UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 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.
2,200,196 shares of common stock as of March 31, 1997
-----------------------------------------------------
Transitional Small Business Disclosure Format Yes [ ] No [x]
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
ZAP POWER SYSTEMS
CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31,
1997 1996
- ---------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 169,300 $ 72,300
Receivables 112,900 38,500
Inventories 253,100 76,800
Prepaid expenses and other assets 114,300
----------- -----------
Total current assets 649,600 187,600
----------- -----------
PROPERTY AND EQUIPMENT 114,400 71,600
----------- -----------
OTHER ASSETS
Investment in joint venture 57,500
Cash restricted to payment of long-term debt 50,000
Intangibles, net of accumulated amortization
of $1,860 and $967, respectively 7,000 8,000
Deposits 22,700 6,000
----------- -----------
137,200 14,000
----------- -----------
Total assets $ 901,200 $ 273,200
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 275,000 $ 108,300
Accrued liabilities and other expenses 17,400 7,800
Notes payable 179,363 55,400
Current maturities of long-term debt 14,337
Current maturities of obligations under capital leases 9,600
----------- -----------
Total current liabilities 495,700 171,500
----------- -----------
OTHER LIABILITIES
Obligations under capital leases, less current maturities 23,700
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 and 3,000,000 shares
authorized, 2,200,196 and 1,644,384 shares issued and
outstanding, respectively 1,582,000 250,200
Accumulated deficit (1,200,200) (148,500)
----------- -----------
381,800 101,700
----------- -----------
Total liabilities and stockholders' equity $ 901,200 $ 273,200
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
2
<PAGE>
ZAP POWER SYSTEMS
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
1997 1996
- --------------------------------------------------------------------------------
NET SALES $ 257,900 $ 203,800
COST OF GOODS SOLD 221,800 112,800
----------- -----------
GROSS PROFIT 36,100 91,000
----------- -----------
OPERATING EXPENSES
Selling 92,800 86,700
General and administrative 176,200 90,400
Research and development 49,000 12,400
----------- -----------
318,000 189,500
----------- -----------
LOSS FROM OPERATIONS (281,900) (98,500)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (8,900)
Other (2,600) 2,900
----------- -----------
(11,500) 2,900
----------- -----------
LOSS BEFORE INCOME TAXES (293,400) (95,600)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET LOSS $ (293,400) $ (95,600)
NET LOSS PER COMMON SHARE $ (0.14) $ (0.06)
=========== ===========
WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING 2,146,500 1,600,000
=========== ===========
The accompanying notes are an integral part of these financial statements
3
<PAGE>
<TABLE>
ZAP POWER SYSTEMS
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three months ended March 31,
1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(293,400) $ (95,600)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 12,700 7,400
Allowance for doubtful accounts 5,300 1,300
Issuance of common stock for services rendered 15,700 25,000
Changes in:
Receivables (57,300) (9,100)
Inventories (2,800) (18,400)
Prepaid expenses 1,200
Deposits (7,600)
Accounts payable (32,600) 14,100
Accrued liabilities and other expenses (42,200) (4,800)
--------- ---------
Net cash used by operating activities (401,000) (80,100)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (30,400) (4,800)
Investment in subsidiaries (5,000)
--------- ---------
Net cash used by investing activities (35,400) (4,800)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 30,000 58,400
Increase in restricted cash (40,000)
Sale of common stock, net of stock offering costs 547,100 51,900
Principal repayments on long-term debt (3,000)
Payments on obligations under capital leases (3,000)
Principal repayments on note payable (87,000) 25,000
--------- ---------
Net cash provided by financing activities 444,100 135,300
--------- ---------
NET INCREASE IN CASH 7,700 50,500
CASH, beginning of period 161,600 21,800
--------- ---------
CASH, end of period $ 169,300 $ 72,300
========= =========
<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 March 31, 1997 and for the three
months ended March 31, 1997 and 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
March 31,
1997 1996
---- ----
