-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ITrxUmGnjHWrRha4tIJd9JG/wd4KxhVAy/8A+OgXR1xBW1rxH+oOlpvV+U1tGiWI jwD3ZOBLtYVTqPrPmLCllw== 0000950005-98-000441.txt : 19980513 0000950005-98-000441.hdr.sgml : 19980513 ACCESSION NUMBER: 0000950005-98-000441 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980512 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZAP POWER SYSTEMS INC CENTRAL INDEX KEY: 0001024628 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] IRS NUMBER: 943210624 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 333-05744-LA FILM NUMBER: 98616975 BUSINESS ADDRESS: STREET 1: 117 MORRIS ST CITY: SEBASTOBOL STATE: CA ZIP: 95472 BUSINESS PHONE: 7078244150 MAIL ADDRESS: STREET 1: 117 MORRIS ST CITY: STBASTOPOL STATE: CA ZIP: 95472 10QSB 1 FORM 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 [ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________ Commission file number 333-05744-LA ZAP POWER SYSTEMS - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) CALIFORNIA 94-3210624 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 117 Morris Street, Sebastopol, California 95472 - -------------------------------------------------------------------------------- (Address of principal executive offices) (707) 824-4150 - --------------------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 -- -- (APPLICABLE ONLY TO CORPORATE ISSUERS) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 2,583,270 shares of common stock as of April 24, 1998 Transitional Small Business Disclosure Format Yes [ ] No [x] Part I. FINANCIAL INFORMATION Item 1. Financial Statements ZAP POWER SYSTEMS CONDENSED BALANCE SHEET March 31, 1998 - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash $ 370,036 Receivables 159,123 Inventories 313,878 Prepaid expenses and other assets 101,859 ----------- Total current assets 944,896 PROPERTY AND EQUIPMENT 190,206 OTHER ASSETS Intangibles, net of accumulated amortization of $4,161 19,660 Deposits 13,503 ----------- Total other assets 33,163 ----------- Total assets $ 1,168,265 =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 78,799 Accrued liabilities and other expenses 23,694 Customer deposits 32,401 Current maturities of notes payable 34,363 Current maturities of long-term debt 3,661 Current maturities of obligations under capital leases 12,283 ----------- Total current liabilities 185,201 OTHER LIABILITIES Obligations under capital leases, less current maturities 10,910 Long-Term Debt, less current maturities 16,225 Notes Payable, less current maturities 60,000 ----------- Total other liabilities 87,135 ----------- STOCKHOLDERS' EQUITY Common stock, no par value; 10,000,000 shares authorized, 2,566,695 shares issued and outstanding 3,373,276 Accumulated deficit (2,477,347) ----------- Total stockholders' equity 895,929 ----------- Total liabilities and stockholders' equity $ 1,168,265 =========== The accompanying notes are an integral part of these financial statements 2 ZAP POWER SYSTEMS CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three months ended March 31, 1998 1997 ----------- ----------- NET SALES $ 461,200 $ 257,900 COST OF GOODS SOLD 269,600 221,800 ----------- ----------- GROSS PROFIT 191,600 36,100 ----------- ----------- OPERATING EXPENSES Selling 159,000 92,800 General and administrative 162,500 176,200 Research and development 32,300 49,000 ----------- ----------- 353,800 318,000 ----------- ----------- LOSS FROM OPERATIONS (162,200) (281,900) ----------- ----------- OTHER INCOME (EXPENSE) Interest expense (2,700) (8,900) Other 4,500 (2,600) ----------- ----------- 1,800 (11,500) ----------- ----------- NET LOSS $ (160,400) $ (293,400) =========== =========== NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.06) $ (0.14) =========== =========== WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 2,558,000 2,146,500 =========== =========== The accompanying notes are an integral part of these financial statements 3 ZAP POWER SYSTEMS CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three months ended March 31, 1998 1997 - ----------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(160,400) $(293,400) Adjustments to reconcile net loss to net cash used by operating activities Depreciation and amortization 20,600 12,700 Allowance for doubtful accounts 5,300 Issuance of common stock for services rendered 74,100 15,700 Changes in: Receivables (37,400) (57,300) Inventories (46,200) (2,800) Prepaid expenses (36,300) 1,200 Deposits (74,100) (7,600) Accounts payable (84,200) (32,600) Accrued liabilities and other expenses (54,500) (42,200) --------- --------- Net cash used by operating activities (398,400) (401,000) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of equipment (47,400) (30,400) Investment in subsidiaries (5,000) --------- --------- Net cash used by investing activities (47,400) (35,400) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable 30,000 Increase in loans payable 20,000 Increase in restricted cash (40,000) Sale of common stock, net of stock offering costs 126,400 547,100 Principal repayments on long-term debt (4,700) (3,000) Payments on obligations under capital leases (3,800) (3,000) Principal repayments on note payable (12,500) (87,000) --------- --------- Net cash provided by financing activities 125,400 444,100 --------- --------- NET INCREASE/(DECREASE) IN CASH (320,400) 7,700 CASH, beginning of period 690,400 161,600 --------- --------- CASH, end of period $ 370,000 $ 169,300 ========= ========= The accompanying notes are an integral part of these financial statements
