-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NMymOzy7cWGZ0JM7Xq9Q33umbzHRbB7OARrHk11Fb8ID/I0/9CMWEx0qhEcf5Jud axr245HgB0r8Wt3aKk10Sg== 0001072613-02-001728.txt : 20021114 0001072613-02-001728.hdr.sgml : 20021114 20021114141723 ACCESSION NUMBER: 0001072613-02-001728 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZAP CENTRAL INDEX KEY: 0001024628 STANDARD INDUSTRIAL CLASSIFICATION: MOTORCYCLES, BICYCLES & PARTS [3751] IRS NUMBER: 943210624 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-30300 FILM NUMBER: 02824129 BUSINESS ADDRESS: STREET 1: 117 MORRIS ST CITY: SEBASTOBOL STATE: CA ZIP: 95472 BUSINESS PHONE: 7078244150 MAIL ADDRESS: STREET 1: 117 MORRIS ST CITY: STBASTOPOL STATE: CA ZIP: 95472 FORMER COMPANY: FORMER CONFORMED NAME: ZAP POWER SYSTEMS INC DATE OF NAME CHANGE: 19970319 FORMER COMPANY: FORMER CONFORMED NAME: ZAPWORLD COM DATE OF NAME CHANGE: 19990715 10QSB 1 form10-q_11611.txt ZAP FORM 10-QSB DATED 09/30/2002 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------- Form 10-QSB QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ----------------------------- For the quarterly period ended September 30, 2002 Commission File Number 0-303000 ZAP (Name of small business issuer in its charter) CALIFORNIA 94-3210624 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 117 Morris Street Sebastopol, CA 95472 (707) 824-4150 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered under section 12(b) of the Exchange Act: None Securities registered under section 12(g) of the Exchange Act: Common Shares Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[_] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 8,760,281 shares of common stock as of November 12, 2002. Transitional Small Business Disclosure Format Yes[_] No[X ] ================================================================================ Part I. FINANCIAL INFORMATION Item 1. Financial Statements ZAP
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (In thousands) September 30, 2002 - ----------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 443 Accounts receivable, net of allowance for doubtful accounts of $1,415 748 Inventories 1,861 Prepaid expenses and other assets 283 ---------- Total current assets 3,335 PROPERTY AND EQUIPMENT, net of accumulated depreciation of $822 400 OTHER ASSETS Patents & trademarks, net 264 Goodwill 2,182 Deposits and other 118 ---------- Total other assets 2,564 ---------- Total assets $ 6,299 ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 16 Current maturities of obligations under capital leases 10 Accounts payable 439 Accrued liabilities 148 ---------- Total current liabilities 613 LONG-TERM LIABILITIES Long-Term Debt, less current maturities 361 Obligations under capital leases, less current maturities 23 ---------- Total long-term liabilities 384 Stockholders' Equity Preferred stock, authorized 50,000 shares of no par -- Common stock, authorized 100,000 shares of no par value; issued and outstanding 8,760 shares 22,068 Accumulated deficit (16,766) ---------- Total stockholders' equity 5,302 ---------- Total liabilities and stockholders' equity $ 6,299 ==========
See accompanying notes to consolidated financial statements 2 ZAP CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Thousands, except share amounts)
Quarter ended September 30, Nine Months ended September 30, 2002 2001 2002 2001 ------- ------- ------- ------- NET SALES $ 2,044 $ 678 $ 2,824 $ 3,631 COST OF GOODS SOLD 1,747 1,653 2,287 4,571 ------- ------- ------- ------- GROSS PROFIT (LOSS) 297 (975) 537 (940) OPERATING EXPENSES Selling 216 203 349 935 General and administrative 590 1,181 1,706 3,391 Research and development -- 110 30 470 ------- ------- ------- ------- 806 1,494 2,085 4,796 ------- ------- ------- ------- LOSS FROM OPERATIONS BEFORE REORGANIZATION ITEMS AND EXTRAORDINARY GAIN (509) (2,469) (1,548) (5,736) ------- ------- ------- ------- OTHER INCOME (EXPENSE) Interest income (expense) (3) (26) (13) 7 Other income (expense) 1 (2) 28 (5) ------- ------- ------- ------- (2) (28) 15 2 ------- ------- ------- ------- Loss before reorganization items and extraordinary gain (511) (2,497) (1,533) (5,734) Reorganization items: Professional fees (6) -- 159 -- Provision to rejected executory contracts -- -- 31 -- ------- ------- ------- ------- (6) -- 190 -- ------- ------- ------- ------- NET LOSS BEFORE PREFFERED DIVIDEND AND EXTRAORDINARY GAIN (505) (2,497) (1,723) (5,734) Extraordinary Gain (loss) on Forgiveness of debt (Note 2) (75) -- 3,983 -- ------- ------- ------- ------- NET