SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                        For Annual and Transition Reports
                     Pursuant to Sections 13 or 15(d) of the
                       Securities and Exchange Act of 1934

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

                   For the fiscal year ended December 31, 1999

[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

       For the transition period from August 1, 1999 to December 31, 1999

                           Commission File No. 0-25184

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

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

             19850 South Magellan Drive, Torrance, California 90502
          (Address of principal executive offices, including zip code)

                                 (310) 527-2800
              (Registrant's telephone number, including area code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No__

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

The  aggregate  market  value  of  the  voting  and  non-voting  stock  held  by
non-affiliates  of the  registrant  as of March 27,  2000 was  $13,515,672.  For
purposes  of this  calculation  only,  (i)  shares of Common  Stock and Series A
Preferred  Stock are deemed to have a market  value of $0.41 per share,  and the
Series B  Preferred  Stock is deemed to have a market  value of $1.37 per share,
based on the  average of the high bid and low ask prices of the Common  Stock on
March 27, 2000, and (ii) each of the executive  officers,  directors and persons
holding 5% or more of the  outstanding  Common Stock  (including  Series A and B
Preferred Stock on an as-converted basis) is deemed to be an affiliate.

The  number  of  shares of Common  Stock  outstanding  as of March 27,  2000 was
257,575,000.


                                       1

<PAGE>

<TABLE>
                                        U.S. ELECTRICAR, INC.

                                     1999 FORM 10-K ANNUAL REPORT

                                          TABLE OF CONTENTS

                                                PART I
<CAPTION>
<S>      <C>                                                                                       <C>
Item 1.  Business...................................................................................3
Item 2.  Properties.................................................................................8
Item 3.  Legal Proceedings..........................................................................8
Item 4.  Submission of Matters to a Vote of Security Holder.........................................8

                                                PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matter.......................9
Item 6.  Selected Financial Data...................................................................10

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.....11
Item 7a. Quantitative and Qualitative Disclosures about Market Risk................................15

Item 8.  Financial Statements and Supplementary Data...............................................15

Item 9.  Changes in Disagreements with Accountants on Accounting and Financial Disclosure..........15

                                               PART III

Item 10.  Directors and Executive Officers of the Registrant.......................................16

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

Item 12.  Security Ownership of Certain Beneficial Owners and Management...........................20

Item 13.  Certain Relationships and Related Transactions...........................................22

                                                PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.........................23


SIGNATURE..........................................................................................26
</TABLE>


                                                  2

<PAGE>

                                     PART I

         The matters  addressed in this report on Form 10-K , with the exception
of the historical  information  presented,  may contain certain  forward-looking
statements involving risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking  statements as
a result  of  certain  factors,  including  those set  forth  under the  heading
"Certain Factors That May Affect Future Results" in the Management's  Discussion
and Analysis section and elsewhere in this report.

Item 1.  Business

General

         U. S. Electricar,  Inc., a California Corporation (the "Company"),  was
incorporated  on  July  30,  1976,  under  its  original  name,   "Clover  Solar
Corporation,  Inc." The name of the Company was changed in June 1979,  to "Solar
Electric Engineering,  Inc.", and was subsequently changed to "U.S.  Electricar,
Inc." in January 1994. In November,  1999,  the Company began doing  business as
Enova Systems.

         The   Company    develops,    designs   and   manufactures    electric,
hybrid-electric and fuel cell powered drive systems and related components, such
as energy management  systems and chargers,  performs vehicle system integration
and performs various engineering contracts to penetrate global markets.

         On January 19, 2000,  the Company  changed it fiscal year end from July
31 to December 31. All year references  refer to calendar years unless otherwise
noted.

         In 1998, the Company  restructured  its top  management,  realigned its
product base and  concentrated  on the  reduction of overall  company  operating
costs.  Facilities were closed,  operations  streamlined and personnel  reduced.
Headcount  decreased  from 51 employees at July 31, 1997 to 26 employees at July
31, 1998, yet the Company has maintained its core engineering capabilities.  The
Company has since begun to hire  additional  personnel  as is  warranted  by new
contracts  and orders.  At December  31,  1999,  the Company had  increased  its
headcount to 33 employees and three independent contractors.

         During 1999,  the Company  continued to concentrate on the reduction of
operating  costs and  outstanding  debt. The Company's  business  activities are
focused on the  development  of electric and hybrid  electric  drive-trains  and
related  components,  fuel cell systems,  vehicle  systems  integration  and the
performance  of various  engineering  contracts.  The  Company  has  several key
contracts with the U. S.  Government's  Defense Advanced Research Project Agency
or DARPA and the Department of Transportation or DOT,  including the analysis of
a new plastic lithium ion vehicle battery  concept,  testing of advanced vehicle
batteries and  development of an airport  electric  passenger  tram system.  The
Company has enhanced its  relationship  with Hyundai  Motor  Company,  or HMC of
Korea,  the  world's  seventh  largest  automobile  manufacturer,  with  several
engineering  contracts to design,  develop and test electric and hybrid electric
drive systems and related  products.  Hyundai Motor Company has contracted  with
the Company for the  development  of an  advanced  charging  unit and a parallel
hybrid  production  vehicle,  as well as  continuing  to  produce  the family of
Panthertm drive system for their electric vehicles. The Company is extending the
PantherTM drive system to hybrid vehicle  applications in projects  sponsored by
Hyundai.  These hybrid  systems will be applied to light,  medium and heavy duty
transportation  vehicles.  The  Company  offers  other  components  such  as air
conditioning,  heat  pump  units,  electro-hydraulic  power  steering  units and
battery management units to OEMs, both domestic and  international.  The Company
has also developed a high power charger for use with its drive systems.  HMC has
adapted a customized  version of the PantherTM 60 for their production  electric
vehicle. The Company is offering the modular drive systems to Original Equipment
Manufacturers  or OEMs and  other  customers.  These  drive  systems  have  been
installed in various  vehicles.  The Company has entered into a contract  with a
domestic  supplier for low voltage electric drive system components for use by a
major North American automotive manufacturer.

         The Company has completed the sale of a license to certain  proprietary
PantherTM  Drive System  software and  hardware,  for the Republic of Korea,  to
Hyundai Heavy  Industries or HHI for further design and  development of electric
drive systems.  The Company anticipates  deriving further development  contracts
from this new


                                       3

<PAGE>

relationship  with HHI.  Furthermore,  the Company has entered into an agreement
with Hyundai  Electric  Industries or HEI to  manufacture  the  Company's  drive
systems for international sales.

         The  Company is  pursuing  various  avenues of  revenue  generation  to
increase its cash flow. These include further  developing its relationship  with
the  Hyundai  Group of  Korea,  joint  venturing  with  global  vehicle  and bus
manufacturers  to utilize its  electric  drive train  system,  and  developing a
comprehensive  marketing plan to penetrate  various  alternate niche markets for
its  drive  system  and  its   components.   The  Company  is  also  looking  at
non-automotive applications for its products.

         The Company received a capital  investment from Jagen, Pty, Ltd. in the
amount of $2,500,000 on June 4, 1999 and from Anthony Rawlinson in the amount of
$500,000 on July 30, 1999, which have enabled the Company to further develop its
hybrid drive  systems as well as embark on other  in-house  funded  research and
development.

Debt Restructuring

         The  Company's  debt  restructuring  plan has  progressed  during 1999.
Overall,  the Company has reduced  outstanding  indebtedness  and liabilities by
approximately  $7,000,000  in the last  year.  With the  addition  of capital as
discussed  above,  the Company retired the $307,000,  three-year debt due to the
Credit  Managers  Association  of California  or CMAC.  The CMAC's $3.3 million,
20-year  promissory  note  becomes due and payable in 2016.  In March 1999,  the
Company's  Chief Executive  Office and President  purchased all of the Company's
outstanding  debt due to Itochu  Corporation,  which was $4,300,000 plus accrued
interest.  As of December 31, 1999, this  individual has forgiven  $3,000,000 in
principal  and  $1,510,506 in accrued  interest.  This  effectively  reduced the
Company's total  outstanding  obligation  including  interest to $1,300,000 from
$5,810,506. In December of 1999, the Company converted the Fontal International,
Ltd.  (or  Fontal)  debt of  $1,000,000  in  principal  and  $247,000 in accrued
interest into 4,246,000  shares of common stock at $0.30 per share.  The Company
has also been reducing its outstanding  past due accounts  payable.  The Company
intends to  continue to pursue a strategy of  negotiating  settlements  on these
outstanding payables where prudent.

Environmental Initiatives and Legislation

         Federal  legislation was enacted to promote the use of alternative fuel
vehicles,   including  electric  vehicles.  Several  states  have  also  adopted
legislation that sets deadlines for the  introduction of zero emission  vehicles
("ZEV"). The State of California delayed the mandated  introduction of ZEVs from
1998  to  2003  and   established   a  required   percentage   of  ZEV  and  new
hybrid-electric  vehicles  for  2003  at 10%  of  total  new  vehicle  sales  in
California from the six major automobile manufacturers.  The State of California
estimates  that a  combination  of  approximately  100,000  electric  and hybrid
electric  vehicles will be required to meet the State's 2003  mandate.  The U.S.
Department  of Energy also modified  their rules  governing how state fleets and
utility  fleets must comply  with the Energy  Policy Act of 1992 on  alternative
fuel transportation programs.

Products

         The Company  enhanced and  expanded  its product line during 1999.  The
Company is  concentrating  its product  base to focus  primarily on electric and
hybrid-electric  propulsion systems and components for electric and hybrid drive
systems and fuel cell  technologies.  The Company  produces a family of electric
propulsion systems consisting of a 60kW drive system for light vehicles,  a 90kW
drive system for medium size vehicles and a 120kW drive system for larger trucks
and  buses.  Additionally,   the  Company  has  completed  the  development  and
prototyping  of both a Series and Parallel  Hybrid  drive system in  conjunction
with HMC.  The  Company  has  begun to  develop,  under  contract  with  HMC,  a
production  parallel  hybrid drive  system.  The Company has  developed  various
components for integration into the drive systems or as stand-alone systems such
as the Battery Care Unit,  the Safety  Disconnect  Unit and the  Electric  Power
Steering unit.

         The  Company  is moving to expand  its  product  base into new  markets
outside of the traditional  electric and hybrid-electric  automotive fields. Key
areas  under  investigation  are  energy  management  in the


                                       4

<PAGE>

telecommunications industry, distributed generation in the utility industry, and
stand-by/backup  power generation in the commercial  electronics  industry.  All
three of these  markets can be served with our existing  energy  management  and
power control products.

Strategic Partnering And Technology Developments

         The  Company  has  positioned  itself  to  be a  supplier  of  electric
propulsion  systems and components for global  markets.  Originally  focusing on
pure electric  drive  systems,  the Company has pursued the  development  of its
electric  drive  systems for hybrid and fuel cell  applications.  The  Company's
drive system technology can be adapted to battery,  electric-hybrid or fuel cell
energy sources.

         The Company has established  third-party  licensing and/or distribution
arrangements and aligned itself with various  technology  development  companies
and electric vehicle component  manufacturers to complement its own expertise in
the electric  vehicle market.  For instance,  the Hyundai Group of Korea and the
Company are partnering in the development of advanced drive-train technology and
related  systems.  The Company has continued its efforts to implement a strategy
to be a "systems  integrator" by seeking to establish  relationships  to utilize
other  independently  developed  technology.   The  Company  believes  that  its
competitive advantage may be its ability to identify,  attract and integrate the
latest technology  available to produce state of the art products at competitive
prices.  The Company believes this strategy will reduce capital and research and
development costs to the extent other companies or organizations will fund these
expenses.

Electric Drive System

         The electric drive system  consists of an electric motor and electronic
controls  that  regulate the flow of  electricity  to and from the batteries (at
various  voltages  and  amperages)  to propel  the  vehicle.  Auxiliary  vehicle
functions (e.g.,  radio,  lights,  windshield wipers,  etc.) are also powered by
stored electrical energy similar to that of an internal combustion drive system.

         The Hyundai Group of Korea has invested in the Company and licensed the
drive system  technology for production in Korea.  The Company has validated its
propulsion  system product,  the  Panther(TM) 60 alternating  current (AC) drive
train for light duty vehicles.  The Company has continued to develop a family of
electric  drive  systems with the PantherTM 90 and  Panther(TM)  120 systems for
buses and heavy-duty  vehicles,  and the 40kW  off-board  charging  system,  the
second  generation  in a family  of rapid  chargers  for all  sizes of  electric
vehicles.

Hybrid Vehicles

The Company  completed  its  development  for HMC of a Series  Hybrid System and
Parallel  Hybrid  System for vehicles  introduced  by HMC at the 1999 Seoul Auto
Show.  The Company is extending the Panther  drive system to the hybrid  vehicle
application  by adapting the PantherTM 120 as the drive system and the PantherTM
60 as the induction  generator for a series hybrid bus project sponsored by HMC.
The Company has also  developed a parallel  hybrid  drive system and a dual-mode
hybrid drive system utilizing the Panther controller and the brushless DC motor.

Battery Management and Charging System

         A  significant  part  of the  Company's  technology  is in the  area of
battery management, charging systems and components applications.  Pursuant to a
DARPA  program,  the  Company  has  completed  a  "beta  test"  of  new  battery
technologies from various battery  manufacturers.  These new battery systems are
intended to allow design advantages in battery placement, weight


                                       5

<PAGE>

distribution,   and  vehicle  crashworthiness.   Additionally,  the  Company  is
monitoring other battery innovations that may extend an electric vehicle driving
range  by up to 50% and  permit  a  shorter  recharging  time.  The  Company  is
developing and testing  Plastic Lithium Ion ("PLI")  batteries in  collaboration
with a major  battery  OEM.  The Company  has also  developed a 40 kW high power
charger for HMC. The high power charger is based on our modular  Panther  system
technology,  and the  Company  believes  that it could also be used for  battery
conditioning.

Components

         The Company is offering the modular drive system and components to OEMs
and other  customers.  The  PantherTM  60,  PantherTM 90 and PantherTM 120 drive
systems have been  installed in various  vehicles  and are under  evaluation  by
customers and potential  customers.  HMC has adapted a customized version of the
PantherTM 60 for their production  electric vehicle.  The Company also offers an
air  conditioning/heat  pump,  an  electro-hydraulic  power  steering unit and a
safety  disconnect  unit for  utilization  by OEMs. The Company is also offering
BatteryCareTM,  a battery  management  system, to OEMs. This battery  management
system is  utilized  in the U.S.  Postal  Service  electric  vehicle,  and it is
capable of providing  communication  to both inductive and  conductive  chargers
simultaneously  and managing the on-board and  off-board  charging  systems with
multiple technologies.  This battery care unit is also being utilized to upgrade
the electric  vehicles in the DARPA battery testing program in Hawaii.  It makes
these vehicles  compatible with the high power charging  stations  utilizing the
Society of Automotive Engineering standards.

Competitive Conditions

         The competition to develop and market  electric  vehicles has increased
during  the last  year and the  Company  expects  this  trend to  continue.  The
competition  consists of development  stage  companies as well as major U.S. and
international companies. The Company's future prospects will be highly dependent
upon the  successful  development  and  introduction  of new  products  that are
responsive to market needs and can be manufactured  and sold at a profit.  There
can be no  assurance  that the Company will be able to  successfully  develop or
market any such products.

         The development of hybrid-electric and alternative fuel vehicles,  such
as compressed natural gas, fuel cells and hybrid cars poses a competitive threat
to the Company in markets for low  emission  vehicles or LEVs but not in markets
where government  mandates call for zero emission  vehicles or ZEVs. The Company
is involved in the development of hybrid vehicles and fuel cell systems in order
to meet future requirements and applications.

         Various  providers of electric vehicles have proposed products or offer
products  for sale in this  emerging  market.  These  products  encompass a wide
variety of  technologies  aimed at both  consumer and  commercial  markets.  The
critical  role of  technology  in this market is  demonstrated  through  several
product  offerings.  Applied  technologies  range from direct current (DC) motor
drives to  alternate  current  (AC)  induction  motor  drives,  from  conversion
vehicles to  purpose-built  (OEM)  vehicles,  from  lead-acid  batteries to more
advanced  power  storage  technologies  and from  traditional  materials to more
advanced  "composite"  materials.  As the industry matures, key technologies and
capabilities are expected to play critical competitive roles. The Company's goal
is to position  itself as a long term competitor in this industry by focusing on
vehicle electric drive systems and related sub systems,  component  integration,
technology  application and strategic  partnerships.  The Company  believes that
this  strategy will enhance the  Company's  position as an electric  drive train
system supplier because,  whether the OEMs build electric,  hybrid-electric or a
fuel cell powered vehicles, its electric drive system will be a component.

Research and Development

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

         *Technical and product  development  under  DARPA/DOT and Hyundai Group
          Contracts;


                                       6

<PAGE>

         *Power Control and Drive Systems and related technologies;
         *Shuttle and Transit Bus integration and development; and
         *Subsystem development (i.e., climate control, power management).

         For the five months ended December 31, 1999, the Company spent $262,000
and $73,000  respectively on internal research and development  activities.  For
the fiscal years ended July 31, 1999, 1998 and 1997, the Company spent $499,000,
$445,000 and  $1,218,000,  respectively,  on internal  research and  development
activities.  The Company is  continually  evaluating and updating the technology
and equipment  used in developing  each of its  products.  The electric  vehicle
industry, while still in its infancy, has rapidly changing technology.

