UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to _______
March 31, 2008
Commission file number 333-05744-LA
------------
File Number 001-32534
ZAP POWER SYSTEMS
- --------------------------------------------------------------------------------
(Exact name
(Name of small business issuer as specified in its charter)
CALIFORNIA 94-3210624
- ------------------------------- -------------------
(State
| CALIFORNIA | 94-3210624 |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) |
| incorporation or organization) | |
501 Fourth Street
Santa Rosa, CA 95401
(707) 525-8658
(Address, including zip code, and telephone number, including area code, of (I.R.S. Employer
incorporation or organization) Identification No.)
117 Morris Street, Sebastopol, California 95472
- --------------------------------------------------------------------------------
(Address of
registrant’s principal executive offices)
(707) 824-4150
- ---------------------------
(Issuer's telephone number)
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 Xx No --- ---
(APPLICABLE ONLY TO CORPORATE ISSUERS)
o
Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer o |
| |
| Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x |
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x
Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes o No x
State the number of shares outstanding of each of the issuer'sissuer’s classes of common equity, as of the latest practicable date. 2,345,335
58,449,379 shares of common stock as of October 7, 1997
May 12, 2008.
Transitional Small Business Disclosure Format Yes [ ]o No [x]
x
ZAP
FORM 10-Q
INDEX
| | | Page No. |
| PART I. | Financial Information | |
| | | |
| Item 1. | Condensed Consolidated Financial Statements (unaudited) : | 1 |
| | | |
| | Condensed Consolidated Balance Sheets as of March 31, 2008, unaudited and December 31, 2007,audited. | 1 |
| | | |
| | Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and 2007, unaudited. | 2 |
| | | |
| | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007, unaudited. | 3 |
| | | |
| | Notes to Condensed Consolidated Financial Statements | 4 |
| | | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| | | |
| Item 4T. | Controls and Procedures | 23 |
| | | |
| PART II. | Other Information | |
| | | |
| Item 1. | Legal Proceedings | 24 |
| | | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 26 |
| | | |
| Item 3. | Defaults Upon Senior Securities | 26 |
| | | |
| Item 4. | Submission of Matters to a Vote of Security Holders | 26 |
| | | |
| Item 5. | Other Information | 26 |
| | | |
| Item 6. | Exhibits | 26 |
| | | |
| SIGNATURES | | 30 |
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZAP POWER SYSTEMS
AND SUBSIDARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
1997
(In thousands)
| | | March 31, 2008 Unaudited | | | December 31, 2007 Audited | |
| ASSETS | | | | | | |
| CURRENT ASSETS | | | | | | |
| Cash and cash equivalents | | $ | 2,514 | | | $ | 4,339 | |
| Accounts receivable, net of allowance for doubtful accounts of $169 and $172 | | | 157 | | | | 373 | |
| Inventories, net | | | 1,959 | | | | 1,437 | |
| Prepaid non-cash professional fees | | | 170 | | | | 283 | |
| Other prepaid expenses and other current assets | | | 806 | | | | 747 | |
| Total current assets | | | 5,606 | | | | 7,179 | |
| | | | | | | | | |
| Property and equipment, net of accumulated depreciation | | | 4,282 | | | | 4,471 | |
| | | | | | | | | |
| OTHER ASSETS | | | | | | | | |
| Patents and trademarks, net | | | 8 | | | | 10 | |
| Prepaid non-cash professional fees, less current portion | | | 82 | | | | 82 | |
| Deferred offering costs | | | 17 | | | | 20 | |
| Deposits and other assets | | | 318 | | | | 176 | |
Total Other Assets | | | 425 | | | | 288 | |
| TOTAL ASSETS | | $ | 10,313 | | | $ | 11,938 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | |
| Current portion of secured convertible note | | $ | 104 | | | $ | 104 | |
| 8% Senior convertible notes, net of discount of $74 and $136 | | | 357 | | | | 546 | |
| Accounts payable | | | 76 | | | | 128 | |
| Accrued liabilities | | | 1,648 | | | | 2,259 | |
| Deferred revenue | | | 710 | | | | 752 | |
Total Current Liabilities | | | 2,895 | | | | 3,789 | |
LONG-TERM LIABILITIES | | | | | | | | |
| Secured convertible note, less current portion | | | 1,696 | | | | 1,724 | |
| Total liabilities | | | 4,591 | | | | 5,513 | |
| SHAREHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | | |
Common stock, authorized 400 million shares; no par value; 58,089,853 shares issued and outstanding | | | 122,777 | | | | 122,672 | |
| Common stock issued as loan collateral | | | — | | | | (1,549 | ) |
| Accumulated deficit | | | (117,055 | ) | | | (114,698 | ) ) |
| Total shareholders’ equity | | | 5,722 | | | | 6,425 | |
| Total liabilities and shareholders’ equity | | $ | 10,313 | | | $ | 11,938 | |
See accompanying notes to condensed consolidated financial statements (unaudited).
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 129,385
Receivables 203,734
Inventories 270,151
Prepaid expenses and other assets 86,285
-----------
Total current assets 689,555
-----------
PROPERTY1 - -
ZAP AND EQUIPMENT 140,200
-----------
OTHER ASSETS
Investment in joint venture 66,381
Intangibles, net of accumulated amortization 18,905
of $3,132
Deposits 21,956
-----------
107,242
-----------
Total assets $ 936,997
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 193,437
Accrued liabilities and other expenses 35,475
Customer Deposits 176,050
Notes payable 144,362
Current maturities of long-term debt 8,067
Current maturities of obligations under capital leases 3,583
-----------
Total current liabilities 560,974
-----------
OTHER LIABILITIES
Obligations under capital leases, less current maturities 26,928
-----------
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares
authorized, 2,343,135 shares issued and
outstanding 2,087,361
Accumulated deficit (1,738,266)
-----------
Total stockholders' equity 349,095
-----------
Total liabilities and stockholders' equity $ 936,997
===========SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Thousands, except per share data)
| | | Three Months Ended March 31, 2008 | | | Three Months ended March 31, 2007 | |
| NET SALES | | $ | 1,056 | | | $ | 1,137 | |
| | | | | | | | | |
| COST OF GOODS SOLD | | | 962 | | | | 1,083 | |
| | | | | | | | | |
| GROSS PROFIT | | | 94 | | | | 54 | |
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| Sales and marketing | | | 390 | | | | 371 | |
| | | | | | | | | |
General and administrative (non-cash of $1.5 million and $12.9 million for the three months ended March 31, 2008 and 2007) | | | 1,999 | | | | 13,990 | |
| Research and development | | | 15 | | | | 335 | |
| | | | 2,404 | | | | 14,696 | |
| LOSS FROM OPERATIONS | | | (2,310 | ) | | | (14,642 | ) |
| OTHER INCOME (EXPENSE) | | | | | | | | |
| | | | | | | | | |
| Interest expense, net | | | (46 | ) | | | (216 | ) |
| Other income | | | 1 | | | | 23 | |
| | | | (45 | ) | | | (193 | ) |
| LOSS BEFORE INCOME TAXES | | | (2,355 | ) | | | (14,835 | ) |
| | | | | | | | | |
| PROVISION FOR INCOME TAXES | | | (4 | ) | | | (4 | ) |
| NET LOSS | | $ | (2,359 | ) | | $ | ( 14,839 | ) |
| | | | | | | | | |
| NET LOSS PER COMMON SHARE | | | | | | | | |
| BASIC and DILUTED | | $ | (0.04 | ) | | $ | (0.36 | ) |
| | | | | | | | | |
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING — BASIC AND DILUTED | | | 57,355 | | | | 41,526 | |
The accompanying notes are an integral part of theseto condensed consolidated financial statements (unaudited).
- 2
ZAP POWER SYSTEMS
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter ended September 30, Nine Months ended September 30,
1997 1996 1997 1996
- -
ZAP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
| | | Three months ended March 31 | |
| | | 2008 | | | 2007 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
| Net loss | | $ | (2,359 | ) | | $ | (14,839 | ) |
| Items not requiring the use of cash: | | | | | | | | |
| Amortization of note discount | | | 65 | | | | 85 | |
| Stock-based compensation for consulting and other services | | | 1,209 | | | | 887 | |
| Stock-based employee compensation | | | 318 | | | | 12,040 | |
| Depreciation and amortization | | | 60 | | | | 114 | |
| Allowance for doubtful accounts | | | (3 | ) | | | 20 | |
| Changes in other items affecting operations: | | | | | | | | |
| Receivables | | | 219 | | | | (38 | ) |
| Inventories | | | (522 | ) | | | 330 | |
| Prepaid expenses and other assets | | | (211 | ) | | | 79 | |
| Accounts payable | | | (53 | ) | | | (66 | ) |
| Accrued liabilities | | | (610 | ) | | | (217 | ) |
| Deferred revenue | | | (42 | ) | | | (164 | ) |
| Net cash used for operating activities | | | (1,929 | ) | | | (1,769 | ) |
| CASH FLOWS FROM INVESTING ACTIVITES | | | | | | | | |
| Purchase of equipment | | | | | | | (18 | ) |
| Proceeds from sale of equipment | | | 130 | | | | - | |
| Net cash provided by ( used for) investing activities | | | 130 | | | | (18 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
| | | | | | | | | |
| Issuance of common stock and warrants, net of offering costs | | | | | | | 1,045 | |
| Borrowings of long-term debt, net of offering costs | | | | | | | 1,185 | |
| Repayments of long term debt | | | (26 | ) | | | (42 | ) |
| Net cash provided by (used by) financing activities | | | (26 | ) | | | 2,188 | |
| NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS | | | (1,825 | ) | | | 401 | |
| | | | | | | | | |
CASH AND CASH EQUIVALENTS, beginning of period | | | 4,339 | | | | 2,160 | |
| | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | | | 2,514 | | | | 2,561 | |
See accompanying notes to condensed consolidated financial statements (Unaudited)
- ----------------------------------------------------------------------------------------------
NET SALES $ 501,025 $ 403,618 $ 1,327,148 $ 852,634
COST OF GOODS SOLD 328,443 278,047 1,035,096 618,225
----------- ----------- ----------- -----------
GROSS PROFIT 172,582 125,571 292,052 234,409
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling 159,516 152,186 424,887 340,038
General and administrative 136,652 156,776 500,873 362,592
Research and development 66,475 28,239 185,002 58,386
----------- ----------- ----------- -----------
362,643 337,201 1,110,762 761,016
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (190,061) (211,630) (818,710) (526,607)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (6,356) (3,607) (22,217) (6,517)
Other 4,185 2,856 9,537 10,278
----------- ----------- ----------- -----------
(2,171) (751) (12,680) 3,761
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (192,232) (212,381) (831,390) (522,846)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (192,232) $ (212,381) $ (831,390) $ (522,846)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE $ (0.08) $ (0.11) $ (0.37) $ (0.28)
=========== =========== =========== ===========
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 2,319,328 1,972,094 2,233,385 1,848,479
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements
3
ZAP POWER SYSTEMS
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
1997 1996
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (831,390) $ (522,791)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 46,024 32,400
Allowance for doubtful accounts (2,538) 4,700
Issuance of common stock for services rendered 67,770 56,000
Changes in:
Receivables (140,286) (28,000)
Inventories (23,581) (86,067)
Prepaid expenses 29,155 --
Deposits 165,981 (1,658)
Accounts payable (107,753) 116,187
Accrued liabilities and other expenses (27,453) 54,034
----------- -----------
Net cash used by operating activities (824,071) (375,195)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (80,618) (74,639)
Investment in subsidiaries (13,882) --
Patent Defense (13,113) --
----------- -----------
Net cash used by investing activities (107,613) (74,639)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 30,000 83,362
Proceeds from long-term debt 25,000
Decrease in restricted cash 10,000
Sale of common stock, net of stock offering costs 1,000,405 420,942
Principal repayments on long-term debt (9,409) (4,600)
Payments on obligations under capital leases (9,509) (3,380)
Principal repayments on note payable (122,000) 10,000
----------- -----------
Net cash provided by financing activities 899,487 531,324
----------- -----------
NET INCREASE/(DECREASE) IN CASH (32,197) 81,490
CASH, beginning of period 161,582 21,800
----------- -----------
CASH, end of period $ 129,385 $ 103,290
=========== ===========
The accompanying notes are an integral part of these financial statements
4
- -
ZAP POWER SYSTEMS
AND SUBSIDIARIES
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements included in this Form 10-QSB have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. All adjustments (all of which are of a normal recurring nature) considered necessary for a fair presentation have been condensedincluded. Operating results for the three months ended March 31, 2008 are not indicative of the results that may be expected for the year ending December 31, 2008 or omitted, pursuant to such rules and
regulations, although management believes the disclosures are adequate to make
the information presented not misleading. The results of operations for any interim period are not necessarily indicative of results for a full year.other future period. These condensed consolidated financial statements and the notes thereto should be read in conjunction with the audited financial statements and related notes thereto included in the Company'sour Annual Report on Form 10-KSB for the year ended December 31, 1996.