INCOME (LOSS) (580) (2,497) 2,260 (5,734) ------- ------- ------- ------- Preferred Dividend -- (38) -- (142) ------- ------- ------- ------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ ( 580) $(2,535) $ 2,260 $(5,876) ======= ======= ======= ======= NET INCOME (LOSS) PER COMMON SHARE BASIC AND DILUTED RESTATED FOR REVERSE STOCK SPLIT (Note 4) Loss per share before extraordinary gain (loss) $ (0.08) $ (2.25) $ (0.58) $ (5.53) Extraordinary gain (loss) (Note 2) (0.01) -- 1.35 -- ------- ------- ------- ------- Net Income (loss) per share-basic and diluted $ (0.09) $ (2.25) $ 0.77 $ (5.53) ------- ------- ------- ------- WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING BASIC AND DILUTED 6,779 1,128 2,946 1,062 ======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements 3 ZAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Nine months ended September 30, 2002 2001 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 2,260 $(5,734) Adjustments to reconcile net income (loss) to net cash used for operating activities: Depreciation and amortization 185 413 Reorganization items, net 196 -- Extraordinary gain on forgiveness of debt (3,983) -- Allowance for doubtful accounts 302 358 Amortization of the fair market value of warrants -- 42 Changes in: Receivables 190 942 Inventories 114 497 Deposits (4) -- Prepaid expenses and other assets (52) 594 Accounts payable 179 623 Accrued liabilities and customer deposits (383) (378) ------- ------- Net cash used for operating activities (996) (2,643) CASH FLOWS FROM INVESTING ACTIVITES Purchase of equipment (81) (114) Purchase of patents and intangibles -- (19) Cash received in purchase of RAP and Voltage Vehicles, net 177 -- ------- ------- Net cash provided by (used for) investing activities 96 (133) CASH FLOWS FROM FINANCING ACTIVITIES Sale of common stock, net of stock offering costs 28 113 Preferred stock dividend -- (142) Draw on convertible promissory note 500 -- Principal repayments on long-term debt (8) (25) Payments on obligations under capital leases (19) (2) Advances on notes receivable from shareholders -- 105 ------- ------- Net cash provided by financing activities 501 49 NET DECREASE IN CASH (399) (2,727) CASH and cash equivalents, beginning of period 842 3,543 ------- ------- CASH and cash equivalents, end of period $ 443 $ 816 ------- ------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the nine months for interest $ 18 $ 55 Non-cash investing and financing activities Debt issued to repurchase common stock $ 1,500 -- Stock issued for acquisition of RAP and Voltage Vehicles $ 2,970 --
See accompanying notes to consolidated financial statements. 4 ZAP NOTES TO THE INTERIM UNAUDITED FINANCIAL STATEMENTS (1) Basis of Presentation The financial statements included in this Form 10-QSB have been prepared by us, without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, although management believes the disclosures are adequate to make the information presented not misleading. The results of operations for any interim period are not necessarily indicative of results for a full year. These statements should be read in conjunction with the financial statements and related notes included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001. The financial statements presented herein, for the three and nine months ended September 30, 2002 and 2001 reflect, in the opinion of management, all material adjustments consisting only of normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The Company did not meet the requirements to utilize fresh start reporting. Therefore, in accordance with Statement of Position 90-7: "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," our liabilities compromised by the confirmed plan of reorganization have been stated at the present value of the amounts to be paid, reorganization expenses have been separately disclosed and the forgiveness of debt has been reported as an extraordinary item in the condensed consolidated financial statements. (2) Plan of Reorganization On June 20, 2002, the Bankruptcy Court entered an order ("Confirmation Order") confirming the Debtor's Second Amended Plan of Reorganization (the "Plan"). During the third quarter ended September 30, 2002 certain transactions occurred that were approved by the Plan: o ZAP's common stock was reversed split on a 2:1 basis on July 1, 2002. The final result of the conversion and the reverse split equates to 6:1 or in other words for every six shares a common stockholder held on June 20, 2002 (ZAP's Plan of