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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 September 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.
7,410,080 shares of common stock as of November 13, 2001.
Transitional Small Business Disclosure Format Yes[ ] No [X]
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1
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZAP
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands)
September 30,
2001
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ASSETS
CURRENT ASSETS
Cash $ 816
Accounts receivable, net of allowance for doubtful accounts of $411 312
Inventories 2,401
Prepaid expenses and other assets 139
--------
Total current assets 3,668
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $606 577
OTHER ASSETS
Patents & trademarks, net of accumulated amortization of $303 1,395
Goodwill, net of accumulated amortization of $384 1,712
Deposits and other 73
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Total other assets 3,180
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Total assets $ 7,425
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,021
Accrued liabilities and other expenses 929
Current maturities of long-term debt 94
Current maturities of obligations under capital leases 29
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Total current liabilities 2,073
OTHER LIABILITIES
Long-term debt, less current maturities 1,575
Obligations under capital leases, less current maturities 29
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Total other liabilities 1,604
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Total liabilities 3,677
STOCKHOLDERS' EQUITY
Preferred stock, authorized 10,000 shares; 3 shares 1,120
issued and outstanding
Common stock, authorized 20,000 shares of
no par value; 6,785 shares issued and outstanding 18,280
Accumulated deficit (15,539)
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3,861
Less: notes receivable from shareholders (113)
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Total stockholders' equity 3,748
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Total liabilities and stockholders' equity $ 7,425
========
See accompanying notes to condensed consolidated financial statements
2
ZAP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands, except per share amounts)
Quarter ended September 30, Nine Months ended September30,
2001 2000 2001 2000
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NET SALES $ 678 $ 3,948 $ 3,631 $ 8,128
COST OF GOODS SOLD 1,653 2,532 4,571 5,190
------- ------- ------- ---------
GROSS PROFIT (LOSS) (975) 1,416 (940) 2,938
OPERATING EXPENSES
Selling and marketing 203 579 935 1,327
General and administrative 1,181 774 3,391 2,269
Research and development 110 153 470 464
------- ------- ------- ---------
1,494 1,506 4,796 4,060
------- ------- ------- ---------
LOSS FROM OPERATIONS (2,469) (90) (5,736) (1,122)
------- ------- ------- ---------
OTHER INCOME (EXPENSE)
Interest income (expense) (26) 34 7 110
Other income(expense) (2) 2 (5) (2)
------- ------- ------- ---------
(28) 36 2 108
------- ------- ------- ---------
NET LOSS $(2,497) $ (54) $(5,734) $(1,014)
======= ======= ======= =========
Net loss attributable to common shares
Net loss $(2,497) $ (54) $(5,734) $(1,014)
Preferred dividend (38) (900) (142) (900)
------- ------- ------- ---------
$(2,535) $ (954) $(5,876) $(1,914)
======= ======= ======= =========
NET LOSS
PER COMMON SHARE,
BASIC AND DILUTED $ (0.37) $ (0.18) $ (0.92) $ (0.37)
======= ======= ======= =========
WEIGHTED AVERAGE NUMBER
Of COMMON SHARES OUTSTANDING
BASIC and DILUTED 6,773 5,265 6,373 5,213
======= ======= ======= =========
See accompanying notes to condensed consolidated financial statements
3
ZAP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine months ended September 30,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(5,734) $(1,014)
Adjustments to reconcile net loss to net cash
used for operating activities
Depreciation and amortization 413 250
Allowance for doubtful accounts 358 18
Issuance of common stock for services rendered -- 63
Amortization of the fair market value of warrants 42 41
Changes in current assets and liabilities :
Receivables 942 (966)
Inventories 497 17
Prepaid expenses and other assets 594 (1,173)
Accounts payable 623 (130)
Accrued liabilities and other expenses (378) 329
------- -------
Net cash used for operating activities (2,643) (2,565)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (114) (285)
Investment in Technology Companies -- 167
Purchase of Aquatic Propulsion Technologies -- (981)
Purchase of patents and intangibles (19) (162)
Purchase of ASCR - Barbary Coast -- 132
------- -------
Net cash used for investing activities (133) (1,129)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of notes and loans payable -- 409
Sale of common stock, net of stock offering costs (29) 1,589
Sale of Preferred stock, net of Preferred stock offering costs -- 1,972
Principal repayments on note payable and long-term debt (25) (17)
Increase in capital leases -- 26
Payments on obligations under capital leases (2) (10)
Advances on notes receivable from shareholders 105 77
------- -------
Net cash provided by financing activities 49 4,046
------- -------
NET INCREASE ( DECREASE) IN CASH (2,727) 352
CASH, beginning of period 3,543 3,184
------- -------
CASH, end of period $ 816 $ 3,536
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine months for interest $ 55 $ 27
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 nine months
ended September 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 to avoid threatened
litigation 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 were members of 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 will be purchased by certain holders
of our Series A-1 and Series A-2 Preferred Stock in $100,000 monthly
installments (subject to certain adjustments) starting February 1, 2002 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 the Promissory
Note and that amount is to be paid by us at the rate of $100,000 per month.