The financial statements presented herein as of September 30, 19972007 filed with the Securities and September
30, 1996, and for the interim results of operations for the three months and
nine months ended September 30, 1997 and September 30, 1996 reflect,Exchange Commission (the “SEC”) on April 14, 2008 (our “2007 10-K”).
We face intense competition, which could cause us to lose market share. Changes in the opinionmarket for electrical or fuel-efficient vehicles could cause our products to become obsolete or lose popularity. We cannot assure you that growth in the electric vehicle industry or fuel-efficient cars will continue and our business may suffer if growth in the electric vehicle industry or fuel-efficient market decreases or if we are unable to maintain the pace of management, allindustry demands. We may be unable to keep up with changes in electric vehicle or fuel-efficient technology and, as a result, may suffer a decline in our competitive position. The failure of certain key suppliers to provide us with components could have a severe and negative impact upon our business. Product liability or other claims could have a material adjustments consisting only of normal
recurring adjustments necessary for a fair presentation of the financial
position, results of operationsadverse effect on our business. We may not be able to protect our Internet address. Our success is heavily dependent upon protecting our intellectual property rights.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Basic and cash flow for the interim periods.
Thediluted net lossincome (loss) per common share is based on net income (loss) for the relevant period, divided by the weighted average number of common shares outstanding in each period. CommonDiluted net income per share gives effect to all potentially dilutive common shares outstanding during the period such as options, warrants, convertible preferred stock, equivalentsand contingently issuable shares. Potentially dilutive securities associated with stock options, warrants and convertible preferred stock and debt have been excluded from the weighted average shares outstandingdiluted net loss per share amounts, since the effect of these securities would be anti-dilutive. (2)At March 31, 2008, these potentially dilutive securities include options for 9 million shares of common stock, warrants for 48 million shares of common stock and debt convertible into 4 million shares of common stock.
PRINCIPLES OF CONSOLIDATION - RECEIVABLES
September 30, 1997
------------------
TradeThe accounts receivable $ 217,596
Less allowanceof the Company and its consolidated subsidiaries are included in the condensed consolidated financial statements after elimination of significant inter-company accounts and transactions.
REVENUE RECOGNITION
The Company records revenues only upon the occurrence of all of the following conditions:
-The Company has received a binding purchase order or similar commitment from the customer or distributor authorized by a representative empowered to commit the purchaser (evidence of a sale);
-The purchase price has been fixed, based on the terms of the purchase order;
-The Company has delivered the product from its distribution center to a common carrier acceptable to the purchaser. The Company’s customary shipping terms are FOB shipping point; and
-The Company deems the collection of the amount invoiced probable.
The Company provides no price protection. Product sales are net of promotional discounts, rebates and return allowances.
The Company does not recognize sales taxes collected from customers as revenue.
DEFERRED REVENUE - One of the Company’s subsidiaries, Voltage Vehicles, sold licenses to auto dealerships under the ZAP name. The license agreements call for the licensee to purchase a minimum number of vehicles from ZAP each year. As the Company collects monies related to these agreements, it is classified as deferred revenue until the Company begins delivering a substantial number of vehicles to these dealerships on a regular basis over the terms of the agreement. The Company has recognized approximately $13,200 of license revenue and other adjustments for the three month period ended March 31, 2008, resulting in an ending balance of $707,000.
USE OF ESTIMATES - The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Estimates were made relating to the useful lives of fixed assets, valuation allowances, impairment of assets and valuation of stock-based compensation and contingencies. Actual results could differ materially from those estimates.
ACCOUNTS RECEIVABLE - The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral from its customers. The Company maintains allowances for doubtful accounts (13,862)
---------for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers should deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
INVENTORY - The Company maintains reserves for estimated excess, obsolete and damaged inventory based on projected future shipments using historical selling rates, and taking into account market conditions, inventory on-hand, purchase commitments, product development plans and life expectancy, and competitive factors. If markets for the Company’s products and corresponding demand were to decline, then additional reserves may be deemed necessary. Inventories consist primarily of vehicles, both gas and electric, parts and supplies, and finished goods and are carried at the lower of cost (first-in, first-out method) or market.
RECOVERY OF GOODWILL AND LONG-LIVED ASSETS - The Company evaluates the recovery of its goodwill and long-lived assets at least annually by analyzing its operating results and considering significant events or changes in the business environment.
WARRANTY - The Company provides 30 to 90 day warranties on its personal electric products and records the estimated cost of the product warranties at the date of sale. The estimated cost of warranties has not been significant to date. Should actual failure rates and material usage differ from our estimates, revisions to the warranty obligation may be required.
The Company has provided a 6 month warranty for the Xebra® vehicles. At March 31, 2008, the Company has recorded a warranty liability for $277,000 for estimated repair costs.
CASH AND CASH EQUIVALENTS - The Company considers highly liquid investments with maturities from the date of purchase of three months or less to be cash equivalents.
NOTE 3 STOCK ISSUED AS COLLATERAL – The collateral stock was returned to the Company in January of 2008, as the result of an agreement reached in December, 2007. In connection with the settlement of this matter International Monetary Group, Inc., a Delaware corporation; and Michael C. Sher dba the Law Offices of Michael C. Sher v. ZAP Corporation, a California corporation; and Steven Schneider, an individual, Sher returned stock certificates representing 1,291,176 shares of ZAP’s common stock to Company for cancellation and ZAP issued 387,500 shares of ZAP common stock to IMG.
NOTE 4 STOCK-BASED COMPENSATION
We have stock compensation plans for employees and directors. We recognize the stock-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. All of our stock-based compensation is accounted for as an equity instrument.
On January 26, 2007, the Company extended the expiration date of 21.8 million warrants previously issued to employees and officers by five years to July 1, 2012, with new exercise prices ranging from $1.00 to $1.20. As a result of the modification of the warrants, the Company determined the fair value of the warrants immediately prior to and after the modification. The incremental difference in value resulted in the recognition of $11.7 million in non-cash compensation expense during the first quarter of 2007. The Company valued the modified warrants at $0.57 per share using a Black-Scholes option pricing model with the following assumptions: risk free interest rate of 4.98%; dividend rate of 0.00%; volatility of 123%, and expected term of 2.7 years.
Under the provisions of SFAS 123R, we recorded $ 203,734
=========
(3) 249,000 of stock compensation, net of estimated forfeitures, in general and administrative expenses, in our unaudited condensed consolidated statement of operations for the three months ended March 31, 2008 . We utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted after the adoption of SFAS 123R, with the following range of assumptions for the three months ended March 31, 2008:
| | 2008 | |
| Expected Dividend yield | | 0% | |
| Expected volatility | | | 114.34-126.16 | |
| Risk-free interest rate | | | 2.64-3.06 | |
| Expected life (in years) from grant date | | | 2.5 to 5.00 | |
| Exercise price | | | $0.81 to $1.20 | |
The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. Expected volatility is based upon historical volatility of our common stock over the period commensurate with the expected life of the options. The risk-free interest rate is derived from the average U.S. Treasury Constant Maturity Rate during the period, which approximates the rate in effect at the time of the grant. Our unvested options vest over the next three years. Our options generally have a 10-year term. The expected term is calculated using the simplified method prescribed by the SEC’s Staff Accounting Bulletin 107. Based on the above assumptions, the weighted-average fair values of the options granted under the stock option plans for the three months ended March 31, 2008 was $0.84. We estimate forfeitures of employee stock options and recognize compensation cost only for those awards expected to vest. Forfeiture rates are determined based on historical experience. Estimated forfeitures are adjusted to actual forfeiture experience as needed.
A summary of options under the Company’s stock option plans from December 31, 2007 through March 31, 2008 is as follows:
| | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value |
| Outstanding December 31, 2007 | 11,276,000 | | $ | 1.03 | | 8.32 | |
| Options granted under the plan | 104,000 | | $ | 0.84 | | 9.75 | |
| Options exercised | — | | | | | | |
| Options forfeited and expired | | | | — | | | |
| Outstanding March 31, 2008 | 11,380,000 | | | | | | |
Aggregate intrinsic value is the sum of the amounts by which the quoted market price of our stock exceeded the exercise price of the options at March 31, 2008, for those options for which the quoted market price was in excess of the exercise price (“in-the-money-options”). There were no options in the money at March 31, 2008.
As of March 31, 2008, total compensation cost of unvested employee stock options is $1.2 million. This cost is expected to be recognized through March 2011. We recorded no income tax benefits for stock-based compensation expense arrangements for the three months ended March 31, 2008, as we have cumulative operating losses, for which a valuation allowance has been established.
NOTE 5 INVENTORIES, September 30, 1997
------------------
Raw materials $ 181,834
Work-in-process 68,536
Finished goods 19,781
---------
$ 270,151
=========
(4) - PROPERTY AND EQUIPMENT
September 30, 1997
------------------
Demonstration items $ 79,638
Machinery and equipment 45,122
Equipment under capital leases 45,940
Office furniture and fixtures 37,985
Computers 19,135
Leasehold improvements 10,432
Vehicle 4,300
---------
242,552
Less accumulated depreciation and amortization (102,352)
---------
$ 140,200
=========NET- Inventories at March 31, 2008 are summarized as follows (thousands):
| Vehicles - conventional | | $ | 258 | |
| Advanced transportation vehicles | | | 1,052 | |
| Parts and supplies | | | 598 | |
| Finished goods | | | 353 | |
| | | | 2,261 | |
| Less-inventory reserve | | | (302 | ) |
| | | $ | 1,959 | |
NOTE 6 LONG-TERM DEBT
CONVERTIBLE DEBT
8% Senior Convertible Notes
On December 5,
(5) - NOTES PAYABLE
September 30, 1997
------------------
Notes to stockholders, with interest at 12%;
interest and principal due2006, when the market price of the Company’s common stock was $0.89 per share, the Company entered into a Securities Purchase Agreement with three institutional and accredited investors or purchasers pursuant to which the Company sold to the purchasers $1.5 million aggregate principal amount of 8% senior convertible notes maturedue December 5, 2008 (the “Notes due 2008”) and warrants to purchase 450,000 shares of common stock of the Company (the “Initial Warrants”) in Novembera private placement. The Notes due 2008 were originally convertible at $1.00 per share (the “Conversion Price”) into 1,500,000 shares of the Company’s common stock, subject to anti-dilution and other adjustments. The Initial Warrants, each immediately exercisable and expiring on December 1997. 5, 2011, are exercisable at $1.10 per share, subject to anti-dilution and other adjustments.
On February 20, 2007, when the market price of the Company’s common stock was $1.08 per share, the Company entered into a Purchase and Amendment Agreement (the “Amendment”), amending the Securities Purchase Agreement entered into by the Company on December 5, 2006 (the “Original Agreement” and as amended by the Amendment, the “Agreement”), with several institutional and accredited investors or purchasers pursuant to which the Company sold to the purchasers $1.2 million aggregate principal amount of 8% senior convertible notes due February 2009 (the “Notes due 2009” and with the Notes due 2008, the “Notes”) and warrants to purchase 360,000 shares of the common stock of the Company (the “Additional Warrants” and with the Initial Warrants, the “Warrants”), in a private placement. The transaction closed on February 22, 2007 (the “February 2007 financing”). The Notes due 2009 were originally convertible at $1.00 per share into 1,200,000 shares of the Company’s common stock, subject to anti-dilution and other adjustments.
On June 26, 2007, the Company entered into an Amendment Agreement (the “Second Amendment”) with the purchasers to adjust certain provisions of the Notes and Initial Warrants as a consequence of selling shares to a third party investor for per share consideration less than the conversion price of the Notes and exercise price of the Initial Warrants. As a result, the conversion price of the Notes was reduced to $0.72 per share.
The Notes provide for quarterly interest to be paid in cash, or subject to certain conditions, by issuing shares of common stock. If the Company is eligible and elects to pay quarterly interest in stock, the price per share used
to calculate the number of shares due for interest will be calculated by reducing the market price of the shares by 5% (as defined).
The Company used the proceeds from the issuance of the Notes for general working capital purposes and to increase the capacity of its product distribution network.
The Company paid fees of $40,000 related to the Notes. These cash fees have been recorded as deferred offering costs and are being amortized over the life of the Notes.
The note holders have been issued
warrantsconverted approximately $2.2 million of the debt into common shares of ZAP, leaving an unpaid balance of approximately $430,000 at March 31, 2008.
On May 7, 2008, the Company entered into a settlement with Gemini Master Fund, LTD and Gemini Strategies,LLC, the holders of the 8% Senior Convertible Notes. The agreement reached requires the termination and cancellation of the notes in exchange for $475,000 in cash, provided by a related party, and 100,000 common shares of ZAP common stock. See Note:11, subsequent events for a further description of the transaction.
