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, 1998
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to __________
Commission file number 333-05744-LA
ZAP POWER SYSTEMS
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 94-3210624
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
117 Morris Street, Sebastopol, California 95472
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(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. 2,583,270 shares of common
stock as of April 24, 1998
Transitional Small Business Disclosure Format Yes [ ] No [x]
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZAP POWER SYSTEMS
CONDENSED BALANCE SHEET
March 31,
1998
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 370,036
Receivables 159,123
Inventories 313,878
Prepaid expenses and other assets 101,859
-----------
Total current assets 944,896
PROPERTY AND EQUIPMENT 190,206
OTHER ASSETS
Intangibles, net of accumulated amortization of $4,161 19,660
Deposits 13,503
-----------
Total other assets 33,163
-----------
Total assets $ 1,168,265
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 78,799
Accrued liabilities and other expenses 23,694
Customer deposits 32,401
Current maturities of notes payable 34,363
Current maturities of long-term debt 3,661
Current maturities of obligations under capital leases 12,283
-----------
Total current liabilities 185,201
OTHER LIABILITIES
Obligations under capital leases, less current maturities 10,910
Long-Term Debt, less current maturities 16,225
Notes Payable, less current maturities 60,000
-----------
Total other liabilities 87,135
-----------
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares
authorized, 2,566,695 shares issued and
outstanding 3,373,276
Accumulated deficit (2,477,347)
-----------
Total stockholders' equity 895,929
-----------
Total liabilities and stockholders' equity $ 1,168,265
===========
The accompanying notes are an integral part of these financial statements
2
<PAGE>
ZAP POWER SYSTEMS
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
1998 1997
----------- -----------
NET SALES $ 461,200 $ 257,900
COST OF GOODS SOLD 269,600 221,800
----------- -----------
GROSS PROFIT 191,600 36,100
----------- -----------
OPERATING EXPENSES
Selling 159,000 92,800
General and administrative 162,500 176,200
Research and development 32,300 49,000
----------- -----------
353,800 318,000
----------- -----------
LOSS FROM OPERATIONS (162,200) (281,900)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (2,700) (8,900)
Other 4,500 (2,600)
----------- -----------
1,800 (11,500)
----------- -----------
NET LOSS $ (160,400) $ (293,400)
=========== ===========
NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.06) $ (0.14)
=========== ===========
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 2,558,000 2,146,500
=========== ===========
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,
1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(160,400) $(293,400)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 20,600 12,700
Allowance for doubtful accounts 5,300
Issuance of common stock for services rendered 74,100 15,700
Changes in:
Receivables (37,400) (57,300)
Inventories (46,200) (2,800)
Prepaid expenses (36,300) 1,200
Deposits (74,100) (7,600)
Accounts payable (84,200) (32,600)
Accrued liabilities and other expenses (54,500) (42,200)
--------- ---------
Net cash used by operating activities (398,400) (401,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (47,400) (30,400)
Investment in subsidiaries (5,000)
--------- ---------
Net cash used by investing activities (47,400) (35,400)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 30,000
Increase in loans payable 20,000
Increase in restricted cash (40,000)
Sale of common stock, net of stock offering costs 126,400 547,100
Principal repayments on long-term debt (4,700) (3,000)
Payments on obligations under capital leases (3,800) (3,000)
Principal repayments on note payable (12,500) (87,000)
--------- ---------
Net cash provided by financing activities 125,400 444,100
--------- ---------
NET INCREASE/(DECREASE) IN CASH (320,400) 7,700
CASH, beginning of period 690,400 161,600
--------- ---------
CASH, end of period $ 370,000 $ 169,300
========= =========
<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, 1997.
The financial statements presented herein as of March 31, 1998 and for the three
months ended March 31, 1998 and 1997 reflect, in the opinion of management, all
material adjustments consisting only of normal recurring adjustments necessary
for a fair presentation of the financial position, results of operations and
cash flow for the interim periods.
The net loss per common share is based on the weighted average number of common
shares outstanding in each period. Common stock equivalents associated with
stock options have been excluded from the weighted average shares outstanding
since the effect of these securities would be anti-dilutive.
