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 June 30, 1997
-------------
[ ] 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 (I.R.S. Employer
of 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.
2,296,420 shares of common stock as of July 7, 1997
-----------------------------------------------------
Transitional Small Business Disclosure Format Yes [ ] No [x]
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZAP POWER SYSTEMS
CONDENSED BALANCE SHEETS
(Unaudited)
June 30,
1997
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 195,952
Receivables 217,384
Inventories 278,956
Prepaid expenses and other assets 101,424
-----------
Total current assets 793,716
-----------
PROPERTY AND EQUIPMENT 130,427
-----------
OTHER ASSETS
Investment in joint venture 66,380
Intangibles, net of accumulated amortization 6,841
of $2,083
Deposits 15,986
-----------
89,207
-----------
Total assets $ 1,013,350
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 370,624
Accrued liabilities and other expenses 28,420
Customer Deposits 105,966
Notes payable 144,362
Current maturities of long-term debt 11,321
Current maturities of obligations under capital leases 6,526
-----------
Total current liabilities 667,219
-----------
OTHER LIABILITIES
Obligations under capital leases, less current maturities 23,671
------
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares
authorized, 2,200,196 shares issued and
outstanding 1,868,494
Accumulated deficit (1,546,034)
-----------
342,460
-----------
Total liabilities and stockholders' equity $ 1,013,350
===========
The accompanying notes are an integral part of these financial statements
2
<PAGE>
<TABLE>
ZAP POWER SYSTEMS
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Quarter ended June 30, Six Months ended June 30,
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 568,223 $ 245,218 $ 826,123 $ 449,016
COST OF GOODS SOLD 484,853 227,338 706,653 340,178
----------- ----------- ----------- -----------
GROSS PROFIT 83,370 17,880 119,470 108,838
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling 172,571 101,108 265,371 187,852
General and administrative 188,021 115,449 364,221 205,816
Research and development 69,527 17,775 118,527 30,146
----------- ----------- ----------- -----------
430,119 234,332 748,119 423,814
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (346,749) (216,452) (628,649) (314,976)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (6,961) (1,350) (15,861) (2,910)
Other 7,876 2,876 5,276 7,422
----------- ----------- ----------- -----------
915 1,526 (10,585) 4,512
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (345,834) (214,926) (639,234) (310,464)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (345,834) $ (214,926) $ (639,234) $ (310,464)
=========== ============ =========== ===========
NET LOSS PER COMMON SHARE $ (0.15) $ (0.12) $ (0.29) $ (0.18)
=========== ============ =========== ===========
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 2,254,931 1,724,864 2,190,415 1,684,624
=========== ============ =========== ===========
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
3
<PAGE>
<TABLE>
ZAP POWER SYSTEMS
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six months ended June 30,
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(639,234) $(310,410)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 27,024 18,400
Allowance for doubtful accounts 390 2,700
Issuance of common stock for services rendered 10,589 25,000
Changes in:
Receivables (156,863) (18,400)
Inventories (32,356) (54,966)
Prepaid expenses 14,015
Customer Deposits 105,480 (1,362)
Accounts payable 69,424 61,850
Accrued liabilities and other expenses (37,996) 42,357
--------- ---------
Net cash used by operating activities (639,621) (234,831)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (56,734) (21,247)
Investment in subsidiaries (13,882)
--------- ---------
Net cash used by investing activities (70,616) (21,247)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 30,000 88,362
Proceeds from long-term debt 25,000
Decrease in restricted cash 10,000
Sale of common stock, net of stock offering costs 838,705 300,802
Principal repayments on long-term debt (6,179) (2,726)
Payments on obligations under capital leases (6,003)
Principal repayments on note payable (122,038)
--------- ---------
Net cash provided by financing activities 744,485 411,438
--------- ---------
NET INCREASE IN CASH 34,352 155,360
CASH, beginning of period 161,600 21,800
--------- ---------
CASH, end of period $ 195,952 $ 177,160
========= =========
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
4
<PAGE>
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, 1996.
