-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MyYksc/gxtwaaQxZ16G/StoQrnOF4Z3ANpZMX5nWzAZlXH06RO+TuWfjuXy/O6m6 G5pbf+ho81axBqsnpDtpXw== 0000950005-00-000501.txt : 20000331 0000950005-00-000501.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950005-00-000501 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US ELECTRICAR INC CENTRAL INDEX KEY: 0000922237 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 953056150 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25184 FILM NUMBER: 589135 BUSINESS ADDRESS: STREET 1: 19850 SOUTH MAGELLAN DR STREET 2: SUITE 305 CITY: TORRANCE STATE: CA ZIP: 90502 BUSINESS PHONE: 3105272800 MAIL ADDRESS: STREET 1: 19850 SOUTH MAGELLAN DR STREET 2: SUITE 305 CITY: TORRANCE STATE: CA ZIP: 90502 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K For Annual and Transition Reports Pursuant to Sections 13 or 15(d) of the Securities and Exchange Act of 1934 [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from August 1, 1999 to December 31, 1999 Commission File No. 0-25184 U. S. ELECTRICAR, INC. (Exact name of registrant as specified in its charter) California 95-3056150 ---------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 19850 South Magellan Drive, Torrance, California 90502 (Address of principal executive offices, including zip code) (310) 527-2800 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No__ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of March 27, 2000 was $13,515,672. For purposes of this calculation only, (i) shares of Common Stock and Series A Preferred Stock are deemed to have a market value of $0.41 per share, and the Series B Preferred Stock is deemed to have a market value of $1.37 per share, based on the average of the high bid and low ask prices of the Common Stock on March 27, 2000, and (ii) each of the executive officers, directors and persons holding 5% or more of the outstanding Common Stock (including Series A and B Preferred Stock on an as-converted basis) is deemed to be an affiliate. The number of shares of Common Stock outstanding as of March 27, 2000 was 257,575,000. 1 U.S. ELECTRICAR, INC. 1999 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I
Item 1. Business...................................................................................3 Item 2. Properties.................................................................................8 Item 3. Legal Proceedings..........................................................................8 Item 4. Submission of Matters to a Vote of Security Holder.........................................8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matter.......................9 Item 6. Selected Financial Data...................................................................10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.....11 Item 7a. Quantitative and Qualitative Disclosures about Market Risk................................15 Item 8. Financial Statements and Supplementary Data...............................................15 Item 9. Changes in Disagreements with Accountants on Accounting and Financial Disclosure..........15 PART III Item 10. Directors and Executive Officers of the Registrant.......................................16 Item 11. Executive Compensation...................................................................18 Item 12. Security Ownership of Certain Beneficial Owners and Management...........................20 Item 13. Certain Relationships and Related Transactions...........................................22 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.........................23 SIGNATURE..........................................................................................26
2 PART I The matters addressed in this report on Form 10-K , with the exception of the historical information presented, may contain certain forward-looking statements involving risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading "Certain Factors That May Affect Future Results" in the Management's Discussion and Analysis section and elsewhere in this report. Item 1. Business General U. S. Electricar, Inc., a California Corporation (the "Company"), was incorporated on July 30, 1976, under its original name, "Clover Solar Corporation, Inc." The name of the Company was changed in June 1979, to "Solar Electric Engineering, Inc.", and was subsequently changed to "U.S. Electricar, Inc." in January 1994. In November, 1999, the Company began doing business as Enova Systems. The Company develops, designs and manufactures electric, hybrid-electric and fuel cell powered drive systems and related components, such as energy management systems and chargers, performs vehicle system integration and performs various engineering contracts to penetrate global markets. On January 19, 2000, the Company changed it fiscal year end from July 31 to December 31. All year references refer to calendar years unless otherwise noted. In 1998, the Company restructured its top management, realigned its product base and concentrated on the reduction of overall company operating costs. Facilities were closed, operations streamlined and personnel reduced. Headcount decreased from 51 employees at July 31, 1997 to 26 employees at July 31, 1998, yet the Company has maintained its core engineering capabilities. The Company has since begun to hire additional personnel as is warranted by new contracts and orders. At December 31, 1999, the Company had increased its headcount to 33 employees and three independent contractors. During 1999, the Company continued to concentrate on the reduction of operating costs and outstanding debt. The Company's business activities are focused on the development of electric and hybrid electric drive-trains and related components, fuel cell systems, vehicle systems integration and the performance of various engineering contracts. The Company has several key contracts with the U. S. Government's Defense Advanced Research Project Agency or DARPA and the Department of Transportation or DOT, including the analysis of a new plastic lithium ion vehicle battery concept, testing of advanced vehicle batteries and development of an airport electric passenger tram system. The Company has enhanced its relationship with Hyundai Motor Company, or HMC of Korea, the world's seventh largest automobile manufacturer, with several engineering contracts to design, develop and test electric and hybrid electric drive systems and related products. Hyundai Motor Company has contracted with the Company for the development of an advanced charging unit and a parallel hybrid production vehicle, as well as continuing to produce the family of Panthertm drive system for their electric vehicles. The Company is extending the PantherTM drive system to hybrid vehicle applications in projects sponsored by Hyundai. These hybrid systems will be applied to light, medium and heavy duty transportation vehicles. The Company offers other components such as air conditioning, heat pump units, electro-hydraulic power steering units and battery management units to OEMs, both domestic and international. The Company has also developed a high power charger for use with its drive systems. HMC has adapted a customized version of the PantherTM 60 for their production electric vehicle. The Company is offering the modular drive systems to Original Equipment Manufacturers or OEMs and other customers. These drive systems have been installed in various vehicles. The Company has entered into a contract with a domestic supplier for low voltage electric drive system components for use by a major North American automotive manufacturer. The Company has completed the sale of a license to certain proprietary PantherTM Drive System software and hardware, for the Republic of Korea, to Hyundai Heavy Industries or HHI for further design and development of electric drive systems. The Company anticipates deriving further development contracts from this new 3 relationship with HHI. Furthermore, the Company has entered into an agreement with Hyundai Electric Industries or HEI to manufacture the Company's drive systems for international sales. The Company is pursuing various avenues of revenue generation to increase its cash flow. These include further developing its relationship with the Hyundai Group of Korea, joint venturing with global vehicle and bus manufacturers to utilize its electric drive train system, and developing a comprehensive marketing plan to penetrate various alternate niche markets for its drive system and its components. The Company is also looking at non-automotive applications for its products. The Company received a capital investment from Jagen, Pty, Ltd. in the amount of $2,500,000 on June 4, 1999 and from Anthony Rawlinson in the amount of $500,000 on July 30, 1999, which have enabled the Company to further develop its hybrid drive systems as well as embark on other in-house funded research and development. Debt Restructuring The Company's debt restructuring plan has progressed during 1999. Overall, the Company has reduced outstanding indebtedness and liabilities by approximately $7,000,000 in the last year. With the addition of capital as discussed above, the Company retired the $307,000, three-year debt due to the Credit Managers Association of California or CMAC. The CMAC's $3.3 million, 20-year promissory note becomes due and payable in 2016. In March 1999, the Company's Chief Executive Office and President purchased all of the Company's outstanding debt due to Itochu Corporation, which was $4,300,000 plus accrued interest. As of December 31, 1999, this individual has forgiven $3,000,000 in principal and $1,510,506 in accrued interest. This effectively reduced the Company's total outstanding obligation including interest to $1,300,000 from $5,810,506. In December of 1999, the Company converted the Fontal International, Ltd. (or Fontal) debt of $1,000,000 in principal and $247,000 in accrued interest into 4,246,000 shares of common stock at $0.30 per share. The Company has also been reducing its outstanding past due accounts payable. The Company intends to continue to pursue a strategy of negotiating settlements on these outstanding payables where prudent. Environmental Initiatives and Legislation Federal legislation was enacted to promote the use of alternative fuel vehicles, including electric vehicles. Several states have also adopted legislation that sets deadlines for the introduction of zero emission vehicles ("ZEV"). The State of California delayed the mandated introduction of ZEVs from 1998 to 2003 and established a required percentage of ZEV and new hybrid-electric vehicles for 2003 at 10% of total new vehicle sales in California from the six major automobile manufacturers. The State of California estimates that a combination of approximately 100,000 electric and hybrid electric vehicles will be required to meet the State's 2003 mandate. The U.S. Department of Energy also modified their rules governing how state fleets and utility fleets must comply with the Energy Policy Act of 1992 on alternative fuel transportation programs. Products The Company enhanced and expanded its product line during 1999. The Company is concentrating its product base to focus primarily on electric and hybrid-electric propulsion systems and components for electric and hybrid drive systems and fuel cell technologies. The Company produces a family of electric propulsion systems consisting of a 60kW drive system for light vehicles, a 90kW drive system for medium size vehicles and a 120kW drive system for larger trucks and buses. Additionally, the Company has completed the development and prototyping of both a Series and Parallel Hybrid drive system in conjunction with HMC. The Company has begun to develop, under contract with HMC, a production parallel hybrid drive system. The Company has developed various components for integration into the drive systems or as stand-alone systems such as the Battery Care Unit, the Safety Disconnect Unit and the Electric Power Steering unit. The Company is moving to expand its product base into new markets outside of the traditional electric and hybrid-electric automotive fields. Key areas under investigation are energy management in the 4 telecommunications industry, distributed generation in the utility industry, and stand-by/backup power generation in the commercial electronics industry. All three of these markets can be served with our existing energy management and power control products. Strategic Partnering And Technology Developments The Company has positioned itself to be a supplier of electric propulsion systems and components for global markets. Originally focusing on pure electric drive systems, the Company has pursued the development of its electric drive systems for hybrid and fuel cell applications. The Company's drive system technology can be adapted to battery, electric-hybrid or fuel cell energy sources. The Company has established third-party licensing and/or distribution arrangements and aligned itself with various technology development companies and electric vehicle component manufacturers to complement its own expertise in the electric vehicle market. For instance, the Hyundai Group of Korea and the Company are partnering in the development of advanced drive-train technology and related systems. The Company has continued its efforts to implement a strategy to be a "systems integrator" by seeking to establish relationships to utilize other independently developed technology. The Company believes that its competitive advantage may be its ability to identify, attract and integrate the latest technology available to produce state of the art products at competitive prices. The Company believes this strategy will reduce capital and research and development costs to the extent other companies or organizations will fund these expenses. Electric Drive System The electric drive system consists of an electric motor and electronic controls that regulate the flow of electricity to and from the batteries (at various voltages and amperages) to propel the vehicle. Auxiliary vehicle functions (e.g., radio, lights, windshield wipers, etc.) are also powered by stored electrical energy similar to that of an internal combustion drive system. The Hyundai Group of Korea has invested in the Company and licensed the drive system technology for production in Korea. The Company has validated its propulsion system product, the Panther(TM) 60 alternating current (AC) drive train for light duty vehicles. The Company has continued to develop a family of electric drive systems with the PantherTM 90 and Panther(TM) 120 systems for buses and heavy-duty vehicles, and the 40kW off-board charging system, the second generation in a family of rapid chargers for all sizes of electric vehicles. Hybrid Vehicles The Company completed its development for HMC of a Series Hybrid System and Parallel Hybrid System for vehicles introduced by HMC at the 1999 Seoul Auto Show. The Company is extending the Panther drive system to the hybrid vehicle application by adapting the PantherTM 120 as the drive system and the PantherTM 60 as the induction generator for a series hybrid bus project sponsored by HMC. The Company has also developed a parallel hybrid drive system and a dual-mode hybrid drive system utilizing the Panther controller and the brushless DC motor. Battery Management and Charging System A significant part of the Company's technology is in the area of battery management, charging systems and components applications. Pursuant to a DARPA program, the Company has completed a "beta test" of new battery technologies from various battery manufacturers. These new battery systems are intended to allow design advantages in battery placement, weight 5 distribution, and vehicle crashworthiness. Additionally, the Company is monitoring other battery innovations that may extend an electric vehicle driving range by up to 50% and permit a shorter recharging time. The Company is developing and testing Plastic Lithium Ion ("PLI") batteries in collaboration with a major battery OEM. The Company has also developed a 40 kW high power charger for HMC. The high power charger is based on our modular Panther system technology, and the Company believes that it could also be used for battery conditioning. Components The Company is offering the modular drive system and components to OEMs and other customers. The PantherTM 60, PantherTM 90 and PantherTM 120 drive systems have been installed in various vehicles and are under evaluation by customers and potential customers. HMC has adapted a customized version of the PantherTM 60 for their production electric vehicle. The Company also offers an air conditioning/heat pump, an electro-hydraulic power steering unit and a safety disconnect unit for utilization by OEMs. The Company is also offering BatteryCareTM, a battery management system, to OEMs. This battery management system is utilized in the U.S. Postal Service electric vehicle, and it is capable of providing communication to both inductive and conductive chargers simultaneously and managing the on-board and off-board charging systems with multiple technologies. This battery care unit is also being utilized to upgrade the electric vehicles in the DARPA battery testing program in Hawaii. It makes these vehicles compatible with the high power charging stations utilizing the Society of Automotive Engineering standards. Competitive Conditions The competition to develop and market electric vehicles has increased during the last year and the Company expects this trend to continue. The competition consists of development stage companies as well as major U.S. and international companies. The Company's future prospects will be highly dependent upon the successful development and introduction of new products that are responsive to market needs and can be manufactured and sold at a profit. There can be no assurance that the Company will be able to successfully develop or market any such products. The development of hybrid-electric and alternative fuel vehicles, such as compressed natural gas, fuel cells and hybrid cars poses a competitive threat to the Company in markets for low emission vehicles or LEVs but not in markets where government mandates call for zero emission vehicles or ZEVs. The Company is involved in the development of hybrid vehicles and fuel cell systems in order to meet future requirements and applications. Various providers of electric vehicles have proposed products or offer products for sale in this emerging market. These products encompass a wide variety of technologies aimed at both consumer and commercial markets. The critical role of technology in this market is demonstrated through several product offerings. Applied technologies range from direct current (DC) motor drives to alternate current (AC) induction motor drives, from conversion vehicles to purpose-built (OEM) vehicles, from lead-acid batteries to more advanced power storage technologies and from traditional materials to more advanced "composite" materials. As the industry matures, key technologies and capabilities are expected to play critical competitive roles. The Company's goal is to position itself as a long term competitor in this industry by focusing on vehicle electric drive systems and related sub systems, component integration, technology application and strategic partnerships. The Company believes that this strategy will enhance the Company's position as an electric drive train system supplier because, whether the OEMs build electric, hybrid-electric or a fuel cell powered vehicles, its electric drive system will be a component. Research and Development The Company believes that timely development and introduction of new technology and products is essential to maintaining a competitive advantage. The Company is currently focusing its development efforts primarily in the following areas: *Technical and product development under DARPA/DOT and Hyundai Group Contracts; 6 *Power Control and Drive Systems and related technologies; *Shuttle and Transit Bus integration and development; and *Subsystem development (i.e., climate control, power management). For the five months ended December 31, 1999, the Company spent $262,000 and $73,000 respectively on internal research and development activities. For the fiscal years ended July 31, 1999, 1998 and 1997, the Company spent $499,000, $445,000 and $1,218,000, respectively, on internal research and development activities. The Company is continually evaluating and updating the technology and equipment used in developing each of its products. The electric vehicle industry, while still in its infancy, has rapidly changing technology. Intellectual Property The Company currently holds one patent and has submitted applications for another patent and several trademarks or service marks in the United States. Currently, the Company is reviewing and appending its protection of proprietary technology. The status of patents involves complex legal and factual questions, and the breadth of claims allowed is uncertain. Accordingly, there can be no assurance that patent applications filed by the Company will result in patents being issued. Moreover, there can be no assurance that third parties will not assert claims against the Company with respect to existing and future products. Although the Company intends to protect its rights vigorously, there can be no assurance that these measures will be successful. In the event of litigation to determine the validity of any third party claims such litigation could result in significant expense to the Company. Additionally, the laws of certain countries in which the Company's products are or may be developed, manufactured or sold may not protect the Company's products and intellectual property rights to the same extent as the laws of the United States. Employees As of December 31, 1999, the Company had 33 employees, of whom 23 are full-time and 10 are part-time. Three individuals are independent contractors, employed on an hourly basis, one domiciled in South Korea. The departmental breakdown of these individuals include 2 in administration, 1 in sales, 22 in engineering and research and development, and 8 in production. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) 7 Item 2. Properties The Company's corporate offices are located in Torrance, California, in leased office space of approximately 20,000 square feet. This facility houses the Company's various departments, including engineering, operations, executive, legal, finance, planning, purchasing, investor relations and human resources. This lease terminates in February, 2000. As of March 17, 2000, the Company has renewed it lease for another three year period. The monthly lease expense is $13,500. Item 3. Legal Proceedings As previously disclosed in the Company's periodic reports filed with the Securities and Exchange Commission, the Company restructured approximately $22 million in debt to vendors and lenders. A creditor's committee was formed of substantially all the vendors and lenders at that time. Nineteen creditors, at that time, chose not to join the creditor's committee, instead opting to pursue their legal remedies individually. The total outstanding dollar value of these lawsuits is approximately $550,000.00. In February 1999, the Company became a defendant in a lawsuit filed by an individual alleging personal injury by a vehicle manufactured by a prior subsidiary of the Company, Nordskog Electric Vehicles, Inc., a.k.a. Industrial Electric Vehicles, Inc. The matter has been referred to the insurance company which has assumed legal liability and is proceeding to defend the matter. As of March 29, 2000, the potential liability to the Company is unknown, however, due to the insurance coverage, it is believed to be minimal. A workers compensation claim in the amount of approximately $169,000 has been asserted against the Company by the former owners of Nordskog Electric Vehicles, which had been acquired by the Company and renamed Industrial Electric Vehicles or IEV. IEV was sold by the Company in 1997. The claim alleges that the Company agreed to indemnify Nordskog for such liabilities when the Company acquired Nordskog. The Company has not yet assessed the validity of this claim or its likely outcome. Item 4. Submission of Matters to a Vote of Security Holders. None. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) 8 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters The Company's Common Stock is presently traded in the over-the-counter market and quoted on the National Association of Securities Dealers (NASD) "Bulletin Board" under the symbol "ECAR." The following table sets forth the high and low prices of the Common Stock as reported on the NASD Bulletin Board by the National Quote Bureau for the fiscal quarters indicated. The following over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. Common Stock Average Daily High Price Low Price Volume ---------------------- ------------- Fiscal 1998 - ----------- First Quarter.......................... $0.120 $0.045 104,692 Second Quarter......................... $0.085 $0.039 71,019 Third Quarter.......................... $0.047 $0.031 16,094 Fourth Quarter......................... $0.048 $0.040 22,739 Common Stock Average Daily High Price Low Price Volume ---------------------- ------------- Fiscal 1999 - ----------- First Quarter.......................... $0.048 $0.020 72,223 Second Quarter......................... $0.031 $0.029 134,535 Third Quarter.......................... $0.031 $0.029 58,224 Fourth Quarter......................... $0.190 $0.031 427,624 Common Stock Average Daily High Price Low Price Volume ---------------------- ------------- Calendar 1999 - ------------- First Quarter.......................... $0.031 $0.029 62,842 Second Quarter......................... $0.130 $0.029 338,623 Third Quarter.......................... $0.125 $0.075 263,886 Fourth Quarter......................... $0.812 $0.120 814,770 On March 27, 2000, the last reported high bid price of the Common Stock was $0.40 and the last reported low asking price was $0.40. As of March 27, 2000, there were approximately 1,698 holders of record of our Common Stock. As of March 27, 2000, the Company's Series A Preferred Stock was held by approximately 121 shareholders, many of who are also Common Stock shareholders. The Company's Series B Preferred Stock was held by approximately 36 shareholders as of March 27, 2000. The number of holders of record excludes beneficial holders whose shares are held in the name of nominees or trustees. Dividend Policy To date, the Company has neither declared nor paid any cash dividends on shares of its Common Stock or Series A or B Preferred Stock. The Company presently intends to retain all future earnings for its business and does not anticipate paying cash dividends on its Common Stock or Series A or B Preferred Stock in the foreseeable future. The Company is required to pay dividends on its Series A and B Preferred Stock before dividends may be paid on any shares of Common Stock. At December 31, 1999, the Company had an accumulated deficit of approximately $86,406,000 and, until this deficit is eliminated, will be prohibited from paying dividends on any class of stock except out of net profits, unless it meets certain asset and other tests under Section 500 et. seq. of the California Corporations Code. 9 Item 6. Selected Financial Data As of and for the five months ended December 31, Fiscal Years ended July 31, (in thousands, except per share data)
1999 1998 1999 1998 1997 ---- ---- ---- ---- ---- NET SALES $ 629 $ 867 $ 2,774 $ 1,938 $ 4,484 COST OF SALES 377 389 1,460 2,765 2,042 ------------ ----------- ----------- ----------- GROSS MARGIN 252 478 1,314 (827) 2,442 ------------ ----------- ----------- ----------- OTHER COSTS AND EXPENSES Research and Development 262 73 499 445 1,218 Selling, general and administrative 796 691 1,141 1,697 3,116 Interest and financing fees 244 264 724 665 792 Other expense (income) 125 (35) (41) (67) 274 Acquisition of research and development 1,630 Gain on Warranty Reevaluations (474) ------------ ----------- ----------- ----------- ----------- Total other costs and expenses 1,427 993 1,849 2,740 7,030 ------------ ----------- ----------- ----------- LOSS FROM CONTINUING OPERATIONS (1,175) (515) (535) (3,567) (4,588) LOSS FROM DISCONTINUED OPERATIONS GAIN ON DEBT RESTRUCTURING 214 140 42 53 ------------ ----------- ----------- ----------- ----------- NET LOSS $ ( 961) $( 515) $( 395) $ (3,525) $ (4,535) ============ =========== =========== =========== =========== PER COMMON SHARE: Loss from continuing operations $ (0.01) $ (0.01) $ (0.01) $ (0.02) $ (0.03) Gain on debt restructuring ------------ ----------- ----------- ----------- ----------- Net loss per common share $ (0.01) $ (0.01) $ (0.01) $ (0.02) $ (0.03) ============ =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 251,994 151,265 152,077 151,265 133,806 ============ =========== =========== =========== =========== Total Assets $ 2,697 $ 1,286 $ 3,940 $ 1,658 $ 4,513 ============ =========== =========== =========== =========== Long-term debt $ 3,332 $ 3,332 $ 3,332 $ 3,332 $ 3,639 ============ =========== =========== =========== =========== Shareholders' equity (deficit) $ (5,015) $(13,120) $( 7,316) $(12,615) $ (9,095) ============ =========== =========== =========== ===========
10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read this Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our 1999 Financial Statements and Notes thereto. The matters addressed in this Management's Discussion and Analysis of Financial Condition and Results of Operations, with the exception of the historical information presented contains certain forward-looking statements involving risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading "Certain Factors That May Affect Future Results" and elsewhere in this report. OVERVIEW The financial statements present the financial condition of U.S. Electricar, Inc. (the "Company") as of December 31, 1999 and the results of operations and cash flows of the Company for the five months then ended and the three preceding fiscal years ended July 31, 1999. The audit opinion from our independent auditors no longer contains an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a "going concern." During 1999, the Company continued to concentrate on the reduction of operating costs and outstanding debt. The Company's business activities are now focused primarily on the development of electric and hybrid electric drive-trains and related components, fuel cell systems, vehicle systems integration and the performance of various engineering contracts. The Company has several key contracts with the U.S. government's Defense Advanced Research Project Agency or DARPA and the Department of Transportation or DOT, including the analysis of a new plastic lithium ion vehicle battery concept, testing of advanced vehicle batteries and development of an airport electric passenger tram system. The Company also has several engineering contracts with Hyundai Motor Company or HMC to design, develop and test electric drive trains and related products. HMC is contracting with the Company for the development of an advanced charging unit and a hybrid vehicle development, as well as preparing to produce the family of Panthertm drive system for their electric vehicles. The Company is extending the PantherTM drive system to hybrid vehicle applications in projects sponsored by Hyundai. These hybrid systems will be applied to light, medium and heavy duty transportation vehicles. The Company is also offering the modular drive systems to Original Equipment Manufacturers or OEM manufacturers and other customers. These drive systems have been installed in various vehicles. The Company offers other components such as air conditioning, heat pump units, electro-hydraulic power steering units and battery management units to OEMs, both domestic and international. The Company is also developing a high power charger for use with its drive systems. HMC has adapted a customized version of the PantherTM 60 for their production electric vehicle. The Company has completed the sale of a license to certain proprietary PantherTM Drive System software and hardware, for the Republic of Korea, to Hyundai Heavy Industries or HHI for further design and development of electric drive systems. The Company anticipates deriving further development contracts from this new relationship with HHI as well as utilizing HHI to manufacture the Company's drive systems for international sales. The Company is pursuing various avenues of revenue generation to increase its cash flow. These include further developing its relationship with the Hyundai Group, joint venturing with global vehicle and bus manufacturers to utilize its electric drive train system, and developing a comprehensive marketing plan to penetrate various alternate niche markets for its drive system and its components. The Company is further looking at non-automotive applications for its products. The Company received a capital investment from Jagen, Pty, Ltd. in the amount of $2,500,000 on June 4, 1999 and from Anthony Rawlinson in the amount of $500,000 on July 30, 1999, which have enabled the Company to further develop its hybrid drive systems as well as embark on other in-house funded research and development. 11 LIQUIDITY AND CAPITAL RESOURCES The Company has experienced recurring cash flow shortages due to operating losses primarily attributable to research, development, administrative and other costs associated with the Company's efforts to become an international manufacturer and distributor of electric vehicles. Cash flows from operations have been negative and have not been sufficient to meet the Company's obligations as they came due. The Company has therefore had to raise funds through numerous financial transactions. At least until the Company reaches breakeven volume in sales and develops and/or acquires the capability and technology necessary to manufacture and sell its products profitably, it will need to continue to rely extensively on cash from external financing. The Company anticipates that it will require additional outside financing for at least one more year. During the five months ended December 31, 1999, the Company's operations required $692,000 more in cash then was generated. This was primarily the result of additional administrative and research and development costs, as further explained. Accounts receivable decreased by $185,000 as the Company completed and collected on various engineering contracts from Hyundai Motor Company and the U.S. Government. Customer Deposits increased by $102,000 as the Company received an advance payment from one of its customers for engineering services to be performed. Inventory increased by $33,000. The increase was due to the Company purchasing raw materials for current and pending contract obligations. The operations of the Company during 1999 were financed primarily by the funds received on engineering contracts and partly on funds received in from the sale of a technology license to Hyundai Heavy Industries. In June and July 1999 the Company received $3,000,000 from two investors, Jagen. Pty., Ltd. in Australia and Anthony Rawlinson for the purchase of Common Stock and warrants to Purchase Common Stock. In January 2000, the Company received an additional equity infusion of $1,000,000 from Kafig Pty, Ltd for the purchase of common stock. It is management's intention to continue its debt restructuring, support current operations through sales of products and technology consulting, as well as seek additional financing through private placements and other means to increase research and development. As of March 27, 2000, the Company has no firm commitments for significant additional financing. THE FUTURE UNAVAILABILITY OR INADEQUACY OF FINANCING TO MEET FUTURE NEEDS COULD FORCE THE COMPANY TO DELAY, MODIFY, SUSPEND OR CEASE SOME OR ALL ASPECTS OF ITS PLANNED OPERATIONS, AND/OR SEEK PROTECTION UNDER APPLICABLE STATE AND FEDERAL BANKRUPTCY AND INSOLVENCY LAWS. RESULTS OF OPERATIONS Net sales of $629,000 for the five months ended December 31, 1999 decreased $238,000 or 27% from $867,000 during the same period in 1998. The decrease was due to the Company increasing in-house engineering, development and testing of electric and hybrid drive trains and related components during the latter part of 1999. Of the Company's total sales for the five months ended December 31, 1999, $597,000, or 95% were revenues realized on engineering contracts with the DOT and the Hyundai Group of Korea. Net sales of $2,774,000 for the fiscal year ended July 31, 1999 increased $836,000 or 43% from $1,938,000 during the fiscal year in 1998. Two primary factors caused the increase. In 1999, the Company sold a technology license to HHI for $600,000. Secondly, the Company increased engineering, development and testing of electric and hybrid drive trains and related components in conjunction with HMC and the U.S. Government through United States Postal Service, DARPA and DOT programs. Of the Company's total sales for 1999, $1,954,000, or 70% were revenues realized on engineering contracts with DARPA, the Hyundai Group of Korea and other customers. Net sales of $1,938,000 for fiscal 1998 decreased $2,546,000 or 57% from $4,484,000 in fiscal 1997. Two primary factors caused the decrease. In 1997, the Company sold a technology license to HMC and HEI for $2,000,000, and there were no such corresponding sales of a technology license in 1998. Secondly, the Company discontinued the sales of electric vehicles in 1998 and focused on the engineering, development and testing of electric drive trains and related components. 