-----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, V+Mea2LOeR8LXPwIQTLKggXPUpnv9Smcgsefz18zfzRZ0EfzNKr0FXXE39WwFHlI RnN0o9xLNmHQ6X3uj9ollQ== 0001072613-03-001804.txt : 20031113 0001072613-03-001804.hdr.sgml : 20031113 20031113160604 ACCESSION NUMBER: 0001072613-03-001804 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031113 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: 03998215 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: ZAPWORLD COM DATE OF NAME CHANGE: 19990715 FORMER COMPANY: FORMER CONFORMED NAME: ZAP POWER SYSTEMS INC DATE OF NAME CHANGE: 19970319 10QSB 1 form10-qsb_12313.txt FORM 10-QSB - 09.30.03 ================================================================================ 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, 2003 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 INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 501 FOURTH STREET SANTA ROSA, CA 95401 (707) 525-8658 ------------------------------------------------------------- (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. 16,067,882 shares of common stock as of November 12, 2003. 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, 2003 ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 156 Accounts receivable, net of allowance for doubtful accounts of $895 774 Inventories 1,632 Prepaid expenses and other current assets 414 ------------ Total current assets 2,976 PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,132 4,031 OTHER ASSETS Patents and trademarks, net 226 Goodwill 851 Deposits and other 128 ------------ Total assets $ 8,212 ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 143 Accounts payable 737 Accrued liabilities 915 Advances from related party 19 ------------ Total current liabilities 1,814 LONG-TERM LIABILITIES Long -term debt, less current portion 2,164 ------------ Total liabilities 3,978 ------------ SHAREHOLDERS' EQUITY Preferred stock, authorized 50,000 shares; no par value, no shares outstanding Common stock, authorized 100,000 shares of no par value; issued and outstanding 15,807 shares 25,861 Less notes receivable from shareholders, net of allowance of $451 (757) Accumulated deficit (20,870) ------------ Total shareholders' equity 4,234 ------------ Total liabilities and shareholders' equity $ 8,212 ============
See accompanying notes to condensed consolidated financial statements (unaudited) 2 ZAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ----------------------------------------------------------- (INTHOUSANDS, EXCEPT SHARE AMOUNTS)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ ------------------------------ 2003 2002 2003 2002 ------------ ------------ ------------ ------------ NET SALES $ 1,625 $ 2,044 $ 4,519 $ 2,824 COST OF GOODS SOLD 1,147 1,747 3,542 2,287 ------------ ------------ ------------ ------------ GROSS PROFIT 478 297 977 537 OPERATING EXPENSES Sales and marketing 232 216 574 349 General and administrative 1,473 590 2,791 1,706 Research and development -- -- -- 30 Loss on disposal of fixed assets -- -- 100 -- ------------ ------------ ------------ ------------ 1,705 806 3,465 2,085 ------------ ------------ ------------ ------------ LOSS FROM OPERATIONS BEFORE REORGANIZATION ITEMS AND EXTRAORDINARY GAIN (LOSS) (1,227) (509) (2,488) (1,548) ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE) Interest expense, net (24) (3) (31) (13) Other income (expense) (239) 1 (446) 28 ------------ ------------ ------------ ------------ (263) (2) (477) 15 ------------ ------------ ------------ ------------ LOSS BEFORE REORGANIZATION ITEMS AND EXTRAORDINARY GAIN (LOSS) (1,490) (511) (2,965) (1,533) REORGANIZATION ITEMS: Professional fees 7 (6) 22 159 Provision to rejected executory contracts -- -- -- 31 ------------ ------------ ------------ ------------ 7 (6) 22 190 ------------ ------------ ------------ ------------ LOSS BEFORE EXTRAORIDINARY GAIN (LOSS) (1,497) (505) (2,987) (1,723) EXTRAORDINARY GAIN (LOSS) ON FORGIVENESS OF DEBT -- (75) -- 3,983 ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ (1,497) $ (580) $ (2,987) $ 2,260 ============ ============ ============ ============ NET LOSS PER COMMON SHARE BASIC AND DILUTED Loss per share before extraordinary gain $ (0.10) $ (0.08) $ (0.22) $ (0.58) Extraordinary gain (loss) -- (0.01) -- 1.35 ------------ ------------ ------------ ------------ Net income (loss) per share-basic and diluted $ (0.10) $ (0.09) $ (0.22) $ 0.77 ============ ============ ============ ============ WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING BASIC AND DILUTED 15,102 6,779 13,804 2,946 ------------ ------------ ------------ ------------
