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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
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For the quarterly period ended June 30, 2001
Commission File Number 0-303000
ZAP
(Formerly ZAPWORLD.COM)
(Name of small business issuer in its charter)
CALIFORNIA 94-3210624
(State of incorporation) (I.R.S. Employer Identification No.)
117 Morris Street
Sebastopol, CA 95472
(707) 824-4150
(Address and telephone number 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 X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
7,393,080 shares of common stock as of August 13, 2001.
Transitional Small Business Disclosure Format Yes[ ] No [X]
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZAP
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands)
June 30,
2001
-----------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 1,209
Accounts receivable, net of allowance for doubtful accounts of $133 816
Inventories 3,303
Prepaid expenses and other assets 323
--------
Total current assets 5,651
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $561 522
OTHER ASSETS
Patents & trademarks, net of accumulated amortization of $261 1,437
Goodwill, net of accumulated amortization of $305 1,791
Deposits and other 74
--------
Total other assets 3,302
--------
Total assets $ 9,475
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 820
Accrued liabilities and other expenses 701
Current maturities of long-term debt 99
Current maturities of obligations under capital leases 37
--------
Total current liabilities 1,657
OTHER LIABILITIES
Long-term debt, less current maturities 1,593
Obligations under capital leases, less current maturities 30
--------
Total other liabilities 1,623
--------
Total liabilities 3,280
STOCKHOLDERS' EQUITY
Preferred stock, authorized 10,000 shares; 3 shares 1,124
issued and outstanding
Common stock, authorized 20,000 shares of
no par value; 6,760 shares issued and outstanding 18,309
Accumulated deficit (13,005)
Unearned compensation (15)
--------
6,413
Less: notes receivable from shareholders (218)
--------
Total stockholders' equity 6,195
--------
Total liabilities and stockholders' equity $ 9,475
========
See accompanying notes to condensed consolidated financial statements
2
ZAP
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Thousands, except per share amounts)
Quarter ended June 30, Six Months ended June 30,
2001 2000 2001 2000
------------------------------------------------------------------------------------------------
NET SALES $ 940 $ 2,283 $ 2,953 $ 4,180
COST OF GOODS SOLD 1,376 1,475 2,918 2,658
------- ------- ------- -------
GROSS PROFIT (LOSS) (436) 808 35 1,522
OPERATING EXPENSES
Selling and marketing 306 347 732 748
General and administrative 1,078 815 2,210 1,495
Research and development 141 166 360 311
------- ------- ------- -------
1,525 1,328 3,302 2,554
------- ------- ------- -------
LOSS FROM OPERATIONS (1,961) (520) (3,267) (1,032)
------- ------- ------- -------
OTHER INCOME (EXPENSE)
Interest income 23 40 60 77
Other income(expense) (15) 3 (30) (5)
------- ------- ------- -------
8 43 30 72
------- ------- ------- -------
NET LOSS $(1,953) $ (477) $(3,237) $ (960)
======= ======= ======= =======
Net loss attributable to common shares
Net loss $(1,953) $ (477) $(3,237) $ (960)
Preferred dividend (48) -- (105) --
------- ------- ------- -------
$(2,001) $ (477) $(3,342) $ (960)
======= ======= ======= =======
NET LOSS
PER COMMON SHARE,
BASIC AND DILUTED $ (0.31) $ (0.09) $ (0.54) $ (0.19)
======= ======= ======= =======
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 6,374 5,224 6,170 5,187
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements
3
ZAP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six months ended June 30,
2001 2000
--------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,237) $ (960)
Adjustments to reconcile net loss to net cash
used for operating activities
Depreciation and amortization 341 151
Allowance for doubtful accounts 77 18
Amortization of the fair market value of warrants 27 27
Changes
Receivables 720 (396)
Inventories (405) 369
Prepaid expenses and other assets 410 (489)
Advances to retail stores & technology companies -- 560
Accounts payable 422 (363)
Accrued liabilities and other expenses (565) 317
------- -------
Net cash used for operating activities (2,210) (766)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (105) (111)
Payment advance for acquisition -- (20)
Purchase of patents and intangibles (17) (162)
Purchase of ASCR - Barbary Coast -- (118)
------- -------
Net cash used for investing activities (122) (411)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock, net of stock offering costs 5 217
Principal repayments on note payable (3) (8)
Payments on obligations under capital leases (4) (5)
Advances on notes receivable to shareholders -- (12)
------- -------
Net cash provided by financing activities (2) 192
------- -------
NET DECREASE IN CASH (2,334) (985)
CASH, beginning of period 3,543 3,184
------- -------
CASH, end of period $ 1,209 $ 2,199
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the six months for interest $ 27 $ 2
Non-cash investing and financing activities:
On June 28,2001, the Company repurchased $1,500,000 of common stock in
exchange for a promissory note for $1,500,000
See accompanying notes to condensed consolidated financial statements
4
ZAP
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 us,
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 and six months
ended June 30, 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
Our Common Stock has been listed in the NASDAQ SmallCap stock exchange under the
symbol "ZAPP" since May 22, 2000. From March 11, 1998 to May 22, 2000, our
Common Stock was listed on the OTC Bulletin Board under the stock symbol "ZAPP".
