-----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, Ie4MQaLJJ9mfbNoM5Gf+PaGBcSzAtuLoKcBBza7Y8WBI1YMVwjYb+DgD3s3t1/uS bVICSBfQ4h4zIZvuoHHRgw== 0001072613-02-000777.txt : 20020513 0001072613-02-000777.hdr.sgml : 20020513 ACCESSION NUMBER: 0001072613-02-000777 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZAP CENTRAL INDEX KEY: 0001024628 STANDARD INDUSTRIAL CLASSIFICATION: MOTORCYCLES, BICYCLES & PARTS [3751] IRS NUMBER: 943210624 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-30300 FILM NUMBER: 02644384 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 FORMER COMPANY: FORMER CONFORMED NAME: ZAPWORLD COM DATE OF NAME CHANGE: 19990715 FORMER COMPANY: FORMER CONFORMED NAME: ZAP POWER SYSTEMS INC DATE OF NAME CHANGE: 19970319 10QSB 1 form10-qsb_11244.txt ZAP FORM 10-QSB DATED MARCH 31, 2002 ================================================================================ 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, 2002 Commission File Number 0-303000 ZAP --- (FORMERLY ZAPWORLD.COM) (DEBTOR-IN-POSSESSION) (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: Common Shares 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. 6,693,643 shares of common stock as of May 10, 2002. Transitional Small Business Disclosure Format Yes[_] No[X] ================================================================================ Part I. FINANCIAL INFORMATION Item 1. Financial Statements ZAP (FORMERELY ZAPWORLD.COM) (DEBTOR-IN-POSSESSION) CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (IN THOUSANDS)
March 31, 2002 - ------------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS Cash $ 499 Accounts receivable, net of allowance for doubtful accounts of $723 382 Inventories 1,254 Prepaid expenses and other assets 243 -------- Total current assets 2,378 PROPERTY AND EQUIPMENT, net of accumulated depreciation of $706 394 OTHER ASSETS Patents & Trademarks 292 Goodwill 100 Deposits and other 121 -------- Total other assets 513 -------- Total assets $ 3,285 ======== LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable $ 95 Accrued liabilities and other expenses 171 Current maturities of obligations under capital leases 14 -------- Total current liabilities 280 OTHER LIABILITIES Obligations under capital leases, less current maturities 29 -------- Total other liabilities 29 LIABILITIES SUBJECT TO COMPROMISE Secured Debt 152 Trade and miscellaneous claims 1,601 Debt that may be converted to equity 3,060 -------- Total liabilities subject to compromise 4,813 -------- STOCKHOLDERS' DEFICIT Preferred stock, authorized 10,000 shares; 2 shares Issued and outstanding 1,133 Common stock, authorized 20,000 shares of no par value; issued and outstanding 6,068 shares 16,616 Accumulated deficit (19,586) -------- Total stockholders' deficit (1,837) -------- Total liabilities and stockholders' deficit $ 3,285 ========
See accompanying notes to consolidated financial statements 2 ZAP (FORMERLY ZAPWORLD.COM) (DEBTOR-IN-POSSESSION) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, 2002 2001 ------- ------- NET SALES $ 420 $ 2,013 COST OF GOODS SOLD 314 1,542 ------- ------- GROSS PROFIT 106 471 OPERATING EXPENSES Selling 67 426 General and administrative 542 1,132 Research and development 17 219 ------- ------- 626 1,777 ------- ------- LOSS FROM OPERATIONS BEFORE (520) (1,306) ------- ------- REORGANIZATION ITEMS OTHER INCOME (EXPENSE) Interest income (expense) (15) 22 Other income 14 0 ------- ------- (1) 22 ------- ------- NET LOSS BEFORE REORGANIZATION ITEMS (521) (1,284) REORGANIZATION ITEMS: Professional fees (39) 0 ------- ------- NET LOSS (560) (1,284) ======= ======= Net loss attributable to common shares Net loss (560) (1,284) Preferred Dividend (24) (57) ------- ------- $ (584) $(1,341) ======= ======= NET LOSS PER COMMON SHARE BASIC AND DILUTED $ (0.09) $ (0.22) ======= ======= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC AND DILUTED 6,429 5,962 ======= =======
See accompany notes to consolidated financial statements 3 ZAP(FORMERLY ZAPWORLD .COM) (DEBTOR-IN-POSSESSION) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, 2002 2001 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss before reorganization items $ (521) $(1,284) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 56 169 Reorganization items, net (39) -- Allowance for doubtful accounts 190 Amortization of the fair market value of warrants -- 14 Changes in: -- Receivables 14 (109) Inventories 149 (704) Deposits (11) -- Prepaid expenses and other assets (53) 317 Accounts payable 24 245 Accrued liabilities and customer deposits (108) (613) ------- ------- Net cash used in operating activities (299) (1,965) ------- ------- CASH FLOWS FROM INVESTING