(2) - RECEIVABLES
March 31, 1998
--------------
Trade accounts receivable $ 164,123
Less allowance for doubtful accounts (5,000)
--------------
$ 159,123
==============
(3) - INVENTORIES
March 31, 1998
--------------
Raw materials $ 221,500
Work-in-process 48,265
Finished goods 44,112
--------------
$ 313,877
==============
(4) - PROPERTY AND EQUIPMENT
March 31, 1998
--------------
Demonstration items $ 84,497
Machinery and equipment 56,825
Equipment under capital leases 45,940
Office furniture and fixtures 37,985
Computers 28,746
Leasehold improvements 21,737
Vehicles 56,231
--------------
331,961
Less accumulated depreciation and amortization (141,755)
--------------
$ 190,206
==============
5
<PAGE>
(5) - NOTES PAYABLE
March 31, 1998
--------------
Notes to stockholders, with interest at 10%; interest and
principal due when the notes mature in December 1999.
The note holders have been issued warrants to purchase,
in the aggregate, 21,800 shares of common stock at
$5.25 per share through October 1999. $ 94,400
===========
(6) - COMMON STOCK
In November of 1996 the Company commenced a direct public offering of its Common
Stock, offering for sale 500,000 shares at $5.25. During 1996, the Company sold
3,800 shares and received $19,900 in proceeds. In 1997, the Company sold an
additional 415,100 shares in connection with the direct public offering and
realized net proceeds of $1,990,900, net of offering related expenses of
$188,400. In total, the Company sold 84% of the shares offered for sale and
realized net proceeds of $2,010,600. The offering was completed in November
1997.
The Company has in process a second direct public offering of its Common stock
for sale 500,000 shares at $6.00 per share. The company commenced this offering
in January 1998 and as of April 24, 1998 has sold 36,000 shares and realized
gross proceeds of $215,700. On February 27, 1998, the Company's Common Stock
commenced trading on the OTC Bulletin Board under the stock symbol "ZAPP".
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-QSB, including information set forth
under this Item 2. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "ACT"). ZAP
Power Systems (the "Company") desires to avail itself of certain "safe harbor"
provisions of the Act and is therefore including this special note to enable the
Company to do so. Forward-looking statements included in this Form 10-QSB or
hereafter included in other publicly available documents filed with the
Securities and Exchange Commission, reports to the Company's stockholders and
other publicly available statements issued or released by the Company involve
known and unknown risks, uncertainties, and other factors which could cause the
Company's actual results, performance (financial or operating) or achievements
to differ from the future results, performance (financial or operating) or
achievements expressed or implied by such forward looking statements. Such
future results are based upon management's best estimates based upon current
conditions and the most recent results of operations.
Overview
The Company designs, assembles, manufactures and distributes electric
bicycle power kits, electric bicycles and tricycles, and other low-power
electric transportation vehicles. Historically, unit sales have been
approximately 55% kits and 45% electric bicycles. Dollar sales have been 50%
kits and 50% electric bicycles.
The Company sells its electric bicycles and kits to retail customers,
international distributors, law enforcement agencies, electric utility
companies, bicycle dealerships and mail order catalogs. Net revenue is net of
returns. The Company sells to the mail order catalogs and selected customers on
credit with net 30-day terms. Many of the bicycle dealerships are sold cash on
delivery. The retail sales are primarily paid for with a credit card or personal
check before shipment of the product.
The Company manufactures an electric motor system that is sold as a kit
to be installed by the customer on their own bicycle. The Company also installs
the motor system on bicycles that the Company buys. The Company then sells the
complete electric bicycle to the customer. The Company purchases complete
bicycles from various
6
<PAGE>
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 are done at its Sebastopol location. The electric
motors are purchased from an original equipment manufacturer (OEM) in the auto
and air-conditioning industry. The Company is using one vendor for its motors,
although there are other companies that could be used with slight modifications
to the motor support brackets. The batteries are standard batteries used in the
computer and security industries for power interrupt systems. The electronic
system uses standard electronic components. Additionally, the Company produces a
scooter, known as the ZAPPY(TM), which is manufactured by the Company, using
parts, manufactured by various subcontractors. The company is also a local
distributor of the Electricycle(TM) scooter that is imported from China.