The shareholders voted at our Annual Meeting on June 16, 2001 to change our
corporate name from ZAPWORLD.COM to ZAP.
On June 28, 2001, we entered into a settlement agreement whereby we agreed to
repurchase 50% of the 1,250,237 shares of Common Stock held by Ridgewood ZAP,
LLC, (Ridgewood) one of several funds managed by Robert Swanson and Douglas
Wilson, both of whom sit on our board of directors. The terms of the agreement
require us to pay $1.5 million in the form of a 6% interest-bearing Promissory
Note, interest payable semi-annually with principal due in three installments,
the first of which is for $500,000 and is due on June 27, 2002, the second of
$500,000 is due six months later, and the third is due six months after the
second.
The remaining one-half of Ridgewood stock is being purchased by certain holders
of our Series A-1 and Series A-2 Preferred Stock in $100,000 monthly
installments (subject to certain adjustments) with the purchase price per share
to be 91% of the lowest closing bid price for the prior twenty day trading
period.
To the extent the amount paid by the Preferred Shareholders for the Ridgewood
stock is less than $1.5 million, the difference is to be added to our Promissory
Note and that amount is to be paid by us at the rate of $100,000 per month.
In the event of a default, Ridgewood may convert the remaining balance of the
Promissory Note into shares of our Common Stock at a price one-third of the then
market price.
In addition to our payment obligation to Ridgewood ZAP, LLC, one of the other
terms of the settlement agreement required Robert Swanson and Douglas Wilson to
resign from our board of directors. They resigned on July 31, 2001.
5
(4) RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001,the Financial Accounting Standards Board (the"FASB") adopted SFAS
No.141 Business Combinations and SFAS No. 142 Goodwill and Intangible Assets.
SFAS No.141 addresses the methods used to account for business combinations and
requires the use of the purchase method of accounting for all combinations after
June 30, 2001. SFAS No.142 addresses the methods used to amortize intangible
assets and to assess the impairment of those assets, including goodwill
resulting from business combinations accounted for under the purchase method.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001.
Included in our assets at June 30,2001 is goodwill related to the acquisitions
made in 1999 and 2000 with a net carrying value of $1,791,000. Upon adoption of
SFAS No. 142 we will no longer amortize this goodwill, decreasing our
amortization expense of approximately $320,000 per year. We are required to
assess this goodwill for impairment in the year adoption. We will not be able to
determine the full effect of these new pronouncements on our financial position
or our results of operations until we are able to complete our analysis of the
impairment provisions of the new standards.
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"). We
desire to avail ourselves of certain "safe harbor" provisions of the Act and are
therefore including this special note to enable us 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 our stockholders and other publicly available statements issued or released
by us involve known and unknown risks, uncertainties, and other factors which
could cause our 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 our best estimates based upon
current conditions and the most recent results of operations.
