--------------------------------------------------------------------------------
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 June 30, 2000
Commission File Number 0-303000
ZAPWORLD.COM
(Name of small business issuer in its charter)
CALIFORNIA 94-3210624
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
117 Morris Street
Sebastopol, CA 95472
(707) 824-4150
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
Securities registered under section 12(b) of the Exchange Act:
None
Securities registered under section 12(g) of the Exchange Act:
Common Shares
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
XNo
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
5,340,576 shares of common stock as of August 10, 2000.
Transitional Small Business Disclosure Format Yes [ ] No [x]
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZAPWORLD.COM
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands)
<CAPTION>
June
30,
2000
----------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 2,199
Accounts receivable, net of allowance for doubtful accounts of $53
715
Inventories 1,355
Notes receivable 35
Prepaid expenses and other assets 604
--------
Total current assets 4,908
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $436 389
OTHER ASSETS
Patents & Trademarks, net of accumulated amortization of $87 1,283
Goodwill, net of amortization of $9 220
Advances to retail stores & technology companies 83
Deposits 34
--------
Total other assets 1,620
--------
Total assets $ 6,917
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 379
Accrued liabilities and other expenses 663
Current maturities of long-term debt 8
Current maturities of obligations under capital leases
4
--------
Total current liabilities 1,054
OTHER LIABILITIES
Obligations under capital leases, less current maturities 24
Long-Term Debt, less current maturities 13
--------
Total other liabilities 37
--------
Total liabilities 1,091
STOCKHOLDERS' EQUITY
Preferred stock, authorized 10,000,000 shares; no shares issued or
outstanding
Common stock, authorized 20,000,000 shares of
no par value; issued and outstanding 5,226,500 12,270
Accumulated deficit (6,078)
Unearned compensation (69)
--------
6,123
Less: notes receivable from shareholders (297)
--------
Total stockholders' equity 5,826
--------
Total liabilities and stockholders' equity $ 6,917
========
</TABLE>
2
<PAGE>
<TABLE>
ZAPWORLD.COM
CONSOLIDATED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Thousands, except share amounts)
<CAPTION>
Quarter ended June 30, Six Months ended June 30,
2000 1999 2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 2,283 $ 1,513 $ 4,180 $ 2,677
COST OF GOODS SOLD 1,475 843 2,658 1,599
----------- ----------- ----------- -----------
GROSS PROFIT 808 670 1,522 1,078
OPERATING EXPENSES
Selling 347 249 748 449
General and administrative 815 296 1,495 515
Research and development 166 76 311 123
----------- ----------- ----------- -----------
1,328 621 2,554 1,087
----------- ----------- ----------- -----------
INCOME/(LOSS)
FROM OPERATIONS (520) 49 (1,032) (9)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 40 18 77 19
Other income (expens) 3 (2) (5) (77)
----------- ----------- ----------- -----------
43 16 72 (58)
----------- ----------- ----------- -----------
NET INCOME/(LOSS) $ (477) $ 65 $ (960) $ (67)
=========== =========== =========== ===========
NET INCOME/(LOSS)
PER COMMON SHARE,
BASIC AND DILUTED $ (0.09) $ 0.02 (0.19) $ (0.02)
=========== =========== =========== ===========
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 5,224,200 3,754,900 5,187,000 3,294,000
=========== =========== =========== ===========
</TABLE>
3
<PAGE>
<TABLE>
ZAPWORLD.COM
CONSOLIDATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<CAPTION>
Six months ended June 30,
2000 1999
------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss ($ 960) ($ 67)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities
Depreciation and amortization 151 50
Allowance for doubtful accounts 18 --
Issuance of common stock for services rendered -- 746
Amortization of the fair market value of warrants 27 --
Changes in:
Receivables (396) (174)
Inventories 369 (542)
Prepaid expenses (480) (271)
Deposits 3 (3)
Advances to retail stores & technology companies 560 --
Other assets (12) --
Accounts payable (363) 292
Accrued liabilities and other expenses 317 (20)
------- -------
Net cash provided by (used for) operating activities (766) 11
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (111) (89)
Payment advance for acquisition (20) (50)
Purchase of Patents (162) --
Purchase of ASCR - Barbary Coast (118)
------- -------
Net cash used for investing activities (411) (139)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable -- 15
Sale of common stock, net of stock offering costs 217 3,568
Principal repayments on long-term debt (8) --
Increase in capital leases -- 12
Payments on obligations under capital leases (5) (4)
Principal repayments on note payable -- (889)
Advances on Notes Receivable to shareholders (12) --
------- -------
Net cash provided by financing activities 192 2,702
------- -------
NET INCREASE/(DECREASE) IN CASH (985) 2,574
CASH, beginning of period 3,184 475
------- -------
CASH, end of period $ 2,199 $ 3,049
======= =======
</TABLE>
4
<PAGE>
ZAPWORLD.COM
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED 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, 1999.
