1997, the Company had obtained settlements for $11.8 million of
approximately $14 million of unsecured trade debt obligated prior to March 18,
1995. In connection with the settlements, the Company issued $830,000 of three
year and $3.3 million of 20 year promissory notes and 1.6 million shares of
Series B Preferred Stock valued at $3.2 million. The company paid $512,000 to
the unsecured creditors who agreed to accept the 20 year promissory note as part
of the settlement for their claims, and the Company has paid $268,000 to the
unsecured creditors who agreed to accept convertible preferred stock as part of
the settlement for their claims. In addition, during the twelve months prior to
the initial closing of the Debt Restructuring Plan, the Company had paid
$284,000 to certain unsecured creditors in full settlement of their claims.

It is management's intention to continue its debt restructuring and to seek
additional financing through private placements as well as other means. As of
October 23, 1997, however, the Company had no firm commitments to provide
significant additional financing to the Company.

IF THE COMPANY IS UNABLE TO COMPLETE THE VOLUNTARY RESTRUCTURING OF ITS DEBT OR
OTHERWISE REFINANCE OR CONVERT SUCH DEBT, AND ADDITIONAL FUNDING IS NOT
AVAILABLE, THE COMPANY WOULD BE FORCED TO SEEK PROTECTION UNDER APPLICABLE STATE
AND FEDERAL BANKRUPTCY AND INSOLVENCY LAWS.

14

IN ADDITION, SIGNIFICANT ADDITIONAL FUNDING WILL BE NEEDED DURING 1998 AND 1999.
AS OF OCTOBER 23, 1997, THE COMPANY HAD NO FIRM COMMITMENTS FROM ANY PERSON OR
ENTITY TO PROVIDE CAPITAL AND THERE CAN BE NO ASSURANCE THAT ADDITIONAL FUNDS
WILL BE AVAILABLE FROM ANY SOURCE AT THE TIME THE COMPANY WILL NEED SUCH FUNDS.
THE INABILITY OF THE COMPANY TO OBTAIN ADDITIONAL FUNDING ON TERMS ACCEPTABLE TO
THE COMPANY WILL HAVE A MATERIAL ADVERSE EFFECT ON ITS BUSINESS. THE FUTURE
UNAVAILABILITY OR INADEQUACY OF FINANCING TO MEET FUTURE NEEDS COULD FORCE THE
COMPANY TO DELAY, MODIFY, SUSPEND OR CEASE SOME OR ALL ASPECTS OF ITS PLANNED
OPERATIONS, AND/OR SEEK PROTECTION UNDER APPLICABLE STATE AND FEDERAL BANKRUPTCY
AND INSOLVENCY LAWS.

RESULTS OF OPERATIONS

Net sales of $4,484,000 for 1997 increased $275,000, or 6.5% from 1996. Sales of
converted sedans and light trucks decreased by 39% from 1996. The Company is
working down its backlog of these vehicles. The Company realized revenues of
$525,000 in 1997 from various engineering contracts of its Components division,
acquired in October, 1996. Sales revenue for this product line also included the
sale of a $2,000,000 technology license to HMC and HEI. Sales of off-road
industrial electric vehicles decreased significantly from 1996 because the
Company sold the assets and certain liabilities of the Industrial Electric
Vehicles business in September, 1996.

Net sales in 1996 decreased $7,416,000, or 63.8%, from 1995, and the decrease
was primarily due to the Company's inability to raise the funds necessary to
support its operations at levels comparable to the corresponding periods of
1995. The manufacture and sales for all product lines was limited in all three
years by the shortage of available funds.

Cost of sales as a percentage of sales decreased to 45.5% in 1997 from 127.6% in
1996 and from 173.8% in 1995. Sales revenue for 1997 included a sale of a
technology license of $2,000,000. Excluding the sale of the technology license,
cost of sales for 1997 was 82.2% of sales. As the Company worked down its
backlog of retrofit vehicles and delivered them to customers, some of the
obsolescence and liability reserves proved to be larger than the costs incurred
in completing the work. The adjustment of these reserves to appropriate current
levels at the end of 1997 resulted in a reduction in reported cost of sales. The
improvement in cost of sales in 1996 as compared with 1995 was primarily due to
lower costs associated with the converted sedans and light trucks. Most of the
vehicles sold in 1996, as well as in 1997, were produced in prior periods and
placed in inventory at estimated net realizable values. The manufacturing costs
in excess of estimated net realizable value were expensed in prior periods.
Inventory write-downs for obsolescence impacted the results for 1995.

Research and development expense of $1,218,000 in 1997 declined $183,000, or
13.1% from 1996. The decline is the result of a continuation of the reduction of
technical resources by the Company, although this was offset by the October,
1996 acquisition of Systronix Corporation, which is primarily a research
company. 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 declined $5,296,000 in 1996 from
$6,697,000 in 1995. During the last half of 1995 and through 1996, the Company
has reduced its engineering staff and decreased its purchasing of technical
services due to a severe lack of funds.

Selling, general and administrative expense of $3,116,000 in 1997 declined
$2,492,000, or 44.4% from 1996, as the Company continued to reduce headcount,
reduce spending and consolidate operations. Selling, general and administrative
expense of $5,608,000 in 1996 declined $8,344,000, or 59.8%, from 1995. The
decline was primarily a result of significant reductions in selling, marketing
and administrative staff and reductions in the purchasing of various outside
services and travel due to the aforementioned lack of funds.

In 1997, interest and financing fees decreased to $792,000 from $1,890,000 in
1996, a decline of 58.1%. The conversion of $15,000,000 of debt to common stock
in June, 1996 significantly reduced the amount of outstanding debt for the
Company for 1997. An additional $3,600,000 of debt was converted to common stock
during 1997. The Company paid off $3,021,000 of debt in 1997, further reducing
the outstanding debt.

In 1996, interset and financing fees were $1,890,000, which was a decline of
$3,842,000, or 67.0% from 1995. Interest and financing fees in 1995 included
$3,780,000 of amortized fees associated with the issuance of $12,000,000

15

of Series S secured convertible bonds in September 1994. There was no
amortization of fees associated with these bonds in 1996 as all of the fees were
fully amortized by March 1995, the original maturity date of the bonds.

The Company adopted FASB No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of" effective in 1996. In 1996,
the Company reduced the carrying values of certain long-lived assets to their
estimated fair values in connection with the curtailment of the manufacture and
sale of off-road industrial vehicles. The assets included were part of the
Industrial Electric Vehicle business which was subsequently sold in September
1996. This reduction resulted in a charge to operations of $680,000. .

The results for 1996 included a provision of $701,000, and the results for 1995
included a provision of $2,378,000, for facility closures, consolidation of
operations and contract terminations as a result of the Company's decision to
close many of its facilities and cancel several contracts due to a severe lack
of funds.

In connection with the settlement of $11.7 million of unsecured trade debt under
the Company's Debt Retructuring Plan, several unsecured creditors agreed to
settle their claims for amounts less than the original debt owed to them. The
reductions from the original amounts owed and the settlement amounts resulted in
a gain on debt restructuring of $2,147,000 in 1996. Additional settlements in
1997 resulted in a gain on debt restructuring of $53,000 for 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 $4,535,000 for the
year decreased $4,819,000 or 51.5% from $9,354,000 in 1996, while the Company's
net loss decreased $28,211,000, or 74.6%, from $37,565,000 in 1995.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Future trends for the Company's revenue and profitability remain difficult to
predict. The Company operates in a rapidly changing and developing market that
involves a number of risks, some of which are beyond the Company's control. In
addition, as previously disclosed in this Form 10-K, the Company's financial
condition remains extremely precarious. The following discussion highlights
certain of these risks.

Going Concern / Net Operating Losses. The Company has experienced recurring
losses from operations and had an accumulated deficit of $81,525,000 at July 31,
1997. There is no assurance, however, that any net operating losses will be
available to the Company in the future as an offset against future profits for
income tax purposes. A substantial portion of the losses are attributable to
product development and other start-up costs associated with the Company's
business focus on the development, production and sale of battery powered
electric vehicles. Cash flows from future operations may not be sufficient to
enable the Company to achieve profitable operations. Market conditions and the
Company's financial position may inhibit its ability to achieve profitable
operations. These factors, as well as others, indicate the Company may be unable
to continue as a going concern unless it is able to obtain significant
additional financing and generate sufficient cash flows to meet its obligations
as they come due and sustain its operations. As of October 23, 1997, the Company
had no firm commitments from any person or entity to provide capital, and there
can be no assurance that additional funds will be available from any source at
the time the Company will need such funds.

Continued Losses. For the fiscal years ended July 31, 1997, 1996 and 1995, the
Company had substantial net losses of $4,535,000, $9,354,000 and $37,565,000,
respectively on sales of $4,484,000, $4,209,000 and $11,625,000, 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 the field.
Various non-automotive companies are also developing improved electric storage,
propulsion and control systems. Growth of the present limited demand for
electric vehicles depends upon (a) future regulation and legislation requiring
more use of non-polluting vehicles, (b) the environmental consciousness of
customers and (c)

16

the ability of electric vehicles to successfully compete with vehicles powered
with internal combustion engines on price and performance.