12 Cost of sales of $377,000 for the five months ended December 31, 1999 decreased $12,000 or 3% from $398,000 during the same period in 1998. Cost of sales as a percentage of sales decreased to 53% in fiscal 1999 from 143% in fiscal 1998. Sales revenue for fiscal 1999 included a sale of a technology license of $600,000. Excluding the sale of the technology license, cost of sales for fiscal 1999 was 67% of sales. Research and development expense increased in the five months ended December 31, 1999 to $262,000 from $73,000 for the same five month period in 1998. While the Company's has reduced staff and cut costs in all areas, the focus of the Company continues to be centered on research and development. The product development costs incurred in the performance of engineering development contracts is charged to cost of sales for this contract revenue. Non-funded development costs are reported as research and development expense. Research and development expense increased in fiscal 1999 to $499,000 from $445,000 in fiscal 1998, an increase of $54,000, or 12%. Research and development expense of $445,000 in 1998 declined $773,000, or 63% from 1997. The decline was the result of a continuation of the reduction of technical resources by the Company as the Company changed from a manufacturer and retrofitter of electric vehicles to a components developer and producer. Selling, general and administrative expense increased in the five months ended December 31, 1999 to $796,000 from $691,000 for the same five month period in 1998. The increase was due to the Company's continuing efforts to restructure its balance sheet by eliminating or re-negotiating prior years liabilities. Selling, general and administrative expense of $1,141,000 in fiscal 1999 continued to decline from $1,697,000, or 33% from fiscal 1998, as the Company reduced continued to reduce spending and consolidated operations. Selling, general and administrative expense of $1,697,000 decreased significantly in 1998, by $1,419,000, or 46%, from $3,116,000 in 1997. Continued and significant reductions in headcount, facility costs and spending were responsible for the decline. For the five months ended December 31, 1999, interest and financing fees decreased by $20,000 to $244,000. The reduction was due to continued restructuring of the Company long term debt by retirement, forgiveness or conversion into equity. In fiscal 1999, interest and financing fees increased slightly to $724,000 from $665,000 in 1998, an increase of 9% due mainly to default interest rate on certain notes payable becoming effective. Interest and financing fees in 1998 decreased $127,000 or 16% to $665,000 from $792,000 in 1997. The forgiveness of $3,000,000 of debt, formerly the Itochu debt, the conversion of the $1,000,000 of Fontal debt and the scheduled payment of the $307,000 note to CMAC shall continue to reduce interest expense in the future. During the five months ended December 31, 1999, several unsecured creditors agreed to settle their trade debt claims for amounts less than the original debt owed to them. The reductions from the original amounts owed and the settlement amounts resulted in a gain on debt restructuring of $214,000 during the five months ended December 31, 1999. Additional settlements resulted in a gain on debt restructuring of $140,000 in fiscal 1999, $42,000 in 1998 and $53,000 in 1997. As a result of the foregoing changes in net sales, cost of sales, other costs and expenses and gain on debt restructuring, the net loss of $961,000 increased 86% for the $515,000 loss during the same period in 1998. Although the loss on a period to period basis was higher, it was a result of various one-time charges which enabled the Company to further reduce it liabilities. The net loss for fiscal 1999 of $395,000 decreased $3,130,000 or 89% from the $3,525,000 loss in 1998, while the net loss for 1998 decreased $1,010,000, or 22% from the $4,535,000 loss in 1997. These results reflect a significant change in the operating condition of the Company. The cost structure and operating conditions of the Company are now more in line with the sales volume and the scope of business. 13 Year 2000 Concerns The Company is not aware of any year 2000 issues that have affected its business. In preparation for the year 2000, the Company incurred internal staff costs as well as consulting and other expenses. Year 2000 expenses totaled less than $25,000. It is possible that the Company's computerized systems could be affected in the future by the year 2000 issue. The Company has computerized interfaces with third parties that are possibly vulnerable to failure if those third parties have not adequately addressed their year 2000 issues. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS No. 133 will be effective for the company's fiscal year ending December 31, 2000. Management believes that this statement will not have a significant impact on the company's financial position, results of operations or cash flows. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS Future trends for the Company's revenue and profitability remain difficult to predict. The Company operates in a rapidly changing and developing market that involves a number of risks, some of which are beyond the Company's control. In addition, as previously disclosed in this Form 10-K, the Company's financial condition remains precarious. The following discussion highlights certain of these risks. Net Operating Losses. The Company has experienced recurring losses from operations and had an accumulated deficit of $86,406,000 at December 31, 1999. There is no assurance, however, that any net operating losses will be available to the Company in the future as an offset against future profits for income tax purposes. Continued Losses. For the five months ended December 31, 1999 and 1998, the Company had net losses of $961,000 and $515,000, respectively, on sales of $629,000 and $867,000, respectively. Nature of Industry. The electric vehicle ("EV") industry is still in its infancy. Although the Company believes that it has manufactured a significant percentage of the electric vehicles sold in the United States based upon its own knowledge of the industry, there are many large and small companies, both domestic and foreign, now in, poised to enter, or entering this industry. This EV industry is subject to rapid technological change. Most of the major domestic and foreign automobile manufacturers (1) have produced design-concept electric vehicles, and/or (2) have developed improved electric storage, propulsion and control systems, and/or (3) are now entering or planning to enter into production. Various non-automotive companies are also developing improved electric storage, propulsion and control systems. Growth of the present limited demand for electric vehicles depends upon (a) future regulation and legislation requiring more use of non-polluting or low-emission vehicles, (b) the environmental consciousness of customers and (c) the ability of electric and hybrid-electric vehicles to successfully compete with vehicles powered with internal combustion engines on price and performance. Changed Legislative Climate. Because vehicles powered by internal combustion engines cause pollution, there has been significant public pressure in Europe and Asia, and enacted or pending legislation in the United States at the federal level and in certain states, to promote or mandate the use of vehicles with no tailpipe emissions ("zero emission vehicles") or reduced tailpipe emissions ("low emission vehicles"). Legislation requiring or promoting zero or low emission vehicles is necessary to create a significant market for electric vehicles. There can be no assurance, however, that further legislation will be enacted or that current legislation or state mandates will not be repealed or amended (as recently occurred in California), or that a different form of zero emission or low emission vehicle will not be invented, developed and produced, and achieve greater market acceptance than electric vehicles. Extensions, modifications or reductions of current federal and state legislation, mandates and potential tax incentives could adversely affect the Company's business prospects if implemented. 14 Item 7A. Quantitative and Qualitative Disclosures about Market Risk None. Item 8. Financial Statements and Supplementary Data The response to this Item is submitted as a separate section of this Form 10-K. See Item 14. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) 15 PART III Item 10. Directors and Executive Officers of the Registrant The following table sets forth certain information with respect to the Directors and executive officers of the Company: ================================ ======== ====================================== Name Age Position - -------------------------------- -------- -------------------------------------- Anthony Rawlinson 45 Chairman of the Board - -------------------------------- -------- -------------------------------------- Carl D. Perry 67 Chief Executive Officer, President and Director - -------------------------------- -------- -------------------------------------- Edwin O. Riddell (1) 58 Director - -------------------------------- -------- -------------------------------------- Dr. Malcolm Currie (1) 70 Director - -------------------------------- -------- -------------------------------------- John J. Micek, III (2) 47 Director - -------------------------------- -------- -------------------------------------- Donald H. Dreyer (2) 63 Director ================================ ======== ====================================== (1) Member of the Compensation Committee. (2) Member of the Audit Committee. Anthony Rawlinson, Chairman of the Board. Mr. Rawlinson was appointed Chairman of the Board in July 1999. Mr. Rawlinson has been Managing Director of the Global Value Investment Portfolio Management Pte. Ltd., a Singapore based international fund management company managing discretionary equity portfolios for institutions, pension funds and clients globally. Mr. Rawlinson is also Chairman of IXLA Ltd., an Australian public company which is a leader in the field of PC photography software. He is also Chairman of the Board of its wholly-owned subsidiary, photohighway.com, an internet portal for PC photography. Carl D. Perry, Chief Executive Officer, President and Director. Mr. Perry served as a Director and as an Executive Vice President of the Company from July 1993 until November 1997. In November 1997, Mr. Perry was elected as Chairman of the Board and Chief Executive Officer of the Company, and was elected President in June 1999. In July 1999, Mr. Perry resigned his position as Chairman of the Board to allow Mr. Anthony Rawlinson to become Chairman. Mr. Perry continues as Chief Executive Officer and President and as a Director. Prior to joining the Company, he was an international aerospace and financial consultant from 1989 to 1993. Mr. Perry served as Executive Vice President of Canadair Ltd., Canada's largest aerospace corporation, from 1984 to 1993, where he conducted strategic planning, worldwide marketing, and international joint ventures. From 1979 to 1983, Mr. Perry served as Executive Vice President of the Howard Hughes Helicopter Company, now known as Boeing Helicopter Company, where he was responsible for general management, worldwide business development, and international operations. Malcolm R. Currie, Ph.D, Director. Dr. Currie was re-elected to the Board of Directors in July 1999. Dr. Currie had served as a Director of the Company from March 1995 through May 1997. Since 1994, he has served as Chairman of Electric Bicycle Co., a developer of electric bicycles. From 1986 until July 1992, Dr. Currie served as Chairman and Chief Executive Officer of Hughes Aircraft Co. (now Hughes Electronics), and from 1985 until 1988, he was the Chief Executive Officer of Delco Electronics. His career in electronics and management has included research with many patents and papers in microwave and millimeter wave electronics, laser, space systems, and related fields. He has led major programs in radar, commercial satellites, communication systems, and defense electronics. He served as Undersecretary of Defense for Research and Engineering, the Defense Science Board, and currently serves on the Boards of Directors of UNOCAL, Investment Company of America, and LSI Logic, all of which are publicly traded companies. He is President of the American Institute of Aeronautics and Astronautics, and is Chairman of the Board of Trustees of the University of Southern California. 16 John J. Micek III, Director. Mr. Micek was elected a Director of the Company in April 1999. Mr. Micek served as the Company's Vice President, General Counsel and Secretary from March 1994 to March 1997. From 1997 to 1999, Mr. Micek served as Chief Financial Officer of Protozoa, Inc., a private animation and software production company. From 1997 to the present, Mr. Micek has served as President of Universal Assurors, Inc. Prior to joining the Company, Mr. Micek practiced law since January 1989. From 1987 to March 1994, Mr. Micek held several positions with Armanino Foods of Distinction, Inc., a publicly traded specialty foods company, including serving as its General Counsel and Chief Financial Officer from February 1987 to December 1988 and Vice President from January 1989 to March 1994, and a Director of Armanino Foods from 1988 to 1989. Mr. Micek served as the President and Director of Catalina Capitol, Inc., a publicly traded company, from 1990 until its merger into Instant Video Technologies, Inc. ("IVT"), an interactive multi-media network technology company, in 1992. Mr. Micek continues to serve as a Director of IVT. Edwin O. Riddell, Director. Mr. Riddell has served as a Director of the Company since June 1995. From March 1999 to the present, Mr. Riddell has been President of CR Transportation Services, a consultant to the electric vehicle industry. From January 1991 to March 1999, Mr. Riddell has served as Manager of the Transportation Business Unit in the Customer Systems Group at the Electric Power Research Institute in Palo Alto, California, and from 1985 until November 1990, he served with the Transportation Group, Inc. as Vice President, Engineering, working on electric public transportation systems. From 1979 to 1985, he was Vice President and General Manager of Lift U, Inc., the leading manufacturer of handicapped wheelchair lifts for the transit industry. Mr. Riddell has also worked with Ford, Chrysler, and General Motors in the area of auto design (styling), and has worked as a member of senior management for a number of public transit vehicle manufacturers. Mr. Riddell has been a member of the American Public Transit Association's ("APTA") Association Member Board of Governors for over 15 years. He has also served on APTA's Board of Directors. Donald H. Dreyer, Director. Mr. Dreyer was elected a Director of the Company in January 1997. Mr. Dreyer is President and CEO of Dreyer & Company, Inc., a consultancy in credit, accounts receivable and insolvency services, which was established in 1990. Mr. Dreyer has served as Chairman of the Board of Credit Managers Association of California during the 1994 to 1995 term and continues to serve as a member of the Advisory Committee of that organization. Mr. Dreyer is currently the co-Chair of the Creditors Committees' Subcommittee of the American Bankruptcy Institute and is a member of the Western Advisory Committee of Dun & Bradstreet, Inc. Relationships Among Directors or Executive Officers There are no family relationships among any of the Directors or executive officers of the Company. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires the Company's Directors, executive officers and persons who own more than 10% of the Company's Common Stock (collectively, "Reporting Persons") to file reports of ownership and changes in ownership of the Company's Common Stock to the Securities and Exchange Commission ("SEC"). Copies of these reports are also required to be delivered to the Company. The Company believes, based solely on its review of the copies of such reports received or written representations from certain Reporting Persons, that during fiscal 1999, all Reporting Persons complied with all applicable filing requirements: Except as follows: (i) Anthony Rawlinson, Chairman of the Board, inadvertently missed a filing deadline for Form 5 for one transaction effected in July 1999; the required Form 5 has been filed; (ii) Malcom Currie, a Director, unintentionally missed a filing deadline for Form 3 that was due within ten days of his appointment as a Director in July 1999; the required Form 3 has been filed; (iii) John J. Micek, a Director, unintentionally missed a filing deadline for Form 3 that was due within ten days of his appointment as a Director in April 1999; the required Form 3 has been filed; and (iv) Directors and executive officers of the Company inadvertently missed a filing deadline for Form 5 that was due within forty-five days after the end of the Company's fiscal year, such reports were filed on February 15, 2000. 17 Item 11. Executive Compensation Summary Compensation Table The following table sets forth all compensation earned by the Company's Chief Executive Officer and each of the other most highly compensated executive officers of the Company whose annual salary and bonus exceeded $100,000 for the years ended July 31, 1999, 1998, and 1997 (collectively, the "Named Executive Officers"). Mr. Carl D. Perry is the sole executive officer of the Company whose salary currently exceeds $100,000.
Summary Compensation Table Name and Principal Position Annual Compensation - --------------------------- ----------------------------------------------------------------------- Long-Term Compensation Awards Securities Underlying Salary Bonus Options/SARs Year ($) ($) (#) ---- ------ ----- --- Carl D. Perry (1) 1999 75,000 -- -- Chief Executive Officer 1998 55,770 -- -- And President 1997 75,000 -- -- (1) Mr. Perry was elected as Chief Executive Officer in November 1997. Mr. Perry's current salary is $110,000 per year.
Option/SAR Grants No grants of stock options or stock appreciation rights ("SARs") were made during fiscal 1999 to the Named Executive Officers. However, the option exercise price, for Mr. Perry's and other employees under the 1996 Stock Option Plan, was reset to $0.10 per share from $0.30 per share on August 19, 1998 at the direction of the Board of Directors. Option Exercises and Option Values The following table sets forth information concerning option exercises during 1999, and the aggregate value of unexercised options as of December 31, 1999, held by each of the Named Executive Officers:
Aggregated Option/SAR Exercises in 1999 and Option Values at December 31, 1999 Number of Securities Aggregate Underlying Unexercised Value of Unexercised Option Options at In-the-Money Options at Exercises in 1999 December 31, 1999 December 31, 1999 (1) ----------------- --------------------------- --------------------------- Shares Value Acquired on Realized Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable - ---- ------------ --------- ----------- ------------- ----------- ------------- Carl D. Perry -- -- 1,200,000 -- $393,600 $-- (1) Calculated on the basis of the average of the high bid and low ask prices of the Common Stock on December 31, 1999 of $0.328 per share, minus the exercise price.
18 Compensation of Directors In September 1999, the Company's Board of Directors unanimously approved a compensation package for outside directors consisting of the following: for each meeting attended in person, each outside director shall receive $1,000 in cash and $2,000 of stock valued on the date of the meeting at the average of the closing ask and bid prices; for each telephonic Board meeting, each outside director shall receive $250 in cash and $250 of stock valued on the date of the meeting at the average of the closing ask and bid prices; for each meeting of a Board committee attended in person , the committee chairman shall receive $500 in cash and $500 of stock valued on the date of the meeting at the average of the closing ask and bid prices. All Directors are reimbursed for expenses incurred in connection with attending Board and committee meetings. The Director's Stock Option Plan was terminated effective as of July 31, 1999. In partial consideration of the issuance of 409,091 shares of common stock, 28,000 options granted under this plan were cancelled in September 1999. As of March 27, 2000, 509,000 shares had been issued under this directors compensation plan. Compensation Committee Interlocks and Insider Participation The Compensation Committee currently consists of Mr. Edwin Riddell, as Chairman, and Dr. Malcolm Currie. Mr. Riddell was elected Chairman in August 1998. Dr. Currie was elected to the Compensation Committee in July, 1999. Mr. Ishag served as a member of the Compensation Committee during all of Fiscal 1999. Dr. Malcolm Currie also served on the Compensation Committee during his prior term as a Director until his resignation in 1998. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) 19 Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information regarding beneficial ownership of the Company's stock as of March 27, 2000, (i) by each person (or group of affiliated persons) who is known by the Company to own beneficially more than 5% of each class of the Company's stock, (ii) by each of the Company's Directors, (iii) by each of the Company's Named Executive Officers listed in the Summary Compensation Table below, and (v) by the Company's Directors and executive officers as a group. Except as indicated in the footnotes to this table and subject to applicable community property laws, the persons named in the table, based on information provided by such persons, have sole voting and investment power with respect to all shares of stock beneficially owned by them.