The financial statements presented herein as of June 30, 1997 and June 30, 1996,
and for the interim results of operations for the three months and six months
ended June 30, 1997 and June 30, 1996 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 potentially dilutive securities would be antidilutive.
(2) - RECEIVABLES
June 30, 1997
--------------
Trade accounts receivable $ 234,174
Less allowance for doubtful accounts (16,790)
------------
$ 217,384
============
(3) - INVENTORIES
June 30, 1997
--------------
Raw materials $ 159,994
Work-in-process 43,719
Finished goods 75,243
-------------
$ 278,956
=============
(4) - PROPERTY AND EQUIPMENT
June 30, 1997
--------------
Demonstration bicycles $ 60,514
Machinery and equipment 47,723
Equipment under capital leases 42,100
Office furniture and fixtures 30,835
Computers 19,135
Leasehold improvements 10,221
Vehicle 4,300
--------------
214,828
Less accumulated depreciation and amortization (84,401)
--------------
$ 130,427
=============
5
<PAGE>
(5) - NOTES PAYABLE
June 30, 1997
-------------
Notes to stockholders, with interest at 12%; interest and
principal due when the notes mature in November and
December, 1997. 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. $ 109,000
Notes to a stockholder, with interest at 10%; principal and
interest is due when the notes mature in December,
1997; unsecured 35,362
---------
$ 144,362
=========
(6) - COMMON STOCK
In November 1996, the Company began offering for sale, directly to the public,
500,000 shares of common stock at $5.25 per share. The net proceeds from the
sale are to be used to retire certain debt, increase manufacturing capacity, and
provide working capital for new product development and general purposes.
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 65% kits and 35% electric bicycles. Dollar sales have been 50%
kits and 50% electric bicycles.
The Company sells its electric bicycles and kits to retail customers,
police departments, 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. The Company manufactures the electric motor kit, which has
approximately 62 unique parts. The manufacturing of the electric motor kit and
the installation
6
<PAGE>
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 industry for power interrupt systems. The
electronic system uses standard electronic components.
U.P.S. and Federal Express usually ship the electric motor kits and
electric bicycles sold by ZAP. Larger quantity orders to wholesale distributors
are shipped common carrier. The Company has developed long term purchase
arrangements with its key vendors. The Company has no contractual relationships
with any of its vendors.
The Company recently began selling an electric scooter manufactured by
an Italian company through a joint marketing agreement where they have rights to
sell the Company's products in Italy and Austria, and the Company has the right
to sell their product in Northern America. Subsequent to this agreement the
company has sold approximately 70 units.
The Company as of June 30,1997 had a $359,913 sales backlog. The
company expects to fill these orders within the next 60 days.
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 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
<TABLE>
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:
<CAPTION>
Quarter ended June 30, Six months ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statements of Income Data:
Net sales........................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................... 85.3 92.7 85.5 75.8
Gross profit (Loss).............................. 14.7 7.3 14.5 24.2
Operating expenses.............................. 75.7 95.5 90.6 94.4
Loss from operations............................. (61.0) (88.2) (76.1) (70.2)
Other income (expense).......................... (0.2) 0.6 (1.2) 1.0
Loss before income taxes......................... (60.8) (87.6) (77.3) (69.2)
Provision for income taxes....................... 0.0 0.0 0.0 0.0
Net loss......................................... (60.8) (87.6) (77.3) 69.2
</TABLE>
Quarter Ended June 30, 1996 Compared to Quarter Ended June 30, 1997
Net sales for the quarter ended June 30, 1997, were $568,223 compared to
$245,218 in the prior year, an increase of $323,005 or 132%. The increase in
sales is primarily attributed to sales of both complete electric bicycles and
electric motor kits to a large bicycle company. The Company also sold $15,755 of
the imported Italian scooter through its distributor agreement with Movity
S.r.l.
Gross profit (loss). Gross profit increased as a percentage of net sales,
from 7% to 15%. The total gross profit increased $65,490 or 366%. This increase
is due to increased production volume increasing thus lower the cost per unit
manufactured.