See accompanying notes to condensed consolidated financial statements (unaudited) 3 ZAP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ----------------------------------------------------------- (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 2003 2002 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (2,987) $ 2,260 Adjustments to reconcile net income (loss) to net cash used for operating activities: Depreciation and amortization 247 185 Extraordinary gain on forgiveness of debt -- (3,983) Loss on disposal of fixed assets 100 -- Allowance for doubtful accounts (140) 302 Issusance of stock for services 271 -- Issuance of stock for interest expense 19 -- Changes in: Accounts Receivable 221 190 Inventories 337 114 Deposits (107) (4) Prepaid expenses and other assets 82 (52) Accounts payable 239 179 Accrued liabilities 663 (187) Advances from related parties (56) -- ------------ ------------ Net cash used in operating activities (1,111) (996) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITES Purchase of equipment (8) (81) Investment in joint venture -- 177 ------------ ------------ Net cash provided by (used for) investing activities (8) 96 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Sale of common stock, net of stock offering costs 838 28 Proceeds from issuance of debt 228 -- Draw on convertible promissory note -- 500 Principal repayments on long-term debt (141) (8) Payments on obligations under capital leases -- (19) ------------ ------------ Net cash provided by financing activities 925 501 ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (194) (399) CASH AND CASH EQUIVALENTS beginning of period 350 842 ------------ ------------ CASH AND CASH EQUIVALENTS end of period $ 156 $ 443 ============ ============
See accompanying notes to condensed consolidated financial statements (unaudited) 4 ZAP NOTES TO THE CONDENSED CONSOLIDATED 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, 2002. The financial statements presented herein, as of September 30, 2003 and for the three and nine months ended September 30, 2003 and 2002 reflect, in the opinion of management, all material adjustments consisting only of normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flow for the interim periods. Basic and diluted earnings (loss) per common share is based on the weighted average number of common shares outstanding in each period. Potential dilutive securities associated with stock options, warrants and conversion of debt have been excluded from the diluted per share amounts, since the effect of these securities would be anti-dilutive. Effective July 1, 2002, ZAP acquired all of the outstanding shares of RAP and Voltage Vehicle ("VV"), which became wholly owned subsidiaries. The following summarized unaudited pro forma financial information assumes the acquisition occurred on January 1, 2002: (in thousands except per share amounts) Nine Months Ended September 30, 2002 ------------------ Net sales $ 6,808 Loss before extraordinary gain (1,538) Loss per share before extraordinary gain (0.52) The pro forma results do not necessarily represent results which would have occurred if the acquisition had taken place on the basis assumed above, nor are they indicative of the results of future combined operations. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company measures stock-based compensation for option grants to employees and members of the board of directors using the intrinsic value method. Had compensation expense for the Company's stock options been recognized based upon the fair value for awards granted, the Company's net loss for the three and nine months ended September 30, 2003 and 2002 would have been increased to the following pro forma amounts (in thousands, except per share data):
IN THOUSANDS EXCEPT PER SHARE AMOUNTS THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30 ------------------------------- ------------------------------- 2003 2002 2003 2002 ------------------------------- ------------------------------- Net loss before extraordinary gain (As reported) $ (1,497) $ (505) $ (2,987) $ (1,723) Less Employee stock-based compensation expense determined under fair value (10) (5) (70) (20) ------------------------------- ------------------------------- Pro forma $ (1,507) $ (510) $ (3,057) $ (1,743) =============================== =============================== Basic and diluted per share: As reported $ (0.10) $ (0.08) $ (0.22) $ (0.58) =============================== =============================== Pro forma $ (0.10) $ (0.08) $ (0.22) $ (0.58) =============================== ===============================
