-----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, CK/PoL4frjcCWkkNyRlMhLPN4p9gLwgPCrVT0QCpi1sYHYXMwcXrJFGzzO1u3Z/T fxfpyng4WTldqDcDfN1cUg== 0000950005-98-000896.txt : 19981116 0000950005-98-000896.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950005-98-000896 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98749024 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 September 30, 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. 2,639,622 shares of common stock as of October 27, 1998 Transitional Small Business Disclosure Format Yes [ ] No [x] Part I. FINANCIAL INFORMATION Item 1. Financial Statements ZAP POWER SYSTEMS CONDENSED BALANCE SHEET September 30, 1998 - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash $ 556,400 Receivables 467,700 Inventories 606,400 Prepaid expenses and other assets 106,000 ----------- Total current assets 1,736,500 ----------- PROPERTY AND EQUIPMENT 188,400 ----------- OTHER ASSETS Intangibles, net of accumulated amortization of $6,100 44,800 Deposits 11,900 ----------- Total other assets 56,700 ----------- Total assets $ 1,981,600 =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 408,800 Accrued liabilities and other expenses 43,000 Customer Deposits 37,600 Notes payable 533,400 Current maturities of long-term debt 1,200 Current maturities of obligations under capital leases 4,200 ----------- Total current liabilities 1,028,200 ----------- OTHER LIABILITIES Obligations under capital leases, less current maturities 10,900 Long-Term Debt, less current maturities 16,200 Notes Payable, less current maturities 60,000 ----------- Total other liabilities 87,100 ----------- STOCKHOLDERS' EQUITY Common stock, no par value; 10,000,000 shares authorized, 2,639,422 shares issued and outstanding 3,733,800 Accumulated deficit (2,867,500) ----------- Total stockholders' equity 866,300 ----------- Total liabilities and stockholders' equity $ 1,981,600 =========== The accompanying notes are an integral part of these financial statements 2 ZAP POWER SYSTEMS CONDENSED STATEMENTS OF OPERATIONS
Quarter ended September 30, Nine Months ended September 30, 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------- NET SALES $ 1,229,700 $ 501,000 $ 2,554,600 $ 1,327,100 COST OF GOODS SOLD 778,500 328,400 1,684,900 1,035,100 ----------- ----------- ----------- ----------- GROSS PROFIT 451,200 172,600 869,700 292,000 ----------- ----------- ----------- ----------- OPERATING EXPENSES Selling 255,700 159,500 665,400 424,900 General and administrative 225,600 136,700 608,000 500,900 Research and development 51,500 66,500 131,400 185,000 ----------- ----------- ----------- ----------- 532,800 362,700 1,404,800 1,110,800 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (81,600) (190,100) (535,100) (818,800) ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE) Interest expense (4,500) (6,400) (10,800) (22,200) Other (5,000) 4,200 (4,600) 9,500 ----------- ----------- ----------- ----------- (9,500) (2,200) (15,400) (12,700) ----------- ----------- ----------- ----------- NET LOSS $ (91,100) $ (192,300) $ (550,500) $ (831,500) =========== =========== =========== =========== NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.03) $ (0.08) $ (0.21) $ (0.37) =========== =========== =========== =========== WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 2,633,500 2,319,300 2,592,400 2,233,400 =========== =========== =========== =========== The accompanying notes are an integral part of these financial statements
3 ZAP POWER SYSTEMS CONDENSED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1998 1997 - -------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (550,600) $ (831,400) Adjustments to reconcile net loss to net cash used by operating activities Depreciation and amortization 58,300 46,000 Allowance for doubtful accounts (2,500) Issuance of common stock for services rendered 3,000 67,800 Changes in: Receivables (346,000) (140,300) Inventories (339,900) (23,600) Prepaid expenses (40,400) 29,200 Deposits (67,300) 166,000 Accounts payable 245,700 (107,800) Accrued liabilities and other expenses (35,200) (27,500) ----------- ----------- Net cash used by operating activities (1,072,400) (824,100) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of equipment (80,100) (80,600) Investment in subsidiaries (13,900) Patent Defense (27,100) (13,100) ----------- ----------- Net cash used by investing activities (107,200) (107,600) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable 30,000 Increase