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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
Form 10-QSB
QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------------
For the quarterly period ended March 31, 1999
ZAP POWER SYSTEMS
(Name of small business issuer in its charter)
CALIFORNIA 94-3210624
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
117 Morris Street
Sebastopol, CA 95472
(707) 824-4150
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Securities registered under section 12(b) of the Exchange Act:
None
Securities registered under section 12(g) of the Exchange Act:
None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
3,679,547 shares of common stock as of April 30, 1999.
Transitional Small Business Disclosure Format Yes[ ] No[x]
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<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZAP POWER SYSTEMS
CONDENSED BALANCE SHEET
March 31,
1999
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 1,963,900
Receivables 367,600
Inventories 654,400
Prepaid expenses and other assets 213,400
-----------
Total current assets 3,199,300
PROPERTY AND EQUIPMENT 197,500
-----------
OTHER ASSETS
Intangibles, net of accumulated amortization
of $10,100 92,900
Deposits 11,900
-----------
Total other assets 104,800
-----------
Total assets $ 3,501,600
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 402,100
Accrued liabilities and other expenses 131,100
Customer deposits 36,900
Notes payable 361,900
Current maturities of long-term debt 8,700
Current maturities of obligations under capital leases 5,800
-----------
Total current liabilities 946,500
-----------
OTHER LIABILITIES
Obligations under capital leases, less current maturities 600
Long-Term Debt, less current maturities 24,800
-----------
Total other liabilities 25,400
-----------
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares
authorized, 3,493,138 shares issued and
outstanding 6,008,100
Accumulated deficit (3,478,400)
-----------
Total stockholders' equity 2,529,700
===========
Total liabilities and stockholders' equity $ 3,501,600
===========
The accompanying notes are an integral part of these financial statements
2
<PAGE>
ZAP POWER SYSTEMS
CONDENSED STATEMENTS OF OPERATIONS
Three months ended March 31,
1999 1998
- --------------------------------------------------------------------------------
NET SALES $ 1,164,100 $ 461,200
COST OF GOODS SOLD 756,100 269,600
----------- -----------
GROSS PROFIT 408,000 191,600
----------- -----------
OPERATING EXPENSES
Selling 200,100 159,000
General and administrative 218,200 162,500
Research and development 47,600 32,300
----------- -----------
465,900 353,800
----------- -----------
LOSS FROM OPERATIONS (57,900) (162,200)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (74,700) (2,700)
Other 1,000 4,500
----------- -----------
(73,700) 1,800
----------- -----------
NET LOSS $ (131,600) $ (160,400)
=========== ===========
NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.05) $ (0.06)
=========== ===========
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 2,833,180 2,558,000
=========== ===========
The accompanying notes are an integral part of these financial statements
3
<PAGE>
<TABLE>
ZAP POWER SYSTEMS
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
Three months ended March 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (131,600) $ (160,400)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 24,100 20,600
Allowance for doubtful accounts
Issuance of common stock for services rendered 108,400 74,100
Changes in:
Receivables (83,800) (37,400)
Inventories (20,600) (46,200)
Prepaid expenses (115,600) (36,300)
Deposits (74,100)
Accounts payable 112,600 (84,200)
Accrued liabilities and customer deposits (27,500) (54,500)
----------- -----------
Net cash used by operating activities (134,000) (398,400)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (42,200) (47,400)
Patent Costs Capitalized (15,200) 0
----------- -----------
Net cash used by investing activities (57,400) (47,400)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable 19,500 20,000
Sale of common stock, net of stock offering costs 1,955,300 126,400
Principal repayments on long-term debt (2,300) (4,700)
Payments on obligations under capital leases (4,500) (3,800)
Principal repayments on note payable (288,000) (12,500)
----------- -----------
Net cash provided by financing activities 1,680,000 125,400
----------- -----------
NET INCREASE/(DECREASE) IN CASH 1,488,600 (320,400)
CASH, beginning of period 475,300 690,400
----------- -----------
CASH, end of period $ 1,963,900 $ 370,000
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental cash flow information:
Non-cash investing and financing activities:
Conversion of notes payable and accrued interest into common stock $ 212,000 0
Stock issued for current and future services 108,400 74,100
</TABLE>
5
<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, 1998.
The financial statements presented herein as of March 31, 1999 and for the three
months ended March 31, 1999 and 1998 reflect, in the opinion of management, all
material adjustments consisting only of normal recurring adjustments necessary
for a fair presentation of the financial position, results of operations and
cash flow for the interim periods.