Changed Legislative Climate. Because vehicles powered by internal combustion
engines cause pollution, there has been significant public pressure in Europe
and Asia, and enacted or pending legislation in the United States at the federal
level and in certain states, to promote or mandate the use of vehicles with no
tailpipe emissions ("zero emission vehicles") or reduced tailpipe emissions
("low emission vehicles"). Legislation requiring or promoting zero emission
vehicles is necessary to create a significant market for electric vehicles.
There can be no assurance, however, that further legislation will be enacted or
that current legislation or state imposed mandates will not be repealed or
amended (as recently occurred in California), or that a different form of zero
emission or low emission vehicle will not be invented, developed and produced,
and achieve greater market acceptance than electric vehicles. Extensions,
modifications or reductions of current federal and state legislation, mandates
and potential tax incentives could adversely affect the Company's business
prospects if implemented.

Item 8. Financial Statements and Supplementary Data

The response to this Item is submitted as a separate section of this Form 10-K.
See Item 14.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

17

PART III

Item 10. Directors and Executive Officers of the Registrant

The information regarding directors and executive officers
required by Item 10 is incorporated by reference from the information under the
captions "Election of Directors" and "Directors and Executive Officers" in the
Company's definitive proxy statement for its annual meeting of shareholders,
which is anticipated to be held in February 1998.

Item 11. Executive Compensation

The information required by Item 11 is incorporated by
reference from the information under the caption "Executive Compensation and
Other Information" in the Company's definitive proxy statement for its annual
meeting of shareholders, which is anticipated to be held in February 1998.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by Item 12 is incorporated by
reference from the information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive proxy statement
for its annual meeting of shareholders, which is anticipated to be held in
February 1998.

Item 13. Certain Relationships and Related Transactions

The information required by Item 13 is incorporated by
reference from the information under the caption "Certain Relationships and
Related Transactions" in the Company's definitive proxy statement for its annual
meeting shareholders, which is anticipated to be held in February 1998.

(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

18

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)1. Financial Statements

The financial statements filed as a part of this report are
identified in the Index to Consolidated Financial Statements
on page 22.

(a)2. Financial Statement Schedules

No financial statement schedules are filed as a part of this
report.

(a)3. Exhibits

The exhibits filed herewith or incorporated by reference to exhibits
previously filed with the Commission are identified in the Exhibit
Index attached hereto on page E-1. The Company shall furnish copies of
exhibits for a reasonable fee (covering the expense of furnishing
copies) upon request.

(b) Reports on Form 8-K

None

(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

19

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 October 27, 1997.

U.S. ELECTRICAR, INC.

By: /s/ Roy Y. Kusumoto
------------------------------------------------------
Roy Y. Kusumoto, Chief Executive Officer and President

By: /s/ Barrett R. Woodruff
------------------------------------------------------
Barrett R. Woodruff, Acting Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, severally and not jointly, Roy Kusumoto
and Carl D. Perry, with full power to act alone, his true and lawful
attorneys-in-fact, with full power of substitution, and re-substitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments to the annual report on Form 10-K, and file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact full
power and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the date indicated.

Signature Title Date

/s/ Roy Y. Kusumoto
- ------------------------------- President, Chief October 27, 1997
Roy Y. Kusumoto Executive Officer,
and Director (Principal
Executive Officer).

/s/ Carl D. Perry
- ------------------------------- Executive Vice October 27, 1997
Carl D. Perry President and Director

/s/ James S. Miller
- ------------------------------- Director October 27, 1997
James S. Miller

/s/ Malcolm R. Currie, Ph.D.
- ------------------------------- Director October 27, 1997
Malcolm R. Currie, Ph.D.

/s/ Edwin O. Riddell
- ------------------------------- Director October 27, 1997
Edwin O. Riddell

/s/ David A. Ishag
- ------------------------------- Director October 27, 1997
David A. Ishag

/s/ Marc Degani
- ------------------------------- Director October 27, 1997
Marc Degani

/s/ Daniel D. Rivers, Ph.D.
- ------------------------------- Director October 27, 1997
Daniel D. Rivers, Ph.D.

20

/s/ Donald H. Dreyer
- ------------------------------- Director October 27, 1997
Donald H. Dreyer

22

- --------------------------------------------------------------------------------

U. S. ELECTRICAR, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE

INDEPENDENT AUDITOR'S REPORT.............................................F-1

CONSOLIDATED BALANCE SHEETS - JULY 31, 1997 AND 1996.....................F-2

CONSOLIDATED STATEMENTS OF OPERATIONS -
YEARS ENDED JULY 31, 1997, 1996 AND 1995............................F-4

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT -
YEARS ENDED JULY 31, 1997, 1996 AND 1995............................F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS -
YEARS ENDED JULY 31, 1997, 1996 AND 1995............................F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..............................F-10

22

- --------------------------------------------------------------------------------

INDEPENDENT AUDITOR'S REPORT

To the Stockholders and Board of Directors
U. S. Electricar, Inc.

We have audited the accompanying consolidated balance sheets of U. S.
Electricar, Inc. as of July 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for each of the
three years ended July 31, 1997. 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 consolidated financial position of U. S. Electricar,
Inc. as of July 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years ended July 31, 1997,
in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2, the
Company's recurring losses from operations and its inability to generate
sufficient cash flows to sustain operations and meet its obligations, raises
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.

/s/ MOSS ADAMS LLP

Santa Rosa, California
August 22, 1997

Page F-1

U. S. ELECTRICAR, INC.
CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share data)
- --------------------------------------------------------------------------------
July 31, 1997 1996
- --------------------------------------------------------------------------------

ASSETS

CURRENT ASSETS
Cash $ 333 $ 13
Accounts receivable, net of allowance for
doubtful accounts of $115 and $596
829 856
Inventories 1,812 2,387
Prepaids and other current assets 258 184
------ ------

Total current assets 3,232 3,440

PROPERTY, PLANT AND EQUIPMENT 1,099 835

OTHER ASSETS 182 88
------ ------

Total assets $4,513 $4,363
====== ======

The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page F-2

U. S. ELECTRICAR, INC.
CONSOLIDATED BALANCE SHEETS (Continued)

(In thousands, except for share and per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
July 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES

Accounts payable $ 2,335 $ 2,868
Accrued payroll and related expenses 634 441
Accrued warranty reserve 564 1,156
Reserve for lease terminations 28 112
Accrued interest 598 208
Other accrued expenses 337 721
Deferred revenues -- 250
Customer deposits 44 73
Current maturities of obligations under capital lease 209 --
Current maturities of long-term debt 5,220 7,283
-------- --------

Total current liabilities 9,969 13,112
-------- --------

LONG-TERM DEBT, less current maturities 3,639 3,987
-------- --------

STOCKHOLDERS' DEFICIT
Series A preferred stock - no par value; 30,000,000 shares authorized;
3,621,000 and 4,010,000 shares issued and outstanding at 1997 and 1996,
respectively; liquidating preference $0.60 per share aggregating $2,173
and $2,406, respectively 2,543 2,983
Series B preferred stock - no par value; 5,000,000 shares authorized;
1,340,000 and 1,587,000 shares issued and outstanding at 1997 and 1996,
respectively 2,682 3,175
Stock notes receivable (1,149) (1,061)
Common stock - no par value; 300,000,000 share authorized; 151,068,000 and
120,220,000 shares issued and outstanding at 1997 and 1996,
respectively 68,354 59,157
Accumulated deficit (81,525) (76,990)
-------- --------

Total stockholders' deficit (9,095) (12,736)
-------- --------

Total liabilities and stockholders' deficit $ 4,513 $ 4,363
======== ========

The accompanying notes are an integral part of these financial statements.

- ------------------------------------------------------------------------------------------------------------------------------------
Page F-3

U. S. ELECTRICAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for share and per share data)
- -----------------------------------------------------------------------------------------------------------------------------------

Years Ended July 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------

NET SALES $ 4,484 $ 4,209 $ 11,625

COST OF SALES 2,042 5,370 20,210
------------- ------------- -------------
GROSS MARGIN 2,442 (1,161) (8,585)
------------- ------------- -------------
OTHER COSTS AND EXPENSES
Research and development 1,218 1,401 6,697
Selling, general and administrative 3,116 5,608 13,952
Interest and financing fees 792 1,890 5,732
Other expense 274 740 449
Aquistion of research and development 1,630 -- --
Market development expense -- -- 77
Facility closures and consolidation
of operations -- 701 2,378
------------- ------------- -------------

Total other costs and expenses 7,030 10,340 29,285
------------- ------------- -------------
LOSS FROM CONTINUING OPERATION (4,588) (11,501) (37,870)

GAIN ON DEBT RESTRUCTURING 53 2,147 305
------------- ------------- -------------
NET LOSS $ (4,535) $ (9,354) $ (37,565)
============= ============= =============
PER COMMON SHARE
Loss from continuing operations $ (0.03) $ (0.17) $ (1.88)
Gain on debt restructuring -- 0.03 0.02
------------- ------------- -------------

Net loss per common share $ (0.03) $ (0.14) $ (1.86)
============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 133,805,603 67,905,941 20,156,417
============= ============= =============

The accompanying notes are an integral part of these financial statements.