- ------------------------------------------ ----------------------------- ------------------------------ ----------------- 5% Shareholders, Directors, Officers and Common Shares Percentage of Common Voting Directors and Officers as a Group Beneficially Owned (1) Shares Beneficially Owned (2) Percentage (3) - ------------------------------------------ ----------------------------- ------------------------------ ----------------- Jagen, Pty., Ltd. 125,000,000 (4) 36.27 31.68% 9 Oxford Street, South Yorra 3141 Melbourne, Victoria Australia - ------------------------------------------ ----------------------------- ------------------------------ ----------------- Carl D. Perry 38,548,789 (5) 11.19% 14.19% c/o U.S. Electricar, Inc. 19850 South Magellan Drive Torrance, CA 90502 - ------------------------------------------ ----------------------------- ------------------------------ ----------------- Citibank N.A. 52,342,454 15.18% 19.90% 111 Wall Street, 8th Floor New York, NY 10043 - ------------------------------------------ ----------------------------- ------------------------------ ----------------- Anthony Rawlinson 25,020,149 (6) 7.26% 6.34% c/o U.S. Electricar, Inc. 19850 South Magellan Drive Torrance, CA 90502 - ------------------------------------------ ----------------------------- ------------------------------ ----------------- John J. Micek, III 629,994 (7) * * - ------------------------------------------ ----------------------------- ------------------------------ ----------------- Edwin O. Riddell 250,349 (8) * * - ------------------------------------------ ----------------------------- ------------------------------ ----------------- Dr. Malcolm Currie 155,587 (9) * * - ------------------------------------------ ----------------------------- ------------------------------ ----------------- Donald H. Dreyer 18,182(10) * * - ------------------------------------------ ----------------------------- ------------------------------ ----------------- All Directors and executive officers as 64,623,050(11) * * a group (6 persons) - ------------------------------------------ ----------------------------- ------------------------------ ----------------- * Indicates less than 1% (1) Number of Common Stock shares includes Series A Preferred Stock, Series B Preferred Stock and Common Stock shares issuable pursuant to stock options, warrants and other securities convertible into Common Stock beneficially held by the person or class in question which may be exercised or converted within 60 days after February 29, 2000. (2) The percentages are based on the number of shares of Common Stock, Series A Preferred Stock and Series B Preferred Stock owned by the shareholder divided by the sum of: (i) the total Common Stock outstanding, (ii) the Series A Preferred Stock owned by such shareholder; (iii) the Series B Preferred Stock owned by such shareholder; and (iv) Common Stock issuable pursuant to warrants, options and other convertible securities exercisable or convertible by such shareholder within sixty (60) days after February 29, 2000. (3) The percentages are based on the number of shares of Common Stock, Series A Preferred Stock and Series B Preferred Stock owned by the shareholder divided by the sum of: (i) the total Common Stock outstanding, (ii) the total Series A Preferred Stock outstanding; (iii) the total Series B Preferred Stock outstanding; and (iv) Common Stock issuable pursuant to warrants, options and other convertible securities exercisable or convertible by such shareholder within sixty (60) days after February 29, 2000. This percentage calculation has been included to show more accurately the actual voting power of each of the shareholders, since the calculation takes into account the fact that the outstanding Series A Preferred Stock and Series B Preferred Stock are entitled to vote together with the Common Stock as a single class on certain matters to be voted upon by the shareholders. (4) Includes 41,666,667 shares issuable pursuant to warrants redeemable at $0.06 per share. Said warrants expire in July, 2001. (5) Includes 1,200,000 shares of Common Stock issuable pursuant to stock options issued under a employee stock option plan exercisable at a price of $0.10 per share. The option exercise price, for Mr. Perry's and other employees under the 1996 Stock Option Plan, was reset to $0.10 per share from $0.30 per share on August 19, 1998 at the direction of the Board of Directors. (6) Includes 8,333,333 shares issuable pursuant to warrants redeemable at $0.06 per share. Said warrants expire in July, 2001. (7) Includes 565,000 shares of Common Stock issuable pursuant to stock options exercisable at a price of $0.10 per share. The option exercise price was reset to $0.10 per share from $0.30 per share on June 10, 1999 at the direction of the Board of Directors. (8) Includes 1,765,000 shares of Common Stock issuable pursuant to stock options exercisable at prices ranging from $0.10 to $0.60 per share, and 8,333,333 shares issuable pursuant to warrants redeemable at $0.06 per share. Said warrants expire in July, 2001.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) Item 13. Certain Relationships and Related Transactions The following are certain transactions entered into between the Company and its officers, directors and principal shareholders and their affiliates since August 1, 1998. Transactions with Secured Creditors and Others: Carl D. Perry/Itochu Corporation As of March 1999, there was $3,000,000 of debt outstanding to Itochu, a former principle shareholder of the Company, pursuant to a Supplemental Loan Agreement. The debt was convertible at the election of Itochu at any time, or automatically upon the occurrence of certain events, into shares of Common Stock at a conversion rate of $0.30 per share. The debt was secured by all of the assets of the Company. To date, no agreement has been reached on extending the maturity date of this debt. Additionally, Itochu issued $1,300,000 of convertible secured notes to the Company under a Supplemental loan Agreement with a maturity date of December 1997. To date, no agreement has been reached on extending the maturity date of this debt. In March 1999, Itochu Corporation sold all of the aforementioned debt plus accrued interest outstanding ($5,693,400) to Carl D. Perry, the Company's Chief Executive Officer and President, for $50,000. Itochu also sold all of the shares of common stock it held to Mr. Perry for $1.00. Mr. Perry forgave $2,693,400 of accrued interest and principal on July 30, 1999 and an additional $1,817,000 in accrued interest and principal during the five months ended December 31, 1999. As of December 31, 1999, there is $1,300,000 in principal owed by the Company to Mr. Perry under this loan. In September 1999, the Company entered into a call option agreement with Carl D. Perry to re-purchase 23,970,000 shares of common stock for $100,000. The terms of this agreement require the Company to exercise this call option between March 25, 2000 and March 30, 2000. In addition, Mr. Perry was also granted the right to sell these shares to the Company for $50,000. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) 22 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on form 8-K (a)1. Financial Statements The financial statements filed as a part of this report are identified in the Index to Financial Statements on page F-1. (a)2. Financial Statement Schedule No financial statement schedules are filed as a part of this report. (a)3. Exhibits See Item 14 (C) for Index of Exhibits. (b) Reports on Form 8-K The Company filed one report on Form 8-K. The Form 8-K, dated January 21, 2000 and filed January 21, 2000, reported that the Company had changed its fiscal year end from July 31st to December 31st. (c) Exhibits Exhibit Number Description 3.1 Amended and Restated Articles of Incorporation of the Registrant, filed July 30, 1999 (Filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for fiscal year ended July 31, 1999, as filed on October 29, 1999, and incorporated herein by reference). 3.2 Bylaws of Registrant (Filed as Exhibit 3.12 to the Registration Statement on Form 10 filed on November 29, 1994, and incorporated herein by reference). 4.1 Cashless Exercise Warrants dated October 25, 1996 issued to Fontal International, Ltd. (Filed as Exhibit 4.1) to the Registrant's Annual Report on Form 10-K for the year ended July 31, 1996, as filed on November 12, 1996, and incorporated herein by reference). 10.1** Form of Stock Option Agreement under 1993 Employee and Consultant Stock Plan (Filed as Exhibit 10.15 to the Registration Statement on Form 10 filed on November 29, 1994, and incorporated herein by reference). 10.2** Form of Solar Electric Engineering, Inc. 1993 Employee and Consultant Stock Plan (Filed as Exhibit 10.16 to the Registration Statement on Form 10 filed on November 29, 1994, and incorporated herein by reference). 10.3 Form of Confidential Private Placement Memorandum and Debt Restructuring Disclosure Statement of U.S. Electricar, Inc., dated January 2, 1996, delivered by the Company to certain of its unsecured trade creditors, including exhibits (Filed as Exhibit 10.91 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 1996, as filed on March 18, 1996, and incorporated herein by reference). 23 10.4 Form of Stock Purchase, Note and Debt Exchange Agreement dated January 2, 1996 between the Company and certain unsecured trade creditors (Filed as Exhibit 10.92 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended January 31, 1996, as filed on March 18, 1996, and incorporated herein by reference). 10.5 Form of Indemnification Agreement (Filed as Exhibit 10.63 to the Registration Statement on Form 10 filed on November 29, 1994, and incorporated herein by reference). 10.6 Form of Security Agreement made as of May 31, 1995, between the Company and Credit Managers Association of California, Trustee (Filed as Exhibit 10.85 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 30, 1996, as filed on June 14, 1996, and incorporated herein by reference). 10.7 Amended 1996 Employee and Consultant Stock Option Plan(Filed as Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for fiscal year ended July 31, 1999, as filed on October 29, 1999, and incorporated herein by reference). 10.8 Stock Purchase Agreement and Technology License Agreement dated February 27, 1997, by and between the Company and Hyundai Motor Company and Hyundai Electronics Industries Co., Ltd. (Filed as Exhibit 10.98 to the Registrant's Quarterly Report on Form 10-Q for fiscal quarter ended January 31, 1997, as filed on March 14, 1997, and incorporated herein by reference). 10.9 Loan Agreement for $400,000 convertible promissory note with Fontal International, Ltd., dated April 30, 1997(Filed as Exhibit 10.99 to the Registrant's Quarterly Report on Form 10-Q for fiscal quarter ended April 30, 10997, as filed on June 13, 1997, and incorporated herein by reference). 10.10 Agreement of Debt Forgiveness by and between Carl D. Perry and the Registrant dated July 30, 1999 (Filed as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for fiscal year ended July 31, 1999, as filed on October 29, 1999, and incorporated herein by reference). 10.11 Agreement of Terms by and between the Registrant and Carl D. Perry (Filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for fiscal year ended July 31, 1999, as filed on October 29, 1999, and incorporated herein by reference). 10.12 Securities Purchase Agreement dated as of June 1, 1999, by and between the Company and Jagen Pty, Ltd. and Anthony Rawlinson (Filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for fiscal year ended July 31, 1999, as filed on October 29, 1999, and incorporated herein by reference). 10.13 Shareholders' Agreement dated as of June 1, 1999, by and among Jagen Pty, Ltd. and Anthony Rawlinson, Carl D. Perry and the Registrant (Filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for fiscal year ended July 31, 1999, as filed on October 29, 1999, and incorporated herein by reference). 10.14 Loan and Security Agreement dated as of June 1, 1999, by and among the Registrant, Jagen Pty, Ltd. and Anthony Rawlinson (Filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for fiscal year ended July 31, 1999, as filed on October 29, 1999, and incorporated herein by reference). 10.15 Convertible Secured Promissory Note dated June 1, 1999 by the Registrant in favor of Jagen Pty, Ltd. in the principal amount of $400,000 (Filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for fiscal year ended July 31, 1999, as filed on October 29, 1999, and incorporated herein by reference). 10.16*+ Letter of Intent between Registrant and a domestic supplier, dated December 9, 1999, to design, develop and manufacture low voltage electric drive system components. 10.17* Put/Call Option to sell Intochu Shares between Registrant and Carl D. Perry dated September 1, 1999. 23.1* Consent of Moss Adams, LLC, Independent Auditor's 24* Power of Attorney (included on signature page) 27* Financial Data Schedule. - ----------------------- * Filed herewith. ** Indicates management contract or compensatory plan or arrangement. + We have sought confidential treatment from the Commission for selected portions of this exhibit. he omitted portions will be separately filed with the Commission. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned, thereunto duly authorized, on March 29, 2000. U.S. ELECTRICAR, INC. By: /s/ Carl D. Perry ----------------------------------------------------------------------------- Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer Dated: March 29, 2000 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Carl D. Perry, with full power to act alone, his true and lawful attorney-in-fact and agent, with full power of substitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to the annual report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Date Title - --------- ---- ----- /s/ Carl D. Perry - ---------------------------- Chief Executive March 29, 2000 Carl D. Perry Officer and Director (Principal Executive Officer) /s/ Anthony Rawlinson - ---------------------------- Chairman March 29, 2000 Anthony Rawlinson /s/ Malcom Currie - ---------------------------- Director March 29, 2000 Malcom Currie /s/ Edwin O. Riddell - ---------------------------- Director March 29, 2000 Edwin O. Riddell /s/ John J. Micek, III - ---------------------------- Director March 29, 2000 John J. Micek, III /s/ Donald H. Dreyer - ---------------------------- Director March 29, 2000 Donald H. Dreyer 26 - -------------------------------------------------------------------------------- U. S. ELECTRICAR, INC. INDEPENDENT AUDITOR'S REPORT AND FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- U. S. ELECTRICAR, INC. INDEX TO FINANCIAL STATEMENTS PAGE ---- INDEPENDENT AUDITOR'S REPORT ......................................... F-1 BALANCE SHEET AT DECEMBER 31, 1999 ................................... F-2 STATEMENT OF OPERATIONS FOR THE FIVE MONTHS ENDED DECEMBER 31, 1999 ............................. F-4 STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE FIVE MONTHS ENDED DECEMBER 31, 1999 ............................. F-5 STATEMENT OF CASH FLOWS FOR THE FIVE MONTHS ENDED DECEMBER 31, 1999 ............................. F-6 NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1999 .................... F-7 BALANCE SHEETS AT JULY 31, 1999 AND 1998 ............................. F-17 STATEMENTS OF OPERATIONS FOR THE THREE YEARS ENDED JULY 31, 1999 ....................................... F-19 STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE THREE YEARS ENDED JULY 31, 1999 ....................................... F-20 STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED JULY 31, 1999 ....................................... F-21 NOTES TO FINANCIAL STATEMENTS - JULY 31, 1999, 1998, AND 1997 ........ F-23 MOSS-ADAMS LLP - -------------------------------------------------------------------------------- CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR'S REPORT To the Stockholders and Board of Directors U. S. Electricar, Inc. We have audited the accompanying balance sheets of U.S. Electricar, Inc., as of December 31, 1999 and July 31, 1999 and 1998, and the related statements of operations, stockholders' deficit, and cash flows for the five months ended December 31, 1999, and for each of the three years ended July 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of U. S. Electricar, Inc., as of December 31, 1999 and July 31, 1999 and 1998, and the results of its operations and cash flows for the five months ended December 31, 1999, and for each of the three years ended July 31, 1999, in conformity with generally accepted accounting principles. /s/ Moss Adams LLP Santa Rosa, California February 17, 2000 U. S. ELECTRICAR, INC. BALANCE SHEET December 31, 1999 (In thousands, except for share and per share data) - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash $1,465 Accounts receivable 566 Inventories and supplies 256 Stockholder receivable, current maturities 38 Prepaids and other current assets 71 ------ Total current assets 2,396 PROPERTY, PLANT AND EQUIPMENT 226 STOCKHOLDER RECEIVABLE, less current maturities 75 ------ Total assets $2,697 ====== The accompanying notes are an integral part of these financial statements. - -------------------------------------------------------------------------------- Page F-2 U. S. ELECTRICAR, INC. BALANCE SHEET (Continued) December 31, 1999 (In thousands, except for share and per share data) - ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable $ 202 Accrued payroll and related expenses 229 Other accrued expenses 156 Current maturities of long-term debt 1,420 Customer deposits 102 -------- Total current liabilities 2,109 ACCRUED INTEREST PAYABLE 439 LONG-TERM PAYABLES 1,832 LONG-TERM DEBT, less current maturities 3,332 -------- Total liabilities 7,712 -------- STOCKHOLDERS' DEFICIT Series A preferred stock - no par value; 30,000,000 shares authorized; 3,259,000 shares issued and outstanding; liquidating preference at $0.60 per share aggregating $1,995 2,166 Series B preferred stock - no par value; 5,000,000 shares authorized; 1,242,000 shares issued and outstanding 2,486 Stock notes receivable (1,149) Common stock - no par value; 500,000,000 shares authorized; 252,012,000 shares issued and outstanding 71,526 Common stock subscribed 1,445 Additional paid-in capital 4,917 Accumulated deficit (86,406) -------- Total stockholders' deficit (5,015) -------- Total liabilities and stockholders' deficit $ 2,697 ======== The accompanying notes are an integral part of these financial statements. - ------------------------------------------------------------------------------------------------------------------------------------ Page F-3
U. S. ELECTRICAR, INC. STATEMENT OF OPERATIONS Five Months Ended December 31, 1999 (In thousands, except for share and per share data) - -------------------------------------------------------------------------------- NET REVENUES $ 629 COST OF REVENUES 377 ------------- GROSS PROFIT 252 ------------- OTHER COSTS AND EXPENSES Research and development 262 Selling, general and administrative 796 Interest and financing fees 244 Legal settlements 125 ------------- Total other costs and expenses 1,427 ------------- LOSS FROM CONTINUING OPERATIONS (1,175) GAIN ON DEBT RESTRUCTURING 214 ------------- NET LOSS $ (961) ============= LOSS PER COMMON SHARE $ (0.01) ============= WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 251,993,533 ============= The accompanying notes are an integral part of these financial statements. - -------------------------------------------------------------------------------- Page F-4 U. S. ELECTRICAR, INC. STATEMENT OF STOCKHOLDERS' DEFICIT Five Months Ended December 31, 1999 (In thousands) - ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK ------------------------------------------------ SERIES A SERIES B COMMON STOCK --------------------- -------------------- -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------- ------- ------- ------- ------- ------- BALANCE, July 31, 1999 3,259 $ 2,191 1,242 $ 2,486 251,992 $71,501 COMMON STOCK TRANSACTIONS Conversion of Series A preferred stock (20) (25) -- -- 20 25 Stock issued for services -- -- -- -- -- -- Conversion of debt -- -- -- -- -- -- Debt forgiveness by stockholder -- -- -- -- -- -- NET LOSS -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- BALANCE, December 31, 1999 3,239 $ 2,166 1,242 $ 2,486 252,012 $71,526 ======= ======= ======= ======= ======= ======= COMMON STOCK SUBSCRIBED ADDITIONAL --------------------- PAID-IN STOCK NOTES ACCUMULATED SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL -------- -------- -------- -------- -------- -------- BALANCE, July 31, 1999 -- $ -- $ 3,100 $ (1,149) $(85,445) $ (7,316) COMMON STOCK TRANSACTIONS Conversion of Series A preferred stock -- -- -- -- -- -- Stock issued for services 1,317 148 -- -- -- 148 Conversion of debt 4,246 1,297 -- -- -- 1,297 Debt forgiveness by stockholder -- -- 1,817 -- -- 1,817 NET LOSS -- -- -- -- (961) (961) -------- -------- -------- -------- -------- -------- BALANCE, December 31, 1999 5,563 $ 1,445 $ 4,917 $ (1,149) $(86,406) $ (5,015) ======== ======== ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. - ------------------------------------------------------------------------------------------------------------------------------------ Page F-5