5 The Risks Related to Our Business The Company has a history of losses, and the Company might not achieve or maintain profitability. The Company's continuation as a going concern is directly dependent upon our ability to increase sales and receive additional financing. The Company will require substantial additional capital in the short term to remain a going concern. A substantial portion of the Company's growth in the past three years has come through acquisitions and the Company may not be able to identify, complete and integrate future acquisitions. Other risks include, 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 and our distribution contracts. (2) SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The accounts of the Company and its consolidated subsidiaries are included in the condensed consolidated financial statements after elimination of significant inter-company accounts and transactions. USE OF ESTIMATES - The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the Company's financial statements and accompanying notes. 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 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. LITIGATION-The Company estimates the amount of potential exposure it may have with respect to litigation claims and assessments. RECOVERY OF LONG-LIVED ASSETS- The Company evaluates the recovery of its long-lived assets periodically 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. 6 (3) INVENTORIES - The Inventories at September 30, 2003 are summarized as follows (thousands): Vehicles $ 419 Raw Materials 861 Finished Goods 941 ------ 2,221 Less-inventory reserve 589 ------ $1,632 ====== (4) PROPERTY AND EQUIPMENT - During March 2003, the Company purchased a three-story office building in downtown Santa Rosa, California at 501 Fourth Street with approximately 20,000 square feet of space for approximately $3.2 million for $2 million in convertible debt, 581,395 shares of stock and 250,000 warrants. The $2 million convertible note is due in 22 years, with annual interest at 2% for the first two years, and thereafter at the prime rate (as defined) plus 2%. No payments are due until after two years, at which time, the note holder has the option to convert some or all of the unpaid principal and accrued interest to shares of ZAP's common stock at an agreed upon conversion price (as defined). The new facility is the corporate headquarters of ZAP and has space for a retail Company store. The Company moved from its Sebastopol, California headquarters located on Morris Street during April 2003. (5) 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. The Company issued approximately 1.5 million shares of common stock in the first quarter ended March 31, 2003. Approximately 600,000 of these shares were issued in payment of part of the purchase price of the new corporate headquarters. In addition, 265,000 shares at approximately $1.50 per share were issued to Daka as an advance on future inventory purchases. The Company also issued 410,000 shares at $1 per share in exchange for cash and notes receivable. The remaining 225,000 shares were issued to pay off debt, advertising expenditures, and professional services, at share prices ranging from $1 to $1.50. The Company issued approximately 1 million shares of common stock in the second quarter ended June 30, 2003. Approximately 200,000 shares were issued for cash (weighted average price per share $1.13), advertising expenditures and consulting services (per share price between $1.13 and $1.57). Of the shares issued during the quarter, 400,000 shares were issued at $1.00 per share for a note receivable as part of collateral for a short term loan, and 200,000 shares were issued at $1.40 per share to a shareholder for a long term note, payable in 2008. During the third quarter ended September 30, 2003, approximately 1.3 million shares of common stock were issued for cash, inventory, rent, services and notes from shareholders. The services received by the Company were primarily for advertising, stock promotion and consulting expenses. Of the shares issued in the quarter 330,000 were issued for cash at a range from $1.00 to $1.30 per share, 326,000 were given to acquire the rental electric car fleet at $1.50 per share and 260,000 shares were issued to a shareholder in exchange for notes receivable at $1.07 per share. As of September 30, 2003 the Company had notes receivable from shareholders, net of reserves, of $756,800. The total notes receivable are comprised of $110,700 that are unsecured and $246,100 that are secured by real property, which has not yet been appraised or assigned to the Company. In addition, another $400,000 represents a note from a shareholder for stock that was pledged as collateral for a short-term loan. In connection with these shareholder notes, the Company has established a reserve of $451,000 for potential losses. The Company has also approximately 2.9 million shares of common stock outstanding that were pledged as collateral for a long-term loan that has not funded. The Company has held continued discussions with the lender. 