in loans payable 517,500 Decrease in restricted cash 10,000 Sale of common stock, net of stock offering costs 558,000 1,000,400 Principal repayments on long-term debt (4,700) (9,400) Payments on obligations under capital leases (11,800) (9,500) Principal repayments on note payable (13,500) (122,000) ----------- ----------- Net cash provided by financing activities 1,045,500 899,500 ----------- ----------- NET INCREASE/(DECREASE) IN CASH (134,100) (32,200) CASH, beginning of period 690,500 161,600 ----------- ----------- CASH, end of period $ 556,400 $ 129,400 =========== =========== 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 September 30, 1998, and for the three months and nine months ended September 30, 1998 and September 30, 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 September 30, 1998 ------------------ Trade accounts receivable $ 472,700 Less allowance for doubtful accounts (5,000) ------------- $ 467,700 ============= (3) - INVENTORIES September 30, 1998 ------------------ Raw materials $ 445,500 Work-in-process 95,100 Finished goods 65,800 ------------- $ 606,400 ============= (4) - PROPERTY AND EQUIPMENT September 30, 1998 ------------------ Demonstration items $ 91,700 Machinery and equipment 72,900 Equipment under capital leases 45,900 Office furniture and fixtures 38,900 Computers 34,900 Leasehold improvements 25,400 Vehicle 56,200 ------------- 365,900 Less accumulated depreciation and amortization (177,500) ------------- $ 188,400 ============= 5 (5) - NOTES PAYABLE September 30, 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. $ 93,600 Convertible secured promissory notes, with interest at 12%, principal and interest is due when the notes mature in March 1999. The note holders have the right, upon completion of the term, to convert the notes and any accrued interest into shares of the maker's common stock at the average bid and ask price for the ten (10) trading days immediately preceding the completion of the Term; or $4.00 per share, whichever is lower. $ 500,000 ----------- $ 593,600 =========== (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 October 27, 1998 has sold 84,747 shares and realized gross proceeds of $508,482. 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 50% kits, 30% electric bicycles, and 20% electric scooters. Dollar sales have been 30% kits, 35% electric bicycles, and 35% electric scooters. 6 The Company sells its electric bicycles, kits, and scooters 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 bicycle manufacturers for use with the Company's electric motor system from U.S. and Taiwan sources. 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 U.S. distributor of the Electricycle(TM) scooter that is imported from China. The Company as of September 30, 1998 had a $309,166 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. Of the total order, $275,000 has been fulfilled and the remaining $725,000, which is not included in the backlog amount, is intended to be fulfilled over the next year. 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, and by increasing distribution channels through retail organizations and wholesale distributors both domestically and overseas. The company is also working on setting up 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 the product so that it is the low cost leader in the industry. Product improvements and new product introductions 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:
Quarter ended September 30, Nine months ended September 30, 1998 1997 1998 1997 ----- ----- ----- ----- Statements of Income Data: Net sales........................................ 100.0% 100.0% 100.0% 100.0% Cost of sales.................................... 63.3 65.6 66.0 78.0 Gross profit (Loss).............................. 36.7 34.4 34.0 22.0 Operating expenses.............................. 43.3 72.4 55.0 83.7 Loss from operations............................. (6.6) (38.0) (21.0) (61.7) Other income (expense).......................... (0.8) (0.4) (0.6) (1.0) Loss before income taxes......................... (7.4) (38.4) (21.6) (62.7) Provision for income taxes....................... 0.0 0.0 0.0 0.0 Net loss......................................... (7.4) (38.4) (21.6) (62.7)