- -----------------------------------------------------------------------------------------------------------------------------------
Page F-4

U. S. ELECTRICAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended July 31, 1997, 1996 and 1995
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------

PREFERRED STOCK
--------------------------------------------
SERIES A SERIES B COMMON STOCK
-------------------- -------------------- -------------------- STOCK NOTES
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT RECEIVABLE
-------- -------- -------- -------- -------- -------- --------

BALANCE, JULY 31, 1994 9,353 $ 7,118 $ -- 15,518 $ 25,652 $ (1,094)

COMMON STOCK TRANSACTIONS
Excess of fair market
value over exercise
price of warrants -- -- -- -- -- 1,920 --
Sales under Regulation
Subscription Agreement
(net of $171 issuance
costs) for cash -- -- -- -- 9,000 729 --
Conversion of note payable
(net of $151 issuance costs) -- -- -- -- 13,667 3,949 --
Conversion of Series S
Convertible Bonds -- -- -- -- 13,667 4,100 --
Cancellation of Stock Note
Receivable (shares
held as collateral) -- -- -- -- (450) (180) 180
Exercise of warrants and
options for cash and
notes receivable -- -- -- -- 664 174 (16)
Conversions of Series A
preferred stock (3,078) (1,970) -- -- 3,078 1,970 --
Stock for services -- -- -- -- 79 201 --

COMPENSATION RECOGNIZED FOR
STOCK OPTIONS -- -- -- -- -- 200 --

INTEREST ON STOCK NOTES
RECEIVABLE -- -- -- -- -- -- (57)

NET LOSS -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------

BALANCE, JULY 31, 1995 6,275 5,148 -- -- 55,223 38,715 (987)

PREFERRED STOCK TRANSACTION
Conversion of unsecured debt -- -- 1,587 3,175 -- -- --

COMMON STOCK TRANSACTIONS
Sales under Regulation S
subscription agreement -- -- -- -- 10,670 2,701 --
Exercise of warrants -- -- -- -- 220 28 --
Conversion of Series S
Bonds and accrued
interest -- -- -- -- 43,214 12,964 --
Conversion of Series I
Bonds and accrued
interest -- -- -- -- 7,913 2,374 --
Conversion of Series A
preferred stock (2,265) (2,165) -- -- 2,265 2,165 --
Conversion of debt -- -- -- -- 715 210 --

INTEREST ON STOCK NOTES
RECEIVABLE -- -- -- -- -- -- (74)

NET LOSS -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
BALANCE, July 31, 1996 4,010 2,983 1,587 3,175 120,220 59,157 (1,061)

ACCUMULATED
DEFICIT TOTAL
-------- --------
BALANCE, JULY 31, 1994 $(30,071) $ 1,605

COMMON STOCK TRANSACTIONS
Excess of fair market
value over exercise
price of warrants -- 1,920
Sales under Regulation
Subscription Agreement
(net of $171 issuance
costs) for cash -- 729
Conversion of note payable
(net of $151 issuance costs) -- 3,949
Conversion of Series S
Convertible Bonds -- 4,100
Cancellation of Stock Note
Receivable (shares
held as collateral) -- --
Exercise of warrants and
options for cash and
notes receivable -- 158
Conversions of Series A
preferred stock -- --
Stock for services -- 201

COMPENSATION RECOGNIZED FOR
STOCK OPTIONS -- 200

INTEREST ON STOCK NOTES
RECEIVABLE -- (57)

NET LOSS (37,565) (37,565)
-------- --------

BALANCE, JULY 31, 1995 (67,636) (24,760)

PREFERRED STOCK TRANSACTION
Conversion of unsecured debt -- 3,175

COMMON STOCK TRANSACTIONS
Sales under Regulation S
subscription agreement -- 2,701
Exercise of warrants -- 28
Conversion of Series S
Bonds and accrued
interest -- 12,964
Conversion of Series I
Bonds and accrued
interest -- 2,374
Conversion of Series A
preferred stock -- --
Conversion of debt -- 210

INTEREST ON STOCK NOTES
RECEIVABLE -- (74)

NET LOSS (9,354) (9,354)
-------- --------
BALANCE, July 31, 1996 (76,990) (12,736)

The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page F-5

U. S. ELECTRICAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Continued)
Years Ended July 31, 1997, 1996 and 1995
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------

PREFERRED STOCK
--------------------------------------------
SERIES A SERIES B COMMON STOCK
-------------------- -------------------- ------------------- STOCK NOTES
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT RECEIVABLE
-------- -------- -------- -------- -------- -------- -----------

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) (440) -- -- 389 440 --
Conversion of Series B
preferred stock (289) (578) 1,927 578 --
Conversion of debt
-- -- -- -- 2,000 600 --

INTEREST ON STOCK NOTES RECEIVABLE -- -- -- -- -- -- (88)

NET LOSS -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------

BALANCE, July 31, 1997 3,621 $ 2,543 1,340 $ 2,682 151,068 $ 68,354 $ (1,149)
======== ======== ======== ======== ======== ======== ========

ACCUMULATED
DEFICIT TOTAL
-------- --------

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 RECEIVABLE (88)

NET LOSS (4,535) (4,535)
-------- --------

BALANCE, July 31, 1997 $(81,525) $ (9,095)
======== ========

The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page F-6

U. S. ELECTRICAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------

Years Ended July 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,535) $ (9,354) $(37,565)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 578 968 6,864
Provision for facility closures and consolidation
of operations -- 701 770
Change in allowance for doubtful accounts (319) 93 44
Provision to reduce inventory values 308 -- --
Gain on debt restructuring (53) (2,147) (305)
Changes in valuation allowances and reserves (1,011) (1,449) 2,721
Purchase of research and development 1,630 -- --
Stock issued for services -- -- 201
Stock option compensation -- -- 200
Gain on sale of Industrial Electric Vehicles (158) -- --
Interest income on stock notes receivable (88) (74) (57)
Accretion on royalties payable -- -- 65
Write-off of development costs and leasehold
improvements -- 137 733
Interest converted to common stock 194 1,575 --
Change in operating assets and liabilities:
Accounts receivable (54) 415 143
Inventories 589 4,916 (837)
Prepaids and other current assets (53) 302 838
Accounts payable and accrued expenses (39) (27) 8,153
Deferred revenues -- 250 --
Customer deposits (164) (690) (1,006)
-------- -------- --------

Net cash used by operating activities (3,175) (4,384) (19,038)
-------- -------- --------

CASH FLOWS FROM INVESTING ACTIVITIES
Advances to Systronix Corporation -- (1,000) --
Purchases of property, plant and equipment
(13) -- (568)
Repayments on advances to Systronix Corporation 209 -- --
-------- -------- --------

Net cash provided (used) by investing activities 196 (1,000) (568)
-------- -------- --------

The accompanying notes are an integral part of these financial statements.

- ------------------------------------------------------------------------------------------------------------------------------------
Page F-7

U. S. ELECTRICAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended July 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (3,021) (259) (282)
Payments on capital leases (152) -- --
Borrowings on notes payable 3,122 2,608 3,853
Borrowings on debentures and bonds -- -- 12,000
Notes payable and bonds issuance costs -- -- (1,860)
Proceeds from issuance of common stock 3,350 2,701 900
Exercise of options and warrants -- 28 158
Stock issuance costs -- -- (171)
-------- -------- --------

Net cash provided by financing activities 3,299 5,078 14,598
-------- -------- --------

NET INCREASE (DECREASE) IN CASH 320 (306) (5,008)

CASH

Beginning of year 13 319 5,327
-------- -------- --------
End of year $ 333 $ 13 $ 319
======== ======== ========

The accompanying notes are an integral part of these financial statements.

- ------------------------------------------------------------------------------------------------------------------------------------
Page F-8

U. S. ELECTRICAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended July 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL CASH-FLOW INFORMATION:
Cash paid during the year for interest $ 162 $ 30 $ 106

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of debt to common stock $ 600 $ 210 $ 8,049
Conversion of debt to Series B preferred stock $ 85 $ 3,175 $ --
Conversion of Series A preferred stock to common stock $ 440 $ 2,165 $ 1,970
Conversion of Series B preferred stock to common stock $ 578 $ -- $ --
Notes issued in connection with debt restructuring $ 15 $ 4,148 $ --
Excess of fair market value over exercise price of warrants
issued in connection with convertible bonds $ -- $ -- $ 1,920
Issuance of common stock for notes receivable $ -- $ -- $ 16
Conversion of deferred revenues to common stock $ 250 $ -- $ --
Conversion of Series S bonds to common stock $ 3,000 $15,338 $ --
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 common stock $ 219 $ -- $ --
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-9

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization - U. S. Electricar, Inc., previously Solar Electric Engineering,
Inc., a California corporation, was incorporated in 1976. In January 1994, the
Company changed its name to U. S. Electricar, Inc. The Company currently
conducts research and development into electric propulsion systems, and produces
and sells electric vehicles.

Principles of consolidation - The consolidated financial statements include the
accounts of U. S. Electricar, Inc., and its wholly owned subsidiary, Industrial
Electric Vehicles, Inc. Substantially all assets and liabilities of Industrial
Electric Vehicles, Inc., were sold during the year ended July 31, 1997 (see Note
4). All material intercompany transactions and balances have been eliminated in
consolidation.

Inventory - Inventory is comprised of electric vehicles, raw materials and
work-in-process. Inventory is stated at market, which is lower than cost.

Property, plant and equipment - Property, plant and equipment are stated at cost
and depreciated using the straight-line method over the estimated useful lives
of the related assets, which range from three to seven years. The Company has
adopted Statement of Financial Accounting Standards No. 121 (FAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". This Statement requires long-lived assets to be reviewed for
impairment whenever events or changes in circumstances indicates the sum of
expected cash flows from use of the asset is less than its carrying value.
Additionally, long-lived assets that management has committed to sell or abandon
are reported at the lower of carrying amount or fair value less cost to sell.

Intangible assets - Acquired deferred development and technology costs and
goodwill arising from previous business combinations were amortized on a
straight-line basis over their expected useful lives of three to five years. The
unamortized balances of these costs were charged to expense when it was
determined there was no future value for the Company's operations.