Trade accounts receivable $ 134,200 $ 47,500
Less allowance for doubtful accounts (21,300) (9,000)
------------- -------------
$ 112,900 $ 38,500
============= ==============
(3) - INVENTORIES
March 31,
1997 1996
---- ----
Raw materials $ 190,000 $ 47,000
Work-in-process 41,900 11,500
Finished goods 21,200 18,300
------------- -------------
$ 253,100 $ 76,800
============= ==============
(4) - PROPERTY AND EQUIPMENT
March 31,
1997 1996
---- ----
Demonstration bicycles $ 50,800 $ 17,700
Machinery and equipment 44,800 33,300
Equipment under capital leases 42,100 -
Office furniture and fixtures 22,500 15,400
Computers 13,100 13,200
Leasehold improvements 6,900 6,600
Vehicle 4,300 -
----------- ------------
184,500 86,200
Less accumulated depreciation and
amortization (70,100) (14,600)
----------- ------------
$ 114,400 $ 71,600
=========== ============
5
<PAGE>
(5) - NOTES PAYABLE
March 31,
1997 1996
----------- -----------
Notes to stockholders, with interest at 12%;
interest and principal due when the notes
mature in November and December, 1997; the
Company is allocating 50% of the proceeds
received from the Company's Direct Public
Offering towards repayment of the loans until
fully repaid; the note holders have been
issued warrants to purchase, in the
aggregate, 28,800 shares of common stock at
$5.25 per share through October, 1999. $ 144,000 $ -
Notes to a stockholder, with interest at 10%;
principal and interest is due when the notes
mature in December, 1997; unsecured 35,363 45,400
Notes, with interest at 10%; principal and
interest is due when the notes mature in
January and February, 1997; unsecured 5,000
Note, with interest at 10%; the note was converted
to 3,000 shares of common stock in 1996 5,000
----------- ----------
$ 179,363 $ 55,400
=========== ===========
(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.
6
<PAGE>
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 which 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 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 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.
The electric motor kits and electric bicycles sold by ZAP are usually
shipped by U.P.S. and Federal Express. 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 40 units.
The Company as of March 31,1997 had a $322,000 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
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,
1997 1996
---- ----
Statements of Income Data:
Net sales............................. 100.00% 100.00%
Cost of sales......................... 86.00 55.35
Gross profit (Loss)................... 14.00 44.65
Operating expenses................... 123.00 92.98
Loss from operations.................. (109.00) (48.33)
Other income (expense)............... (4.50) 1.42
Loss before income taxes.............. (113.50) (46.91)
Provision for income taxes............ 0.00 0.00
Net loss.............................. (113.50) (46.91)
7
<PAGE>
Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1997
Net sales for the quarter ended March 31, 1997, were $257,900 compared
to $203,800 in the prior year, an increase of $54,100 or 27%. The increase in
sales is attributed to the Company's development of distributor sales and the
increased retail sales from year end clearance programs the company executed to
sell off the 1996 models in January 1997.
Gross profit (loss). Gross profit decreased as a percentage of net
sales, from 45% to 14%. The total gross profit decreased $54,900 or 60%. The
year end clearance in the 1st quarter 1997 and the subsequent price reduction of
the 1997 models is the primary reason for the decrease. The transition to the
new 1997 model resulted in lower production volumes and associated higher
initial production costs in the 1st quarter of 1997.
Selling expenses in the quarter ended March 1997 were $92,800. This was
an increase of $6,100 or 7% from 1996 to 1997. As a percentage of sales, selling
expenses decreased from 43% of sales to 36% 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 quarter ended March 31,
1997 were $176,200. This is an increase of $85,800 or 95% from 1996. As a
percentage of sales, general and administrative expense increased from 44% to
68% of net sales. Expense increases during the 1st quarter of 1997 as compared
to the 1st quarter of 1996 resulted from the expenses of the implementation of
computer systems, and increased accounting, auditing and administration expense
to support the Company's public offering and the increase in sales activity.