U. S. ELECTRICAR, INC. STATEMENT OF CASH FLOWS Five Months Ended December 31, 1999 (In thousands) - -------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (961) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 60 Gain on debt restructuring (214) Stock issued for services 148 Interest expense converted to equity 219 Change in operating assets and liabilities: Accounts receivable 185 Inventories (33) Stockholder receivable 12 Prepaids and other current assets 21 Accounts payable and accrued expenses (231) Customer deposits 102 ------- Net cash used by operating activities (692) ------- CASH FLOWS FROM INVESTING ACTIVITIES Equipment acquisitions (3) ------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on notes payable and capital leases (307) ------- NET DECREASE IN CASH (1,002) CASH, July 31, 1999 2,467 ------- CASH, December 31, 1999 $ 1,465 ======= SUPPLEMENTAL CASH-FLOW INFORMATION Cash paid during the year for interest $ 9 Non-cash investing and financing activities: Conversion of Series A preferred stock to common stock $ 25 Conversion of debt and accrued interest to equity $ 2,894 The accompanying notes are an integral part of these financial statements. - -------------------------------------------------------------------------------- Page F-6 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1999 - -------------------------------------------------------------------------------- NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization - U. S. Electricar, Inc., is a California corporation that originally produced and sold electric vehicles. In 1998, the Company began to focus its efforts on the development of electric drive trains and related components for electric vehicles and hybrid systems, vehicle systems integration and the performance of various engineering contracts. The Company retains development and manufacturing rights to many of the technologies created, whether such research and development is internally or externally funded. The Company currently has several engineering contracts to design, develop and test electric and hybrid electric drive train products and related products, including contracts with Hyundai Motor Corporation (HMC) and the U.S. Government. The Company anticipates deriving further development contracts from a new relationship with Hyundai Heavy Industries, as well as utilizing Hyundai to manufacture the Company's drive systems for international sales. Change in fiscal year - Effective December 31, 1999, the Company changed its fiscal year-end from July 31, to December 31. Inventory - Inventory is comprised of materials used in the design and development of electric drive systems under ongoing development contracts, and is stated at the lower of cost (first-in, first-out) or market. Property, plant and equipment - Property, plant and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets, which range from three to seven years. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicates the sum of expected cash flows from use of the asset is less than its carrying value. Long-lived assets that management has committed to sell or abandon are reported at the lower of carrying amount or fair value less cost to sell. Income taxes - Deferred income taxes are recognized using enacted tax rates and are composed of taxes on financial accounting income that is adjusted for requirements of current tax law and deferred taxes. Deferred taxes are the expected future tax consequences of temporary differences between the financial statement carrying amounts and tax bases of existing assets and liabilities. Revenue recognition - Revenue on engineering and research and development contracts is recognized at the completion of specified engineering or billing milestones. Loss per common share - Loss per common share is computed using the weighted average number of common shares outstanding. Since a loss from operations exists, a diluted earnings per share number is not presented because the inclusion of common stock equivalents in the computation would be antidilutive. Common stock equivalents associated with Series A and B preferred stock, stock options, warrants and convertible notes and bonds, which are exercisable into shares of common stock, could potentially dilute earnings per share in future years. Concentrations of risk - Financial instruments potentially subjecting the Company to concentrations of credit risk consist primarily of bank demand deposits that may, from time to time, be in excess of FDIC insurance thresholds, and trade receivables. Demand deposits are placed with known creditable financial institutions. The Company's largest customer, Hyundai, is also a stockholder that holds less than 5% of the outstanding common stock. Hyundai accounted for approximately 54% of total revenues for the five months ended December 31, 1999, with $383,000 due from Hyundai and included in accounts receivable at December 31, 1999. Significant estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The amounts estimated could differ from actual results, and the difference could have a significant impact on the financial statements. - -------------------------------------------------------------------------------- Page F-7 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1999 - -------------------------------------------------------------------------------- Fair value of financial instruments - The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. For certain of the Company's financial instruments, including cash, accounts receivable and accounts payable, the carrying amount approximates fair value because of the short maturities. The fair value of the Company's short-term and long-term debt may be substantially less than the carrying value since there is no readily ascertainable market for the debt, given the financial position of the Company. Stock-based compensation - The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation." Under APB No. 25, compensation expense is the excess, if any, of the fair value of the Company's stock at a measurement date over the amount that must be paid to acquire the stock. SFAS No. 123 requires a fair value method to be used when determining compensation expense for stock options and similar equity instruments. SFAS No. 123 permits a company to continue to use APB No. 25 to account for stock-based compensation to employees, but proforma disclosures of net income and earnings or loss per share must be made as if SFAS No. 123 had been adopted in its entirety. Stock options issued to non-employees are valued under the provisions of SFAS No. 123. Recent accounting pronouncements - The Financial Accounting Standards Board has issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair market value. Gains or losses resulting from changes in the values of those derivatives are accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. SFAS No. 133, which is effective for fiscal years beginning after June 15, 1999, will not have a material effect on the Company's financial statements. NOTE 2 - MANAGEMENT'S PLANS The Company has experienced recurring losses from operations and use of cash from operations. A substantial portion of the losses were attributable to research, development and other costs associated with the Company's development and production of electric drive systems and components. During the fiscal year ended July 31, 1999, the Company was successful in selling $3,000,000 of its common stock, and subsequent to December 31, 1999, the Company signed a stock purchase agreement to sell 3,333,333 shares of its common stock for $1,000,000. Additionally, during the fiscal year ended July 31, 1999, the Company's President acquired approximately $5,694,000 of debt and accrued interest, plus 37 million shares of stock, from ITOCHU Corporation. Under the agreement among ITOCHU, the Company, and the Company's President, the acquired debt is convertible into common stock under the terms of the original notes. It is management's intention to continue to seek additional financing through private placements as well as other means for as long as the operating shortfall exists. - -------------------------------------------------------------------------------- Page F-8 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1999 - -------------------------------------------------------------------------------- NOTE 3 - PROPERTY, PLANT AND EQUIPMENT (in thousands) Computers $ 849 Machinery and equipment 267 Furniture and office equipment 196 Automobiles and demonstration vehicles 142 Leasehold improvements 54 ------ 1,509 Less accumulated depreciation and amortization 1,283 ------ $ 226 ====== NOTE 4 - LONG-TERM DEBT (in thousands) Secured subordinated promissory note - Credit Management Association of California (CMAC) as exclusive agent for Non-Qualified Creditors, with interest at 3% for the first five years, 6% for years six and seven, and then at prime plus 3% through date of maturity; interest payments are made upon payment of principal, with principal and interest due no later than April 2016; the Company is required to fund a sinking fund escrow with 10% of future equity financing, including debt converted to equity $ 3,332 Convertible secured notes under a Supplemental Loan Agreement with ITOCHU Corporation, with interest at 12%; principal and interest were due in December 1997; the debt, which is secured by personal property, was acquired by the Company's President in 1999 1,300 Other 120 -------- 4,752 Less current maturities 1,420 -------- $ 3,332 ======== In March 1999, all notes and accrued interest payable to ITOCHU, totaling $5,694,000, were acquired by the Company's President in a transaction outside the Company for $50,000. During the year ended July 31, 1999, the Company's President forgave debt totaling $2,694,000. An additional $1,817,000 of principal and interest were forgiven by the Company's President during the five months ended December 31, 1999. The amounts forgiven have been reported as additional paid-in capital. The remaining principal and accrued interest is convertible into the Company's common stock at $0.30 per share at a date mutually agreed to by the Company and the President During the period ended December 31, 1999, $1,000,000 of debt and $247,000 of accrued interest were converted into approximately 4,246,000 shares of common stock at $0.30 per share. - -------------------------------------------------------------------------------- Page F-9 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1999 - -------------------------------------------------------------------------------- NOTE 5 - LEASE COMMITMENTS The Company has renewed the operating lease of its Torrance, California, facility. The lease expires in February 2003. Rent expense was $43,000 for the five months ended December 31, 1999. Future minimum lease payments are as follows: Year Ending December 31, ------------------------ 2000 $ 148,000 2001 161,000 2002 163,000 2003 27,000 --------- $ 499,000 ========= NOTE 6 - INCOME TAXES (in thousands) The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose restrictions on the utilization of net operating losses in the event of an ownership change, as defined by Section 382 of the Internal Revenue Code of 1986. An ownership change occurred at the time of the private placement memorandums in 1991 and 1992, at the time of the common and preferred stock issuances in 1993, and upon conversion of certain debt to equity in subsequent years. This change will limit future availability of net operating loss carryforwards. The extent of the limitation has not been determined. A valuation allowance is required for those deferred tax assets that are not likely to be realized. Realization is dependent upon future earnings during the period that temporary differences and carryforwards are expected to be available. Because of the uncertain nature of their ultimate utilization, based upon the Company's past performance, and the possible limitation on the future availability of net operating losses, as discussed above, a full valuation allowance is recorded against these deferred tax assets. Deferred tax assets Federal tax loss carryforward $24,147 State tax loss carryforward 2,378 Basis difference 1,610 Other, net 214 ------- 28,349 Less valuation allowance 28,349 ------- Net deferred tax asset $ -- ======= - -------------------------------------------------------------------------------- Page F-10 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1999 - -------------------------------------------------------------------------------- Net operating losses expire as follows: Net Operating Loss --------------------------------- Date of Expiration Federal California ------------------ -------- ---------- 2000 $ 51 $ 16,730 2001 44 4,541 2002 11 2,778 2003 64 1,541 2004 322 709 2005 443 655 2006 680 -- 2007 2,552 -- 2008 24,221 -- 2009 33,460 -- 2010 9,083 -- 2011 5,557 -- 2012 2,998 -- 2013 1,418 -- 2014 1,965 -- -------- -------- $ 82,869 $ 26,954 ======== ======== NOTE 7 - STOCKHOLDERS' DEFICIT Series A preferred stock - Series A preferred stock is currently unregistered and convertible into common stock on a one-to-one basis at the election of the holder or automatically upon the occurrence of certain events, including: sale of stock in an underwritten public offering; registration of the underlying conversion stock; or the merger, consolidation or sale of more than 50% of the Company. Holders of Series A preferred stock have the same voting rights as common stockholders. The stock has a liquidation preference of $0.60 per share plus any accrued and unpaid dividends in the event of voluntary or involuntary liquidation of the Company. Dividends are non-cumulative and payable at the annual rate of $0.036 per share if, when, and as declared by, the Board of Directors. No dividends have been declared on the Series A preferred stock. In July 1993, the Board of Directors approved a plan for the sale of shares of Series A preferred stock to certain officers and directors (Participants) at $0.60 per share. In general, the Participants could purchase these shares for a combination of cash, promissory notes payable to the Company, and conversion of debt and deferred compensation due to the Participants. All shares issued under this plan were pledged to the Company as security for the notes. The notes provided for interest at 8% per annum payable annually, with the full principal amount and any unpaid interest due on January 31, 1997. The notes remain outstanding. The likelihood of collecting the interest on these notes is remote; therefore, accrued interest has not been recorded. Series B preferred stock - Series B preferred stock is currently unregistered and each share is convertible into shares of common stock at the election of the holder. The Series B preferred stock has certain liquidation and dividend rights prior and in preference to the rights of the common stock and Series A preferred stock. - -------------------------------------------------------------------------------- Page F-11 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1999 - -------------------------------------------------------------------------------- Other significant stock activity - In conjunction with the acquisition of ITOCHU's debt (see Note 4), the Company's President purchased all of the outstanding common stock of ITOCHU Corporation, which totaled approximately 37,400,000 shares, for a purchase price of $1. In July 1999, the Company sold 86,666,666 unregistered shares of its common stock at $0.03 per share pursuant to a Regulation D Subscription Agreement, resulting in net proceeds of $2,600,000. Also in July 1999, the Company converted $400,000 of convertible secured notes to approximately 13,333,000 shares of common stock at $0.03 per share. In July 1999, the Company's shareholders authorized an additional 200,000,000 shares of no par common stock. NOTE 8 - STOCK OPTIONS AND WARRANTS In 1993, stockholders approved the 1993 Employee and Consultant Stock Plan, which expires in 2003. Under the Plan, the Company has reserved 30,000,000 shares of common stock for incentive and nonstatutory stock options. Options under the Plan expire over periods not to exceed ten years from date of grant. Options that expire or are canceled may become available for future grants under the Plan. In addition, the Company grants other nonstatutory stock options. Under the 1994 Director Stock Option Plan, the Company reserved 150,000 shares of common stock for nonstatutory stock options for nonemployee directors. Options under this Plan are fully vested upon the granting of the options and expire ten years from the date of grant unless terminated sooner upon termination of the optionee's status as a director. Options that expire or are canceled may become available for future grants under the Director Option Plan. The 1996 Stock Option Plan, which was approved by stockholders in 1997, reserves 45,000,000 shares for incentive and nonstatutory stock options during the period of the Plan, which expires in 2006. Options under the 1996 Plan expire over a period not to exceed ten years. The following summarizes common stock option activity (shares in thousands):
Director 1996 Plan 1993 Plan Option Plan Other ------------------------- ------------------------ ------------------------ ------------------------ Shares Price Shares Price Shares Price Shares Price --------- -------------- --------- -------------- ---------- ------------- --------- ------------- Balance, July 31, 1999 8,390 $0.10 - 0.30 11,111 $ 0.30-0.60 25 $ 0.20 1,495 $ 0.60-2.80 --------- --------- ---------- --------- Granted 12,339 $ 0.11 -- -- -- -- -- -- Canceled -- -- -- -- (25) -- -- -- Forfeited (234) $0.11 - 0.30 -- -- -- -- -- -- --------- --------- ---------- --------- Balance, December 31, 1999 20,495 $0.10 - 0.30 11,111 $ 0.30-0.60 -- $ -- 1,495 $ 0.60-2.80 ========= ========= ========== =========
