SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

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

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

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

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


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


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

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

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

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  as of  October  23,  1997  was  $5,110,000.  For  purposes  of  this
calculation  only,  (i) shares of Common Stock and Series A Preferred  Stock are
deemed to have a market  value of $0.085 per share,  and the Series B  Preferred
Stock is deemed to have a market value of $0.57 per share,  based on the average
of the high bid and low ask prices of the Common Stock on October 23, 1997,  and
(ii) each of the executive officers, directors and persons holding 5% or more of
the outstanding  Common Stock (including Series A and B Preferred Stock on an as
converted basis) is deemed to be an affiliate.

The number of shares of Common  Stock  outstanding  as of October  23,  1997 was
151,205,668.

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


<PAGE>


                              U.S. ELECTRICAR, INC.

                          1997 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

                                     PART I

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

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

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

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

                                     PART II

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

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

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

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

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

                                    PART III

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

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

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

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

                                     PART IV

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


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


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

                                       2
<PAGE>

                                     PART I

Item 1.  Business

General

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

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

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

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

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

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

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

Debt Restructuring

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

                                       3
<PAGE>

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

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

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

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

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

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

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

                                       4
<PAGE>

Environmental Initiatives and Legislation

         The  legislative  climate has changed in California  and at the federal
level in regard to alternative fuel and zero emmission  vehicles  ("ZEV").  Most
significantly,  the State of  California  decided  to amend its  timing  for the
mandated  introduction  of ZEV from 1998 to 2003. The U.S.  Department of Energy
also modified  their rules  governing  how state fleets and utility  fleets must
comply with the Energy  Policy Act of 1992 on  alternative  fuel  transportation
programs.


Relationships of Affiliated Companies

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

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

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

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


Products

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


On-Road Vehicles

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

                                       5
<PAGE>

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

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


Off-Road Vehicles

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


Strategic Partnering And Technology Developments

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

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


Electric Drive System

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

                                       6
<PAGE>

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

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

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

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

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

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

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

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

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

 Battery/Charging System

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

                                       7
<PAGE>

International Market

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

Warranties/Customer Service Plan

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


Competitive Conditions

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

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

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

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

                                       8
<PAGE>

On-Road Cars and Light Trucks

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


Off-Road Trucks

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


Off-Road Industrial Vehicles

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

Research and Development

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

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

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

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

Licenses, Patents and Trademarks

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

                                       9

<PAGE>

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


Backlog

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

Employees

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

Item 2.   Properties

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

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

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

Item 3.  Legal Proceedings

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

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

         None

                                       10
<PAGE>

PART II

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

         The Company's Common Stock is presently traded in the  over-the-counter
market and quoted on the  National  Association  of  Securities  Dealers  (NASD)
"Bulletin  Board" under the symbol  "ECAR." The  following  table sets forth the
high and low prices of the Common Stock as reported on the NASD  Bulletin  Board
by the National Quote Bureau for the fiscal  quarters  indicated.  The following
over-the-counter  market quotations reflect inter-dealer prices,  without retail
mark-up,  mark-down or  commission,  and may not  necessarily  represent  actual
transactions.

                               Common Stock                        Average Daily
                               High/Low Bid - High/Low Asking          Volume
    Fiscal 1996
    First Quarter..........    $0.25/$0.13   -  $0.26/$0.14              *
                                
    Second Quarter.........    $0.55/$0.13   -  $0.57/$0.14              *
                                
    Third Quarter..........    $0.49/$0.17   -  $0.52/$0.20              *
                                
    Fourth Quarter.........    $0.56/$0.24   -  $0.61/$0.27              *
                            


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

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

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

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


*Volume information not available.