Overview
Our business strategy revolves around developing, acquiring, and commercializing
electric vehicles and electric vehicle power systems. This "electric vehicle"
strategy has certain fundamental, practical, and environmental advantages over
available internal combustion modes of transportation. We believe our products
can be produced commercially on an economically competitive basis. In 2001, we
continued to enhance and broaden our electric vehicle product line.
We manufacture 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. We also install the motor system on specially designed bicycles that
we have manufactured under contract. The completed bicycles, with motor, are
then sold to the customer. Additionally, we produce an electric scooter known as
the ZAPPY(R), which is manufactured by us using parts manufactured by various
subcontractors. In order to ensure that we can maintain our competitive cost
advantage, we have transitioned nearly all of our production facilities to lower
cost Taiwanese outside contract manufacturers as of June 30,2001. Such a move
also enable us to concentrate on our marketing and sales efforts. We also
currently benefit from our high name recognition in the electric vehicle
industry coupled with a rapidly developing business on our Internet website
www.zapworld.com. We offer one of the broadest lines of personal electric
vehicles currently available. According to published reports, we believe we
currently hold a leading electric bicycle and scooter market position in the
United States.
6
We are the U.S. distributor of the Lepton scooter that is imported from Italy.
Additionally, we are a manufacturer of an electric motorcycle known as the
Lectra(TM). The Company also has agreements to distribute the Electric Pedi-Cab,
the E-Kart, the Golfcycle, and other electric vehicles.
We manufacture several electric motor vehicle kits. The electric motor kit
manufacturing and installation is done at our Sebastopol, California location.
The electric motors are purchased from an original equipment manufacturer (OEM)
in the auto and air-conditioning industry. We are primarily using one company
for our 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. We have developed
long-term purchase arrangements with our key vendors.
We have been granted exclusive market rights in selective electric vehicle
markets from Evercel Corporation in exchange for specifying the Evercel(TM)
battery in an electric vehicle made by us. We have no other contractual
agreements with any of our other vendors.
The Executive Committee of the board of directors has engaged Harry R. Kraatz,
who is a also a director, as a consultant to advise and assist the board with
restructuring the Company's balance sheet, reducing costs and creating a new
strategic business plan to best serve the interests of our shareholders. This
situation resulted from Gary Starr's decision to request a temporary leave from
his daily duties as Chief Executive Officer. Thus, Mr. Kraatz will be involved
in our daily operations until such time as Mr. Starr returns.
We have approximately $751,000 of backlog orders and purchases contracts in hand
for electric vehicles as of August 13, 2001. We expect to fill these orders
within the current fiscal year.
Some significant developments during the second quarter of 2001 were as follows:
1. We entered into a best efforts underwriting agreement with Donner
Corp. International and Alexander Wescott & Co, Inc., for a public
offering of convertible preferred stock to raise up to $12 million.
2. We launched production of our newly-improved POWERBIKE(R) electric
bicycle with a Taiwanese contract manufacturer. The new POWERBIKE(R)
electric bicycle integrates a new propulsion system design we expect
to be one of the lowest-cost electrical bicycles on the market,
specifically priced for worldwide, mass retail distribution.
3. We formed a fuel cell partnership with Enable(TM) Fuel Cell
Corporation to develop an electric-assist bicycle powered by a
hydrogen fuel cell. The goal of the relationship will be the
introduction of the first commercially available fuel cell powered
electric bicycle. Hydrogen fuel cells produce electricity from
hydrogen and oxygen with the only by-product being emissions in the
form of water.
4. We took corrective actions to effect a turnaround as follows: (a)
streamlined the workforce by eliminating 65% of employees, or 65
individuals, since January, 2001; (b) cut overhead costs where
possible; and (c) narrowed the sales and marketing focus to develop a
core group of products that will be promoted for the holiday season.