ACTIVITES Purchase of equipment (5) (46) Purchase of Patents and intangibles -- (19) Investment in joint venture (50) -- ------- ------- Net cash used for investing activities (55) (65) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Sale of common stock, net of stock offering costs 15 -- Principal repayments on long-term debt -- (22) Payments on obligations under capital leases (4) 44 ------- ------- Net cash provided by financing activities 11 22 ------- ------- NET DECREASE IN CASH (343) (2,008) CASH, beginning of period 842 3,543 ------- ------- CASH, end of period $ 499 $ 1,535 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the quarter for interest $ 15 $ 15 Non-cash investing and financing activities Debt issued to repurchase common stock $ 1,500 $ --
See accompanying notes to consolidated financial statements. 4 ZAP (FORMERLY ZAPWORLD.COM) (DEBTOR-IN-POSSESSION) NOTES TO THE INTERIM UNAUDITED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The financial statements included in this Form 10-QSB have been prepared by us, without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, 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, 2001. The financial statements presented herein, for the three months ended March 31, 2002 and 2001 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. CRITICAL ACCOUNTING POLICIES The Company's most critical accounting policies mainly relate to the going concern status assumed for the Company and the related use of estimates in the valuation of certain assets and liabilities. In particular, at March 31, 2002 intangibles, inventories, receivables and other assets valuations are entirely dependent on the Company continuing to operate as a going concern. The value of these assets on a liquidation basis would likely be significantly less than their currently recorded net book values. CASH As of March 31, 2002, $151,589 was held in a restrictive bank account and set aside for letters of credit to purchase inventory. BANKRUPCY FILING AND GOING CONCERN ASSUMPTION On March 1, 2002 the Company filed a voluntary petition for reorganization under Chapter 11 of the U. S. Bankruptcy Code with the U.S. Bankruptcy Court. The Company experienced a dramatic reduction in sales volume and incurred a significant net loss during the year ended December 31, 2001. The Company also experienced a significant loss in 2000. These losses and other factors resulted in most of the Company's available cash resources being used to support operating activities. In addition, the Company has assumed significant commitments and obligations as described in the financial statements. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. On March 1, 2002 the Company filed a voluntary petition for reorganization under Chapter 11 of the U. S. Bankruptcy Code with the U.S. Bankruptcy Court. The first impact of the Chapter 11 filing was to stay certain legal proceedings that had been instituted against the Company. Management also believes that the Chapter 11 filing will allow the Company to reorganize and rethink its direction, and to seek debtor-in-possession financing. 5 On March 15, 2002, we announced the signing of memorandums of understanding to acquire three privately owned companies involved in alternate fueled vehicles, automotive transfer and sales and distribution businesses. On March 28, 2002, we announce that we have discontinued negotiations with Daybreak Auto and that we signed Agreements to Merge with RAP and Voltage Vehicles. ZAP's management feels that the remaining two planned mergers will enhance ZAP's financial base and provide access to the two companies' services and relationships. Both merger agreements with ZAP are contingent upon ZAP's Plan of Reorganization being approved by its creditors and shareholders and confirmed by the U.S. Bankruptcy Court. We are in the process of preparing ZAP's Plan of Reorganization and Disclosure Statement that will be mailed to all stakeholders upon approval by the Bankruptcy Court. The Risks Related to Our Business We have a history of losses, and we might not achieve or maintain profitability. Our continuation as a going concern is directly dependent upon our ability to increase sales and receive additional financing. We will require substantial additional capital in the short term to remain a going concern. A substantial portion of our growth in the past three years has come through acquisitions and we may not be able to identify, complete and integrate future acquisitions, including those with RAP and Voltage Vehicles which could adversely affect our future growth and ability to receive approval of our Plan of Reorganization. Currently, holders of our Series A-1 and Series A-2 