SECURED CONVERTIBLE DEBT
The Company has a $2 million convertible note due in March 2025, with annual interest at 7.5%, the note is payable with equal principal and interest payments over 240 months. The note holder has the option to purchase, inconvert some or all of the aggregate,
21,800unpaid principal and accrued interest to shares of ZAP’s common stock at $5.25$2.15 per share or an agreed upon conversion price (as defined). The note was issued in exchange for the purchase of the Company’s new corporate headquarters and is secured by this property. The note has a balance of $1.7 million at March 31, 2008.
NOTE 7 INCOME TAXES
We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109, or FIN 48, on January 1, 2007. Upon adoption of FIN 48, we commenced a review of our tax position taken in our tax returns that remain subject to examination. Based upon our review, we do not believe we have any unrecognized tax benefits or that there is a material impact on our financial condition or results of operations as a result of implementing FIN 48.
We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. We are subject to U.S. federal or state income tax examinations by tax authorities for all years in which we reported net operating losses that are being carried forward. We do not believe there will be any material changes in our unrecognized tax positions over the next 12 months.
We recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FIN 48, we did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized for the period ended March 31, 2008.
NOTE 8 SHAREHOLDERS’ EQUITY
On July 1, 2002, ZAP’s stock began trading on the National Association of Securities Dealers, Inc. Electronic Bulletin Board (the “OTC Bulletin Board”) under the stock symbol of “ZAPZ.” In 2006, the Company briefly traded on the ACRAEX under the symbol “ZP”. In November, 2006, since the Company could not meet the listing requirements of the ARCEX, ZAP’s common stock was approved for quotation on the OTC Bulletin Board under the symbol “ZAAP.”
NOTE 9 RELATED PARTY TRANSACTIONS
Consulting Agreement
On September 1, 2007, the Company and Mr. Albert Lam, who became a director of the Company in October 2007, entered into an Independent Consulting Agreement (“Consulting Agreement”). Pursuant to the Consulting Agreement, Mr. Lam was to consult and advise the Company in the areas of Chinese manufacturing, facilities, tooling, financing, and contract negotiations on an independent consultant basis. Mr. Lam’s compensation under the Consulting Agreement was: 200,000 shares of the Company’s common stock valued at $194,000, issued under the Company’s 2007 Consultant Stock Plan (the “Plan”); a warrant to purchase 200,000 shares of the Company’s common stock valued at $131,000, expiring five years after grant, with an exercise price of $1.00 per share, issued under the Plan; and a warrant to purchase 1,000,000 shares of the Company’s common stock valued at $654,000, expiring five years after grant, with an exercise price of $1.00 per share and a net exercise provision.
The Consulting Agreement expired on September 30, 2007, and expense totaling $979,000 related to the consulting agreement was recorded in the third quarter of 2007.
The Company also paid Mr.Lam $65,000 in the first quarter of 2008 for consulting services. In addition his travel expenses were also reimbursed.
On October 22, 2007, the Board of Directors (“Board”) of ZAP (“Company”) appointed Albert Lam as a director of the Company.
Rental agreements
The Company rents office space, land and warehouse space from Mr. Steven Schneider, its CEO and major shareholder. These properties are used to operate the car outlet and to store inventory. Rental expense was approximately $21,000 for both the three months ended March 31, 2008 and 2007.
Financing provided to the Company
On May 7, 2008, the Company entered into a settlement with Gemini Master Fund, LTD and Gemini Strategies,LLC, the holders of the 8% Senior Convertible Notes. The agreement reached requires the termination and cancellation of the notes in exchange for $475,000 in cash and 100,000 common shares of ZAP common stock. In connection with the aforementioned, ZAP received the necessary funds of $475,000 through October, 1999. $ 109,000
Notesa note payable to a stockholder, withAl Yousuf LLC . The note bears interest at 10%;
principalthe greater of 6 month LIBOR plus 250 basis points or 6% per annum and interestmay be converted into securities of the Company at the option of the noteholder in accordance with the terms of the note. The note is due whenscheduled to mature on November 8, 2008. Eqbal Al Yousuf, who is a director of ZAP, is also the President of Al-Yousuf, LLC.
Sale of Portable Energy Product Line
In March 2008, ZAP signed a draft agreement with Al-Yousuf LLC for the sale of the portable energy product line for $1,000,000 in exchange for a 50% ownership in a new company. Both ZAP and Al-Yousuf will each own 50%. Eqbal Al Yousuf, who is a director of ZAP, is also the President of Al-Yousuf LLC. The Company also had an independent valuation of the portable energy line prepared where the value determined approximated the selling price. The final arrangements for the sale of the portable energy line are being completed as of May 14, 2008 and the Company anticipates receiving the funds shortly.
Note 10 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
| | | Three Months Ended | |
| | | March 31, (in thousands) | |
| | | 2008 | | | 2007 | |
| Cash paid during the period for interest | | $ | 15 | | | $ | 16 | |
| Cash paid during the period for income taxes | | $ | 4 | | | $ | 4 | |
| Non-cash investing and financing activities: | | | | | | | | |
| Stock and warrants issued for: | | | | | | | | |
| Re-payment of 8% Senior debt | | $ | 250 | | | $ | — | |
| | | | | | | | | |
NOTE 11 - SUBSEQUENT EVENTS
On May 7, 2008, the Company entered into a settlement with Gemini Master Fund, LTD and Gemini Strategies, LLC, the holders of the 8% Senior Convertible Notes. The agreement reached requires the termination and cancellation of the notes mature in December, 1997;
unsecured 35,362
-----------
$ 144,362
===========
(6) - COMMON STOCKexchange for $475,000 in cash and 100,000 common shares of ZAP common stock. In November 1996,connection with the aforementioned agreement ZAP has obtained the funds of $475,000 through a note payable to Al Yousuf, LLC. The note bears interest at the greater of 6 month LIBOR plus 250 basis points or 6% per annum and may be converted into securities of the Company began offering for sale, directly toat the public,
500,000 sharesoption of common stock at $5.25 per share. The net proceeds from the sale are to be used to retire certain debt, increase manufacturing capacity, and
provide working capital for new product development and general purposes.
ItemNote Holder in accordance with the terms of the note. Eqbal Al Yousuf who is a director of ZAP, is also the President of Al-Yousulf, LLC.
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF PLAN OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Special Note Regarding Forward-Looking Statements
Certain statements
THIS QUARTERLY REPORT OF FORM 10-Q, INCLUDING THE FOLLOWING MANAGEMENT’S DISCUSSION AND ANALYSIS, AND OTHER REPORTS FILED BY THE REGISTRANT FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION (COLLECTIVELY THE “FILINGS”) CONTAIN FORWARD-LOOKING STATEMENTS WHICH ARE INTENDED TO CONVEY OUR EXPECTATIONS OR PREDICTIONS REGARDING THE OCCURRENCE OF POSSIBLE FUTURE EVENTS OR THE EXISTENCE OF TRENDS AND FACTORS THAT MAY IMPACT OUR FUTURE PLANS AND OPERATING RESULTS. THESE FORWARD-LOOKING STATEMENTS ARE DERIVED, IN PART, FROM VARIOUS ASSUMPTIONS AND ANALYSES WE HAVE MADE IN THE CONTEXT OF OUR CURRENT BUSINESS PLAN AND INFORMATION CURRENTLY AVAILABLE TO US AND IN LIGHT OF OUR EXPERIENCE AND PERCEPTIONS OF HISTORICAL TRENDS, CURRENT CONDITIONS AND EXPECTED FUTURE DEVELOPMENTS AND OTHER FACTORS WE BELIEVE TO BE APPROPRIATE IN THE CIRCUMSTANCES. YOU CAN GENERALLY IDENTIFY FORWARD-LOOKING STATEMENTS THROUGH WORDS AND PHRASES SUCH AS “SEEK”, “ANTICIPATE”, “BELIEVE”, “ESTIMATE”, “EXPECT”, “INTEND”, “PLAN”, “BUDGET”, “PROJECT”, “MAY BE”, “MAY CONTINUE”, “MAY LIKELY RESULT”, AND SIMILAR EXPRESSIONS. WHEN READING ANY FORWARD-LOOKING STATEMENT YOU SHOULD REMAIN MINDFUL THAT ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING FUTURE EVENTS OR FUTURE PERFORMANCE OF OUR COMPANY, AND ARE SUBJECT TO RISKS, UNCERTAINTIES, ASSUMPTIONS AND OTHER FACTORS RELATING TO OUR INDUSTRY AND RESULTS OF OPERATIONS, INCLUDING BUT NOT LIMITED TO THE FOLLOWING FACTORS:
WHETHER THE ALTERNATIVE ENERGY AND GAS-EFFICIENT VEHICLE MARKET FOR OUR PRODUCTS CONTINUES TO GROW AND, IF IT DOES, THE PACE AT WHICH IT MAY GROW;
OUR ABILITY TO ATTRACT AND RETAIN THE PERSONNEL QUALIFIED TO IMPLEMENT OUR GROWTH STRATEGIES,
OUR ABILITY TO OBTAIN APPROVAL FROM GOVERNMENT AUTHORITIES FOR OUR PRODUCTS;
OUR ABILITY TO PROTECT THE PATENTS ON OUR PROPRIETARY TECHNOLOGY;
OUR ABILITY TO FUND OUR SHORT-TERM AND LONG-TERM FINANCING NEEDS;
OUR ABILITY TO COMPETE AGAINST LARGE COMPETITORS IN A RAPIDLY CHANGING MARKET FOR ELECTRIC AND GAS-EFFICIENT VEHICLES;
CHANGES IN OUR BUSINESS PLAN AND CORPORATE STRATEGIES; AND
OTHER RISKS AND UNCERTAINTIES DISCUSSED IN GREATER DETAIL IN VARIOUS SECTIONS OF THIS REPORT, PARTICULARLY THE SECTION CAPTIONED “RISK FACTORS.”
SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.
EACH FORWARD-LOOKING STATEMENT SHOULD BE READ IN CONTEXT WITH, AND WITH AN UNDERSTANDING OF, THE VARIOUS OTHER DISCLOSURES CONCERNING OUR COMPANY AND OUR BUSINESS MADE IN OUR FILINGS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENT AS A PREDICTION OF ACTUAL RESULTS OR DEVELOPMENTS. WE ARE NOT OBLIGATED TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT CONTAINED IN THIS REPORT TO REFLECT NEW EVENTS OR CIRCUMSTANCES UNLESS AND TO THE EXTENT REQUIRED BY APPLICABLE LAW.
In this quarterly report on Form 10-Q the terms “ZAP,” “Company,” “we,” “us” and “our” refer to ZAP and its subsidiaries.
Overview
GENERAL
ZAP stands for Zero Air Pollution(R). With its new product offerings, the Company is positioned to become a leading brand and distribution portal of electric and other advanced technology vehicles. ZAP is committed to running its business based on a strong philosophical foundation that supports the environment, social responsibility and profitability.
ZAP’s strategy is to serve the growing and underrepresented consumer and fleet buyer that seeks electric and fuel efficient vehicles. With the recent increases in this Form 10-QSB, including information set forth
under this Item 2. "Management's Discussionthe cost of oil and Analysisincreasing concern about the environment and the effects of Financial Conditionglobal warming, we believe there is a large and Resultsuntapped demand in the areas of Operations" constitute "forward-looking statements" withintransportation and consumer products. During the meaningenergy crisis of the Private Securities Litigation Reform Act1970s, Japanese automobile manufacturers penetrated the United States market when domestic automobile manufacturers failed to anticipate changes. ZAP believes a similar opportunity is present today, enhanced by heightened environmental awareness, climate changes and economic pressures. ZAP has assembled a complete line of 1995 (the "ACT").products to meet the growing demands of the environmentally conscious consumer focused on two primary businesses: ZAP Automotive and ZAP Power Systems (the "Company") desires to avail itself of certain "safe harbor"
provisionsSystems.
ZAP was incorporated under the laws of the Act and is therefore including this special note to enableState of California, on September 23, 1994, as “ZAP Power Systems.” The name of the Company was changed to do so. Forward-looking statements included“ZAPWORLD.COM” on May 16, 1999 in this Form 10-QSB or
hereafter includedorder to increase our visibility in other publicly available documents filed with the Securitiesworld of electronic commerce. We subsequently changed our name to ZAP on June 18, 2001 in order to reflect our growth and Exchange Commission, reportsentry into larger, more traditional markets. Our principal executive offices are located at 501 Fourth Street Santa Rosa, California, 95401. Our telephone number is (707) 525-8658. Our website is www.zapworld.com. Please refer to it for further information on ZAP.
