-----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, BCOMZB21M3BYOuVuQAKKZIvD3tO1w5Fn0B6oKKu/dX4rGdni+HOJuFeOUVu9TJhE pCsYxB0GWcjNl431JohiJg== 0000950005-99-000570.txt : 19990621 0000950005-99-000570.hdr.sgml : 19990621 ACCESSION NUMBER: 0000950005-99-000570 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990618 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: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25184 FILM NUMBER: 99649034 BUSINESS ADDRESS: STREET 1: 19850 SOUTH MAGELLAN DR CITY: TORRANCE STATE: CA ZIP: 90502 BUSINESS PHONE: 3105272800X103 MAIL ADDRESS: STREET 1: 19850 SOUTH MAGELLAN DR CITY: TORRANCE STATE: CA ZIP: 90502 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended April 30, 1999 or (_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _________________ To _________________. 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 (IRS employer identification number) incorporation or organization) 19850 South Magellan Drive Torrance, CA 90502 ----------------------------------------------------- (Address of Principal Executive Offices and Zip Code) 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 periods 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 (___) As of June 15, 1999, there were 222,789,681 shares of Common Stock, no par value, outstanding. 1 INDEX U.S. ELECTRICAR, INC. Page No. -------- PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited)...................................3 Consolidated Balance Sheets: April 30, 1999 and July 31, 1998...................................3 Consolidated Statements of Operations: Three and Nine months ended April 30, 1999 and 1998................4 Consolidated Statements of Cash Flows: Nine months ended April 30, 1999 and 1998..........................5 Notes to Consolidated Financial Statements: for the Nine months ended April 30, 1999 and 1998..................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............................10 PART II. OTHER INFORMATION Item 1. Legal Proceedings ................................................14 Item 2. Changes in Securities.............................................14 Item 3. Defaults upon Senior Securities...................................14 Item 4. Submission of Matters to a Vote of Security Holders...............15 Item 5. Other Matters.....................................................15 Item 6. Exhibits and Reports on Form 8-K..................................15 SIGNATURE ..................................................................17 EXHIBIT INDEX ..............................................................18 2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS U.S. ELECTRICAR, INC. BALANCE SHEET (In thousands, except for share and per share data) - -----------------------------------------------------------------------------------------------------------------------------------
As of As of April 30, July 31, 1999 1998 ------- ------- ASSETS (Unaudited) CURRENT ASSETS: Cash 6 266 Accounts receivable, net of allowances of $108 and $108 473 108 Inventory 280 492 Note receivable 0 250 Prepaids and other current assets 53 124 ------- ------- Total Current Assets 812 1,240 PROPERTY, PLANT AND EQUIPMENT - NET 234 318 OTHER ASSETS 100 100 ------- ------- TOTAL ASSETS 1,147 1,658 ======= ======= LIABILITIES AND SHAREHOLDERS' (DEFICIT) CURRENT LIABILITES: Accounts payable 2,457 2,448 Accrued payroll and related expense 371 358 Accrued warranty expense 329 474 Accrued Interest 1,758 1,262 Other accrued expenses 251 285 Customer deposits and deferred revenue 133 387 Bonds and notes payable 5,727 5,727 ------- ------- Total Current Liabilities 11,026 10,941 LONG TERM DEBT 3,332 3,332 SHAREHOLDERS' (DEFICIT): Series A preferred stock - No par value; 30,000,000 shares authorized; 3,301,000 and 3,321,000 shares issued and outstanding at 4/30/99 and 7/31/98 2,233 2,258 Series B preferred stock - No par value; 5,000,000 shares authorized; 1,291,000 shares issued and outstanding at 4/30/99 and 7/31/98 2,584 2,584 Stock notes receivable (1,149) (1,149) Common Stock - No par value; 300,000,000 shares authorized; 152,789,681 and 151,767,000 shares issued and outstanding at 4/30/99 and 7/31/98 68,767 68,742 Accumulated deficit (85,646) (85,050) ------- ------- Total Shareholders' (Deficit) (13,211) (12,615) ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) 1,147 1,658 ======= ======= Note: The balance sheet at July 31, 1998 has been derived from the audited financial statements at that date. See notes to consolidated financial statements.