Warranties - Estimated electric vehicle warranty costs are provided at the time
of sale. Warranties, in general, are extended for one year from time of vehicle
sale.

Income taxes - Deferred income taxes are recognized using enacted tax rates, and
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 is recognized
when the vehicle is delivered to the customer.

Net loss per common share - Net loss per common share is based on the weighted
average number of common shares outstanding during the year. Common stock
equivalents have been excluded from the weighted average shares outstanding
since the effect of these potentially dilutive securities would be antidilutive.

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.
Cash is deposited with known creditable financial institutions.

- --------------------------------------------------------------------------------
Page F-10

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Significant estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions affecting the reported amounts of assets, liabilities,
revenues and expenses, and the disclosure of contingent assets and liabilities.
Inventory is reported at market value. The inventory valuation adjustment is an
estimate based on the subsequent sale of inventory and the projected impact of
certain economic, marketing and business factors. Warranty reserves and certain
accrued expenses are based on an analysis of future costs expected to be
incurred in meeting contracted obligations. The amounts estimated for the above,
in addition to other estimates not specifically addressed, could differ from
actual results; and the difference could have a significant impact on the
financial statements.

Fair value of financial instruments - The Company measures its financial assets
and liabilities in accordance with generally accepted accounting principles. The
fair value of a financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties. For certain of
the Company's financial instruments, including cash, accounts receivable and
accounts payable, the carrying amount approximates fair value because of the
short maturities. The carrying amount of the Company's short-term and long-term
debt approximates fair value because interest rates available to the Company for
issuance of similar debt with similar terms and maturities are approximately the
same.

Stock-based compensation - The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation". Under SFAS 123, a fair value method is used to
determine compensation cost for stock options or similar equity instruments.
Compensation is measured at the grant date and is recognized over the service or
vesting period. Under the current accounting standard prescribed in Accounting
Principles Board Opinion No. 25 (APB 25), compensation cost is the excess, if
any, of the quoted market price of the stock at a measurement date over the
amount that must be paid to acquire the stock. SFAS 123 permits a company to
continue to use APB 25 to account for stock options, but proforma disclosures of
net income and earnings per share must be made as if SFAS 123 had been adopted.
The Company has chosen to continue to account for stock-based compensation under
APB 25. Consequently, SFAS 123 does not have a material impact on the Company's
consolidated results of operations or financial position.

Recent accounting pronouncements - The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS No. 128). This pronouncement provides a different method of calculating
earnings per share than is currently used in accordance with Accounting
Principles Board Opinion No. 15, "Earnings Per Share." SFAS 128 provides for the
calculation of "Basic" and "Dilutive" earnings per share. Basic earnings per
share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings per share. The Company will adopt SFAS No. 128 in 1998 and its
implementation is not expected to have a material effect on the consolidated
financial statements.

NOTE 2 - GOING CONCERN

The Company has experienced recurring losses from operations and use of cash
from operations and had an accumulated deficit of $81,525,000 at July 31, 1997.
A substantial portion of the losses are attributable to research, development
and other costs associated with the Company's development and production of
electric vehicles, including the conversion of gas-powered cars and light trucks
to electric power, as well as restructuring the Company's operations.

- --------------------------------------------------------------------------------
Page F-11

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------

NOTE 2 - GOING CONCERN (Continued)

During the three years ended July 31, 1997, the Company obtained approximately
$23 million (net of debt repayments) in cash from financing activities through
private placements of common stock and Series A preferred stock, the exercise of
options and warrants, and the issuance of convertible subordinated notes payable
and secured convertible bonds and notes. During 1997, the Company was successful
in selling $3,600,000 of its common stock and converting $3,600,000 of its
convertible debt to common stock.

It is management's plan to seek additional financing through private placements
as well as other means. As of August 22, 1997, the Company had no commitments
from any person or entity to provide additional financing to the Company.

The consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. Cash flows from future operations
may not be sufficient to enable the Company to meet its obligations, and market
conditions and the Company's financial position may inhibit its ability to
achieve profitable operations.

These factors, as well as the future availability or inadequacy of financing to
meet future needs, could force the Company to delay, modify, suspend or cease
some or all aspects of its planned operations, and/or seek protection under
applicable bankruptcy and insolvency laws.

NOTE 3 - ACQUISITIONS

The Company acquired substantially all the tangible and intangible assets and
assumed certain liabilities of Systronix Corporation (Systronix) on October 25,
1996. Systronix was a developer of technologically advanced electric propulsion
systems for electric-powered vehicles.

The purchase price, in addition to the assumed liabilities, consisted of a
credit for the $1,020,000 previously advanced to Systronix; an $830,000 secured
note due within 30 days of closing; and 3,800,000 shares of restricted common
stock, with an approximate market value of $0.20 per share at the purchase date.
Two million cashless warrants, exercisable at $0.30 per share, were also issued
pursuant to a finders fee.

The purchase of Systronix 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 conjunction with this transaction, the Company has employed substantially all
of then-existing employees of Systronix Corporation. Pursuant to such
employment, the Company has granted to these employees qualified and
non-qualified stock options under the Company's 1996 Employee and Consultant
Stock Option Plan. The options granted in the aggregate total approximately
10,228,000 options at an exercise price of $0.30 cents per share, subject to
various vesting schedules, with all options vested no later than five (5) years
from date of grant. The Plan has been approved by the Board of Directors of the
Company.

- --------------------------------------------------------------------------------
Page F-12

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------

NOTE 4 - FACILITY CONSOLIDATIONS, CLOSURES, AND SALES

During the two years ended July 31, 1996, the Company consolidated its
operations by closing facilities in Florida and California. Assets associated
with the closed facilities, primarily deferred development costs and certain
fixed assets that were not relocated to other facilities, were charged to
expense in the year of closure. Additionally, costs related to consolidating the
various company facilities were also charged to expense.

In 1997, substantially all assets of the Company's subsidiary, Industrial
Electrical Vehicles, Inc. (formerly Nordokog Electric Vehicles, Inc. (Nordskog)
prior to its acquisition by the Company) were sold to a group headed by former
employees of the Company in exchange for the buyers assuming the Company's debt
to Nordskog. The liabilities assumed by the buyers, including a $1,013,000 note
payable, exceeded the reported values of the assets sold, resulting in a gain of
approximately $155,000.

NOTE 5 - INVENTORIES

(in thousands) 1997 1996
------ ------
Finished goods $ 667 $1,000
Work-in-process 375 710
Raw materials 1,062 1,450
------ ------
2,104 3,160
Less valuation adjustment 292 773
------ ------
$1,812 $2,387
====== ======

The Company has approximately $30,000 of inventory in Mexico at July 31, 1997.

In December 1994, the Company entered into a manufacturing agreement with a
vendor whereby the Company agreed to sell to the vendor sufficient inventory to
complete the conversion of 84 sedans and pick-up trucks to electric power and
then to repurchase the completed vehicles upon completion of the manufacturing
process. The selling price was established at a 10% discount from the repurchase
price; and the terms of the agreement gave the vendor a purchase money interest
in inventory. Due to the repurchase agreement, the Company did not account for
this transaction as a sale. The Company initially accrued the difference between
the selling price and repurchase price as interest expense. However, the
interest expense accrual was later reversed by the Company as a result of an
amendment to the agreement in July 1995, which eliminated the price difference
and required only the refund to the vendor of the net amount of money paid to
the Company under the agreement. During 1995, the vendor paid the Company
$867,000, and the Company paid the vendor $64,000--for a difference of $803,000,
which was recorded as an account payable. Under the July 1995 amendment, and
separate from the debt restructuring process, a portion of anticipated proceeds
from future sales of unsold vehicles in which the vendor had a purchase money
interest was to be paid to the vendor; and the vendor was to ratably release its
interest in such vehicles as they were sold until the $803,000 was fully repaid.
At July 31, 1997, approximately $129,000 remains unpaid and is included in
accounts payable.

- --------------------------------------------------------------------------------
Page F-13

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

(in thousands) 1997 1996
------ ------

Machinery and equipment $ 470 $2,141
Computers 1,191 1,186
Furniture and office equipment 513 409
Demonstration vehicles 105 257
Leasehold improvements 106 653
Construction in progress 450 --
Automobiles 30 40
------ ------

2,865 4,686

Less accumulated depreciation and amortization 1,766 3,171
Less adjustment for impairment -- 680
------ ------
$1,099 $ 835
====== ======

NOTE 7 - LONG-TERM DEBT

(in thousands, except for shares data) 1997 1996
---- ----

Convertible secured note under a Supplemental Loan Agreement with ITOCHU
Corporation; interest at 10%, principal and interest due April 1998,
secured by the personal property of the parent company $ 3,000 $ 3,000

Secured subordinated promissory note - Credit Management Association of
Califonria (CMAC) as exclusive agent for Non- Qualified Creditors; interest
at 3% for the first 5 years, 6% for years 6 and 7, and then at prime plus
3% through date of maturity; interest payments are made upon payment of
principal, with principal and interest due no later than April 2016;
secured with an interest in a sinking fund escrow as noted above; payments
on this note are subordinated to payment in full on all principal and
accrued interest owed on the 3-year non-qualified and qualified notes to
CMAC 3,332 3,332

Convertible secured notes under a Supplemental Loan Agreement with ITOCHU
Corporation; interest at 10%, principal and interest due December 1997,
secured by the personal property of the parent company 1,300 --

- --------------------------------------------------------------------------------
Page F-14

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------

NOTE 7 - LONG-TERM DEBT (Continued)