Intellectual Property

         The Company  currently holds one patent and has submitted  applications
for another patent and several trademarks or service marks in the United States.
Currently,  the Company is reviewing and appending its protection of proprietary
technology.  The status of patents involves complex legal and factual questions,
and the breadth of claims  allowed is  uncertain.  Accordingly,  there can be no
assurance that patent  applications  filed by the Company will result in patents
being issued.  Moreover,  there can be no assurance  that third parties will not
assert claims against the Company with respect to existing and future  products.
Although the Company intends to protect its rights  vigorously,  there can be no
assurance that these measures will be successful.  In the event of litigation to
determine the validity of any third party claims such litigation could result in
significant expense to the Company.  Additionally, the laws of certain countries
in which the Company's  products are or may be developed,  manufactured  or sold
may not protect the Company's  products and intellectual  property rights to the
same extent as the laws of the United States.

Employees

         As of December 31, 1999,  the Company had 33 employees,  of whom 23 are
full-time and 10 are part-time.  Three individuals are independent  contractors,
employed on an hourly  basis,  one  domiciled in South Korea.  The  departmental
breakdown of these individuals  include 2 in  administration,  1 in sales, 22 in
engineering and research and development, and 8 in production.

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<PAGE>

                               Item 2. Properties

         The Company's corporate offices are located in Torrance, California, in
leased office space of  approximately  20,000 square feet.  This facility houses
the Company's various departments, including engineering, operations, executive,
legal, finance,  planning,  purchasing,  investor relations and human resources.
This lease  terminates in February,  2000. As of March 17, 2000, the Company has
renewed it lease for another  three year period.  The monthly  lease  expense is
$13,500.

Item 3. Legal Proceedings

         As previously  disclosed in the Company's  periodic  reports filed with
the Securities and Exchange Commission,  the Company restructured  approximately
$22 million in debt to vendors and lenders. A creditor's committee was formed of
substantially all the vendors and lenders at that time. Nineteen  creditors,  at
that time, chose not to join the creditor's committee,  instead opting to pursue
their legal remedies  individually.  The total outstanding dollar value of these
lawsuits is approximately $550,000.00.

         In February  1999, the Company became a defendant in a lawsuit filed by
an individual  alleging  personal  injury by a vehicle  manufactured  by a prior
subsidiary of the Company,  Nordskog Electric Vehicles,  Inc., a.k.a. Industrial
Electric  Vehicles,  Inc. The matter has been referred to the insurance  company
which has assumed legal liability and is proceeding to defend the matter.  As of
March 29, 2000, the potential liability to the Company is unknown,  however, due
to the insurance coverage, it is believed to be minimal.

         A workers  compensation  claim in the amount of approximately  $169,000
has been asserted against the Company by the former owners of Nordskog  Electric
Vehicles, which had been acquired by the Company and renamed Industrial Electric
Vehicles or IEV. IEV was sold by the Company in 1997. The claim alleges that the
Company  agreed to  indemnify  Nordskog  for such  liabilities  when the Company
acquired  Nordskog.  The Company has not yet assessed the validity of this claim
or its likely outcome.

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

         None.



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                                       8

<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 Price   Low Price      Volume
                                          ----------------------   -------------
Fiscal 1998
-----------
First Quarter..........................   $0.120       $0.045         104,692
Second Quarter.........................   $0.085       $0.039          71,019
Third Quarter..........................   $0.047       $0.031          16,094
Fourth Quarter.........................   $0.048       $0.040          22,739


                                               Common Stock        Average Daily
                                          High Price   Low Price      Volume
                                          ----------------------   -------------
Fiscal 1999
-----------
First Quarter..........................   $0.048       $0.020          72,223
Second Quarter.........................   $0.031       $0.029         134,535
Third Quarter..........................   $0.031       $0.029          58,224
Fourth Quarter.........................   $0.190       $0.031         427,624


                                               Common Stock        Average Daily
                                          High Price   Low Price      Volume
                                          ----------------------   -------------
Calendar 1999
-------------
First Quarter..........................   $0.031       $0.029          62,842
Second Quarter.........................   $0.130       $0.029         338,623
Third Quarter..........................   $0.125       $0.075         263,886
Fourth Quarter.........................   $0.812       $0.120         814,770


         On March 27, 2000, the last reported high bid price of the Common Stock
was $0.40 and the last  reported  low asking  price was  $0.40.  As of March 27,
2000, there were  approximately  1,698 holders of record of our Common Stock. As
of  March  27,  2000,  the  Company's  Series  A  Preferred  Stock  was  held by
approximately 121 shareholders,  many of who are also Common Stock shareholders.
The Company's Series B Preferred Stock was held by approximately 36 shareholders
as of March 27,  2000.  The  number of  holders  of record  excludes  beneficial
holders whose shares are held in the name of nominees or trustees.

Dividend Policy

         To date,  the Company has neither  declared nor paid any cash dividends
on shares of its Common  Stock or Series A or B  Preferred  Stock.  The  Company
presently  intends to retain all future  earnings  for its business and does not
anticipate  paying cash dividends on its Common Stock or Series A or B Preferred
Stock in the foreseeable future. The Company is required to pay dividends on its
Series A and B Preferred  Stock  before  dividends  may be paid on any shares of
Common Stock.  At December 31, 1999, the Company had an  accumulated  deficit of
approximately  $86,406,000  and,  until  this  deficit  is  eliminated,  will be
prohibited  from  paying  dividends  on any  class  of stock  except  out of net
profits,  unless it meets  certain  asset and other tests under  Section 500 et.
seq. of the California Corporations Code.


                                       9

<PAGE>

<TABLE>
Item 6.  Selected Financial Data
As of and for the five months ended December 31,                       Fiscal Years ended July 31, (in
thousands, except per share data)
<CAPTION>
                                                          1999         1998         1999          1998        1997
                                                          ----         ----         ----          ----        ----
<S>                                                      <C>           <C>          <C>          <C>         <C>
NET SALES                                                $     629     $    867     $  2,774     $  1,938    $   4,484

COST OF SALES                                                  377          389        1,460        2,765        2,042
                                                      ------------               -----------  -----------  -----------
GROSS MARGIN                                                   252          478        1,314         (827)       2,442

                                                      ------------               -----------  -----------  -----------
OTHER COSTS AND EXPENSES
      Research and Development                                 262           73          499          445        1,218
      Selling, general and administrative                      796          691        1,141        1,697        3,116
      Interest and financing fees                              244          264          724          665          792
      Other expense (income)                                   125         (35)          (41)         (67)         274
      Acquisition of research and development                                                                    1,630
      Gain on Warranty Reevaluations                                                    (474)
                                                      ------------  -----------  -----------  -----------  -----------
      Total other costs and expenses                         1,427          993        1,849        2,740        7,030

                                                      ------------               -----------  -----------  -----------
LOSS FROM CONTINUING OPERATIONS                             (1,175)        (515)        (535)      (3,567)      (4,588)
LOSS FROM DISCONTINUED OPERATIONS
GAIN ON DEBT RESTRUCTURING                                     214                       140           42           53
                                                      ------------  -----------  -----------  -----------  -----------

NET LOSS                                                 $  (  961)    $(   515)    $(   395)    $ (3,525)   $  (4,535)
                                                      ============  ===========  ===========  ===========  ===========

PER COMMON SHARE:

      Loss from continuing operations                    $   (0.01)    $  (0.01)    $  (0.01)    $  (0.02)   $   (0.03)

      Gain on debt restructuring
                                                      ------------  -----------  -----------  -----------  -----------

      Net loss per common share                          $   (0.01)    $  (0.01)    $  (0.01)    $  (0.02)   $   (0.03)
                                                      ============  ===========  ===========  ===========  ===========

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING                                         251,994      151,265      152,077      151,265      133,806
                                                      ============  ===========  ===========  ===========  ===========

      Total Assets                                       $   2,697     $  1,286     $  3,940     $  1,658    $   4,513
                                                      ============  ===========  ===========  ===========  ===========

      Long-term debt                                     $   3,332     $  3,332     $  3,332     $  3,332    $   3,639
                                                      ============  ===========  ===========  ===========  ===========

      Shareholders' equity (deficit)                     $  (5,015)    $(13,120)    $( 7,316)    $(12,615)   $  (9,095)
                                                      ============  ===========  ===========  ===========  ===========
</TABLE>


                                                          10

<PAGE>

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

You should read this Management's Discussion and Analysis of Financial Condition
and Results of Operations in conjunction with our 1999 Financial  Statements and
Notes  thereto.  The  matters  addressed  in this  Management's  Discussion  and
Analysis of Financial Condition and Results of Operations, with the exception of
the historical information presented contains certain forward-looking statements
involving risks and  uncertainties.  Our actual results could differ  materially
from  those  anticipated  in these  forward-looking  statements  as a result  of
certain  factors,  including those set forth under the heading  "Certain Factors
That May Affect Future Results" and elsewhere in this report.

OVERVIEW

         The  financial  statements  present  the  financial  condition  of U.S.
Electricar,  Inc.  (the  "Company")  as of December  31, 1999 and the results of
operations  and cash flows of the Company for the five months then ended and the
three preceding fiscal years ended July 31, 1999.

         The audit opinion from our  independent  auditors no longer contains an
explanatory  paragraph expressing  substantial doubt about the Company's ability
to continue as a "going concern."

         During 1999,  the Company  continued to concentrate on the reduction of
operating costs and outstanding debt. The Company's business  activities are now
focused   primarily  on  the   development  of  electric  and  hybrid   electric
drive-trains  and  related  components,   fuel  cell  systems,  vehicle  systems
integration and the performance of various  engineering  contracts.  The Company
has several key contracts with the U.S.  government's  Defense Advanced Research
Project Agency or DARPA and the Department of Transportation  or DOT,  including
the analysis of a new plastic  lithium ion vehicle battery  concept,  testing of
advanced vehicle batteries and development of an airport electric passenger tram
system.  The Company also has several  engineering  contracts with Hyundai Motor
Company or HMC to design,  develop and test  electric  drive  trains and related
products. HMC is contracting with the Company for the development of an advanced
charging unit and a hybrid vehicle development,  as well as preparing to produce
the family of Panthertm drive system for their electric vehicles. The Company is
extending the PantherTM drive system to hybrid vehicle  applications in projects
sponsored by Hyundai.  These hybrid systems will be applied to light, medium and
heavy duty  transportation  vehicles.  The Company is also  offering the modular
drive systems to Original Equipment Manufacturers or OEM manufacturers and other
customers.  These drive  systems have been  installed in various  vehicles.  The
Company  offers  other  components  such as air  conditioning,  heat pump units,
electro-hydraulic  power  steering units and battery  management  units to OEMs,
both  domestic and  international.  The Company is also  developing a high power
charger for use with its drive systems.  HMC has adapted a customized version of
the PantherTM 60 for their production electric vehicle.

         The Company has completed the sale of a license to certain  proprietary
PantherTM  Drive System  software and  hardware,  for the Republic of Korea,  to
Hyundai Heavy  Industries or HHI for further design and  development of electric
drive systems.  The Company anticipates  deriving further development  contracts
from this new relationship  with HHI as well as utilizing HHI to manufacture the
Company's drive systems for international sales.

         The  Company is  pursuing  various  avenues of  revenue  generation  to
increase its cash flow. These include further  developing its relationship  with
the Hyundai Group,  joint venturing with global vehicle and bus manufacturers to
utilize  its  electric  drive  train  system,  and  developing  a  comprehensive
marketing plan to penetrate various alternate niche markets for its drive system
and  its  components.   The  Company  is  further   looking  at   non-automotive
applications for its products.

         The Company received a capital  investment from Jagen, Pty, Ltd. in the
amount of $2,500,000 on June 4, 1999 and from Anthony Rawlinson in the amount of
$500,000 on July 30, 1999, which have enabled the Company to further develop its
hybrid drive  systems as well as embark on other  in-house  funded  research and
development.


                                       11

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         The  Company  has  experienced  recurring  cash flow  shortages  due to
operating losses primarily attributable to research, development, administrative
and other costs associated with the Company's efforts to become an international
manufacturer  and distributor of electric  vehicles.  Cash flows from operations
have  been  negative  and  have  not  been  sufficient  to  meet  the  Company's
obligations  as they came due.  The  Company  has  therefore  had to raise funds
through  numerous  financial  transactions.  At least until the Company  reaches
breakeven  volume in sales and  develops  and/or  acquires  the  capability  and
technology  necessary to manufacture and sell its products  profitably,  it will
need to  continue  to rely  extensively  on cash from  external  financing.  The
Company  anticipates that it will require  additional  outside  financing for at
least one more year.

         During  the  five  months  ended   December  31,  1999,  the  Company's
operations required $692,000 more in cash then was generated. This was primarily
the result of additional  administrative  and research and development costs, as
further  explained.  Accounts  receivable  decreased  by $185,000 as the Company
completed  and  collected on various  engineering  contracts  from Hyundai Motor
Company and the U.S. Government.  Customer Deposits increased by $102,000 as the
Company  received an advance  payment from one of its customers for  engineering
services to be performed.  Inventory increased by $33,000.  The increase was due
to the Company  purchasing  raw  materials  for  current  and  pending  contract
obligations.

         The  operations of the Company  during 1999 were financed  primarily by
the funds received on engineering contracts and partly on funds received in from
the sale of a technology  license to Hyundai Heavy Industries.  In June and July
1999 the Company received  $3,000,000 from two investors,  Jagen.  Pty., Ltd. in
Australia and Anthony Rawlinson for the purchase of Common Stock and warrants to
Purchase  Common  Stock.  In January  2000,  the Company  received an additional
equity  infusion of  $1,000,000  from Kafig Pty,  Ltd for the purchase of common
stock.

         It is  management's  intention  to  continue  its  debt  restructuring,
support current operations through sales of products and technology  consulting,
as well as seek additional  financing through private placements and other means
to increase  research and development.  As of March 27, 2000, the Company has no
firm commitments for significant additional financing.

THE FUTURE  UNAVAILABILITY OR INADEQUACY OF FINANCING TO MEET FUTURE NEEDS COULD
FORCE THE COMPANY TO DELAY, MODIFY,  SUSPEND OR CEASE SOME OR ALL ASPECTS OF ITS
PLANNED  OPERATIONS,  AND/OR SEEK PROTECTION  UNDER APPLICABLE STATE AND FEDERAL
BANKRUPTCY AND INSOLVENCY LAWS.

RESULTS OF OPERATIONS

         Net sales of  $629,000  for the five  months  ended  December  31, 1999
decreased  $238,000 or 27% from  $867,000  during the same  period in 1998.  The
decrease was due to the Company increasing in-house engineering, development and
testing of electric and hybrid drive  trains and related  components  during the
latter part of 1999.  Of the  Company's  total  sales for the five months  ended
December  31,  1999,  $597,000,  or 95% were  revenues  realized on  engineering
contracts with the DOT and the Hyundai Group of Korea.

         Net  sales of  $2,774,000  for the  fiscal  year  ended  July 31,  1999
increased  $836,000 or 43% from  $1,938,000  during the fiscal year in 1998. Two
primary  factors  caused the  increase.  In 1999,  the Company sold a technology
license  to HHI for  $600,000.  Secondly,  the  Company  increased  engineering,
development  and  testing of  electric  and  hybrid  drive  trains  and  related
components in conjunction with HMC and the U.S. Government through United States
Postal Service,  DARPA and DOT programs.  Of the Company's total sales for 1999,
$1,954,000,  or 70% were revenues realized on engineering  contracts with DARPA,
the Hyundai Group of Korea and other customers.

         Net sales of  $1,938,000  for fiscal 1998  decreased  $2,546,000 or 57%
from  $4,484,000 in fiscal 1997.  Two primary  factors  caused the decrease.  In
1997, the Company sold a technology  license to HMC and HEI for $2,000,000,  and
there  were no  such  corresponding  sales  of a  technology  license  in  1998.
Secondly,  the Company  discontinued the sales of electric  vehicles in 1998 and
focused on the engineering, development and testing of electric drive trains and
related components.


                                       12

<PAGE>

         Cost of sales of $377,000 for the five months  ended  December 31, 1999
decreased $12,000 or 3% from $398,000 during the same period in 1998.

         Cost of sales as a percentage of sales  decreased to 53% in fiscal 1999
from 143% in fiscal  1998.  Sales  revenue for fiscal 1999  included a sale of a
technology  license of $600,000.  Excluding the sale of the technology  license,
cost of sales for fiscal 1999 was 67% of sales.

         Research  and  development  expense  increased in the five months ended
December  31, 1999 to $262,000  from  $73,000 for the same five month  period in
1998.  While the  Company's  has reduced  staff and cut costs in all areas,  the
focus of the Company  continues to be centered on research and development.  The
product development costs incurred in the performance of engineering development
contracts  is charged  to cost of sales for this  contract  revenue.  Non-funded
development costs are reported as research and development expense. Research and
development expense increased in fiscal 1999 to $499,000 from $445,000 in fiscal
1998,  an increase of  $54,000,  or 12%.  Research  and  development  expense of
$445,000 in 1998 declined $773,000, or 63% from 1997. The decline was the result
of a continuation of the reduction of technical  resources by the Company as the
Company changed from a manufacturer  and  retrofitter of electric  vehicles to a
components developer and producer.