SUBSIDIARIES
We have the Company's stockholdersfollowing wholly owned subsidiaries : Voltage Vehicles, a Nevada company (“Voltage Vehicles”), ZAP Rental Outlet, a Nevada company (“ZAP Rentals”), ZAP Stores, Inc., a California company (“ZAP Stores”), ZAP Manufacturing, Inc., a Nevada company (“ZAP Manufacturing”) and other publicly available statements issued or releasedZAP World Outlet, Inc., a California company (“ZAP World”) ; Voltage Vehicles is engaged primarily in the distribution and sale of advanced technology and conventional automobiles; ZAP Stores is engaged primarily in consumer sales of ZAP products and ZAP Manufacturing is engaged primarily in the distribution of ZAP products. ZAP World Outlet and ZAP Rental Outlet are not currently operating subsidiaries. RAP Group and Voltage Vehicles were acquired by the Company involve
knownin July 2002. On October 1, 2006, the RAP Group surrendered its Dealer Vehicle License and unknown risks, uncertainties, and other factors which could causeceased operations. A new Electric Vehicle Dealership opened on 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 impliedold automobile lot location. All subsidiaries are 100% owned by such forward looking statements. Such
future results are based upon management's best estimates based upon current
conditions and the most recent results of operations.
Overview
The Company designs, assembles, manufactures and distributes electric
bicycle power kits, electric bicycles and tricycles, and other low-power
electric transportation vehicles. Historically, unit sales have been
approximately 65% kits and 35% electric bicycles. Dollar sales have been 50%
kits and 50% electric bicycles.
The Company sells its electric bicycles and kits to retail customers,
police departments, electric utility companies, bicycle dealerships and mail
order catalogs. Net revenue is net of returns. The Company sells to the mail
order catalogs and selected customers on credit with net 30-day terms. ManyZAP.
Recent Developments
Some of the
bicycle dealerships are sold cash on delivery. The retail sales are
primarily paidnoteworthy events for
with a credit card or personal check before shipment of the
product.
The Company manufactures an electric motor system that is sold as a kit
to be installed by the customer on their own bicycle. The Company also installs
the motor system on bicycles that the Company
buys. The Company then sellsthat occurred during the
complete electric bicycle to the customer. The Company purchases complete
bicycles from various bicycle manufacturers for use with the Company's electric
motor system. The Company manufactures the electric motor kit, which has
approximately 62 unique parts. The manufacturing of the electric motor kit and
the
6
installation of the motor systems to the bicycles are done at its Sebastopol
location. The electric motors are purchased from an original equipment
manufacturer (OEM) in the auto and air-conditioning industry. The Company is
using one vendor 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 and security industries for power
interrupt systems. The electronic system uses standard electronic components.
U.P.S. and Federal Express usually ship the electric motor kits and
electric bicycles sold by ZAP. Larger quantity orders to wholesale distributors
are shipped common carrier. The Company has developed long term purchase
arrangements with its key vendors. The Company has no contractual relationships
with any of its vendors.
The Company recently began manufacturing an electric scooter known as the
"Zappy". The patent on this product is currently pending. Sixty orders have been
received on this product which is expected to be available some time in
December.
The Company as of September 30, 1997 had a $180,949 sales backlog. The
company expects to fill these orders within the next 60 days. Additionally, a
contract with Central and South West Services, Inc., is in progress subject to
SEC approval. The finalized documentation with the effective date will determine
if and when SEC approval is granted. The contract is for $500,000 in products
beginning in the fourthfirst quarter of 19972008 and extending out through the middledate of 1998. The company also has purchase orders in hand in excess of $1Million.
Although these purchase ordersthis report are in hand, no assurance can be made that either
the Central and South West or the others will be less than their orders.
The Company's growth strategy is to increase net sales by augmenting its
marketing and sales force, and by increasing distribution channels through
retail organizations and wholesale distributors both domestically and overseas.
The company is also working on setting up franchise stores to assist in the
retail sales arena. Currently California and Florida have been the only states
with approval for this venture. The Company will continue to increase its
production capability to meet the increasing demand for its product. The Company
will continue to develop the product so that it is the low cost leader in the
industry. Product improvements and new product introductions will continue to
enlarge ZAP's presence in the electric vehicle industry.
as follows:
| 1. | In February, we added six new electric car dealers at our first dealer sales and service training of 2008. In addition, we received signed purchase orders totaling 614 Xebra sedans and trucks. The signed purchase order agreements were for a mixture of ZAP Xebra electric sedans and trucks. The orders also include the Zapino, ZAPPY3 PRO, ZAPPY3 EZ and the ZAP Mid-Sized ATV. Overall, through April 15, the purchase orders including all the different vehicles total $6.8 million. Dealers are expected to take delivery of a minimum of ten cars a month over the next twelve months. |
| 2. | With gasoline prices predicted to reach new records in 2008 and government and corporate fleets seeking to reduce costs. We are introducing a new electric truck for fleets with a greater payload rating. A prototype of the ZAP XL Truck has been completed and production models are expected for delivery to customers by the fall of this year. In the United States, the XL Truck will meet full Department of Transportation requirements for Low Speed Vehicles. As part of ZAP’s global distribution strategy, the ZAP Truck XL will be designed to meet or exceed government certifications that would allow for distribution throughout most of the world. |
| 3. | We signed an agreement with The Coca-Cola Company to use 30 of its compact trucks for a new beverage distribution system in Montevideo, Uruguay. Officials say that the new distribution model using these trucks averages about one-fifth the fuel consumption of the former model. Recently Coca-Cola announced a pledge to the environment as part of its policy of corporate social responsibility. |
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:
Quarter ended September 30, Nine months ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
Statements of Income Data:
Net sales........................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................... 65.6 68.9 78.0 72.5
Gross profit (Loss).............................. 34.4 31.1 22.0 27.5
Operating expenses.............................. 72.4 83.5 83.7 89.3
Loss from operations............................. (38.0) (52.4) (61.7) (61.8)
Other income (expense).......................... (0.4) ( 0.2) (1.0) 0.5
Loss before income taxes......................... (38.4) (52.6) (62.7) (61.3)
Provision for income taxes....................... 0.0 0.0 0.0 0.0
Net loss......................................... (38.4) (52.6) (62.7) (61.3)
Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996
Net sales for the quarter ended September 30, 1997, were $501,025 compared to
$403,618 in the prior year, an increase of $97,407 or 24%. The increase in sales
is primarily attributed to sales of complete electric bicycles, electric motor
kits, and scooters.
Gross profit (loss). Gross profit increased as a percentage of net sales,
to
34% from 31%. The total gross profit increased $47,011 or 37%. This increase is
due to improved cost efficiency and stronger inventory controls.
7
Selling expensescertain items included in the quarter ended September 30, 1997 were $159,519 as
comparedCompany’s Income Statements (see Financial Statements and Notes) for the periods indicated:
| | Three months ended March 31, | |
| | 2008 | | | 2007 | |
| Statements of Operations Data: | | | | | |
| Net sales | | | 100.0 | % | | | 100.0 | % |
| Cost of sales | | | (91.1 | )% | | | (95.3 | )% |
| Operating expenses | | | (227.6 | )% | | | (1,292.5 | )% |
| Loss from operations | | | (218.7 | )% | | | (1,287.8 | )% |
| Net loss | | | (223.2 | )% | | | (1,305.1 | )% |
Quarter Ended March 31, 2008 Compared to $152,186Quarter Ended March 31, 2007
Net sales for the quarter ended September 30, 1996. ThisMarch 31, 2008 were $1 million compared to $1.1 million for the period ended March 31, 2007. Sales of vehicles were $927,000 versus $964,000 in 2007. The slight decrease was andue to changes in factory locations. The consumer products decreased from $173,000 in 2007 to $120,000 for the three months ended March 31, 2008 due to changes in production mix.
Gross profit the overall gross profit increased from $54,000 for the first quarter ended March 31, 2007 to $94,000 for the quarter ended March 31, 2008. The primary reason for the increase of $7,333 or 5%was due to less quality control issues with the Xebra Electric vehicles and portable energy.
Sales and marketing expenses increased by $19,000 from 1996$371,000 for the quarter ended March 31, 2007 to 1997.$390,000 in 2008. As a percentage of sales, total selling expenses decreasedalso increased from 38%33% of sales in 2007 to 32% of sales. This37% in 2008. The increase was due to an
increase inhigher sales compared to the 1996 period.
and marketing expenses for outside consultants.
General and administrative expenses decreased by $12 million from $14 million for the quarter ended March 31, 2007 to $2 million in 2008. The primary decrease was due to non-cash expenses of $12 million of expense to account for the modification and extension of certain expiring warrants that were issued to shareholders per the plan of reorganization in June of 2002 and also to current ZAP employees for compensation purposes. The warrants were extended by five years until July, 2012 with the exercise prices also adjusted. This modification was a one-time expense that occurred in 2007. Many of the other operating expenses for the quarter ended September 30,
1997 were $136,652. This is a decrease of $20,124 or 13% from 1996. As a
percentage of sales, general and administrative expense decreased to 27% from
39% of net sales. Expense decreases duringMarch 31, 2008 remained comparable with the 3rdfirst quarter of 1997 as compared
to the 3rd quarter of 1996 resulted from reduced personnel needs and greater
cost controls.
2007.
Research and development increased $38,236 or 135%expenses decreased from $335,000 in 2007 to $15,000 in the 3rdfirst quarter of 1997 as compared2008. In 2007, the Company’s spent $335,000 for a project with Lotus Engineering to develop a new electric car based on the 3rd quarter of 1996. AsAPX (Aluminum Performance Crossover) concept, which showcases Lotus Engineering’s Versatile Vehicle Architecture technology . The vehicle, the ZAPX, will be a percentage of net sales it
increased to 13% of salesproduction-ready electric all-wheel drive crossover high performance vehicle for ZAP in the 3rdUSA market.
Interest expense, net decreased from $216,000 in first quarter of 1997 as compared2007 to 7% of sales$46,000 in the 3rdfirst quarter of 1996.2008. The expense increase in the 3rd quarter of 1997 was
due to increased efforts to create new products including the new "Zappy" to be
introduced in December as well as products for the China Market. Additionally,
the company is renting a second building for the Research and Development group.
Other income (expense) decreased $1,420 or 189% in the 3rd quarter of 1997
as compared to 1996. This decrease was due to lower interest expense increasing $2,749for the senior convertible notes since most of the debt had been converted in 2007.
Other income, net decreased from $23,000 for the first quarter of 2007 to $1,000 in the thirdfirst quarter of 1997 as compared to 1996.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Net sales for the nine months ended September 30, 1997, were $1,327,148
compared with $852,634 in the nine months ended September 30, 1996, an increase
of $474,514 or 56%.2008. The increase in sales is attributed to sales of both
complete electric bicycles and electric motor kits to a large bicycle company.
The company has also increased its sales impact overseas.
Gross profit (loss). Gross profit decreased as a percentage of net sales,
from 27% to 22%. The total gross profit increased $57,643 or 25%. The gross
profit as a percentage of sales decrease was due to less miscellaneous fees earned by the earlier liquidationcompany.
Net Loss the Company reported a net loss of the 1996 models in January of 1997, additional manufacturing costs associated
with the startup of the 1997 models, and the additional assembly costs
associated with the production of the new single motor bicycle.
Selling expenses in the nine months ended September 30, 1997 were $424,887.
This was an increase of 84,849 or 25% from the same period in 1996. As a
percentage of sales, selling expenses decreased from 40% of sales to 32% of
sales. This was due to a greater percentage of increased sales in comparison to
the dollars spent on selling costs.
General and administrative expenses$2.4 million for the nine monthsquarter ended September 30,
1997 were $500,873. This is an increase of $138,281 or 38% from 1996. As a
percentage of sales, general and administrative expenses decreased from 43% to
38% of net sales. Expense increases during the nine months ended September 30,
1997 as compared to the nine months ended September 30, 1996 resulted from the
expense increases in accounting and administration to support the Company's
sales growth, increases in sales and corporate development, and legal fees
associated with opening ZAP electric vehicle franchise outlet stores.
Research and development increased $122,616 or 217% in the nine months
ended September 30, 1997, as compared to the nine months ended September 30,
1996. As a percentage of net sales it increased to 14% of sales in the nine
months ended September 30, 1997 as compared to 7% of sales in the nine months
ended September 30, 1996. The expense increase in the nine months ended
September 30, 1997 was related to development of the "Zappy" that will be
introduced in December, the new single motor electricruizer, the new worldbike,
and vehicles for the China market.
Other income (expense) decreased $16,441 or 437% in the nine months ended
September 30, 1997 compared to the nine months ended September 30, 1996. This
decrease was due to interest expense increasing $15,700 in the nine months ended
September 30, 1997 as compared to the nine months ended September 30, 1996.
8
Liquidity and Capital Resources
In the nine months ended September 30, 1997 the Company had a cash deficit
of $831,390 from operationsMarch 31, 2008 as compared to a net loss of $14.9 million for period ended March 31, 2007.The additional losses in 2007 were primarily due to the modification and extension of certain expiring warrants that were issued by the Company to selected shareholders and current ZAP employees.
Liquidity and Capital Resources
In the first three months of 2008 net cash deficit of $522,791used for operating activities was $1.9 million as compared to $1.8 million in 2007. Cash used in the ninefirst three months of 2008 was comprised of the net loss incurred for the first three months of $2.4 million plus net non-cash expenses of $1.7 million plus the net change in operating assets and liabilities resulting in a use of cash of $1.2 million. Cash used in operations in the first three months of 2007 was comprised of the net loss of $14.8 million plus net non-cash expenses of $13.1 million, and the net change in operating assets and liabilities resulting in a use of cash of $76,000.