(in thousands, except for shares data) 1997 1996
------- -------

Convertible bonds; interest at 10%, principal and interest was
due in July 1997 800 --

Secured subordinated promissory note - (CMAC) as exclusive agent for Qualified
Creditors; interest at 3%, with principal and interest due April 1999;
secured with an interest in a sinking fund escrow 307 560

Secured promissory note - (CMAC) as exclusive agent for Non-Qualified Creditors;
note was fully repaid -- 95

Series S secured convertible bonds, interest at 10%; original principal due of
$11,500,000 has been converted to shares of common stock at $0.30 per share -- 3,000

Convertible secured note, with interest at 9% payable quarterly, was assumed by
the purchasers of Industrial Electric Vehicles -- 1,013

Convertible secured promissory note; with interest at 10%, was due in November
1996; and was converted into 333,334 shares of common stock -- 100

Other 120 170
------- -------

8,859 11,270
Less current maturities 5,220 7,283
------- -------

$ 3,639 $ 3,987
======= =======

Maturities of long-term debt for succeeding years are as follows:

Year Ending July 31,
--------------------
1998 $5,220
1999 307
Thereafter 3,332
------
$8,859
======

- --------------------------------------------------------------------------------
Page F-15

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------

NOTE 7 - LONG-TERM DEBT (Continued)

In September 1994, the Company issued 120 units of Series S secured convertible
bonds, totaling $12,000,000, and received proceeds of $10,140,000, net of fees
of $1,860,000. Each of the units consisted of $100,000 in principal and a
warrant to purchase 10,000 common shares. The bonds, which bear interest at 10%,
were initially due in March 1995 and were secured by the personal property of
the parent company, excluding securities of its subsidiary. The Company also
issued additional warrants to purchase 1,200,000 common shares representing
additional issuance fees. The warrants are exercisable through July 1997 at an
exercise price of $3.20 per share. The excess of fair-market value over the
exercise price of the warrants of $1,920,000, and the fees of $1,860,000, was
recorded as debt discount and amortized over the initial period of the bonds. In
March 1995, the Company had neither sufficient funds, nor commitments to receive
sufficient funds, to pay the principal and interest. Subsequently, the Company
negotiated an extension of the bonds' maturity to March 1996; the conversion of
$600,000 of the unpaid interest to principal; and a conversion price for most of
the debt of $0.30 per share. In July 1995, the Company converted $4,100,000 of
the Series S bonds to 13,667,000 shares of common stock at $0.30 per share. In
December 1995, the company converted $210,000 of the Series S secured
convertible bonds to 700,000 shares of common stock at $0.30 per share. In March
1996 accrued unpaid interest of $71,000 on the bonds was added to principal.
Also in March 1996, the Company converted $491,000 of the bonds to 1,638,000
shares of common stock at $0.30 per share. In June 1996, the Company converted
$4,870,000 of the Series S secured convertible bonds to 16,233,000 shares of
common stock at $0.30 per share, and accrued interest of $1,111,000 was
converted to 3,704,000 shares of common stock at $0.30 per share. In March 1997,
the remaining $3,000,000 of Series S Bonds and $219,000 of accrued interest were
converted to 10,732,000 shares of common stock at $0.30 per share.

The Company and ITOCHU Corporation entered into a Supplemental Loan Agreement in
April 1995, whereby ITOCHU agreed to lend the Company amounts equal to funds the
Company receives from other outside lenders or investors, up to $3,000,000, at
10% annual interest. The notes are secured by the personal property of the
parent company and are convertible at $0.30 per share into the Company's common
stock. The convertible subordinated note from ITOCHU had an original maturity
date of June 1997, with interest payments due semi-annually. The interest
payment of $331,000 due December 1994 was not paid, causing an event of default.
In February 1995, the Company made a partial interest payment of $25,000. In
April 1995, the Company and ITOCHU agreed to accelerate the maturity of the note
to April 1996; and change the conversion price from $5.00 to $0.30 per share. In
July 1995, $4,100,000 of the note was converted to 13,667,000 shares of common
stock at $0.30 per share. In June 1996, the Company converted the $4,880,000
balance of the convertible subordinated note from ITOCHU to 16,267,000 shares of
common stock at $0.30 per share, and the accrued unpaid interest of $1,612,000
was converted to 5,372,000 shares of common stock at $0.30 per share. The
maturity date has been extended to April 1998.

ITOCHU and the Series S and Series I bond holders were obligated to convert the
notes and bonds they held once (1) a restructuring/repayment workout plan was
accepted by the unsecured creditors holding 80% of the Company's unsecured debt,
and (2) such plan had been approved by the Company in consultation with ITOCHU
Corporation, or (3) upon ITOCHU Corporation's sole election. In June 1996,
having completed the initial phase of the debt restructuring with acceptance of
the workout plan by over 80% of the Company's unsecured creditors, and in
consultation with ITOCHU Corporation, the Company effected the conversion of
$11,900,000 of principal and $2,900,000 of accrued interest into 49,489,000
shares of common stock at the rate of $0.30 per share.

- --------------------------------------------------------------------------------
Page F-16

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------

NOTE 7 - LONG-TERM DEBT (Continued)

In connection with the acquisition of Nordskog Electric Vehicles, Inc., renamed
Industrial Electric Vehicles, Inc. (IEV), in July 1993, the Company issued a
$1,000,000 secured convertible promissory note due in January 1997, with
interest at 9% annually and payable quarterly. This note was secured by
machinery and equipment owned by IEV. During 1995, the Company sold some of the
machinery and equipment used to secure the note and used the proceeds of $18,000
to pay down the principal. Quarterly interest payments had not been paid,
causing an event of default. The note holder did not exercise any of its
remedies with respect to the acceleration of the principal and interest nor the
collateral securing this note. The full amount of the note was classified as a
current liability in 1995, due to the event of default. In September 1996, the
Company sold the assets of IEV to a group headed by former employees of the
Company. The buyers assumed the liability for the note and the Company was
released from this liability.

In April 1996, and as amended in July 1996, the Company issued two promissory
notes, due April 1999, for $256,000 and $560,000, and one promissory note due
April 2016 for $3,332,000, to the Credit Managers Association of California
("CMAC") as the exclusive agent for certain unsecured creditors who settled with
the Company in connection with its Debt Restructuring Plan.

NOTE 8 - 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 is being financed through a capital lease. The lease requires
monthly payments of $22,000 and will mature in May 1998.

NOTE 9 - LEASE COMMITMENTS

In 1996 the Company moved substantially all their operations from San Francisco
to Torrance, California. The Company maintains its accounting department in San
Francisco where it rents its office space on a month to month lease.

The Company assumed the lease of the Torrance facility when it purchased
Systronix. The lease expires in February 2000. Future minimum lease payments
under this lease agreement are $95,000, $95,000, and $56,000 for the years ended
July 31, 1998, 1999, and 2000, respectively.

NOTE 10 - INCOME TAXES

The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose
restrictions on the utilization of net operating losses in the event of an
"ownership change" as defined by Section 382 of the Internal Revenue Code of
1986. An "ownership change" occurred at the time of the private placement
memorandums in 1991 and 1992, at the time of the common and preferred stock
issuances in 1993, and upon conversion of certain debt to equity in 1995, 1996
and 1997. This change will limit future availability of net operating loss
carryforwards. The extent of the limitation has not been determined.

- --------------------------------------------------------------------------------
Page F-17

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------

NOTE 10 - INCOME TAXES (Continued)

A valuation allowance is required for those deferred tax assets that are not
likely to be realized. Realization is dependent upon future earnings during the
period that temporary differences and carryforwards are expected to be
available. Because of the uncertain nature of their ultimate utilization, based
upon the Company's past performance, a full valuation allowance is recorded
against these deferred tax assets.

The following table summarizes the components of the net deferred tax assets (in
thousands):

1997 1996
------- -------
Deferred tax assets
Federal tax loss carryforward $23,682 $21,797
State tax loss carryforward 3,394 2,346
Basis difference in EIL 1,610 1,610
Accumulated depreciation -- 439
Stock option compensation -- 595
Reserves and allowances 153 38
Other, net 233 393
------- -------
29,072 27,218
Less valuation allowance 29,072 27,218
------- -------

Net deferred tax asset $ -- $ --
======= =======

- --------------------------------------------------------------------------------
Page F-18

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------

NOTE 10 - INCOME TAXES (Continued)

The net operating losses expire in varying amounts, as follows, for income tax
reporting purposes (in thousands):

Net Operating Loss
---------------------------
Date of expiration Federal California
------------------ ------- ----------

1997 $ 125 $ 558
1998 130 1,806
1999 124 1,715
2000 51 16,730
2001 44 4,541
2002 11 2,778
2003 64 --
2004 322 --
2005 443 --
2006 680 --
2007 2,552 --
2008 24,221 --
2009 33,460 --
2010 9,083 --
2011 5,557 --
------- -------
$76,867 $28,128
======= =======

NOTE 11 - 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 at $0.60 per share
plus any accrued and unpaid dividends in the event of voluntary or involuntary
liquidation of the Company. Dividends are non-cumulative and payable at the
annual rate of $0.036 per share if, when, and as declared by, the Board of
Directors. No dividends have yet been declared on the Series A preferred stock.

In July 1993, the Board of Directors approved a plan for the sale of shares of
Series A preferred stock to certain officers and directors ("Participants") at
$0.60 per share. In general, the Participants could purchase these shares for a
combination of cash, promissory notes payable to the Company, and conversion of
debt and deferred compensation due to the Participants. All shares issued under
this plan are pledged to the Company as security for the notes. The notes
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, 1997.