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

Dividend Policy

         To date,  the Company has neither  declared nor paid any cash dividends
on shares of its Common  Stock or Series A or B  Preferred  Stock.  The  Company
presently  intends to retain all future  earnings  for its business and does not
anticipate  paying cash dividends on its Common Stock or Series A or B Preferred
Stock in the  foreseeable  future.  However,  the  Company  is  required  to pay
dividends on its Series A and B Preferred Stock before  dividends may be paid on
any shares of Common  Stock.  At July 31, 1997,  the Company had an  accumulated
deficit of approximately $81,525,000 and, until this deficit is eliminated, will
be  prohibited  from paying  dividends  on any class of stock  except out of net
profits, unless it meets certain asset and other tests under Section 500 et.
seq. of the California Corporations Code.

                                       11

<PAGE>
<TABLE>

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

                                                                   1997           1996           1995           1994           1993
                                                              ---------      ---------      ---------      ---------      ---------
<S>                                                           <C>            <C>            <C>            <C>            <C>      
NET SALES                                                     $   4,484      $   4,209      $  11,625      $   5,787      $     863
COST OF SALES                                                     2,042          5,370         20,210          6,372            802
                                                              ---------      ---------      ---------      ---------      ---------
GROSS MARGIN                                                      2,442         (1,161)        (8,585)          (585)            61
                                                              ---------      ---------      ---------      ---------      ---------
OTHER COSTS AND EXPENSES
      Research and Development                                    1,218          1,401          6,697          7,724            376
      Selling, general and administrative                         3,116          5,608         13,952         12,638          1,953
      Interest and financing fees                                   792          1,890          5,732            339            146
      Other expense (income)                                        274            740            449             17             24
      Acquisition of research and development                     1,630
      Market development expense                                                                   77          3,718
      Facility closures and consolidations
      of operations                                                                701          2,378
                                                              ---------      ---------      ---------      ---------      ---------
      Total other costs and expenses                              7,030         10,340         29,285         24,436          2,499
                                                              ---------      ---------      ---------      ---------      ---------
LOSS FROM CONTINUING OPERATIONS                                  (4,588)       (11,501)       (37,870)       (25,021)        (2,438)
LOSS FROM DISCONTINUED OPERATIONS                                                                                              (169)
GAIN ON DEBT RESTRUCTURING                                           53          2,147            305
                                                              ---------      ---------      ---------      ---------      ---------
NET LOSS                                                      $  (4,535)     $  (9,354)     $ (37,565)     $ (25,021)     $  (2,607)
                                                              =========      =========      =========      =========      =========
PER COMMON SHARE:
      Loss from continuing operations                         $   (0.03)     $   (0.17)     $   (1.88)     $   (2.61)     $   (0.54)
      Loss from discontinued operations                                                                                       (0.04)
      Gain on debt restructuring                                                  0.03           0.02                             
                                                              ---------      ---------      ---------      ---------      ---------
      Net loss per common share                               $   (0.03)     $   (0.14)     $   (1.86)     $   (2.61)     $   (0.58)
                                                              =========      =========      =========      =========      =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING                                              133,806         67,906         20,156          9,571          4,487
                                                              =========      =========      =========      =========      =========
      Total Assets                                            $   4,513      $   4,363      $  10,230      $  21,306      $   5,453
                                                              =========      =========      =========      =========      =========
      Long-term debt                                          $   3,639      $   3,987                     $   9,980      $   1,020
                                                              =========      =========      =========      =========      =========
      Shareholders' equity (deficit)                          $  (9,095)     $ (12,736)     $ (24,760)     $   1,605      $   2,421
                                                              =========      =========      =========      =========      =========
</TABLE>
                                       12

<PAGE>


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

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

GENERAL

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

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

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

                                       13

<PAGE>

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

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

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

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

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

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

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

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

                                       14
<PAGE>

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

RESULTS OF OPERATIONS

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

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

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

Research and  development  expense of $1,218,000 in 1997 declined  $183,000,  or
13.1% from 1996. The decline is the result of a continuation of the reduction of
technical  resources  by the Company,  although  this was offset by the October,
1996  acquisition  of  Systronix  Corporation,  which is  primarily  a  research
company.   The  product   development  costs  incurred  in  the  performance  of
engineering  development contracts is charged to cost of sales for this contract
revenue.  Non-funded  development costs are reported as research and development
expense.  Research and  development  expense  declined  $5,296,000  in 1996 from
$6,697,000 in 1995.  During the last half of 1995 and through 1996,  the Company
has reduced its  engineering  staff and  decreased  its  purchasing of technical
services due to a severe lack of funds.