         Selling,  general  and  administrative  expense  increased  in the five
months ended December 31, 1999 to $796,000 from $691,000 for the same five month
period in 1998.  The increase  was due to the  Company's  continuing  efforts to
restructure  its balance  sheet by  eliminating  or  re-negotiating  prior years
liabilities. Selling, general and administrative expense of $1,141,000 in fiscal
1999  continued to decline  from  $1,697,000,  or 33% from fiscal  1998,  as the
Company  reduced  continued  to reduce  spending  and  consolidated  operations.
Selling,   general   and   administrative   expense  of   $1,697,000   decreased
significantly in 1998, by $1,419,000, or 46%, from $3,116,000 in 1997. Continued
and  significant  reductions  in  headcount,  facility  costs and spending  were
responsible for the decline.

         For the five months ended  December 31,  1999,  interest and  financing
fees  decreased  by $20,000 to  $244,000.  The  reduction  was due to  continued
restructuring  of the  Company  long term  debt by  retirement,  forgiveness  or
conversion  into equity.  In fiscal 1999,  interest and financing fees increased
slightly to  $724,000  from  $665,000  in 1998,  an increase of 9% due mainly to
default interest rate on certain notes payable becoming effective.  Interest and
financing  fees in 1998  decreased  $127,000 or 16% to $665,000 from $792,000 in
1997.  The  forgiveness  of  $3,000,000 of debt,  formerly the Itochu debt,  the
conversion of the  $1,000,000  of Fontal debt and the  scheduled  payment of the
$307,000 note to CMAC shall continue to reduce interest expense in the future.

         During the five months  ended  December  31,  1999,  several  unsecured
creditors  agreed to settle  their trade debt  claims for amounts  less than the
original debt owed to them.  The reductions  from the original  amounts owed and
the  settlement  amounts  resulted in a gain on debt  restructuring  of $214,000
during the five months ended December 31, 1999. Additional  settlements resulted
in a gain on debt  restructuring of $140,000 in fiscal 1999, $42,000 in 1998 and
$53,000 in 1997.

         As a result of the foregoing changes in net sales, cost of sales, other
costs and  expenses  and gain on debt  restructuring,  the net loss of  $961,000
increased 86% for the $515,000 loss during the same period in 1998. Although the
loss on a period to period basis was higher, it was a result of various one-time
charges which enabled the Company to further reduce it liabilities. The net loss
for fiscal 1999 of $395,000 decreased $3,130,000 or 89% from the $3,525,000 loss
in 1998,  while  the net loss for  1998  decreased  $1,010,000,  or 22% from the
$4,535,000  loss in 1997.  These  results  reflect a  significant  change in the
operating condition of the Company.  The cost structure and operating conditions
of the  Company  are now more in line  with the  sales  volume  and the scope of
business.


                                       13

<PAGE>

Year 2000 Concerns

The  Company  is not  aware of any year  2000  issues  that  have  affected  its
business.  In preparation for the year 2000, the Company incurred internal staff
costs as well as consulting and other expenses.  Year 2000 expenses totaled less
than $25,000.  It is possible that the Company's  computerized  systems could be
affected  in the future by the year 2000 issue.  The  Company  has  computerized
interfaces  with third parties that are possibly  vulnerable to failure if those
third parties have not adequately addressed their year 2000 issues.

Recent Accounting Pronouncements

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives  on the  balance  sheet as assets or  liabilities,  measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted  for  depending on the use of the  derivative  and whether it
qualifies for hedge accounting. SFAS No. 133 will be effective for the company's
fiscal year ending  December 31, 2000.  Management  believes that this statement
will not have a significant impact on the company's financial position,  results
of operations or cash flows.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

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

Net Operating Losses.

         The Company has experienced recurring losses from operations and had an
accumulated  deficit of $86,406,000 at December 31, 1999. There is no assurance,
however,  that any net operating  losses will be available to the Company in the
future as an offset against future profits for income tax purposes.

Continued  Losses.  For the five months ended  December  31, 1999 and 1998,  the
Company  had net losses of  $961,000  and  $515,000,  respectively,  on sales of
$629,000 and $867,000, respectively.

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

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


                                       14

<PAGE>

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

None.

Item 8.  Financial Statements and Supplementary Data

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

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

None.




                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

                                       15

<PAGE>


                                    PART III

Item 10.     Directors and Executive Officers of the Registrant

         The following table sets forth certain  information with respect to the
Directors and executive officers of the Company:

================================ ======== ======================================
Name                             Age      Position
-------------------------------- -------- --------------------------------------
Anthony Rawlinson                45       Chairman of the Board
-------------------------------- -------- --------------------------------------
Carl D. Perry                    67       Chief Executive Officer, President and
                                          Director
-------------------------------- -------- --------------------------------------
Edwin O. Riddell (1)             58       Director
-------------------------------- -------- --------------------------------------
Dr. Malcolm Currie (1)           70       Director
-------------------------------- -------- --------------------------------------
John J. Micek, III (2)           47       Director
-------------------------------- -------- --------------------------------------
Donald H. Dreyer (2)             63       Director
================================ ======== ======================================

(1)      Member of the Compensation Committee.
(2)      Member of the Audit Committee.

         Anthony  Rawlinson,  Chairman of the Board. Mr. Rawlinson was appointed
Chairman of the Board in July 1999. Mr. Rawlinson has been Managing  Director of
the Global Value  Investment  Portfolio  Management Pte. Ltd., a Singapore based
international fund management company managing  discretionary  equity portfolios
for  institutions,  pension funds and clients  globally.  Mr.  Rawlinson is also
Chairman of IXLA Ltd.,  an  Australian  public  company which is a leader in the
field  of PC  photography  software.  He is also  Chairman  of the  Board of its
wholly-owned   subsidiary,   photohighway.com,   an   internet   portal  for  PC
photography.

         Carl D. Perry,  Chief Executive  Officer,  President and Director.  Mr.
Perry  served as a Director and as an  Executive  Vice  President of the Company
from July 1993 until  November  1997. In November 1997, Mr. Perry was elected as
Chairman  of the Board and  Chief  Executive  Officer  of the  Company,  and was
elected President in June 1999. In July 1999, Mr. Perry resigned his position as
Chairman of the Board to allow Mr.  Anthony  Rawlinson to become  Chairman.  Mr.
Perry  continues as Chief  Executive  Officer and  President  and as a Director.
Prior to joining the Company,  he was an  international  aerospace and financial
consultant  from 1989 to 1993.  Mr. Perry served as Executive  Vice President of
Canadair Ltd., Canada's largest aerospace corporation,  from 1984 to 1993, where
he conducted strategic planning,  worldwide  marketing,  and international joint
ventures. From 1979 to 1983, Mr. Perry served as Executive Vice President of the
Howard Hughes Helicopter Company, now known as Boeing Helicopter Company,  where
he was responsible for general management,  worldwide business development,  and
international operations.

         Malcolm R. Currie,  Ph.D,  Director.  Dr. Currie was  re-elected to the
Board of  Directors  in July 1999.  Dr.  Currie had served as a Director  of the
Company from March 1995 through May 1997.  Since 1994, he has served as Chairman
of Electric Bicycle Co., a developer of electric bicycles.  From 1986 until July
1992,  Dr.  Currie  served as  Chairman  and Chief  Executive  Officer of Hughes
Aircraft  Co. (now  Hughes  Electronics),  and from 1985 until 1988,  he was the
Chief  Executive  Officer of Delco  Electronics.  His career in electronics  and
management  has included  research with many patents and papers in microwave and
millimeter wave electronics,  laser,  space systems,  and related fields. He has
led major programs in radar,  commercial satellites,  communication systems, and
defense  electronics.  He served as  Undersecretary  of Defense for Research and
Engineering,  the Defense Science Board,  and currently  serves on the Boards of
Directors of UNOCAL,  Investment Company of America, and LSI Logic, all of which
are publicly  traded  companies.  He is  President of the American  Institute of
Aeronautics  and  Astronautics,  and is Chairman of the Board of Trustees of the
University of Southern California.


                                       16

<PAGE>

         John J. Micek III,  Director.  Mr.  Micek was elected a Director of the
Company in April 1999. Mr. Micek served as the Company's Vice President, General
Counsel  and  Secretary  from March 1994 to March 1997.  From 1997 to 1999,  Mr.
Micek served as Chief Financial  Officer of Protozoa,  Inc., a private animation
and software production company.  From 1997 to the present, Mr. Micek has served
as President of Universal Assurors, Inc. Prior to joining the Company, Mr. Micek
practiced  law since  January  1989.  From 1987 to March  1994,  Mr.  Micek held
several  positions with Armanino Foods of  Distinction,  Inc., a publicly traded
specialty  foods  company,  including  serving as its General  Counsel and Chief
Financial  Officer from February 1987 to December 1988 and Vice  President  from
January 1989 to March 1994,  and a Director of Armanino Foods from 1988 to 1989.
Mr. Micek served as the  President  and  Director of Catalina  Capitol,  Inc., a
publicly  traded  company,  from  1990  until  its  merger  into  Instant  Video
Technologies,  Inc.  ("IVT"),  an  interactive  multi-media  network  technology
company, in 1992. Mr. Micek continues to serve as a Director of IVT.


         Edwin O. Riddell, Director. Mr. Riddell has served as a Director of the
Company since June 1995.  From March 1999 to the present,  Mr.  Riddell has been
President of CR  Transportation  Services,  a consultant to the electric vehicle
industry.  From January 1991 to March 1999, Mr. Riddell has served as Manager of
the  Transportation  Business Unit in the Customer Systems Group at the Electric
Power Research Institute in Palo Alto, California,  and from 1985 until November
1990,  he  served  with  the  Transportation  Group,  Inc.  as  Vice  President,
Engineering,  working on electric public  transportation  systems.  From 1979 to
1985,  he was Vice  President and General  Manager of Lift U, Inc.,  the leading
manufacturer  of  handicapped  wheelchair  lifts for the transit  industry.  Mr.
Riddell has also worked with Ford,  Chrysler,  and General Motors in the area of
auto design  (styling),  and has worked as a member of senior  management  for a
number of public transit vehicle manufacturers. Mr. Riddell has been a member of
the American Public Transit  Association's  ("APTA") Association Member Board of
Governors for over 15 years. He has also served on APTA's Board of Directors.

         Donald H. Dreyer,  Director.  Mr.  Dreyer was elected a Director of the
Company in January  1997.  Mr.  Dreyer is President and CEO of Dreyer & Company,
Inc., a consultancy in credit,  accounts  receivable  and  insolvency  services,
which was established in 1990. Mr. Dreyer has served as Chairman of the Board of
Credit  Managers  Association  of  California  during  the 1994 to 1995 term and
continues to serve as a member of the Advisory  Committee of that  organization.
Mr. Dreyer is currently the co-Chair of the Creditors  Committees'  Subcommittee
of the American  Bankruptcy  Institute  and is a member of the Western  Advisory
Committee of Dun & Bradstreet, Inc.


Relationships Among Directors or Executive Officers

         There  are no  family  relationships  among  any of  the  Directors  or
executive officers of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the Exchange Act  requires the  Company's  Directors,
executive  officers  and persons who own more than 10% of the  Company's  Common
Stock  (collectively,  "Reporting  Persons") to file  reports of  ownership  and
changes  in  ownership  of the  Company's  Common  Stock to the  Securities  and
Exchange  Commission  ("SEC").  Copies of these  reports are also required to be
delivered to the Company.

         The Company believes,  based solely on its review of the copies of such
reports received or written representations from certain Reporting Persons, that
during fiscal 1999, all Reporting  Persons  complied with all applicable  filing
requirements:  Except as follows: (i) Anthony Rawlinson,  Chairman of the Board,
inadvertently  missed a filing deadline for Form 5 for one transaction  effected
in July  1999;  the  required  Form 5 has been  filed;  (ii)  Malcom  Currie,  a
Director,  unintentionally  missed  a  filing  deadline  for Form 3 that was due
within ten days of his appointment as a Director in July 1999; the required Form
3 has been filed;  (iii) John J. Micek,  a  Director,  unintentionally  missed a
filing  deadline for Form 3 that was due within ten days of his appointment as a
Director in April 1999;  the required Form 3 has been filed;  and (iv) Directors
and executive officers of the Company inadvertently missed a filing deadline for
Form 5 that was due within forty-five days after the end of the Company's fiscal
year, such reports were filed on February 15, 2000.


                                       17

<PAGE>

Item 11.     Executive Compensation

Summary Compensation Table
<TABLE>
         The following table sets forth all compensation earned by the Company's
Chief Executive Officer and each of the other most highly compensated  executive
officers of the Company whose annual salary and bonus exceeded  $100,000 for the
years ended July 31, 1999,  1998, and 1997  (collectively,  the "Named Executive
Officers"). Mr. Carl D. Perry is the sole executive officer of the Company whose
salary currently exceeds $100,000.
<CAPTION>
                                                                    Summary Compensation Table
Name and Principal Position                                             Annual Compensation
---------------------------                        -----------------------------------------------------------------------
                                                                                                Long-Term Compensation
                                                                                                        Awards
                                                                                                      Securities
                                                                                                      Underlying
                                                                  Salary      Bonus                  Options/SARs
                                                      Year          ($)        ($)                        (#)
                                                      ----        ------      -----                       ---
<S>                                                   <C>         <C>           <C>                        <C>
Carl D. Perry (1)                                     1999        75,000        --                         --
Chief Executive Officer                               1998        55,770        --                         --
  And President                                       1997        75,000        --                         --

<FN>
(1)      Mr. Perry was elected as Chief Executive  Officer in November 1997. Mr.
         Perry's current salary is $110,000 per year.
</FN>
</TABLE>
Option/SAR Grants

              No grants of stock options or stock  appreciation  rights ("SARs")
were made  during  fiscal 1999 to the Named  Executive  Officers.  However,  the
option exercise price,  for Mr. Perry's and other employees under the 1996 Stock
Option  Plan,  was reset to $0.10 per share  from  $0.30 per share on August 19,
1998 at the direction of the Board of Directors.

Option Exercises and Option Values
<TABLE>
              The  following  table sets  forth  information  concerning  option
exercises  during 1999,  and the aggregate  value of  unexercised  options as of
December 31, 1999, held by each of the Named Executive Officers:
<CAPTION>
                                                   Aggregated Option/SAR Exercises in 1999
                                                    and Option Values at December 31, 1999

                                                                Number of Securities
                                Aggregate                       Underlying Unexercised        Value of Unexercised
                                  Option                            Options at               In-the-Money Options at
                             Exercises in 1999                   December 31, 1999            December 31, 1999 (1)
                             -----------------               ---------------------------   ---------------------------

                                  Shares         Value
                               Acquired on      Realized
Name                           Exercise (#)       ($)        Exercisable   Unexercisable   Exercisable   Unexercisable
----                           ------------     ---------    -----------   -------------   -----------   -------------
<S>                                <C>            <C>         <C>                <C>         <C>             <C>
Carl D. Perry                      --             --          1,200,000          --          $393,600        $--
<FN>
(1)  Calculated  on the basis of the  average of the high bid and low ask prices
     of the Common  Stock on December  31,  1999 of $0.328 per share,  minus the
     exercise price.
</FN>
</TABLE>


                                       18

<PAGE>

Compensation of Directors

         In  September  1999,  the  Company's  Board  of  Directors  unanimously
approved  a  compensation  package  for  outside  directors  consisting  of  the
following:  for each meeting  attended in person,  each outside  director  shall
receive  $1,000 in cash and $2,000 of stock valued on the date of the meeting at
the  average  of the  closing  ask and bid  prices;  for each  telephonic  Board
meeting,  each  outside  director  shall  receive $250 in cash and $250 of stock
valued on the date of the  meeting  at the  average of the  closing  ask and bid
prices; for each meeting of a Board committee attended in person , the committee
chairman  shall receive $500 in cash and $500 of stock valued on the date of the
meeting at the  average of the closing ask and bid  prices.  All  Directors  are
reimbursed  for  expenses  incurred  in  connection  with  attending  Board  and
committee meetings.

         The Director's  Stock Option Plan was  terminated  effective as of July
31, 1999. In partial  consideration  of the issuance of 409,091 shares of common
stock, 28,000 options granted under this plan were cancelled in September 1999.

         As of March  27,  2000,  509,000  shares  had been  issued  under  this
directors compensation plan.

Compensation Committee Interlocks and Insider Participation

         The Compensation  Committee currently consists of Mr. Edwin Riddell, as
Chairman,  and Dr. Malcolm  Currie.  Mr. Riddell was elected  Chairman in August
1998. Dr. Currie was elected to the  Compensation  Committee in July,  1999. Mr.
Ishag  served as a member of the  Compensation  Committee  during  all of Fiscal
1999. Dr. Malcolm Currie also served on the  Compensation  Committee  during his
prior term as a Director until his resignation in 1998.