Investing activities provided cash of $130,000 in the first three months ended September 30, 1996.March 31, 2008 while cash of $18,000 was used in the first three months ended March 31, 2007.
Financing activities used cash of $26,000 during the first three months ended March 31, 2008 for the repayment of long-term debt. In order2007 cash of $2.2 million was provided during the first three months ended March 31, 2007 due to meet all of the Company's
operating expenses the Company relied on the salesissuance of common stock and issuing
notes payable.
In the nine months ended September 30, 1997 the Company raised a totalborrowings of $1,000,405 from common stock sales and $30,000 from the issuance of notes
payable. In the nine months ended September 30, 1996 the Company raised $420,942
from stock sales and $83,362 from the issuance of notes payable. funds.
The Company was
cleared by the SEChad cash of $2.5 million at March 31, 2008 as compared to sell public shares on November 29, 1996. The funds
received from this direct public offering in the nine months ended September 30,
1997 were utilized to pay down accounts payable$4.3 million at December 31, 2007 and accrued expenses and to pay
the Company's operating expenses.$2.6 million at March 31, 2007. At September 30, 1997 and 1996,March 31, 2008, the Company had a working capital of $128,581$2.7 million compared to $3.4 million at December 31, 2007 and ($46,308) respectively. Asworking capital of September 30, 1997,$415,000 at March 31, 2007.
We do not have a bank operating 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 Company had
total current assetsissuance of $689,555, including cash of $129,385, accounts
receivable of $203,784, inventories of $270,151, and prepaid expenses of
$86,285. The Company's current liabilities as of September 30, 1997 were
$560,974, including accounts payable and accrued expenses of $228,912, notes
payable of $144,362 and $11,650 of current maturity of long-term debt and
leases. The balance of notes payable issued in November and December of 1996equity securities, investors may experience significant dilution in the amountnet book value per share of $109,000 are due in Novembercommon stock and Decemberthere is no guarantee that a market will exist for the sale of 1997. These note
holders were grantedthe Company’s shares.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition
The Company records revenues only upon the occurrence of all of the following conditions:
-The Company has received a totalbinding purchase order or similar commitment from the customer or distributor authorized by a representative empowered to commit the purchaser (evidence of 21,800 warrants. The proceeds from this
placement went to fund increased inventory levels, accounts receivables, capital
expenditures and the Company's public stock offering expenses. The balance of
notes payable $35,362, was an unsecured note with an interest rate of 10%. This
note is due in December of 1997. Deposits from customers as of September 30,
1997 include a prepayment from a large bicycle manufacturer paid to the Company
persale);
-The purchase price has been fixed, based on the terms of the purchase orderorder;
-The Company has delivered the product from them.
its distribution center to a common carrier acceptable to the purchaser. The Company’s customary shipping terms are FOB shipping point; and
-The Company deems the collection of the amount invoiced probable.
The Company hadprovides no price protection. Product sales are net cash providedof promotional discounts, rebates and return allowances.
The Company does not recognize sales taxes collected from customers as revenue.
Allowance for Doubtful Accounts
The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers. The Company records an allowance for doubtful accounts receivable for credit losses at the end of each period based on an analysis of individual aged accounts receivable balances. As a result of this analysis, the Company believes that its allowance for doubtful accounts is adequate at March 31, 2008 and 2007, respectively. If the financial condition of the Company’s customers should deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Inventory Valuation
We adjust the value of our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions and development of new products by financing activitiesour competitors. Inventories consist primarily of $899,487vehicles, both gas and electric, parts and supplies, and finished goods, and are carried at the lower of cost (first-in, first-out method) or market.
Deferred Tax Asset Realization
We record a full valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the ninevaluation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made.
BUSINESS DEVELOPMENT
Founded in 1994, ZAP has invented, designed, manufactured, and marketed numerous innovative products since the Company’s inception. In 1995, ZAP began marketing electric transportation on the Internet through our website, www.zapworld.com. ZAP has been a pioneer in developing and marketing electric vehicles such as a zero-emission ZAP(R) electric bicycle, ZAP Power System, which adapts to most bicycles, and the ZAPPY(R) folding electric scooter. From 1996 through 1998, we continued to add to our product line; in 1999, ZAP added electric motorbikes; in 2001, it added electric dive scooters; in 2003, ZAP announced its first electric automobiles, including the first-ever production electric automobile imported from its manufacturing partner in China; in 2004 ZAP introduced electric all-terrain vehicles and the fuel-efficient Smart Car; and in 2005 ZAP introduced multi-fuel vehicles, capable of running on ethanol and/or gasoline. To date, we have delivered more than 100,000 electric vehicles and consumer products to customers in more than 75 countries, which we believe establishes us as one of the leaders in the alternative transportation marketplace.
Today, ZAP is continuing its focus as one of the pioneers of advanced transportation technologies and leveraging its place in the market as a magnet for new technologies. The Company believes there is a growing and underrepresented market for fuel efficient transportation vehicles and we are capitalizing on the opportunities, enhanced by heightened environmental awareness, climate changes and economic pressures. The technology is available to deliver transportation solutions that are practical and affordable. With our products such as the XEBRA, ZAPPY 3, and Zapino Scooter, ZAP is already delivering such solutions to the market. Our goal is to become one of the largest and most complete brand and distribution portals in the United States for advanced technology vehicles.
To distribute our practical, affordable and advanced transportation technologies, we have established and are growing both our portal of qualified automotive dealers and our relationships with specialty dealers/distributors for our power system products. Through these distribution channels, coupled with the continued establishment of partnerships with select manufacturers, we intend to expand our market recognition by building awareness of the evolving technologies available for automotive transportation and in reducing our nation’s dependency
on foreign oil.
PRODUCT SUMMARY
Our existing product line, which includes completed, market ready products and planned introductions, is as follows:
ZAP AUTOMOTIVE
ZAP believes it is positioned to become one of the leading distributors of fuel efficient alternative energy vehicles in the United States. We believe that we are one of only a few companies distributing a 100% production electric vehicle capable of speeds up to 40 mph in 2007. Within the next twelve to thirty-six months, we hope to have distribution agreements in place with three to four vehicle manufacturers whose products fit ZAP’s mission. To distribute our product to end consumers and fleets, we have established more than 40 licensed automotive dealers and intend to grow this base significantly over the next several years.
XEBRA
We believe that XEBRA is the only series production electric vehicle in the United States that can legally travel faster than 25 mph. The car’s suggested retail price of $11,000 is significantly less expensive than most of its competitors, some of which cost more than $100,000 and are not yet widely available today. XEBRA has three wheels and is being imported as a motor-driven cycle, yet, unlike most other motor-driven cycles, the XEBRA is enclosed with windows and a roof, affording it protection from inclement weather.
Working with our Chinese manufacturing partner, we have designed two XEBRA models: a sedan and a utility pick-up truck. The Chinese manufacturer’s current manufacturing capacity is approximately 1,000 vehicles per month. Subject in large part to the level of financing secured, our current target is to distribute approximately 200 vehicles per month in the future. Initial market demand has been strong, both from end consumers using the vehicle as a “city-car” and from fleet managers of municipalities, states, green friendly corporations, and universities who have a preference or mandate to purchase zero emission vehicles.
We are working closely with our manufacturing partner to continually upgrade the XEBRA, adding features while balancing the goal of maintaining an affordable price level. We are in the process of looking into incorporating options to enhance the consumer’s experience, including providing lithium battery packs for additional (up to 100 mile) range and solar panels for low cost and true zero air pollution charging. Solar options were introduced in the current quarter.
XEBRA Sedan (ZAPCAR (R))
ZAP launched the sedan version of its XEBRA ZAPCAR on July 11, 2006. The sedan has a seating capacity for four and is being targeted for city/commuter use. Based on initial feedback, ZAP will be marketing the XEBRA sedan to government and corporate fleets as well as to families with two or more cars, but with plenty of occasion to use their vehicles for short, city drives.
XEBRA PK ( ZAPTRUCK(R))
ZAP launched its utility pick-up truck version of the XEBRA, the XEBRA ZAPTRUCK, on August 24, 2006. This electric vehicle seats two with a multi-purpose platform behind the passenger compartment that serves as a hauler, dump truck or flatbed. The XEBRA ZAPTRUCK is targeted to municipalities, maintenance facilities, universities, ranches and warehouses. Since its launch, we have received overwhelming inquiries for test drives. To date, we have focused on our west coast market and sales have exceeded our initial distribution and sales plans.
Smart Car
The Smart Car was our initial automotive product. The project provided us with an excellent entry level opportunity in the micro-car market in the United States and confirmed our belief that there is a sizable demand for smaller,
more fuel efficient (or alternatively fueled) vehicles. The Smart Car was manufactured by Daimler Chrysler, who we believe failed to identify the United States as a potential market. In Daimler Chrysler’s absence, we contracted with a third party unaffiliated with Daimler Chrysler to have the Smart Car imported and “Americanized” to meet the growing demand for micro-cars. The process of Americanizing the Smart Car involved having the car modified to meet all Federal Motor Vehicle Safety Standards, United States Department of Transportation requirements, and Environmental Protection Agency regulations and applicable state requirements.
We proved that we could introduce and sell the Smart Car Americanized by ZAP by taking purchase orders for tens of thousands of vehicles and received a credit line of $425 million to purchase them. We consequently sold approximately 300 Smart Cars, but due to the legal conflict with Daimler-Chrysler and others, and the uncertainty of auto supply, we discontinued distribution of the Smart Car in September of 2006.
OBVIO!
In September 2005, we entered into an exclusive (in North America) distribution contract with the Brazilian automobile manufacturer OBVIO! for the future importation of two models of micro-cars - an economy 828 model and a full performance 012 model. The cars will have butterfly doors, seating capacity to accommodate three persons, up to 250 horsepower output and accessories such as iMobile and air conditioning. This car will function on multi-fuel technology, meaning they will have the ability to be powered by ethanol, gasoline, or any combination thereof. We are also working with OBVIO! to produce a 100% electric version. Although the prototype was completed, we are awaiting a firm production schedule from the manufacturer.
LOTUS
In 2007, we announced and entered into a development contract with Lotus Engineering to develop a electric all-wheel drive crossover high performance vehicle for the U.S. market. A combination of the lightweight aluminum vehicle architecture, a new efficient drive and advanced battery management systems is intended to enable a range of up to 350 miles between charges, with a rapid 10-minute recharging time. An auxiliary power unit is planned to support longer distance journeys.
The ZAP-X is proposed to be powered by revolutionary in-hub electric motors, delivering 644 horsepower in all wheel drive mode, theoretically capable of powering the ZAP-X to a potential top speed of 155mph. A new, strong, lightweight and highly efficient structure based on the Lotus technology is planned to give the car a very attractive power-to-weight ratio. We are in the midst of the development plan for the ZAP-X.
We are also developing a $32,000 all electric vehicle with a targeted 100 mile range, the ZAP Alias (TM), which has a goal launch date of 2009.
Future Automotive Offerings
Over the next 36 months, we hope to establish relationships with two to four additional manufacturers who can supply automobiles and related vehicles that meet our mission of affordable, advanced transportation technologies that are socially responsible and environmentally sustainable. In 2007, we have identified the following products as potential future offerings for the Company: (1) an affordable 100% electric two-seater sports coupe; (2) a high performance highway all electric vehicle, and (3) electric trucks.
ZAP Power Systems
We launched the Company in 1994 with the invention of the ZAPPY electric scooter and quickly established a presence as one of the market leaders in the electric “personal” transportation product segment. Since inception, the Company has been able to maintain a steady business and committed buyers in this segment. In keeping with our initial product offerings, at the beginning of 2006, we revitalized our consumer products line (recently renamed “Power Systems”), including an updated version of the electric scooter. As part of the segment’s revitalization, we reduced the number of suppliers and placed more emphasis on upgrading existing models with newer component technology and more robust features in order to provide a higher quality consumer experience and product.
Our current product offerings include:
Three-wheeled personal transporters (ZAPPY3, ZAPPY3 Pro, ZAPPY3 EZ);
Off-road vehicles (electric quads and motorcycles); and
Portable energy (universal recharge-it-all batteries and auxiliary batteries).
The ZAPPY3 Personal Transporters
Segway’s highly publicized “human transporter to change the world” unearthed a growing need for a “scooter for adults,” better known as personal electric transportation. The Company responded to this demand by designing the ZAPPY3. Unlike the Segway, the ZAPPY3’s 3-wheeled vehicle design provides stability and maneuverability allowing just about anyone to ride this vehicle without training. It has a top speed of 15 mph, and the Pro has the farthest range of any personal transporter available today at 25 miles range per charge.
The Company initially thought that the ZAPPY3 would be great for the consumer market. Over the past year, the Company has revisited its sales strategy and come to recognize that the largest market opportunities are in the industrial and commercial applications. The Company’s primary sales channels are now more clearly defined as security, sporting goods and material handling.