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

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

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

                                       15
<PAGE>

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

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

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

In connection with the settlement of $11.7 million of unsecured trade debt under
the Company's Debt  Retructuring  Plan,  several  unsecured  creditors agreed to
settle their claims for amounts  less than the original  debt owed to them.  The
reductions from the original amounts owed and the settlement amounts resulted in
a gain on debt  restructuring of $2,147,000 in 1996.  Additional  settlements in
1997 resulted in a gain on debt restructuring of $53,000 for 1997.

As a result of the foregoing  changes in net sales,  cost of sales,  other costs
and expenses and gain on debt restructuring,  the net loss of $4,535,000 for the
year decreased  $4,819,000 or 51.5% from $9,354,000 in 1996, while the Company's
net loss decreased $28,211,000, or 74.6%, from $37,565,000 in 1995.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

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

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

Continued  Losses.  For the fiscal years ended July 31, 1997, 1996 and 1995, the
Company had  substantial net losses of $4,535,000,  $9,354,000 and  $37,565,000,
respectively on sales of $4,484,000, $4,209,000 and $11,625,000, respectively.

Nature  of  Industry.  The  electric  vehicle  ("EV")  industry  is still in its
infancy.  Although the Company  believes that it has  manufactured a significant
percentage of the electric vehicles sold in the United States based upon its own
knowledge  of the  industry,  there are many  large and  small  companies,  both
domestic and foreign,  now in, poised to enter, or entering this industry.  This
EV industry is subject to rapid technological change. Most of the major domestic
and foreign automobile  manufacturers (1) have produced  design-concept electric
vehicles,  and/or (2) have developed  improved electric storage,  propulsion and
control  systems,  and/or (3) are now  entering  or planning to enter the field.
Various non-automotive  companies are also developing improved electric storage,
propulsion  and  control  systems.  Growth of the  present  limited  demand  for
electric vehicles depends upon (a) future  regulation and legislation  requiring
more use of  non-polluting  vehicles,  (b) the  environmental  consciousness  of
customers and (c)

                                       16
<PAGE>

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

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




Item 8.  Financial Statements and Supplementary Data

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

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

None.


(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)


                                       17
<PAGE>

PART III

Item 10. Directors and Executive Officers of the Registrant

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

Item 11. Executive Compensation

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

Item 12. Security Ownership of Certain Beneficial Owners and Management

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

Item 13. Certain Relationships and Related Transactions

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


         (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

                                       18
<PAGE>

PART IV

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

(a)1.    Financial Statements

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

(a)2.    Financial Statement Schedules

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

(a)3.    Exhibits

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

(b)      Reports on Form 8-K

         None


         (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)


                                       19
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf of the undersigned, thereunto duly authorized, on October 27, 1997.

U.S. ELECTRICAR, INC.

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


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


                                POWER OF ATTORNEY

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

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


Signature                           Title                      Date

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

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

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


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


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


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


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


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

                                       20
<PAGE>

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


                                       22

<PAGE>

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

                             U. S. ELECTRICAR, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                        PAGE

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

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

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

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

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

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

                                       22

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

<PAGE>


INDEPENDENT AUDITOR'S REPORT


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


We  have  audited  the  accompanying   consolidated  balance  sheets  of  U.  S.
Electricar,  Inc.  as of July 31, 1997 and 1996,  and the  related  consolidated
statements of operations,  stockholders' deficit, and cash flows for each of the
three  years  ended  July  31,  1997.   These   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of U. S. Electricar,
Inc.  as of July 31,  1997  and  1996,  and the  consolidated  results  of their
operations and their cash flows for each of the three years ended July 31, 1997,
in conformity with generally accepted accounting principles.