                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)


                                       19

<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management
<TABLE>
         The following table sets forth certain information regarding beneficial
ownership of the  Company's  stock as of March 27, 2000,  (i) by each person (or
group of  affiliated  persons)  who is known by the Company to own  beneficially
more than 5% of each class of the Company's stock, (ii) by each of the Company's
Directors, (iii) by each of the Company's Named Executive Officers listed in the
Summary  Compensation  Table  below,  and  (v) by the  Company's  Directors  and
executive  officers as a group.  Except as  indicated  in the  footnotes to this
table and subject to applicable  community  property  laws, the persons named in
the table, based on information  provided by such persons,  have sole voting and
investment power with respect to all shares of stock beneficially owned by them.
<CAPTION>
------------------------------------------  -----------------------------  ------------------------------  -----------------

5% Shareholders, Directors, Officers and           Common Shares                Percentage of Common           Voting
    Directors and Officers as a Group          Beneficially Owned (1)       Shares Beneficially Owned (2)   Percentage (3)
------------------------------------------  -----------------------------  ------------------------------  -----------------
<S>                                                      <C>                                      <C>                <C>
Jagen, Pty., Ltd.                                        125,000,000 (4)                          36.27              31.68%
9 Oxford Street, South Yorra 3141
Melbourne, Victoria Australia
------------------------------------------  -----------------------------  ------------------------------  -----------------

Carl D. Perry                                             38,548,789 (5)                          11.19%             14.19%
c/o U.S. Electricar, Inc.
19850 South Magellan Drive
Torrance, CA 90502
------------------------------------------  -----------------------------  ------------------------------  -----------------

Citibank N.A.                                             52,342,454                              15.18%             19.90%
111 Wall Street, 8th Floor
New York, NY  10043
------------------------------------------  -----------------------------  ------------------------------  -----------------

Anthony Rawlinson                                         25,020,149 (6)                           7.26%              6.34%
c/o U.S. Electricar, Inc.
19850 South Magellan Drive
Torrance, CA 90502
------------------------------------------  -----------------------------  ------------------------------  -----------------

John J. Micek, III                                           629,994 (7)                               *                 *
------------------------------------------  -----------------------------  ------------------------------  -----------------

Edwin O. Riddell                                             250,349 (8)                               *                 *
------------------------------------------  -----------------------------  ------------------------------  -----------------

Dr. Malcolm Currie                                           155,587 (9)                               *                 *
------------------------------------------  -----------------------------  ------------------------------  -----------------

Donald H. Dreyer                                              18,182(10)                               *                 *
------------------------------------------  -----------------------------  ------------------------------  -----------------

All Directors and executive officers as                   64,623,050(11)                               *                 *
a group (6 persons)
------------------------------------------  -----------------------------  ------------------------------  -----------------
<FN>
*        Indicates less than 1%

<PAGE>

(1)      Number of Common Stock shares includes Series A Preferred Stock, Series
         B Preferred  Stock and Common Stock shares  issuable  pursuant to stock
         options,  warrants and other  securities  convertible into Common Stock
         beneficially  held by the  person  or class in  question  which  may be
         exercised or converted within 60 days after February 29, 2000.

(2)      The  percentages  are based on the  number  of shares of Common  Stock,
         Series A  Preferred  Stock and Series B  Preferred  Stock  owned by the
         shareholder  divided  by  the  sum  of:  (i)  the  total  Common  Stock
         outstanding,   (ii)  the  Series  A  Preferred   Stock  owned  by  such
         shareholder;   (iii)  the  Series  B  Preferred  Stock  owned  by  such
         shareholder;  and (iv) Common  Stock  issuable  pursuant  to  warrants,
         options and other convertible  securities exercisable or convertible by
         such shareholder within sixty (60) days after February 29, 2000.

(3)      The  percentages  are based on the  number  of shares of Common  Stock,
         Series A  Preferred  Stock and Series B  Preferred  Stock  owned by the
         shareholder  divided  by  the  sum  of:  (i)  the  total  Common  Stock
         outstanding, (ii) the total Series A Preferred Stock outstanding; (iii)
         the total Series B Preferred Stock  outstanding;  and (iv) Common Stock
         issuable pursuant to warrants, options and other convertible securities
         exercisable or convertible by such  shareholder  within sixty (60) days
         after February 29, 2000. This percentage  calculation has been included
         to  show  more  accurately  the  actual  voting  power  of  each of the
         shareholders,  since the  calculation  takes into account the fact that
         the  outstanding  Series A Preferred Stock and Series B Preferred Stock
         are entitled to vote  together  with the Common Stock as a single class
         on certain matters to be voted upon by the shareholders.

(4)      Includes  41,666,667 shares issuable pursuant to warrants redeemable at
         $0.06 per share. Said warrants expire in July, 2001.

(5)      Includes  1,200,000  shares of Common Stock issuable  pursuant to stock
         options  issued  under a employee  stock option plan  exercisable  at a
         price of $0.10 per share.  The option exercise  price,  for Mr. Perry's
         and other  employees  under the 1996 Stock  Option  Plan,  was reset to
         $0.10  per  share  from  $0.30  per  share on  August  19,  1998 at the
         direction of the Board of Directors.

(6)      Includes  8,333,333 shares issuable pursuant to warrants  redeemable at
         $0.06 per share. Said warrants expire in July, 2001.

(7)      Includes  565,000  shares of Common  Stock  issuable  pursuant to stock
         options  exercisable at a price of $0.10 per share. The option exercise
         price was reset to $0.10  per  share  from  $0.30 per share on June 10,
         1999 at the direction of the Board of Directors.

(8)      Includes  1,765,000  shares of Common Stock issuable  pursuant to stock
         options  exercisable  at prices  ranging from $0.10 to $0.60 per share,
         and 8,333,333 shares issuable pursuant to warrants  redeemable at $0.06
         per share. Said warrants expire in July, 2001.
</FN>
</TABLE>


                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)


<PAGE>

Item 13. Certain Relationships and Related Transactions

         The following are certain transactions entered into between the Company
and its  officers,  directors and principal  shareholders  and their  affiliates
since August 1, 1998.

Transactions with Secured Creditors and Others:

Carl D. Perry/Itochu Corporation

         As of March 1999, there was $3,000,000 of debt outstanding to Itochu, a
former  principle  shareholder of the Company,  pursuant to a Supplemental  Loan
Agreement.  The debt was  convertible  at the election of Itochu at any time, or
automatically upon the occurrence of certain events, into shares of Common Stock
at a  conversion  rate of $0.30 per  share.  The debt was  secured by all of the
assets of the Company.  To date,  no agreement has been reached on extending the
maturity  date  of  this  debt.   Additionally,   Itochu  issued  $1,300,000  of
convertible  secured notes to the Company under a  Supplemental  loan  Agreement
with a maturity date of December 1997. To date, no agreement has been reached on
extending the maturity date of this debt.

         In March 1999, Itochu Corporation sold all of the  aforementioned  debt
plus accrued interest  outstanding  ($5,693,400) to Carl D. Perry, the Company's
Chief Executive Officer and President,  for $50,000. Itochu also sold all of the
shares of  common  stock it held to Mr.  Perry  for  $1.00.  Mr.  Perry  forgave
$2,693,400 of accrued  interest and principal on July 30, 1999 and an additional
$1,817,000  in accrued  interest  and  principal  during the five  months  ended
December 31, 1999.  As of December 31, 1999,  there is  $1,300,000  in principal
owed by the Company to Mr. Perry under this loan.

         In September  1999,  the Company  entered into a call option  agreement
with  Carl D.  Perry to  re-purchase  23,970,000  shares  of  common  stock  for
$100,000.  The terms of this agreement require the Company to exercise this call
option  between  March 25, 2000 and March 30, 2000.  In addition,  Mr. Perry was
also granted the right to sell these shares to the Company for $50,000.


                  (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)


                                       22

<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 Financial Statements on page F-1.

   (a)2.   Financial Statement Schedule

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

   (a)3.   Exhibits

           See Item 14 (C) for Index of Exhibits.

   (b)     Reports on Form 8-K

           The Company filed one report on Form 8-K. The Form 8-K, dated January
           21, 2000 and filed  January 21, 2000,  reported  that the Company had
           changed its fiscal year end from July 31st to December 31st.

   (c)     Exhibits

Exhibit Number                             Description

   3.1     Amended and Restated  Articles of  Incorporation  of the  Registrant,
           filed July 30, 1999 (Filed as Exhibit 3.1 to the Registrant's  Annual
           Report on Form 10-K for fiscal year ended July 31, 1999,  as filed on
           October 29, 1999, and incorporated herein by reference).

   3.2     Bylaws of  Registrant  (Filed  as  Exhibit  3.12 to the  Registration
           Statement  on Form 10 filed on November 29,  1994,  and  incorporated
           herein by reference).

   4.1     Cashless  Exercise  Warrants  dated October 25, 1996 issued to Fontal
           International, Ltd. (Filed as Exhibit 4.1) to the Registrant's Annual
           Report on Form 10-K for the year  ended  July 31,  1996,  as filed on
           November 12, 1996, and incorporated herein by reference).

   10.1**  Form of Stock Option  Agreement  under 1993  Employee and  Consultant
           Stock Plan (Filed as Exhibit 10.15 to the Registration Statement on
           Form 10 filed on  November  29,  1994,  and  incorporated  herein  by
           reference).

   10.2**  Form of Solar Electric Engineering, Inc. 1993 Employee and Consultant
           Stock Plan (Filed as Exhibit 10.16 to the  Registration  Statement on
           Form 10 filed on  November  29,  1994,  and  incorporated  herein  by
           reference).

   10.3    Form  of   Confidential   Private   Placement   Memorandum  and  Debt
           Restructuring  Disclosure Statement of U.S.  Electricar,  Inc., dated
           January 2, 1996, delivered by the Company to certain of its unsecured
           trade  creditors,  including  exhibits (Filed as Exhibit 10.91 to the
           Registrant's  Quarterly  Report  on Form 10-Q for the  quarter  ended
           January 31, 1996, as filed on March 18, 1996, and incorporated herein
           by reference).


                                       23

<PAGE>

   10.4    Form of  Stock  Purchase,  Note  and Debt  Exchange  Agreement  dated
           January 2, 1996  between  the Company  and  certain  unsecured  trade
           creditors  (Filed  as  Exhibit  10.92 to the  Registrant's  Quarterly
           Report on Form 10-Q for the quarter  ended January 31, 1996, as filed
           on March 18, 1996, and incorporated herein by reference).

   10.5    Form of  Indemnification  Agreement  (Filed as  Exhibit  10.63 to the
           Registration  Statement on Form 10 filed on November  29,  1994,  and
           incorporated herein by reference).

   10.6    Form of  Security  Agreement  made as of May 31,  1995,  between  the
           Company and Credit Managers Association of California, Trustee (Filed
           as Exhibit 10.85 to the  Registrant's  Quarterly  Report on Form 10-Q
           for the quarter ended April 30, 1996, as filed on June 14, 1996,  and
           incorporated herein by reference).

   10.7    Amended 1996  Employee and  Consultant  Stock  Option  Plan(Filed  as
           Exhibit  10.7 to the  Registrant's  Annual  Report  on Form  10-K for
           fiscal year ended July 31, 1999,  as filed on October 29,  1999,  and
           incorporated herein by reference).

   10.8    Stock  Purchase  Agreement and  Technology  License  Agreement  dated
           February  27,  1997,  by and between  the  Company and Hyundai  Motor
           Company  and  Hyundai  Electronics  Industries  Co.,  Ltd.  (Filed as
           Exhibit 10.98 to the  Registrant's  Quarterly Report on Form 10-Q for
           fiscal  quarter  ended  January 31, 1997, as filed on March 14, 1997,
           and incorporated herein by reference).

   10.9    Loan Agreement for $400,000  convertible  promissory note with Fontal
           International,  Ltd., dated April 30,  1997(Filed as Exhibit 10.99 to
           the  Registrant's  Quarterly  Report on Form 10-Q for fiscal  quarter
           ended April 30, 10997,  as filed on June 13, 1997,  and  incorporated
           herein by reference).

   10.10   Agreement  of Debt  Forgiveness  by and between Carl D. Perry and the
           Registrant  dated  July  30,  1999  (Filed  as  Exhibit  10.10 to the
           Registrant's  Annual  Report on Form 10-K for fiscal  year ended July
           31, 1999, as filed on October 29, 1999,  and  incorporated  herein by
           reference).

   10.11   Agreement  of Terms by and between the  Registrant  and Carl D. Perry
           (Filed as Exhibit  10.11 to the  Registrant's  Annual  Report on Form
           10-K for fiscal  year ended July 31,  1999,  as filed on October  29,
           1999, and incorporated herein by reference).

   10.12   Securities  Purchase  Agreement  dated  as of  June 1,  1999,  by and
           between the Company and Jagen Pty, Ltd. and Anthony  Rawlinson (Filed
           as Exhibit 10.12 to the  Registrant's  Annual Report on Form 10-K for
           fiscal year ended July 31, 1999,  as filed on October 29,  1999,  and
           incorporated herein by reference).

   10.13   Shareholders'  Agreement dated as of June 1, 1999, by and among Jagen
           Pty,  Ltd. and Anthony  Rawlinson,  Carl D. Perry and the  Registrant
           (Filed as Exhibit 10.13 to the


<PAGE>

           Registrant's  Annual  Report on Form 10-K for fiscal  year ended July
           31, 1999, as filed on October 29, 1999,  and  incorporated  herein by
           reference).

   10.14   Loan and Security  Agreement  dated as of June 1, 1999,  by and among
           the  Registrant,  Jagen Pty,  Ltd.  and Anthony  Rawlinson  (Filed as
           Exhibit  10.14 to the  Registrant's  Annual  Report  on Form 10-K for
           fiscal year ended July 31, 1999,  as filed on October 29,  1999,  and
           incorporated herein by reference).

   10.15   Convertible  Secured  Promissory  Note  dated  June  1,  1999  by the
           Registrant  in favor of Jagen Pty,  Ltd. in the  principal  amount of
           $400,000 (Filed as Exhibit 10.15 to the Registrant's Annual Report on
           Form 10-K for fiscal  year ended July 31,  1999,  as filed on October
           29, 1999, and incorporated herein by reference).

   10.16*+ Letter of Intent between  Registrant and a domestic  supplier,  dated
           December  9, 1999,  to design,  develop and  manufacture  low voltage
           electric drive system components.

   10.17*  Put/Call Option to sell Intochu Shares between Registrant and Carl D.
           Perry dated September 1, 1999.

   23.1*   Consent of Moss Adams, LLC, Independent Auditor's

   24*     Power of Attorney (included on signature page)

   27*     Financial Data Schedule.
-----------------------
*          Filed herewith.
**         Indicates management contract or compensatory plan or arrangement.
+          We  have sought  confidential  treatment  from  the  Commission   for
           selected  portions  of this  exhibit.  he  omitted  portions  will be
           separately filed with the Commission.


<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 March 29, 2000.

U.S. ELECTRICAR, INC.


By: /s/ Carl D. Perry
   -----------------------------------------------------------------------------
Carl D. Perry, Chief Executive Officer and Acting Chief Financial Officer

Dated: March 29, 2000

                                POWER OF ATTORNEY

         KNOW  ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears below  constitutes  and appoints  Carl D. Perry,  with full power to act
alone,  his true and  lawful  attorney-in-fact  and  agent,  with full  power of
substitution  for  him  and in his  name,  place  and  stead,  in  any  and  all
capacities,  to sign any and all  amendments  to the annual report on Form 10-K,
and to file  the  same,  with all  exhibits  thereto,  and  other  documents  in
connection therewith, with the Securities and Exchange Commission, granting unto
said  attorney-in-fact full power and authority to do and perform each and every
act and thing  requisite  and necessary to be done in connection as fully to all
intents and  purposes as he might or could do in person,  hereby  ratifying  and
confirming all that said  attorney-in-fact and agent may lawfully do or cause to
be done by virtue hereof.

         IN WITNESS WHEREOF,  each of the undersigned has executed this Power of
Attorney  as of  the  date  indicated.  Pursuant  to  the  requirements  of  the
Securities  Exchange Act of 1934,  this report has been signed by the  following
persons  on  behalf  of the  registrant  and in the  capacities  and on the date
indicated.

Signature                        Date                             Title
---------                        ----                             -----

 /s/ Carl D. Perry
----------------------------     Chief Executive                  March 29, 2000
Carl D. Perry                    Officer and Director
                                 (Principal Executive Officer)


 /s/ Anthony Rawlinson
----------------------------     Chairman                         March 29, 2000
Anthony Rawlinson


 /s/ Malcom Currie
----------------------------     Director                         March 29, 2000
Malcom Currie


 /s/ Edwin O. Riddell
----------------------------     Director                         March 29, 2000
Edwin O. Riddell


 /s/ John J. Micek, III
----------------------------     Director                         March 29, 2000
John J. Micek, III


 /s/ Donald H. Dreyer
----------------------------     Director                         March 29, 2000
Donald H. Dreyer


                                       26


<PAGE>


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


                             U. S. ELECTRICAR, INC.

                          INDEPENDENT AUDITOR'S REPORT
                                       AND
                              FINANCIAL STATEMENTS


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


<PAGE>


                             U. S. ELECTRICAR, INC.

                          INDEX TO FINANCIAL STATEMENTS


                                                                            PAGE
                                                                            ----

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

BALANCE SHEET AT DECEMBER 31, 1999 ...................................      F-2

STATEMENT OF OPERATIONS FOR THE

     FIVE MONTHS ENDED DECEMBER 31, 1999 .............................      F-4

STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE

     FIVE MONTHS ENDED DECEMBER 31, 1999 .............................      F-5

STATEMENT OF CASH FLOWS FOR THE

     FIVE MONTHS ENDED DECEMBER 31, 1999 .............................      F-6

NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1999 ....................      F-7

BALANCE SHEETS AT JULY 31, 1999 AND 1998 .............................      F-17

STATEMENTS OF OPERATIONS FOR THE THREE

     YEARS ENDED JULY 31, 1999 .......................................      F-19

STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE THREE

     YEARS ENDED JULY 31, 1999 .......................................      F-20

STATEMENTS OF CASH FLOWS FOR THE THREE

     YEARS ENDED JULY 31, 1999 .......................................      F-21

NOTES TO FINANCIAL STATEMENTS - JULY 31, 1999, 1998, AND 1997 ........      F-23



<PAGE>

MOSS-ADAMS LLP
--------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS


INDEPENDENT AUDITOR'S REPORT

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

We have audited the accompanying balance sheets of U.S. Electricar,  Inc., as of
December  31, 1999 and July 31, 1999 and 1998,  and the  related  statements  of
operations,  stockholders'  deficit,  and cash flows for the five  months  ended
December  31, 1999,  and for each of the three years ended July 31, 1999.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of U. S. Electricar,  Inc., as of
December 31, 1999 and July 31, 1999 and 1998,  and the results of its operations
and cash flows for the five months ended  December 31, 1999, and for each of the
three  years  ended  July  31,  1999,  in  conformity  with  generally  accepted
accounting principles.