3 U.S. ELECTRICAR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except for per share and share data) - ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended April 30, Nine Months Ended April 30, --------------------------------- --------------------------------- 1999 1998 1999 1998 ------------- ------------- ------------- ------------- NET SALES $ 793 $ 379 $ 1,963 $ 1,379 COST OF SALES 374 492 1,080 2,197 ------------- ------------- ------------- ------------- GROSS MARGIN 419 (113) 883 (818) ------------- ------------- ------------- ------------- OTHER COSTS AND EXPENSES: Research & development 55 41 233 251 Selling, general & administrative 353 292 921 1,844 Interest and financing fees 158 158 495 478 ------------- ------------- ------------- ------------- Total other costs and expenses 566 491 1,649 2,573 ------------- ------------- ------------- ------------- NET LOSS FROM OPERATIONS $ (147) $ (604) $ (766) $ (3,391) ============= ============= ============= ============= OTHER INCOME $ 135 $ -- $ 135 $ -- ============= ============= ============= ============= NET LOSS $ (12) $ (604) $ (631) $ (3,391) ============= ============= ============= ============= NET LOSS PER COMMON SHARE: $ (0.000) $ (0.004) $ (0.004) $ (0.022) ============= ============= ============= ============= WEIGHTED AVERAGE SHARES OUTSTANDING 152,789,681 151,205,668 152,789,681 151,198,005
4 U.S. ELECTRICAR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Nine Months Ended April 30, ---------------------------- 1999 1998 ------- ------- OPERATIONS Net loss (631) (3,391) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and Amortization 84 172 Provision to reduce inventory values 0 754 Loss on disposal of equipment 34 325 Interest income on stock notes receivable 0 (67) Change in operating assets and liabilities: Accounts Receivable (365) 538 Inventory 212 173 Note receivable 250 0 Prepaids and other assets 71 205 Accounts payable and accrued expenses 339 759 Customer deposits and deferred revenue (254) 187 ------- ------- Net cash used by operating activities (260) (345) ------- ------- INVESTING: Purchases of property, plant and equipment, net of disposals 0 (8) ------- ------- Net cash provided (used) by investing activities 0 (8) ------- ------- FINANCING: Payments on notes payable 0 0 Payments on capital leases 0 (16) Borrowings on notes payable 0 200 Proceeds from issuance of common stock 0 0 ------- ------- Net cash provided (used) by financing activities 0 184 ------- ------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (260) (169) CASH AND EQUIVALENTS: Beginning of period 266 333 ------- ------- End of period 6 164 ======= ======= 5 U.S. ELECTRICAR, INC, AND SUBSIDIARIES CONSOLIDATED STSTEMENTS OF CASH FLOWS (Continued) (UNAUDITED) (In thousands) - ----------------------------------------------------------------------------------------------------------------------------------- Nine Months Ended April 30, ---------------------------- 1999 1998 ------- ------- NONCASH INVESTING AND FINANCING ACTIVITIES: Conversion of Series A preferred stock to common stock $ 25 --
6 U. S. ELECTRICAR, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS For the Nine Months Ended April 30, 1999 and 1998 NOTE 1 - Basis of Presentation The accompanying unaudited financial statements have been prepared from the records of the Company without audit, and in the opinion of management, include all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at April 30, 1999 and the interim results of operations and cash flows for the nine months ended April 30, 1999. The balance sheet at July 31, 1998, presented herein, has been prepared from the audited financial statements of the Company for the fiscal year then ended. 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 July 31, 1998 and April 30, 1999 inventories are reported at market value. The inventory valuation adjustments are estimates based on sales of inventory subsequent to July 31, 1998, and the projected impact of certain economic, marketing and business factors. Inventories have been valued on the basis that they would be used, converted and sold in the normal course of business. Warranty reserves and certain accrual expenses are based upon an analysis of future costs expected to be incurred in meeting contracted obligations. The amounts estimated for the above, in addition to other estimates not specifically addressed, could differ from actual results; and the difference could have a significant impact on the financial statements. Accounting policies followed by the Company are described in Note 1 to the audited financial statements for the fiscal year ended July 31, 1998. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted for purposes of the interim financial statements. The financial statements should be read in conjunction with the audited financial statements, including the notes thereto, for the year ended July 31, 1998, which are included in the Company's Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 as filed with the Securities and Exchange Commission. The loss per common share is based on the weighted average of common shares outstanding. Potential dilution exists in earnings per share for the Nine months ended April 30, 1999 if common stock equivalents, consisting of unexercised stock options and warrants, were included in the calculation. The resulting dilution in the net loss per share, when compared to the loss of $0.004 currently reflected in the financial statements for the Nine months ended April 30, 1999, would be insignificant and, therefore, has not been calculated. The results of operations for the nine month period presented herein are not necessarily indicative of the results to be expected for the full year. NOTE 2 - Going Concern The Company has experienced recurring losses from operations and use of cash from operations and had an accumulated deficit of $85,050,000 at July 31, 1998 and $85,646,000 at April 30, 1999. A substantial portion of the losses are attributable to investments in research, development and other start-up costs associated with the Company's original focus on the development and 7 manufacture of electric vehicles, including electric buses, the conversion of gas powered cars and light trucks to electric power and off-road electric powered industrial vehicles. During the three years ended July 31, 1998, the Company obtained approximately $9 million (net of debt repayments) in cash from financial activities through private placements of common stock and Series A preferred stock, the exercise of options and warrants, and the issuance of convertible subordinated notes payable and secured convertible bonds and notes. During the fiscal year ended July 31, 1998, the Company received $200,000 from a European investor group in the form of a short term, non-interest bearing promissory note. It is management's intention to complete its debt restructuring and to seek additional financing through private placements as well as other means. In February 1999, the Company completed a sale of a license of certain technology to Hyundai Heavy Industries of Korea regarding its PantherTM Drive System. The Company received the two payments on this sale and is scheduled to receive the final payment during the fourth fiscal quarter. Furthermore, the Company is continuing to make progress in its attempts to reduce its outstanding debt and initiate discussions with outside investors to re-invigorate the Company and allow it to further develop its current drive systems and expand these technologies into new markets. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. It is possible that the cash flows from future operations may not be sufficient to enable the Company to meet its obligations. Market conditions and the Company's financial position may inhibit its ability to achieve profitable operations. These factors as well as the future availability or inadequacy of financing to meet future needs, could force the Company to delay, modify, suspend or cease some or all aspects of its planned operations, and/or seek protection under applicable state and federal bankruptcy and insolvency laws. NOTE 3 - Inventories Inventories are comprised of the following (in thousands): April 30, July 31, 1999 1998 ----- ----- (unaudited) Finished Goods $ 98 $ 120 Work-in-process 132 101 Raw materials 225 437 Valuation adjustment (175) (166) ----- ----- $ 280 $ 492 ===== ===== 8 U.S. ELECTRICAR, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 4 - Notes and Bonds Payable, Long-Term Debt and Other Financing Notes and bonds payable and long-term debt are comprised of the following (in thousands): April 30, July 31, 1999 1998 -------- -------- Convertible secured notes under a Supplemental Loan Agreement with ITOCHU Corporation; interest at 10%, principal and interest due April 1998, secured by the personal property of the parent company. On March 19, 1999, Carl Perry, the CEO of the Company, acquired all of the outstanding debt owed to the Itochu Corporation. In connection with certain subsequent equity and debt financing of the Company by two investors, Mr. Perry has agreed to forbear from taking any collection efforts or exercising any other remedies on this debt without their consent. $ 3,000 3,000 Secured promissory note - Credit Managers Association of California ("CMAC") as exclusive agent for Qualified Creditors; interest at 3%, with principal and interest due April 1999; secured with an interest in a sinking fund escrow consisting of 10% of any financing received subsequent to April 1996; the Board of Directors may waive the sinking fund set aside on a case-by-case basis. This note's maturity date has been extended to June 22, 1999. 