The Company measures its employee stock-based compensation arrangements under the provisions of APB No. 25. Had compensation costs for the Company's stock option plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, the Company's net loss would have increased by approximately $174,000 for the five months ended December 31, 1999. The fair value of options granted were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 164% to 186%, (3) risk-free interest rate of 5.88% to 6.59%, and (4) an expected life of the options of 5 to 10 years. - -------------------------------------------------------------------------------- Page F-12 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1999 - -------------------------------------------------------------------------------- In May 1996, the Company issued approximately 13,333,000 warrants in exchange for services performed. The warrants were exercisable at $0.30 per share in cash, or could be exercised without the payment of cash if the average market value of the Company's common stock for the 20 consecutive trading days preceding the exercise date was equal to or greater that $0.60 per share, and the average trading volume was in excess of 100,000 shares per day for the same preceding 20 trading day period. The warrants expired, by their original terms, on May 1, 1997. The holders of these warrants have subsequently made claims that the Company had previously agreed to extend the term of these warrants for as much as an additional five (5) years. The Company believes these claims are without merit and that the warrants have expired. In July 1999, the Company issued 50,000,000 warrants in conjunction with the sale of common stock. The warrants are exercisable at $0.06 per share for an equal number of shares of common stock, and expire in July 2001. The Company determined the fair value of the warrants to be $406,000. Factors used in determining the fair value included: (1) the effect on the stock price if the warrants were exercised, (2) the thinly traded nature of the stock, (3) the market for the warrants, (4) and the rate of return expected by the warrant holders. NOTE 9 - RESEARCH AND DEVELOPMENT CONTRACTS The Company is obligated to perform research and development activities under development and licensing agreements. The agreements require the Company to design, develop, and test drive systems and deliver working prototypes. The Company retains all rights to the products developed and will license their use to the counter-party. Compensation for these research and development services is based on specified milestones set forth in each agreement. As of December 31, 1999, the Company had not performed all research and development activities required by the agreements. Revenue recognized under the development agreements for the five months ended December 31, 1999, was approximately $507,000. Related expenses are recorded in cost of revenues. NOTE 10 - RELATED PARTY TRANSACTIONS Accrued compensation of $43,000 was due to two employees. The Company is to issue 808,000 shares of its common stock as payment on this accrual. The market value of the stock on the date of settlement was $89,000. The value of the stock in excess of the accrued compensation was charged to compensation expense during the period. Also for the period ended December 31, 1999, the Company's Board of Directors unanimously approved a compensation package for outside directors consisting of the following: for each meeting attended in person, each outside director shall receive $1,000 in cash, reimbursement of economy class travel and lodging, and $2,000 of common stock valued on the date of the meeting at the average of the closing ask and bid prices; for each telephonic Board meeting, each outside director shall receive $250 in cash and $250 in stock valued in the same manner as an in-person Board meeting; for each meeting of a Board committee attended in person, the committee chairman shall receive an additional $500 in cash and $500 in stock. Under this plan, the Company was to issue approximately 509,000 shares of stock with a fair market value of $59,000, which was recorded as an expense during the period. - -------------------------------------------------------------------------------- Page F-13 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1999 - -------------------------------------------------------------------------------- NOTE 11 - CONTINGENCIES In connection with the Company's default on its debt obligations to unsecured creditors, 19 of these creditors have obtained judgments against the Company in the aggregate amount of approximately $650,000. The Company is aggressively taking steps to eliminate these judgments. In February 1999, the Company became a defendant in a lawsuit filed by an individual alleging personal injury by a vehicle manufactured by a prior subsidiary of the Company, Industrial Electric Vehicles, Inc. The Company's insurance carrier has assumed all potential liability associated with this matter. A workers compensation claim in the amount of approximately $169,000, has been asserted against the Company by the former owners of Nordskog Electric Vehicles, which had been acquired by the Company and renamed Industrial Electric Vehicles (IEV). IEV was sold by the Company in 1997. The claim alleges that the Company agreed to indemnify Nordskog for such liabilities when the Company acquired Nordskog. The Company has not assessed the validity of this claim or its likely outcome. The Company is also subject to other legal proceedings and claims that have arisen during the period of restructuring both its debt and operations. The ultimate resolution of these proceedings is not known, but the final outcomes are not expected to significantly influence the Company's current financial position. - -------------------------------------------------------------------------------- Page F-14 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1999 - -------------------------------------------------------------------------------- NOTE 12 - UNAUDITED SUMMARIZED FINANCIAL STATEMENTS The unaudited balance sheet and statement of operations as of and for the five months ended December 31, 1998, are as follows (in thousands): BALANCE SHEET Current assets Cash $ 6 Accounts receivable, net 405 Inventories and supplies 430 Stockholder receivable, current maturities 25 Prepaids and other current assets 73 -------- Total current assets 939 Property, plant, and equipment, net 272 Stockholder receivable, less current maturities 75 -------- Total assets $ 1,286 ======== Current liabilities Accounts payable $ 593 Accrued payroll and related expenses 347 Other accrued expenses 707 Current maturities of long-term debt -- Customer deposits 358 -------- Total current liabilities 2,005 Accrued interest payable 1,525 Long-term payables 1,818 Long-term debt, less current maturities 9,059 -------- Total liabilities 14,407 -------- Stockholders' deficit Series A preferred stock 2,233 Series B preferred stock 2,584 Stock notes receivable (1,149) Common stock - no par value; 300,000,000 authorized, 151,767,000 shares issued and outstanding at 1998 68,767 Accumulated deficit (85,556) -------- Total stockholders' deficit (13,120) -------- Total liabilities and stockholders' deficit $ 1,287 ======== - -------------------------------------------------------------------------------- Page F-15 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1999 - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS Net revenues $ 867 Cost of revenues 389 ------ Gross profit 478 ------ Other costs and expenses Research and development 73 Selling, general and administrative 691 Interest and financing fees 264 Other (income) (35) ------ Total other costs and expenses 993 ------ Net loss from continuing operations $ (515) ====== Loss per common share $(0.01) ====== - -------------------------------------------------------------------------------- Page F-16 U. S. ELECTRICAR, INC. BALANCE SHEETS July 31, 1999 and 1998 (In thousands, except for share and per share data) - -------------------------------------------------------------------------------- ASSETS 1999 1998 ------ ------ CURRENT ASSETS Cash $2,467 $ 266 Accounts receivable, net of allowance for doubtful accounts of $0 and $108 751 108 Inventories and supplies 223 492 Stockholder receivable, current maturities 50 250 Prepaids and other current assets 92 124 ------ ------ Total current assets 3,583 1,240 PROPERTY, PLANT AND EQUIPMENT 282 318 STOCKHOLDER RECEIVABLE, less current maturities 75 100 ------ ------ Total assets $3,940 $1,658 ====== ====== The accompanying notes are an integral part of these financial statements. - -------------------------------------------------------------------------------- Page F-17 U. S. ELECTRICAR, INC. BALANCE SHEETS (Continued) July 31, 1999 and 1998 (In thousands, except for share and per share data) - ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT 1999 1998 -------- -------- CURRENT LIABILITIES Accounts payable $ 507 $ 540 Accrued payroll and related expenses 290 358 Other accrued expenses 232 285 Current maturities of long-term debt 4,427 5,727 Accrued warranty reserve -- 474 Customer deposits -- 387 -------- -------- Total current liabilities 5,456 7,771 ACCRUED INTEREST PAYABLE 593 1,262 LONG-TERM PAYABLES 1,875 1,908 LONG-TERM DEBT, less current maturities 3,332 3,332 -------- -------- Total liabilities 11,256 14,273 -------- -------- STOCKHOLDERS' DEFICIT Series A preferred stock - no par value; 30,000,000 shares authorized; 3,259,000 and 3,321,000 shares issued and outstanding at 1999 and 1998; liquidating preference at $0.60 per share aggregating $1,955 and $1,993 2,191 2,258 Series B preferred stock - no par value; 5,000,000 shares authorized; 1,242,000 and 1,291,000 shares issued and outstanding at 1999 and 1998 2,486 2,584 Stock notes receivable (1,149) (1,149) Common stock - no par value; 500,000,000 and 300,000,000 shares authorized at 1999 and 1998; 251,992,000 and 151,767,000 shares issued and outstanding at 1999 and 1998 71,501 68,742 Additional paid-in capital 3,100 -- Accumulated deficit (85,445) (85,050) -------- -------- Total stockholders' deficit (7,316) (12,615) -------- -------- Total liabilities and stockholders' deficit $ 3,940 $ 1,658 ======== ======== The accompanying notes are an integral part of these financial statements. - ------------------------------------------------------------------------------------------------------------------------------------ Page F-18
U. S. ELECTRICAR, INC. STATEMENTS OF OPERATIONS Years Ended July 31, 1999, 1998 and 1997 (In thousands, except for share and per share data) - ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 ------------- ------------- ------------- NET REVENUES $ 2,774 $ 1,938 $ 4,484 COST OF REVENUES 1,460 2,765 2,042 ------------- ------------- ------------- GROSS PROFIT 1,314 (827) 2,442 ------------- ------------- ------------- OTHER COSTS AND EXPENSES Research and development 499 445 1,218 Selling, general and administrative 1,141 1,697 3,116 Interest and financing fees 724 665 792 Gain on warranty accrual reevaluation (474) -- -- Other (income)/expense (41) (67) 274 Acquisition of research and development -- -- 1,630 ------------- ------------- ------------- Total other costs and expenses 1,849 2,740 7,030 ------------- ------------- ------------- LOSS FROM CONTINUING OPERATIONS (535) (3,567) (4,588) GAIN ON DEBT RESTRUCTURING 140 42 53 ------------- ------------- ------------- NET LOSS $ (395) $ (3,525) $ (4,535) ============= ============= ============= PER COMMON SHARE Loss from continuing operations $ (0.01) $ (0.02) $ (0.03) Gain on debt restructuring -- -- -- ------------- ------------- ------------- Net loss per common share $ (0.01) $ (0.02) $ (0.03) ============= ============= ============= WEIGHTED AVERAGE SHARES OUTSTANDING 152,076,615 151,265,026 133,805,603 ============= ============= ============= The accompanying notes are an integral part of these financial statements. - ------------------------------------------------------------------------------------------------------------------------------------ Page F-19
U. S. ELECTRICAR, INC. STATEMENTS OF STOCKHOLDERS' DEFICIT Years Ended July 31, 1999, 1998 and 1997 (In thousands) - ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK --------------------------------------------------- SERIES A SERIES B COMMON STOCK ----------------------- ----------------------- ---------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT --------- --------- --------- --------- --------- --------- BALANCE, JULY 31, 1996 4,010 $ 2,983 1,587 $ 3,175 120,220 $ 59,157 PREFERRED STOCK TRANSACTION Conversion of unsecured debt -- -- 42 85 -- -- COMMON STOCK TRANSACTIONS Sales under Regulation S subscription agreement -- -- -- -- 12,000 3,600 Systronix acquisition -- -- -- -- 3,800 760 Conversion of Series S Bonds and accrued interest -- -- -- -- 10,732 3,219 Conversion of Series A preferred stock (389) (353) -- -- 389 353 Conversion of Series B preferred stock -- -- (289) (578) 1,927 578 Conversion of debt -- -- -- -- 2,000 600 INTEREST ON STOCK NOTES -- -- -- -- -- -- NET LOSS -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- BALANCE, July 31, 1997 3,621 2,630 1,340 2,682 151,068 68,267 COMMON STOCK TRANSACTIONS Conversion of Series A preferred stock (300) (372) -- -- 300 372 Conversion of Series B preferred stock -- -- (49) (98) 324 98 Stock for services -- -- -- -- 75 5 NET LOSS -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- BALANCE, July 31, 1998 3,321 2,258 1,291 2,584 151,767 68,742 COMMON STOCK TRANSACTIONS Conversion of Series A preferred stock (62) (67) -- -- 62 67 Conversion of Series B preferred stock -- -- (49) (98) 163 98 Sale of stock -- -- -- -- 83,333 2,375 Conversion of debt -- -- -- -- 16,667 219 Issuance of common stock warrants -- -- -- -- -- -- Debt forgiveness by stockholder -- -- -- -- -- -- NET LOSS -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- 3,259 $ 2,191 1,242 $ 2,486 251,992 $ 71,501 ========= ========= ========= ========= ========= ========= ADDITIONAL PAID-IN STOCK NOTES ACCUMULATED CAPITAL RECEIVABLE DEFICIT TOTAL -------- ---------- -------- -------- BALANCE, JULY 31, 1996 $ -- $ (1,061) $(76,990) $(12,736) PREFERRED STOCK TRANSACTION Conversion of unsecured debt -- -- -- 85 COMMON STOCK TRANSACTIONS Sales under Regulation S subscription agreement -- -- -- 3,600 Systronix acquisition -- -- -- 760 Conversion of Series S Bonds and accrued interest -- -- -- 3,219 Conversion of Series A preferred stock -- -- -- -- Conversion of Series B preferred stock -- -- -- -- Conversion of debt -- -- -- 600 INTEREST ON STOCK NOTES -- (88) -- (88) NET LOSS -- -- (4,535) (4,535) -------- -------- -------- -------- BALANCE, July 31, 1997 -- (1,149) (81,525) (9,095) COMMON STOCK TRANSACTIONS Conversion of Series A preferred stock -- -- -- -- Conversion of Series B preferred stock -- -- -- -- Stock for services -- -- -- 5 NET LOSS -- -- (3,525) (3,525) -------- -------- -------- -------- BALANCE, July 31, 1998 -- (1,149) (85,050) (12,615) COMMON STOCK TRANSACTIONS Conversion of Series A preferred stock -- -- -- -- Conversion of Series B preferred stock -- -- -- -- Sale of stock -- -- -- 2,375 Conversion of debt -- -- -- 219 Issuance of common stock warrants 406 -- -- 406 Debt forgiveness by stockholder 2,694 -- -- 2,694 NET LOSS -- -- (395) (395) -------- -------- -------- -------- $ 3,100 $ (1,149) $(85,445) $ (7,316) ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. - ------------------------------------------------------------------------------------------------------------------------------------ Page F-20
U. S. ELECTRICAR, INC. STATEMENTS OF CASH FLOWS Years Ended July 31, 1999, 1998 and 1997 (In thousands) - ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (395) $(3,525) $(4,535) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 179 212 578 Change in allowance for doubtful accounts (108) (7) (319) Provision to reduce inventory values (36) 949 308 Gain on debt restructuring (140) (42) (53) Changes in valuation allowances and reserves (640) (368) (1,011) Purchase of research and development -- -- 1,630 Stock issued in settlement of legal claim -- 5 -- Loss of disposal of equipment -- 353 -- Gain on sale of Industrial Electric Vehicles -- -- (158) Interest income on stock notes receivable -- -- (88) Interest converted to common stock -- -- 194 Change in operating assets and liabilities: Accounts receivable (560) 753 (54) Inventories 329 371 589 Note receivable 250 -- -- Prepaids and other current assets 32 191 (53) Accounts payable and accrued expenses 678 491 (39) Customer deposits (387) 343 (164) ------- ------- ------- Net cash used by operating activities (798) (274) (3,175) ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (1) (8) (13) Proceeds from sale of equipment -- 35 -- Repayments on advances to Systronix Corporation -- -- 209 ------- ------- ------- Net cash provided (used) by investing activities (1) 27 196 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on notes payable -- -- (3,021) Payments on capital leases -- (20) (152) Borrowings on notes payable 400 200 3,122 Proceeds from issuance of common stock 2,600 -- 3,350 ------- ------- ------- Net cash provided by financing activities 3,000 180 3,299 ------- ------- ------- NET INCREASE (DECREASE) IN CASH 2,201 (67) 3,299 CASH Beginning of year 266 333 13 ------- ------- ------- End of year $ 2,467 $ 266 $ 3,312 ======= ======= ======= The accompanying notes are an integral part of these financial statements. - ------------------------------------------------------------------------------------------------------------------------------------ Page F-21
U. S. ELECTRICAR, INC. STATEMENTS OF CASH FLOWS (Continued) Years Ended July 31, 1999, 1998 and 1997 (in thousands) - ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 ------- ------- ------- SUPPLEMENTAL CASH-FLOW INFORMATION Cash paid during the year for interest $ -- $ 3 $ 162 NON-CASH INVESTING AND FINANCING ACTIVITIES Conversion of Series A preferred stock to common stock $ 68 $ 372 $ 353 Conversion of Series B preferred stock to common stock $ 98 $ 98 $ 578 Issuance of warrants $ 406 $ -- $ -- Decrease in capital lease payable due to cancellation $ -- $ 190 $ -- Conversion of investment to note receivable $ -- $ 250 $ -- Conversion of debt to common stock $ 400 $ -- $ 4,069 Conversion of debt to Series B preferred stock $ -- $ -- $ 85 Notes issued in connection with debt restructuring $ -- $ -- $ 15 Assumption of notes payable in connection with acquisition $ -- $ -- $ 800 Note issued in connection with acquisition $ -- $ -- $ 830 Note assumed by buyer in connection with sale of Industrial Electric Vehicles $ -- $ -- $(1,013) Conversion of accrued interest to notes payable $ -- $ -- $ 139 Acquisition of assets through capital lease $ -- $ -- $ 361 Sale of net assets of Industrial Electric Vehicles $ -- $ -- $ 858 Acquistion of certain assets, related debt and research and development from Systronix Corporation for debt and stock options, net $ -- $ -- $ (819) The accompanying notes are an integral part of these financial statements. - ------------------------------------------------------------------------------------------------------------------------------------ Page F-22
