-----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, Nu9MMw439DYhfUvtj4sW1dEEeirONrT1jguCPKDTbovmNBkRoJTNlzu5GczpF/TD iW0NDDJkMDcYYERdKRyFow== 0000950005-99-000444.txt : 19990517 0000950005-99-000444.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950005-99-000444 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99621134 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 10-QSB ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------- Form 10-QSB QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ----------------------------- For the quarterly period ended March 31, 1999 ZAP POWER SYSTEMS (Name of small business issuer in its charter) CALIFORNIA 94-3210624 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 117 Morris Street Sebastopol, CA 95472 (707) 824-4150 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered under section 12(b) of the Exchange Act: None Securities registered under section 12(g) of the Exchange Act: None Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 3,679,547 shares of common stock as of April 30, 1999. Transitional Small Business Disclosure Format Yes[ ] No[x] ================================================================================ Part I. FINANCIAL INFORMATION Item 1. Financial Statements ZAP POWER SYSTEMS CONDENSED BALANCE SHEET March 31, 1999 - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash $ 1,963,900 Receivables 367,600 Inventories 654,400 Prepaid expenses and other assets 213,400 ----------- Total current assets 3,199,300 PROPERTY AND EQUIPMENT 197,500 ----------- OTHER ASSETS Intangibles, net of accumulated amortization of $10,100 92,900 Deposits 11,900 ----------- Total other assets 104,800 ----------- Total assets $ 3,501,600 =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 402,100 Accrued liabilities and other expenses 131,100 Customer deposits 36,900 Notes payable 361,900 Current maturities of long-term debt 8,700 Current maturities of obligations under capital leases 5,800 ----------- Total current liabilities 946,500 ----------- OTHER LIABILITIES Obligations under capital leases, less current maturities 600 Long-Term Debt, less current maturities 24,800 ----------- Total other liabilities 25,400 ----------- STOCKHOLDERS' EQUITY Common stock, no par value; 10,000,000 shares authorized, 3,493,138 shares issued and outstanding 6,008,100 Accumulated deficit (3,478,400) ----------- Total stockholders' equity 2,529,700 =========== Total liabilities and stockholders' equity $ 3,501,600 =========== The accompanying notes are an integral part of these financial statements 2 ZAP POWER SYSTEMS CONDENSED STATEMENTS OF OPERATIONS Three months ended March 31, 1999 1998 - -------------------------------------------------------------------------------- NET SALES $ 1,164,100 $ 461,200 COST OF GOODS SOLD 756,100 269,600 ----------- ----------- GROSS PROFIT 408,000 191,600 ----------- ----------- OPERATING EXPENSES Selling 200,100 159,000 General and administrative 218,200 162,500 Research and development 47,600 32,300 ----------- ----------- 465,900 353,800 ----------- ----------- LOSS FROM OPERATIONS (57,900) (162,200) ----------- ----------- OTHER INCOME (EXPENSE) Interest expense (74,700) (2,700) Other 1,000 4,500 ----------- ----------- (73,700) 1,800 ----------- ----------- NET LOSS $ (131,600) $ (160,400) =========== =========== NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.05) $ (0.06) =========== =========== WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 2,833,180 2,558,000 =========== =========== The accompanying notes are an integral part of these financial statements 3 ZAP POWER SYSTEMS CONDENSED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (131,600) $ (160,400) Adjustments to reconcile net loss to net cash used by operating activities Depreciation and amortization 24,100 20,600 Allowance for doubtful accounts Issuance of common stock for services rendered 108,400 74,100 Changes in: Receivables (83,800) (37,400) Inventories (20,600) (46,200) Prepaid expenses (115,600) (36,300) Deposits (74,100) Accounts payable 112,600 (84,200) Accrued liabilities and customer deposits (27,500) (54,500) ----------- ----------- Net cash used by operating activities (134,000) (398,400) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of equipment (42,200) (47,400) Patent Costs Capitalized (15,200) 0 ----------- ----------- Net cash used by investing activities (57,400) (47,400) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loans payable 19,500 20,000 Sale of common stock, net of stock offering costs 1,955,300 126,400 Principal repayments on long-term debt (2,300) (4,700) Payments on obligations under capital leases (4,500) (3,800) Principal repayments on note payable (288,000) (12,500) ----------- ----------- Net cash provided by financing activities 1,680,000 125,400 ----------- ----------- NET INCREASE/(DECREASE) IN CASH 1,488,600 (320,400) CASH, beginning of period 475,300 690,400 ----------- ----------- CASH, end of period $ 1,963,900 $ 370,000 =========== =========== The accompanying notes are an integral part of these financial statements