With the increased emphasis on homeland security, there are several product competitors in the security and police market segment. Segway, the most well known, can be found in select police departments and airports and sells for about $5,500. American Chariot, which is a chariot-like transporter, has entered the market selling between $1,500 to $2,500. Newest to the security transporter business is T3Motion, which is built like a small tank and priced at up to $8,000. The ZAPPY3 meets the need of a majority of the security transportation needs and with an selling price range of $530 to $900, depending on the model purchased, which we believe is the most economical of all offerings.
The ZAPPY3 retail focus has continued strong in 2007. As the product line has gained momentum and market acceptance, we plan to grow distribution in the retail channel through larger regional and specialized chain stores.
The material handling, warehousing, fabrication, and construction industries are the ideal markets for the ZAPPY3 Pro. We are not currently aware of any major competitors in this market. The traditional solution for short distance transportation has been bicycles. The ZAPPY Pro offers the perfect utility vehicle for shuttling, picking and packing and getting into small areas like elevators. While the Company’s entrance into this market is still in the early stages, the product response has been very favorable, demonstrated by our newly established relationship with Indoff, the largest distributor of material handling equipment in the United States.
The Zapino is an electric scooter that is a great link between ZAP’s personal transporters and electric cars. Not only economical and eco-friendly, the Zapino is powerful with an advanced 3000-watt brushless DC hub motor, perfect for city commuting. Able to reach speeds of 30 MPH, the Zapino is able to keep up with city traffic without contributing to city pollution. The rear wheel hub motor on the Zapino creates more room on board for additional batteries and performance. This innovative drive system eliminates the need for belts or chains with lower overall maintenance. It also delivers a more enjoyable ride because it is nearly silent, accelerates smoothly with no shifting, has no engine vibration, no tailpipe or heat exhaust -- just good, clean fun.
Off-Road Vehicles
All terrain vehicle (“ATV”) manufacturers recognized in excess of $5.0 billion in revenues in 2006 with the market for ATVs. In the United States alone, approximately 800,000 units were sold in 2006. To date, all of the ATV’s on the market are gas-powered. We believe electric ATV’s have practical environmental benefits over their gas-powered counterparts: they are silent and generate no emissions. Moreover, there are now over 8,000 organic farms in the United States which are committed to reducing pollutants that may put organic certification at risk. The electric ATVs can provide the ruggedness of the traditional ATV in areas never before accessible, while being more versatile than golf carts.
We entered the electric ATV market in 2006 with our ZAP Buzzz mini ATV. The Buzzz has a 450 watt geared-motor and a top speed of 15 mph with a range of approximately 20 miles. In the 1st quarter of 2007, we introduced the 800 watt “mid size” ATV for sale in the United States and some of our existing ZAP dealers already have placed
preorders. We hope to launch a heavy duty ATV in the 3rd quarter 2008 with product features and styling comparable to existing gas-models. We believe our position as an innovator in the electric vehicle market, coupled with first-mover advantage in the electric ATV market, will allow us to capitalize on this market segment. If we are able to capture 1% of the all terrain vehicle market share, it could equate to over $40 million in revenues per year. However, there can be no assurances that we will be able to achieve such market share.
Portable Energy - Recharge-It -All Batteries
We believe we were one of the first and now one of the leading producers of rechargeable battery sources using lithium-ion and lithium polymer technology. Through our Recharge-It-All line, we sell battery packs to power or charge a wide range of mobile electronics such as cellular phones, digital cameras and laptops, providing significantly more charge time than currently available technologies. Our Portable Energy devices fall under two product lines: universal chargers and made-for iPOD models. The universal chargers are rechargeable battery packs that extend the use of most small and medium-sized electronic devices up to 2 to 5 times their normal battery life. The made-for iPOD models are a series of portable energy devices designed to work specifically with all the major iPOD products, including the iPOD, iPOD nano, iPOD shuffle and the iPOD with video.
We launched our Portable Energy products at the end of 2006 with marketing targeted to large electronic retailers. Market statistics indicate that there will be over two billion users of mobile electronic devices by the end of 2007. Our goal with Portable Energy is to provide a solution that helps solve the energy management challenge for electronic and mobile internet users. Today, there are only a few companies that have begun to address the mobile device backup power/charge market. The currently available products include Energizer’s “Energi to Go”, Charge 2 Go, Cell Boost, and Medis Power Pack. We believe that no manufacturer offers rechargeable devices that offer the ability to re-charge a myriad of electronic devices from the same device as effectively as ZAP’s Portable Energy.
Risk factors
We have a history of losses and our future profitability on a quarterly or annual basis is uncertain, which could have a harmful effect on our business and the value of ZAP’s common stock.
We incurred net losses of $2.4 million, $28 million, $11.9 million for the three months ended September 30, 1997,March 31, 2008 and $531,324the years ended December 31, 2007, 2006 respectively. We can give no assurance that we will be able to operate profitably in the future.
We may face liquidity challenges and need additional financing in the future.
We currently expect to be able to fund our working capital requirements from our existing cash and cash flows from operations through at least December 31, 2008. However, we could experience unforeseen circumstances, such as an economic downturn, unforeseen difficulties in manufacturing/ distribution, or other factors that could increase our use of available cash and require us to seek additional financing. We may find it necessary to obtain equity or debt financing due to the factors listed above or in order to support our expansion, develop new or enhanced products, respond to competitive pressures, or respond to unanticipated requirements.
We may seek to raise additional funds through private or public sales of securities, strategic relationships, bank debt, or otherwise. If additional funds are raised through the issuance of equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution or any equity securities we sell may have rights, preferences or privileges senior to those of the holders of our common stock. We expect that if we are unable to obtain additional financing on acceptable terms, we may be unable to pay our debts as they become due, develop our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could have a material effect on our business, financial condition and future operating results.
We face intense competition which could cause us to lose market share.
In the advanced technology vehicle market in the United States, we compete with large manufacturers, including Honda, Toyota, and Daimler-Chrysler, who have more significant financial resources, established market positions, long-standing relationships with customers and dealers, and who have more significant name recognition, technical, marketing, sales, manufacturing, distribution, financial and other resources than we do. Each of these companies is currently working to develop, market, and sell advanced technology vehicles in the United States market. The resources available to our competitors to develop new products and introduce them into the marketplace exceed the
resources currently available to us. We also face competition from smaller companies with respect to our consumer products, such as our electric bicycle and scooter. We expect to face competition from the makers of consumer batteries and small electronics with respect to the ZAP Portable Energy line. This intense competitive environment may require us to make changes in our products, pricing, licensing, services, distribution, or marketing to develop, maintain, and extend our current technology and market position.
Changes in the market for electric vehicles could cause our products to become obsolete or lose popularity.
The electric vehicle industry is in its infancy and has experienced substantial change in the last few years. To-date, demand for and interest in electric vehicles has been sporadic. As a result, growth in the electric vehicle industry depends on many factors, including:
| · | continued development of product technology; |
| · | the environmental consciousness of customers; |
| · | the ability of electric vehicles to successfully compete with vehicles powered by internal combustion engines; |
| · | widespread electricity shortages and the resultant increase in electricity prices, especially in our primary market, California, which could derail our past and present efforts to promote electric vehicles as a practical solution to vehicles which require gasoline; and |
| · | whether future regulation and legislation requiring increased use of nonpolluting vehicles is enacted. |
We cannot assure you that growth in the electric vehicle industry will continue. Our business may suffer if the electric vehicle industry does not grow or grows more slowly than it has in recent years or if we are unable to maintain the pace of industry demands.
We may be unable to keep up with changes in electric vehicle technology and, as a result, may suffer a decline in our competitive position.
Our current products are designed for use with, and are dependent upon, existing electric vehicle technology. As technologies change, we plan to upgrade or adapt our products in order to continue to provide products with the latest technology. However, our products may become obsolete or our research and development efforts may not be sufficient to adapt to changes in or create necessary technology. As a result, our potential inability to adapt and develop the necessary technology may harm our competitive position.
The failure of certain key suppliers to provide us with components could have a severe and negative impact upon our business.
We rely on a small group of suppliers to provide us with components for our products, some of whom are located outside of the United States. If these suppliers become unwilling or unable to provide components, there are a limited number of alternative suppliers who could provide them. Changes in business conditions, wars, governmental changes, and other factors beyond our control or which we do not presently anticipate could affect our ability to receive components from our suppliers. Further, it could be difficult to find replacement components if our current suppliers fail to provide the parts needed for these products. A failure by our major suppliers to provide these components could severely restrict our ability to manufacture our products and prevent us from fulfilling customer orders in a timely fashion.
As described elsewhere, we have entered into a contract with a Brazilian automobile manufacturer, OBVIO, for the nine months ended
September 30, 1996. Net cash provided by financing activitiesdelivery of 50,000 flex-fuel vehicles in two different models. We may not be able to obtain the vehicles that we expect to obtain from OBVIO because OBVIO is a new developer and manufacturer of automobiles in Brazil and there are many risks associated with its design and manufacturing of cars for us, including, but not limited to, risks associated with constructing its factory, hiring personnel, acquiring equipment, assembling a network of suppliers and developing the nine
months ended September 30, 1996 wasvehicle assembly process. If we cannot get the vehicles from notes payable proceedsOBVIO that we expect to, some of $83,362,our business will be affected.
Product liability or other claims could have a bank loanmaterial adverse effect on our business.
The risk of $25,000,product liability claims, product recalls, and associated adverse publicity is inherent in the manufacturing, marketing, and sale of electrical vehicles. Although we have product liability insurance for our consumer products for risks of up to an aggregate of $5,000,000, that insurance may be inadequate to cover all potential product claims. We also carry liability insurance on our automobile products. Any product recall or lawsuit seeking significant monetary damages either in excess of our coverage, or outside of our coverage, may have a material adverse effect on our business and financial condition. We may not be able to secure additional product liability insurance coverage on acceptable terms or at reasonable costs when needed. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product recall could generate substantial negative publicity about our products and business and inhibit or prevent commercialization of other future product candidates. We cannot assure you that such claims and/or recalls will not be made in the future.
We must devote substantial resources to implementing a product distribution network.
Our dealers are often hesitant to provide their own financing to contribute to our product distribution network. As a result, we anticipate that we may have to provide financing or other consignment sale arrangements for dealers who would like to participate as our regional distribution centers.
The further expansion of our product distribution network will require a significant capital investment and will require extensive amounts of time from our management. A capital investment such as this presents many risks, foremost among them being that we may not realize a significant return on our investment if the network is not profitable. Our inability to collect receivables from our dealers could cause us to suffer losses. Lastly, the amount of time that our management will need to devote to this project may divert them from performing other functions necessary to assure the success of our business.
Failure to manage our growth effectively could adversely affect our business.
We plan to increase sales and expand our operations substantially during the next several years through internally-generated growth and the acquisition of businesses and products.
To manage our growth, we believe we must continue to implement and improve our operational, manufacturing, and research and development departments. We may not have adequately evaluated the costs and risks associated with this expansion, and our systems, procedures, and controls may not be adequate to support our operations. In addition, our management may not be able to achieve the rapid execution necessary to successfully offer our products and services and implement our business plan on a profitable basis. The success of our future operating activities will also depend upon our ability to expand our support system to meet the demands of our growing business. Any failure by our management to effectively anticipate, implement, and manage changes required to sustain our growth would have a material adverse effect on our business, financial condition, and results of operations. We cannot assure you that we will be able to successfully operate acquired businesses, become profitable in the future, or effectively manage any other change. An inability to successfully operate recently acquired businesses and manage existing business would harm our operations.
The loss of certain key personnel could significantly harm our business.
The Company’s performance is substantially dependent upon the services of its executive officers and other key employees, as well as on its ability to recruit, retain, and motivate other officers and key employees. Competition for qualified personnel is intense and there are a limited number of people with knowledge of and experience in the advanced technology vehicle industry. The loss of services of any of our officers or key employees, or our inability to hire and retain a sufficient number of qualified employees, will harm our business. Specifically, the loss of Mr. Schneider, our Chief Executive Officer or Mr. Starr, our Chairman of the Board, whose specialized knowledge of the electric vehicle industry is essential to our business, would be detrimental. We have employment agreements with Mr. Schneider and Mr. Starr that provide for their continued service to the Company until October 1, 2013.
Regulatory requirements may have a negative impact upon our business.
While our products are subject to substantial regulation under federal, state, and local laws, we believe that the products we have sold are materially in compliance with all applicable laws. However, to the extent the laws change, or if we introduce new products in the future, some or all of our products may not comply with applicable federal, state, or local laws. Further, certain federal, state, and local laws and industrial standards currently regulate electrical and electronics equipment. Although standards for electric vehicles are not yet generally available or accepted as industry standards, our products may become subject to federal, state, and local regulation in the future. Compliance with this regulation could be burdensome, time consuming, and expensive.