Reorganization Date) the individual will receive one share of common stock in the Reorganized ZAP. o On July 1, 2002 the completion of the proposed acquisition of Voltage Vehicles and RAP Group, Inc. was completed. These Companies became wholly owned subsidiaries of ZAP through the purchase from the equity Shareholders of Voltage Vehicles and RAP Group, Inc. all of the shares of these businesses in exchange for 4,500,000 (post-split) 500,000 to Voltage Vehicles and 4,000,000 to RAP Group, Inc. The equity shareholders' will also receive one Warrant in Series B, C, D and K to purchase common stock in the Reorganized ZAP for each common share issued to Voltage Vehicles and RAP Group, Inc. In connection with the acquisition of Rap and VV the company recorded goodwill or the excess of the purchase price over the net assets acquired of approx $1.6 million and $450,000 for each company respectively. The Goodwill recorded is based upon a preliminary estimate of the purchase price of RAP and Voltage Vehicles. The Company plans to obtain an independent appraisal of the fair value of the tangible and intangible assets acquired in order to record and allocate the purchase price in accordance with Financial Accounting Standards Board 141, " Business Combinations". The Company has not finalized the allocation of the purchase price as of September 30, 2002. An estimation of the allocation was prepared and included as part of these financial statements. 5 EXTRAORDINARY GAIN (LOSS) ON FORGIVENESS OF DEBT Under ZAP's approved Plan of reorganization, approximately $3 million in long-term debt due to Ridgewood was converted to common stock. This transaction resulted in the Company recognizing an extraordinary gain of approximately $2.9 million. The remainder of the extraordinary gain or $1.1 million was due to the cancellation of the unsecured creditor's indebtedness. Also, in accordance with ZAP's plan of reorganization, some unsecured creditors have elected to receive stock rather than cash for their claims. The plan also provides for a twelve-month period following June 20, 2002 for the unsecured creditors to still elect to receive equity. Those unsecured creditors that elected to receive cash, will share in a fund of $300,000 which is payable over three years, with each creditor receiving their pro-rata share. During the third quarter ended September 30, 2002, the Company incurred an extraordinary loss due to the conversion of certain unsecured creditors' claims to equity. A loss was incurred in certain transactions where the fair value of the stock exchanged was in excess of the claim amount. The Risks Related to Our Business includes, but are not limited to, the following: We face intense competition, which could cause us to lose market share. Changes in the market for electric vehicles could cause our products to become obsolete or lose popularity. We cannot assure you that growth in the electric vehicle industry will continue and our business may suffer if growth in the electric vehicle industry ceases 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. 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 adverse effect on our business. We may not be able to protect our internet address. Our success is heavily dependent on protecting our intellectual property rights The net loss per common share is based on the weighted average number of common shares outstanding in each period. Potential dilutive securities associated with stock options and warrants have been excluded from the weighted average shares outstanding since the effect of these securities would be anti-dilutive. See note 4 below for reverse stock split and restatement of per share amounts. (3) PRINCIPLES OF CONSOLIDATION-The accounts of the Company and its consolidated subsidiaries are included in the consolidated financial statements after elimination of significant inter-company accounts and transactions. (4) - COMMON STOCK On July 1, 2002, ZAP's stock began trading on the Over-the-Counter (OTC) Bulletin Board under the new stock symbol of ZAPZ. According to the OTC Bulletin Board, the symbol change is to indicate that ZAP is no longer in Chapter 11 Reorganization, and that the stock has undergone a reverse split effective July 1, 2002. ZAP's common stock of 6,693,643 shares were converted to 2,231,214 shares of common stock in the Reorganized ZAP, which was then reversed split on a 2:1 basis. The final result of the conversion and the reverse split equates to 6:1 or in other words for every six shares a common stockholder held on June 20, 