Quarter Ended September 30, 1998 Compared to Quarter Ended September 30, 1997 Net sales for the quarter ended September 30, 1998, were $1,229,700 compared to $501,000 in the prior year, an increase of $728,700 or 145%. The increase in sales in 1998 over the same period in 1997 was due to increased 7 international sales together with the production and demand of the new ZAPPY(TM) scooter. Sales of the ZAPPY(TM) scooter were $435,200 or 36% of total sales for the quarter. This product was introduced into the marketplace in the beginning of 1998. Additionally, international sales rose to over $210,000 for the 3rd quarter of 1998 compared to $15,000 for the 3rd quarter of 1997. Gross profit increased as a percentage of net sales to 37% from 34%. The total gross profit increased $278,600 or 161%. The increase in gross margin dollars can be attributed to margins generated from the sales of the new ZAPPY(TM) scooter. The increase in gross margin percentage is primarily due to reductions in cost of raw materials to produce the products and efficiency increases in the manufacturing in the current quarter as compared to the quarter ended September 30, 1997. Direct Materials were 52% of net sales in the 3rd quarter of 1998 as compared to 64% of net sales in the 3rd quarter of 1997. This is mainly due to improved control of material costs in 1998. Direct labor and overhead were 11% of net sales in the 3rd quarter of 1998 as compared to 2% in the 2nd quarter of 1997. This is mainly due to increased labor effort in producing the new ZAPPY(TM) Scooter. Selling expenses in the quarter ended September 30, 1998 were $255,700 as compared to $159,500 for the quarter ended September 30, 1997. This was an increase of $96,200 or 60% from 1997 to 1998. As a percentage of sales, selling expenses decreased from 32% of sales to 21% of sales. The increase in selling expenses was a result of increased promotional activity to enhance customer demand and travel costs incurred for sales activity. General and administrative expenses for the quarter ended September 30, 1998 were $225,600. This was an increase of $88,900 or 65% from 1997. As a percentage of sales, general and administrative expense decreased to 18% from 27% of net sales. Expense increases during the 3rd quarter of 1998 as compared to the 3rd quarter of 1997 resulted from increased personnel costs of $33,000 and the cumulative increased amount of $45,000 for supplies, consulting fees, printing, insurance, and rent. Research and development decreased $15,000 or 23% from the 3rd quarter of 1997 as compared to the 3rd quarter of 1998. As a percentage of net sales it decreased to 4% of sales in the 3rd quarter of 1998 as compared to 13% of sales in the 3rd quarter of 1997. Extensive efforts in developing the ZAPPY(TM) scooter and single speed low-cost motor system resulted in higher costs in the 3rd quarter of 1997 that were not duplicated in the 3rd quarter of 1998. Nine Months Ended September 30, 1998 Compared to Nine Months Ending September 30, 1997 Net sales for the nine months ended September 30, 1998 were $2,554,600 compared with $1,327,100 in the nine months ended September 30, 1997, an increase of $1,227,500 or 92%. The increase in sales is attributed to sales of the new ZAPPY(TM) scooter and a greater acceptance of the Company's products in the marketplace. ZAPPY(TM) scooters accounted for $742,300 of sales in the first nine months of 1998. Gross profit increased as a percentage of net sales, to 34% from 22%. The total gross profit increased $577,700 or 198%. The increase in gross margin dollars can be attributed to the gross margins realized on the sales of the new ZAPPY(TM) scooters. The increase in gross margin percentage was the result of greater cost controls and improved efficiencies in the manufacturing process of all products in the current nine months as compared to the nine months ended September 30, 1997. Direct materials were 57% of net sales in the first nine months of 1998 as compared to 70% of net sales in the first nine months of 1997. Selling expenses for the nine months ended September 30, 1998 were $665,400 as compared to $424,900 for the nine months ended September 30, 1997. This was an increase of $240,500 or 57% from 1997 to 1998. As a percentage of sales, selling expenses decreased from 32% of sales to 26% of sales. Increased promotion of the products to enhance demand caused these increases. General and administrative expenses for the nine months ended September 30, 1998 were $608,000. This is an increase of $107,100 or 21% from 1997. As a percentage of sales, general and administrative expense decreased to 24% from 38% of net sales. Expense increases during the first nine months of 1998 as compared to the first nine months of 1997 occurred due to increased personnel needs, insurance costs, and additional use of outside consultants for business purposes. 