Convertible Preferred Stock have liquidation rights that are senior to the liquidation rights of our common stockholders. Common stockholders will likely experience substantial dilution when the holders of the Series A-1 and Series A-2 Convertible Preferred Stock convert their shares into Common Stock. There is no minimum conversion price at which the Series A-1 and Series A-2 Preferred Shareholders may convert. Upon advise of counsel, ZAP has not honored any recent conversion requests since we believe that these contracts are executory contracts and will be rejected in the plan of reorganization. The Company also believes that the preferred stock and any dividends, or fees or penalties allowed will be part of the consideration of the reorganization plan. Our stock has been delisted by the NASDAQ SmallCap Market. The result of delisting from the Nasdaq National Market could be a reduction in the liquidity of any investment in our common stock and an adverse effect on the trading price of our common stock. Delisting could also reduce the ability of holders of our common stock to purchase or sell shares as quickly and as inexpensively as they have done historically. This lack of liquidity would make it more difficult for the company to raise capital in the future. Other risks include, but are not limited to, the following: We face intense competition which could cause us to lose market share. Changes in the market for electric vehicles could cause our products to become obsolete or lose popularity. We cannot assure you that growth in the electric vehicle industry will continue and our business may suffer if growth in the electric vehicle industry ceases or if we are unable to maintain the pace of industry demands. We may be unable to keep up with changes in electric vehicle technology and, as a result, may suffer a decline in our competitive position. The failure of certain key suppliers to provide us with components could have a severe and negative impact upon our business. Product liability or other claims could have a material adverse effect on our business. We may not be able to protect our internet address. Our success is heavily dependent on protecting our intellectual property rights The net loss per common share is based on the weighted average number of common shares outstanding in each period. Potential dilutive securities associated with stock options, warrants and conversion of preferred stock have been excluded from the weighted average shares outstanding since the effect of these securities would be anti-dilutive. 6 (2) PRINCIPLES OF CONSOLIDATION-The accounts of the Company and its consolidated subsidiaries are included in the consolidated financial statements after elimination of significant inter-company accounts and transactions. (3) COMMON STOCK Our Common Stock has been listed on the NASDAQ SmallCap Market under the symbol "ZAPP" since May 22, 2000. On February 14, 2002, the Company received a NASDAQ staff determination notice indicating that the Company's common stock would be subject to delisting from the NASDAQ National Market System for failure to comply with certain Marketplace Rules. These rules require that the Company's common stock maintain a minimum bid price of $1.00. Under this rule, the Company has until August 13, 2002, to comply. If the Company meets certain listing criteria it may be granted an additional 180 day grace period to demonstrate compliance. On March 1, 2002, ZAP was suspended from trading on the NASDAQ SmallCap Market due to our Chapter 11 Bankruptcy filing. On March 20, 2002, we resumed trading under the symbol "ZAPPQ". On April 29, 2002, the NASDAQ Stock Market notified ZAP that its shares of common stock would be delisted from the NASDAQ Small Cap Market effective with the open of business on April 30, 2002. As grounds for its decision was cited uncertainty over the Company's future in light of its current chapter 11 proceedings. In particular, the panel noted that the timing and the completion of the Company's plan are uncertain. Because ZAP is currently subject to chapter 11proceedings, the company's shares are not automatically eligible for quotation on the OTC Bulletin Board. The Company is considering its alternatives, such as applying for approval for Bulletin Board trading or quotation in the "pink sheets" to maintain a market for its common stock. On June 28, 2001, we entered into a settlement agreement to avoid threatened litigation whereby we agreed to repurchase 50% of the 1,250,357shares of Common Stock held by Ridgewood ZAP, LLC, (Ridgewood) one of several funds managed by two former members of our board of directors. The terms of the agreement require us to pay $1.5 million in the form