                                                        /s/ Moss Adams LLP


Santa Rosa, California
February 17, 2000


<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                                                   BALANCE SHEET
                                                               December 31, 1999
                             (In thousands, except for share and per share data)
--------------------------------------------------------------------------------


                                     ASSETS


CURRENT ASSETS
      Cash                                                                $1,465
      Accounts receivable                                                    566
      Inventories and supplies                                               256
      Stockholder receivable, current maturities                              38
      Prepaids and other current assets                                       71
                                                                          ------

              Total current assets                                         2,396

PROPERTY, PLANT AND EQUIPMENT                                                226

STOCKHOLDER RECEIVABLE, less current maturities                               75
                                                                          ------

              Total assets                                                $2,697
                                                                          ======

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

<PAGE>


<TABLE>
                                                                                                              U. S. ELECTRICAR, INC.
                                                                                                           BALANCE SHEET (Continued)
                                                                                                                   December 31, 1999
                                                                                 (In thousands, except for share and per share data)
------------------------------------------------------------------------------------------------------------------------------------


<CAPTION>
                                                LIABILITIES AND STOCKHOLDERS' DEFICIT

<S>                                                                                                                        <C>
CURRENT LIABILITIES
      Accounts payable                                                                                                     $    202
      Accrued payroll and related expenses                                                                                      229
      Other accrued expenses                                                                                                    156
      Current maturities of long-term debt                                                                                    1,420
      Customer deposits                                                                                                         102
                                                                                                                           --------

              Total current liabilities                                                                                       2,109

ACCRUED INTEREST PAYABLE                                                                                                        439

LONG-TERM PAYABLES                                                                                                            1,832

LONG-TERM DEBT, less current maturities                                                                                       3,332
                                                                                                                           --------

              Total liabilities                                                                                               7,712
                                                                                                                           --------

STOCKHOLDERS' DEFICIT
      Series A preferred stock - no par value; 30,000,000 shares
          authorized; 3,259,000 shares issued and outstanding;
          liquidating preference at $0.60 per share aggregating $1,995                                                        2,166
      Series B preferred stock - no par value; 5,000,000 shares
          authorized; 1,242,000 shares issued and outstanding                                                                 2,486
      Stock notes receivable                                                                                                 (1,149)
      Common stock - no par value; 500,000,000 shares authorized;
          252,012,000 shares issued and outstanding                                                                          71,526
      Common stock subscribed                                                                                                 1,445
      Additional paid-in capital                                                                                              4,917
      Accumulated deficit                                                                                                   (86,406)
                                                                                                                           --------

              Total stockholders' deficit                                                                                    (5,015)
                                                                                                                           --------

              Total liabilities and stockholders' deficit                                                                  $  2,697
                                                                                                                           ========

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


<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                                         STATEMENT OF OPERATIONS
                                             Five Months Ended December 31, 1999
                             (In thousands, except for share and per share data)
--------------------------------------------------------------------------------


NET REVENUES                                                      $         629

COST OF REVENUES                                                            377
                                                                  -------------

GROSS PROFIT                                                                252
                                                                  -------------

OTHER COSTS AND EXPENSES
      Research and development                                              262
      Selling, general and administrative                                   796
      Interest and financing fees                                           244
      Legal settlements                                                     125
                                                                  -------------

              Total other costs and expenses                              1,427
                                                                  -------------

LOSS FROM CONTINUING OPERATIONS                                          (1,175)

GAIN ON DEBT RESTRUCTURING                                                  214
                                                                  -------------

NET LOSS                                                          $        (961)
                                                                  =============

LOSS PER COMMON SHARE                                             $       (0.01)
                                                                  =============

WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING                       251,993,533
                                                                  =============

The accompanying notes are an integral part of these financial statements.
--------------------------------------------------------------------------------
                                                                        Page F-4

<PAGE>


<TABLE>
                                                                                                              U. S. ELECTRICAR, INC.
                                                                                                  STATEMENT OF STOCKHOLDERS' DEFICIT
                                                                                                 Five Months Ended December 31, 1999
                                                                                                                      (In thousands)
------------------------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                              PREFERRED STOCK
                                                          ------------------------------------------------
                                                                 SERIES A                   SERIES B               COMMON STOCK
                                                          ---------------------       --------------------      --------------------
                                                          SHARES         AMOUNT        SHARES      AMOUNT       SHARES       AMOUNT
                                                          -------       -------       -------      -------      -------      -------
<S>                                                         <C>         <C>             <C>        <C>          <C>          <C>
BALANCE, July 31, 1999                                      3,259       $ 2,191         1,242      $ 2,486      251,992      $71,501

COMMON STOCK TRANSACTIONS
   Conversion of Series A preferred stock                     (20)          (25)         --           --             20           25
   Stock issued for services                                 --            --            --           --           --           --
   Conversion of debt                                        --            --            --           --           --           --
   Debt forgiveness by stockholder                           --            --            --           --           --           --
NET LOSS                                                     --            --            --           --           --           --
                                                          -------       -------       -------      -------      -------      -------

BALANCE, December 31, 1999                                  3,239       $ 2,166         1,242      $ 2,486      252,012      $71,526
                                                          =======       =======       =======      =======      =======      =======


                                                             COMMON STOCK
                                                              SUBSCRIBED         ADDITIONAL
                                                        ---------------------     PAID-IN    STOCK NOTES   ACCUMULATED
                                                         SHARES       AMOUNT      CAPITAL     RECEIVABLE     DEFICIT         TOTAL
                                                        --------     --------     --------     --------      --------      --------
BALANCE, July 31, 1999                                      --       $   --       $  3,100     $ (1,149)     $(85,445)     $ (7,316)

COMMON STOCK TRANSACTIONS
   Conversion of Series A preferred stock                   --           --           --           --            --            --
   Stock issued for services                               1,317          148         --           --            --             148
   Conversion of debt                                      4,246        1,297         --           --            --           1,297
   Debt forgiveness by stockholder                          --           --          1,817         --            --           1,817
NET LOSS                                                    --           --           --           --            (961)         (961)
                                                        --------     --------     --------     --------      --------      --------

BALANCE, December 31, 1999                                 5,563     $  1,445     $  4,917     $ (1,149)     $(86,406)     $ (5,015)
                                                        ========     ========     ========     ========      ========      ========

<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Page F-5
</TABLE>

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                                         STATEMENT OF CASH FLOWS
                                             Five Months Ended December 31, 1999
                                                                  (In thousands)
--------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
      Net loss                                                          $  (961)
      Adjustments to reconcile net loss to net cash
          used by operating activities:
              Depreciation and amortization                                  60
              Gain on debt restructuring                                   (214)
              Stock issued for services                                     148
              Interest expense converted to equity                          219
          Change in operating assets and liabilities:
              Accounts receivable                                           185
              Inventories                                                   (33)
              Stockholder receivable                                         12
              Prepaids and other current assets                              21
              Accounts payable and accrued expenses                        (231)
              Customer deposits                                             102
                                                                        -------

                  Net cash used by operating activities                    (692)
                                                                        -------

CASH FLOWS FROM INVESTING ACTIVITIES
      Equipment acquisitions                                                 (3)
                                                                        -------

CASH FLOWS FROM FINANCING ACTIVITIES
      Payments on notes payable and capital leases                         (307)
                                                                        -------

NET DECREASE IN CASH                                                     (1,002)

CASH,  July 31, 1999                                                      2,467
                                                                        -------

CASH,  December 31, 1999                                                $ 1,465
                                                                        =======

SUPPLEMENTAL CASH-FLOW INFORMATION
      Cash paid during the year for interest                            $     9
      Non-cash investing and financing activities:
          Conversion of Series A preferred stock to common stock        $    25
          Conversion of debt and accrued interest to equity             $ 2,894


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


<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                               December 31, 1999
--------------------------------------------------------------------------------


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization  - U.  S.  Electricar,  Inc.,  is  a  California  corporation  that
originally  produced and sold electric  vehicles.  In 1998, the Company began to
focus its  efforts on the  development  of  electric  drive  trains and  related
components for electric vehicles and hybrid systems, vehicle systems integration
and the  performance  of various  engineering  contracts.  The  Company  retains
development  and  manufacturing  rights  to  many of the  technologies  created,
whether such research and  development is internally or externally  funded.  The
Company currently has several engineering contracts to design,  develop and test
electric  and  hybrid  electric  drive  train  products  and  related  products,
including   contracts  with  Hyundai  Motor   Corporation  (HMC)  and  the  U.S.
Government.  The Company anticipates deriving further development contracts from
a new relationship with Hyundai Heavy  Industries,  as well as utilizing Hyundai
to manufacture the Company's drive systems for international sales.

Change in fiscal year - Effective  December  31, 1999,  the Company  changed its
fiscal year-end from July 31, to December 31.

Inventory  -  Inventory  is  comprised  of  materials  used  in the  design  and
development of electric drive systems under ongoing development  contracts,  and
is stated at the lower of cost (first-in, first-out) or market.

Property, plant and equipment - Property, plant and equipment are stated at cost
and depreciated using the  straight-line  method over the estimated useful lives
of the related assets, which range from three to seven years.  Long-lived assets
are  reviewed  for  impairment  whenever  events  or  changes  in  circumstances
indicates  the sum of expected cash flows from use of the asset is less than its
carrying  value.  Long-lived  assets that  management  has  committed to sell or
abandon are reported at the lower of carrying  amount or fair value less cost to
sell.

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

Revenue  recognition  - Revenue on  engineering  and  research  and  development
contracts is recognized at the  completion of specified  engineering  or billing
milestones.

Loss per common  share - Loss per common  share is computed  using the  weighted
average  number  of common  shares  outstanding.  Since a loss  from  operations
exists,  a diluted  earnings  per  share  number is not  presented  because  the
inclusion of common stock  equivalents in the computation would be antidilutive.
Common stock equivalents  associated with Series A and B preferred stock,  stock
options,  warrants and convertible  notes and bonds,  which are exercisable into
shares of common stock,  could  potentially  dilute earnings per share in future
years.

Concentrations  of  risk -  Financial  instruments  potentially  subjecting  the
Company to  concentrations  of credit  risk  consist  primarily  of bank  demand
deposits that may, from time to time, be in excess of FDIC insurance thresholds,
and  trade  receivables.  Demand  deposits  are  placed  with  known  creditable
financial  institutions.  The Company's  largest  customer,  Hyundai,  is also a
stockholder  that holds less than 5% of the  outstanding  common stock.  Hyundai
accounted  for  approximately  54% of total  revenues  for the five months ended
December  31,  1999,  with  $383,000  due from  Hyundai and included in accounts
receivable at December 31, 1999.

Significant  estimates - The  preparation of financial  statements in conformity
with  generally  accepted  accounting  principles  requires  the Company to make
estimates and assumptions affecting the reported amounts of assets, liabilities,
revenues and expenses,  and the disclosure of contingent assets and liabilities.
The amounts estimated could differ from actual results, and the difference could
have a significant impact on the financial statements.

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

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                               December 31, 1999
--------------------------------------------------------------------------------


Fair value of financial  instruments - The Company measures its financial assets
and liabilities in accordance with generally accepted accounting principles. The
fair value of a financial instrument is the amount at which the instrument could
be exchanged in a current  transaction  between willing parties.  For certain of
the Company's  financial  instruments,  including cash,  accounts receivable and
accounts  payable,  the carrying amount  approximates  fair value because of the
short maturities.  The fair value of the Company's short-term and long-term debt
may be  substantially  less than the  carrying  value  since there is no readily
ascertainable market for the debt, given the financial position of the Company.

Stock-based  compensation  -  The  Company  accounts  for  stock-based  employee
compensation  arrangements  in  accordance  with the  provisions  of  Accounting
Principles  Board Opinion No. 25 (APB No. 25),  "Accounting  for Stock Issued to
Employees,"  and  complies  with  the  disclosure  provisions  of  Statement  of
Financial  Accounting  Standards  No.  123  (SFAS  No.  123),   "Accounting  for
Stock-Based Compensation." Under APB No. 25, compensation expense is the excess,
if any, of the fair value of the Company's stock at a measurement  date over the
amount  that must be paid to  acquire  the stock.  SFAS No. 123  requires a fair
value method to be used when determining  compensation expense for stock options
and similar  equity  instruments.  SFAS No. 123 permits a company to continue to
use APB No.  25 to  account  for  stock-based  compensation  to  employees,  but
proforma  disclosures  of net income and earnings or loss per share must be made
as if SFAS No. 123 had been adopted in its  entirety.  Stock  options  issued to
non-employees are valued under the provisions of SFAS No. 123.

Recent accounting  pronouncements - The Financial Accounting Standards Board has
issued  SFAS  No.  133,  "Accounting  for  Derivative  Instruments  and  Hedging
Activities."  SFAS No.  133  requires  companies  to record  derivatives  on the
balance sheet as assets or liabilities,  measured at fair market value. Gains or
losses  resulting from changes in the values of those  derivatives are accounted
for  depending on the use of the  derivative  and whether it qualifies for hedge
accounting.  The  key  criterion  for  hedge  accounting  is  that  the  hedging
relationship  must be highly effective in achieving  offsetting  changes in fair
value or cash flows. SFAS No. 133, which is effective for fiscal years beginning
after June 15, 1999, will not have a material effect on the Company's  financial
statements.


NOTE 2 - MANAGEMENT'S PLANS

The Company has  experienced  recurring  losses from  operations and use of cash
from  operations.  A  substantial  portion of the losses  were  attributable  to
research,  development and other costs associated with the Company's development
and production of electric drive systems and components.

During the fiscal  year ended July 31,  1999,  the  Company  was  successful  in
selling $3,000,000 of its common stock, and subsequent to December 31, 1999, the
Company signed a stock purchase agreement to sell 3,333,333 shares of its common
stock for $1,000,000.  Additionally, during the fiscal year ended July 31, 1999,
the Company's  President acquired  approximately  $5,694,000 of debt and accrued
interest,  plus 37 million shares of stock, from ITOCHU  Corporation.  Under the
agreement among ITOCHU, the Company, and the Company's  President,  the acquired
debt is convertible into common stock under the terms of the original notes.

It is management's  intention to continue to seek additional  financing  through
private placements as well as other means for as long as the operating shortfall
exists.

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

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                               December 31, 1999
--------------------------------------------------------------------------------


NOTE 3 - PROPERTY, PLANT AND EQUIPMENT (in thousands)

Computers                                                                 $  849
Machinery and equipment                                                      267
Furniture and office equipment                                               196
Automobiles and demonstration vehicles                                       142
Leasehold improvements                                                        54
                                                                          ------

                                                                           1,509
Less accumulated depreciation and amortization                             1,283
                                                                          ------

                                                                          $  226
                                                                          ======


NOTE 4 - LONG-TERM DEBT (in thousands)

Secured subordinated promissory note - Credit
Management Association of California (CMAC) as
exclusive agent for Non-Qualified Creditors, with
interest at 3% for the first five years, 6% for years
six and seven, and then at prime plus 3% through
date of maturity; interest payments are made upon
payment of principal, with principal and interest due
no later than April 2016; the Company is required to
fund a sinking fund escrow with 10% of future equity
financing, including debt converted to equity                          $  3,332

Convertible secured notes under a Supplemental Loan
Agreement with ITOCHU Corporation, with interest at
12%; principal and interest were due in December 1997;
the debt, which is secured by personal property, was
acquired by the Company's President in 1999                               1,300

Other                                                                       120
                                                                       --------
                                                                          4,752
Less current maturities                                                   1,420
                                                                       --------
                                                                       $  3,332
                                                                       ========


In March  1999,  all notes and  accrued  interest  payable to  ITOCHU,  totaling
$5,694,000,  were acquired by the Company's  President in a transaction  outside
the Company for  $50,000.  During the year ended July 31,  1999,  the  Company's
President  forgave  debt  totaling  $2,694,000.   An  additional  $1,817,000  of
principal and interest were forgiven by the Company's  President during the five
months ended  December  31, 1999.  The amounts  forgiven  have been  reported as
additional  paid-in  capital.  The remaining  principal and accrued  interest is
convertible  into  the  Company's  common  stock at  $0.30  per  share at a date
mutually agreed to by the Company and the President

During the period ended  December 31, 1999,  $1,000,000  of debt and $247,000 of
accrued  interest were converted into  approximately  4,246,000 shares of common
stock at $0.30 per share.