307 307 Secured subordinated promissory note - CMAC as exclusive agent for Non-Qualified Creditors; interest at 3% for the first 5 years, 6% for years 6 and 7, and then at prime plus 3% through date of maturity; interest payments are made upon payment of principal, with principal and interest due no later than April 2016; secured with an interest in a sinking fund escrow as noted above; payments on this note are subordinated to payment in full on all principal and accrued interest owed on the above 3-year qualified note 3,332 3,332 Convertible secured promissory note payable to ITOCHU Corporation; interest at 10%, due December 1997; convertible into common stock at $0.30 per share. On March 19, 1999, Carl Perry, the CEO of the Company, acquired all of the outstanding debt owed to the Itochu Corporation. In connection with certain subsequent equity and debt financing of the Company by two investors, Mr. Perry has agreed to forbear from taking any collection efforts or exercising any other remedies on this debt without their consent. 1,300 1,300 Convertible promissory note payable to Fontal International, Ltd.; interest at 10%, due July, 1997; convertible into common stock at $0.30 per share. 800 800 Promissory note payable to a European investor group; no interest. 200 200 Other 120 120 -------- -------- 9,059 9,059 Less current maturities 5,727 5,727 -------- -------- $ 3,639 $ 3,639 ======== ======== 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The matters addressed in this report, with the exception of the historical information presented, incorporate certain forward-looking statements involving risks and uncertainties, including the risks discussed herein and in the report under the heading "Certain Factors That May Affect Future Results", as reported by the Company in the Form 10-K filed with the Commission on October 29, 1998. GENERAL U.S. Electricar, Inc. and Subsidiaries (the "Company") originally was established to develop, convert, assemble, manufacture and distribute battery-powered electric vehicles, including on-road pick-up trucks, passenger cars, buses and delivery vehicles, and off-road industrial vehicles. The Company's product lines originally included converted vehicles (originally built to be powered by internal combustion engines) and vehicles built specifically to be battery powered. The Company has refocused and restructured its product base and is directing its efforts toward 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's efforts relating to the converted vehicle program were discontinued. The Company's fiscal year ends July 31. All year references refer to fiscal years. In 1996, the Company acquired substantially all the tangible and intangible assets, and assumed certain liabilities, of Systronix Corporation (Systronix), a leading developer of proprietary electric propulsion drive systems, for stock, a note and cash in the amount of $2,686,000. This purchase led to the re-focus of the Company's strategic thrust into electric drive systems and their components. In March 1997, the Company completed an agreement with Hyundai Motor Company ("HMC") and Hyundai Electronics Industries Co., Ltd. ("HEI") whereby HMC and HEI collectively purchased $3.6 million of the Company's common stock for cash and secured a technology license for an additional payment of $2.0 million. For the technology license, the Company received $1,850,000 in cash and the remaining $150,000 is to be received over 6 years. During the Nine months ended April 30, 1999, the Company has continued to concentrate on the reduction of operating costs and outstanding debt. Business activities have been scaled back, and the Company is now focused primarily on the development of electric drive trains and related components, 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 ("DARPA"), including the analysis of a new plastic lithium ion vehicle battery concept, testing of advanced vehicle batteries and development of a shuttle bus. The Company also has several engineering contracts with the Hyundai Motor Company to design, develop and test electric drive train products and related products. Hyundai Motor Company 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 Panther(TM) drive system for their electric vehicles. The Company has completed the sale of a license to certain proprietary Panther(TM) Drive System software and hardware, for the Republic of Korea, to Hyundai Heavy Industries ("HHI") for further design and development of electric drive systems. The Company anticipates deriving further development contracts from this new relationship with Hyundai Heavy Industries as well as utilizing HHI to manufacture the Company's drive systems for international sales. 