The financial statements presented herein as of June 30, 2000, and for the three
months and six months ended June 30, 2000 and June 30, 1999 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 income/(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) - PRINCIPALS OF CONSOLIDATION - The accounts of the Company and its
consolidated subsidiaries are included in the consolidated financial statements
after elimination of significant inter-company accounts and transactions.
(3) - COMMON STOCK
On May 22, 2000, ZAPWORLD.COM's Common Stock qualified for listing on the NASDAQ
SmallCap stock exchange under the stock symbo1 "ZAPP". In the second quarter of
2000, the Company 1) sold 200 shares of common stock and realized gross proceeds
of $1,200 and 2) realized $12,000 in proceeds from the exercise of stock options
and issued 3,000 shares of common stock.
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").
ZAPWORLD.COM (the "Company"or ZAP) 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.
5
<PAGE>
Overview
The Company designs, assembles, manufactures and distributes electric and
non-electric scooters, electric bicycle power kits, electric bicycles, and other
personal electric transportation vehicles. 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 and scooters
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 June 30, 2000 had a $1,388,000 sales backlog. The company
expects to fill these orders within the next 45 days.
On May 31, 2000 the Company announced that it appointed John R. Dabels as
President effective June 1, 2000
The Company's growth plan for the future combines a strategy of distribution and
acquisition while focusing on a program of "Five P's" which include Production,
Product, (Market) Penetration, Personnel, and Profitability. The intent is to
transform ZAP into a light electric transportation company with the standards of
measurement similar to the auto industry. The Company will continue to develop
products with the goal of being the low cost leader in the industry. Product
improvements, new product introductions, and the development of the ZAP electric
outlet franchise network are continuing to enlarge ZAP's presence in the
electric vehicle industry.
Subject to shareholder approval, which was given at the Annual Meeting held on
June 24,2000, on June 22, 2000, ZAP announced that it closed its agreement to
acquire by merger Aquatic Propulsion Technology, Inc. ("APT"), a Florida
electric sea scooter company. ZAP acquired all technology, including five
patents on electric sea scooters, assets, current operations from APT in
exchange for 120,000 shares of ZAP common stock, $20,000 in cash and the
assumption of APT's liabilities to the extent of approximately $400,000. The
contractual acquisition was completed as of July 1, 2000, with the merger
documents having been filed with the California Secretary of State as of August
8, 2000.
On June 24, 2000, the Company received approval from the shareholders to amend
the Articles of Incorporation to authorize the issuance of Preferred Stock.
Shareholder approval was also received to accept $3.0 million in new Preferred
Stock financing from Union Atlantic Capital L.C. The Union Atlantic investors
purchased $3.0 million of Series A Convertible preferred stock at a price of
$1,000 per share with a conversion price of $4.50 per share of common stock. The
Union Atlantic investors have the option to invest an additional $2.0 million,
with a conversion price of 110% of the closing bid price of the Common Stock on
the trading day of the closing of such investment. The funding was received on
July 19, 2000.
<TABLE>
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:
<CAPTION>
Quarter ended June 30, Six months ended June 30,
2000 1999 2000 1999
------- ----- ------ ------
<S> <C> <C> <C> <C>
Statements of Income Data:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 64.6 55.7 63.6 59.7
Gross profit 35.4 44.3 36.4 40.3
Operating expenses 58.2 41.0 61.1 40.6
Income (Loss) from operations (22.8) 3.3 (24.7) (0.3)
Other income (expense) 1.9 1.0 1.7 (2.2)
Income (Loss) before income taxes (20.9) 4.3 (23.0) (2.5)
Provision for income taxes 0.0 0.0 0.0 0.0
Net Income (Loss) (20.9) 4.3 (23.0) (2.5)
</TABLE>
6
<PAGE>
Quarter Ended June 30, 2000 Compared to Quarter Ended June 30, 1999
Net sales for the quarter ended June 30, 2000, were $2,283,000 compared to
$1,513,000 in the prior year, an increase of $770,000 or 51%. The increase in
sales in 2000 over the same period in 1999 was largely due to an increased
demand of the Company's products worldwide. The Company improved its production
flow and output to meet the greater demand for its products. Additionally, the
Company introduced a new non-motorized scooter called the Kick in the 2nd
Quarter of 2000.