--------------------------------------------------------------------------------
                                                                        Page F-9

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                               December 31, 1999
--------------------------------------------------------------------------------


NOTE 5 - LEASE COMMITMENTS

The  Company  has  renewed  the  operating  lease of its  Torrance,  California,
facility.  The lease expires in February 2003.  Rent expense was $43,000 for the
five months ended December 31, 1999.

Future minimum lease payments are as follows:


                    Year Ending December 31,
                    ------------------------
                              2000                             $ 148,000
                              2001                               161,000
                              2002                               163,000
                              2003                                27,000
                                                               ---------
                                                               $ 499,000
                                                               =========


NOTE 6 - INCOME TAXES (in thousands)

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

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


Deferred tax assets
     Federal tax loss carryforward                                       $24,147
     State tax loss carryforward                                           2,378
     Basis difference                                                      1,610
     Other, net                                                              214
                                                                         -------

                                                                          28,349
Less valuation allowance                                                  28,349
                                                                         -------

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


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

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                               December 31, 1999
--------------------------------------------------------------------------------


Net operating losses expire as follows:


                                                    Net Operating Loss
                                             ---------------------------------
        Date of Expiration                    Federal                California
        ------------------                   --------                ----------
               2000                          $     51                 $ 16,730
               2001                                44                    4,541
               2002                                11                    2,778
               2003                                64                    1,541
               2004                               322                      709
               2005                               443                      655
               2006                               680                       --
               2007                             2,552                       --
               2008                            24,221                       --
               2009                            33,460                       --
               2010                             9,083                       --
               2011                             5,557                       --
               2012                             2,998                       --
               2013                             1,418                       --
               2014                             1,965                       --
                                             --------                 --------
                                             $ 82,869                 $ 26,954
                                             ========                 ========


NOTE 7 - STOCKHOLDERS' DEFICIT

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

In July 1993,  the Board of Directors  approved a plan for the sale of shares of
Series A preferred  stock to certain  officers and directors  (Participants)  at
$0.60 per share. In general,  the Participants could purchase these shares for a
combination of cash,  promissory notes payable to the Company, and conversion of
debt and deferred compensation due to the Participants.  All shares issued under
this plan were  pledged to the  Company  as  security  for the notes.  The notes
provided for interest at 8% per annum payable annually,  with the full principal
amount and any  unpaid  interest  due on  January  31,  1997.  The notes  remain
outstanding. The likelihood of collecting the interest on these notes is remote;
therefore, accrued interest has not been recorded.

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

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

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                               December 31, 1999
--------------------------------------------------------------------------------


Other  significant  stock  activity - In  conjunction  with the  acquisition  of
ITOCHU's  debt  (see  Note 4),  the  Company's  President  purchased  all of the
outstanding  common stock of ITOCHU  Corporation,  which  totaled  approximately
37,400,000 shares, for a purchase price of $1.

In July 1999,  the Company  sold  86,666,666  unregistered  shares of its common
stock at $0.03 per share  pursuant to a  Regulation  D  Subscription  Agreement,
resulting  in net  proceeds  of  $2,600,000.  Also in  July  1999,  the  Company
converted  $400,000 of  convertible  secured notes to  approximately  13,333,000
shares  of  common  stock  at $0.03  per  share.  In July  1999,  the  Company's
shareholders authorized an additional 200,000,000 shares of no par common stock.


NOTE 8 - STOCK OPTIONS AND WARRANTS

In 1993,  stockholders  approved the 1993  Employee and  Consultant  Stock Plan,
which  expires in 2003.  Under the Plan,  the  Company has  reserved  30,000,000
shares of common stock for incentive and  nonstatutory  stock  options.  Options
under the Plan expire  over  periods not to exceed ten years from date of grant.
Options that expire or are canceled may become available for future grants under
the Plan. In addition, the Company grants other nonstatutory stock options.

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

The 1996 Stock Option Plan, which was approved by stockholders in 1997, reserves
45,000,000 shares for incentive and nonstatutory stock options during the period
of the Plan,  which  expires in 2006.  Options under the 1996 Plan expire over a
period not to exceed ten years.

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

<CAPTION>
                                                                                       Director
                                   1996 Plan                  1993 Plan               Option Plan                  Other
                            -------------------------  ------------------------ ------------------------  ------------------------
                             Shares        Price        Shares       Price       Shares       Price        Shares       Price
                            ---------  --------------  --------- -------------- ---------- -------------  ---------  -------------
<S>                            <C>      <C>              <C>       <C>                 <C>       <C>         <C>      <C>
Balance, July 31, 1999         8,390    $0.10 - 0.30     11,111    $ 0.30-0.60         25        $ 0.20      1,495    $ 0.60-2.80
                            ---------                  ---------                ----------                ---------

Granted                       12,339    $    0.11          --           --           --            --         --           --
Canceled                        --            --           --           --            (25)         --         --           --
Forfeited                       (234)   $0.11 - 0.30       --           --           --            --         --           --
                            ---------                  ---------                ----------                ---------

Balance, December 31, 1999    20,495    $0.10 - 0.30     11,111    $ 0.30-0.60       --          $ --        1,495    $ 0.60-2.80
                            =========                  =========                ==========                =========
</TABLE>


The Company measures its employee  stock-based  compensation  arrangements under
the  provisions of APB No. 25. Had  compensation  costs for the Company's  stock
option  plans  been  determined  based upon the fair value at the grant date for
awards under these plans  consistent with the methodology  prescribed under SFAS
No. 123, the Company's net loss would have increased by  approximately  $174,000
for the five months ended December 31, 1999.  The fair value of options  granted
were estimated on the date of grant using the Black-Scholes option-pricing model
with  the  following  assumptions:  (1)  dividend  yield  of  0%,  (2)  expected
volatility of 164% to 186%, (3) risk-free  interest rate of 5.88% to 6.59%,  and
(4) an expected life of the options of 5 to 10 years.

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

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                               December 31, 1999
--------------------------------------------------------------------------------


In May 1996, the Company issued  approximately  13,333,000  warrants in exchange
for services  performed.  The warrants  were  exercisable  at $0.30 per share in
cash,  or could be exercised  without the payment of cash if the average  market
value  of the  Company's  common  stock  for  the 20  consecutive  trading  days
preceding  the exercise  date was equal to or greater that $0.60 per share,  and
the average  trading volume was in excess of 100,000 shares per day for the same
preceding 20 trading day period. The warrants expired,  by their original terms,
on May 1, 1997. The holders of these warrants have subsequently made claims that
the Company had  previously  agreed to extend the term of these  warrants for as
much as an  additional  five (5) years.  The Company  believes  these claims are
without merit and that the warrants have expired.

In July 1999, the Company  issued  50,000,000  warrants in conjunction  with the
sale of common  stock.  The warrants are  exercisable  at $0.06 per share for an
equal  number of shares of common  stock,  and expire in July 2001.  The Company
determined  the fair  value of the  warrants  to be  $406,000.  Factors  used in
determining  the fair value  included:  (1) the effect on the stock price if the
warrants were  exercised,  (2) the thinly  traded  nature of the stock,  (3) the
market for the  warrants,  (4) and the rate of return  expected  by the  warrant
holders.


NOTE 9 - RESEARCH AND DEVELOPMENT CONTRACTS

The Company is obligated to perform  research and development  activities  under
development  and licensing  agreements.  The  agreements  require the Company to
design,  develop,  and test drive systems and deliver  working  prototypes.  The
Company retains all rights to the products  developed and will license their use
to the counter-party.  Compensation for these research and development  services
is based on specified milestones set forth in each agreement. As of December 31,
1999,  the Company had not  performed  all research and  development  activities
required by the agreements.

Revenue  recognized  under the development  agreements for the five months ended
December 31, 1999, was approximately $507,000.  Related expenses are recorded in
cost of revenues.


NOTE 10 - RELATED PARTY TRANSACTIONS

Accrued  compensation  of $43,000  was due to two  employees.  The Company is to
issue 808,000 shares of its common stock as payment on this accrual.  The market
value of the stock on the date of settlement was $89,000. The value of the stock
in excess of the accrued compensation was charged to compensation expense during
the period.

Also for the period ended  December 31, 1999,  the Company's  Board of Directors
unanimously  approved a compensation package for outside directors consisting of
the following:  for each meeting attended in person, each outside director shall
receive $1,000 in cash,  reimbursement of economy class travel and lodging,  and
$2,000 of common  stock  valued on the date of the meeting at the average of the
closing ask and bid prices;  for each  telephonic  Board  meeting,  each outside
director  shall receive $250 in cash and $250 in stock valued in the same manner
as an in-person Board meeting; for each meeting of a Board committee attended in
person, the committee chairman shall receive an additional $500 in cash and $500
in stock. Under this plan, the Company was to issue approximately 509,000 shares
of stock with a fair market  value of $59,000,  which was recorded as an expense
during the period.

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

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                               December 31, 1999
--------------------------------------------------------------------------------


NOTE 11 - CONTINGENCIES

In connection  with the Company's  default on its debt  obligations to unsecured
creditors,  19 of these creditors have obtained judgments against the Company in
the aggregate  amount of  approximately  $650,000.  The Company is  aggressively
taking steps to eliminate these judgments.

In February  1999,  the  Company  became a  defendant  in a lawsuit  filed by an
individual  alleging  personal  injury  by a  vehicle  manufactured  by a  prior
subsidiary  of the Company,  Industrial  Electric  Vehicles,  Inc. The Company's
insurance  carrier has  assumed all  potential  liability  associated  with this
matter.

A workers compensation claim in the amount of approximately  $169,000,  has been
asserted against the Company by the former owners of Nordskog Electric Vehicles,
which had been acquired by the Company and renamed Industrial  Electric Vehicles
(IEV).  IEV was sold by the Company in 1997.  The claim alleges that the Company
agreed to indemnify  Nordskog  for such  liabilities  when the Company  acquired
Nordskog.  The Company has not assessed the validity of this claim or its likely
outcome.

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

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

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                               December 31, 1999
--------------------------------------------------------------------------------


NOTE 12 - UNAUDITED SUMMARIZED FINANCIAL STATEMENTS

The  unaudited  balance sheet and statement of operations as of and for the five
months ended December 31, 1998, are as follows (in thousands):


BALANCE SHEET

Current assets
      Cash                                                             $      6
      Accounts receivable, net                                              405
      Inventories and supplies                                              430
      Stockholder receivable, current maturities                             25
      Prepaids and other current assets                                      73
                                                                       --------

              Total current assets                                          939

Property, plant, and equipment, net                                         272

Stockholder receivable, less current maturities                              75
                                                                       --------

              Total assets                                             $  1,286
                                                                       ========

Current liabilities
      Accounts payable                                                 $    593
      Accrued payroll and related expenses                                  347
      Other accrued expenses                                                707
      Current maturities of long-term debt                                 --
      Customer deposits                                                     358
                                                                       --------

              Total current liabilities                                   2,005

Accrued interest payable                                                  1,525

Long-term payables                                                        1,818

Long-term debt, less current maturities                                   9,059
                                                                       --------

              Total liabilities                                          14,407
                                                                       --------

Stockholders' deficit
      Series A preferred stock                                            2,233
      Series B preferred stock                                            2,584
      Stock notes receivable                                             (1,149)
      Common stock - no par value; 300,000,000 authorized,
          151,767,000 shares issued and outstanding at 1998              68,767
      Accumulated deficit                                               (85,556)
                                                                       --------

              Total stockholders' deficit                               (13,120)
                                                                       --------

              Total liabilities and stockholders' deficit              $  1,287
                                                                       ========


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

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                               December 31, 1999
--------------------------------------------------------------------------------


STATEMENT OF OPERATIONS

Net revenues                                                             $  867

Cost of revenues                                                            389
                                                                         ------

Gross profit                                                                478
                                                                         ------

Other costs and expenses
      Research and development                                               73
      Selling, general and administrative                                   691
      Interest and financing fees                                           264
      Other (income)                                                        (35)
                                                                         ------

              Total other costs and expenses                                993
                                                                         ------

Net loss from continuing operations                                      $ (515)
                                                                         ======

Loss per common share                                                    $(0.01)
                                                                         ======


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


<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                                                  BALANCE SHEETS
                                                          July 31, 1999 and 1998
                             (In thousands, except for share and per share data)
--------------------------------------------------------------------------------


                                     ASSETS

                                                               1999        1998
                                                              ------      ------
CURRENT ASSETS
     Cash                                                     $2,467      $  266
     Accounts receivable, net of allowance for
         doubtful accounts of $0 and $108                        751         108
     Inventories and supplies                                    223         492
     Stockholder receivable, current maturities                   50         250
     Prepaids and other current assets                            92         124
                                                              ------      ------

            Total current assets                               3,583       1,240

PROPERTY, PLANT AND EQUIPMENT                                    282         318

STOCKHOLDER RECEIVABLE, less current maturities                   75         100
                                                              ------      ------

            Total assets                                      $3,940      $1,658
                                                              ======      ======


The accompanying notes are an integral part of these financial statements.
--------------------------------------------------------------------------------
                                                                       Page F-17

<PAGE>


<TABLE>
                                                                                                              U. S. ELECTRICAR, INC.
                                                                                                          BALANCE SHEETS (Continued)
                                                                                                              July 31, 1999 and 1998
                                                                                 (In thousands, except for share and per share data)
------------------------------------------------------------------------------------------------------------------------------------


<CAPTION>
                                                LIABILITIES AND STOCKHOLDERS' DEFICIT

                                                                                                         1999                1998
                                                                                                       --------            --------
<S>                                                                                                    <C>                 <C>
CURRENT LIABILITIES
     Accounts payable                                                                                  $    507            $    540
     Accrued payroll and related expenses                                                                   290                 358
     Other accrued expenses                                                                                 232                 285
     Current maturities of long-term debt                                                                 4,427               5,727
     Accrued warranty reserve                                                                              --                   474
     Customer deposits                                                                                     --                   387
                                                                                                       --------            --------

            Total current liabilities                                                                     5,456               7,771

ACCRUED INTEREST PAYABLE                                                                                    593               1,262

LONG-TERM PAYABLES                                                                                        1,875               1,908

LONG-TERM DEBT, less current maturities                                                                   3,332               3,332
                                                                                                       --------            --------

            Total liabilities                                                                            11,256              14,273
                                                                                                       --------            --------

STOCKHOLDERS' DEFICIT
     Series A preferred stock - no par value; 30,000,000 shares
         authorized; 3,259,000 and 3,321,000  shares issued and
         outstanding at 1999 and 1998; liquidating preference
         at $0.60 per share aggregating $1,955 and $1,993                                                 2,191               2,258
     Series B preferred stock - no par value; 5,000,000 shares
         authorized; 1,242,000 and 1,291,000 shares issued and
         outstanding at 1999 and 1998                                                                     2,486               2,584
     Stock notes receivable                                                                              (1,149)             (1,149)
     Common stock - no par value; 500,000,000 and 300,000,000
         shares authorized at 1999 and 1998; 251,992,000 and
         151,767,000 shares issued and outstanding at 1999 and 1998                                      71,501              68,742
     Additional paid-in capital                                                                           3,100                --
     Accumulated deficit                                                                                (85,445)            (85,050)
                                                                                                       --------            --------

            Total stockholders' deficit                                                                  (7,316)            (12,615)
                                                                                                       --------            --------

            Total liabilities and stockholders' deficit                                                $  3,940            $  1,658
                                                                                                       ========            ========


<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           Page F-18
</TABLE>


<PAGE>


<TABLE>
                                                                                                              U. S. ELECTRICAR, INC.
                                                                                                            STATEMENTS OF OPERATIONS
                                                                                            Years Ended July 31, 1999, 1998 and 1997
                                                                                 (In thousands, except for share and per share data)
------------------------------------------------------------------------------------------------------------------------------------


<CAPTION>
                                                                             1999                   1998                   1997
                                                                        -------------          -------------          -------------
<S>                                                                     <C>                    <C>                    <C>
NET REVENUES                                                            $       2,774          $       1,938          $       4,484

COST OF REVENUES                                                                1,460                  2,765                  2,042
                                                                        -------------          -------------          -------------

GROSS PROFIT                                                                    1,314                   (827)                 2,442
                                                                        -------------          -------------          -------------

OTHER COSTS AND EXPENSES
     Research and development                                                     499                    445                  1,218
     Selling, general and administrative                                        1,141                  1,697                  3,116
     Interest and financing fees                                                  724                    665                    792
     Gain on warranty accrual reevaluation                                       (474)                  --                     --
     Other (income)/expense                                                       (41)                   (67)                   274
     Acquisition of research and development                                     --                     --                    1,630
                                                                        -------------          -------------          -------------

            Total other costs and expenses                                      1,849                  2,740                  7,030
                                                                        -------------          -------------          -------------

LOSS FROM CONTINUING OPERATIONS                                                  (535)                (3,567)                (4,588)

GAIN ON DEBT RESTRUCTURING                                                        140                     42                     53
                                                                        -------------          -------------          -------------

NET LOSS                                                                $        (395)         $      (3,525)         $      (4,535)
                                                                        =============          =============          =============

PER COMMON SHARE
     Loss from continuing operations                                    $       (0.01)         $       (0.02)         $       (0.03)
     Gain on debt restructuring                                                  --                     --                     --
                                                                        -------------          -------------          -------------

