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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-QSB
QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2001
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 / / No /X/
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
6,324,149 shares of common stock as of May 09, 2001.
Transitional Small Business Disclosure Format Yes[ ] No[X]
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZAPWORLD.COM
CONSOLIDATED BALANCE SHEET
(In thousands)
March 31,
2001
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ASSETS
CURRENT ASSETS
Cash $1,535
Accounts receivable, net of allowance for doubtful accounts
of $53 1,722
Inventories 3,602
Prepaid expenses and other assets 378
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Total current assets 7,237
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $600 509
OTHER ASSETS
Patents & Trademarks, net of accumulated amortization of $218 1,480
Goodwill, net of accumulated amortization of $224 1,872
Deposits and other 112
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Total other assets 3,464
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Total assets $11,210
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $643
Accrued liabilities and other expenses 607
Current maturities of long-term debt 99
Current maturities of obligations under capital leases 37
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Total current liabilities 1,386
OTHER LIABILITIES
Long-Term Debt, less current maturities 106
Obligations under capital leases, less current maturities 38
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Total other liabilities 144
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Total liabilities 1,530
STOCKHOLDERS' EQUITY
Preferred stock, authorized 10,000 shares; 4 shares
Issued and outstanding 1,605
Common stock, authorized 20,000 shares of no par
value; issued and outstanding 6,040 shares 19,324
Accumulated deficit (11,003)
Unearned compensation (28)
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9,898
Less: notes receivable from stockholders' (218)
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Total stockholders' equity 9,680
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Total liabilities and stockholders' equity $11,210
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See accompanying notes to consolidated financial statements.
2
ZAPWORLD.COM
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except share amounts)
Three months ended March 31,
2001 2000
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NET SALES $ 2,013 $1,897
COST OF GOODS SOLD 1,542 1,183
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GROSS PROFIT 471 714
OPERATING EXPENSES
Selling and marketing 426 401
General and administrative 1,132 680
Research and development 219 145
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1,777 1,226
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LOSS FROM OPERATIONS (1,306) (512)
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OTHER INCOME (EXPENSE)
Interest income 37 37
Other expense (15) (8)
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22 29
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NET LOSS $(1,284) $ (483)
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Net loss attributable to common shares
Net loss $(1,284) $ (483)
Preferred Dividend (57) -
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$(1,341) $ (483)
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NET LOSS PER COMMON SHARE
BASIC AND DILUTED $ (0.22) $ (0.09)
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WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 5,962 5,150
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See accompany notes to consolidated financial statements.
3
ZAPWORLD.COM
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three months ended March 31,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,284) $ (483)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 169 100
Allowance for doubtful accounts - 18
Amortization of the fair market value of
warrants 14 13
Changes in:
Receivables (109) (141)
Inventories (704) 333
Deposits - (11)
Advances to retail stores & technology
companies - 291
Prepaid expenses and other assets 317 (51)
Accounts payable 245 (284)
Accrued liabilities and customer deposits (556) (191)
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Net cash used for operating activities (1,908) (406)
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CASH FLOWS FROM INVESTING ACTIVITES
Purchase of equipment (46) (153)
Purchase of Patents and intangibles (19) (162)
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Net cash used for investing activities (65) (315)
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CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock, net of stock
offering costs - 204
Accrual of Dividend on Preferred Stock (57) -
Principal repayments on long-term debt (22) (4)
Payments on obligations under capital leases 44 (2)
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Net cash provided by (used for)
financing activities (35) 198
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NET DECREASE IN CASH (2,008) (524)
CASH, beginning of period 3,543 3,184
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CASH, end of period $ 1,535 $ 2,660
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the quarter for interest $15 $2
See accompanying notes to consolidated financial statements.
4
ZAPWORLD.COM
NOTES TO THE INTERIM UNAUDITED FINANCIAL STATEMENTS
(1) Basis of Presentation
The financial statements included in this Form 10-QSB have been prepared by the
Company, without audit. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted, 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, 2000.