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

                                                       /s/ MOSS ADAMS LLP


Santa Rosa, California
August 22, 1997

                                                                        Page F-1

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                                     CONSOLIDATED BALANCE SHEETS

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

                                     ASSETS

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

                              Total current assets              3,232      3,440

PROPERTY, PLANT AND EQUIPMENT                                   1,099        835

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

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


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

<PAGE>


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

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

                                                LIABILITIES AND STOCKHOLDERS' DEFICIT

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

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

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

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

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

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


<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Page F-3
</TABLE>


<PAGE>


<TABLE>
                                                                                                              U. S. ELECTRICAR, INC.
                                                                                               CONSOLIDATED STATEMENTS OF OPERATIONS

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

Years Ended July 31,                                                         1997                   1996                   1995
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                    <C>                    <C>          
NET SALES                                                               $       4,484          $       4,209          $      11,625

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

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

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

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

<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Page F-4
</TABLE>


<PAGE>


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

<CAPTION>
                                                                 PREFERRED STOCK
                                                     --------------------------------------------
                                                          SERIES A                 SERIES B           COMMON STOCK
                                                     --------------------    --------------------  --------------------  STOCK NOTES
                                                      SHARES      AMOUNT      SHARES     AMOUNT     SHARES      AMOUNT    RECEIVABLE
                                                     --------    --------    --------   --------   --------    --------    --------
<S>           <C> <C>                                   <C>      <C>         <C>        <C>          <C>       <C>         <C>      
BALANCE, JULY 31, 1994                                  9,353    $  7,118               $   --       15,518    $ 25,652    $ (1,094)


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

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

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

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

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

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

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

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

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



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


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

COMPENSATION RECOGNIZED FOR
    STOCK OPTIONS                                          --               200

INTEREST ON STOCK NOTES
    RECEIVABLE                                             --               (57)

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

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

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

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

INTEREST ON STOCK NOTES
    RECEIVABLE                                             --               (74)

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


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


<PAGE>


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

<CAPTION>
                                                                PREFERRED STOCK
                                                 --------------------------------------------
                                                       SERIES A                 SERIES B              COMMON STOCK   
                                                 --------------------      --------------------    -------------------   STOCK NOTES
                                                  SHARES       AMOUNT       SHARES      AMOUNT      SHARES      AMOUNT    RECEIVABLE
                                                 --------     --------     --------    --------    --------    --------  -----------
<S>                                                  <C>          <C>            <C>         <C>     <C>          <C>         <C>   
PREFERRED STOCK TRANSACTION
  Conversion of unsecured debt                       --           --             42         85         --          --          --   

COMMON STOCK TRANSACTIONS
  Sales under Regulation S
  subscription agreement                             --           --           --          --        12,000       3,600        --   
  Systronix acquisition                              --           --           --          --         3,800         760        --   
  Conversion of Series S Bonds
  and accrued interest                                                                               10,732       3,219
  Conversion of Series A
  preferred stock                                    (389)        (440)        --          --           389         440        --   
  Conversion of Series B
  preferred stock                                                              (289)      (578)       1,927         578        --   
  Conversion of debt
                                                     --           --           --          --         2,000         600        --   

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

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

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


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

PREFERRED STOCK TRANSACTION
  Conversion of unsecured debt                             --                85

COMMON STOCK TRANSACTIONS
  Sales under Regulation S
  subscription agreement                                   --             3,600
  Systronix acquisition                                    --               760
  Conversion of Series S Bonds
  and accrued interest                                                     3,219
  Conversion of Series A
  preferred stock                                          --              --   
  Conversion of Series B
  preferred stock                                          --              --   
  Conversion of debt
                                                           --               600

INTEREST ON STOCK NOTES RECEIVABLE                                          (88)