of a 6% interest-bearing Promissory Note, interest payable semi-annually with principal due in three installments, the first of which is for $500,000 and is due on June 27, 2002, the second of $500,000 is due six months later, and the third is due six months after the second. The remaining one-half of Ridgewood stock was to be purchased by certain holders of our Series A-1 and Series A-2 Preferred Stock in $100,000 monthly installments (subject to certain adjustments) starting February 1, 2002 with the purchase price per share to be 91% of the lowest closing bid price for the prior twenty-day trading period. To the extent the amount paid by the Preferred Shareholders for the Ridgewood stock is less than $1.5 million, the difference is to be added to the Promissory Note and that amount is to be paid by the Company at the rate of $100,000 per month. Thus, the Company is contingently liable for any short-fall in the purchase price paid by the Preferred Shareholders. In the event of a default, Ridgewood may convert the remaining balance of the Promissory Note into shares of Common Stock at a price one-third of the then market price. Since no purchases have been made by the preferred shareholders through March 31, 2002 nor are any anticipated to be made, the Company has recorded the additional $1.5 million as its obligation and is included in liabilities subject to compromise. This transaction has been treated as a stock redemption by reducing common stock $1.5 million and 626,317 shares. In January, 2002 the Company sold 72,000 shares of common stock from which it received net proceeds of $14,400. 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"). We desire to avail ourselves of certain "safe harbor" provisions of the Act and are therefore including this special note to enable us 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, 7 reports to our stockholders and other publicly available statements issued or released by us involve known and unknown risks, uncertainties, and other factors which could cause our 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 our best estimates based upon current conditions and the most recent results of operations. OVERVIEW On March 1, 2002, the Company filed a voluntary petition for relief under Chapter 11 (the "Chapter 11 Filing") of the United States Bankruptcy Code (the "Code") in the United States Bankruptcy Court for the Northern District of California (the "Bankruptcy Court"). The Company is operating as debtor-in-possession under the Code, which protects it from its creditors pending reorganization under the jurisdiction of the Bankruptcy Court. As debtor-in-possession, the Company is authorized to operate its business but may not engage in transactions outside the ordinary course of business without approval of the Bankruptcy Court. As part of the Chapter 11 reorganization process, the Company has attempted to notify all known or potential creditors of the Chapter 11 Filing for the purpose of identifying all pre-petition claims against the Company. Substantially all of the Company's liabilities ("pre-petition liabilities") are subject to settlement under a plan of reorganization. Generally, legal actions to enforce or otherwise effect repayment of all pre-petition liabilities as well as all pending litigation against the Company are stayed while the Company continues to operate its business as debtor-in-possession. The Company can only pay pre-petition obligations with the approval of the Bankruptcy Court. Schedules have been filed by the Company with the Bankruptcy Court setting forth its assets and liabilities as of the filing date as reflected in the Company's accounting records. Differences between amounts reflected in such schedules and claims filed by creditors will be investigated and either mutually resolved or subsequently adjudicated before the Bankruptcy Court. The ultimate amount and settlement terms for such liabilities are subject to a plan of reorganization. There can be no assurance that any reorganization plan that is effected will be successful. Under the Code, the Company may elect to assume or reject real property leases, employment contracts, personal property leases, service contracts and other executory pre-petition contracts, subject to the review of the Bankruptcy Court. Parties affected by any such rejections may file pre-petition claims with the Bankruptcy Court in accordance with bankruptcy procedures. The Company cannot presently determine or reasonably estimate the ultimate liability that may result from rejecting leases or from filing of claims for any rejected contracts, and no provisions have been made for the majority of these items. The Company's business strategy