The financial statements presented herein, for the three months ended March 31,
2001 and 2000 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. Potential dilutive securities associated with
stock options, warrants and conversion of preferred stock have been excluded
from the weighted average shares outstanding since the effect of these
securities would be anti-dilutive.
(2) PRINCIPLES 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
ZAPWORLD.COM's Common Stock has been listed in the NASDAQ Small Cap stock
exchange under the symbol "ZAPP" since May 22,2000. From March 11, 1998 to May
22, 2000 the Company's Common Stock was listed 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").
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
Overview
The Company's business strategy has been to develop, acquire and commercialize
electric vehicles and electric vehicle power systems have fundamental, practical
and environmental advantages over available internal combustion modes of
transportation. That can be produced commercially on an economically competitive
basis. In 2001, the Company continued to enhance and broaden its electric
vehicle product line.
The Company manufactures an electric motor system that is sold as a kit to be
installed by the customer on their own bicycle. The system was designed to
assist the rider during more difficult riding situations, rather than as a
replacement for pedaling. The Company also installs the motor system on
specially designed bicycles that the Company has manufactured under contract.
The completed bicycles, with motor, are then sold to the customer. Additionally,
the Company produces the electric scooter, known as the ZAPPY(Registered), which
is manufactured by the Company, using parts manufactured by various
subcontractors. In order to ensure that the Company can maintain its competitive
cost advantage, plans are under way to transition nearly all of its production
facilities to lower cost Taiwanese outside contract manufacturers. It is
anticipated that by the end of the second quarter of 2001 this goal should be
affected. Such a move will also enable the Company to concentrate on its
marketing and sales efforts. The Company also currently benefits from its high
name recognition in the electric vehicle industry coupled with a rapidly
developing business on its Internet website ZAPWORLD.COM. The Company offers one
of the broadest lines of personal electric vehicles currently available.
According to published reports, the Company believes it currently holds a
leading electric bicycle and scooter market position in the United States.
The Company is the U.S. distributor of the Lepton scooter that is imported from
Italy. Additionally, the Company is a manufacturer of an electric motorcycle
known as the Lectra(TradeMark). The Company also has agreements to distribute
the Electric Pedi-Cab, the E-Kart, the Golfcycle, and other electric vehicles.
The Company manufactures several electric motor vehicle kits. 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 primarily 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 developed long-term purchase arrangements with its
key vendors.
The Company has been granted exclusive market rights in selective electric
vehicle markets from Evercel Corporation in exchange for specifying the
Evercel(TradeMark) battery in an electric vehicle made by the Company. The
Company has no other contractual agreements with any of its other vendors.
The Company has $5.9 million backlog of orders and purchase contracts in hand
for electric vehicles as of May 9, 2001.The company expects to fill these orders
within the current fiscal year.
Some of the significant accomplishments for the Company during the first quarter
of 2001 were as follows:
1. Introduced new products at the Action Sports Retail (ASR) Expo in
February 2001 at the Long Beach Convention center in California. The
products were: ZAPPY-XT, a turbo-charged ZAPPY with a new electric
propulsion system that offers an improved acceleration and hill climbing and
has a hi-performance mode that allows the scooter to reach speeds of 19.5
MPH, SWIMMY(Trademark) water scooter that provides a swim-assist in open
water or swimming pools, POWERBIKE (Registered) an electric bicycle with a
low price geared to mass merchants and POWERSKI(Registered) an electric tow
device for skaters and skateboarders.
2. Opened the second ZAPPYLAND store in Newport Beach, California in March
2001. This store is a joint venture between Donner Corporation and
ZAPWORLD.COM
3. Signed a distribution contract for exclusive distribution rights in Korea.
The contract is estimated to be worth sales of at least $500,000 for 2001.
It also includes a two-year extension option.
4. Developed the ZAPADAPT(Trademark), which is an electric assist for
wheelchairs. The motor device attaches to manual wheelchairs, providing an
affordable, convenient means of power-assist without buying a fully powered
wheelchair.