8 Research and development decreased $53,600 or 29% from the first nine months of 1997 as compared to the first nine months of 1998. As a percentage of net sales, research and development decreased to 5% of sales in the first nine months of 1998 as compared to 14% of sales in the first nine months of 1997. Extensive efforts in developing the ZAPPY(TM) scooter and single speed low-cost motor system resulted in higher costs in the first nine months of 1997 that were not duplicated in the first nine months of 1998. Liquidity and Capital Resources The Company used cash from operations of $1,072,400 and $824,100 during the nine months ended September 30, 1998 and 1997 respectively. Cash used in operations in the first nine months of 1998 was the result of the net loss incurred for the period of $550,600, offset by net non cash expenses of $61,300, and the net change in operating assets and liabilities resulting in a further use of cash of $583,100. Cash used in operations for the first nine months of 1997 was the result of the net loss incurred for the first nine months of $831,400, offset by net non cash expenses of $111,300, and the net change in operating assets and liabilities resulting in further use of cash of $104,000. Investing activities used cash of $107,200 and $107,600 during the first nine months ended September 30, 1998 and 1997 respectively. The uses of cash were for the purchase of fixed assets and defense of the company's patents. Financing activities provided cash of $1,045,500 and $899,500 during the first nine months ended September 30, 1998 and 1997 respectively. In 1998, the cash provided by financing activities included an increase in loans payable of $517,500 and the sales of common stock, $558,000 offset by principal payments on outstanding debt. In 1997, the cash provided by financing activities resulted from the sales of common stock, $1,000,400 for the first nine months ended September 30, 1997 offset by principal payments on outstanding debt. At September 30, 1998, the Company had cash and cash equivalents of $556,400 as compared to $129,400 at September 30, 1997. At September 30, 1998, the Company had working capital of $708,300 as compared to working capital of $128,900 at September 30, 1997. The increase in both cash and cash equivalents and working capital in the first nine months of 1998 over the first nine months of 1997 are primarily due to the proceeds received from the Company's direct public offering and the secured promissory notes 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 nine months ended September 30, 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 September 30, 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. 9 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. PART II - OTHER INFORMATION Item 1. Legal Proceedings The company has become aware that a company named Omni under the leadership of an individual named Joseph Stevenson has been advertising and selling an electric system for bicycles called EROS (electric regenerative operating system). The Company's management, in consultation with patent counsel, has determined after analysis that the EROS system infringes the Company's patents and has filed suit against Omni for such infringement. Although the Company believes its claims are meritorious and the patents for the ZAP system are valid, it is possible, as in any suit, that the Company may be unable to prove infringement or that Mr. Stevenson may establish, either in litigation or in a re-examination proceeding before the Patent Office that the Company's patents are not valid. If the Company's patents are held to be invalid, the Company's ability to prevent competitors from manufacturing or selling bicycles with the patented system will be significantly reduced. The loss of the patents or a significant damage award against the Company could have a material adverse effect upon the business and financial condition and prospects of the Company. 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 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ZAP POWER SYSTEMS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 556,400 0 472,700 (5,000) 606,400 1,736,500 365,900 (177,500) 1,981,600 1,028,200 1,200 0 0 3,733,800 (2,867,500) 1,981,600 2,554,600 2,550,000 1,684,900 1,404,800 0 (5,000) 10,800 (550,500) 0 (550,500) 0 0 0 (550,000) (0.21) (0.21)
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