has been to develop, acquire and commercialize electric vehicles and electric vehicle power systems, that have fundamental practical and environmental advantages over available internal combustion modes of transportation that can be produced commercially on an economically competitive basis. In 2002, the Company continued to enhance and broaden its electric vehicle product line. The Company also manufactures several electric motor systems. One of these is sold as a kit to be installed by the customer on their own bicycle. The system was designed to assist the rider during more difficult riding situations, rather than as a replacement for pedaling. The Company also installs a motor system on specially designed bicycles that the Company has manufactured under contract. The completed bicycles, with motor, are then sold to the customer. Additionally, the Company produces the electric scooter, known as the ZAPPY(R), which is manufactured by the Company, using parts manufactured by various subcontractors. The Company manufactures several electric motor vehicle kits. The batteries used in these kits are standard batteries used in the computer industry for power interrupt systems. The electronic system uses standard electronic components. The Company has developed long-term purchase arrangements with its key vendors. The Company has $373,800 backlog of orders and purchase contracts in hand for electric vehicles as of May 10, 2002. The Company expects to fill these orders within the current fiscal year. 8 Some of the significant events for the Company that occurred during the first quarter of 2002 were as follows (1) ZAP signed a distribution agreement in January for the AirBoard(R) Personal Hovercraft. The agreement is with Australia's Arbortech Industries for the right to distribute its personal hovercraft technology in North America. Called AirBoard(R) it is similar to hovercraft technology seen in film and used by the military, but is designed for use by a single rider. (2) On March 1, 2002, ZAP filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. (3) In March, ZAP announced the first shipments of a new electric scooter called the ZAPPY(R) Turbo. The new ZAPPY(R) Turbo includes several upgrades, including a "turbo" performance mode that powers it to speeds of up to 18 MPH. The new scooter is similar to the classic design but has incorporated innovative in power-control electronics to respond to the increasing demand for hi-performance, portable transportation. (4) ZAP signed agreements to merge with two privately owned companies that are involved in alternate fuel vehicles, automotive sales and distribution. Both of the mergers with ZAP will be an integral part of, and contingent on, ZAP's Plan of Reorganization being approved by the U.S. Bankruptcy Court. (5) ZAP has been granted a design patent for its new electric water scooter called SWIMMY(R). This electric submersible marine vehicle is designed as a toy for kids to help them swim through the water, providing a boost up to 2.5 MPH along the surface or underneath it. (6) ZAP submitted a Disclosure Statement and Plan of Reorganization with the Santa Rosa division of the United States Bankruptcy Court, Northern District of California. The Disclosure Statement needs to be approved by the Court prior to the Plan's submission to the creditors and shareholders for vote. 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, 2002 2001 ---- ---- STATEMENTS OF OPERATIONS DATA: Net sales.......................................... 100.0% 100.0% Cost of sales...................................... (74.7) (76.7) Gross profit....................................... 25.2 23.3 Operating expenses................................. 149.0 88.3 Loss from operations before reorganization items... (123.8) (65.0) Other income ...................................... - 1.1 Net loss before reorganization items............... (123.8) (63.9) Reorganization items-Professional fees............. (9.3) - Net loss........................................... (133.1) (63.9) QUARTER ENDED MARCH 31, 2002 COMPARED TO QUARTER ENDED MARCH 31, 2001 NET SALES for the quarter ended March 31, 2002, were $420,000 compared to $2 million in the prior year. The major decrease was in foreign sales of approximately $1.2 million which was primarily due to the default of one major distributor on their sales contract in second quarter of 2001. The Company's filing of Chapter 11 Bankruptcy also adversely affected our sales during the current quarter. GROSS PROFIT decreased from $471,000 in 2001 to $106,000 in 2002 due to the lower sales volume. However, as a percentage of sales the gross profit actually increased from 23% in 2001 to 25% in 2002. The