Thus, the Company is contingently liable for any short-fall in the purchase
price paid by the Preferred Shareholders.
5
In the event of a default, Ridgewood may convert the remaining balance of the
Promissory Note into shares of Common Stock at a price one-third of the then
market price.
In addition to the payment obligation to Ridgewood ZAP, LLC, one of the other
terms of the settlement agreement required Robert Swanson and Douglas Wilson to
resign from the board of directors. They resigned on July 31, 2001.
(4) RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (the"FASB") issued 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 September 30,2001 is goodwill related to the
acquisitions made in 1999 and 2000 with a net carrying value of $1,712,000. 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 of adoption. We have not
determined the full effect of these new pronouncements on our financial position
or our results of operations until we 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
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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 other alternative vehicles and 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 his or her 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 contract
6
manufacturers at the end of the second quarter this year. Such a move also
enables 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.
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 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 selected 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 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 stakeholders. Thus,
Mr. Kraatz will be involved in our daily operations on an interim basis to
provide assistance where requested.
We have approximately $881,000 of backlog orders and purchases contracts in hand
for electric vehicles as of November 13, 2001. We expect to fill these orders
within the current fiscal year.
Some significant developments during the third quarter of 2001 were as follows:
1. In October 2001, ZAP filed an amendment to the SEC Form SB-2 to
register 4,800,000 shares of Series B Convertible Preferred stock with
a $1.00 proposed offering price to raise up to $4.8million of new
capital. Due to the poor condition of the investment market, we may
substantially change the terms of the offering or withdrawal it
completely.
2. Began distribution of the new LEPTON(TM) which is a moped-class
scooter imported from Italy that incorporates classic Italian styling
with the latest in electric propulsion technology. With its
high-efficiency microprocessor controlled propulsion system, the
LEPTON(TM) travels to 25 MPH for a range of up to 20 miles. The
LEPTON(TM) was featured in the "What's New "section of the October's
Popular Science Magazine.
3. Introduced the 2002 model ZAPPY(R) electric scooter. The new ZAPPY(R)
offers significant upgrades over the previous design in such areas as:
a new motor which is noticeably faster and more powerful, a new wider
belt drive which significantly reduces overall user maintenance and
more elegant design which contributes to better braking, wiring and
cable runs. It also has an improved safeguarded controller and battery
pack.
4. ZAP is planning new business with its joint venture partner Voltage
Vehicles ("Voltage"). Voltage has signed a letter of intent to be
acquired by Advanced Wireless Systems Inc. (OTC Bulletin Board AWSSE).
The joint venture was entered into in May 2001 to develop, design,
manufacture and distribute a full line of new personal electric
vehicles as well as ZAP's current line of electric vehicles.
7
Results of Operations
The following table sets forth, as a percentage of net sales, certain items
included in our Statements of Operations (see Financial Statements and Notes)
for the periods indicated:
Quarter ended September 30, Nine months ended September 30,
2001 2000 2001 2000
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Statements of Operations Data:
Net sales.................... 100.0% 100.0% 100.0% 100.0%
Cost of sales................ (243.8) (64.1) (125.9) (63.9)
Gross profit (loss).......... (143.8) 35.8 (25.9) 36.1
Operating expenses.......... 220.3 38.1 132.1 49.9
Other Income (expense)....... (4.1) 0.9 (0.1) 1.3
Net Loss.................... (368.3) (1.4) (157.9) (12.5)
Quarter Ended September 30, 2001 Compared to Quarter Ended September 30, 2000
Summary Comments Regarding Third Quarter 2001 Results. Our overall performance
for the period ended September 30, 2001 was adversely affected by the following
key factors:
(1) The poor worldwide economy has negatively affected our sales volume for
both domestic and foreign distributors. Sales prices were also pressured
downward by liquidation sales (at 50 % to 75% of their costs) to one of the
Company' largest competitors who has discontinued business.