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

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


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

<PAGE>


<TABLE>
                                                                                                              U. S. ELECTRICAR, INC.
                                                                                               CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                                                      (In thousands)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Years Ended July 31,                                                                       1997             1996             1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>              <C>              <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                                            $ (4,535)        $ (9,354)        $(37,565)
     Adjustments to reconcile net loss to net
        cash used by operating activities:
             Depreciation and amortization                                                    578              968            6,864
             Provision for facility closures and consolidation
                of operations                                                                --                701              770
             Change in allowance for doubtful accounts                                       (319)              93               44
             Provision to reduce inventory values                                             308             --               --
             Gain on debt restructuring                                                       (53)          (2,147)            (305)
             Changes in valuation allowances and reserves                                  (1,011)          (1,449)           2,721
             Purchase of research and development                                           1,630             --               --
             Stock issued for services                                                       --               --                201
             Stock option compensation                                                       --               --                200
             Gain on sale of Industrial Electric Vehicles                                    (158)            --               --
             Interest income on stock notes receivable                                        (88)             (74)             (57)
             Accretion on royalties payable                                                  --               --                 65
             Write-off of development costs and leasehold
                improvements                                                                 --                137              733
             Interest converted to common stock                                               194            1,575             --
         Change in operating assets and liabilities:
             Accounts receivable                                                              (54)             415              143
             Inventories                                                                      589            4,916             (837)
             Prepaids and other current assets                                                (53)             302              838
             Accounts payable and accrued expenses                                            (39)             (27)           8,153
             Deferred revenues                                                               --                250             --
             Customer deposits                                                               (164)            (690)          (1,006)
                                                                                         --------         --------         --------

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

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

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


<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Page F-7
</TABLE>


<PAGE>


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

<CAPTION>
                                                                                                                      (In thousands)
------------------------------------------------------------------------------------------------------------------------------------
Years Ended July 31,                                                                     1997              1996              1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                 <C>               <C>  
CASH FLOWS FROM FINANCING ACTIVITIES
     Payments on notes payable                                                           (3,021)             (259)             (282)
     Payments on capital leases                                                            (152)             --                --
     Borrowings on notes payable                                                          3,122             2,608             3,853
     Borrowings on debentures and bonds                                                    --                --              12,000
     Notes payable and bonds issuance costs                                                --                --              (1,860)
     Proceeds from issuance of common stock                                               3,350             2,701               900
     Exercise of options and warrants                                                      --                  28               158
     Stock issuance costs                                                                  --                --                (171)
                                                                                       --------          --------          --------

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

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

CASH

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

<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Page F-8
</TABLE>


<PAGE>

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

<CAPTION>
                                                                                                                      (in thousands)
------------------------------------------------------------------------------------------------------------------------------------
Years Ended July 31,                                                                                1997         1996         1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                               <C>           <C>          <C>    
SUPPLEMENTAL CASH-FLOW INFORMATION:
     Cash paid during the year for interest                                                       $   162       $    30      $   106

NON-CASH INVESTING AND FINANCING ACTIVITIES:
     Conversion of debt to common stock                                                           $   600       $   210      $ 8,049
     Conversion of debt to Series B preferred stock                                               $    85       $ 3,175      $  --
     Conversion of Series A preferred stock to common stock                                       $   440       $ 2,165      $ 1,970
     Conversion of Series B preferred stock to common stock                                       $   578       $  --        $  --
     Notes issued in connection with debt restructuring                                           $    15       $ 4,148      $  --
     Excess of fair market value over exercise price of warrants
         issued in connection with convertible bonds                                              $  --         $  --        $ 1,920
     Issuance of common stock for notes receivable                                                $  --         $  --        $    16
     Conversion of deferred revenues to common stock                                              $   250       $  --        $  --
     Conversion of Series S bonds to common stock                                                 $ 3,000       $15,338      $  --
     Assumption of notes payable in connection with acquisition                                   $   800       $  --        $  --
     Note issued in connection with acquisition                                                   $   830       $  --        $  --
     Note assumed by buyer in connection with sale of Industrial
         Electric Vehicles                                                                        $(1,013)      $  --        $  --
     Conversion of accrued interest to common stock                                               $   219       $  --        $  --
     Conversion of accrued interest to notes payable                                              $   139       $  --        $  --
     Acquisition of assets through capital lease                                                  $   361       $  --        $  --
     Sale of net assets of Industrial Electric Vehicles                                           $   858       $  --        $  --
     Acquistion of certain  assets,  related debt and  research and  development
         from Systronix Corporation for debt and stock options, net                               $  (819)      $  --        $  --