4
1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Supplemental cash flow information: Non-cash investing and financing activities: Conversion of notes payable and accrued interest into common stock $ 212,000 0 Stock issued for current and future services 108,400 74,100
5 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, 1998. The financial statements presented herein as of March 31, 1999 and for the three months ended March 31, 1999 and 1998 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, 1999 -------------- Trade accounts receivable $ 402,600 Less allowance for doubtful accounts (35,000) ------------ $ 367,600 ============ (3) - INVENTORIES March 31, 1999 -------------- Raw materials $ 419,600 Work-in-process 136,000 Finished goods 98,800 ----------- $ 654,400 =========== (4) - PROPERTY AND EQUIPMENT March 31, 1999 -------------- Demonstration items $ 89,600 Machinery and equipment 85,400 Equipment under capital leases 45,900 Office furniture and fixtures 39,600 Computers 46,000 Leasehold improvements 32,700 Vehicles 77,800 ----------- 417,000 Less accumulated depreciation and amortization (219,500) ----------- $ 197,500 =========== 6 (5) - NOTES PAYABLE March 31, 1999 -------------- 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. $ 92,800 Convertible secured promissory notes, with interest at 12%, principal and interest is due when the notes mature in March 1999. 300,000 Less fair value of unamortized cost of warrants issued in connection with the debt. (30,900) ---------- $ 361,900 ========== The above convertible notes due in March 1999, were paid or converted to stock subsequent to March 31, 1999. (6) - COMMON STOCK The Company's Common Stock is traded on the OTC Bulletin Board under the stock symbol "ZAPP". In January 1999, the Company closed its second direct public offering. Prior to the completion, the company sold 400 shares and realized gross proceeds of $2,400. Additionally in 1999, the company 1) issued 268 shares in payment for current and future services at a price of $6.00 per share, 2) rescinded 1,785 shares at a price of $6.00 per share, and 3) realized $18,000 in proceeds from the exercise of stock options and issued 45,000 shares. On March 30, 1999, ZAP completed a private placement of 678,808 shares of its Common Stock at a price of $3.02 per share and realized net proceeds of $1,785,000 which includes additional underwriting fees and expenses of $157,500 paid in the second quarter of 1999. The Company issued 35,596 shares in partial payment for the services associated with acquiring the noted equity financing. In addition, the Company converted $212,000 of its remaining debt into equity and issued 70,199 common shares. 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 45% kits, 20% electric bicycles, and 35% electric scooters. Dollar sales have been 35% kits, 30% electric bicycles, and 35% electric scooters. 7 The Company manufactures several electric motor kits that have up to 62 unique parts. The electric motor kit manufacturing and installation of the motor systems to the bicycles is 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 company 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 industry for power interrupt systems. The electronic system uses standard electronic components. The Company has a contractual relationship with Smith & Wesson who provides the Company with Law Enforcement Bicycles. The Company has agreed to purchase at least 250 bikes from Smith & Wesson in exchange for specific exclusive distribution and pricing rights. The Company has no other contractual agreements with any of its other vendors. The Company as of March 31, 1999 had a $544,800 sales backlog. The company expects to fill these orders within the next 45 days. 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, 1999 1998 ---------- ------------- Statements of Income Data: Net sales............................. 100.0% 100.0% Cost of sales......................... 65.0 58.5 Gross profit (Loss)................... 35.0 41.5 Operating expenses................... 40.0 76.7 Loss from operations.................. (5.0) (35.2) Other income (expense)............... (6.3) 0.4 Loss before income taxes.............. (11.3) (34.8) Provision for income taxes............ 