2002 (ZAP's Plan of Reorganization Date) the individual received one share of common stock in the Reorganized ZAP. The resulting shares of common stock after the split was 1,115,607. All shares and per share data have been restated to reflect the stock splits. The Common Shareholders' also received one Warrant in Series B, C and D to purchase common stock in the Reorganized ZAP for each common share issued to the claimant. During the quarter, the Company issued approx 1.1 million shares for the Daka conversion of their note payable to equity. See further discussion under the liquidity section. ZAP also issued approximately 315,000 shares of common stock to satisfy reorganization claims and professional fees. In addition, another 71,000 shares were also issued to outside consultants in exchange for services to the Company. 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Special Note Regarding Forward-Looking Statements Certain statements in this Form 10-QSB, including information set forth under this Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). We desire to avail ourselves of certain "safe harbor" provisions of the Act and are therefore including this special note to enable us to do so. Forward-looking statements included in this Form 10-QSB or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, reports to our stockholders and other publicly available statements issued or released by us involve known and unknown risks, uncertainties, and other factors which could cause our actual results, performance (financial or operating), or achievements to differ from the future results, performance (financial or operating), or achievements expressed or implied by such forward looking statements. Such future results are based upon our best estimates based upon current conditions and the most recent results of operations. OVERVIEW The Company's business strategy has been to develop, acquire and commercialize electric vehicles and electric vehicle power systems, which have fundamental practical and environmental advantages over available internal combustion modes of transportation that can be produced commercially on an economically competitive basis. In 2002, the Company continued to enhance and broaden its electric vehicle product line. PRODUCT SUMMARY- ZAP markets many forms of advanced transportation, including electric automobiles, motorcycles, bicycles, scooters, personal watercraft, hovercraft, neighborhood electric vehicles, commercial vehicles and more. Additionally, the Company produces the electric scooter, known as the ZAPPY(R), which is manufactured by the Company, using parts manufactured by various subcontractors. ELECTRIC VEHICLE RENTAL PROGRAM- Working in conjunction with Global Electric Motorcars, LLC, a Daimler Chrysler Company, a program was announced in which ZAP will be renting neighborhood electric vehicles throughout California. ZAP plans to solicit the participation of rental agencies and other locations for the program. Neighborhood electric cars are a new category of 25 MPH automobiles designed for short trips in urban areas, planned communities, commercial zones or tourist districts. The smaller, low-speed electric cars are a new alternative in places concerned with air and noise pollution, high fuel prices, traffic congestion or parking shortages. ACQUISITION OF NEW BUSINESSES-The Company completed its acquisition of Voltage Vehicles and RAP Group on July 1, 2002. Voltage Vehicles is a Sonoma County-based Nevada Corporation with exclusive distribution contracts for advanced transportation in the independent auto dealer network, including rights to one of the only full-performance electric cars certified under federal safety standards. The RAP Group owns an auto dealership focused on the independent automotive and advanced technology vehicle markets. A Voltage Vehicle authorized dealer, RAP showcases an array of advanced transportation at its dealership in Fulton, California. The Rap Group began business in 1996 and has been a profitable entity for the past few years with annual sales in excess of $ 6 million. While Voltage Vehicles, which began, business in February, 2001, is a relatively new enterprise. As noted in ZAP's approved Plan of Reorganization, the mergers are expected to enhance ZAP's financial base by providing access to the two companies' services and relationships. The move is expected to advance ZAP's goal of becoming a leading full-service brand in the electric and alternate fuel transportation industry. Upon completion of the mergers, ZAP