Gross profit decreased as a percentage of net sales to 35% in the second
quarter of 2000 from 44% in 1999. The total gross profit increased $138,000 or
21%. The increase in gross margin dollars can be attributed to margins generated
from increase sales dollars for the quarter. The decrease in gross margin
percentage can be attributed to the Company's increased focus on dealer sales
and reduced emphasis on the retail market.
Selling expenses in the second quarter ended June 30, 2000 were $347,000
compared to the $249,000 for the second quarter ended June 30, 1999. This was an
increase of $98,000 or 39% from 1999 to 2000. As a percentage of sales, selling
expenses decreased from 16% of sales to 15% of sales. The increase in selling
expenses can partially be attributed to the hiring of personnel to handle the
expanded sales volume. Additional promotional efforts to introduce the Company's
products to new markets have also added to the increase in selling expenses.
General and administrative expenses for the quarter ended June 30, 2000
were $815,000. This was an increase of $519,000 or 175% from 1999. As a
percentage of sales, general and administrative expenses increased to 36% from
20% of net sales. Expense increases during the 2nd quarter of 2000 as compared
to the 2nd quarter of 1999 can be partially attributed to the hiring and
retention of key management personnel to oversee and direct the Company's
expanding business. Additionally in the second quarter of 2000, the Company
incurred consulting costs of $29,000 specifically associated with acquisition
and growth activity. Also in the second quarter of 2000, the Company amortized
$38,000 towards patents, trademarks, and goodwill costs associated with
acquisitions from the fourth quarter of 1999.
Research and development expenses increased $90,000 or 118% from the 2nd
quarter of 1999 as compared to the 2nd quarter of 2000. As a percentage of net
sales it increased to 7% of sales in the 2nd quarter of 2000 as compared to 5%
of sales in the 2nd quarter of 1999. Expense increases in the second quarter of
2000 as compared to the second quarter of 1999 were the result of increased
personnel hired to assist in the development of new products.
Interest income increased $22,000 in the second quarter of 2000 as compared
to the second quarter of 1999. The increase is attributed primarily to interest
income derived from proceeds from financing.
Six Months Ended June 30, 2000 Compared to Six Months Ending June 30, 1999
Net sales for the six months ended June 30, 2000 were $4,180,000 compared
with $2,677,000 in the six months ended June 30, 1999, an increase of $1,503,000
or 56%. The increase in sales is primarily attributable to increased demand for
the company's products, especially in overseas markets. Additionally, the
Company has added new product lines to diversify its core products available.
Gross profit dollars increased in the second quarter of 2000 to $1,522,000
from $1,078,000 in the second quarter of 1999. The increase in gross profit
dollars can directly be attributed to the increase in net sales. As a percentage
of sales, gross profit decreased to 36% in the second quarter of 2000 compared
with 40% in the second quarter of 1999. The decrease in gross margin percentage
can be attributed to the Company's increased focus on dealer sales and reduced
emphasis on the retail market.
Selling expenses for the six months ended June 30, 2000 were $748,000 as
compared to $449,000 for the six months ended June 30, 1999. This was an
increase of $299,000 or 67% from 1999 to 2000. As a percentage of sales, selling
expenses increased from 17% of sales to 18% of sales. Added personnel costs
incurred from the San Francisco location and increased promotional efforts
worldwide led to higher costs in the six months ended June 30, 2000.
7
<PAGE>
General and administrative expenses for the six months ended June 30, 2000
were $1,495,000. This is an increase of $980,000 or 190% from 1999. As a
percentage of sales, general and administrative expense increased to 36% from
19% of net sales. Expense increases during the first six months of 2000 as
compared to the first six months of 1999 occurred due to overall salary
increases in all administrative areas due to the inflationary pressures of low
unemployment. Legal and consulting costs associated with Company growth and
acquisition activity contributed to $80,000 in increased expenses. Additionally,
the amortization of patents, trademarks, and goodwill accounted for $70,000 in
expenses during the first six months of 2000 from acquisitions completed during
the fourth quarter of 1999. Additionally, the costs incurred to manage the San
Francisco store accounted for $156,000 in expenses for the first six months of
2000 that were not incurred in the first six months of 1999.
Research and development expenses increased $188,000 or 153% from the first
six months of 1999 as compared to the first six months of 2000. As a percentage
of net sales, research and development increased to 7% of sales in the first six
months of 2000 as compared to 5% of sales in the first six months of 1999.