<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Page F-9
</TABLE>


<PAGE>


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

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

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

Income taxes - Deferred income taxes are recognized using enacted tax rates, and
are  composed of taxes on  financial  accounting  income  that is  adjusted  for
requirements  of current tax law, and  deferred  taxes.  Deferred  taxes are the
expected future tax consequences of temporary  differences between the financial
statement carrying amounts and tax bases of existing assets and liabilities.

Revenue  recognition - Revenue from the sale of electric  vehicles is recognized
when the vehicle is delivered to the customer.

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

Concentrations  of  risk -  Financial  instruments  potentially  subjecting  the
Company to  concentrations  of credit  risk  consist  primarily  of bank  demand
deposits that may, from time to time, be in excess of FDIC insurance thresholds.
Cash is deposited with known creditable financial institutions.

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

<PAGE>


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

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

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

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


NOTE 2 - GOING CONCERN

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

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

<PAGE>

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

NOTE 2 - GOING CONCERN (Continued)

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

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

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

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


NOTE 3 - ACQUISITIONS

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

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

The purchase of Systronix was reported  using the purchase  method of accounting
and,  accordingly,  the purchase price was allocated to the assets  acquired and
liabilities  assumed  based  upon the fair  values  at the date of  acquisition.
Assets  associated  with  research and  development,  and for which there was no
alternative use, were expensed.

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

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

<PAGE>


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

NOTE 4 - FACILITY CONSOLIDATIONS, CLOSURES, AND SALES

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

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


NOTE 5 - INVENTORIES

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

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

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

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

<PAGE>


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

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

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

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

                                                               2,865       4,686

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


NOTE 7 - LONG-TERM DEBT

<TABLE>


<CAPTION>
(in thousands, except for shares data)                                                1997                    1996
                                                                                      ----                    ----
<S>                                                                                  <C>                     <C>    
Convertible  secured  note  under a  Supplemental  Loan  Agreement  with  ITOCHU
     Corporation;  interest  at 10%,  principal  and  interest  due April  1998,
     secured by the personal property of the parent company                          $ 3,000                 $ 3,000

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

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

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

<PAGE>

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

<CAPTION>
NOTE 7 - LONG-TERM DEBT (Continued)

(in thousands, except for shares data)                                                     1997            1996
                                                                                          -------         -------
<S>                                                                                           <C>          <C>
Convertible bonds; interest at 10%, principal and interest was
     due in July 1997                                                                         800            --

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

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

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

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

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

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

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

                                                                                          $ 3,639         $ 3,987
                                                                                          =======         =======
</TABLE>

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

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

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

<PAGE>


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

NOTE 7 - LONG-TERM DEBT (Continued)

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

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

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

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

<PAGE>


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

NOTE 7 - LONG-TERM DEBT (Continued)

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

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


NOTE 8 - CAPITAL LEASE

Included in the  acquisition of certain assets and  liabilities of Systronix was
the assumption of a purchase contract for a high performance  dynamometer.  This
acquisition  is being  financed  through a  capital  lease.  The lease  requires
monthly payments of $22,000 and will mature in May 1998.


NOTE 9 - LEASE COMMITMENTS

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

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


NOTE 10 - INCOME TAXES

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

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

<PAGE>


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

NOTE 10 - INCOME TAXES (Continued)

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

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

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

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

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

<PAGE>


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

NOTE 10 - INCOME TAXES (Continued)

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

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

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


NOTE 11 - STOCKHOLDERS' DEFICIT

Series A preferred  stock - Series A preferred  stock is currently  unregistered
and convertible into common stock on a one-to-one  basis, at the election of the
holder, or automatically upon the occurrence of certain events,  including: sale
of stock in an  underwritten  public  offering;  registration  of the underlying
conversion  stock; or the merger,  consolidation or sale of more than 50% of the
Company.  Holders of Series A  preferred  stock have the same  voting  rights as
common stockholders.  The stock has a liquidation  preference at $0.60 per share
plus any accrued and unpaid  dividends in the event of voluntary or  involuntary
liquidation  of the Company.  Dividends  are  non-cumulative  and payable at the
annual  rate of $0.036  per share if,  when,  and as  declared  by, the Board of
Directors. No dividends have yet been declared on the Series A preferred stock.