plans to step-up its role in building a national distribution network to support its contract manufacturing for its growing line of products. The merger will also enable ZAP to immediately cut overhead and other costs, and increase revenues. Zap and certain of its Directors have been named as a co-defendant in a lawsuit with respect to the acquisitions of both the RAP Group, Inc. and Voltage Vehicles. See further description in Part 11-Item 1-Legal Proceedings. The Company has a $159,000 backlog of orders and purchase contracts in hand for electric vehicles as of November 12, 2002. The Company expects to fill these orders within the current fiscal year. 7 Some of the significant events for the Company that occurred during the third quarter of 2002 or prior to the filing of this Form 10-Q document were as follows: (1) On July 1, 2002, ZAP completed its acquisition of Voltage Vehicles and RAP Group, Inc. pursuant to ZAP's Second Amended Plan of Reorganization; see Note 2 above for details. (2) ZAP began trading on July 1, 2002 on the Over-the-Counter (OTC) Bulletin Board under the stock symbol of ZAPZ. Also on this date ZAP's Reorganization Plan provided for a reverse stock split. (3) ZAP received $500,000 in financing from Daka Development. On June 17, 2002, Daka granted ZAP a $500,000 loan for inventory financing of Daka's items. On September 17, 2002, Daka exercised its option to convert the entire amount of the note to ZAP common stock. (4) Signed a Strategic Alliance Agreement with Moller Skycars to explore possibilities for the production of the Skycar and other technologies that meet the two companies' goals. Moller is a research and development firm working on technologies in the field of aeronautics. They are the developer of the Skycar, a four-person Vertical Takeoff and Landing Aircraft currently undergoing initial flight testing. 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 end September 30, Nine months ended September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Statements of Income Data: - -------------------------- Net sales 100% 100.0% 100% 100.0% Cost of sales (85.5) (243.8) (81.0) (125.9) Gross profit (loss) 14.5 (143.8) 19.0 (25.9) Operating expenses 39.4 220.3 73.8 132.1 Loss from operations before reorganization items and extraordinary gain (24.9) (364.2) (54.8) (158.0) Other income (loss) -- (4.1) .5 .1 Net loss before reorganization items and extraordinary gains (24.9) (368.3) (54.3) (157.9) Reorganization items-professional fees, etc. -- -- 6.7 -- Net loss before extraordinary gain (24.9) (368.3) (61.0) (157.9)
QUARTER ENDED SEPTEMBER 30, 2002 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2001 Note: The results for the quarter include the newly acquired companies of RAP Group Inc., and Voltage Vehicles as of July 1, 2002. Since Voltage Vehicles is still in the development stage the majority of the results of the combined ZAP are affected by RAP. 8 NET SALES for the quarter ended September 30, 2002, were $2,044,000 for the combined ZAP compared to $678,000 in the prior year. The sales for the quarter for RAP were $1,462,000. Pre-merger ZAP's sales were $ 582,000 compared to $678,000 in the prior year. Sales were less in all areas due to the overall poor world-wide economy. GROSS PROFIT increased from a loss of $975,000 in 2001 to a profit of $297,000 in 2002. RAP's portion of the 2002 amount was $216,000. Pre-merger ZAP increased from a loss of $975,000 to gross profit of $81,000 due to product mix and fewer sales to liquidators, which were done last year at little or no margin to move product. SELLING AND MARKETING expenses in the quarter ended September 30, 2002 were $216,000 as compared to $203,000 for the quarter ended September 30, 2001. Included in the 2002 amount were RAP expenses of $124,000. Pre-merger ZAP decreased from $203,000 to $92,000 .As a percentage of sales, selling and marketing expenses for pre-merger ZAP decreased from 30% to 16% of net sales. The primary reason for the decrease was less spending in all areas of sales and marketing together with significantly less personnel. GENERAL AND ADMINISTRATIVE expenses for the quarter ended September 30, 2002 were $590,000 as compared to $1.2 million for the quarter ended September 30, 2001. RAP's portion of the expenses were $200,000. Pre-merger ZAP decreased from $1.2 million to $390,000. This is a decrease of $810,000 or 68%. The dollar decrease in amount of expenses was due to less salaries and benefits, fewer professional fees, no amortization of goodwill in accordance with new