Increased personnel and facilities costs incurred to accommodate new product
development and improve existing products led to higher costs in the first six
months of 2000.
Interest income increased $58,000 in the first six months of 2000 as
compared to the first six months of 1999. This increase is attributed primarily
to interest income derived from proceeds from financing.
Other expense decreased $72,000 from the first six months of 1999 to the
first six months of 2000. This decrease can be primarily attributed to the
completion of the amortization of the fair value of warrants issued to an
investment banker for securing equity financing for the Company during 1999.
Liquidity and Capital Resources
The Company used cash from operations of $766,000 and provided cash from
operations of $11,000 during the six months ended June 30, 2000 and 1999
respectively. Cash used in operations in the first six months of 2000 was the
result of the net loss incurred for the period of $960,000, offset by net
non-cash expenses of $196,000, and the net change in operating assets and
liabilities resulting in a further use of cash of $2,000. Cash provided from
operations for the first six months of 1999 was the result of the net loss
incurred for the first six months of $67,000, offset by net non-cash expenses of
$796,000, and the net change in operating assets and liabilities resulting in a
use of cash of $718,000.
Investing activities used cash of $411,000 and $139,000 during the first
six months ended June 30, 2000 and 1999 respectively. The uses of cash were for
the purchase of fixed assets and patents, and the acquisition of additional
technology.
Financing activities provided cash of $192,000 and $2,702,000 during the
first six months ended June 30, 2000 and 1999 respectively. In both years, the
cash provided by financing activities resulted from the sales of common stock,
$217,000 and $3,568,000 for the first six months ended June 30, 2000 and 1999
respectively, offset by principal payments on outstanding debt.
At June 30, 2000, the Company had cash and cash equivalents of $2,199,000
as compared to $3,049,000 at June 30, 1999. At June 30, 2000, the Company had
working capital of $3,854,000 as compared to working capital of $4,267,000 at
June 30, 1999. The decreases in both cash and working capital in the first six
months of 2000 from the first six months of 1999 are mostly due to the losses
incurred by the Company during the period. The Company, at present, does not
have a credit facility in place with a bank or other financial institution.
Additionally on July 19, 2000 the Company received $3 Million in new Preferred
stock financing from Union Atlantic Capital L.C. The Company believes that the
cash on hand at June 30, 2000, 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, improving and
increasing distribution channels, establishing company owned and franchised ZAP
stores, introducing new products, improving existing product lines and
developing of strong corporate infrastructure.
8
<PAGE>
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. As the company is marketing worldwide, it is not impacted
100% by U.S. seasonality.
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 legal proceedings.
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
<TABLE>
On June 24, 2000, the Company held its Annual Meeting of Shareholders. At
the meeting, the shareholders were requested to approve the following proposals,
and approval was received on each item:
<CAPTION>
<S> <C>
|X| To elect the six Directors, Gary Starr, Doug Wilson, Lee Sannella, William D. Evers, John R. Dabels, and
Robert Swanson, nominated to serve until the next Annual Meeting of Shareholders and until their
Respective successors are elected and qualified. For: 3,936,009 Withhold Authority: 108,765
|X| To approve an amendment to the Articles of Incorporation to increase the authorized Common Stock of the
Company to 20,000,000. For: 3,162,009 Against: 115,268 Abstain: 56,724
|X| To approve amendments to the Company's 1999 Stock Option Plan increasing the pool available for options
to 1,500,000 shares of Common Stock. For: 3,883,467 Against: 149,292 Abstain: 12,923
|X| To approve an amendment to the Articles of Incorporation to authorize 10,000,000 shares of Indeterminate
Preferred Stock. For: 3,066,404 Against: 258,779 Abstain: 10,863
|X| To ratify the appointment of Grant Thornton LLP as the independent auditors of the Company.
For: 3,975,345 Against: 63,283 Abstain: 4,760
|X| To approve a new set of Bylaws for the Company, which included the provision of increasing the number of
directors from 5-7 to 5-9. For: 4,044,774 Against: 75,000
|X| To accept the Preferred Offering from Union Atlantic
For: 4,044,774 Against: 75,000
</TABLE>
Item 5. Other Information
There were no major contracts signed during the period.
9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
An 8-K filing was done June 5, 2000 to announce the appointment of John
R. Dabels as President as of June 1, 2000.
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.
ZAPWORLD.COM
-----------------------------------------------------
(Registrant)
Date
------------------ ------------------------------------
Gary Starr - CEO
Date
------------------ ------------------------------------
John Dabels - President