4 ZAP POWER SYSTEMS NOTES TO THE INTERIM UNAUDITED CONDENSED FINANCIAL STATEMENTS (1) Basis of Presentation The financial statements included in this Form 10-QSB have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, pursuant to such rules and regulations, although management believes the disclosures are adequate to make the information presented not misleading. The results of operations for any interim period are not necessarily indicative of results for a full year. These statements should be read in conjunction with the financial statements and related notes included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997. The financial statements presented herein as of March 31, 1998 and for the three months ended March 31, 1998 and 1997 reflect, in the opinion of management, all material adjustments consisting only of normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flow for the interim periods. The net loss per common share is based on the weighted average number of common shares outstanding in each period. Common stock equivalents associated with stock options have been excluded from the weighted average shares outstanding since the effect of these securities would be anti-dilutive. (2) - RECEIVABLES March 31, 1998 -------------- Trade accounts receivable $ 164,123 Less allowance for doubtful accounts (5,000) -------------- $ 159,123 ============== (3) - INVENTORIES March 31, 1998 -------------- Raw materials $ 221,500 Work-in-process 48,265 Finished goods 44,112 -------------- $ 313,877 ============== (4) - PROPERTY AND EQUIPMENT March 31, 1998 -------------- Demonstration items $ 84,497 Machinery and equipment 56,825 Equipment under capital leases 45,940 Office furniture and fixtures 37,985 Computers 28,746 Leasehold improvements 21,737 Vehicles 56,231 -------------- 331,961 Less accumulated depreciation and amortization (141,755) -------------- $ 190,206 ============== 5 (5) - NOTES PAYABLE March 31, 1998 -------------- Notes to stockholders, with interest at 10%; interest and principal due when the notes mature in December 1999. The note holders have been issued warrants to purchase, in the aggregate, 21,800 shares of common stock at $5.25 per share through October 1999. $ 94,400 =========== (6) - COMMON STOCK In November of 1996 the Company commenced a direct public offering of its Common Stock, offering for sale 500,000 shares at $5.25. During 1996, the Company sold 3,800 shares and received $19,900 in proceeds. In 1997, the Company sold an additional 415,100 shares in connection with the direct public offering and realized net proceeds of $1,990,900, net of offering related expenses of $188,400. In total, the Company sold 84% of the shares offered for sale and realized net proceeds of $2,010,600. The offering was completed in November 1997. The Company has in process a second direct public offering of its Common stock for sale 500,000 shares at $6.00 per share. The company commenced this offering in January 1998 and as of April 24, 1998 has sold 36,000 shares and realized gross proceeds of $215,700. On February 27, 1998, the Company's Common Stock commenced trading on the OTC Bulletin Board under the stock symbol "ZAPP". Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Special Note Regarding Forward-Looking Statements Certain statements in this Form 10-QSB, including information set forth under this Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "ACT"). ZAP Power Systems (the "Company") desires to avail itself of certain "safe harbor" provisions of the Act and is therefore including this special note to enable the Company to do so. Forward-looking statements included in this Form 10-QSB or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, reports to the Company's stockholders and other publicly available statements issued or released by the Company involve known and unknown risks, uncertainties, and other factors which could cause the Company's actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) or achievements expressed or implied by such forward looking statements. Such future results are based upon management's best estimates based upon current conditions and the most recent results of operations. Overview The Company designs, assembles, manufactures and distributes electric bicycle power kits, electric bicycles and tricycles, and other low-power electric transportation vehicles. Historically, unit sales have been approximately 55% kits and 45% electric bicycles. Dollar sales have been 50% kits and 50% electric bicycles. The Company sells its electric bicycles and kits to retail customers, international distributors, law enforcement agencies, electric utility companies, bicycle dealerships and mail order catalogs. Net revenue is net of returns. The Company sells to the mail order catalogs and selected customers on credit with net 30-day terms. Many of the bicycle dealerships are sold cash on delivery. The retail sales are primarily paid for with a credit card or personal check before shipment of the product. The Company manufactures an electric motor system that is sold as a kit to be installed by the customer on their own bicycle. The Company also installs the motor system on bicycles that the Company buys. The Company then sells the complete electric bicycle to the customer. The Company purchases complete bicycles from various 6 bicycle manufacturers for use with the Company's electric motor system. The Company manufactures the electric motor kit, which has approximately 62 unique parts. The manufacturing of the electric motor kit and the installation of the motor systems to the bicycles are done at its Sebastopol location. The electric motors are purchased from an original equipment manufacturer (OEM) in the auto and air-conditioning industry. The Company is using one vendor for its motors, although there are other companies that could be used with slight modifications to the motor support