0.0 0.0 Net loss.............................. (11.3) (34.8) Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998 Net sales for the quarter ended March 31, 1999, were $1,164,100 compared to $461,200 in the prior year, an increase of $702,900 or 152%. The increase in sales in 1999 over the same period in 1998 was primarily due to the sales of the ZAPPY(TM) scooter that accounted for $780,000 or 67% of total sales. The product was introduced to the market at the end of the first quarter of 1998 and totaled $9,600 in sales for that period. Gross profit. Gross profit decreased as a percentage of net sales to 35% from 42%. The total gross profit increased $216,400 or 113%. The increase in gross profit dollars can be attributed to gross profits generated from the sales of the ZAPPY(TM) scooter. The decrease in gross margin percentage can be attributed to volume discounts given to large retailers in the first quarter of 1999 that were not as prevalent in the first quarter of 1998. Selling expenses in the quarter ended March 31, 1999 were $200,100 as compared to $159,000 for the quarter ended March 31, 1998. This was an increase of $41,100 or 26% from 1998 to 1999. As a percentage of sales, selling expenses decreased from 34% of sales to 17% of sales. The increase in selling expenses can primarily be attributed to commissions paid for services tied directly to the sales of product to a large dealer. 8 General and administrative expenses for the quarter ended March 31, 1999 were $218,200. This is an increase of $55,700 or 34% from 1998. As a percentage of sales, general and administrative expense decreased to 19% from 35% of net sales. Expense increases during the 1st quarter of 1999 as compared to the 1st quarter of 1998 resulted from increased personnel needs, updated computer resources, and $30,000 in legal costs relating to franchising opportunities and equity financing. Research and development increased $15,300 or 47% from the 1st quarter of 1998 as compared to the 1st quarter of 1999. As a percentage of net sales it decreased to 4% of sales in the 1st quarter of 1999 as compared to 7% of sales in the 1st quarter of 1998. Expense increases in the first quarter of 1999 as compared to the first quarter of 1998 were the result of increased personnel needs to assist in the development of new products. Other income (expense). Interest expense increased to $74,700 in the 1st quarter of 1999, an increase of $72,000 over the 1st quarter of 1998. This increase can be attributed to the amortization of the fair value of warrants issued to an investment banker for securing equity financing for the company and interest on the notes payable. Liquidity and Capital Resources In the first quarter of 1999, net cash provided to the Company by operating activities was $78,000. In the first quarter of 1998, the Company used cash from operations of $398,400. Cash provided in the first quarter of 1999 was comprised of the net loss incurred for the quarter of $131,600, offset by net non-cash expenses of $344,500 and the net change in operating assets and liabilities resulting in a use of cash of $134,900. Cash used in operations in the first quarter of 1998 was comprised of the net loss incurred for the quarter of $160,400, 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. Investing activities used cash of $57,400 and $47,400 during the first quarters ended March 31, 1999 and 1998 respectively. The uses of cash were for the purchase of fixed assets and additional capitalized patent costs. Financing activities provided cash of $1,468,000 and $125,400 during the first quarters ended March 31, 1999 and 1998 respectively. In both years, the cash provided by financing activities resulted from the sales of common stock, $1,955,300 and $126,400 for the first quarters ended March 31, 1999 and 1998 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 1999 that increased financing activities. At March 31, 1999 the Company had cash and cash equivalents of $1,963,900 as compared to $370,000 at March 31, 1998. At March 31, 1999, the Company had working capital of $2,252,800, as compared to working capital of $759,700 at March 31, 1998. The increases in both cash and cash equivalents and working capital in the first quarter of 1999 over the first quarter of 1998 are primarily due to the proceeds received from the Company's private placement 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 has established an accounts receivable facility that is guaranteed by the U.S. EximBank. The Company believes that the cash and cash equivalents on hand at March 31, 1999 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 internet shopping mall presence, increasing distribution channels, establish company owned and franchised ZAP stores, introducing new products, improving existing product lines and development of strong corporate infrastructure. 9 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 has taken the appropriate steps that it believes address the concerns of the Year 2000 problem. 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. 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. 10 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 EROS. 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. 11 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, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1,963,900 0 402,600 (35,000) 654,400 3,199,300 417,000 (219,500) 3,501,600 946,500 8,700 0 0 6,008,100 (3,478,400) 3,501,600 1,164,100 1,165,100 756,100 465,900 (35,000) (131,600) 74,700 0 0 (131,600) 0 0 0 (131,600) (0.05) (0.05)
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