increase was due to slightly lower costs on the ZAPPY(R) now made in Taiwan and to product mix. 9 SELLING AND MARKETING expenses in the quarter ended March 31, 2002 were $67,000 as compared to $426,000 for the quarter ended March 31, 2001. As a percentage of sales, selling and marketing expenses decreased from 21% to 16% of net sales. The primary reason for the decrease was less spending in all areas of sales and marketing together with significantly less personnel. GENERAL AND ADMINISTRATIVE expenses for the quarter ended March 31, 2002 were $542,000 as compared to $1.1 million for the quarter ended March 31, 2001. This is a decrease of $590,000 or 52%. As a percentage of sales, general and administrative expense increased from 56% to 129% of net sales in 2002. The major factor in the increase as a percentage of sales was the recording of additional bad debt expense for problem customers. The dollar decrease in amount of expenses was due to less salaries and benefits, fewer professional fees, no amortization of goodwill in accordance with new accounting guidelines, and spending cut-backs. RESEARCH AND DEVELOPMENT decreased $202,000 or 92% in the 1st quarter of 2002 as compared to the 1st quarter of 2001. As a percentage of net sales it decreased to 4% of sales in the 1st quarter of 2002 as compared to 11% of sales in the 1st quarter of 2001. Expense decreases in the first quarter of 2002 as compared to the first quarter of 2001 were the result of less spending. INTEREST INCOME (EXPENSE) decreased from income of $22,000 in 2001 to an expense of $15,000 in 2002. The decrease was due to less interest income due to lower cash investment balances. OTHER INCOME (EXPENSE) increased to $14,000 as the result of reimbursement of expenses from a government grant. REORGANIZATION ITEMS- The increase in reorganization items was due to legal expenses incurred for the reorganization. LIQUIDITY AND CAPITAL RESOURCES In the first quarter of 2002 net cash used by the Company for operating activities was $ 299,000. In the first quarter of 2001, the Company used cash for operations of $1.9 million. Cash used in the first quarter of 2002 was comprised of the net loss before reorganization items incurred for the quarter of $521,000 offset by net non-cash expenses of $207,000 and the net change in operating assets and liabilities resulting in providing cash of $15,000. Cash used in operations in the first quarter of 2001 was comprised of the net loss incurred for the quarter of $1.3 million, offset by net non-cash expenses of $183,000, and the net change in operating assets and liabilities resulting in a further use of cash of $864,000. Investing activities used cash of $55,000 in the first quarter of 2002 and used $65,000 during the first quarter ended March 31, 2001. The uses of cash were for the purchase of equipment and patents. Financing activities provided cash of $11,000 and $22,000 during the first quarters ended March 31, 2002 and 2001, respectively. At March 31, 2002 the Company had cash of $499,000 compared to $1.5 million at March 31, 2001. At March 31, 2002, the Company had working capital of $2 million, as compared to working capital of $5.8 million at March 31, 2001. The Company, at present, does not have a credit facility in place with a bank or other financial institution. We may not be able to meet our future cash requirements for the rest of the current fiscal year unless new financing is obtained. Toward this end, we have held discussions with various parties, but no formal agreements have been reached to date. Moreover, we will require substantial capital to execute our Plan of Reorganization and the Plan of Reorganization must be approved in the short term to remain a going concern. We will need short term outside investments on a continuing basis to finance our current operations. Our revenues for the foreseeable future may not be sufficient to attain profitability. We expect to continue to experience losses for the near future. 10 In order to finance our working capital requirements we are currently seeking both debt and equity investments with several investors, but there can be no assurances that we will obtain this capital or that it will be obtained on terms favorable to us. If we do not obtain short term financing, or have our Plan of Reorganization quickly approved, we may not be able to continue as a going concern and the Company may have to convert to a Chapter 7 bankruptcy. We do not have a bank line of credit and there can be no assurance that any required or desired financing will be available through bank borrowings, debt, or equity offerings, or otherwise, on acceptable terms. If future financing requirements are satisfied through the issuance of equity securities, investors may experience significant dilution in the net book value per share of common stock and there is no guarantee that a market will exist for the sale of the Company's shares. 