7
<PAGE>
Selling expenses in the quarter ended June 30, 1997 were $172,571 as
compared to $101,100 for the quarter ended June 30, 1996. This was an increase
of $71,463 or 71% from 1996 to 1997. As a percentage of sales, selling expenses
decreased from 41% of sales to 30% of sales. This was due to an increase in
sales compared to the 1996 period.
General and administrative expenses for the quarter ended June 30, 1997
were $188,021. This is an increase of $72,572 or 63% from 1996. As a percentage
of sales, general and administrative expense decreased from 47% to 33% of net
sales. Expense increases during the 2nd quarter of 1997 as compared to the 2nd
quarter of 1996 resulted from the increased accounting, auditing and
administration expense to support the Company's public offering and the increase
in sales activity.
Research and development increased $51,752 or 291% from the 2nd quarter
of 1996 as compared to the 2nd quarter of 1997. As a percentage of net sales it
increased to 12% of sales in the 1st quarter of 1997 as compared to 7% of sales
in the 1st quarter of 1996. The expense increase in the 2nd quarter of 1997 was
related to the electric scooter products that will be introduced in the second
half of 1997.
Other income (expense) decreased $611 or 40% from the 2nd quarter of
1996 to 1997. This decrease was due to interest expense increasing $5,600 in the
second quarter of 1997 as compared to the second quarter of 1996.
Six Months Ending June 30, 1996 Compared to Six Months Ending June 30, 1997
Net sales for the six months ended June 30, 1997, were $826,123
compared to $449,016 in the six months ended June 30, 1996, an increase of
$377,107 or 84%. The increase in sales is attributed to sales of both complete
electric bicycles and electric motor kits to a large bicycle company. The
Company sold $15,755 of the imported Italian scooter through its distributor
agreement with Movity S.r.l. in the first half of 1997.
Gross profit (loss). Gross profit decreased as a percentage of net
sales, from 24% to 14%. The total gross profit increased $10,632 or 10%. The
gross profit as a percentage of sales decrease was due to the liquidation of the
1996 models in January of 1997, additional manufacturing costs associated with
the startup of the 1997 models, and the additional initial costs associated with
the large bicycle manufacturer order in the second quarter of 1997.
Selling expenses in the six months ended June 30, 1997 were $265,371.
This was an increase of 77,519 or 41% from the same period in 1996. As a
percentage of sales, selling expenses decreased from 42% of sales to 32% of
sales. This was due to a decrease in marketing to auto dealerships and an
increase in direct retail sales and other dealer outlets as compared to the 1996
period.
General and administrative expenses for the six months ended June 30,
1997 were $364,221. This is an increase of $158,405 or 77% from 1996. As a
percentage of sales, general and administrative expense decreased from 46% to
44% of net sales. Expense increases during the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996 resulted from the expense
increases in, accounting, auditing and administration to support the Company's
public offering, increases in sales and corporate development.
Research and development increased $88,381 or 293% from the six months
ended June 30, 1996 as compared to the six months ended June 30, 1997. As a
percentage of net sales it increased to 14% of sales in the six months ended
June 30, 1997 as compared to 7% of sales in the six months ended June 30, 1996.
The expense increase in the six months ended June 30, 1997 was related to
development of the electric scooter products that will be introduced in the
second half of 1997, and new products to be introduced in foreign markets.
Other income (expense) decreased $15,097 or 334% from the six months
ended June 30, 1996 to the six months ended June 30, 1997. This decrease was due
to interest expense increasing $12,951 in the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996.
8
<PAGE>
Liquidity and Capital Resources
In the six months ended June 30, 1997 the Company had a cash deficit of
$639,621 from operations as compared to a cash deficit of $234,831 in the six
months ended June 30, 1996. In order to meet all of the Company's operating
expenses, the Company relied on the sales of common stock and the issuance of
notes payable.
In the six months ended June 30, 1997 the Company raised a total of
$838,705 from common stock sales and $30,000 from the issuance of notes payable.
In the six months ended June 30, 1996 the Company raised $300,802 from stock
sales and $88,362 from the issuance of notes payable. The Company was cleared by
the SEC to sell public shares on November 29, 1996. The funds received from this
direct public offering in the six months ended June 30, 1997 were utilized to
pay the Company's operating expenses and capital expenditures.