7
Results of Operations
The following table sets forth, as a percentage of net sales, certain items
included in our Income Statements (see Financial Statements and Notes) for the
periods indicated:
Quarter ended June 30, Six months ended June 30,
2001 2000 2001 2000
---- ----- ----- -----
Statements of Income Data:
Net sales ........... 100.0% 100.0% 100.0% 100.0%
Cost of sales ..... (146.3) (64.6) (98.80 (63.6)
Gross profit (loss) (46.4) 35.4 1.2 36.4
Operating expenses 208.6 58.2 111.8 61.1
Other Income ...... 1.0 1.9 1.0 1.7
Net Loss ......... (207.8) (20.9) (109.6) (23.0)
Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000
Summary Comments Regarding Second Quarter 2001 Results. Our overall performance
for the period ended June 30, 2001 was adversely affected by some of the
following key factors:
(1) Less sales volume due to the poor worldwide economy. It resulted in our
acceptance of sales returns for approximately $500,000 from two large
European distributors who were experiencing cash flow difficulties.
(2) Negative gross profit for the quarter was the result of the sales made at
little or no margin to sell product and to improve cash flow.This situation
is due in part to the loss of sales to low-cost competitors' products
manufactured in China and overseas as a result of our alleged patent
infringements.
(3) Delays in the manufacturing and importing of the lower-cost Taiwanese
manufactured products due to unexpected design modifications, which
resulted from additional R&D testing. Also some other newly-planned
products have not been introduced as timely as originally planned. Our
sales and margins have been adversely affected by not having the lower cost
products available sooner.
Net sales for the quarter ended June 30, 2001, were $940,000 compared to $2.3
million in the prior year, a decrease of $1.3 million or 56%. The decrease in
sales in 2001 over the same period in 2000 was largely due to the slow worldwide
economy. Also, we accepted approximately $500,000 in sales returns from two
large European distributors as they were experiencing cash flow problems.
Gross loss as a percentage of net sales decreased to (46.4%) in the second
quarter of 2001 from a gross profit of 35% in 2000. The total gross profit
decreased $99,000 or 6.7% The decrease in gross margin percentage resulted from
lower sales prices, which were done to move product. Also the inventory carrying
value of certain products were adjusted to reflect estimated sales prices.
Selling expenses in the second quarter ended June 30, 2001 were $306,000
compared to $347,000 for the second quarter ended June 30, 2000. This was a
decrease of $41,000 or 12%. As a percentage of sales, selling expenses increased
from 15% of sales to 32% of sales. The decrease was primarily due to fewer
salaries for sales personnel.
General and administrative expenses for the quarter ended June 30, 2001 were
$1.1 million. This was an increase of $263,000 or 32% from 2000. As a percentage
of sales, general and administrative expenses increased to 115% from 36% of net
sales. Expense increases during the 2nd quarter of 2001 as compared to the 2nd
quarter of 2000 can be partially attributed 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 a patent lawsuit,
and fund raising activities.
Research and development expenses decreased $25,000 or 15% from the 2nd quarter
of 2000 as compared to the 2nd quarter of 2001. As a percentage of net sales,
R&D increased to 15% of sales in the 2nd quarter of 2001 as
8
compared to 7% of sales in the 2nd quarter of 2000. Expense decreases were the
result of less research and development expenses in general due to the timing of
product development projects during the second quarter.
Interest income decreased $17,000 in the second quarter of 2001 as compared to
the second quarter of 2000. The decrease is attributed primarily to lower cash
levels in the second quarter of 2001.
Other Expense increased $18,000 from the second quarter of 2000. The primary
reason was higher interest expenses on notes issued as part of the acquisitions
in the latter half of 2000.
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
Net sales for the six months ended June 30, 2001 were $2.9 million compared with
$4.2 million in the six months ended June 30, 2000, a decrease of $1.2 million
or 29%. The decrease in sales is primarily attributable to less sales and
greater sales returns from customers due to the poor worldwide economy.
Gross profit dollars decreased in the first six months of 2001 to $35,000 from
$1.5 million in the first half of 2000. As a percentage of sales, gross profit
decreased to 1.2% in the first half of 2001 compared with 36% in the first six
months of 2000. The decrease in gross margin percentage can be attributed to the
intense competition in the marketplace where sales were made at low margins to
move the products.