In July 1993,  the Board of Directors  approved a plan for the sale of shares of
Series A preferred stock to certain officers and directors  ("Participants")  at
$0.60 per share. In general,  the Participants could purchase these shares for a
combination of cash,  promissory notes payable to the Company, and conversion of
debt and deferred compensation due to the Participants.  All shares issued under
this plan are  pledged to the  Company  as  security  for the  notes.  The notes
provided for interest at 8% per annum payable annually,  with the full principal
amount and any  unpaid  interest  due on  January  31,  1997.  The notes  remain
outstanding at July 31, 1997.

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

<PAGE>


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

NOTE 11 - STOCKHOLDERS' DEFICIT (Continued)

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

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

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

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

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

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

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

In March 1997,  the Company sold  12,000,000  unregistered  shares of its common
stock at $0.30 per share  pursuant  to a  Regulation  S  Subscription  Agreement
resulting in net proceeds of  $3,600,000.  Also in 1997,  the Company  converted
$600,000 of  convertible  secured  notes to 2,000,000  shares of common stock at
$0.30 per share.

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

<PAGE>


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

NOTE 12 - STOCK OPTIONS AND WARRANTS

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

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

In 1997, in connection with the purchase of Systronix, stockholders approved the
1996 Stock Option Plan (1996 Plan) which  expires in 2006.  The Company,  during
the term of the 1996 Plan,  will at all times  reserve and keep  available  such
number of shares of common stock for incentive and  non-qualified  stock options
as shall be sufficient to satisfy the  requirements  of the plan.  Options under
the 1996 Plan expire over a period not to exceed ten years.

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

<CAPTION>
                                                                                       Director                     
                                            1996 Plan           1993 Plan             Option Plan              Other
                                        ----------------     ----------------      ------------------    -----------------
                                        Shares     Price     Shares     Price      Shares       Price    Share       Price
                                        ------     -----     ------     -----      ------       -----    -----       -----
<S>                                      <C>      <C>     <C>       <C>              <C>     <C>          <C>      <C>       
Balance, August 1, 1994                   --     $   --      14,482   $0.60-5.00      7      $     6.88   2,069    $0.60-3.00
Granted                                   --         --       8,126    0.40-2.97     17       0.24-5.88    --           --   
Canceled                                  --         --      (4,916)   0.60-2.97     (8)      0.24-5.88    --           --   
Exercised                                 --         --         (13)   0.60-1.25      --         --        --           --   
Expired                                   --         --        (784)   0.60-2.80      --         --        --           --   

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

Balance, July 31, 1996                    --                 17,269    0.30-0.60     20       0.20-6.88   1,495    0.60-2.80
Granted                                 10,367      0.30       --          --         --         --        --           --   
Canceled                                  (445)     0.30     (1,135)        0.30      --         --        --           --   
Exercised                                 --         --        --          --         --         --        --           --   
Expired                                   --         --         (38)        0.30      --         --        --           --   

Balance, July 31, 1997                   9,922    $ 0.30     16,096   $0.30-0.60     20      $0.20-6.88   1,495    $0.60-2.80
</TABLE>



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

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

<PAGE>


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

NOTE 12 - STOCK OPTIONS AND WARRANTS (Continued)