At June 30, 1996 and 1997, the Company had a working capital of $70,800
and $126,497 respectively. As of June 30, 1997, the Company had total current
assets of $793,716, including cash of $195,957, accounts receivable of $217,384,
inventories of $278,956, and prepaid expenses of $101,424. The Company's current
liabilities as of June 30,1997 were $667,219, including accounts payable and
accrued expenses of $399,044, notes payable of $144,362 and $17,847 of current
maturity of long-term debt and leases. The balance of notes payable issued in
November and December of 1996 in the amount of $109,000 are due in November and
December of 1997. These note holders were granted a total of 21,800 warrants.
The proceeds from this placement went to fund increased inventory levels,
accounts receivables, capital expenditures and the Company's public stock
offering expenses. The balance of notes payable $35,362, was an unsecured note
with an interest rate of 10%. This note is due in December of 1997. Deposits
from customers as of June 30, 1997 is a prepayment from the large bicycle
manufacturer paid to the Company per the terms of the purchase order from them.
The Company had net cash provided by financing activities of $411,438
for the six months ended June 30, 1996, and $744,485 for the six months ended
June 30, 1997. Net cash provided by financing activities for the six months
ended June 30, 1996 was from notes payable proceeds of $88,362, a bank loan of
$25,000, and sale of common stock of $300,802. Net cash provided by financing
activities for the six months ended June 30,1997 was $30,000 from notes payable,
$838,705 from the sale of common stock, less $124,220 of repayments of notes
payable, bank debt and lease obligations and the elimination of restricted cash
required on the notes payable.
The bank loan with Wells Fargo Bank, (March 1996), had an initial
principal balance of $25,000 amortized over 2 years at an interest rate of 15%.
The note, with a balance of $11,321 as of June 30, 1997, will be paid off March
of 1998. The equipment leases are with AT&T Credit Corporation, (July 1996), had
an initial balance of $43,076 with monthly payments of $1,186 for three years.
The Company's primary capital needs are to fund its growth strategy,
which includes increasing its net sales, increasing distribution channels,
introducing new products, improving existing product lines and development of
strong corporate infrastructure.
Recent Accounting Pronouncements
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
which established a fair value-based method of accounting for stock-based
compensation plans. The Company is currently following the requirements of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", but includes the disclosures required by SFAS 123 in the annual
report.
Seasonality and Quarterly Results
The Company's business is subject to seasonal influences similar to the
bike industry. Sales volumes in the bicycle industry typically slow down during
the winter months, November to March, in the U.S.
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
9
<PAGE>
Item 1. Legal Proceedings
There were no material proceedings pending in which the Registrant was
named as a party.
Item 2. Changes in Securities
There were no changes in rights of securities holders.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the vote of security holders.
Item 5. Other Information
There were no major contracts signed during the period.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
10
<PAGE>
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
--------------- ----------------------------------------
Gary Starr - Managing Director
Date
--------------- ----------------------------------------
James McGreen - President and Director
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ZAP POWER SYSTEMS FOR THE SIX MONTHS ENDED JUNE 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 195,952
<SECURITIES> 0
<RECEIVABLES> 234,174
<ALLOWANCES> (16,790)
<INVENTORY> 278,956
<CURRENT-ASSETS> 793,716
<PP&E> 214,828
<DEPRECIATION> (84,401)
<TOTAL-ASSETS> 1,013,350
<CURRENT-LIABILITIES> 667,219
<BONDS> 11,321
<COMMON> 1,868,494
0
0
<OTHER-SE> (1,546,034)
<TOTAL-LIABILITY-AND-EQUITY> 1,013,350
<SALES> 826,123
<TOTAL-REVENUES> 831,399
<CGS> 706,653
<TOTAL-COSTS> 748,119
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 390
<INTEREST-EXPENSE> 15,861
<INCOME-PRETAX> (639,234)
<INCOME-TAX> 0
<INCOME-CONTINUING> (639,234)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (639,234)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> 0
</TABLE>