- --------------------------------------------------------------------------------
Page F-19

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------

NOTE 11 - STOCKHOLDERS' DEFICIT (Continued)

A total of 388,566, 2,265,000, and 3,078,355 shares of Series A preferred stock
were converted to common stock during 1997, 1996 and 1995, respectively.

Series B preferred stock - Series B preferred stock is currently unregistered
and each share is initially convertible into 6.66 shares of common stock at the
election of the holder. The Series B preferred stock has certain liquidation and
dividend rights prior and in preference to the rights of the common stock and
Series A preferred stock.

In April 1996, the Company issued 1,507,000 shares of Series B preferred stock,
plus a note for $532,000, in settlement of claims of $3,547,000 under the debt
restructuring plan. In 1997 and 1996, an additional 42,300 and 80,000 shares of
Series B preferred stock, and notes payable for $15,000 and $28,000, were issued
in settlement of $100,000 and $189,000 of claims, respectively.

A total of 289,400 shares of Series B preferred stock were converted on a
6.66-to-one basis to common stock during 1997.

Other significant stock activity - In July 1995, $4,100,000 of the Series S
secured convertible bonds issued in September 1994 were converted at $0.30 per
share to 13,667,000 shares of common stock. In December 1995, the Company
converted $210,000 of the bonds to 700,000 shares of common stock at $0.30 per
share. In March 1996, the Company issued 1,638,000 shares of common stock to
convert $491,000 of principal and accrued interest of the Series S secured
convertible bonds at $0.30 per share of common stock. In June 1996, the Company
converted $4,870,000 of Series S bonds and $1,111,000 of accrued interest to
16,233,000 and 3,704,000 shares, respectively, of common stock at $0.30 per
share. In March 1997, the remaining $3,000,000 of Series S Bonds, plus accrued
interest, were converted to 10,732,000 shares of common stock at $0.30 per
share.

Between December 1995 and April 1996, the Company sold 3,333,000 unregistered
shares of its common stock at $0.15 per share and an additional 7,337,000
unregistered shares at $0.30 per share pursuant to the Regulation S Subscription
Agreement. These transactions resulted in proceeds of $2,701,000. The shares
sold in this offering have certain registration rights.

In June 1996, the Company converted all of the outstanding balance of $2,144,000
of Series I convertible bonds to 7,147,000 shares of common stock at $0.30 per
share. The accrued interest on these bonds of $230,000 was also converted to
766,000 shares of common stock at $0.30 per share.

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.

- --------------------------------------------------------------------------------
Page F-20

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------

NOTE 12 - STOCK OPTIONS AND WARRANTS

In 1993, stockholders approved the 1993 Employee and Consultant Stock Plan (the
"1993 Plan"), which expires in 2003. Under the 1993 Plan, the Company reserved
10,000,000 shares of common stock for incentive and nonstatutory stock options
as of July 31, 1993. The Company increased the number of shares of common stock
reserved under the 1993 Plan to 15,000,000 in November 1993 and to 30,000,000 in
September 1995. Options under the 1993 Plan expire over periods not to exceed
ten years from date of grant. Options which expire or are canceled may become
available for future grants under the 1993 Plan. In addition, the Company grants
other nonstatutory stock options.

In 1994, stockholders approved the 1994 Director Stock Option Plan (the
"Director Option Plan"). Under this plan, the Company has reserved 150,000
shares of common stock for nonstatutory stock options for nonemployee directors.
Options under this plan are fully vested upon the granting of the options and
expire ten years from the date of grant unless terminated sooner upon
termination of the optionee's status as a director. Options which expire or are
canceled may become available for future grants under the Director Option Plan.

In 1997, in connection with the purchase of Systronix, stockholders approved the
1996 Stock Option Plan (1996 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.

The following table summarizes common stock option activity (shares in
thousands):

Director
1996 Plan 1993 Plan Option Plan Other
---------------- ---------------- ------------------ -----------------
Shares Price Shares Price Shares Price Share Price
------ ----- ------ ----- ------ ----- ----- -----

Balance, August 1, 1994 -- $ -- 14,482 $0.60-5.00 7 $ 6.88 2,069 $0.60-3.00
Granted -- -- 8,126 0.40-2.97 17 0.24-5.88 -- --
Canceled -- -- (4,916) 0.60-2.97 (8) 0.24-5.88 -- --
Exercised -- -- (13) 0.60-1.25 -- -- -- --
Expired -- -- (784) 0.60-2.80 -- -- -- --

Balance, August 1, 1995 -- -- 16,895 0.60-5.00 16 0.24-6.88 2,069 0.60-3.00
Granted -- -- 11,415 0.30 13 0.20 -- --
Canceled -- -- (10,034) 0.60-5.00 -- -- -- --
Exercised -- -- -- -- -- -- -- --
Expired -- -- (1,007) 0.60-5.00 (9) 0.71-6.88 (574) 0.60-2.80

Balance, July 31, 1996 -- 17,269 0.30-0.60 20 0.20-6.88 1,495 0.60-2.80
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 20 $0.20-6.88 1,495 $0.60-2.80

The Company recorded $0, $0, and $200,000 as compensation expense during 1997,
1996 and 1995 , respectively, for the difference between the quoted market price
and the exercise price of options at dates of grant amortized over the service
period related to such options.

- --------------------------------------------------------------------------------
Page F-21

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------

NOTE 12 - STOCK OPTIONS AND WARRANTS (Continued)

The Company applies APB Opinion No. 25 and related interpretations in accounting
for its various stock option plans. FASB No. 123 "Accounting for Stock-Based
Compensation" (SFAS 123) was issued by the FASB in 1995 and, if fully adopted,
changes the method for recognition of cost on plans similar to those of the
Company. Adoption of SFAS 123 is optional; however, had compensation costs for
the Company's other 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 123, the Company's net loss would have been increased by
approximately $549,900 and $307,000 for the years ended July 31, 1997 and 1996,
respectively. The fair value of each option granted during 1997 and 1996 is
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% and 6.59%, respectively, and (4) an
expected life of the options of 5 years. Options issued during 1997 and 1996
have an estimated weighted average fair value of $0.12 and $0.13, respectively.

In 1995, 2,400,000 warrants were issued in conjunction with private placements
of debentures, common stock and bonds. In 1994, 267,000 warrants exercisable at
$3.00 and, in 1995, 20,000 warrants exercisable at $2.00, were issued in
connection with pledges of collateral made by certain stockholders for bank
lines of credit. In September 1994, the Company issued warrants to purchase
2,400,000 common shares representing fees for the issuance of Series S
convertible secured bonds. The exercise price of these warrants is $3.20 per
share.

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 July 31, 1997,
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 conjunction with the acquisition of Systronix, the Company issued 2,000,000
cashless warrants as a finders fee. The terms of these warrants are the same as
above, and expire in October 1997.

- --------------------------------------------------------------------------------
Page F-22

U. S. ELECTRICAR, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------

NOTE 12 - STOCK OPTIONS AND WARRANTS (Continued)

The following table summarizes warrant activity (in thousands):

Bank Series S
Lines of Bond
Credit Placement Other
------ --------- -----
Balance, August 1, 1994 133 -- 100
Granted 20 2,400 100
Expired -- -- (25)
------- ------- -------

Balance, July 31, 1995 153 2,400 175
Granted -- -- 13,333
Expired -- -- (175)
Exercised (153) -- --
Canceled -- (220) --
------- ------- -------

Balance, July 31, 1996 -- 2,180 13,333
Granted 2,000
Expired -- (2,180)
------- ------- -------

Balance, July 31, 1997 -- -- 15,333
======= ======= =======

NOTE 13 - CONTINGENCIES

The Company has not yet reviewed its software and hardware components to ensure
its computers and other associated systems are year 2000 compliant. Cost of
compliance, if any, can not be estimated at this time.

In connection with the Company's default on its debt obligations to unsecured
creditors, 19 of these creditors have brought independent lawsuits to various
courts in California, Connecticut, North Carolina and New York in the aggregate
amount of approximately $650,000. As of October 23, 1996, nine of the unsecured
creditors have obtained judgments against the Company in the aggregate amount of
approximately $450,000. The remaining suits are pending. In addition, four
former officers of the Company have threatened actions against the Company for
damages as a result of its failure to pay severance pay under certain employment
contracts in the aggregate amount of $377,000.

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-23

EXHIBIT INDEX

Exhibit No. Description
================================================================================

3.1(1) Certificate of Amendment of Articles of Incorporation, filed 1/12/94,
changing name to U.S. Electricar, Inc.

3.2(1) Certificate of Correction to Amended and Restated Articles of
Incorporation, filed 8/23/93, correcting number of shares of Series A
Preferred stock to 30,000,000.

3.3(1) Amended and Restated Articles of Incorporation, filed 7/26/93, changing
number of authorized Common Stock shares to 60,000,000 and Preferred
Stock shares to 35,000,000, authorizing 3,000,000 Series A Convertible
Preferred Stock shares and establishing rights, preferences, privileges
and restrictions of Series A Preferred stock.

3.4(1) Amended and Restated Articles of Incorporation, filed 12/29/89,
changing number of authorized Common Stock shares to 20,000,000 and
authorizing 10,000,000 shares of Preferred Stock.

3.5(1) Certificate of Amendment of Articles of Incorporation, filed 3/3/83,
authorizing reverse stock split.