accounting guidelines, and spending cutbacks. RESEARCH AND DEVELOPMENT EXPENSES decreased $110,000 to none in the 3rd quarter of 2002 as compared to the 3rd quarter of 2001. Since ZAP has transitioned from manufacturing to a sales marketing organization, no R&D expenses have been incurred in the quarter. INTEREST INCOME (EXPENSE) decreased from expense of $26,000 in 2001 to $3,000 in 2002. The decrease was due to less interest bearing debt. OTHER INCOME (EXPENSE) increased to $3,000 from an expense of $2,000 as the result of less small miscellaneous items. REORGANIZATION ITEMS- The minor decrease in reorganization items was primarily due to the settlement for less professional fees incurred for the reorganization. NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2001 Note: The results for the nine months include one quarter's activity for the newly acquired companies of RAP Group Inc., and Voltage Vehicles as of July 1, 2002. Since Voltage Vehicles is still in the development stage the majority of the results of the combined ZAP are affected by RAP. NET SALES for the nine months ended September 30, 2002 were $2.8 million compared with $3.6 million in the nine months ended September 30, 2001. RAP's net sales for the period accounted for $1.5 million. The net sales for pre-merger ZAP were $1.3 million versus $3.6 million. The decrease in sales is primarily attributable to less sales and greater sales returns from customers due to the poor worldwide economy. The Company's filing of bankruptcy in March also adversely affected sales volume. GROSS PROFIT dollars increased from a $940,000 loss to a profit of $537,000 in the first nine months of 2002. The RAP Group accounted for $216,000. Pre-merger ZAP increased from a $940,000 loss to profit of $321,000. The primary reasons for the increase were product mix and fewer sales to liquidators at low profit. SELLING expenses for the nine months ended September 30, 2002 were $349,000 as compared to $935,000 for the nine months ended September 30, 2001. RAP's expenses were $124,000. Pre-merger ZAP was $225,000 versus $935,000. This was a decrease of $710,000 or 76% from 2001 to 2002. As a percentage of sales, selling expenses decreased from 26% of sales to 12% of sales. The decrease was primarily due to fewer salaries and commissions for sales personnel, and less marketing and promotion expenses. 9 GENERAL AND ADMINISTRATIVE expenses for the nine months ended September 30, 2002 were $1.7 million as compared to $3.4 million in 2001. RAP's portion of the expenses were $200,000. For pre-merger ZAP the expenses decreased from $3.4 million to $1.5 million. This is a decrease of $1.9 million or 56% from 2001. Expenses were less in all categories of spending due to fewer employees and facilities. The Company's expenses were significantly less in legal and consulting costs. RESEARCH AND DEVELOPMENT expenses decreased $470,000 to $30,000 or 94% from the first nine months of 2002 as compared to the first nine months of 2001. All of the expenses were for ZAP pre-merger. As a percentage of net sales, research and development decreased to 2% of sales in the first nine months of 2002 as compared to 13% of sales in the first nine months of 2001. Since ZAP has transitioned from manufacturing to a sales marketing organization, R&D expenses have decreased. INTEREST INCOME (expense) Interest expense net, increased $20,000 in the first nine months of 2002 as compared to the first nine months of 2001 due less investment income which offsets interest expense. OTHER EXPENSE increased from an expense of $5,000 to income of $28,000 for the first nine months of 2002 to the first nine months of 2001. The increase was primarily due to fees received from two government grants. LIQUIDITY AND CAPITAL RESOURCES In the first nine months of 2002 net cash used by the Company for operating activities was $996,000. In the first nine months of 2001, the Company used cash for operations of $2.6 million. Cash used in the first nine months of 2002 was comprised of the net loss before reorganization items and the extraordinary gain incurred for the period of $2.5 million offset by net non-cash expenses of $1.5 million and the net change in operating assets and liabilities resulting in providing cash of $44,000. Cash used in operations in the first nine months of 2001 was comprised of the net loss incurred for the first nine months of $5.7 million, offset by net non-cash expenses of $771,000, and the net change in operating assets and liabilities resulting in a further use of cash of $2.3 