Selling expenses for the six months ended June 30, 2001 were $732,000 as
compared to $748,000 for the six months ended June 30, 2000. This was a decrease
of $16,000 or 2.1% from 2000 to 2001. As a percentage of sales, selling expenses
increased from 17% of sales to 25% of sales. The decrease was primarily due to
fewer salaries for sales personnel.
General and administrative expenses for the six months ended June 30, 2001 were
$2.2 million. This is an increase of $715,000 or 48% from 2000. As a percentage
of sales, general and administrative expense increased to 75% from 36% of net
sales. Expense increases during the first six months of 2001 as compared to the
first six months of 2000 were due to higher salaries and benefits, greater
depreciation and amortization due to business acquisitions in the later half of
2000, higher legal and professional fees due to a patent lawsuit, and fund
raising activities.
Research and development expenses increased $49,000 or 16% from the first six
months of 2001 as compared to the first six months of 2000. As a percentage of
net sales, research and development increased to 12% of sales in the first six
months of 2001 as compared to 7% of sales in the first six months of 2000.
Increased personnel and facilities costs incurred primarily in the first quarter
to accommodate new product development and improve existing products led to
higher costs in the first six months of 2001.
Interest income decreased $17,000 in the first six months of 2001 as compared to
the first six months of 2000 due to lower available cash balances.
Other expense increased $25,000 from the first six months of 2000 to the first
six months of 2001 primarily due to higher interest expense for the period.
9
Liquidity and Capital Resources
In the first six months of 2001, net cash used by us for operating activities
was $2.2 million. In the first quarter of 2000, we used cash from operations of
$766,000. Cash used in the first half of 2001 was comprised of the net loss
incurred for the period of $3.2 million offset by net non-cash expenses of
$445,000 and the net change in operating assets and liabilities provided cash of
$582,000. Cash used in operations in the first six months of 2000 was comprised
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 use of cash of $2,000.
Investing activities used cash of $122,000 and $411,000 during the first six
months ended June 30, 2001 and 2000, respectively. The uses of cash were for the
purchase of fixed assets and patents, and the acquisition of additional
technology.
Financing activities used cash of $2,000 and provided funds of $192,000 during
the first six months ended June 30, 2001 and 2000, respectively. In both years,
cash in financing activities resulted from the sales of common stock, $5,000 and
$217,000 for the first six months ended June 30, 2001 and 2000 respectively,
offset by principal payments on outstanding debt.
During 2000, the Company issued 3,000 shares of Preferred Stock Series A-1 and
2,000 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 three lowest closing prices 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 three 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 three lowest
closing prices over the 45 trading days prior to conversion. As of June 30,
2001, there were 861 shares of Series A-1 Convertible Preferred Stock
outstanding and 1,670 shares of Series A-2 Convertible Preferred Stock
outstanding. Dividends are cumulative and accrue at 6% per year and are 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. In March of 2001, the board of directors voted to temporarily
discontinue honoring the conversions, as we believed 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). As a
result, a dispute arose between the representatives of the Series A-1
Convertible Preferred Stock, Ridgewood ZAP, LLC and us, which, as noted above,
was settled on June 28, 2001.
In February 2001, we filed an initial request (which was has been subsequently
amended) with the Securities and Exchange Commission to raise up to $12 million
through the offering of 4.8 million shares of Series B Convertible Preferred
Stock at a price of $2.50 per share. We intend to use the proceeds for the
purpose of expanding our existing sales force, increasing our marketing and
distribution capacities, expanding domestic and international business
operations, acquisitions, working capital, and for general corporate purposes.
We have not received final approval to sell the securities and are now required
to amend the filing to include the current quarter's financial information.
Donner Corp. International and Alexander Wescott & Co,Inc., both investment
bankers, have agreed to market these securities on a best efforts basis.
At June 30, 2001, we had cash and cash equivalents of $1.2 million as compared
to $2.2 million at June 30, 2000. At June 30, 2001, we had working capital of
$3.9 million as compared to working capital of $3.8 million at June 30, 2000.