The net loss per common share is based on the weighted average number of common
shares outstanding in each period. Common stock equivalents associated with
stock options have been excluded from the weighted average shares outstanding
since the effect of these securities would be anti-dilutive.
(2) - RECEIVABLES
March 31, 1999
--------------
Trade accounts receivable $ 402,600
Less allowance for doubtful accounts (35,000)
------------
$ 367,600
============
(3) - INVENTORIES
March 31, 1999
--------------
Raw materials $ 419,600
Work-in-process 136,000
Finished goods 98,800
-----------
$ 654,400
===========
(4) - PROPERTY AND EQUIPMENT
March 31, 1999
--------------
Demonstration items $ 89,600
Machinery and equipment 85,400
Equipment under capital leases 45,900
Office furniture and fixtures 39,600
Computers 46,000
Leasehold improvements 32,700
Vehicles 77,800
-----------
417,000
Less accumulated depreciation and amortization (219,500)
-----------
$ 197,500
===========
6
<PAGE>
(5) - NOTES PAYABLE
March 31, 1999
--------------
Notes to stockholders, with interest at 10%; interest and
principal due when the notes mature in December 1999.
The note holders have been issued warrants to purchase,
in the aggregate, 21,800 shares of common stock at
$5.25 per share through October 1999. $ 92,800
Convertible secured promissory notes, with interest at 12%,
principal and interest is due when the notes mature in
March 1999. 300,000
Less fair value of unamortized cost of warrants issued
in connection with the debt. (30,900)
----------
$ 361,900
==========
The above convertible notes due in March 1999, were paid or converted to stock
subsequent to March 31, 1999.
(6) - COMMON STOCK
The Company's Common Stock is traded on the OTC Bulletin Board under the stock
symbol "ZAPP". In January 1999, the Company closed its second direct public
offering. Prior to the completion, the company sold 400 shares and realized
gross proceeds of $2,400. Additionally in 1999, the company 1) issued 268 shares
in payment for current and future services at a price of $6.00 per share, 2)
rescinded 1,785 shares at a price of $6.00 per share, and 3) realized $18,000 in
proceeds from the exercise of stock options and issued 45,000 shares.
On March 30, 1999, ZAP completed a private placement of 678,808 shares of its
Common Stock at a price of $3.02 per share and realized net proceeds of
$1,785,000 which includes additional underwriting fees and expenses of $157,500
paid in the second quarter of 1999. The Company issued 35,596 shares in partial
payment for the services associated with acquiring the noted equity financing.
In addition, the Company converted $212,000 of its remaining debt into equity
and issued 70,199 common shares.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-QSB, including information set forth
under this Item 2. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "ACT"). ZAP
Power Systems (the "Company") desires to avail itself of certain "safe harbor"
provisions of the Act and is therefore including this special note to enable the
Company to do so. Forward-looking statements included in this Form 10-QSB or
hereafter included in other publicly available documents filed with the
Securities and Exchange Commission, reports to the Company's stockholders and
other publicly available statements issued or released by the Company involve
known and unknown risks, uncertainties, and other factors which could cause the
Company's actual results, performance (financial or operating) or achievements
to differ from the future results, performance (financial or operating) or
achievements expressed or implied by such forward looking statements. Such
future results are based upon management's best estimates based upon current
conditions and the most recent results of operations.
Overview
The Company designs, assembles, manufactures and distributes electric
bicycle power kits, electric bicycles and tricycles, and other low-power
electric transportation vehicles. Historically, unit sales have been
approximately 45% kits, 20% electric bicycles, and 35% electric scooters. Dollar
sales have been 35% kits, 30% electric bicycles, and 35% electric scooters.
7
<PAGE>
The Company manufactures several electric motor kits that have up to 62
unique parts. The electric motor kit manufacturing and installation of the motor
systems to the bicycles is done at its Sebastopol location. The electric motors
are purchased from an original equipment manufacturer (OEM) in the auto and
air-conditioning industry. The Company is using one company for its motors,
although there are other companies that could be used with slight modifications
to the motor support brackets. The batteries are standard batteries used in the
computer industry for power interrupt systems. The electronic system uses
standard electronic components. The Company has a contractual relationship with
Smith & Wesson who provides the Company with Law Enforcement Bicycles. The
Company has agreed to purchase at least 250 bikes from Smith & Wesson in
exchange for specific exclusive distribution and pricing rights. The Company has
no other contractual agreements with any of its other vendors.