The Company applies APB Opinion No. 25 and related interpretations in accounting
for its various stock option plans.  FASB No. 123  "Accounting  for  Stock-Based
Compensation"  (SFAS 123) was issued by the FASB in 1995 and, if fully  adopted,
changes  the method  for  recognition  of cost on plans  similar to those of the
Company.  Adoption of SFAS 123 is optional;  however, had compensation costs for
the Company's other stock option plans been determined based upon the fair value
at the grant date for awards under these plans  consistent  with the methodology
prescribed  under SFAS 123, the Company's net loss would have been  increased by
approximately  $549,900 and $307,000 for the years ended July 31, 1997 and 1996,
respectively.  The fair value of each  option  granted  during  1997 and 1996 is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:  (1) dividend yield of 0%, (2) expected volatility of
164%, (3) risk free interest rate of 5.88% and 6.59%,  respectively,  and (4) an
expected  life of the options of 5 years.  Options  issued  during 1997 and 1996
have an estimated weighted average fair value of $0.12 and $0.13, respectively.

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

In May 1996,  the Company  issued  13,333,000  warrants in exchange for services
performed.  The warrants were exercisable at $0.30 per share for an equal number
of shares  of common  stock,  and  expired  on May 1,  1997.  At July 31,  1997,
negotiations  were  underway to extend the period of time in which the  warrants
could be  exercised.  If the market  value of the common stock of the Company is
equal to or  greater  than $0.60 per share on the date of  exercise,  and if the
average trading volume was in excess of 100,000 shares per day for the preceding
20 trading  days,  the warrants may be exercised  without  payment of cash.  The
warrants may not be exercised in the United States,  and the stock purchased may
not be  delivered  to the  United  States  unless  first  registered  under  the
Securities Act or receive an available exemption from registration.

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

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

<PAGE>


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

NOTE 12 - STOCK OPTIONS AND WARRANTS (Continued)

The following table summarizes warrant activity (in thousands):


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

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

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

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


NOTE 13 - CONTINGENCIES

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

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

The  Company is also  subject to other  legal  proceedings  and claims that have
arisen  during the period of  restructuring  both its debt and  operations.  The
ultimate  resolution of these  proceedings is not known,  but the final outcomes
are not expected to  significantly  influence  the Company's  current  financial
position.

--------------------------------------------------------------------------------
                                                                       Page F-23

<PAGE>


                                  EXHIBIT INDEX


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

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

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

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

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

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

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

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

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

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

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

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

 3.12(1) Bylaws of Registrant.

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

                                      E-1

<PAGE>


                                  EXHIBIT INDEX


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

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

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

 4.1(1)        Specimen Common Stock Certificate.

 4.2(1)        Specimen Series A Preferred Stock Certificate.

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

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

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

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

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

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

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

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

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

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

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

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

                                      E-2

<PAGE>


                                  EXHIBIT INDEX


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      E-3

<PAGE>


                                  EXHIBIT INDEX


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

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

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

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

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

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

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

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

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

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

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

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

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

10.24(1)       Pledge Agreement (John Billington).

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

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

10.27(1)       Pledge Agreement (Harold Robinson).

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

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

10.30(1)       Pledge Agreement (Michael Chobotov).

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

                                      E-4

<PAGE>


                                  EXHIBIT INDEX


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

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

10.33(1)       Pledge Agreement (David Brandmeyer).

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

10.35(1)       Pledge Agreement (James Miller).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      E-5

<PAGE>


                                  EXHIBIT INDEX


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

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

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

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

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

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

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

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

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

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

10.63(1)       Form of Indemnification Agreement.

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

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

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

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

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

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

                                      E-6

<PAGE>


                                  EXHIBIT INDEX


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      E-7

<PAGE>


                                  EXHIBIT INDEX


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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.98(11)      Stock Purchase  Agreement and Technology  License Agreement dated
               February  27, 1997 by and  between the Company and Hyundai  Motor
               Company and Hyundai Electronics Industries Co., Ltd.

                                      E-8

<PAGE>


                                  EXHIBIT INDEX


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

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

21(1)          Subsidiaries of the Registrant.

24             Power of Attorney (included on signature page)

27             Financial Data Schedule.



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

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

                                      E-9