            Net loss per common share                                   $       (0.01)         $       (0.02)         $       (0.03)
                                                                        =============          =============          =============

WEIGHTED AVERAGE SHARES
     OUTSTANDING                                                          152,076,615            151,265,026            133,805,603
                                                                        =============          =============          =============


<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           Page F-19
</TABLE>


<PAGE>


<TABLE>
                                                                                                              U. S. ELECTRICAR, INC.
                                                                                                 STATEMENTS OF STOCKHOLDERS' DEFICIT
                                                                                            Years Ended July 31, 1999, 1998 and 1997
                                                                                                                      (In thousands)
------------------------------------------------------------------------------------------------------------------------------------


<CAPTION>
                                                                        PREFERRED STOCK
                                                      ---------------------------------------------------
                                                              SERIES A                    SERIES B                COMMON STOCK
                                                      -----------------------     -----------------------     ----------------------
                                                       SHARES        AMOUNT        SHARES        AMOUNT        SHARES       AMOUNT
                                                      ---------     ---------     ---------     ---------     ---------    ---------
<S>                                                       <C>       <C>               <C>       <C>             <C>        <C>
BALANCE, JULY 31, 1996                                    4,010     $   2,983         1,587     $   3,175       120,220    $  59,157

PREFERRED STOCK TRANSACTION
    Conversion of unsecured debt                           --            --              42            85          --           --
COMMON STOCK TRANSACTIONS
    Sales under Regulation S subscription
      agreement                                            --            --            --            --          12,000        3,600
    Systronix acquisition                                  --            --            --            --           3,800          760
    Conversion of Series S Bonds and
      accrued interest                                     --            --            --            --          10,732        3,219
    Conversion of Series A preferred stock                 (389)         (353)         --            --             389          353
    Conversion of Series B preferred stock                 --            --            (289)         (578)        1,927          578
    Conversion of debt                                     --            --            --            --           2,000          600
INTEREST ON STOCK NOTES                                    --            --            --            --            --           --
NET LOSS                                                   --            --            --            --            --           --
                                                      ---------     ---------     ---------     ---------     ---------    ---------

BALANCE, July 31, 1997                                    3,621         2,630         1,340         2,682       151,068       68,267

COMMON STOCK TRANSACTIONS
    Conversion of Series A preferred stock                 (300)         (372)         --            --             300          372
    Conversion of Series B preferred stock                 --            --             (49)          (98)          324           98
    Stock for services                                     --            --            --            --              75            5
NET LOSS                                                   --            --            --            --            --           --
                                                      ---------     ---------     ---------     ---------     ---------    ---------

BALANCE, July 31, 1998                                    3,321         2,258         1,291         2,584       151,767       68,742

COMMON STOCK TRANSACTIONS
    Conversion of Series A preferred stock                  (62)          (67)         --            --              62           67
    Conversion of Series B preferred stock                 --            --             (49)          (98)          163           98
    Sale of stock                                          --            --            --            --          83,333        2,375
    Conversion of debt                                     --            --            --            --          16,667          219
    Issuance of common stock warrants                      --            --            --            --            --           --
    Debt forgiveness by stockholder                        --            --            --            --            --           --
NET LOSS                                                   --            --            --            --            --           --
                                                      ---------     ---------     ---------     ---------     ---------    ---------

                                                          3,259     $   2,191         1,242     $   2,486       251,992    $  71,501
                                                      =========     =========     =========     =========     =========    =========



                                                                    ADDITIONAL
                                                                      PAID-IN        STOCK NOTES        ACCUMULATED
                                                                      CAPITAL         RECEIVABLE          DEFICIT            TOTAL
                                                                     --------         ----------         --------          --------
BALANCE, JULY 31, 1996                                               $   --            $ (1,061)         $(76,990)         $(12,736)

PREFERRED STOCK TRANSACTION
    Conversion of unsecured debt                                         --                --                --                  85
COMMON STOCK TRANSACTIONS
    Sales under Regulation S subscription
      agreement                                                          --                --                --               3,600
    Systronix acquisition                                                --                --                --                 760
    Conversion of Series S Bonds and
      accrued interest                                                   --                --                --               3,219
    Conversion of Series A preferred stock                               --                --                --                --
    Conversion of Series B preferred stock                               --                --                --                --
    Conversion of debt                                                   --                --                --                 600
INTEREST ON STOCK NOTES                                                  --                 (88)             --                 (88)
NET LOSS                                                                 --                --              (4,535)           (4,535)
                                                                     --------          --------          --------          --------

BALANCE, July 31, 1997                                                   --              (1,149)          (81,525)           (9,095)

COMMON STOCK TRANSACTIONS
    Conversion of Series A preferred stock                               --                --                --                --
    Conversion of Series B preferred stock                               --                --                --                --
    Stock for services                                                   --                --                --                   5
NET LOSS                                                                 --                --              (3,525)           (3,525)
                                                                     --------          --------          --------          --------

BALANCE, July 31, 1998                                                   --              (1,149)          (85,050)          (12,615)

COMMON STOCK TRANSACTIONS
    Conversion of Series A preferred stock                               --                --                --                --
    Conversion of Series B preferred stock                               --                --                --                --
    Sale of stock                                                        --                --                --               2,375
    Conversion of debt                                                   --                --                --                 219
    Issuance of common stock warrants                                     406              --                --                 406
    Debt forgiveness by stockholder                                     2,694              --                --               2,694
NET LOSS                                                                 --                --                (395)             (395)
                                                                     --------          --------          --------          --------

                                                                     $  3,100          $ (1,149)         $(85,445)         $ (7,316)
                                                                     ========          ========          ========          ========


<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           Page F-20
</TABLE>

<PAGE>


<TABLE>
                                                                                                              U. S. ELECTRICAR, INC.
                                                                                                            STATEMENTS OF CASH FLOWS
                                                                                            Years Ended July 31, 1999, 1998 and 1997
                                                                                                                      (In thousands)
------------------------------------------------------------------------------------------------------------------------------------


<CAPTION>
                                                                                           1999             1998             1997
                                                                                          -------          -------          -------
<S>                                                                                       <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                                             $  (395)         $(3,525)         $(4,535)
     Adjustments to reconcile net loss to net
         cash used by operating activities:
            Depreciation and amortization                                                     179              212              578
            Change in allowance for doubtful accounts                                        (108)              (7)            (319)
            Provision to reduce inventory values                                              (36)             949              308
            Gain on debt restructuring                                                       (140)             (42)             (53)
            Changes in valuation allowances and reserves                                     (640)            (368)          (1,011)
            Purchase of research and development                                             --               --              1,630
            Stock issued in settlement of legal claim                                        --                  5             --
            Loss of disposal of equipment                                                    --                353             --
            Gain on sale of Industrial Electric Vehicles                                     --               --               (158)
            Interest income on stock notes receivable                                        --               --                (88)
            Interest converted to common stock                                               --               --                194
         Change in operating assets and liabilities:
            Accounts receivable                                                              (560)             753              (54)
            Inventories                                                                       329              371              589
            Note receivable                                                                   250             --               --
            Prepaids and other current assets                                                  32              191              (53)
            Accounts payable and accrued expenses                                             678              491              (39)
            Customer deposits                                                                (387)             343             (164)
                                                                                          -------          -------          -------

                Net cash used by operating activities                                        (798)            (274)          (3,175)
                                                                                          -------          -------          -------

CASH FLOWS FROM INVESTING ACTIVITIES
     Purchases of property, plant and equipment                                                (1)              (8)             (13)
     Proceeds from sale of equipment                                                         --                 35             --
     Repayments on advances to Systronix Corporation                                         --               --                209
                                                                                          -------          -------          -------

                Net cash provided (used) by investing activities                               (1)              27              196
                                                                                          -------          -------          -------

CASH FLOWS FROM FINANCING ACTIVITIES
     Payments on notes payable                                                               --               --             (3,021)
     Payments on capital leases                                                              --                (20)            (152)
     Borrowings on notes payable                                                              400              200            3,122
     Proceeds from issuance of common stock                                                 2,600             --              3,350
                                                                                          -------          -------          -------

                Net cash provided by financing activities                                   3,000              180            3,299
                                                                                          -------          -------          -------

NET INCREASE (DECREASE) IN CASH                                                             2,201              (67)           3,299

CASH
     Beginning of year                                                                        266              333               13
                                                                                          -------          -------          -------

     End of year                                                                          $ 2,467          $   266          $ 3,312
                                                                                          =======          =======          =======

<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           Page F-21
</TABLE>

<PAGE>


<TABLE>
                                                                                                              U. S. ELECTRICAR, INC.
                                                                                                STATEMENTS OF CASH FLOWS (Continued)
                                                                                            Years Ended July 31, 1999, 1998 and 1997
                                                                                                                      (in thousands)
------------------------------------------------------------------------------------------------------------------------------------


<CAPTION>
                                                                                             1999            1998            1997
                                                                                            -------         -------         -------
<S>                                                                                         <C>             <C>             <C>
SUPPLEMENTAL CASH-FLOW INFORMATION
     Cash paid during the year for interest                                                 $  --           $     3         $   162

NON-CASH INVESTING AND FINANCING ACTIVITIES
     Conversion of Series A preferred stock to common stock                                 $    68         $   372         $   353
     Conversion of Series B preferred stock to common stock                                 $    98         $    98         $   578
     Issuance of warrants                                                                   $   406         $  --           $  --
     Decrease in capital lease payable due to cancellation                                  $  --           $   190         $  --
     Conversion of investment to note receivable                                            $  --           $   250         $  --
     Conversion of debt to common stock                                                     $   400         $  --           $ 4,069
     Conversion of debt to Series B preferred stock                                         $  --           $  --           $    85
     Notes issued in connection with debt restructuring                                     $  --           $  --           $    15
     Assumption of notes payable in connection with acquisition                             $  --           $  --           $   800
     Note issued in connection with acquisition                                             $  --           $  --           $   830
     Note assumed by buyer in connection with sale of Industrial
         Electric Vehicles                                                                  $  --           $  --           $(1,013)
     Conversion of accrued interest to notes payable                                        $  --           $  --           $   139
     Acquisition of assets through capital lease                                            $  --           $  --           $   361
     Sale of net assets of Industrial Electric Vehicles                                     $  --           $  --           $   858
     Acquistion of certain assets, related debt and research and
         development from Systronix Corporation for debt and
         stock options, net                                                                 $  --           $  --           $  (819)


<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           Page F-22
</TABLE>

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                                   NOTES TO FINANCIAL STATEMENTS
                                                   July 31, 1999, 1998, and 1997
--------------------------------------------------------------------------------


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization - U. S. Electricar,  Inc. was incorporated in 1976 in California as
Solar  Electric  Engineering,  Inc.,  and in  1994  changed  its  name  to U. S.
Electricar,  Inc.  Prior to fiscal  year 1998,  the  Company  produced  and sold
electric  vehicles.  In 1998,  the  Company  began to focus its  efforts  on the
development  of  electric  drive  trains and  related  components  for  electric
vehicles and hybrid systems,  vehicle systems integration and the performance of
various engineering contracts. The Company retains development and manufacturing
rights  to  many  of  the  technologies  created,   whether  such  research  and
development  is  internally  or  externally  funded.  The Company  currently has
several engineering  contracts to design,  develop and test electric drive train
products and related products for Hyundai Motor  Corporation  (HMC) and the U.S.
Government.  The Company anticipates deriving further development contracts from
a new relationship with Hyundai Heavy  Industries,  as well as utilizing Hyundai
to  manufacture  the  Company's  drive  systems  for  international  sales.  The
statements of  operations,  stockholders'  deficit,  and cash flows for the year
ending July 31, 1997,  include the activities of Industrial  Electric  Vehicles,
Inc. (IEV). Substantially all assets and liabilities of IEV were sold during the
year ended July 31, 1997. All material intercompany  transactions  affecting the
1997 statements were eliminated in  consolidation.  IEV is a dormant company and
had no transactions in 1999 and 1998.

Inventory  and  supplies - Inventory  and  supplies at July 1999 is comprised of
materials  used in the design and  development  of electric  drive systems under
ongoing development contracts.  Inventory at July 1998 was comprised of electric
vehicles, raw materials,  and work-in-process,  and were stated at market, which
was lower than cost.

Property, plant and equipment - Property, plant and equipment are stated at cost
and depreciated using the  straight-line  method over the estimated useful lives
of the related assets, which range from three to seven years.  Long-lived assets
are  reviewed  for  impairment  whenever  events  or  changes  in  circumstances
indicates  the sum of expected cash flows from use of the asset is less than its
carrying  value.  Long-lived  assets that  management  has  committed to sell or
abandon are reported at the lower of carrying  amount or fair value less cost to
sell.

Warranties  - Electric  vehicle  warranties  were  provided  by the  Company and
generally  extended  for  one  year  from  the  time  of  sale.  Warranties  for
substantially  all vehicles sold by the Company have elapsed.  As a result,  the
Company  recognized a $474,000 gain in 1999 concurrent with the  reevaluation of
the warranty accrual.

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

Revenue  recognition - Revenue from the sale of electric vehicles was recognized
when the vehicle was  delivered  to the  customer.  Revenue on  engineering  and
research and development  contracts is recognized at the completion of specified
engineering or billing milestones.

Loss per common  share - Loss per common  share is computed  using the  weighted
average  number  of common  shares  outstanding.  Since a loss  from  operations
exists,  a diluted  earnings  per  share  number is not  presented  because  the
inclusion of common stock  equivalents in the computation would be antidilutive.
Common stock equivalents  associated with Series A and B preferred stock,  stock
options,  warrants and convertible  notes and bonds,  which are exercisable into
shares of common stock,  could  potentially  dilute earnings per share in future
years.

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

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                   July 31, 1999, 1998, and 1997
--------------------------------------------------------------------------------


Concentrations  of  risk -  Financial  instruments  potentially  subjecting  the
Company to  concentrations  of credit  risk  consist  primarily  of bank  demand
deposits that may, from time to time, be in excess of FDIC insurance thresholds,
and  trade  receivables.  Demand  deposits  are  placed  with  known  creditable
financial  institutions.  The Company's  largest  customer,  Hyundai,  is also a
stockholder  that holds less than 5% of the  outstanding  common stock.  Hyundai
accounted for  approximately  90% of total  revenues for the year ended July 31,
1999.  Amounts due from Hyundai at July 31, 1999, which are included in accounts
receivable, were $736,000.

Significant  estimates - The  preparation of financial  statements in conformity
with  generally  accepted  accounting  principles  requires  the Company to make
estimates and assumptions affecting the reported amounts of assets, liabilities,
revenues and expenses,  and the disclosure of contingent assets and liabilities.
The amounts estimated could differ from actual results, and the difference could
have a significant impact on the financial statements.

Fair value of financial  instruments - The Company measures its financial assets
and liabilities in accordance with generally accepted accounting principles. The
fair value of a financial instrument is the amount at which the instrument could
be exchanged in a current  transaction  between willing parties.  For certain of
the Company's  financial  instruments,  including cash,  accounts receivable and
accounts  payable,  the carrying amount  approximates  fair value because of the
short maturities.  The fair value of the Company's short-term and long-term debt
may be  substantially  less than the  carrying  value  since there is no readily
ascertainable market for the debt, given the financial position of the Company.

Stock-based  compensation  -  The  Company  accounts  for  stock-based  employee
compensation  arrangements  in  accordance  with the  provisions  of  Accounting
Principles  Board Opinion No. 25 (APB No. 25),  "Accounting  for Stock Issued to
Employees,"  and  complies  with  the  disclosure  provisions  of  Statement  of
Financial  Accounting  Standards  No.  123  (SFAS  No.  123),   "Accounting  for
Stock-Based Compensation." Under APB No. 25, compensation expense is the excess,
if any, of the fair value of the Company's stock at a measurement  date over the
amount  that must be paid to  acquire  the stock.  SFAS No. 123  requires a fair
value method to be used when determining  compensation expense for stock options
and similar  equity  instruments.  SFAS No. 123 permits a company to continue to
use APB No.  25 to  account  for  stock-based  compensation  to  employees,  but
proforma  disclosures  of net income and earnings or loss per share must be made
as if SFAS No. 123 had been  adopted in its  entirety.  Stock  options  issue to
non-employees are valued under the provisions of SFAS No. 123.

Recent accounting  pronouncements - The Financial Accounting Standards Board has
issued  SFAS  No.  133,  "Accounting  for  Derivative  Instruments  and  Hedging
Activities."  SFAS No.  133  requires  companies  to record  derivatives  on the
balance sheet as assets or liabilities,  measured at fair market value. Gains or
losses  resulting from changes in the values of those  derivatives are accounted
for  depending on the use of the  derivative  and whether it qualifies for hedge
accounting.  The  key  criterion  for  hedge  accounting  is  that  the  hedging
relationship  must be highly effective in achieving  offsetting  changes in fair
value or cash flows.  The Company  does not expect the adoption of SFAS No. 133,
which is effective for all fiscal  quarters of fiscal years beginning after June
15, 1999, to have a material effect on the Company's financial statements.

Reclassifications - Certain reclassification have been made to the July 31, 1998
and 1997 financial statements to conform to the July 31, 1999 presentation.