The Company as of March 31, 1999 had a $544,800 sales backlog. The company
expects to fill these orders within the next 45 days.
The Company's growth strategy is to increase net sales by augmenting its
marketing and sales force, increasing distribution channels through retail
organizations and wholesale distributors both domestically and overseas, as well
as setting up company and franchise stores to assist in the retail sales arena.
The Company will continue to increase its production capability to meet the
increasing demand for its product. The Company will continue to develop products
so that it is the low cost leader in the industry. Product improvements will
continue to enlarge ZAP's presence in the electric vehicle industry.
Results of Operations
The following table sets forth, as a percentage of net sales, certain
items included in the Company's Income Statements (see Financial Statements and
Notes) for the periods indicated:
Three months ended March 31,
1999 1998
---------- -------------
Statements of Income Data:
Net sales............................. 100.0% 100.0%
Cost of sales......................... 65.0 58.5
Gross profit (Loss)................... 35.0 41.5
Operating expenses................... 40.0 76.7
Loss from operations.................. (5.0) (35.2)
Other income (expense)............... (6.3) 0.4
Loss before income taxes.............. (11.3) (34.8)
Provision for income taxes............ 0.0 0.0
Net loss.............................. (11.3) (34.8)
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998
Net sales for the quarter ended March 31, 1999, were $1,164,100 compared to
$461,200 in the prior year, an increase of $702,900 or 152%. The increase in
sales in 1999 over the same period in 1998 was primarily due to the sales of the
ZAPPY(TM) scooter that accounted for $780,000 or 67% of total sales. The product
was introduced to the market at the end of the first quarter of 1998 and totaled
$9,600 in sales for that period.
Gross profit. Gross profit decreased as a percentage of net sales to 35%
from 42%. The total gross profit increased $216,400 or 113%. The increase in
gross profit dollars can be attributed to gross profits generated from the sales
of the ZAPPY(TM) scooter. The decrease in gross margin percentage can be
attributed to volume discounts given to large retailers in the first quarter of
1999 that were not as prevalent in the first quarter of 1998.
Selling expenses in the quarter ended March 31, 1999 were $200,100 as
compared to $159,000 for the quarter ended March 31, 1998. This was an increase
of $41,100 or 26% from 1998 to 1999. As a percentage of sales, selling expenses
decreased from 34% of sales to 17% of sales. The increase in selling expenses
can primarily be attributed to commissions paid for services tied directly to
the sales of product to a large dealer.
8
<PAGE>
General and administrative expenses for the quarter ended March 31, 1999
were $218,200. This is an increase of $55,700 or 34% from 1998. As a percentage
of sales, general and administrative expense decreased to 19% from 35% of net
sales. Expense increases during the 1st quarter of 1999 as compared to the 1st
quarter of 1998 resulted from increased personnel needs, updated computer
resources, and $30,000 in legal costs relating to franchising opportunities and
equity financing.
Research and development increased $15,300 or 47% from the 1st quarter of
1998 as compared to the 1st quarter of 1999. As a percentage of net sales it
decreased to 4% of sales in the 1st quarter of 1999 as compared to 7% of sales
in the 1st quarter of 1998. Expense increases in the first quarter of 1999 as
compared to the first quarter of 1998 were the result of increased personnel
needs to assist in the development of new products.
Other income (expense). Interest expense increased to $74,700 in the 1st
quarter of 1999, an increase of $72,000 over the 1st quarter of 1998. This
increase can be attributed to the amortization of the fair value of warrants
issued to an investment banker for securing equity financing for the company and
interest on the notes payable.
Liquidity and Capital Resources
In the first quarter of 1999, net cash provided to the Company by operating
activities was $78,000. In the first quarter of 1998, the Company used cash from
operations of $398,400. Cash provided in the first quarter of 1999 was comprised
of the net loss incurred for the quarter of $131,600, offset by net non-cash
expenses of $344,500 and the net change in operating assets and liabilities
resulting in a use of cash of $134,900. Cash used in operations in the first
quarter of 1998 was comprised of the net loss incurred for the quarter of
$160,400, offset by net non-cash expenses of $94,700, and the net change in
operating assets and liabilities resulting in a further use of cash of $332,700.
Investing activities used cash of $57,400 and $47,400 during the first
quarters ended March 31, 1999 and 1998 respectively. The uses of cash were for
the purchase of fixed assets and additional capitalized patent costs.