6
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,
2001 2000
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Statements of Income Data:
Net sales............................. 100.0% 100.0%
Cost of sales......................... 76.7 62.4
Gross profit.......................... 23.3 37.6
Operating expenses.................... 88.3 64.6
Loss from operations.................. (65.0) (27.0)
Other income ......................... 1.1 1.5
Net loss.............................. (63.9) (25.5)
Quarter Ended March 31, 2001 Compared to Quarter Ended March 31, 2000
Summary Comments Regarding First Quarter 2001 Results. The Company's overall
performance for the period ended March 31,2001 was adversely affected by some of
the following key factors:
(1) Delays by former operations management to shift manufacturing from U.S. to
overseas outside contract manufacturers.
(2) Loss of sales to low-cost competitors' products manufactured in China and
overseas as a result of alleged patent infringement. The Company has
attempted through legal action to obtain unspecified damages and equitable
relief from the alleged infringement. See Part 11, Item #1 Legal
Proceedings of this document for a further discussion.
(3) Delays in the manufacturing of new products such as the Swimmy(Trademark)
due to unexpected design modifications, which resulted from additional R&D
testing. Also some other planned new products have not been introduced as
timely as originally planned.
(4) Slower implementation of the Company's plan to restructure the work force
during the quarter. Although 30% of personnel or 30 people have been cut
since January 1, 2001 further reductions may be necessary as the Company is
transitioning itself from a domestic manufacturer to outside foreign
contract manufacturers.
(5) Higher legal expenses associated with financing and lawsuit costs.
Net sales for the quarter ended March 31, 2001, were slightly higher than last
years quarter or $2.0 million compared to $1.9 million in the prior year.
Foreign sales were higher by approximately $405,000 which was offset by less
domestic sales of $160,000 due to a post holiday lag.
7
Gross profit decreased from $714,000 to $471,000 or 34%. As a percentage of net
sales, it represents a decrease from 38% in 2000 to 23% in 2001. The gross
profit was affected by lower margins on the foreign contracts where price
reductions were made to move product and gain inroads into new markets. Market
pricing from offshore competitors and product mix also contributed to less gross
profits.
Selling and Marketing expenses in the quarter ended March 31, 2001 were $426,000
as compared to $401,000 for the quarter ended March 31, 2000. As a percentage of
sales, selling and marketing expenses remained consistent at 21% of net sales.
The increase in expenses was due to higher salaries.
General and administrative expenses for the quarter ended March 31, 2001 were
$1.1million as compared to $680,000 for the quarter ended March 31, 2000. This
is an increase of $452,000 or 66%. As a percentage of sales, general and
administrative expense increased from 36% to 56% of net sales in 2001. The
increase in expenses for the first quarter of 2001 was due to higher salaries
and benefits, greater depreciation and amortization due to the business
acquisitions in the later half of 2000, higher legal and professional fees due
to the patent lawsuit and fund raising activities, and filings fees.
Research and development increased $74,000 or 51% in the 1st quarter of 2001 as
compared to the 1st quarter of 2000. As a percentage of net sales it increased
to 11% of sales in the 1st quarter of 2001 as compared to 8% of sales in the 1st
quarter of 2000. Expense increases in the first quarter of 2001 as compared to
the first quarter of 2000 were the result of increased personnel hired to assist
in the development of new products.
Interest income for both quarters ended March 31, 2001 and 2000 remained fairly
consistent at $37,000.
Other expense increased from $8,000 to $15,000 in the 1st quarter of 2001. The
reason for the increase was interest expense of approximately $15,000 in 2001
versus $1,000 in the first quartet of 2000.
Liquidity and Capital Resources
In the first quarter of 2001 net cash used by the Company for operating
activities was $1.9 million. In the first quarter of 2000, the Company used cash
from operations of $406,000. Cash used in the first quarter of 2001 was
comprised of the net loss incurred for the quarter of $1.3 million offset by net
non-cash expenses of $183,000 and the net change in operating assets and
liabilities resulting in a use of cash of $807,000. Cash used in operations in
the first quarter of 2000 was comprised of the net loss incurred for the quarter
of $483,000, offset by net non-cash expenses of $131,000, and the net change in
operating assets and liabilities resulting in a further use of cash of $54,000.