(2) The recent theft of approximately $175,000 of scooters at cost, from the
warehouse of our outside freight company in Miami. This has affected our
distribution and resulted in a loss of profit since these products were
committed to a customer.
(3) Negative gross profit for the quarter was the result of the sales made
below our costs to sell existing inventory and to improve cash flow. This
situation was caused in part to the loss of sales to low-cost competitors'
products manufactured in China and overseas and the above mentioned
liquidation. The Company has also lowered the book value of certain
inventory items to reflect lower market prices.
(4) Delays in the introduction of sufficient market quantities for new products
such as: the SWIMMY(TM), ZAPPY-TURBO and POWERRBIKE(R) has affected our
quarterly performance. Since these products are being newly produced in
Taiwan, we have experienced various start-up production problems at our
contract manufacturer.
Net sales for the quarter ended September 30, 2001, were $678,000 compared to
$3.9 million in the prior year, a decrease of $3.3 million or 83%. The decrease
in sales in 2001 over the same period in 2000 was largely due to the slow
worldwide economy, and sales price pressures from low-cost competitors' products
made in China. We also sold products at a discount to liquidators.
Gross loss as a percentage of net sales decreased to (143.8%) in the third
quarter of 2001 from a gross profit of 36% in 2000. The total gross profit
decreased $2.4 million or 169 %. 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 a decrease
in the estimated sales prices.
Selling expenses in the third quarter ended September 30, 2001 were $203,000
compared to $579,000 for the third quarter ended September 30, 2000. This was a
decrease of $376,000 or 65 % which was due to
8
less salaries and marketing and promotion expenses. As a percentage of sales,
selling expenses increased from 14.7% of sales to 29.9 % of sales. The
percentage increase was primarily due to less sales volume.
General and administrative expenses for the quarter ended September 30, 2001
were $1,181,000. This was an increase of $407,000 or 52.6% from 2000. As a
percentage of sales, general and administrative expenses increased to 174.2 %
from 19.6% of net sales. Expense increases during the 3rd quarter of 2001 as
compared to the 3rd 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 $43,000 or 28.1 % from the 3rd
quarter of 2000 as compared to the 3rd quarter of 2001. As a percentage of net
sales, R&D increased to 16.2% of sales in the 3rd quarter of 2001 as compared to
3.8 % of sales in the 3rd 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 third quarter.
Net Interest expense increased $60,000 in the third quarter of 2001 as compared
to the third quarter of 2000. The increase is attributed primarily to interest
expense on the $1.5 million note payable.
Other income (expense) decreased $4,000 from the third quarter of 2000 due to
less miscellaneous income items.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000
Net sales for the nine months ended September 30, 2001 were $3.6 million
compared with $8.1 million in the nine months ended September 30, 2000, a
decrease of $4.5 million or 55.3%. The decrease in sales is primarily
attributable to less sales and greater sales returns from customers due to the
poor worldwide economy.
Gross loss in the first nine months of 2001 was $(940,000) compared with $2.9
million gross profit in the first nine months of 2000. As a percentage of sales,
gross profit decreased to (25.9)% in the first nine months of 2001 compared with
36.1% in the first nine 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. The Company has also lowered the book
value of certain inventory items to reflect current market prices.
Selling expenses for the nine months ended September 30, 2001 were $935,000 as
compared to $1.3 million for the nine months ended September 30, 2000. This was
a decrease of $392,000 or 29.5% from 2000 to 2001 which was primarily due to
less salaries ,marketing and promotion expenses. As a percentage of sales,
selling expenses increased from 16.3 % of sales to 25.7 % of sales. The
percentage increase was primarily due to the lower sales volumes.
General and administrative expenses for the nine months ended September 30, 2001
were $3.4 million. This is an increase of $1.1million or 49.4% from 2000. As a
percentage of sales, general and administrative expense increased to 93.4 % from
27.9% of net sales. Expense increases during the first nine months of 2001 as
compared to the first nine 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 $6,000 or 1.3% during the first nine
months of 2001 as compared to the first nine months of 2000. As a percentage of
net sales, research and development increased to 12.9% of sales in the first
nine months of 2001 as compared to 5.7% of sales in the first nine 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 nine months of 2001.
9
Interest income(net) decreased $103,000 in the first nine months of 2001 as
compared to the first nine months of 2000 due to lower available cash balances
and higher interest expense on the long-term note.