Financing activities provided cash of $1,468,000 and $125,400 during the
first quarters ended March 31, 1999 and 1998 respectively. In both years, the
cash provided by financing activities resulted from the sales of common stock,
$1,955,300 and $126,400 for the first quarters ended March 31, 1999 and 1998
respectively, offset by principal payments on outstanding debt. In addition, the
company purchased a new cargo van through a loan in the first quarter of 1999
that increased financing activities.
At March 31, 1999 the Company had cash and cash equivalents of $1,963,900
as compared to $370,000 at March 31, 1998. At March 31, 1999, the Company had
working capital of $2,252,800, as compared to working capital of $759,700 at
March 31, 1998. The increases in both cash and cash equivalents and working
capital in the first quarter of 1999 over the first quarter of 1998 are
primarily due to the proceeds received from the Company's private placement
offering which more than offset the Company's net losses during the same period.
The Company, at present, does not have a credit facility in place with a bank or
other financial institution. The Company has established an accounts receivable
facility that is guaranteed by the U.S. EximBank. The Company believes that the
cash and cash equivalents on hand at March 31, 1999 will be sufficient to allow
the Company to continue its expected level of operations for the remainder of
the year.
The Company's primary capital needs are to fund its growth strategy, which
includes increasing its internet shopping mall presence, increasing distribution
channels, establish company owned and franchised ZAP stores, introducing new
products, improving existing product lines and development of strong corporate
infrastructure.
9
<PAGE>
Dates following December 31, 1999 and beyond (the "Year 2000 Problem")
Many existing computer systems and applications, and other devices, use
only two digits to identify a year in the date field, without considering the
impact of the upcoming change in the century. Such systems and applications
could fail or create erroneous results unless corrected. The Company relies on
its internal financial systems and external systems of business enterprises such
as customers, suppliers, creditors, and financial organizations both
domestically and globally, directly and indirectly for accurate exchange of
data. The Company has evaluated such systems and has taken the appropriate steps
that it believes address the concerns of the Year 2000 problem. However, even
though the internal systems of the Company are not materially affected by the
Year 2000 issue the Company could be affected through disruption in the
operation of the enterprises with which the Company interacts.
Seasonality and Quarterly Results
The Company's business is subject to seasonal influences. Sales volumes in
the bicycle industry typically slow down during the winter months, November to
March.
Inflation
The Company's raw materials are sourced from stable cost competitive
industries. As such, the Company does not foresee any material inflationary
trends for its raw material sources.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The company has become aware that a company named Omni under the
leadership of an individual named Joseph Stevenson has been advertising and
selling an electric system for bicycles called EROS (electric regenerative
operating system). The Company's management, in consultation with patent
counsel, has determined after analysis that the EROS system infringes the
Company's patents and has filed suit against EROS. Although the Company believes
its claims are meritorious and the patents for the ZAP system are valid, it is
possible, as in any suit, that the Company may be unable to prove infringement
or that Mr. Stevenson may establish, either in litigation or in a re-examination
proceeding before the Patent Office that the Company's patents are not valid. If
the Company's patents are held to be invalid, the Company's ability to prevent
competitors from manufacturing or selling bicycles with the patented system will
be significantly reduced. The loss of the patents or a significant damage award
against the Company could have a material adverse effect upon the business and
financial condition and prospects of the Company.
Item 2. Changes in Securities
There were no changes in rights of securities holders.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the vote of security holders.
Item 5. Other Information
There were no major contracts signed during the period.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
11
<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, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,963,900
<SECURITIES> 0
<RECEIVABLES> 402,600
<ALLOWANCES> (35,000)
<INVENTORY> 654,400
<CURRENT-ASSETS> 3,199,300
<PP&E> 417,000
<DEPRECIATION> (219,500)
<TOTAL-ASSETS> 3,501,600
<CURRENT-LIABILITIES> 946,500
<BONDS> 8,700
0
0
<COMMON> 6,008,100
<OTHER-SE> (3,478,400)
<TOTAL-LIABILITY-AND-EQUITY> 3,501,600
<SALES> 1,164,100
<TOTAL-REVENUES> 1,165,100
<CGS> 756,100
<TOTAL-COSTS> 465,900
<OTHER-EXPENSES> (35,000)
<LOSS-PROVISION> (131,600)
<INTEREST-EXPENSE> 74,700
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (131,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (131,600)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