10 The Company is aggressively pursuing various avenues of revenue generation to increase its cash flow. These include further developing its relationship with the Hyundai Group, joint venturing with vehicle and bus manufacturers to utilize its drive train system, and developing a comprehensive marketing plan to penetrate various alternate niche markets for its drive system and its components. LIQUIDITY AND CAPITAL RESOURCES The Company has experienced significant recurring cash flow shortages due to operating losses primarily attributable to research, development, administrative and other expenses 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 and from various resources. At least until the Company reaches break-even volume in sales and develops and/or acquires the capability and technology necessary to manufacture and sell its electric vehicles profitably, it will continue to rely extensively on cash from debt and equity financing. During the Nine months ended April 30, 1999, the Company spent $260,000 in cash on operating activities to fund the net loss of $631,000 resulting from factors explained in the following section of this discussion and analysis. Accounts receivable increased by $365,000 primarily due to the sale of the technology to Hyundai Heavy Industries. Some of the Company's sales are in the form of prepaid engineering contracts, and these sales will not be reflected in accounts receivable. The current year's installment on the unpaid portion of the HMC technology license was reclassified from long-term to current receivables. Inventory decreased by $212,000, net of write-downs. Another factor in the net loss was the increase in accrued expenses. Interest accruing on notes payable has not been paid. Customer deposits decreased due to the further progress on the completion of prepaid engineering contracts. The operations of the Company during the Nine months ended April 30, 1999 were financed entirely by the funds received in the prior fiscal year and funds received on engineering contracts and technology licensing. WHILE THE COMPANY HAS RECENTLY BEEN SUCCESSFUL IN RESTRUCTURING A SIGINIFICANT PORTION OF ITS SECURED DEBT, IT REMAINS UNABLE TO PAY A SUBSTANTIAL PORTION OF ITS UNSECURED DEBT AND JUDGEMENT LIEN DEBT, WHICH REMAINS IMMEDIATELY DUE AND PAYABLE. IF THESE CREDITORS WERE TO DEMAND IMMEDIATE PAYMENT THROUGH COLLECTION EFFORTS OR OTHERWISE, THE COMPANY MIGHT BE FORCED TO SEEK PROTECTION UNDER APPLICABLE STATE AND FEDERAL BANKRUPTCY AND INSOLVENCY LAWS. THE COMPANY BELIEVES THAT ADDITIONAL FUNDING BEYOND ITS CURRENT RESOURCES AS OF JUNE 15, 1999, WILL BE REQUIRED IF IT IS TO EVER ACHIEVE PROFITABILITY AND PAY OFF ITS OUTSTANDING DEBT OBLIGATIONS. THERE IS NO ASSURANCE THAT SUCH ADDITIONAL FUNDS WILL BE AVAILABLE FROM ANY SOURCE. 11 RESULTS OF OPERATIONS Net sales increased $414,000 from the third quarter of 1998, and increased $584,000 in the first nine months as compared to the corresponding period of 1998. The increase was due mainly to the sale of the technology license to Hyundai Heavy Industries and the completion of certain milestones in the Company's Hyundai Motor Company and U.S. Government contracts. Development contracts with Hyundai Motor Company and the U.S. Government account for almost all of the Company's sales for 1999. The Company has effectively discontinued its converted vehicle program. Cost of sales in the third quarter of 1999 decreased to $374,000 on sales of $793,000, compared to cost of sales of $492,000 on sales of $379,000 in the third quarter of 1998. Research and development expense increased in the third quarter of 1999 by $14,000, from the third quarter of 1998. The Company has been hiring new technical staff in anticipation of additional contracts during fiscal 1999. The efforts expended by the technical staff are directed primarily toward completion of engineering contracts, such as the contracts for the Hyundai Group and federal and state government agencies. Selling, general and administrative expense increased $61,000 in the third quarter of 1999 from the previous year's comparable period. The increase in expenses was due to actions by the Company to begin to expand its operations and additional legal expenses in connection with certain restructuring transactions. Interest and financing fees remained constant at $158,000 in the third quarter of 1999 from $158,000 in the third quarter of 1998. The Company continues to negotiate with various debt holders regarding reducing the debt levels of the Company. The Company has begun to re-capture certain warranty expense accruals for warranties issued in prior years against sales of converted electric vehicles. As the warranty period expires, amounts previously accrued are being reflected as other income. In the current quarter, $135,000 has been credited against other income. The Company incurred a net loss of $12,000 in the third quarter of 1999 compared to a net loss of $604,000 in the third quarter of 1998. The overriding factor causing the difference was the reduction of selling, general and administrative expenses, as discussed above, and the re-capture of certain accruals for warranties previously charged against income. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS Future trends for the Company's revenue and profitability remain uncertain. 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 the Form 10-K, the Company's financial condition remains extremely precarious. The following discussion highlights certain of these risks. Going Concern / Net Operating Losses. The Company has experienced recurring losses from operations and had an accumulated deficit of $85,623,000 at April 30, 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. A substantial portion of the losses are attributable to product development and other start-up costs associated with the Company's business focus on the development, production and sale of battery powered electric vehicles. Cash flows from future operations may not be sufficient to enable the Company to achieve profitable operations. Market conditions and the Company's financial position may inhibit its ability to achieve profitable operations. 12 These factors, as well as others, indicate the Company may be unable to continue as a going concern unless it is able to obtain additional financing and generate sufficient cash flows to meet its obligations as they come due and sustain its operations. For the past twelve months, the Company has improved its ability to maintain operations from current revenues. At present, the Company is able to generate sufficient cash flow to support its operations on a monthly basis and we believe we should be able to do so over the next 12 months based on current cash flow projections. The Company has streamlined its operations sufficiently and has forecast sales and/or research and development contracts which will provide income adequate to fulfill these projections. The Company has signed a software licensing agreement with Hyundai Heavy Industries which will provide the Company with additional cash flow for the current fiscal year and the foreseeable near-term future. Furthermore, as part of this software license agreement, the Company anticipates acquiring additional research and development contracts from Hyundai Heavy Industries as well as Hyundai Motor Company. The Company is also in the process of finding new capital sources to expand its operations along the lines of its main product line. The Company is in discussions with various strategic partners to develop commercially viable vehicles for the various state and government agencies. The Company believes that by calendar year end it will have completed negotiations with the manufacturer of buses to incorporate the companies drive system into a new line of electric transportation vechiles. There is no assurance, however, that any such agreement will be consumated, or if consumated, on terms favorable to the Company. Continued Losses. For the fiscal years ended July 31, 1998, 1997 and 1996, the Company had substantial net losses of $3,525,000, $4,535,000 and $9,354,000 respectively on sales of $1,938,000, $4,484,000 and $4,209,000, respectively, and the Company incurred a net loss of $631,000 for the nine months ended April 30, 1999. Nature of Industry. The electric vehicle ("EV") industry is in its infancy. Although the Company believes that it has manufactured a significant percentage of the electric vehicles sold in the United States based upon its own knowledge of the industry, there are many large and small companies, both domestic and foreign, now in, poised to enter, or entering this industry. This EV industry is subject to rapid technological change. Most of the major domestic and foreign automobile manufacturers (1) have produced their own design-concept electric vehicles, and/or (2) have developed improved electric storage, propulsion and control systems, and/or (3) have entered or are planning to enter the field. Various non-automotive companies are also developing improved electric storage, propulsion and control systems. Growth of the present limited demand for electric vehicles depends upon (a) continued and future regulation and legislation requiring more use of non-polluting vehicles, (b) the environmental consciousness of customers and (c) the ability of electric vehicles to successfully compete with vehicles powered