U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS July 31, 1999, 1998, and 1997 - -------------------------------------------------------------------------------- NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization - U. S. Electricar, Inc. was incorporated in 1976 in California as Solar Electric Engineering, Inc., and in 1994 changed its name to U. S. Electricar, Inc. Prior to fiscal year 1998, the Company produced and sold electric vehicles. In 1998, the Company began to focus its efforts on the development of electric drive trains and related components for electric vehicles and hybrid systems, vehicle systems integration and the performance of various engineering contracts. The Company retains development and manufacturing rights to many of the technologies created, whether such research and development is internally or externally funded. The Company currently has several engineering contracts to design, develop and test electric drive train products and related products for Hyundai Motor Corporation (HMC) and the U.S. Government. The Company anticipates deriving further development contracts from a new relationship with Hyundai Heavy Industries, as well as utilizing Hyundai to manufacture the Company's drive systems for international sales. The statements of operations, stockholders' deficit, and cash flows for the year ending July 31, 1997, include the activities of Industrial Electric Vehicles, Inc. (IEV). Substantially all assets and liabilities of IEV were sold during the year ended July 31, 1997. All material intercompany transactions affecting the 1997 statements were eliminated in consolidation. IEV is a dormant company and had no transactions in 1999 and 1998. Inventory and supplies - Inventory and supplies at July 1999 is comprised of materials used in the design and development of electric drive systems under ongoing development contracts. Inventory at July 1998 was comprised of electric vehicles, raw materials, and work-in-process, and were stated at market, which was lower than cost. Property, plant and equipment - Property, plant and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets, which range from three to seven years. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicates the sum of expected cash flows from use of the asset is less than its carrying value. Long-lived assets that management has committed to sell or abandon are reported at the lower of carrying amount or fair value less cost to sell. Warranties - Electric vehicle warranties were provided by the Company and generally extended for one year from the time of sale. Warranties for substantially all vehicles sold by the Company have elapsed. As a result, the Company recognized a $474,000 gain in 1999 concurrent with the reevaluation of the warranty accrual. Income taxes - Deferred income taxes are recognized using enacted tax rates and are composed of taxes on financial accounting income that is adjusted for requirements of current tax law and deferred taxes. Deferred taxes are the expected future tax consequences of temporary differences between the financial statement carrying amounts and tax bases of existing assets and liabilities. Revenue recognition - Revenue from the sale of electric vehicles was recognized when the vehicle was delivered to the customer. Revenue on engineering and research and development contracts is recognized at the completion of specified engineering or billing milestones. Loss per common share - Loss per common share is computed using the weighted average number of common shares outstanding. Since a loss from operations exists, a diluted earnings per share number is not presented because the inclusion of common stock equivalents in the computation would be antidilutive. Common stock equivalents associated with Series A and B preferred stock, stock options, warrants and convertible notes and bonds, which are exercisable into shares of common stock, could potentially dilute earnings per share in future years. - -------------------------------------------------------------------------------- Page F-23 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) July 31, 1999, 1998, and 1997 - -------------------------------------------------------------------------------- Concentrations of risk - Financial instruments potentially subjecting the Company to concentrations of credit risk consist primarily of bank demand deposits that may, from time to time, be in excess of FDIC insurance thresholds, and trade receivables. Demand deposits are placed with known creditable financial institutions. The Company's largest customer, Hyundai, is also a stockholder that holds less than 5% of the outstanding common stock. Hyundai accounted for approximately 90% of total revenues for the year ended July 31, 1999. Amounts due from Hyundai at July 31, 1999, which are included in accounts receivable, were $736,000. Significant estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The amounts estimated could differ from actual results, and the difference could have a significant impact on the financial statements. Fair value of financial instruments - The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. For certain of the Company's financial instruments, including cash, accounts receivable and accounts payable, the carrying amount approximates fair value because of the short maturities. The fair value of the Company's short-term and long-term debt may be substantially less than the carrying value since there is no readily ascertainable market for the debt, given the financial position of the Company. Stock-based compensation - The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation." Under APB No. 25, compensation expense is the excess, if any, of the fair value of the Company's stock at a measurement date over the amount that must be paid to acquire the stock. SFAS No. 123 requires a fair value method to be used when determining compensation expense for stock options and similar equity instruments. SFAS No. 123 permits a company to continue to use APB No. 25 to account for stock-based compensation to employees, but proforma disclosures of net income and earnings or loss per share must be made as if SFAS No. 123 had been adopted in its entirety. Stock options issue to non-employees are valued under the provisions of SFAS No. 123. Recent accounting pronouncements - The Financial Accounting Standards Board has issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair market value. Gains or losses resulting from changes in the values of those derivatives are accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in fair value or cash flows. The Company does not expect the adoption of SFAS No. 133, which is effective for all fiscal quarters of fiscal years beginning after June 15, 1999, to have a material effect on the Company's financial statements. Reclassifications - Certain reclassification have been made to the July 31, 1998 and 1997 financial statements to conform to the July 31, 1999 presentation. - -------------------------------------------------------------------------------- Page F-24 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) July 31, 1999, 1998, and 1997 - -------------------------------------------------------------------------------- NOTE 2 - ACQUISITIONS AND SALES The Company acquired substantially all the tangible and intangible assets and assumed certain liabilities of Systronix Corporation (Systronix) in October 1996. Systronix was a developer of technologically advanced electric propulsion systems for electric-powered vehicles. The purchase was reported using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon the fair values at the date of acquisition. Assets associated with research and development, and for which there was no alternative use, were expensed. In 1997, substantially all assets of the Company's subsidiary, Industrial Electrical Vehicles, Inc. were sold to a group headed by former employees of the Company in exchange for the buyers assuming certain defined debt. The liabilities assumed by the buyers exceeded the reported values of the assets sold, which resulted in a gain of approximately $155,000. NOTE 3 - INVENTORIES (in thousands) 1999 1998 ---- ---- Raw materials and supplies $223 $437 Finished goods -- 120 Work-in-process -- 101 ---- ---- 223 658 Less valuation adjustment -- 166 ---- ---- $223 $492 ==== ==== As of July 31, 1999, all inventory is classified as raw materials and supplies since the Company no longer manufactures electric vehicles. In 1994 the Company entered into a manufacturing agreement with a vendor, whereby the Company agreed to sell to the vendor sufficient inventory to complete the conversion of 84 sedans and pick-up trucks to electric power and then to repurchase the completed vehicles upon completion of the manufacturing process. The terms of the agreement gave the vendor a purchase money interest in inventory. Due to the repurchase agreement, the Company did not account for this transaction as a sale. The Company initially accrued the difference between the selling price and repurchase price as interest expense. However, the interest expense accrual was later reversed by the Company as a result of an amendment to the agreement in July 1995, which eliminated the price difference and required only the refund to the vendor of the net amount of money paid to the Company under the agreement. During 1995, the vendor paid the Company $867,000, and the Company paid the vendor $64,000, for a difference of $803,000, which was recorded as an account payable. Under the July 1995 amendment, and separate from the debt restructuring process, a portion of anticipated proceeds from future sales of unsold vehicles in which the vendor had a purchase money interest was to be paid to the vendor; and the vendor was to ratably release its interest in such vehicles as they were sold until the $803,000 was fully repaid. At July 31, 1999 and 1998, approximately $98,000 remained unpaid and was included in accrued expenses. Subsequent to July 31, 1999, the vendor agreed to accept $27,000 in complete satisfaction of the outstanding liability. - -------------------------------------------------------------------------------- Page F-25 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) July 31, 1999, 1998, and 1997 - -------------------------------------------------------------------------------- NOTE 4 - PROPERTY, PLANT AND EQUIPMENT (in thousands) 1999 1998 ------ ------ Computers $ 846 $ 872 Machinery and equipment 267 267 Furniture and office equipment 196 196 Leasehold improvements 54 47 Automobiles and demonstration vehicles 142 -- Construction in progress -- 7 ------ ------ 1,505 1,389 Less accumulated depreciation and amortization 1,223 1,071 ------ ------ $ 282 $ 318 ====== ====== NOTE 5 - LONG-TERM DEBT (in thousands, except for share data) 1999 1998 ------- ------- Convertible secured note under a Supplemental Loan Agreement with ITOCHU Corporation, with interest at 12%; principal and interest were due in April 1998; the debt was secured by the Company's personal property and was acquired by the Company's President during 1999 $ 1,700 $ 3,000 Secured subordinated promissory note - Credit Management Association of California (CMAC) as exclusive agent for Non-Qualified Creditors, with interest at 3% for the first five years, 6% for years six and seven, and then at prime plus 3% through date of maturity; interest payments are made upon payment of principal, with principal and interest due no later than April 2016; with an interest in a sinking fund escrow with a balance of $4,000 as of July 31, 1999 and 1998; the sinking fund escrow requires the Company fund the account with 10% of future equity financing, including convertible debt converted to equity; payments on this note are subordinated to payment in full on all principal and accrued interest owed on the Qualified Creditors promissory note 3,332 3,332 Convertible secured notes under a Supplemental Loan Agreement with ITOCHU Corporation, with interest at 12%; principal and interest were due in December 1997; the debt was secured by the Company's personal property, and was acquired by the Company's President during 1999 1,300 1,300 Convertible bonds with interest at 10%; principal and interest were due in July 1997 800 800 - -------------------------------------------------------------------------------- Page F-26 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) July 31, 1999, 1998, and 1997 - -------------------------------------------------------------------------------- 1999 1998 ------- ------- Secured subordinated promissory note - CMAC, as exclusive agent for Qualified Creditors, with interest at 3%; principal and interest are due in August 1999; secured with an interest in a sinking fund escrow 307 307 Other 320 320 ------- ------- 9,758 11,057 Less current maturities 4,427 5,727 ------- ------- $ 3,332 $ 3,332 ======= ======= In September 1994, the Company issued 120 units of Series S secured convertible bonds totaling $12,000,000. Each of the units consisted of $100,000 in principal and a warrant to purchase 10,000 common shares. Beginning July 1995 through March 1997, the Company converted the $12,000,000 in principal and $2,002,000 of accrued interest into 46,674,000 shares of common stock at $0.30 per share. Of these amounts, $3,217,000 of principal and accrued interest was converted into 10,732,000 shares of common stock during the year ended July 31, 1997. The Company and ITOCHU Corporation entered into a Supplemental Loan Agreement in April 1995, whereby ITOCHU agreed to lend $3,000,000 to the Company. The notes were secured by the personal property of the parent company and were convertible at $0.30 per share into the Company's common stock. The principal and accrued interest due under the notes have not been paid, causing an event of default. In March 1999, this and all other notes and accrued interest payable to ITOCHU, totaling $5,694,000, were acquired by the Company's President in a transaction outside the Company for $50,000. During 1999, the Company's President forgave debt totaling $2,694,000. Due to the related party nature of the transaction, this forgiveness was recorded as additional paid-in capital. The remaining $3,000,000 in notes continues to be in default and accrues interest at 12% per year. The remaining principal and accrued interest is convertible into the Company's common stock at $0.30 per share at a date mutually agreed to by the Company and the President. In April 1996, and as amended in July 1996, the Company issued two promissory notes, due April 1999, for $256,000 and $560,000, and one promissory note due April 2016 for $3,332,000, to CMAC, as the exclusive agent for certain unsecured creditors who settled with the Company in connection with its Debt Restructuring Plan. In May 1997 the Company issued an additional promissory note, due April 1999 for $15,000 to CMAC, under the Debt Restructuring Plan. The April notes are in default. NOTE 6 - CAPITAL LEASE Included in the acquisition of certain assets and liabilities of Systronix was the assumption of a purchase contract for a high performance dynamometer. This acquisition was financed through a capital lease. The lease required monthly payments of $22,000 and was scheduled to mature in May 1998. The Company was unable to continue making the monthly lease payments and the dynamometer was returned to the manufacturer, who was the holder of the lease. The excess of the undepreciated capital asset's cost over the remaining liability, which totaled $249,000, was charged to expense in 1998. - -------------------------------------------------------------------------------- Page F-27 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) July 31, 1999, 1998, and 1997 - -------------------------------------------------------------------------------- NOTE 7 - LEASE COMMITMENTS The Company assumed the lease of its Torrance facility when Systronix was purchased. The lease expires in February 2000. Future minimum lease payments under this lease agreement are $56,000 for the year ended July 31, 2000. Rent expense was $144,400, $164,500, and $225,000 for the years ended July 31, 1999, 1998, and 1997. NOTE 8 - INCOME TAXES (in thousands) The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose restrictions on the utilization of net operating losses in the event of an ownership change, as defined by Section 382 of the Internal Revenue Code of 1986. An ownership change occurred at the time of the private placement memorandums in 1991 and 1992, at the time of the common and preferred stock issuances in 1993, and upon conversion of certain debt to equity in subsequent years. This change will limit future availability of net operating loss carryforwards. The extent of the limitation has not been determined. A valuation allowance is required for those deferred tax assets that are not likely to be realized. Realization is dependent upon future earnings during the period that temporary differences and carryforwards are expected to be available. Because of the uncertain nature of their ultimate utilization, a full valuation allowance is recorded against these deferred tax assets. 1999 1998 ------- ------- Deferred tax assets Federal tax loss carryforward $23,574 $23,558 State tax loss carryforward 2,325 2,705 Basis difference 1,610 1,610 Reserves and allowances 118 107 Other, net 215 498 ------- ------- 27,842 28,478 Less valuation allowance 27,842 28,478 ------- ------- Net deferred tax asset $ -- $ -- ======= ======= Net operating losses expire as follows: Net Operating Loss --------------------------------- Date of Expiration Federal California ------------------ -------- ---------- 2000 $ 51 $ 16,730 2001 44 4,541 2002 11 2,778 2003 64 1,541 2004 322 709 2005 443 -- 2006 680 -- 2007 2,552 -- 2008 24,221 -- 2009 33,460 -- 2010 9,083 -- 2011 5,557 -- 2012 2,998 -- 2013 1,418 -- -------- -------- $ 80,904 $ 26,299 ======== ======== - -------------------------------------------------------------------------------- Page F-28 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) July 31, 1999, 1998, and 1997 - -------------------------------------------------------------------------------- NOTE 9 - STOCKHOLDERS' DEFICIT Series A preferred stock - Series A preferred stock is currently unregistered and convertible into common stock on a one-to-one basis at the election of the holder or automatically upon the occurrence of certain events, including: sale of stock in an underwritten public offering; registration of the underlying conversion stock; or the merger, consolidation or sale of more than 50% of the Company. Holders of Series A preferred stock have the same voting rights as common stockholders. The stock has a liquidation preference of $0.60 per share plus any accrued and unpaid dividends in the event of voluntary or involuntary liquidation of the Company. Dividends are non-cumulative and payable at the annual rate of $0.036 per share if, when, and as declared by, the Board of Directors. No dividends have been declared on the Series A preferred stock. In July 1993, the Board of Directors approved a plan for the sale of shares of Series A preferred stock to certain officers and directors (Participants) at $0.60 per share. In general, the Participants could purchase these shares for a combination of cash, promissory notes payable to the Company, and conversion of debt and deferred compensation due to the Participants. All shares issued under this plan were pledged to the Company as security for the notes. The notes provided for interest at 8% per annum payable annually, with the full principal amount and any unpaid interest due on January 31, 1997. The notes remain outstanding at July 31, 1999. The likelihood of collecting the interest on these notes is remote; therefore, beginning with the year ended July 31, 1998, accrued interest has not been recorded. Series B preferred stock - Series B preferred stock is currently unregistered and each share is convertible into shares of common stock at the election of the holder. The Series B preferred stock has certain liquidation and dividend rights prior and in preference to the rights of the common stock and Series A preferred stock. In 1999 and 1998, 49,000 shares of Series B preferred stock were converted each year into common stock on a 3.33 and 6.66-to-one basis, respectively. Other significant stock activity - In March 1997, the Company sold 12,000,000 unregistered shares of its common stock at $0.30 per share pursuant to a Regulation S Subscription Agreement resulting in net proceeds of $3,600,000. Also in 1997, the Company converted $600,000 of convertible secured notes to 2,000,000 shares of common stock at $0.30 per share. In conjunction with the acquisition of ITOCHU's debt, the Company's President purchased all of the outstanding common stock of ITOCHU Corporation, which totaled approximately 37,400,000 shares, for a purchase price of $1. In July 1999, the Company sold 86,666,666 unregistered shares of its common stock at $0.03 per share pursuant to a Regulation D Subscription Agreement, resulting in net proceeds of $2,600,000. Also in July 1999, the Company converted $400,000 of convertible secured notes to 13,333,000 shares of common stock at $0.03 per share. In July 1999, the Company's shareholders authorized an additional 200,000,000 shares of no par common stock. - -------------------------------------------------------------------------------- Page F-29 U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) July 31, 1999, 1998, and 1997 - -------------------------------------------------------------------------------- NOTE 10 - STOCK OPTIONS AND WARRANTS In 1993, stockholders approved the 1993 Employee and Consultant Stock Plan, which expires in 2003. Under the 1993 Employee and Consultant Stock Plan, the Company reserved 10,000,000 shares of common stock for incentive and nonstatutory stock options. The Company increased the number of shares of common stock reserved under the 1993 Plan to 15,000,000 in November 1993 and to 30,000,000 in September 1995. Options under the 1993 Plan expire over periods not to exceed ten years from date of grant. Options that expire or are canceled may become available for future grants under the 1993 Plan. In addition, the Company grants other nonstatutory stock options. Under the 1994 Director Stock Option Plan, the Company reserved 150,000 shares of common stock for nonstatutory stock options for nonemployee directors. Options under this plan are fully vested upon the granting of the options and expire ten years from the date of grant unless terminated sooner upon termination of the optionee's status as a director. Options that expire or are canceled may become available for future grants under the Director Option Plan. In 1997, in connection with the purchase of Systronix, stockholders approved the 1996 Stock Option Plan , which expires in 2006. The Company, during the term of the 1996 Plan, will at all times reserve and keep available such number of shares of common stock for incentive and non-qualified stock options as shall be sufficient to satisfy the requirements of the Plan. Options under the 1996 Plan expire over a period not to exceed ten years. In July 1999, the Company's shareholders authorized an increase in the number of shares available under the Plan from 15,000,000 to 45,000,000. The following summarizes common stock option activity (shares in thousands): 1996 Plan 1993 Plan ------------------------- ------------------------ Shares Price Shares Price --------- -------------- --------- -------------- Balance, July 31, 1996 -- $ -- 17,269 $ 0.30 - 0.60 Granted 10,367 0.30 -- -- Canceled (445) 0.30 (1,135) 0.30 Exercised -- -- -- -- Expired -- -- (38) 0.30 ----- ------ Balance, July 31, 1997 9,922 0.30 16,096 0.30 - 0.60 Canceled (1,403) 0.30 (4,650) 0.30 Expired (80) 0.30 (63) 0.30 ----- ------ Balance, July 31, 1998 8,439 0.30 11,383 0.30 - 0.60 ----- ------ Granted 1,765 0.10 -- -- Canceled (1,765) 0.30 (113) 0.30 Expired (49) 0.30 (159) 0.30 ----- ------ Balance, July 31, 1999 8,390 $0.10 - 0.30 11,111 $ 0.30 - 0.60 ===== ======