The electric motor kits, bicycles, and scooters sold by ZAP are shipped
by U.P.S. and Federal Express. Larger quantity orders to wholesale distributors
are shipped by common carrier. Overseas shipments are shipped by ocean carrier
or airfreight. 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 as of March 31, 1998 had a $275,438 sales backlog. The
company expects to fill these orders within the next 45 days. Additionally, the
Company received a contract to purchase one million dollars of ZAP products from
Central & Southwest Services, Inc. This order is to be fulfilled within the next
twelve months with the first three months totaling $100,000 and the next nine
months totaling $900,000. The products to be shipped will vary based upon the
requests of the customer during each month.
The Company's growth strategy is to increase net sales by augmenting
its marketing and sales force, 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,
1998 1997
---------- ----------
Statements of Income Data:
Net sales............................ 100.0% 100.0%
Cost of sales........................ 58.5 86.0
Gross profit (Loss).................. 41.5 14.0
Operating expenses.................. 76.7 123.0
Loss from operations................. (35.2) (109.0)
Other income (expense).............. 0.4 (4.5)
Loss before income taxes............. (34.8) (113.5)
Provision for income taxes........... 0.0 0.0
Net loss............................. (34.8) (113.5)
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
Net sales for the quarter ended March 31, 1998, were $461,200 compared
to $257,900 in the prior year, an increase of $203,300 or 79%. The increase in
sales in 1998 over the same period in 1997 was due to greater acceptance of the
company's products in the marketplace. In addition, as the company's products
have gained greater market acceptance, the company has been able to realize, on
average, higher net sales prices in 1998 as compared to 1997. The increase in
prices can be specifically identified as more sales of the company's specially
designed electric bikes and electric scooters. Distributor sales increased by
$62,000 or 49% while dealer sales increased $148,000 or 528% in 1998 as compared
to the same period in 1997.
7
<PAGE>
Gross profit. Gross profit increased as a percentage of net sales to
42% from 14%. The total gross profit increased $155,500 or 331%. The increase in
gross margin can be attributed to 1) the impact of realizing a higher net sales
price on equivalent products as discussed above and 2) efficiency increases in
the manufacturing of products in the current quarter as compared to the quarter
ended March 31, 1997. Direct Materials were 47% of sales in 1998 as compared to
63% in 1997. This is mainly due to enhanced control over purchasing needs in
1998. Direct labor and overhead were 11% of net sales in 1998 as compared to 22%
in 1997. This is mainly due to increased efficiencies resulting from higher
utilization of production personnel and facilities in 1998 as compared to 1997.
Selling expenses in the quarter ended March 31, 1998 were $159,000 as
compared to $92,800 for the quarter ended March 31, 1997. This was an increase
of $66,200 or 71% from 1997 to 1998. As a percentage of sales, selling expenses
decreased from 36% of sales to 34% of sales. The increase in selling expenses
was a result of added personnel costs and increased promotional activity to
enhance customer demand. Additionally, sales team members were sent to specific
trade shows in the first quarter of 1998 relating to specialty products over and
above the number of shows attended in the first quarter of 1997.
General and administrative expenses for the quarter ended March 31,
1998 were $162,500. This is a decrease of $9,700 or 6% from 1997. As a
percentage of sales, general and administrative expense decreased to 35% from
68% of net sales. Expense decreases during the 1st quarter of 1998 as compared
to the 1st quarter of 1997 resulted from reduced personnel needs and greater
cost controls.
Research and development decreased $16,700 or 34% from the 1st quarter
of 1997 as compared to the 1st quarter of 1998. As a percentage of net sales it
decreased to 7% of sales in the 1st quarter of 1998 as compared to 19% of sales
in the 1st quarter of 1997. Extensive efforts in developing the ZAPPY(TM)
scooter and single speed low-cost motor system resulted in higher costs in the
1st quarter of 1997.
Other income (expense). The increase in other income (expense) in 1998
over 1997 is the result of lower interest expense and higher interest income
levels experienced in 1998 as compared to 1997. Additionally, a loss was
recognized on the trade-in of a 1980 truck for the purchase of a 1998 Chevy Van.