Our automobile products are subject to environmental and safety compliance with various federal and state regulations, including regulations promulgated by the EPA, NHTSA, and Air Resource Board of the State of California, and compliance certification is required for each new model year. The cost of these compliance activities and the delays and risks associated with obtaining approval can be substantial. Although the Company had marketed its Smart Car product in the United States, the car must be certified by the California Air Resources Board before it can be sold in California, New York, and three other states. In addition, the two models of our OBVIO products will need to satisfy all regulatory requirements before they can be sold in the United States. The risks, delays, and expenses incurred in connection with such compliance could be substantial.
Manufacturing overseas may cause problems for us.
We have been shifting our manufacturing overseas, including contracting with OBVIO, a Brazilian company, for the manufacture of 50,000 vehicles over three years. There are many risks associated with international business. These risks include, but are not limited to, language barriers, fluctuations in currency exchange rates, political and economic instability, regulatory compliance difficulties, problems enforcing agreements, and greater exposure of our intellectual property to markets where a high probability of unlawful appropriation may occur. A failure to successfully mitigate any of these potential risks could damage our business.
We may not be able to protect our internet address.
We currently hold the internet address, http://www.zapworld.com, a portal through which we sell our products. We may not be able to prevent third parties from acquiring internet addresses that are confusingly similar to our address, which could adversely affect our business. Governmental agencies and their designees generally regulate the acquisition and maintenance of internet addresses. However, the regulation of internet addresses in the United States and in foreign countries is subject to change. As a result, we may not be able to acquire or maintain relevant internet addresses in all countries where we conduct business.
Our success is heavily dependent on protecting our intellectual property rights.
We rely on a combination of patent, copyright, trademark, and trade secret protections to protect our proprietary technology. Our success will, in part, depend on our ability to obtain trademarks and patents. We hold several patents registered with the United States Patent and Trademark Office. These registrations include both design patents and utility patents. In addition, we have recently submitted provisional patents which may or may not be afforded the limited protection associated with provisional patents. We have also registered numerous trademarks with the United States Patent and Trademark Office, and have several pending at this time. We cannot assure you that the trademarks and patents issued to us will not be challenged, invalidated, or circumvented, or that the rights granted under those registrations will provide competitive advantages to us.
We also rely on trade secrets and new technologies to maintain our competitive position. Although we have entered into confidentiality agreements with our employees and consultants, we cannot be certain that others will not gain access to these trade secrets. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.
We may be exposed to liability for infringing intellectual property rights of other companies.
Our success will, in part, depend on our ability to operate without infringing on the proprietary rights of others. Although we have conducted searches and are not aware of any patents and trademarks which our products or their use might infringe, we cannot be certain that infringement has not or will not occur. We could incur substantial costs, in addition to the great amount of time lost, in defending any patent or trademark infringement suits or in asserting any patent or trademark rights, in a suit with another party.
Risk of Unregistered Securities Offering.
In the past, we have had numerous sales of our securities which were not registered under federal or state securities laws. We have strived to comply with all applicable Federal and state securities laws in connection with our issuances of unregistered securities. However, to the extent we have not complied, there may be liability for the purchase price of the securities sold together with interest and the potential of regulatory sanctions.
Our stock price and trading volume may be volatile, which could result in substantial losses for our stockholders.
The equity trading markets may experience periods of volatility, which could result in highly variable and unpredictable pricing of equity securities. The market price of our common stock could change in ways that may or may not be related to our business, our industry or our operating performance and financial condition. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. We have experienced significant volatility in the price of $420,942. Netour stock over the past few years. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. In addition, the stock markets in general can experience considerable price and volume fluctuations.
We have not paid cash provided by
financing activitiesdividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We have not achieved profitable operations and if we do realize a profit in the future, we anticipate that we will retain all future earnings and other cash resources for the nine months ended September 30, 1997 was $30,000
from notes payable, $1,000,405 from the sale of common stock, less $122,000 of
repayments of notes payable, bank debt and lease obligations and the elimination
of restricted cash required on the notes payable.
The bank loan with Wells Fargo Bank (March 1996) had an initial principal
balance of $25,000 amortized over 2 years at an interest rate of 15%. The note,
with a balance of $8,067 as of September 30, 1997, will be paid off by March of
1998. The equipment leases with AT&T Credit Corporation (July 1996 & May 1997)
had an total balance of $45,930 for all three leases with monthly payments of
$1,654 for three years. The new lease with AT&T that began in May was for a
forklift used by the production area.
The Company's primary capital needs are to fund its growth strategy, which
includes increasing its net sales, increasing distribution channels, introducing
new products, improving existing product linesfuture operation and development of strong
corporate infrastructure.
Recent Accounting Pronouncements
During October 1995,our business. Accordingly, we do not intend to declare or pay any cash dividends on our common stock in the Financial Accounting Standards Board issued
Statement No. 123, "Accountingforeseeable future. Payment of any future dividends will be at the direction of our board of directors after taking into account many factors, including our operating results, financial conditions, current and anticipated cash needs and plans for Stock-Based Compensation" ("SFAS No. 123"),
which established a fair value-based method of accounting for stock-based
compensation plans. The Company is currently following the requirements of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."
expansion.
Seasonality and Quarterly Results
The
Company'sCompany’s business is subject to seasonal influences
similar to the
bike industry.for consumer products. Sales volumes in
the bicyclethis industry typically slow down during the winter months, November to March in the U.S.
9
Inflation
The Company'sCompany’s auto distribution network is affected by the availability of cars ready to sell to dealers.
Inflation
Our raw materials and finished products and automobiles are sourced from stable, cost competitivecost-competitive industries. As such, the Company doeswe do not foresee any material inflationary trends for its raw materialour product sources.
ITEM 4T. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports filed, furnished or submitted under the Exchange Act. Our Chief Executive Officer and Chief Financial Officer also concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There were no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in management's evaluation during the first quarter of fiscal year 2008 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the normal course of business, we may become involved in various legal proceedings. Except as stated below, we know of no pending or threatened legal proceeding to which we are or will be a party which, if successful, might result in a material adverse change in our business, properties or financial condition. However, as with most businesses, we are occasionally parties to lawsuits incidental to our business, none of which are anticipated to have a material adverse impact on our financial position, results of operations, liquidity or cash flows. The Company estimates the amount of potential exposure it may have with respect to litigation claims and assessments.
ZAP v. Daimler Chrysler AG, et al., Superior Court of California, County of Los Angeles, Case No. BC342211. On October 28, 2005, ZAP filed a complaint against Daimler Chrysler Corporation and others in the Los Angeles Superior Court in excess of $500 million.. The complaint includes claims for intentional and negligent interference with prospective economic relations, trade libel, defamation, breach of contract - agreement to negotiate in good faith, breach of implied covenant of good faith and fair dealing, and unfair competition. The complaint alleges that Daimler Chrysler has engaged in a series of anti-competitive tactics aimed at defaming ZAP and disrupting its third-party business relationships. As a result of the allegations, the complaint requests damages in excess of $500 million and such other relief as the court deems just and proper. Daimler Chrysler has successfully filed a motion to quash that complaint for lack of personal jurisdiction, and the court’s ruling on that matter is in the process of being appealed to the State of California Supreme Court.
ZAP v. Norm Alvis, et al., Superior Court of California, County of Sonoma, Case No. SCV-238419, complaint filed March 27, 2006. Mr. Alvis was engaged by the Company and Rotoblock Corporation (“Rotoblock”) as a consultant to perform public relations work on behalf of the Company and Rotoblock. As consideration for Mr. Alvis’ consent to the contract with the Company, the Company provided Mr. Alvis with use of a motor home worth approximately $306,000. The Company then sued Mr. Alvis, claiming he failed to perform his obligations under the contract and refused to return the consideration he received therefore (i.e. the motor home). The Company is seeking either the return of the motor home or $500,000 in damages. Mr. Alvis initially did not respond to the complaint, which prompted the Company to take his default on May 9, 2006. The court then entered a default judgment on May 16, 2006, on which date the Company obtained a writ of possession allowing it to reclaim possession of the disputed motor home. On June 18, 2006, Mr. Alvis moved the court to set aside the default and default judgment and to vacate its order authorizing issuance of the writ of possession. The court agreed to set aside the default judgments, but it left intact the writ of possession. The court also required Mr. Alvis to pay the Company $1,000 as compensation for forcing the Company to initially take his default. Mr. Alvis has paid the Company the required $1,000. Mr. Alvis then filed (1) an answer denying the Company’s allegations, and (2) a cross-claim against the Company, Steve Schneider in his individual capacity, and Rotoblock, alleging two counts of breach of contract, one common count of work, labor, and services received,and one count of fraud. All of Mr. Alvis’ claims relate to the two contracts he executed with the Company and Rotoblock. Mr. Alvis claims he provided services to the Company and Rotoblock pursuant to these contracts but received no consideration in exchange therefore. For the fraud claim, the defendant claims the Company and Schneider executed the contracts with no intent to perform. Mr.Alvis has prayed for damages of $2,000,000, interest according to proof, punitive damages, and an order directing the Company to perfect title to the motor home. Mr. Alvis then moved the court to quash the writ of possession. The parties attended mediation on March 4, 2008 and reached a tentative settlement by which the matter would be resolved according to the following terms: (1) a mutual release of all claims; (2) ZAP would pay $25,000 to Mr. Alvis;. (3) ZAP would issue to Alvis $25,000 worth of shares of restricted ZAP common stock; (4) ZAP would issue Alvis warrants for 100,000 shares of restricted ZAP common stock, at a strike price of $.70 per share; and (5) ZAP would transfer title of disputed motor home to Alvis. A written agreement has now been executed by Alvis and will be presented to ZAP’s Board of Directors for approval. The next case management conference is scheduled for July 3, 2008 to allow the parties time to negotiate a settlement. In the meantime, discovery is on-going.
Robert Chauvin; Mary Chauvin; Rajun Cajun, Inc. dba ZAP of Carson City, dba ZAP of Reno, dba ZAP of Sparks (“Robert Chauvin, et al.”) v. Voltage Vehicles; ZAP; ZAP Power Systems Inc.; ZAPWORLDCOM; Elliot Winfield; Steven Schneider; Phillip Terrazzi; Max Scheder-Breschin; Renay Cude; [sic] and Does I-XX, Second Judicial District Court State of Nevada, County of Washoe, Case No. CV06 02767. On November 17, 2006, Robert Chauvin, et al. filed a complaint alleging breach of contract, breach of the covenant of good faith and fair dealing, breach of warranties, fraud/misrepresentation, negligent misrepresentation, quantum merit or unjust enrichment, civil conspiracy, violation of Security [sic] and Exchange Act/federal securities law, and deceptive trade practices, pursuant to a License Agreement (for a distribution license) entered into between Rajun Cajun, Inc. dba ZAP of Carson City, dba ZAP of Reno, dba ZAP of Sparks (“Rajun Cajun”) and Voltage Vehicles. The complaint seeks general damages in an amount in excess of $10,000, special damages in an amount in excess of $10,000, punitive damages in an amount in excess of $10,000, attorneys’ fees and cost of suit, for judgment in an amount equal to treble actual damages, and recession in the amounts of $397,900 and $120,000. On January 19, 2007, defendants Voltage Vehicles and ZAP filed a Motion to Dismiss on the grounds that the License Agreement entered into between Rajun Cajun and Voltage contains a forum selection clause designating Sonoma County, State of California as the only appropriate forum. The court granted that Motion on April 13, 2007. In its order on that motion, the court also found that all other motions pending in the Nevada court in this matter are now moot. (As of that time, the following motions were still pending: (1) Chauvin, et al.’s Notices of Intent to Take Default against two of the named corporate defendants and against the individual defendants, except Renay Cude; (2) a Motion to Quash Service of Process or Alternatively for Dismissal by each of the individual defendants and both of the defunct corporate defendants; and (3) Chauvin, et al.’s Motion for Publication of Summons against the named individual defendants.)
Voltage Vehicles v. Rajun Cajun, et al., Superior Court of California, County of Sonoma, Case No. SCV 240179, filed February 9, 2007. (This suit is related to the Nevada case of Robert Chauvin, et al. v. Voltage Vehicles, et al. discussed immediately above.) In its complaint, Voltage Vehicles requests Declaratory Relief against Rajun Cajun, asking the Court to declare that the License Agreement between those two parties does not grant Rajun Cajun an exclusive dealership in northern Nevada to distribute Voltage Vehicle products and that Voltage Vehicles has performed its obligations under the License Agreement. On May 24, 2007, Rajun Cajun filed a Cross-Complaint in substantially the same form as the Complaint filed in Nevada, alleging breach of contract, breach of the covenant of the good faith, etc. The Cross-Complaint seeks general damages in an amount in excess of $25,000, special damages in an amount in excess of $25,000, punitive damages in an amount in excess of $25,000, attorneys’ fees and cost of suit, for judgment in the amount equal to treble actual damages, and rescission in the amounts of $397,900 and $120,000, plus interest. Cross-Defendants intend to vigorously defend against the claims set forth in the Cross-Complaint and so,on August 22, 2007, Cross-Defendants filed both a special demurrer for abatement to prohibit Cross-Complainants from maintaining a cross-complaint and a demurrer to the Cross-Complaint itself. On February 11, 2008 ZAP and Voltage Vehicles filed a demurrer to Cross-complainants’ third through fifteenth causes of action. A hearing on that demurer is currently set for June 11, 2008. The next case management conference is scheduled for July 23, 2008.