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. SEASONALITY AND QUARTERLY RESULTS The Company's business is subject to seasonal influences. Sales volumes in this industry typically slow down during the winter months, November to March in the U.S. The Company is marketing worldwide and is not impacted by U.S. seasonality. INFLATION Our raw materials are sourced from stable, cost-competitive industries. As such, we do not foresee any material inflationary trends for our raw material sources. PART II - OTHER INFORMATION Item 1. Legal Proceedings From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business, including employment-related and trade related claims. On March 1, 2002, the Company filed a voluntary petition for reorganization under Chapter 11 of the U. S. Bankruptcy Code with the U. S. Bankruptcy Court, Northern District, in Santa Rosa, California. As a result of the filing of voluntary petitions under Chapter 11 of the United States Bankruptcy Code, it is anticipated that claims will be asserted in excess of those amounts set forth in the Company's books and records, and that the Company will dispute and file objections to certain of such claims. The Company's management cannot express any opinion as to the likelihood of an outcome respecting any claims asserted or to be asserted in the Chapter 11 cases, including claims resulting from the assumption or rejection of leases and executory contracts and various other claims. Generally, legal actions to enforce or otherwise effect repayment of all prepetition liabilities as well as all pending litigation against the Company are stayed while the Company continues to operate its business as debtor-in-possession. In light of the Chapter 11 filing the following three lawsuits have been stayed: On September 28, 2001, we were notified by the Lashman Family Partnership, which holds a security interest on the intellectual property rights to ZAP products selling under the name Sea Scooter, that we are in default on our Promissory Note of $158,000 issued to them in connection with our acquisition of Aquatic Propulsion Technologies, Inc. We were further notified that the Lashman Family Partnership has foreclosed on the patents and, henceforth, we will be infringing the patents should we continue to manufacture and market the Sea Scooter brand. We dispute the accuracy of the default, and we are looking for a buyer of the Promissory Note and the intellectual assets. On September 6, 2001, we were served with a complaint from Hampel Technologies, Inc. for a collection in the amount of $49,324.16. We filed a timely answer denying the allegations set forth therein with the County of Sonoma Superior Court. This action has been stayed as a result of the bankruptcy filing. 11 On August 8, 2001, we were served with a complaint from Northern California Collection Service Inc. for a collection in the amount of $63,000. We filed an answer offering a general denial to each allegation on September 10, 2001 with the County of Sacramento Superior Court. This action has been stayed as a result of the bankruptcy filing. The Company has filed a lawsuit on March 8, 2002 against International Service Group in the Superior Court of the State of California County of San Mateo, Northern Branch. The compliant is for breach of contract and negligence over the theft of electric scooters transferred to their custody. 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 On March 1, 2002, the Company issued a Form 8-K to report the filing of a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code with the U. S. Bankruptcy Court, Northern District, in Santa Rosa, California. After the Quarter ended March 31, 2002 the Company also issued the following two Form 8-K's: On April 15, 2002 the Company filed its Disclosure Statement and Proposed Plan of Reorganization which is subject to approval of the U.S. Bankruptcy court prior to submission to the creditors and shareholders for vote and on April 29, 2002 the company also filed a Form 8-K to report that it changed their independent auditors for the year ended December 31, 2002 from Grant Thornton LLP to Odenberg, Ullakko, Muranishi & Co. LLP. 12 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 - -------------------------- (Registrant) SIGNATURE TITLE DATE - --------- ----- ---- /s/ Gary Starr Director / CEO May 10, 2002 - -------------------------- /s/ William R. Hartman CFO May 10, 2002 - -------------------------- 13 -----END PRIVACY-ENHANCED MESSAGE-----