with internal combustion engines on price and performance. Changed Legislative Climate. Because vehicles powered by internal combustion engines cause pollution, there has been significant public pressure in Europe and Asia, and enacted or pending legislation in the United States at the federal level and in certain states, to promote or mandate the use of vehicles with no tailpipe emissions ("zero emission vehicles") or reduced tailpipe emissions ("low emission vehicles"), such as hybrid vehicles. Legislation requiring or promoting zero emission vehicles is necessary to create a significant market for electric vehicles. There can be no assurance, however, that further legislation will be enacted or that current legislation or state 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. For example, the State of California recently extended the deadline for compliance with mandates for implementation of zero emission vehicle requirements from 1998 to 2003. 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. 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings: In 1995, the Company restructured approximately 22 million dollars 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 $650,000.00. As of September 24, 1998, nine of these unsecured creditors have obtained judgment totaling approximately $450,000.00. The remaining suits are either pending resolution or have been discontinued. At this time, the Company anticipates minimal impact from the resolution of any of these lawsuits or judgments as all assets of the Company are collateralized against a priority security interest 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 Company is vigorously defending its responsibility in this matter and has retained outside legal counsel and has filed a response. As of June 15, 1999, the potential liability to the Company is unknown. In April 1999, the Company became a defendant in a lawsuit filed by the City of Napa regarding certain electric vehicles sold by U.S. Electricar to the City of Napa. The suit alleges that the vehicles did not meet certain performance specifications and seeks damages. The Company does not concur with the suit's claims and believes that it will ultimately be able to settle this matter. The Company has retained legal counsel and has filed a response denying all claims. Item 2. Changes in Securities: None. Item 3. Defaults Upon Senior Securities: The Company has outstanding secured notes under a Supplemental Loan Agreement originally entered into with Itochu Corporation in the principal amount of $3,000,000, with principal and interest due April 17, 1998. The notes are secured by personal property of the Company. The interest rate is ten percent (10%) per annum, and the notes are convertible into shares of the Company's common stock at the rate of $0.30 per share. As of June 15, 1999, the principal and interest due under the notes have not been paid, resulting in a continued event of default under the terms of the notes. On March 19, 1999, Carl Perry, the CEO of the Company, acquired all of the outstanding debt owed to the Itochu Corporation. In connection with certain subsequent equity and debt financing of the Company by two investors, Mr. Perry has agreed to forbear from taking any collection efforts or exercising any other remedies on this debt without their consent. 14 During the period from December 1996 through February 1997, the Company and Itochu Corporation executed several loan agreements whereby Itochu extended loans to the Company in the aggregate amount of $1,300,000. The loans were evidenced by promissory notes which provide for a due date of December 26, 1997, an interest rate of ten percent (10%) per annum, and the right to convert principal and accrued interest at any time into shares of the Company's common stock at the rate of $0.30 per share. As of June 15, 1999, the principal and interest due under the notes have not been paid, resulting in a continued event of default under the terms of the notes. On March 19, 1999, Carl Perry, the CEO of the Company, acquired all of the outstanding debt owed to the Itochu Corporation. In connection with certain subsequent equity and debt financing of the Company by two investors, Mr. Perry has agreed to forbear from taking any collection efforts or exercising any other remedies on this debt without their consent. During the period from January 1997 through April 1997, the Company and Fontal International, Ltd. executed several loan agreements whereby Fontal extended loans to the Company in the aggregate amount of $800,000. The loans were evidenced by promissory notes which provide for a due date of July 9, 1997, an interest rate of ten percent (10%) per annum, and the right to convert principal