CIT Communications Finance Corporation v. ZAP, formerly known as ZapWorld.com and as Zap Power Systems, and DOES 1-20, complaint filed on February 26, 2008, Case No. 242445, in the Superior Court of California, County of Sonoma. CIT Communications Finance Corporation (“CIT”) has served ZAP with a complaint, an application for writ of possession, and an application for writ of attachment. CIT’s complaint and its applications for the two writs are based on three telephone equipment leases CIT alleges it has with ZAP, through predecessors in interest. The Complaint includes five causes of action: (1) breach of written lease agreements; (2) recovery of personal property; (3) conversion; (4) quantum valebant; and (5) quantum meruit or unjust enrichment. For each of those claims, CIT alleges that ZAP entered into the leases, never returned the equipment, and, in or about June 2002, ceased payment of amounts owed under the leases. CIT is now seeking both return of the equipment and a monetary award covering amounts owed under the leases. More particularly, for its breach of contract claim, CIT is seeking recovery of $108,967.26 allegedly owed on the leases. On its recovery of personal property claim, CIT is seeking either return of all the leased equipment or a monetary damages to cover the value of the leased equipment. On the conversion claim, CIT is seeking general damages for ZAP’s continued possession and use of the equipment, as well as punitive damages based on a claim that ZAP’s actions were malicious, willful, and oppressive. On its quantum valebant and quantum meruit claims, CIT is seeking general damages for the value of ZAP’s continued use and possession of the equipment since June 24, 2002. CIT is also seeking reimbursement of all of its attorneys’ fees and costs of suit, as well as any additional legal and equitable relief that the court may deem proper. ZAP’s Answer to the Complaint was filed on April 24, 2008. CIT has also applied for both a writ of possession, seeking return of all of the leased equipment, and a writ of attachment, seeking attachment of $122,588.26 against ZAP. The hearing on CIT’s writ applications is scheduled for June 3, 2008, and a Case Management Conference is set for June 30, 2008. ZAP intends to vigorously defend against these claims.
Item 1. Legal Proceedings
There2. Unregistered Sales of Equity Securities and Use of Proceeds
The following lists sales of unregistered securities during the quarter ended March 31, 2008 that were not previously included in a Quarterly Report on Form 10-QSB or a Current Report on Form 8-K. We relied on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the issuance of these securities. Except as stated below, no underwriting discounts or commissions were payable with respect to any of the following transactions. The offer and sale of the following securities was exempt from the registration requirements of the Securities Act under Rule 506 insofar as (1) except as stated below, each of the investors was accredited within the meaning of Rule 501(a); (2) the transfer of the securities were restricted by the company in accordance with Rule 502(d); (3) there were no material proceedings pendingmore than 35 non-accredited investors in whichany transaction within the Registrant was
named asmeaning of Rule 506(b), after taking into consideration all prior investors under Section 4(2) of the Securities Act within the twelve months preceding the transaction; and (4) none of the offers and sales were effected through any general solicitation or general advertising within the meaning of Rule 502(c).
On January 10, 2008, the Company issued 146,883 shares of common stock for professional services valued at $107,756.
On February 15,2008 the Company issued the following : 80,282 shares of common stock for professional services valued at $57,000, common stock of 25,000 shares valued at $17,500 in settlement of a party.
dispute with an outside party, 100,000 shares for an asset purchase valued at $71,000 and shares of 21,127 valued at $15,000 for a marketing and promotion event.
Item 2. Changes in Securities
There were no changes in rights of securities holders.
Item 3. 3. Defaults Upon Senior Securities
There were no defaults upon senior securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the vote of security holders.
Not Applicable
Item 5. Other Information
There were no major contracts signed during the period.
Not Applicable
Item 6. Exhibits
and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
10
| 2.1 | Approved Second Amended Plan of Reorganization, dated as June 20, 2002. (5) |
| 3.1 | Amended and Restated Articles of Incorporation. (4) |
| 3.2 | Certificate of Determination of Series SA Convertible Preferred Stock. (14) |
| 4.1 | Form of common share purchase warrant of the Company held by Fusion Capital Fund II, L.P. (6) |
| 4.2 | Form of Series B common stock purchase warrant of the Company. (14) |
| 4.3 | Form of Series K common stock purchase warrant of the Company. (14) |
| 10.1 | Settlement Agreement Between ZAPWORLD.COM, Ridgewood ZAP, LLC, and the Shareholders dated June 27, 2001. (3) |
| 10.3 | 2004 Consultant Stock Plan. (7) |
| 10.4 | Convertible Promissory Note, dated April 26, 2004, issued to Banks Living Trust. (1) |
| 10.5 | Purchase and Sale Agreement dated March 7, 2003 between ATOCHA Land LLC and ZAP. (3) |
| 10.6 | Promissory Note $2,000,000 - Atocha Land LLC and ZAP. (3) |
| 10.7 | Warrant Agreement dated April 26, 2004, issued to Banks Living Trust. (1) |
| 10.8 | Common Stock Purchase Agreement between ZAP and Fusion Capital Fund II, LLC. (6) |
| 10.9 | Registration Rights Agreement between ZAP and Fusion Capital Fund II,LLC. (6) |
| 10.10 | Form of Common Stock Purchase Warrant between ZAP and Fusion Capital Fund II, LLC (6) |
| 10.11 | Agreement for Consulting Services with Evan Rapoport dated January 8, 2004. (1) |
| 10.12 | Asset Purchase Agreement dated April 12, 2004 with Jeffrey Banks for purchase of various autos (1) |
| 10.13 | Agreement for Private Placement Investment received dated April 14,2004 with Phi-Nest Fund LLP (1) |
| 10.14 | Consulting Agreement dated April 21, 2004 with Elexis International(1) |
| 10.15 | Consulting Agreement dated April 21, 2004 with Sunshine 511 Holdings (1) |
| 10.16 | Definitive Stock Agreement dated October 25, 2004 with Smart-Automobile, LLC (2) |
| 10.17 | Master Distribution Agreement between Apollo Energy Systems, Inc. and Voltage Vehicles Corporation, a subsidiary of ZAP. (8) |
| 10.18 | ZAP Floor Line and Dealer Development Agreement with Clean Air Motors, LLC for a $45 Million Floor Plan Line of Credit for Qualified ZAP Dealers (9) |
| 10.19 | Exclusive Purchase, License and Supply Agreement between Smart Automobile, LLC and ZAP. (10) |
| 10.20 | Amendment dated November 15, 2004 to previous consulting agreement with Sunshine Holdings 511 (14) |
| 10.21 | Secured Promissory Note Payable dated December 30, 2004 with Phi-Nest Fund, LLP. (14) |
| 10.22 | ZAP assignment of 2.9 million shares of Restricted Common Stock to Phi-Nest Fund, LLP as collateral on note payable (14) |
| 10.23 | Promissory note receivable dated January 6, 2005 for $1 million loan due from Smart Automobile, LLC and Thomas Heidemann (President Smart Automobile, LLC) (14) |
| 10.24 | Security Agreement dated January 6, 2005 from Smart Automobile, LLC and Thomas Heidemann (President Smart Automobile, LLC) to secure loan above. (14) |
| 10.25 | Common Stock Purchase Agreement between ZAP and Platinum Partners Value Arbitrage Fund LP (14) |
| 10.26 | Form of Common Stock Purchase Warrant between ZAP and Platinum Partners Value Arbitrage Fund LP (14) |
| 10.27 | Common Stock Purchase Agreement between ZAP and Lazarus Investment Partners LLP (14) |
| 10.28 | Form of Common Stock Purchase Warrant between ZAP and Lazarus Investment Partners LLP (14) |
| 10.29 | Termination of Common Stock Purchase Agreement between ZAP and Fusion Capital Fund II, LLC (11) |
| 10.30 | Financing Agreement between ZAP and Surge Capital II, LLC (12) |
| 10.31 | Exclusive Purchase, License, and Supply Agreement between ZAP and Obvio! Automotoveiculos S.P.E. Ltda (13) |
| 10.36 | Agreement dated July 14, 2006 between ZAP, Thomas Heidemann and Smart Automobile (15) |
| 10.37 | Amendment Agreement Dated August 30, 2006 between ZAP and Smart Automobile LLC (16) |
| 10.38 | Exclusive Distribution Agreement dated May 1, 2005, as supplemented by a letter dated June 9, 2006 (17) |
| 10.40 | Shandong Jindalu Vehicle Co., Ltd. Guarantee (19) |
| 10.41 | Joint Venture Negotiations dated September 21, 2006 (20) |
| 10.42 | Security Purchase Agreement between ZAP and Certain Institutional Investors (21) |
| 10.43 | Purchase and Amendment Agreement between ZAP and Certain Institutional Investors (22) |
| 10.44 | Form of Convertible |
| 10.46 | Purchase order from the Electric Vehicle Company, LLC (“EVC”) for 10,000 of its Xebra 2007 model year electric vehicles |
| 10.47 | Distribution agreement this week with PML FlightLink Limited (PML) for the purchase of an advanced wheel motor and control system |
| 10.48 | Joint Venture Agreement with Youngman Automobile Co., Ltd to manufacture, market and distribute electric a and hybrid vehicles for the worldwide passenger car, truck and bus |
| 10.49 | Form SB-2 Registration of Common Stock incorporated by reference to SEC filing on September 24, 2007 effective on October 2, 2007. |
| 10.50 | Settlement and Mutual Release Agreement with Gemini Master Fund,LTD and Gemini Strategies,LLC dated May 7, 2008.(22) |
| 10.51 | Note Purchase Agreement with Al Yousuf dated May 8,2008.(22) |
| 10.52 | Senior Note Payable Al Yousuf LLC dated May 8,2008.(22) |
| 21.1 | List of subsidiaries. (3) |
| 31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(22) |
| 31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (22) |
| 32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (22) |
| 32.2 | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (22) |
| (1) | Previously Filed as an exhibit to the Registrants’s Form 8-K for the quarter ended March 31, 2004 and incorporated by reference. |
| (2) | Previously filed as an exhibit to the Registrant’s Form 8-K of November 6, 2004 and incorporated by reference. |
| (3) | Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 2003 and incorporated by reference. |
| (4) | Previously filed with Pre-effective Amendment Number 3 to Form SB-2 registration statement filed with the Securities and Exchange Commission on October 3, 2001. |
| (5) | Previously filed as an exhibit to the Registrant’s Form 8-K of October 20, 2002 and incorporated by reference. |
| (6) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K dated July 22, 2004 and incorporated by reference. |
| (7) | Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (File No. 333-117560) on July 22, 2004. |
| (8) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the Securities and Exchange Commission on October 6, 2004 and incorporated herein by reference. |
| (9) | Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10QSB for the period ended June 30, 2004 and incorporated herein by reference. |
| (10) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the Securities and Exchange Commission on April 21, 2004 and incorporated herein by reference. |
| (11) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the Securities and Exchange Commission on February 25, 2005 and incorporated herein by reference. |
| (12) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the Securities and Exchange Commission on September 16, 2005 and incorporated herein by reference. |
| (13) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the Securities and Exchange Commission on September 21, 2005 and incorporated herein by reference. |
| (14) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the Securities and Exchange Commission on July 20, 2006 and incorporated herein by reference. |
| (15) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the Securities and Exchange Commission on September 6, 2006 and incorporated herein by reference. |
| (16) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the Securities and Exchange Commission on November 6, 2006 and incorporated herein by reference. |
| (17) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the Securities and Exchange Commission on November 6, 2006 and incorporated herein by reference. |
| (18) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the Securities and Exchange Commission on November 6, 2006 and incorporated herein by reference. |
| (19) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the Securities and Exchange Commission on November 6, 2006 and incorporated herein by reference. |
| (20) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the Securities and Exchange Commission on December 11, 2006 and incorporated herein by reference. |
| (21) | Previously filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the Securities and Exchange Commission on February 26, 2007and incorporated herein by reference. |
| (22) | These exhibits are attached to this Form 10Q. |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ZAP POWER SYSTEMS
| | |
| ZAP |
| | |
| Dated May 14, 2008 | By: | /s/ Steven Schneider |
| Name: Steven Schneider |
| Title: Chief Executive Officer (Principal Executive Officer) |
| | |
| ZAP |
| | |
| Dated May 14, 2008 | By: | /s/ William Hartman |
| Name: William Hartman |
| Title: Chief Financial Officer (Principal Financial and Accounting Officer) |
- ----------------------------------
(Registrant)
Date ______________ __________________________________________
James McGreen30 - President and Director
Date ______________ __________________________________________
Gary Starr - Managing Director
11