million. Investing activities provided cash of $96,000 and used cash of $133,000 in the first nine months of 2002 and 2001, respectively for the purchase of equipment and patents and acquisition of RAP and Voltage Vehicles. Financing activities provided cash of $501,000 and of $49,000 during the first nine months ended September 30, 2002 and 2001, respectively. The Company received a significant increase to liquidity through the Plan of Reorganization where approximately $3 million in long-term debt due to Ridgewood ZAP, LLC was converted to common stock. Thus in accordance with the conversion formula specified in the plan, Ridgewood received approximately 975,000 of common stock in the Reorganized ZAP. This transaction also resulted in the Company recognizing an extraordinary gain of approximately $2.9 million. At September 30, 2002 the Company had cash of $443,000 compared to $348,000 at September 30, 2001. At September 30, 2002, the Company had working capital of $2.7 million, as compared to working capital of $1.6 million at September 30, 2001. The Company, at present, does not have a credit facility in place with a bank or other financial institution. In conjunction with the distribution agreement signed with Daka Development on June 17, 2002 to market, sell and distribute their products in North America, ZAP signed a secured convertible promissory note for up to $500,000 to finance the inventory purchases. The terms of the note require interest at the rate of 6% per annum. The note matured on September 17, 2002. Daka exercised its right to convert to equity and received approx 1.1 million shares of common stock which was approximately 15% of the shares outstanding of the Company on the maturity date. Daka also has the right to purchase one warrant in series B, C, and D for each common share that Daka receives. The Company was granted authority to issue the $500,000 convertible debenture through the Approved Plan of Reorganization. 10 On July 1, 2002, ZAP completed its acquisition of Voltage Vehicles ("VV") and RAP Group, Inc. ("RAP") pursuant to ZAP's Second Amended Plan of Reorganization that was approved by the United States Bankruptcy Court (the "Court"), Northern District of California (Santa Rosa Division) on June 20, 2002. In exchange for all of the outstanding shares of the businesses, ZAP issued 4,500,000 (post split) 500,000 to VV and 4,000,000 to RAP. The equity shareholders of VV and RAP will also receive one Warrant in Series B,C,D and K to purchase common stock in ZAP for each share issued to Voltage Vehicles and RAP Group, Inc. In order to finance our working capital requirements we are currently seeking both debt and equity investments with several investors, but there can be no assurances that we will obtain this capital or that it will be obtained on terms favorable to us. We do not have a bank line of credit and there can be no assurance that any required or desired financing will be available through bank borrowings, debt, or equity offerings, or otherwise, on acceptable terms. If future financing requirements are satisfied through the issuance of equity securities, investors may experience significant dilution in the net book value per share of common stock and there is no guarantee that a market will exist for the sale of the Company's shares. The Company's primary capital needs are to fund its growth strategy, which includes increasing its internet shopping mall presence, increasing distribution channels, establish company owned and franchised ZAP stores, introducing new products, improving existing product lines and development of strong corporate infrastructure. SEASONALITY AND QUARTERLY RESULTS The Company's business is subject to seasonal influences. Sales volumes in this industry typically slow down during the winter months, November to March in the U.S. The Company is marketing worldwide and is not impacted by U.S. seasonality. INFLATION Our raw materials are sourced from stable, cost-competitive industries. As such, we do not foresee any material inflationary trends for our raw material sources. PART II - OTHER INFORMATION Item 1. Legal Proceedings On September 9, 2002, ZAP and certain of its Directors were named as a co-defendant in a lawsuit filed in the Superior Court of the State of California by shareholders of Advanced Wireless Systems ,Inc., . The suit alleges that ZAP improperly acquired both the RAP Group, Inc and Voltage Vehicles. Plaintiffs seek to rescind both acquisitions and have alleged monetary damages in an amount not specified in their complaint. The lawsuit is still in the discovery stages and management feels that they will prevail. Item 2. Changes in Securities A reverse common stock occurred on July 1, 2002. Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities. 11 Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders held on October 26, 2002, the following proposals were requested and approved as follows: -To elect five Directors, Louis Auletta, Michael G. Coder, Lawrence W. Mc Laughlin, Steven Schneider and Gary Starr , nominated to serve until the next annual meeting and until their respective successors are elected and qualified. For: 6,386,624 Against: 4,216 Abstain: 200 -To ratify the appointment of Odenberg, Ullakko, Muranishi & Co. LLP as the Company's independent public accountant. For: 6,389,179 Against : 1,201 Abstain : 660 -To authorize Voltage vehicles, a wholly owned subsidiary of ZAP to make an offer to acquire Ford's Think electric vehicle assets. For: 6,391,040 Against: None Abstain: None Item 5. Other Information There were no major financial contracts signed during the period. Item 6. Exhibits and Reports on Form 8-K The Company filed the following Form 8-K's during the period: -July 12, 2002, the Company filed a Form 8-K to report that on June 20, 2002, the United States Bankruptcy Court, Northern District of California confirmed ZAP's Plan of Reorganization, which cleared the way for the Company to emerge immediately from bankruptcy. It was also announced, that ZAP completed it's acquisition of Voltage Vehicles and RAP Group, Inc. on July 1, 2002 which was pursuant to ZAP's Second Amended Plan of Reorganization that was approved by the bankruptcy court on June 20, 2002. Note, the Approved Plan of Reorganization was attached as an exhibit to the Form 8-K. - September 10, 2002 the Company filed a Form -8-K/A to provide financial information for RAP Group Inc. and Voltage Vehicles acquired by ZAP as indicated above. - The Company filed its proxy materials and subsequent revisions for the Annual Meeting held on October 26, 2002. The Forms DEF 14A and DEFRA 14A were filed on September 20 and October 21, 2002 Respectively. -On October 30, 2002 the Company filed a Form 8K to announce the election of Steven M. Schneider as the new CEO and Gary Starr as the Chairman of the Board of Directors. 12 Exhibits Exhibit No. Description - ----------- ----------- 99.1 Chief Executive Officer's Certification Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Chief Financial Officer's Certification Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 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 ------------ (Registrant) Signature Title Date - --------- ----- ---- /s/ Steven M. Schneider Director / CEO November 12, 2002 ----------------------------- /s/ William Hartman CFO November 12, 2002 ----------------------------- 13 EX-99.1 3 ex99-1_11611.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 ------------ CHIEF EXECUTIVE OFFICER'S CERTIFICATION TO U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Form 10-QSB of ZAP for the nine months ended September 30, 2002, Steven M. Schneider , Director and Chief Executive Officer of ZAP, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that : (1) such Form Type of ZAP for the nine months ended September 30, 2002,fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange of 1934; and (2) the information contained in such Form 10-QSB of ZAP for the nine months ended September 30, 2002,fairly presents, in all material respects, the financial condition and results of operations of ZAP. /s/ Steven M. Schneider - ------------------------------------ Steven M. Schneider Director and Chief Executive Officer November 12, 2002 EX-99.2 4 ex99-2_11611.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 99.2 ------------ CHIEF FINANCIAL OFFICER'S CERTIFICATION TO U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Form 10-QSB of ZAP for the nine months ended September 30, 2002, William Hartman , Chief Financial Officer of ZAP, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that : (3) such Form Type of ZAP for the nine months ended September 30, 2002,fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange of 1934; and (4) the information contained in such Form 10-QSB of ZAP for the nine months ended September 30, 2002,fairly presents, in all material respects, the financial condition and results of operations of ZAP. /s/ William Hartman - ------------------------------------ Chief Financial Officer November 12, 2002 -----END PRIVACY-ENHANCED MESSAGE-----