7 (6) LITIGATION - From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business, including employment-related and trade related claims. A Complaint for Declaratory Relief was filed against the Company in the United States Bankruptcy Court For The Northern District of California on September 18, 2003 by certain of the former preferred shareholders of the Company. The Complaint alleges that the plaintiffs have not received stock and warrants that were specified in the Second Amended Plan of Reorganization ("the plan") dated June 20, 2002. The plaintiffs further assert that the Company claimed to have redeemed the Plaintiffs Class A warrants in February of 2003. The Plaintiffs are requesting that the Court issue a declaratory judgment that the Company's purported redemption of the Plaintiffs Class A warrants in February is ineffectual and to order the Company to issue written certificates for each share of stock and each warrant specified in the plan. The Company has filed a rebuttal to these claims, and intends to vigorously assert its defense in the issuance of plaintiff's stocks and warrants and the propriety of its authorized redemption of plaintiff's unexercised warrants. On May 20, 2003 the RAP GROUP, an independent operating subsidiary of ZAP, was named by Fireside Thrift Co. as a defendant in a lawsuit filed in the Superior Court of California. The suit alleges breach of contract and misrepresentation with respect to the Dealer Agreement. The plaintiff is seeking damages in the amount of $546,108 plus interest. The pending action is in the preliminary stage. The RAP Group, as a separate subsidiary, intends to mount a vigorous defense in this action. Management believes that it has adequately provided for the potential exposure on this matter. The Company, during the first quarter of 2002, became aware that the California Department of Motor Vehicles (DMV)-Investigations Division is conducting an inquiry into the activities of certain employees of the RAP Group. If any adverse findings result, the Auto Dealer's License for the RAP Group could be jeopardized since RAP is currently on probation by the California Department of Motor Vehicles for a period of two years ending June 12, 2004. The probationary action was due to the RAP Group's untimely transfers of pink slips for sales of vehicles and lack of compliance with Motor Vehicle Pollution Control guidelines on certain automobile sales. Part of ZAP's original business plan, considered converting the dealership into a wholesale distributor for its electric cars. The Company may also sell or close the RAP Group Dealership as it may no longer be part of ZAP's long-term business plan. (7) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Nine Months Ended September 30, ------------------------ 2003 2002 -------- -------- Cash paid during the period for interest $ -- $ 18 Cash paid during the period for income taxes $ -- $ -- Non-cash investing and financing activities: Note and stock issued to purchase land and building $ 3,292 $ -- Stock issued for: Notes receivable $ 1,208 $ -- Purchase of fixed assets $ 576 $ -- Inventory purchases $ 370 $ -- Prepaid expenses $ 342 $ -- Repayment of long-term debt $ 56 $ 1,500 Stock issued for acquisition of RAP and Voltage Vehicle $ -- $ 2,970 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 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 ZAP (the "Company" or "ZAP") was incorporated under the laws of the State of California, on September 23, 1994, as "ZAP Power Systems". The name of the Company was changed to "ZAPWORLD.COM" on May 16, 1999 in order to increase our visibility in the world of electronic commerce. We subsequently changed our name to ZAP on June 18, 2001 in order to reflect our growth and entry into larger, more traditional markets. The Company has grown from a single product line to a full line of electric vehicle products. Essentially all of the Company's manufacturing has been transferred to lower-cost overseas contract manufacturers. The Company's business strategy has been to develop, acquire and commercialize advanced transportation including 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 2003, the Company continued to enhance and broaden its electric vehicle product line. The Company intends to further expand its technological expertise through an aggressive plan of acquisitions of companies with exciting new products in the electrical vehicle industry and strategic alliances with certain manufacturers, distributors and sales organizations located worldwide. The Company's business goal is to become the largest and most complete distribution portal for advanced transportation and electric vehicles. In 2003, the Company continues to accelerate its market positioning in the electric vehicle industry. The Company is now focused on creating a distribution channel for its vehicles, with special emphasis on entrepreneurs in the power-sport and independent auto industry. According to various sources, the Company has developed perhaps the strongest brand names in the electric vehicle industry. PRODUCT SUMMARY- ZAP markets many forms of advanced transportation, including electric automobiles, motorcycles, bicycles, scooters, personal watercraft, neighborhood electric vehicles, commercial vehicles and more. Some of ZAP's major product lines are: ZAPCAR(TM) - This vehicle utilizes an advanced drive train that delivers four times the horsepower as other electric automobiles in its class. This production automobile is imported from China. This electric car is the first vehicle of its kind to utilize an advanced drive train powered by an asynchronous AC motor system delivering up to four times the horsepower as other models in its class. 