3.6(1) Certificate of Amendment of Articles of Incorporation, filed 10/21/81,
increasing authorized Common Stock shares to 80,000,000.

3.7(1) Certificate of Amendment of Articles of Incorporation, filed 8/24/79,
increasing authorized Common Stock shares to 40,000,000.

3.8(1) Certificate of Amendment of Articles of Incorporation, filed 6/27/79,
changing name to Solar Electric Engineering, Inc.

3.9(1) Certificate of Amendment of Articles of Incorporation of Clover Solar
Corporation, Inc., dated 5/9/79, filed 5/17/79, changing name to Solar
Electric Eng., Inc., and increasing authorized Common Stock shares to
20,000,000 and authorizing a 1/10 Common Stock split.

3.10(1) Certificate of Amendment of Articles of Incorporation of Clover Solar
Corporation, Inc., dated 2/21/77, filed 3/15/77, increasing authorized
Common Stock shares to 2,000,000, and authorizing a 1/10 Common Stock
split.

3.11(1) Articles of Incorporation of Clover Solar Corporation, Inc.

3.12(1) Bylaws of Registrant.

3.13(4) Certificate of Amendment of Restated and Amended Articles of
Incorporation of U.S. Electricar, Inc., filed February 1, 1995, whereby
the number of shares of common stock authorized to issue was changed
from 60,000,000 shares to 100,000,000 shares.

E-1

EXHIBIT INDEX

Exhibit No. Description
================================================================================

3.14(4) Certificate of Correction of Certificate of Amendment of Restated
and Amended Articles of Incorporation of U.S. Electricar, Inc.,
filed February 10, 1995, whereby the total number of shares of
Preferred Stock designated as Series A convertible Preferred
Stock was corrected to 30,000,000.

3.15(8) Restated and Amended Articles of Incorporation of U.S. Electricar
filed March 18, 1996.

4.1(1) Specimen Common Stock Certificate.

4.2(1) Specimen Series A Preferred Stock Certificate.

4.3(1) Articles of Incorporation Provision Defining Rights of Series A
Preferred Stock.

4.4(4) Form of Solar Electric Engineering, Inc. Subscription Agreement
(regarding April 1993 Private Placement Offering).

4.5(1) Form of Solar Electric Engineering, Inc. Common Stock and
Warrants to Purchase Common Stock Subscription Agreement
(regarding September 1993 Private Placement Offering).

4.6(1) Form of Solar Electric Engineering, Inc. Registration Rights
Agreement (regarding September 1993 Private Placement Offering).

4.7(1) Form of U.S. Electricar, Inc. Subscription Purchase Agreement
(regarding January 1994 Reg S Private Placement Offering).

4.8(1) Form of U.S. Electricar, Inc. S-1 Registration Rights Agreement
(regarding January 1994 Reg S Private Placement Offering).

4.9(1) Form of U.S. Electricar, Inc. Amended S-1 Registration Rights
Agreement (regarding January 1994, Reg S Private Placement
Offering).

4.10(1) Amendment to U.S. Electricar, Inc. Amended S-1 Registration
Rights Agreement, dated November 23, 1994 (regarding January 1994
Reg S Private Placement Offering).

4.11(1) Letter dated August 8, 1994 from U.S. Electricar, Inc., regarding
registration rights for shares of Common Stock held by Mark
Neuhaus.

4.12(1) Shareholders' Agreement: ITOCHU Corporation, dated June 9, 1994.

4.13(1) Form of U.S. Electricar, Inc. Subscription and Loan Agreement
(regarding September 1994 Reg S Private Placement Offering).

4.14(1) Form of U.S. Electricar, Inc. Secured Convertible Bond to
Purchase Common Stock (regarding September 1994 Reg S Private
Placement Offering).

E-2

EXHIBIT INDEX

Exhibit No. Description
================================================================================

4.15(1) Form of U.S. Electricar, Inc. Security Agreement (regarding
September 1994 Reg S Private Placement Offering).

4.16(1) Form of U.S. Electricar, Inc. Warrant to Purchase Common Stock
(regarding September 1994 Reg S Private Placement Offering).

4.17(10) Cashless Exercise Warrants dated October 25, 1996 issued to
Fontal International, Ltd.

10.1(1) Amendment of Solicitation/Modification of Contract (dated
December 15, 1992, between Nordskog Electric Vehicles and the
General Services Administration).

10.2(1) Common Stock Purchase Agreement (dated July 30, 1993, among Solar
Electric Engineering, Inc., Vehicles Holding Company, Inc.,
Nordskog Electric Vehicles and Elinor Nordskog).

10.3(1) Convertible note issued in connection with the purchase of
Nordskog Electric Vehicles.

10.4(1) Amendment to Common Stock Purchase Agreement (dated July 30,
1993, among U.S. Electricar, Inc. (formerly Solar Electric
Engineering, Inc.), Industrial Electric Vehicles, Inc. (formerly
Nordskog Electric Vehicles), Vehicles Holding Company, Inc., and
Elinor Nordskog).

10.5(1) Asset Purchase Agreement (dated October 31, 1993, among Solar
Electric Engineering, Inc., U.S. Electricar Consulier, Inc.,
Mosler Auto Care Center, Inc., Consulier Engineering, Inc., and
Warren B. Mosler).

10.6(3) International Distribution Agreement (dated September 10, 1993,
among Solar Electric Asia Limited, Solar Electric Engineering,
Inc. and Electric Motor Car Company, Limited).

10.7(3) Amendment to International Distribution Agreement (dated February
15, 1994).

10.8(1) Stock Purchase Agreement (dated December 31, 1993, among Bruce E.
Engelmann and Robert G. Whirley and Solar Electric Engineering,
Inc.).

10.9(1) Stock Purchase Agreement (dated February 17, 1994, among U.S.
Electricar, Inc., Energy Resources Limited, EV Resources, Ltd.,
Windlass Holdings, Ltd. and Electric Motor Car Company, Limited).

10.10(1) Form of U.S. Electricar, Inc. Promissory Note (dated February 17,
1994).

10.11(1) Warrant to Purchase Common Stock (dated February 17, 1994,
granted to Energy Resources Limited).

E-3

EXHIBIT INDEX

Exhibit No. Description
================================================================================

10.12(1) Agreement for the Electric & Hybrid Electric Vehicle Technology &
Infrastructure Program (EVTI) dated as of 11/24/93 between
Calstart, Inc. and Solar Electric Engineering, Inc.

10.13(1) Codding Bank Revolving Line of Credit Promissory Note.

10.14(1) Letter Confirming Transfer of Solar Home to Earth Options
Institute by Solar Electric Engineering, Inc. (dated December 9,
1992).

10.15(1)* Form of Stock Option Agreement under 1993 Employee and Consultant
Stock Plan.

10.16(1)* Form of Solar Electric Engineering, Inc. 1993 Employee and
Consultant Stock Plan.

10.17(1)* Form of U.S. Electricar, Inc. 1994 Director Stock Option Plan.

10.18(1) Form of Solar Electric Engineering, Inc. Warrant Issued in
Connection with 1992 Private Placement Offering.

10.19(1) Compensation Deferral and Debt Conversion Agreement (Ted D.
Morgan).

10.20(1) Secured, Partially Nonrecourse Promissory Note (Ted D. Morgan).

10.21(1) Pledge Agreement (Ted D. Morgan).

10.22(1) Compensation Deferral and Debt Conversion Agreement(John
Billington).

10.23(1) Secured, Partially Nonrecourse Promissory Note (John Billington).

10.24(1) Pledge Agreement (John Billington).

10.25(1) Compensation Deferral and Debt Conversion Agreement (Harold
Robinson).

10.26(1) Secured, Nonrecourse Promissory Note (Harold Robinson).

10.27(1) Pledge Agreement (Harold Robinson).

10.28(1) Compensation Deferral and Debt Conversion Agreement (Michael
Chobotov).

10.29(1) Secured, Partially Nonrecourse Promissory Note (Michael
Chobotov).

10.30(1) Pledge Agreement (Michael Chobotov).

10.31(1) Compensation Deferral and Debt Conversion Agreement (David
Brandmeyer).

E-4

EXHIBIT INDEX

Exhibit No. Description
================================================================================

10.32(1) Secured, Partially Nonrecourse Promissory Note (David
Brandmeyer).

10.33(1) Pledge Agreement (David Brandmeyer).

10.34(1) Secured, Partially Nonrecourse Promissory Note (James Miller).

10.35(1) Pledge Agreement (James Miller).

10.36(1) Employment Agreement: John J. Micek III (dated January 31, 1994).

10.37(1) Employment Agreement: David Brandmeyer (dated November 1, 1992).

10.38(1) Employment Agreement: Ted D. Morgan (dated November 1, 1992).

10.39(1) Employment Agreement: John A. Billington (dated November 1,
1992).

10.40(1) Employment Agreement: Thomas A. Hakel (dated January 10, 1994).

10.41(1) Employment Agreement: Carl D. Perry (dated July 5, 1993).

10.42(1) Employment Agreement: Michael V. Chobotov (dated July 1, 1993).

10.43(1) Employment Agreement: Robert Garzee (dated July 1, 1993).

10.44(1) Employment Agreement: James B. Boyd (dated April 25, 1994).

10.45(1) Employment Agreement: Chris Crispel (dated July 11, 1994).

10.46(1) Letter Consulting Agreement: Harold H. Robinson.

10.47(1) Nordskog Electric Vehicles New Vehicles One-Year Limited
Warranty.