Other expense increased $3,000 from the first nine months of 2000 to the first
nine months of 2001 due to higher miscellaneous fees.
Liquidity and Capital Resources
In the first nine months of 2001, net cash used by us for operating activities
was $2.6 million. In the third quarter of 2000, we used cash from operations of
$2.6 million. Cash used in the first nine months of 2001 was comprised of the
net loss incurred for the period of $5.7 million offset by net non-cash expenses
of $771,000 and the net change in operating assets and liabilities provided cash
of $2.3 million. Cash used in operations in the first nine months of 2000 was
comprised of the net loss incurred for the period of $1million,offset by net
non-cash expenses of $372,000, and the net change in operating assets and
liabilities resulting in a use of cash of $1.9 million.
Investing activities used cash of $133,000 and $1.1 million during the first
nine months ended September 30, 2001 and 2000, respectively. The uses of cash
for both periods were for the purchase of fixed assets and patents, and the
acquisition of additional technology.
Financing activities provided cash of $49,000 and $4 million during the first
nine months ended September 30, 2001 and 2000, respectively. In both years, cash
was provided or used in financing activities resulted from the sales of common
stock, $29,000 and $1.6 million for the first nine months ended September 30,
2001 and 2000 respectively, offset by principal payments on outstanding debt.
The sale of preferred stock in 2000 also provided $1.9 million of cash.
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 September 30,
2001, there were 861 shares of Series A-1 Convertible Preferred Stock
outstanding and 1,664 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 October 2001, we amended and lowered our initial request, which was filed in
February with the Securities and Exchange Commission, to now raise up to $4.8
million through the offering of 4.8 million shares of Series B Convertible
Preferred Stock at a price of $1.00 per share. Due to the poor condition of the
Investment Market, we may substantially change the terms of the offering or
withdraw it completely.
At September 30, 2001, we had cash of $816,000 as compared to $3.5 million at
September 30, 2000. At September 30, 2001, we had working capital of $1.7
million as compared to working capital of $6.4 million at September 30, 2000.
The decrease in cash in the first nine months of 2001 from the first nine months
of 2000 are mostly due to the losses incurred by us during the period. We, at
present, do not have a credit
10
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 $4.8
million, additional equity contributions, and/or short-term loans with existing
and outside investors. Toward this end, we have held discussions with various
parties, but no formal agreements have been reached to date, since the terms
have been extremely unfavorable to the company and indications are that no
better offers may be forthcoming.
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 assurances that we will obtain this capital or that it will be
obtained on terms favorable to us. If we do not obtain short term financing, we
may not be able to continue as a viable concern. Management is exploring all
feasible options to recapitalize the Company, including a possible
reorganization under the existing bankruptcy laws. If we cannot raise new
capital, our current financial condition may dictate more drastic alternatives
such as temporarily suspending operations, or filing for Chapter 11 bankruptcy
protection.
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 issuance 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
On September 28, 2001, we were notified by the Lashman Family Partnership, which
holds a security interest on the intellectual property rights to ZAP products
selling under the name Sea Scooter, that we are in default on our Promissory
Note of $158,000 issued to them in connection with our acquisition of Aquatic
Propulsion Technologies, Inc. We were further notified that the Lashman Family
Partnership has foreclosed on the patents and, henceforth, we will be infringing
the patents should we continue to manufacture and market the Sea Scooter brand.
We dispute the accuracy of the default, intend to negotiate a settlement with
the Lashman Family Partnership, and are simultaneously looking for a buyer of
the Promissory Note and the intellectual assets.
On September 6, 2001, we were served with a complaint from Hampel Technologies,
Inc. for a collection in the amount of $49,324.16. We intend to file a timely
answer denying the allegations set forth therein with the County of Sonoma
Superior Court.
On August 8, 2001, we were served with a complaint from Northern California
Collection Service Inc. for a collection in the amount of $63,000. We filed an
answer offering a general denial to each allegation on September 10, 2001 with
the County of Sacramento Superior Court.
We recently settled a lawsuit with 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.
A lawsuit brought by James McGreen, our former president, was settled . Mr.
McGreen will also receive 5,000 stock options, which can be exercised into
shares of our common stock.
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
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.
12
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
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(Registrant)
Signature Title Date
/s/ Gary Starr Director / CEO November 13, 2001
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/s/ William R. Hartman CFO November 13, 2001
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