9 ZAP LIGHT UTILITY VEHICLE (LUV) (TM) -This vehicle is part of a new class of automobile called a Neighborhood Electric Vehicle (NEV). This category of automobile was created for the many car trips people take for inter-city transportation, planned communities, commercial zones and tourist areas. The LUV sports a European design that comes from Italy. The vehicle has speeds up to 25 mph, has room for two and plugs into any normal household electric outlet. It is one of the first NEV's complete with doors and amenities found on conventional automobiles. SEASCOOTER(TM) -The SeaScooter (TM) is a revolutionary affordable underwater propulsion device designed to pull swimmers, snorkelers and divers through the water. It can run at speeds up to 2 mph at a depth of 60 feet and has built in buoyancy regulation for maximum comfort. ELECTRIC SCOOTERS AND BICYCLES-The Company has a large line of personal electric scooters and bicycles for distribution to customers. The current line of electric scooters includes the ZAPPY(R), ZAPPY Turbo(R), ZAP(R) Q Electric Transport and the ZAP(R) Whiz Bang Scooter. The bicycle and motorbike products include the ZAP Viento Motorbike, the Powerbike(R) and the folding ZAPBIKE(TM). ELECTRIC VEHICLE RENTAL PROGRAM- ZAP established ZAP Rental Outlet to rent neighborhood electric vehicles. 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. In September 2003, the Company acquired an electric car rental fleet, which it intends to operate at various locations. At present, ZAP is renting electric autos at three locations in Las Vegas. OTHER SUBSIDIARY 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. Voltage Vehicles began business in February 2001, and is a relatively new enterprise. The Company has a $190,200 backlog of orders and purchase contracts in hand for various products and electric vehicles as of November 12, 2003. The Company expects to fill these orders within the current fiscal year. RESULTS OF OPERATIONS-The following table sets forth, as a percentage of net sales, certain items included in the Company's Income Statements (see Financial Statements and Notes) for the periods indicated:
THREE MONTHS ENDED SEPT 30, NINE MONTHS ENDED SEPT 30, 2003 2002 2003 2002 - ------------------------------------------------------------------------------------------------------------------ STATEMENTS OF INCOME DATA - ------------------------- Net sales ...................................... 100% 100% 100% 100% Cost of sales .................................. (70.6) (85.5) (78.4) (81.0) Gross profit ................................... 29.4 14.5 21.6 19.0 Operating expenses ............................. 104.9 39.4 76.7 73.8 Loss from operations before reorganization items and extraordinary gain (loss) .................. (75.5) (24.9) (55.1) (54.8) Other income (expense) ......................... (16.2) -- (10.6) .5 Net loss before reorganization items and extraordinary gain (loss) ...................... (91.7) (24.9) (65.7) (54.3) Reorganization items-Professional fees, etc .... -- -- (0.4) (6.7) Net loss before extraordinary gain (loss) ...... (91.7) (24.9) (66.1) (61.0)
10 Some of the noteworthy events for the Company that occurred during the third quarter of 2003 or prior to the filing of this Form 10-Q document were as follows: 1. ZAP introduced two new electric scooters which are the ZAP(R) Q Electric Transport and the ZAP(R) Whiz Bang Scooter. The ZAP(R) Q looks and performs like other two and three-wheeled stand-on transporters with more features and handling for less than half the price of some models. The Whiz-Bang scooter is a new breed of ZAP electric scooter with more power than the original ZAPPY scooter. 2. A new folding electric bicycle called the ZAPBIKE(TM) was unveiled during the quarter. This bike also has an advanced Lithium-Ion battery built into the frame and a high efficiency motor in the rear hub. 3. ZAP has signed a distribution agreement with a Chinese company to import a production electric automobile from China. The new ZAPCAR(TM) is a zero-emission vehicle that is priced under $10,000. 4. ZAP has arranged with a California based auto insurance company to underwrite an unlimited mileage warranty on selected electric autos. 