brackets. The batteries are standard batteries used in the computer and security industries for power interrupt systems. The electronic system uses standard electronic components. Additionally, the Company produces a scooter, known as the ZAPPY(TM), which is manufactured by the Company, using parts, manufactured by various subcontractors. The company is also a local distributor of the Electricycle(TM) scooter that is imported from China. The electric motor kits, bicycles, and scooters sold by ZAP are shipped by U.P.S. and Federal Express. Larger quantity orders to wholesale distributors are shipped by common carrier. Overseas shipments are shipped by ocean carrier or airfreight. The Company has developed long term purchase arrangements with its key vendors. The Company has no contractual relationships with any of its vendors. The Company as of March 31, 1998 had a $275,438 sales backlog. The company expects to fill these orders within the next 45 days. Additionally, the Company received a contract to purchase one million dollars of ZAP products from Central & Southwest Services, Inc. This order is to be fulfilled within the next twelve months with the first three months totaling $100,000 and the next nine months totaling $900,000. The products to be shipped will vary based upon the requests of the customer during each month. The Company's growth strategy is to increase net sales by augmenting its marketing and sales force, increasing distribution channels through retail organizations and wholesale distributors both domestically and overseas, as well as setting up company and franchise stores to assist in the retail sales arena. The Company will continue to increase its production capability to meet the increasing demand for its product. The Company will continue to develop products so that it is the low cost leader in the industry. Product improvements will continue to enlarge ZAP's presence in the electric vehicle industry. Results of Operations The following table sets forth, as a percentage of net sales, certain items included in the Company's Income Statements (see Financial Statements and Notes) for the periods indicated: Three months ended March 31, 1998 1997 ---------- ---------- Statements of Income Data: Net sales............................ 100.0% 100.0% Cost of sales........................ 58.5 86.0 Gross profit (Loss).................. 41.5 14.0 Operating expenses.................. 76.7 123.0 Loss from operations................. (35.2) (109.0) Other income (expense).............. 0.4 (4.5) Loss before income taxes............. (34.8) (113.5) Provision for income taxes........... 0.0 0.0 Net loss............................. (34.8) (113.5) Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997 Net sales for the quarter ended March 31, 1998, were $461,200 compared to $257,900 in the prior year, an increase of $203,300 or 79%. The increase in sales in 1998 over the same period in 1997 was due to greater acceptance of the company's products in the marketplace. In addition, as the company's products have gained greater market acceptance, the company has been able to realize, on average, higher net sales prices in 1998 as compared to 1997. The increase in prices can be specifically identified as more sales of the company's specially designed electric bikes and electric scooters. Distributor sales increased by $62,000 or 49% while dealer sales increased $148,000 or 528% in 1998 as compared to the same period in 1997. 7 Gross profit. Gross profit increased as a percentage of net sales to 42% from 14%. The total gross profit increased $155,500 or 331%. The increase in gross margin can be attributed to 1) the impact of realizing a higher net sales price on equivalent products as discussed above and 2) efficiency increases in the manufacturing of products in the current quarter as compared to the quarter ended March 31, 1997. Direct Materials were 47% of sales in 1998 as compared to 63% in 1997. This is mainly due to enhanced control over purchasing needs in 1998. Direct labor and overhead were 11% of net sales in 1998 as compared to 22% in 1997. This is mainly due to increased efficiencies resulting from higher utilization of production personnel and facilities in 1998 as compared to 1997. Selling expenses in the quarter ended March 31, 1998 were $159,000 as compared to $92,800 for the quarter ended March 31, 1997. This was an increase of $66,200 or 71% from 1997 to 1998. As a percentage of sales, selling expenses decreased from 36% of sales to 34% of sales. The increase in selling expenses was a result of added personnel costs and increased promotional activity to enhance customer demand. Additionally, sales team members were sent to specific trade shows in the first quarter of 1998 relating to specialty products over and above the number of shows attended in the first quarter of 1997. General and administrative expenses for the quarter ended March 31, 1998 were $162,500. This is a decrease of $9,700 or 6% from 1997. As a percentage of sales, general and administrative expense decreased to 35% from 68% of net sales. Expense decreases during the 1st quarter of 1998 as compared to the 1st quarter of 1997 resulted from reduced personnel needs and greater cost controls. Research and development decreased $16,700 or 34% from the 1st quarter of 1997 as compared to the 1st quarter of 1998. As a percentage of net sales it decreased to 7% of sales in the 1st quarter of 1998 as compared to 19% of sales in the 1st quarter of 1997. Extensive efforts in developing the ZAPPY(TM) scooter and single speed low-cost motor system resulted in higher costs in the 1st quarter of 1997. Other income (expense). The increase in other income (expense) in 1998 over 1997 is the result of lower