and accrued interest at any time into shares of the Company's common stock at the rate of $0.30 per share. As of June 15, 1999, the principal and accrued interest due under the notes has not been paid, causing an event of default under the terms of the notes. Discussions about extending the maturity date of the notes are underway. As of June 15, 1999, the holder of the notes had not yet exercised any of its remedies with respect to the notes. Item 4. Submission of Matters to a Vote of Securities Holders: None Item 5. Other Matters: Purchase of Common Stock and Secured Convertible Promissory Notes by Carl Perry from ITOCHU Corporation On March 19, 1999, ITOCHU Corporation, a Japanese corporation ("ITOCHU"), and Carl D. Perry, the Corporation's Chief Executive Officer, entered into a Share and Note Purchase Agreement ("SNP Agreement"). Under the terms of the SNP Agreement, ITOCHU agreed to sell to Mr. Perry a total of 37,348,289 shares of the Corporation's Common Stock ("Shares") and to sell and assign to him all principal, interest and other rights under certain outstanding notes and convertible notes (collectively, the "Notes") in the principal amount of $4.3 million and related security agreements issued by the Corporation to ITOCHU from 1995 through 1997. Immediately following the sale of the Notes and Shares, ITOCHU no longer held any interest in the Corporation and Mr. Perry held more than twenty percent (20%) of the Corporation's outstanding common stock. Under the terms of the SNP Agreement, the Corporation agreed to indemnify, defend and hold harmless ITOCHU from and against any claims arising out of the Notes and Shares, the Corporation or its business. 15 Subsequent Financing On June 7, 1999, the Company sold (i) 70,000,000 shares of its Common Stock at $0.03 per share for an aggregate purchase price of $2,100,000 and (ii) a secured convertible promissory note to acquire 13,333,334 Common Stock shares at $0.03 per share and a Warrant to purchase 41,666,666 Common Stock shares at an exercise price of $0.06 per share for an aggregate purchase price of $400,000 (exclusive of the Warrant exercise price). In addition, subject to certain subsequent conditions, in connection with this transaction the Company agreed to sell no later than July 31, 1999, a secured convertible promissory note to acquire 16,666,666 Common Stock shares at $0.03 per share and a Warrant to purchase 8,333,334 Common Stock shares at an exercise price of $0.06 per share for an aggregate purchase price of $500,000 (exclusive of the Warrant exercise price). Year 2000 Compliance The Company is currently reviewing and upgrading, when necessary, all software and hardware systems to verify Year 2000 compliance. The Company has converted its accounting software to a system which is Y2K compliant. All engineering information systems have been analyzed and are deemed to be Y2K compliant. The Company is upgrading hardware systems as necessary to be Y2K compliant and projects that all systems will be Y2K ready by June 1999. Non-IT systems are currently Y2K compliant. Historical costs associated with the Y2K issue including analysis and upgrades have been approximately $4,500.00. Due to nature of the Company's operations, the Company does not believe its exposure to disruptions as a result of the Y2K issues at the Company's suppliers and customers will be material. The Company has had verbal discussions with its major customer and is confident that it will be in compliance prior to the year 2000. In as much as the Company does not have a "major" supplier of goods or services, we do not feel that a disruption at any particular vendor will materially affect the Company's operations. At this time, the Company has not begun a full-scale assessment of suppliers and customers Y2K compliance; however, we have had informal discussions regarding the issue with various suppliers. Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits: None (b) Reports on Form 8-K None. 16 SIGNATURE Pursuant to the requirements of Section 13 or 15 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on June 15, 1999. U.S. ELECTRICAR, INC. (Registrant) /s/ Carl D. Perry - -------------------------------------------------------------------------------- By: Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer 17 EXHIBIT INDEX Exhibit No. Description Page No. - -------------------------------------------------------------------------------- 27 FDS 17 18 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JUL-31-1999 FEB-01-1999 APR-30-1999 6 0 473 0 280 53 1,389 1,155 1,147 11,026 0 0 4,817 67,618 0 1,147 1,963 1,963 1,080 1,080 1,154 0 495 (631) 0 (631) 0 0 0 (631) (0.004) (0.004)
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