Research and development increased $36,600 or 295% from the 1st quarter
of 1996 as compared to the 1st quarter of 1997. As a percentage of net sales it
increased to 19% of sales in the 1st quarter of 1997 as compared to 6% of sales
in the 1st quarter of 1996. The expense increase in the 1st quarter of 1997 was
related to the electric scooter products that will be introduced in the second
half of 1997.
Other income (expense) decreased $14,400 or 497% from the 1st quarter
of 1996 to 1997. This decrease was due to interest expense increasing $8,900 in
the first quarter of 1997 as compared to the first quarter of 1996.
Liquidity and Capital Resources
In the first quarter of 1997 the Company had a cash deficit of $401,000
from operations as compared to a cash deficit of $80,000 in the first quarter of
1996. In order to meet all of the Company's operating expenses the Company
relied on the sales of common stock and issuing notes payable.
In the first quarter of 1997 the Company raised a total of $547,100
from common stock sales and $30,000 from the issuance of notes payable. In the
first quarter of 1996 the Company raised $51,900 from stock sales and $83,400
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 first quarter of 1997 were utilized to pay down accounts payable
and accrued expenses and to pay the Company's operating expenses.
At March 31, 1996 and 1997, the Company had a working capital of
$16,100 and $158,600 respectively. As of March 31, 1997, the Company had total
current assets of $649,600, including cash of $169,300 unrestricted, accounts
receivable of $112,900, inventories of $253,100, and prepaid expenses of
$114,300. The Company's current liabilities as of March 31,1997 were $491,000,
including accounts payable and accrued expenses of $292,400, notes payable of
$179,363 and $19,237 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 $144,000 had preferential repayment rights of the public stock offering
proceeds. The notes are due in November and December of 1997. These note holders
were also granted a total of 37,800 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 $35,363, were unsecured notes with an interest rate of 10%. This
note is due in December of 1997.
8
<PAGE>
The Company had net cash provided by financing activities of $135,200
for the Quarter ended March 31, 1996, and $444,100 for the quarter ended March
31, 1997. Net cash provided by financing activities for the quarter ended March
31, 1996 was from notes payable proceeds of $58,400, a bank loan of $25,000, and
sale of common stock of $51,900. Net cash provided by financing activities for
the quarter ended March 31,1997 was $30,000 from notes payable, $547,100 from
the sale of common stock, less $93,000 of repayments of notes payable, bank debt
and lease obligations.
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 $14,337 as of March 31, 1997, will be paid off March
of 1998. The equipment lease is with AT&T Credit Corporation, (July 1996), and
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."
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
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.
9
<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
Date ______________________ ______________________________________________
David Workman - Vice President of Operations,
Chief Financial Officer, and
Principal Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ZAP POWER SYSTEMS FOR THE THREE MONTHS ENDED
MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 169,300
<SECURITIES> 0
<RECEIVABLES> 134,200
<ALLOWANCES> (21,300)
<INVENTORY> 253,100
<CURRENT-ASSETS> 649,600
<PP&E> 184,500
<DEPRECIATION> (70,100)
<TOTAL-ASSETS> 901,200
<CURRENT-LIABILITIES> 495,700
<BONDS> 23,700
<COMMON> 1,582,000
0
0
<OTHER-SE> (1,200,200)
<TOTAL-LIABILITY-AND-EQUITY> 381,800
<SALES> 257,900
<TOTAL-REVENUES> 257,900
<CGS> 221,800
<TOTAL-COSTS> 221,800
<OTHER-EXPENSES> 293,900
<LOSS-PROVISION> 5,300
<INTEREST-EXPENSE> 8,900
<INCOME-PRETAX> (293,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (293,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (293,400)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> 0.00
</TABLE>