10.48(3) Purchase Order (from U.S. Electricar, Inc. to GM Hughes
Electronics Co. dated December 16, 1993).

10.49(3) Purchase Order (from U.S. Electricar, Inc. to Hawker Energy
Products dated March 11, 1994).

10.50(1) Commercial Lease (dated November 7, 1992, between Daniel and
Robbin Davis and Solar Electric Engineering, Inc.).

10.51(1) Sublease (dated March 16, 1994, between Custodis-Ecodyne, Inc.
and U.S. Electricar, Inc.).

10.52(1) Sublease (dated March 16, 1994, between Custodis-Ecodyne, Inc.
and U.S. Electricar, Inc.).

10.53(1) Standard Industrial Lease - Net (dated March 11, 1994 between U.S
Electricar, Inc. and Dixie J. Walker and R. Ruth Waltenspeil).

E-5

EXHIBIT INDEX

Exhibit No. Description
================================================================================

10.54(1) Standard Industrial Lease - Multi-Tenant (dated January 20, 1993,
between Solar Electric Engineering, Inc. and Roberts Business
Park - Sunrise).

10.55(1) Standard Industrial Lease - Multi-Tenant (dated May 11, 1994,
between U.S. Electricar, Inc. and Roberts Business Park -
Sunrise).

10.56(1) Lease (dated March 4, 1994, between Warren B. Mosler and U.S.
Electricar Consulier, Inc.).

10.57(1) Standard Industrial/Commercial Single-Tenant Lease - Net (dated
July, 1993, between Elinor T. Nordskog, Elinor T. Nordskog as
Executor of the estate of Robert A. Nordskog, Gerald C. Nordskog,
Carla M. Wales, and Solar Electric Engineering, Inc.).

10.58(3) Joint Venture Agreement (dated as of July 16, 1993 between Solar
Electric Engineering, Inc. and Energy Resources Limited).

10.59(1) Assignment of Deposit Account (Grantor: Jean Schulz, dated
January 28, 1994).

10.60(1) Assignment of Deposit Account (Grantor: Ronald A. Nelson, dated
January 28, 1994).

10.61(1) Assignment of Deposit Account (Grantor: James S. Miller, dated
January 28, 1994).

10.62(1) Assignment of Deposit Account (Grantor: Harold H. Robinson, III,
dated January 28, 1994).

10.63(1) Form of Indemnification Agreement.

10.64(1) Negotiated Agreement For Services: High Technology Development
Corporation, an Agency of the Department of Business, Economic
Development and Tourism, State of Hawaii, dated March 1, 1994.

10.65(1) Loan Agreement: ITOCHU Corporation, dated June 9, 1994.

10.66(1) Convertible Subordinated Promissory Note: ITOCHU Corporation,
dated June 10, 1994.

10.67(1) Common Stock Purchase Agreement: ITOCHU Corporation, dated June
9, 1994.

10.68(1) Strategic Alliance Agreement: ITOCHU Corporation, dated June 9,
1994.

10.69(1) Form of Settlement Agreement between U.S. Electricar, Inc. and
Mark Neuhaus.

E-6

EXHIBIT INDEX

Exhibit No. Description
================================================================================

10.70(1) Agency Agreement between U.S. Electricar, Inc. and Yorkton
Securities, Inc. (dated September 23, 1994).

10.71(1) Business Venture Agreement between U.S. Electricar, Inc. and
Grupo Industrial Casa, S.A. de C.V. (dated August 11, 1994).

10.72(2) First Amendment to Business Venture Agreement between U.S.
Electricar, Inc. and Grupo Industrial Casa, S.A. de C.V. (dated
December 20, 1994).

10.73(3) License/Collaboration Agreement dated as of July 22, 1994 between
U.S. Electricar, Inc. and The Regents of the University of
California, LLNL.

10.74(4) Second Amendment to Business Venture Agreement, dated February 1,
1995, by and between U.S. Electricar, Inc. and Grupo Industrial
Casa, S.A. de C.V.

10.75(5) Letter dated May 23, 1995 to U.S. Electricar, Inc. from Grupo
Industrial Casa, S.A. de C.V.

10.76(5) Form of Security Agreement dated effective March 30, 1995, by and
among U.S. Electricar, Inc. and the Series I Bond Holders.

10.77(5) Form of Secured Convertible Loan Purchase Agreement, dated
effective March 20, 1995, by and between U.S. Electricar, Inc.
and Investors in Secured Convertible 10% Series I Bonds of the
Company.

10.78(5) Form of Secured Convertible 10% Series I Bond to Purchase Common
Stock, dated as of April 21, 1995.

10.79(5) Memorandum dated May 18, 1995 to Itochu Corporation, Citibank
(Switzerland), and Gerlach & Co. re: Amendment to Conversion
Terms of Outstanding Debt.

10.80(5) Supplemental Loan Agreement, entered into as of April 13, 1995,
by and between U.S. Electricar, Inc. and Itochu Corporation.

10.81(5) First Amendment to Loan Agreement entered into as of April 13,
1995, by and between U.S. Electricar, Inc. and Itochu
Corporation.

10.82(5) Security Agreement dated April 13, 1995, by and between U.S.
Electricar, Inc. and Itochu Corporation.

10.83(5) Convertible Secured Promissory Note dated April 17, 1995, in the
amount of $500,000 by U.S. Electricar, Inc. to Itochu
Corporation.

10.84(5) Amendment to Security Agreement made as of May 31, 1995, by and
between Itochu Corporation and U.S. Electricar, Inc.

E-7

EXHIBIT INDEX

Exhibit No. Description
================================================================================

10.85(5) Form of Security Agreement made as of May 31, 1995, between the
Company and Credit Managers Association of California, Trustee.

10.86(5) Form of Common Stock Purchase and Debt Exchange Agreement dated
March 20, 1995, between the Company and Citibank (Switzerland)
and Citibank (Luxembourg).

10.87(6) Standard Industrial/Commercial Multi-Tenant Lease - Gross (dated
September 29, 1995, between U.S. Electricar, Inc. and Salvatore
and Irene Bisagno).

10.88(6) Lease Agreement (dated as of November 1, 1995, between U.S.
Electricar, Inc. and OB-1 Associates).

10.89(6) Form of Secured Convertible Loan Purchase Agreement dated
effective as of August 7, 1995 (including (i) form of Secured
Convertible 10% Series I Bond to Purchase Common Stock, and (ii)
form of Security Agreement), by and between U.S. Electricar, Inc.
and Investors in Secured Convertible 10% Series I Bonds.

10.90(7) Common Stock Purchase Agreement pursuant to Regulation S between
the Company and Gerlach & Co., dated January 8, 1996.

10.91(7) Form of Confidential Private Placement Memorandum and Debt
Restructuring Disclosure Statement of U.S. Electricar, Inc.,
dated January 2, 1996, delivered by the Company to its certain
unsecured trade creditors (including exhibits).

10.92(7) Form of Stock Purchase, Note and Debt Exchange Agreement dated
January 2, 1996 between the Company and certain unsecured trade
creditors.

10.93(8) Regulation S Common Stock Subscription Agreement dated May 1,
1996, with Gerlach & Co.

10.94(10) Agreement between Hyundai Motor Company and U.S. Electricar,
Inc., Systronix Corporation, dated April 12, 1996

10.95(10) Agreement for Purchase and Sale of Assets, effective October 25,
1996, by and between U.S. Electricar, Inc. and Systronix
Corporation, and exhibits.

10.96(10) U.S. Electricar 1996 Employee and Consultant Stock Option Plan.

10.97(9) Agreement for the Purchase and Sale of Assets, effective
September 5, 1996, by and between Industrial Electric Vehicles,
Inc., U.S. Electricar, Inc., and Legend Electric Vehicles, Inc.

10.98(11) 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.

E-8

EXHIBIT INDEX

Exhibit No. Description
================================================================================

10.99(12) Loan Agreement for $400,000 convertible promissory note with
Fontal International, Ltd., dated April 30, 1997.

21(1) Subsidiaries of the Registrant.

24 Power of Attorney (included on signature page)

27 Financial Data Schedule.

* Indicates management contract or compensatory plan or
arrangement.
(1) Incorporated by reference to identically numbered exhibits filed
with the Registration Statement on Form 10 filed on November 29,
1994.
(2) Incorporated by reference to identically numbered exhibits filed
with the Amendment No. 1 to Form 10 filed on January 27, 1995.
(3) Incorporated by reference to identically numbered exhibits filed
with the Amendment No. 2 to Form 10 filed on February 28, 1995.
(4) Incorporated by reference to identically numbered exhibits filed
with the Form 10-Q filed on March 17, 1995.
(5) Incorporated by reference to identically numbered exhibits filed
with the Form 10-Q filed on June 14, 1995.
(6) Incorporated by reference to identically numbered exhibits filed
with the Form 10-K for the year ended July 31, 1995, filed on
October 30, 1995.
(7) Incorporated by reference to identically numbered exhibits filed
with the Form 10-Q on March 18, 1996.
(8) Incorporated by reference to the identically numbered exhibit
filed with the Form 10-Q filed on June 14, 1996.
(9) Incorporated by reference to Exhibit 10.87 filed with the Form
8-K filed on September 20, 1996.
(10) Incorporated by reference to the identically numbered exhibit
filed with the Form 10-K filed on November 12, 1996.
(11) Incorporated by reference to the identically numbered exhibit
filed with the Form 10-Q filed on March 14, 1997.

(12) Incorporated by reference to the identically numbered exhibit
filed with the Form 10-Q filed on June 13, 1997.

E-9