interest expense and higher interest income levels experienced in 1998 as compared to 1997. Additionally, a loss was recognized on the trade-in of a 1980 truck for the purchase of a 1998 Chevy Van. These events resulted in an increase in other income of $13,300 in the 1st quarter of 1998 as compared to the 1st quarter of 1997. Liquidity and Capital Resources The Company used cash from operations of $395,600 and $401,000 during the quarters ended March 31, 1998 and 1997 respectively. Cash used in operations in the first quarter of 1998 was the result of the net loss incurred for the quarter of $157,600, offset by net non cash expenses of $94,700, and the net change in operating assets and liabilities resulting in a further use of cash of $332,700. Cash used in operations in the first quarter of 1997 was the result of the net loss incurred for the quarter of $293,400, offset by net non cash expenses of $33,700, and the net change in operating assets and liabilities resulting in a further use of cash of $141,300. Investing activities used cash of $47,400 and $35,400 during the first quarters ended March 31, 1998 and 1997 respectively. The uses of cash were for the purchase and construction of fixed assets. Financing activities provided cash of $125,400 and $444,100 during the first quarters ended March 31, 1998 and 1997 respectively. In both years, the cash provided by financing activities resulted from the sales of common stock, $126,400 and $547,100 for the first quarters ended March 31, 1998 and 1997 respectively, offset by principal payments on outstanding debt. In addition, the company purchased a new cargo van through a loan in the first quarter of 1998 that increased financing activities. At March 31, 1998 the Company had cash and cash equivalents of $370,000 as compared to $169,300 at March 31, 1997. At March 31, 1998, the Company had working capital of $759,700, as compared to working capital of $153,900 at March 31, 1997. The increases in both cash and cash equivalents and working capital in the first quarter of 1998 over the first quarter of 1997 are primarily due to the proceeds received from the Company's 8 direct public offering which more than offset the Company's net losses during the same period. The Company, at present, does not have a credit facility in place with a bank or other financial institution. The Company does have in process a second direct public offering for the twelve months ended March 31, 1998 of its common stock with maximum potential gross proceeds of $3,000,000 before expenses. The Company believes that the cash and cash equivalents on hand at March 31, 1998, along with the expected proceeds from the Company's direct public offering, will be sufficient to allow the Company to continue its expected level of operations for the remainder of the year. The Company's primary capital needs are to fund its growth strategy, which includes increasing its net sales, increasing distribution channels, improving existing product lines and development of strong corporate infrastructure. Dates following December 31, 1999 and beyond (the "Year 2000 Problem") Many existing computer systems and applications, and other devices, use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. Such systems and applications could fail or create erroneous results unless corrected. The Company relies on its internal financial systems and external systems of business enterprises such as customers, suppliers, creditors, and financial organizations both domestically and globally, directly and indirectly for accurate exchange of data. The Company has evaluated such systems and believes the cost of addressing the Year 2000 Problem will not have a material adverse affect on the result of operations or financial position of the Company. However, even though the internal systems of the Company are not materially affected by the Year 2000 issue the Company could be affected through disruption in the operation of the enterprises with which the Company interacts. Seasonality and Quarterly Results The Company's business is subject to seasonal influences. Sales volumes in the bicycle industry typically slow down during the winter months, November to March, in the U.S. The Company is selling worldwide and is not impacted 100% by the U.S. seasonality in the bicycle industry. Inflation The Company's raw materials are sourced from stable cost competitive industries. As such, the Company does not foresee any material inflationary trends for its raw material sources. 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings There were no material proceedings pending in which the Registrant was named as a party. Item 2. Changes in Securities There were no changes in rights of securities holders. Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to the vote of security holders. Item 5. Other Information There were no major contracts signed during the period. Item 6. Exhibits and Reports on Form 8-K No reports on Form 8-K were filed during the quarter. 10 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ZAP POWER SYSTEMS - ------------------------------------ (Registrant) Date ___________________ _________________________________________ James McGreen - President and Director Date ___________________ _________________________________________ Gary Starr - Managing Director 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ZAP POWER SYSTEMS FOR THE THREE MONTHS ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1998 MAR-31-1998 370,036 0 164,123 (5,000) 313,878 944,896 331,961 (141,755) 1,168,265 185,201 3,661 0 0 3,373,276 (2,477,347) 895,929 461,200 468,500 269,600 353,800 0 (5,000) 2,700 (160,400) 0 (160,400) 0 0 0 (160,400) (0.06) (0.06)
-----END PRIVACY-ENHANCED MESSAGE-----