Investing activities used cash of $65,000 in the first quarter of 2001 and used
$315,000 during the first quarter ended March 31, 2000. The uses of cash were
for the purchase of equipment and patents.
Financing activities used cash of $35,000 and provided cash of $198,000 during
the first quarters ended March 31,2001 and 2000, respectively. In 2000 year, the
cash provided by financing activities resulted from the sales of common stock of
$204,000, partially offset by principal payments on outstanding debt. During
2000, the Company issued 3 thousand shares of Preferred Stock Series A-1 and 2
thousand shares of Preferred Stock Series A-2. Both series are immediately
convertible into common stock at the lesser of the fixed price of $4.50 for the
Series A-1 and $5.91 for the Series A-2, or at the variable conversion price
determined as follows: (1) on or before the first anniversary date, the amount
of 85% of the average of the 3 lowest closing price over the 22 trading days
prior to conversion, (2) thereafter and or before the second anniversary, the
amount of 80% of the average of the 3 lowest closing prices over the 22 days
prior to conversion, and (3) thereafter and on or before the day prior to the
third anniversary date, the amount of 70% of the average of the 3 lowest closing
prices over the 45 trading days prior to conversion. As of March 31, 2001 there
were 1,870 shares of Series A-1 Convertible Preferred Stock outstanding and
1,736 shares of Series A-2 Convertible Preferred Stock outstanding. Dividends
are cumulative and accrue at 6% per year and payable on June 30th of each year
or on conversion date. Dividends are payable in cash or in common stock at the
Company's option. All preferred stockholders are subject to automatic conversion
to common stock three years from the date of purchase.
Although the Company continued to honor conversions of the Series A-1 Preferred
Stock at the lesser price below $4.50 per share, as the Company believes that
the conversion price for the Series A-1 Convertible Preferred Stock was intended
to be the fixed $4.50 per share, without the alternative variable conversion
price; the board of directors has voted to temporarily discontinue honoring the
conversions. Negotiations between the Company and representatives of the holder
of the Series A-1 Convertible Preferred Stock are currently underway. It is
anticipated that the matter might be resolved only through litigation.
8
At March 31, 2001 the Company had cash of $1.5 million as compared to $2.7
million at March 31, 2000. At March 31, 2001, the Company had working capital of
$5.8 million, as compared to working capital of $4.2 million at March 31, 2000.
The Company, at present, does not have a credit facility in place with a bank or
other financial institution. The Company believes that the cash on hand at March
31, 2001 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.
In February 2001, the Company filed a request with the Securities and Exchange
Commission to raise up to $12 million through the offering of 4.8 million shares
of common stock at a price of $2.50 per share. The Company intends to use the
proceeds for the purpose of expanding their existing sales force, increasing
their marketing and distribution capacities, expanding domestic and
international business operations, acquisitions, working capital, and for
general corporate purposes.
Donner International, an investment banker, has agreed to market these
securities on a best efforts basis.
Seasonality and Quarterly Results
The Company's business is subject to seasonal influences. Sales volumes in this
industry typically slow down during the winter months, November to March in the
U.S. The Company is marketing worldwide and is not impacted 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
We are currently involved in a lawsuit against Master Shine USA, Inc., and its
related affiliates and subsidiaries ("Master Shine"), over alleged copyright,
patent, and trademark infringement regarding Master Shine's importation and sale
of electric scooters that are substantially similar to our ZAPPY(Registered)
electric scooter. In December 2000, Master Shine filed a lawsuit in the U.S.
District Court, Central District of California (Case No. CV 00-12078 NM (CTx))
seeking declaratory relief. The Court has granted an injunction barring the use
of certain advertising materials, but did not bar Master Shine from continuing
to manufacture and sell its electric scooters, the parties are in settlement
negotiations.
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
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
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(Registrant)
Signature Title Date
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/s/ Gary Starr Director / CEO May 09, 2001
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/s/ William R. Hartman CFO May 09,2001
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10