These events resulted in an increase in other income of $13,300 in the 1st
quarter of 1998 as compared to the 1st quarter of 1997.
Liquidity and Capital Resources
The Company used cash from operations of $395,600 and $401,000 during
the quarters ended March 31, 1998 and 1997 respectively. Cash used in operations
in the first quarter of 1998 was the result of the net loss incurred for the
quarter of $157,600, 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. Cash used in operations in the first quarter of 1997 was the result of
the net loss incurred for the quarter of $293,400, offset by net non cash
expenses of $33,700, and the net change in operating assets and liabilities
resulting in a further use of cash of $141,300.
Investing activities used cash of $47,400 and $35,400 during the first
quarters ended March 31, 1998 and 1997 respectively. The uses of cash were for
the purchase and construction of fixed assets.
Financing activities provided cash of $125,400 and $444,100 during the
first quarters ended March 31, 1998 and 1997 respectively. In both years, the
cash provided by financing activities resulted from the sales of common stock,
$126,400 and $547,100 for the first quarters ended March 31, 1998 and 1997
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 1998
that increased financing activities.
At March 31, 1998 the Company had cash and cash equivalents of $370,000
as compared to $169,300 at March 31, 1997. At March 31, 1998, the Company had
working capital of $759,700, as compared to working capital of $153,900 at March
31, 1997. The increases in both cash and cash equivalents and working capital in
the first quarter of 1998 over the first quarter of 1997 are primarily due to
the proceeds received from the Company's
8
<PAGE>
direct public 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 does have in
process a second direct public offering for the twelve months ended March 31,
1998 of its common stock with maximum potential gross proceeds of $3,000,000
before expenses. The Company believes that the cash and cash equivalents on hand
at March 31, 1998, along with the expected proceeds from the Company's direct
public offering, will be sufficient to allow the Company to continue its
expected level of operations for the remainder of the year.
The Company's primary capital needs are to fund its growth strategy,
which includes increasing its net sales, increasing distribution channels,
improving existing product lines and development of strong corporate
infrastructure.
Dates following December 31, 1999 and beyond (the "Year 2000 Problem")
Many existing computer systems and applications, and other devices, use
only two digits to identify a year in the date field, without considering the
impact of the upcoming change in the century. Such systems and applications
could fail or create erroneous results unless corrected. The Company relies on
its internal financial systems and external systems of business enterprises such
as customers, suppliers, creditors, and financial organizations both
domestically and globally, directly and indirectly for accurate exchange of
data. The Company has evaluated such systems and believes the cost of addressing
the Year 2000 Problem will not have a material adverse affect on the result of
operations or financial position of the Company. However, even though the
internal systems of the Company are not materially affected by the Year 2000
issue the Company could be affected through disruption in the operation of the
enterprises with which the Company interacts.
Seasonality and Quarterly Results
The Company's business is subject to seasonal influences. Sales volumes
in the bicycle industry typically slow down during the winter months, November
to March, in the U.S. The Company is selling worldwide and is not impacted 100%
by the U.S. seasonality in the bicycle industry.
Inflation
The Company's raw materials are sourced from stable cost competitive
industries. As such, the Company does not foresee any material inflationary
trends for its raw material sources.
9
<PAGE>
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.
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 ___________________ _________________________________________
James McGreen - President and Director
Date ___________________ _________________________________________
Gary Starr - Managing Director
12
<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, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 370,036
<SECURITIES> 0
<RECEIVABLES> 164,123
<ALLOWANCES> (5,000)
<INVENTORY> 313,878
<CURRENT-ASSETS> 944,896
<PP&E> 331,961
<DEPRECIATION> (141,755)
<TOTAL-ASSETS> 1,168,265
<CURRENT-LIABILITIES> 185,201
<BONDS> 3,661
0
0
<COMMON> 3,373,276
<OTHER-SE> (2,477,347)
<TOTAL-LIABILITY-AND-EQUITY> 895,929
<SALES> 461,200
<TOTAL-REVENUES> 468,500
<CGS> 269,600
<TOTAL-COSTS> 353,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (5,000)
<INTEREST-EXPENSE> 2,700
<INCOME-PRETAX> (160,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (160,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (160,400)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