The decrease in cash in the first six months of 2001 from the first six months
of 2000 are mostly due to the losses incurred by us during the period. We, at
present, do not have a credit facility in place with a bank or other financial
institution.
We may not be able to meet our future cash requirements for the rest of the
current fiscal year unless new financing is obtained. Some options now being
pursued by us for financing are the SEC filing noted above to raise $12 million,
additional equity contributions, and/or short-term loans with existing and
outside investors. Toward this end, we
10
have held discussions with various parties, but no formal agreements have been
reached to date. Although we believe that we will be able to obtain financing to
meet future cash requirements, there can be no assurances that we will be
successful.
Moreover, we will require substantial capital in the short term to remain a
going concern. We will need short term outside investments on a continuing basis
to finance our current operations. Our revenues for the foreseeable future may
not be sufficient to attain profitability. We expect to continue to experience
losses for the balance of the year.
In order to finance our working capital requirements we are currently
negotiating equity investments with several sophisticated investors, but there
can be no assurnace that we will obtain this capital or that it will be obtained
on terms favorable to us. If we do not obtain short term financiing, we may not
be able to continue as a viable concern.
Since we do not have a bank line of credit and there can be no assurance that
any required or desired financing will be available through bank borrowings,
debt, or equity offerings, or otherwise, on acceptable terms. If future
financing requirements are satisfied through the issuancfe of equity securities,
investors may experience significant dilution in the net book value per share of
common stock.
In addition to the above working capital needs, our other capital needs are to
fund our growth strategy, which includes increasing our shopping mall presence,
improving and increasing distribution channels, establishing company owned and
franchised ZAP stores, introducing new products, improving existing product
lines, and developing a strong corporate infrastructure.
Seasonality and Quarterly Results
Our 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 we are marketing worldwide, we are not impacted 100% by U.S.
seasonality.
Inflation
Our raw materials are sourced from stable, cost-competitive industries. As such,
we do not foresee any material inflationary trends for our raw material sources.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We were 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(R) 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. A settlement agreement and mutual release of all claims has
been reached which requires payment of monies to us and which requires
Mastershine to stop advertising the alleged infringed products until the agreed
upon design changes in their electric scooters are made. The formal settlement
documents are in the process of being executed.
Pursuant to the settlement between us and the holders of certain shares of
Series A-1 and Series A-2 Preferred Stock, as set forth above, such holders
agreed to dismiss without prejudice the lawsuit they filed in U.S. District
Court, Southern District of New York bearing case number 01 Civ. 4402 (DC).
We are defending a lawsuit brought by James McGreen, our former president. Mr.
McGreen is seeking approximately $100,000 for our alleged breach of his
employment contract. This matter is currently in binding arbitration. Mr.
McGreen also filed a writ of attachment in California Superior Court against our
bank accounts. In June of 2001, we were successful in defeating Mr. McGreen's
writ of attachment.
Item 2. Changes in Securities
There were no changes in the 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
On June 16, 2001, we held our Annual Meeting of Shareholders. At the meeting,
the shareholders were requested to approve the following proposals, and approval
was received on each item:
|X| To elect the six Directors, Gary Starr, Doug Wilson, Lee Sannella,
William D. Evers, Harry Kraatz, and Robert Swanson, nominated to serve
until the next Annual Meeting of Shareholders and until their
Respective successors are elected and qualified.
For: 4,795,184 Withhold Authority: 98,082
|X| To approve an amendment to the Articles of Incorporation to change the
Company's name from ZAPWORLD.COM to ZAP.
For: 4,978,188 Against: 8,525 Abstain: 4,663
|X| To ratify the appointment of Grant Thornton LLP as the independent
auditors of the Company.
For: 4,964,466 Against: 7,145 Abstain: 21,573
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.
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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 by the Board of Directors both as Chief Financial Officer and
Principal Signatory.
ZAP
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(Registrant)
Signature Title Date
/s/ William R. Hartman Principal Signatory August 13, 2001
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/s/ William R. Hartman CFO August 13,2001
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