--------------------------------------------------------------------------------
                                                                       Page F-24

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                   July 31, 1999, 1998, and 1997
--------------------------------------------------------------------------------


NOTE 2 - ACQUISITIONS AND SALES

The Company acquired  substantially  all the tangible and intangible  assets and
assumed  certain  liabilities  of Systronix  Corporation  (Systronix) in October
1996. Systronix was a developer of technologically  advanced electric propulsion
systems for  electric-powered  vehicles.  The purchase  was  reported  using the
purchase method of accounting and, accordingly, the purchase price was allocated
to the assets acquired and liabilities assumed based upon the fair values at the
date of acquisition.  Assets  associated with research and development,  and for
which there was no alternative use, were expensed.

In 1997,  substantially  all  assets  of the  Company's  subsidiary,  Industrial
Electrical Vehicles, Inc. were sold to a group headed by former employees of the
Company  in  exchange  for  the  buyers  assuming   certain  defined  debt.  The
liabilities  assumed by the buyers  exceeded the  reported  values of the assets
sold, which resulted in a gain of approximately $155,000.


NOTE 3 - INVENTORIES (in thousands)


                                                             1999           1998
                                                             ----           ----
Raw materials and supplies                                   $223           $437
Finished goods                                                --             120
Work-in-process                                               --             101
                                                             ----           ----

                                                              223            658
Less valuation adjustment                                     --             166
                                                             ----           ----

                                                             $223           $492
                                                             ====           ====


As of July 31, 1999,  all  inventory is classified as raw materials and supplies
since the Company no longer manufactures electric vehicles.

In 1994 the  Company  entered  into a  manufacturing  agreement  with a  vendor,
whereby  the  Company  agreed  to sell to the  vendor  sufficient  inventory  to
complete the  conversion of 84 sedans and pick-up  trucks to electric  power and
then to repurchase the completed  vehicles upon completion of the  manufacturing
process. The terms of the agreement gave the vendor a purchase money interest in
inventory. Due to the repurchase agreement, the Company did not account for this
transaction as a sale. The Company initially accrued the difference  between the
selling price and repurchase price as interest  expense.  However,  the interest
expense accrual was later reversed by the Company as a result of an amendment to
the agreement in July 1995,  which  eliminated the price difference and required
only the refund to the  vendor of the net  amount of money  paid to the  Company
under the agreement.  During 1995, the vendor paid the Company $867,000, and the
Company  paid the  vendor  $64,000,  for a  difference  of  $803,000,  which was
recorded as an account payable. Under the July 1995 amendment, and separate from
the debt restructuring  process,  a portion of anticipated  proceeds from future
sales of unsold  vehicles in which the vendor had a purchase  money interest was
to be paid to the vendor;  and the vendor was to ratably release its interest in
such vehicles as they were sold until the $803,000 was fully repaid. At July 31,
1999 and 1998, approximately $98,000 remained unpaid and was included in accrued
expenses.  Subsequent to July 31, 1999,  the vendor agreed to accept  $27,000 in
complete satisfaction of the outstanding liability.

--------------------------------------------------------------------------------
                                                                       Page F-25

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                   July 31, 1999, 1998, and 1997
--------------------------------------------------------------------------------


NOTE 4 - PROPERTY, PLANT AND EQUIPMENT (in thousands)

                                                               1999        1998
                                                              ------      ------
Computers                                                     $  846      $  872
Machinery and equipment                                          267         267
Furniture and office equipment                                   196         196
Leasehold improvements                                            54          47
Automobiles and demonstration vehicles                           142        --
Construction in progress                                        --             7
                                                              ------      ------

                                                               1,505       1,389
Less accumulated depreciation and amortization                 1,223       1,071
                                                              ------      ------

                                                              $  282      $  318
                                                              ======      ======


NOTE 5 - LONG-TERM DEBT (in thousands, except for share data)

                                                             1999         1998
                                                            -------      -------
Convertible secured note under a Supplemental Loan
Agreement with ITOCHU Corporation, with interest at
12%; principal and interest were due in April 1998; the
debt was secured by the Company's personal property
and was acquired by the Company's President during 1999     $ 1,700      $ 3,000

Secured subordinated promissory note - Credit
Management Association of California (CMAC) as
exclusive agent for Non-Qualified Creditors, with
interest at 3% for the first five years, 6% for years
six and seven, and then at prime plus 3% through
date of maturity; interest payments are made upon
payment of principal, with principal and interest due
no later than April 2016; with an interest in a sinking
fund escrow with a balance of $4,000 as of July 31,
1999 and 1998; the sinking fund escrow requires the
Company fund the account with 10% of future equity
financing, including convertible debt converted to
equity; payments on this note are subordinated to
payment in full on all principal and accrued interest
owed on the Qualified Creditors promissory note               3,332        3,332

Convertible secured notes under a Supplemental Loan
Agreement with ITOCHU Corporation, with interest at
12%; principal and interest were due in December 1997;
the debt was secured by the Company's personal property,
and was acquired by the Company's President during 1999       1,300        1,300

Convertible bonds with interest at 10%; principal and
interest were due in July 1997                                  800          800

--------------------------------------------------------------------------------
                                                                       Page F-26

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                   July 31, 1999, 1998, and 1997
--------------------------------------------------------------------------------

                                                             1999         1998
                                                            -------      -------

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

Other                                                           320          320
                                                            -------      -------

                                                              9,758       11,057
Less current maturities                                       4,427        5,727
                                                            -------      -------

                                                            $ 3,332      $ 3,332
                                                            =======      =======


In September 1994, the Company issued 120 units of Series S secured  convertible
bonds totaling $12,000,000. Each of the units consisted of $100,000 in principal
and a warrant to purchase  10,000  common  shares.  Beginning  July 1995 through
March 1997, the Company converted the $12,000,000 in principal and $2,002,000 of
accrued  interest into 46,674,000  shares of common stock at $0.30 per share. Of
these amounts,  $3,217,000 of principal and accrued  interest was converted into
10,732,000 shares of common stock during the year ended July 31, 1997.

The Company and ITOCHU Corporation entered into a Supplemental Loan Agreement in
April 1995,  whereby ITOCHU agreed to lend $3,000,000 to the Company.  The notes
were secured by the personal property of the parent company and were convertible
at $0.30 per share into the Company's  common  stock.  The principal and accrued
interest due under the notes have not been paid, causing an event of default.

In March 1999, this and all other notes and accrued  interest payable to ITOCHU,
totaling  $5,694,000,  were acquired by the Company's President in a transaction
outside the Company for $50,000.  During 1999, the Company's  President  forgave
debt totaling  $2,694,000.  Due to the related party nature of the  transaction,
this  forgiveness  was recorded as  additional  paid-in  capital.  The remaining
$3,000,000 in notes  continues to be in default and accrues  interest at 12% per
year.  The remaining  principal  and accrued  interest is  convertible  into the
Company's  common stock at $0.30 per share at a date  mutually  agreed to by the
Company and the President.

In April 1996,  and as amended in July 1996,  the Company  issued two promissory
notes,  due April 1999, for $256,000 and $560,000,  and one promissory  note due
April 2016 for $3,332,000, to CMAC, as the exclusive agent for certain unsecured
creditors who settled with the Company in connection with its Debt Restructuring
Plan. In May 1997 the Company  issued an additional  promissory  note, due April
1999 for $15,000 to CMAC, under the Debt Restructuring Plan. The April notes are
in default.


NOTE 6 - CAPITAL LEASE

Included in the  acquisition of certain assets and  liabilities of Systronix was
the assumption of a purchase contract for a high performance  dynamometer.  This
acquisition  was financed  through a capital lease.  The lease required  monthly
payments of $22,000  and was  scheduled  to mature in May 1998.  The Company was
unable to continue  making the monthly lease  payments and the  dynamometer  was
returned to the manufacturer, who was the holder of the lease. The excess of the
undepreciated  capital asset's cost over the remaining liability,  which totaled
$249,000, was charged to expense in 1998.

--------------------------------------------------------------------------------
                                                                       Page F-27

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                   July 31, 1999, 1998, and 1997
--------------------------------------------------------------------------------


NOTE 7 - LEASE COMMITMENTS

The Company  assumed  the lease of its  Torrance  facility  when  Systronix  was
purchased.  The lease expires in February  2000.  Future  minimum lease payments
under this lease  agreement  are $56,000 for the year ended July 31, 2000.  Rent
expense was $144,400,  $164,500, and $225,000 for the years ended July 31, 1999,
1998, and 1997.


NOTE 8 - INCOME TAXES (in thousands)

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

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


                                                           1999           1998
                                                          -------        -------
Deferred tax assets
     Federal tax loss carryforward                        $23,574        $23,558
     State tax loss carryforward                            2,325          2,705
     Basis difference                                       1,610          1,610
     Reserves and allowances                                  118            107
     Other, net                                               215            498
                                                          -------        -------

                                                           27,842         28,478
Less valuation allowance                                   27,842         28,478
                                                          -------        -------

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


Net operating losses expire as follows:


                                                    Net Operating Loss
                                             ---------------------------------
        Date of Expiration                    Federal                California
        ------------------                   --------                ----------
               2000                          $     51                 $ 16,730
               2001                                44                    4,541
               2002                                11                    2,778
               2003                                64                    1,541
               2004                               322                      709
               2005                               443                       --
               2006                               680                       --
               2007                             2,552                       --
               2008                            24,221                       --
               2009                            33,460                       --
               2010                             9,083                       --
               2011                             5,557                       --
               2012                             2,998                       --
               2013                             1,418                       --
                                             --------                 --------
                                             $ 80,904                 $ 26,299
                                             ========                 ========

--------------------------------------------------------------------------------
                                                                       Page F-28

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                   July 31, 1999, 1998, and 1997
--------------------------------------------------------------------------------


NOTE 9 - STOCKHOLDERS' DEFICIT

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

In July 1993,  the Board of Directors  approved a plan for the sale of shares of
Series A preferred  stock to certain  officers and directors  (Participants)  at
$0.60 per share. In general,  the Participants could purchase these shares for a
combination of cash,  promissory notes payable to the Company, and conversion of
debt and deferred compensation due to the Participants.  All shares issued under
this plan were  pledged to the  Company  as  security  for the notes.  The notes
provided for interest at 8% per annum payable annually,  with the full principal
amount and any  unpaid  interest  due on  January  31,  1997.  The notes  remain
outstanding at July 31, 1999. The likelihood of collecting the interest on these
notes is remote; therefore, beginning with the year ended July 31, 1998, accrued
interest has not been recorded.

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

In 1999 and 1998,  49,000 shares of Series B preferred stock were converted each
year into common stock on a 3.33 and 6.66-to-one basis, respectively.

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

In conjunction  with the  acquisition of ITOCHU's debt, the Company's  President
purchased  all of the  outstanding  common  stock of ITOCHU  Corporation,  which
totaled approximately 37,400,000 shares, for a purchase price of $1.

In July 1999,  the Company  sold  86,666,666  unregistered  shares of its common
stock at $0.03 per share  pursuant to a  Regulation  D  Subscription  Agreement,
resulting  in net  proceeds  of  $2,600,000.  Also in  July  1999,  the  Company
converted  $400,000 of convertible  secured notes to 13,333,000 shares of common
stock at $0.03 per share.

In July 1999, the Company's  shareholders  authorized an additional  200,000,000
shares of no par common stock.

--------------------------------------------------------------------------------
                                                                       Page F-29

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                   July 31, 1999, 1998, and 1997
--------------------------------------------------------------------------------


NOTE 10 - STOCK OPTIONS AND WARRANTS

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

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

In 1997, in connection with the purchase of Systronix, stockholders approved the
1996 Stock Option Plan , which expires in 2006. The Company,  during the term of
the 1996 Plan,  will at all times  reserve  and keep  available  such  number of
shares of common stock for incentive and non-qualified stock options as shall be
sufficient to satisfy the requirements of the Plan.  Options under the 1996 Plan
expire  over a period  not to exceed  ten years.  In July  1999,  the  Company's
shareholders  authorized an increase in the number of shares available under the
Plan from 15,000,000 to 45,000,000.

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


                                   1996 Plan                  1993 Plan
                            -------------------------  ------------------------
                             Shares        Price        Shares       Price
                            ---------  --------------  --------- --------------
Balance, July 31, 1996          --      $     --         17,269    $ 0.30 - 0.60
Granted                       10,367            0.30       --             --
Canceled                        (445)           0.30     (1,135)            0.30
Exercised                       --            --           --             --
Expired                         --            --            (38)            0.30
                               -----                     ------

Balance, July 31, 1997         9,922            0.30     16,096      0.30 - 0.60
Canceled                      (1,403)           0.30     (4,650)            0.30
Expired                          (80)           0.30        (63)            0.30
                               -----                     ------

Balance, July 31, 1998         8,439            0.30     11,383      0.30 - 0.60
                               -----                     ------

Granted                        1,765            0.10       --           --
Canceled                      (1,765)           0.30       (113)            0.30
Expired                          (49)           0.30       (159)            0.30
                               -----                     ------

Balance, July 31, 1999         8,390    $0.10 - 0.30     11,111    $ 0.30 - 0.60
                               =====                     ======


<TABLE>
<CAPTION>

                                          Director
                                         Option Plan                      Other
                               ------------------------------    ------------------------
                                 Shares             Price          Shares       Price
                               ----------       -------------    ---------  -------------
<S>                                  <C>       <C>                 <C>      <C>      <C>
Balance, July 31, 1996               20        $ 0.20 - 6.880      1,495    $ 0.60 - 2.80
Granted                            --                 --            --             --
Canceled                           --                 --            --             --
Exercised                          --                 --            --             --
Expired                            --                 --            --             --
                                 -------                           -----

Balance, July 31, 1997               20          0.20 - 6.88       1,495      0.60 - 2.80
Canceled                            (16)         0.20 - 6.88        --             --
Expired                            --                 --            --             --
                                 -------                           -----

Balance, July 31, 1998                4                 0.20       1,495      0.60 - 2.80
                                 -------                           -----

Granted                              21                 0.20        --             --
Canceled                           --                 --            --             --
Expired                            --                 --            --             --
                                 -------                           -----

Balance, July 31, 1999               25        $        0.20       1,495    $ 0.60 - 2.80
                                 =======                           =====

-------------------------------------------------------------------------------------------
                                                                                   Page F-30
</TABLE>

<PAGE>


                                                          U. S. ELECTRICAR, INC.
                                       NOTES TO FINANCIAL STATEMENTS (Continued)
                                                   July 31, 1999, 1998, and 1997
--------------------------------------------------------------------------------


The Company measures its employee  stock-based  compensation  arrangements under
the  provisions of APB No. 25. Had  compensation  costs for the Company's  stock
option  plans  been  determined  based upon the fair value at the grant date for
awards under these plans  consistent with the methodology  prescribed under SFAS
No. 123,  the  Company's  net loss would have been  increased  by  approximately
$640,700,  $549,900,  and $307,000 for the years ended July 31, 1999,  1998, and
1997.  The fair value of options  granted  were  estimated  on the date of grant
using the Black-Scholes option-pricing model with the following assumptions: (1)
dividend yield of 0%, (2) expected  volatility of 164%,  (3) risk-free  interest
rate of 5.88% to 6.59%, and (4) an expected life of the options of 5 years.

In May 1996,  the Company  issued  13,333,000  warrants in exchange for services
performed.  The warrants were exercisable at $0.30 per share for an equal number
of shares of common  stock,  and expired on May 1, 1997.  At September 24, 1998,
negotiations  were  underway to extend the period of time in which the  warrants
could be  exercised.  If the market  value of the common stock of the Company is
equal to or  greater  than $0.60 per share on the date of  exercise,  and if the
average trading volume was in excess of 100,000 shares per day for the preceding
20 trading  days,  the warrants may be exercised  without  payment of cash.  The
warrants may not be exercised in the United States,  and the stock purchased may
not be  delivered  to the  United  States  unless  first  registered  under  the
Securities Act or receive an available exemption from registration.

In July 1999, the Company  issued  50,000,000  warrants in conjunction  with the
sale of common  stock.  The warrants are  exercisable  at $0.06 per share for an
equal number of shares of common stock, and expire in June 2004.

The Company  determined  the fair value of the warrant to be  $406,000.  Factors
used in determining the fair value  included:  (1) the effect on the stock price
if the warrants were exercised,  (2) the thinly traded nature of the stock,  (3)
the market for the warrants,  (4) and the rate of return expected by the warrant
holders.

The following summarizes warrant activity (in thousands):


                                                        Debt
                                                     Conversion          Other
                                                     ----------         -------
Balance, July 31, 1997                                   --              15,333
Granted                                                  --                --
Expired                                                  --                --
                                                      -------           -------

Balance, July 31, 1998                                   --              15,333
Granted                                                50,000              --
Expired                                                  --             (15,333)
                                                      -------           -------

Balance, July 31, 1999                                 50,000              --
                                                      =======           =======


NOTE 11 - RESEARCH AND DEVELOPMENT CONTRACTS

The Company was obligated to perform  research and development  activities under
development  and licensing  agreements.  The  agreements  require the Company to
design,  develop,  and test drive systems and deliver  working  prototypes.  The
Company retains all rights to the products  developed and will license their use
to the counter-party.  Compensation for the research and development services is
based on specified milestones set forth in each agreement.  As of July 31, 1999,
the Company had not performed all research and development  activities  required
by the agreements.

Revenue  received  under the  development  agreements  recognized for the period
ended July 31, 1999, was approximately $1,954,000. Related expenses are recorded
in cost of revenues.

--------------------------------------------------------------------------------
                                                                       Page F-31