5. An electric car rental fleet was acquired by ZAP in September. The Company intends to rent the cars at various locations. At present, the Company is operating three locations in Las Vegas. QUARTER ENDED SEPTEMBER 30, 2003 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2002 NET SALES for the quarter ended September 30, 2003 were $1.6 million compared to $2 million for the quarter ended September 30, 2002. RAP's net sales accounted for $1.1 million of third quarter sales in 2003 versus $1.5 million in the third quarter of 2002. Net sales of ZAP excluding the RAP Group were $497,000 for the quarter ended September 30, 2003 compared to $582,000 for the quarter ended September 30, 2002. The major reason for the total sales decrease of approximately $400,000 were fewer sales of conventional automobiles at RAP due to the poor economy. GROSS PROFIT was $478,000 for the quarter ended September 30, 2003 compared to $297,000 for the quarter ended September 30, 2002. The RAP Group accounted for $292,000 of the gross profit for the quarter ended September 30, 2003 compared to $216,000 for the quarter ended September 30, 2002. The gross profit of ZAP excluding the RAP Group increased from $81,000 for the quarter ended September 30, 2002 to $186,000 for the quarter ended September 30, 2003. The primary reason for the increase in gross profits was product mix where ZAP had more sales of SeaScooters, which have higher profit margins than other personal electric products. SALES AND MARKETING expenses in the third quarter of 2003 increased $16,000 from $216,000 in the third quarter of 2002 to $232,000 in 2003. As a percentage, the sales and marketing expenses also increased from 10.6% in 2002 to 14.3% in the third quarter of 2003. The higher expenses were due to new advertising campaigns by ZAP to promote the SeaScooters and the electric automobiles. GENERAL AND ADMINISTRATIVE expenses for the third quarter of 2003 increased $883,000 or 150% from $590,000 in third quarter 2002 to $1,473,000 in 2003. The expense increase is primarily due to the following: consulting fees paid to raise capital and to promote the Company's stock, higher salaries and benefits, increased professional fees for legal, accounting and tax services and greater expenses for bad debts. INTEREST EXPENSE increased from $3,000 in the third quarter of 2002 to $24,000 in the third quarter 2003. The difference was primarily due to interest on short-term loans and the long-term loan on the new Corporate office building. OTHER INCOME (EXPENSE) the increase in other expense of $240,000 was due to additional reserves established for shareholder notes receivable during the third quarter of 2003. REORGANIZATION ITEMS reflects the quarterly trustee's fee for each quarter where there was a minor change in the amount. 11 NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2002 Note: The nine months results for the Company ended September 30, 2002 only include three months, versus nine months of activity in 2003 for the RAP Group and Voltage Vehicles since both entities were acquired by ZAP on July 1, 2002. NET SALES for the nine months ended September 30, 2003, were $4.5 million compared to $2.8 million in the prior year. The higher year to date sales were primarily due to the inclusion of RAP for nine months in 2003, as noted above. RAP's net sales for the period ended September 30, 2003 were $3 million. The net sales for ZAP were $1.5 million in 2003 versus $1.4 million in 2002. ZAP's sales were greater due to the higher shipments of SeaScooters since the product was launched subsequent to June 30, 2002. GROSS PROFIT was $977,000 for the nine months ended September 30, 2003 compared to $537,000 for the nine months ended September 30, 2002. The RAP Group accounted for $561,000 of the gross profit for the nine months ended September 30, 2003. ZAP's gross profit excluding the RAP Group, increased from $321,000 in 2002 to $416,000 in 2003. The increase was primarily due to sales of SeaScooters for nine months in 2003 versus three months in 2002. The SeaScooters were introduced after June 2002 and have higher margins than the other personal electric products. SELLING EXPENSES in the first nine months of 2003 were $574,000 as compared to $349,000 in 2002. RAP's selling expenses were $166,000 in 2003. ZAP's portion of selling expenses was $408,000 in 2003 versus $225,000 in 2002. This was an increase of $183,000 or 81% from 2002 to 2003. As a percentage of sales, selling expenses were fairly consistent at approximately 12% of net sales. Seling expenses include trade shows expenses and advertising and marketing. ZAP began a new aggressive campaign to promote the Sea Scooters, the ZAP LUV(TM) line and its ZAP line of electric vehicles with magazine ads etc. GENERAL AND ADMINISTRATIVE expenses for 2003 were $2.8 million as compared to $1.7 million in 2002. RAP's portion of the expenses was $1.1 million in 2003. For ZAP, the expenses were $1.7 million in the nine-month period ended September 30, 2003 compared to $1.5 million for the period ended September 30, 2002. This is an increase of approximately $200,000 or 13.3% from 2002. The primary reason for the increase is greater expenses for consulting services for fund raising and promotion of the Company to investors. RESEARCH AND DEVELOPMENT expenses decreased $30,000 for the first nine months of 2003 to zero as compared to the