Director Option Plan Other ------------------------------ ------------------------ Shares Price Shares Price ---------- ------------- --------- ------------- Balance, July 31, 1996 20 $ 0.20 - 6.880 1,495 $ 0.60 - 2.80 Granted -- -- -- -- Canceled -- -- -- -- Exercised -- -- -- -- Expired -- -- -- -- ------- ----- Balance, July 31, 1997 20 0.20 - 6.88 1,495 0.60 - 2.80 Canceled (16) 0.20 - 6.88 -- -- Expired -- -- -- -- ------- ----- Balance, July 31, 1998 4 0.20 1,495 0.60 - 2.80 ------- ----- Granted 21 0.20 -- -- Canceled -- -- -- -- Expired -- -- -- -- ------- ----- Balance, July 31, 1999 25 $ 0.20 1,495 $ 0.60 - 2.80 ======= ===== - ------------------------------------------------------------------------------------------- Page F-30
U. S. ELECTRICAR, INC. NOTES TO FINANCIAL STATEMENTS (Continued) July 31, 1999, 1998, and 1997 - -------------------------------------------------------------------------------- The Company measures its employee stock-based compensation arrangements under the provisions of APB No. 25. Had compensation costs for the Company's stock option plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, the Company's net loss would have been increased by approximately $640,700, $549,900, and $307,000 for the years ended July 31, 1999, 1998, and 1997. The fair value of options granted were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 164%, (3) risk-free interest rate of 5.88% to 6.59%, and (4) an expected life of the options of 5 years. In May 1996, the Company issued 13,333,000 warrants in exchange for services performed. The warrants were exercisable at $0.30 per share for an equal number of shares of common stock, and expired on May 1, 1997. At September 24, 1998, negotiations were underway to extend the period of time in which the warrants could be exercised. If the market value of the common stock of the Company is equal to or greater than $0.60 per share on the date of exercise, and if the average trading volume was in excess of 100,000 shares per day for the preceding 20 trading days, the warrants may be exercised without payment of cash. The warrants may not be exercised in the United States, and the stock purchased may not be delivered to the United States unless first registered under the Securities Act or receive an available exemption from registration. In July 1999, the Company issued 50,000,000 warrants in conjunction with the sale of common stock. The warrants are exercisable at $0.06 per share for an equal number of shares of common stock, and expire in June 2004. The Company determined the fair value of the warrant to be $406,000. Factors used in determining the fair value included: (1) the effect on the stock price if the warrants were exercised, (2) the thinly traded nature of the stock, (3) the market for the warrants, (4) and the rate of return expected by the warrant holders. The following summarizes warrant activity (in thousands): Debt Conversion Other ---------- ------- Balance, July 31, 1997 -- 15,333 Granted -- -- Expired -- -- ------- ------- Balance, July 31, 1998 -- 15,333 Granted 50,000 -- Expired -- (15,333) ------- ------- Balance, July 31, 1999 50,000 -- ======= ======= NOTE 11 - RESEARCH AND DEVELOPMENT CONTRACTS The Company was obligated to perform research and development activities under development and licensing agreements. The agreements require the Company to design, develop, and test drive systems and deliver working prototypes. The Company retains all rights to the products developed and will license their use to the counter-party. Compensation for the research and development services is based on specified milestones set forth in each agreement. As of July 31, 1999, the Company had not performed all research and development activities required by the agreements. Revenue received under the development agreements recognized for the period ended July 31, 1999, was approximately $1,954,000. Related expenses are recorded in cost of revenues. - -------------------------------------------------------------------------------- Page F-31 EX-10.16 2 LETTER OF INTENT EXHIBIT 10.16 Letter of Intent This letter defines ******* intent to source to U.S. Electricar, Inc. dba Enova Systems the Traction Inverter, Charger & DC/DC Module (referred to as LVDS-30 and designed to meet the ************ Specification" dated November 5, 1999) requirements for its Low Voltage Electric Drive System. Purchase Orders will be issued to cover the Development and the Production supply portions of this Agreement. A Purchase Order for production supply will be issued and Releases against the Purchase Order will be issued periodically to cover actual customer demand. The terms and conditions of this relationship are outlined as follows: 1) U.S. Electricar, Inc. will provide all requested Traction Inverter, Charger & DC/DC Modules. 2) U.S. Electricar, Inc. fully warrants all parts for reliability to ******* of operation not to exceed ********* from date of sale of the parts to ********. This warranty period overrides the warranty period ***********************. 3) U.S. Electricar, Inc. will work with ******** and its suppliers to integrate their Traction Inverter, Charger & DC/DC Module with a Motor and Transaxle Assembly in order to provide a complete Electric Drive System for the vehicle program. 4) In the event that U.S. Electricar, Inc. files for bankruptcy under Chapter 7 of the U.S. Bankruptcy laws or is unable to supply systems in accordance with a reasonable delivery schedule, within the normal control of U.S. Electricar, Inc. operations, it grants ********* the right to continue manufacture of these assemblies with the current manufacturing operation or any other manufacturing operation selected by *********. It further grants ********* access to tooling, manufacturing and software (including controls, algorithms, source code, object code and binary code) information required to manufacture these assemblies, but not explicitly paid for or defined in this agreement. 5) ******** agrees to pay U.S. Electricar, Inc.: a) Piece price (***** units per year)......................$******* / assembly Piece price (***** units per year)......................$******* / assembly b) Development/ Design Fees.................................$******* Total fee (Fee will be paid upon completion of work in accordance with the following "Program Schedule" see Items I-V below.) c) Production Tooling Charges - TIM................................$******* d) Production Tooling Charges - DC/DC............................$******* e) Production Tooling Charges - Charger............................$******* f) Prototype Tooling Charges- TIM....................................$******* g) Prototype Tooling Charges- DD/DC................................$******* h) Prototype Tooling Charges- Charger................................$******* i) Prototype Parts - TIM...............**** $******* & *** $******* / assembly j) Prototype Parts - DD/DC ........... **** $******* & *** $******* / assembly k) Prototype Parts - Charger...........**** $******* & *** $******* / assembly 6) U. S. Electricar will provide ********* a BOM of the major components of the modules. The BOM will include both cost and manufacturer information. This information will provide ********* the required assurance that the system will be provided within the quoted cost and to the automotive quality required of this program. (**)-CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN RQUESTED WITH RESPECT TO THE OMITTED PORTION. 7) Shipping costs will be passed through and billed to ******** ** *******. The following schedule identifies the timing for completion and payment of work required to bring this program to production:
Program Schedule I. Design & Development, Testing & Tooling - (Lab Prototypes).......................$******* ********************************************************************* II. Design & Development, Testing & Tooling - (Veh Prototypes)........................$******* ********************************************************************* III. Design & Development - Production Ready...........................................$******* ********************************************************************* IV. Design & Development - Production Ready >>........................................$******* ********************************************************************* V. Design & Development - Production Ready...............*******.................... $******* ********************************************************************* VI. Production Tooling -..............................Upon Prove-out of Tool.........$******* *********************************************************************
The terms and conditions provided ********************* will apply to all Production; Prototype; Facilities; Tooling; Materials; and Services purchased in this agreement: I. *********** Terms for Production Parts and Non-Production Goods and Services (******,rev 4/97) excluding paragraphs 16c, d, e, and h, and paragraph 17 a, b, c, d (as amended and attached hereto as Attachment I). II. The "Additional Terms and Conditions" dated 12/9/99 and included as Attachment II. - --------------------------------- ------------------------------ ******** Carl Perry Director, Supply Management President and CEO ******** U.S. Electricar, Inc. ******** dba Enova Systems ******** 19850 S. Magellan Drive Torrance, CA 90502 Attachments 12/9/99 (**)-CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN RQUESTED WITH RESPECT TO THE OMITTED PORTION. Attachment I Terms for Production and Non-Production Goods and Services (**)-CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN RQUESTED WITH RESPECT TO THE OMITTED PORTION. Attachment II 12/9/99 Additional Terms and Conditions 1. DESCRIPTION OF CONTRACT SERVICES. The Seller shall provide, as requested by the Buyer, the following services: Provide engineering, design, prototype build and production manufacturing and delivery services to develop Seller's existing Inverter, Charger and DC/DC Modules and required tooling in order to meet Buyer's specifications for inclusion in a low voltage electric vehicle. The Buyer shall, at appropriate times, provide, in more specific detail, the work assignments to be performed by the employees provided by the Seller. Buyer shall designate in writing the person or persons authorized to make such work assignments on behalf of Buyer. To the extent that the Global Terms are inconsistent with the Additional Terms and Conditions set out in this Attachment, the Additional Terms and Conditions shall apply. 2. FEE FOR CONTRACT SERVICES. In consideration of the Contract Services to be performed as set out in Paragraph 1, Buyer will pay Seller based on the Design / Development fee as described in paragraph 5) of the Letter of Intent. 3. PLACE OF PERFORMANCE OF CONTRACT SERVICES; TRAVEL EXPENSES. The contract services shall be performed at a place or places designated by the Buyer. Except as otherwise provided, the Buyer shall not be responsible for travel expenses incurred by the Seller in the performance of Contract Services. In the case of exceptional travel expenses incurred by Seller at Buyers request, Buyer and Seller will consult upon responsibility for such expenses. 4. STATEMENTS; PAYMENT. Between the first and tenth day of each month, Seller shall furnish a statement, in a form agreed by Buyer, covering Contract Services rendered and travel expenses incurred during the preceding month. Seller shall include on each such statement Seller's purchase order number, date of invoice and invoice number. Buyer shall pay statements in good order within 30 days from receipt. Buyer shall have the right to audit Seller's records at any time prior to two years after final payment to verify payment obligation. The total fee payable to Seller for all Contract Services and expenses requested and provided under this Agreement, shall not exceed the fees identified in paragraph 5) of the Letter of Intent, and Seller shall not perform Contract Services or incur any expenses that causes the aggregate amount payable under this Agreement to exceed such amount without a written modification of this Agreement. (**)-CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN RQUESTED WITH RESPECT TO THE OMITTED PORTION. 5. RELATIONSHIP. Seller's relationship to Buyer under this Agreement shall be that of an independent contractor and not an employee or agent. Seller shall not represent or hold itself out as having any relationship with Buyer other than that of an independent contractor. No new assignments will be undertaken by Seller without securing prior written approval from Buyer's designated representative. Buyer shall not be responsible for any tax levied on Seller or Seller's employees or representatives by any governmental authority, relating to this Agreement or income attributed to Seller's employees or representatives. 6. TITLE TO WORK PRODUCT. All information and data Seller develops or acquires in performing contract services relating specifically to the LVDS-30 shall belong to Buyer, without further consideration, and shall be delivered to Buyer upon completion of this Agreement or earlier if requested. Buyer shall be free to use and disclose to others all information and data delivered in performing contract services. 7. WORK MADE FOR HIRE. Any work of authorship created by Seller in performing the services relating specifically to the LVDS-30 hereunder shall be considered as a specially ordered or commissioned "Work for Hire" and all copyrights for such works of authorship shall belong to Buyer. All such works of authorship shall bear a valid copyright notice designating ********* as the copyright owner. In the event any portion of the work of authorship created by the Seller in performing the services relating specifically to the LVDS-30 hereunder does not qualify as "Work for Hire," Seller shall acquire title to the copyright for such portion, and assign all acquired title and interest to Buyer. 8. TITLE TO INVENTIONS. Every invention, discovery and improvement made, conceived or reduced to practice in performing contract services relating specifically to the LVDS-30 belong to Buyer, without further consideration, and shall be reported to Buyer promptly. Upon request, Seller shall execute all documents and papers, and shall furnish all reasonable assistance required (i) to establish in Buyer title to such inventions, discoveries and improvements and (ii) to enable Buyer to apply for United States and foreign patents thereon. Seller grants to Buyer a fully-paid, irrevocable, non-exclusive license under all Intellectual Property of Seller necessary for Buyer to exercise such rights. Seller also agrees to grant to Buyer a non-exclusive license on reasonable terms and conditions under any other Intellectual Property of Seller embodied in supplies or services delivered hereinunder, to make, have made, use and sell articles and to use and have used processes. (**)-CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN RQUESTED WITH RESPECT TO THE OMITTED PORTION. 9. COPYRIGHT LICENSE. Seller hereby grants to Buyer and to its domestic and foreign subsidiaries a permanent, nonexclusive, paid-up worldwide license under each copyright owned or controlled or have the right to license for such purposes, in each work of authorship fixed in any tangible medium of expression furnished to Buyer or its designee in performing contract services, to use such work for Buyer's internal purposes, to reproduce such work, to prepare derivative works solely for use in connection with the incorporation of the LVDS-30 into electric vehicles and the sale, lease, repair and maintenance of such vehicles but for no other purpose, distribute copies of such work to the public, and perform and display such work publicly. 10. CONFIDENTIALITY. Seller and its employees shall use the information and data acquired from Buyer or third parties under this Agreement only in performing the Contract Services, and shall not disclose to any third party, during the period of this Agreement and thereafter, any such information and data that is not in the public domain. 11. LIABILITY FOR PERSONAL INJURIES AND PROPERTY DAMAGE. Seller shall be responsible for and shall hold Buyer harmless from all expenses, including legal fees, which arise from its performance hereunder and which are for actual or alleged injury to any person or damage to any property, including Buyer's property, except to the extent that such expenses are attributable to Buyer's negligence or willful misconduct. 12. EMPLOYMENT; THIRD PARTIES. Seller shall exercise reasonable care in the employment of personnel and third party contractors. Seller shall require each employee and third party to execute and deliver to Buyer an agreement under which the third party is bound to the terms set fourth in Paragraph 5 through 13 hereof. 13. COMPLIANCE WITH LAW AND GOVERNING LAW. Seller and its employees shall comply with all applicable laws and regulations in performing the services under this Agreement. This Agreement shall be construed and enforced in accordance with the laws of the State of********. Litigation on contractual causes arising from this agreement shall be brought only in a federal District Court located in******** or in a court of the State of********. (**)-CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN RQUESTED WITH RESPECT TO THE OMITTED PORTION. EX-10.17 3 PUT/CALL OPTION TO SELL ITOCHU SHARES EXHIBIT 10.17 Put /Call Option to Sell Itochu Shares In consideration of the respective put and call options granted below, the undersigned parties hereby agree as follows effective as of September 1, 1999: 1. The undersigned, Carl D. Perry ("Perry"), hereby grants U.S. Electricar, Inc., a California corporation doing business as Enova Systems ("Enova Systems"), the right to purchase 23,970,000 shares of Enova Systems common stock for $100,000 exercisable between March 25, 2000 through March 30, 2000 (the "Call Option"). Enova Systems may exercise the Call Option by delivering written notice of its exercise of the Call Option to Perry during such exercise period. Payment of the Call Option price shall be made at such time that Perry delivers the Shares to Enova Systems duly endorsed for transfer. 2. Enova Systems hereby grants to Perry the right to sell the Shares to Enova Systems for $50,000 exercisable between March 25, 2000 through March 30, 2000 (the "Put Option"). Perry may exercise the Put Option by delivering written notice of his exercise of the Put Option to Enova Systems during the exercise period. Payment of the Put Option price shall be made at such time that Perry delivers the Shares to Enova Systems duly endorsed for transfer. --------------------------------- Carl D. Perry U.S. Electricar, Inc. (doing business as Enova Systems) By: ----------------------------- (Signature) ----------------------------- (Print Name & Title) EX-23.1 4 CONSENTS OF EXPERTS AND COUNSEL EX-23.1 MOSS-ADAMS LLP - -------------------------------------------------------------------------------- CERTIFIED PUBLIC ACCOUNTANTS CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement Number 333-95701 on Form S-8 of our report dated February 17, 2000, appearing in this Annual Report on Form 10-K of U.S. Electricar, Inc., as of and for the five months ended December 31, 1999. /s/ Moss Adams LLP Santa Rosa, California March 28, 2000 EX-27 5 FINANCIAL DATA SCHEDULE
5 5-MOS DEC-31-1999 AUG-01-1999 DEC-31-1999 1,465 0 566 0 256 109 1,509 (1,283) 2,697 2,109 0 0 0 71,526 (81,193) 2,697 629 629 377 377 1,183 0 244 (1,175) 0 (1,175) 0 214 0 (961) (0.010) (0.010)
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