first nine months of 2002. Since ZAP has transitioned from manufacturing to a sales and marketing organization, R&D expenses have decreased. LOSS ON DISPOSAL OF FIXED ASSETS represents adjustments for old leasehold improvements at ZAP's former corporate headquarters and molds being held by ZAP's previous foreign contractor manufacturer. The Company is currently seeking to have the molds returned to ZAP. INTEREST EXPENSE increased from $18,000 in the first nine months of 2002 to $31,000 in the first nine months of 2003. The increase was primarily due to interest on the loan for the building purchased in March, 2003. OTHER INCOME (EXPENSE) decreased from income of $28,000 in 2002 to an expense of $446,000 due to additional reserves established for shareholders' notes receivable during 2003. REORGANIZATION ITEMS decreased from $190,000 in the nine-month period ended September 30, 2002 to $22,000 for the nine-month period ended September 30, 2003. The major reason for the decrease in 2003 is that the Company completed its reorganization in the second quarter of 2002. LIQUIDITY AND CAPITAL RESOURCES In the first nine months of 2003 net cash used by the Company for operating activities was $1.1 million. In the first nine months of 2002, the Company used cash for operations of $996,000. Cash used in the first nine months of 2003 was comprised of the net loss before reorganization items incurred of $3 million plus net non-cash expenses of $497,000 and the net change in operating assets and liabilities resulting in an increase of cash of $1,379,000. Cash used in 12 operations 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 $1.7 million, offset by net non-cash expenses of $487,000, and the net change in operating assets and liabilities in providing cash of $240,000. Investing activities used cash of $8,000 in the first nine months of 2003 and used $96,000 during the nine months ended September 30, 2002. In 2003 the cash was used to purchase equipment. In 2002 the funds were used to purchase equipment and the acquisition of RAP Group and Voltage Vehicles. Financing activities provided cash of $925,000 in the nine months ended September 30, 2003. In the nine months ended September 30, 2002, financing activities provided cash of $501,000. At September 30, 2003 the Company had cash of $156,000 compared to $443,000 at September 30, 2002. The Company had working capital of $1.2 million at September 30, 2003 and $2.7 million at September 30, 2002. The Company, at present, does not have a credit facility in place with a bank or other financial institution. However, the Company has recently established a purchase order financing relationship with a financing concern. The Company may not be able to meet its future cash requirements for the rest of the current fiscal year unless new financing is obtained. Toward this end, the Company has held discussions with various parties, but no formal agreements have been reached to date. The Company will need short term outside investments on a continuing basis to finance its current operations. The Company's revenues for the foreseeable future may not be sufficient to attain profitability. The Company expects to continue to experience losses for the near future. 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 substantially impacted by U.S. seasonality. INFLATION Our raw materials and finished products are sourced from stable, cost-competitive industries. As such, we do not foresee any material inflationary trends for our product sources. ITEM 3. CONTROLS AND PROCEDURES Within 90 days prior to the date of this Form 10-QSB, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's President and Chief Executive Officer along with the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's President and Chief Executive Officer along with the Company's Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in this Form 10-QSB. There have been no significant changes in the Company's internal controls or in other factors, which could significantly affect the internal controls subsequent to the date the Company carried out its evaluation. 13 PART II - OTHER INFORMATION Item 1. Legal Proceedings From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business, including employment-related and trade related claims. A Complaint for Declaratory Relief was filed against the Company with the United States Bankruptcy Court For The Northern District of California on September 18, 2003 by certain of the former preferred shareholders of the Company. The Complaint alleges that the plaintiffs have not received the stocks and warrants that were specified in the Second Amended Plan of Reorganization ("the plan") dated June 20, 2002. The plaintiffs further assert that the Company claimed to have redeemed the Plaintiffs Class A warrants in February of 2003. The Plaintiffs are requesting that the Court issue a declaratory judgment that the Company's purported redemption of the Plaintiffs Class A warrants in February is ineffectual and to order the Company to issue written certificates for each share of stock and each warrant specified in the plan. The Company has filed a rebuttal to these claims, and intends to vigorously assert its defense in the issuance of plaintiff's stocks and warrants and the propriety of its authorized redemption of plaintiff's unexercised warrants. On May 20,2003 the RAP Group, an independent operating subsidiary of ZAP was named by Fireside Thrift Co. as a defendant in a lawsuit in the Superior Court of California. The suit alleges breach of contract and misrepresentation with respect to the Dealer Agreement. The plaintiff is seeking damages in the amount of $546,108 plus interest. The pending action is in the preliminary stage . The RAP Group, a separate subsidiary, intends to mount a vigorous defense in this action. Management believes that it has adequately provided for any potential exposure on this matter. The Company, during the first quarter of 2002, became aware that the California Department of Motor Vehicles (DMV)-Investigations Division is conducting an inquiry into the activities of certain employees of the RAP Group. If any adverse findings result, the Auto Dealer's License for the RAP Group could be jeopardized since RAP is currently on probation by the California Department of Motor Vehicles for a period of two years ending June 12, 2004. The probationary action was due to the RAP Group's untimely transfers of pink slips for sales of vehicles and lack of compliance with Motor Vehicle Pollution Control guidelines on certain automobile sales. As part of ZAP's original business plan, management is considering converting, depending upon the sales volume, the dealership into a wholesale distributor for its electric cars. The Company may also sell or close the RAP Group Dealership as it may no longer be part of ZAP's long-term business plan. Item 2. Changes in Securities There were no changes in rights of securities holders. Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities. Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders held on September 28, 2003, the following proposals were requested and approved as follows: - To elect five Directors, Louis Auletta, Michael G. Coder, Renay Cude, Steven Schneider and Gary Starr, nominated to serve until the next annual meeting and until their respective successors are elected and qualified. Michael Coder has resigned as a Director effective October 15, 2003. For: 12,230,539 Against: 6,381 Abstain: none - To ratify the appointment of Odenberg, Ullakko, Muranishi & Co. LLP as the Company's independent public accountant. For: 12,173,382 Against: 9,202 Abstain: 54,336 14 Item 5. Other Information: There were no major contracts signed during the period. Item 6. Exhibits and Reports on Form 8-K No reports on Form 8-K were filed during the quarter. 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/ Steve Schneider Director / CEO November 12, 2003 - ------------------- /s/ William Hartman CFO November 12, 2003 - ------------------- 15 EX-31.1 3 exh31-1_12313.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 ------------ CERTIFICATION FOR QUARTERLY REPORT ON FORM 10-QSB I, Steve Schneider, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of ZAP; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2003 /s/ Steve Schneider ------------------- Steve Schneider Director and Chief Executive Officer EX-31.2 4 exh31-2_12313.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 ------------ CERTIFICATION FOR QUARTERLY REPORT ON FORM 10-QSB I, William Hartman, certify that: 1. I have reviewed this Quarterly report on Form 10-QSB of ZAP; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarter report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2003 /s/ William Hartman ----------------------- William Hartman Chief Financial Officer EX-32.1 5 exh32-1_12313.txt SECTION 906 CERTIFICATION OF C.E.O. EXHIBIT 32.1 ------------ 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, 2003, 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, 2003,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, 2003, fairly presents, in all material respects, the financial condition and results of operations of ZAP. /s/ Steve Schneider - --------------------- Steve Schneider Director and Chief Executive Officer November 12, 2003 EX-32.2 6 exh32-2_12313.txt SECTION 906 CERTIFICATION OF C.F.O. EXHIBIT 32.2 ------------ 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, 2003, 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: (1) such Form Type of ZAP for the nine months ended September 30, 2003,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, 2003,fairly presents, in all material respects, the financial condition and results of operations of ZAP. /s/ William Hartman - ----------------------- William Hartman Chief Financial Officer November 12, 2003 -----END PRIVACY-ENHANCED MESSAGE-----