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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT PURSUANT SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2002
Commission File Number 0-303000
ZAP
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
CALIFORNIA 94-3210624
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
117 MORRIS STREET
SEBASTOPOL, CA 95472
(707) 824-4150
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(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.
5,725,815 shares of common stock as of August 9, 2002.
Transitional Small Business Disclosure Format Yes [_] No [X]
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZAP
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
June 30,
2002
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ASSETS
CURRENT ASSETS
Cash $ 348
Accounts receivable, net of allowance for
doubtful accounts of $654 216
Inventories 1,269
Prepaid expenses and other assets 88
----------
Total current assets 1,921
----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $752 342
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OTHER ASSETS
Patents & Trademarks 274
Goodwill 100
Deposits and other 89
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Total other assets 463
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Total assets $ 2,726
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 50
Accrued liabilities and other expenses 177
Current maturities of long-term debt 119
Current maturities of obligations under
capital leases 10
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Total current liabilities 356
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OTHER LIABILITIES
Long-Term Debt, less current maturities 235
Obligations under capital leases, less
current maturities 25
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Total other liabilities 260
----------
Stockholders' Equity
Preferred stock, authorized 50,000 shares
of no par --
Common stock, authorized 100,000 shares
of no par value; issued and outstanding
3,015 shares 18,296
Accumulated deficit (16,186)
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Total stockholders' equity 2,110
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Total liabilities and stockholders' equity $ 2,726
==========
See accompanying notes to consolidated financial statements
2
ZAP
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(THOUSANDS, EXCEPT SHARE AMOUNTS)
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
2002 2001 2002 2001
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NET SALES $ 360 $ 940 $ 780 $ 2,953
COST OF GOODS SOLD 226 1,376 540 2,918
---------- ---------- ---------- ----------
GROSS PROFIT (LOSS) 134 (436) 240 35
OPERATING EXPENSES
Selling 66 306 133 732
General and administrative 574 1,078 1,116 2,210
Research and development 13 141 30 360
---------- ---------- ---------- ----------
653 1,525 1,279 3,302
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS BEFORE
REORGANIZATION ITEMS AND
EXTRAORDINARY GAIN (519) (1,961) (1,039) (3,267)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income (expense) 5 23 (10) 34
Other income (expense) 13 (15) 27 (4)
---------- ---------- ---------- ----------
18 8 17 30
---------- ---------- ---------- ----------
LOSS BEFORE REORGANIZATION ITEMS
AND EXTRAORDINARY GAIN (501) (1,953) (1,022) (3,237)
REORGANIZATION ITEMS:
Professional fees 126 -- 165 --
Provision to rejected executory contracts 31 -- 31 --
---------- ---------- ---------- ----------
157 -- 196 --
---------- ---------- ---------- ----------
NET LOSS BEFORE PREFERRED DIVIDEND AND
EXTRAORDINARY GAIN (658) (1,953) (1,218) (3,237)
Preferred dividend (48) (105)
---------- ---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY GAIN (658) (2,001) (1,218) (3,342)
EXTRAORDINARY GAIN ON FORGIVENESS OF DEBT (NOTE 2) 4,058 -- 4,058 --
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 3,400 $ (2,001) $ 2,840 $ (3,342)
========== ========== ========== ==========
NET LOSS PER COMMON SHARE BASIC AND DILUTED
RESTATED FOR REVERSE STOCK SPLIT(NOTE 4)
Loss per share before extraordinary gain $ (0.54) $ (1.88) $ (1.24) $ (3.25)
Extraordinary gain (Note 2) 3.36 -- 4.14 --
---------- ---------- ---------- ----------
Net gain (loss) per share-basic and diluted $ 2.82 $ (1.88) $ 2.90 $ (3.25)
========== ========== ========== ==========
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING
BASIC AND DILUTED 1,206 1,062 980 1,028
---------- ---------- ---------- ----------
See accompanying notes to condensed consolidated financial statements
3
ZAP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED JUNE 30,
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2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,840 $ (3,237)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 123 341
Reorganization items, net 196 --
Extraordinary gain on forgiveness of debt (4,058)
Allowance for doubtful accounts 121 77
Amortization of the fair market value of warrants -- 27
Changes in:
Receivables 248 720
Inventories 134 (405)
Deposits (19) --
Prepaid expenses and other assets 102 410
Accounts payable 100 422
Accrued liabilities and customer deposits (245) (565)
---------- ----------
Net cash used in operating activities (458) (2,210)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITES
Purchase of equipment (5) (105)
Purchase of Patents and intangibles -- (17)
Investment in joint venture (47) --
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Net cash used for investing activities (52) (122)
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CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock, net of stock offering costs 28 5
Draw on convertible promissory note 4
Principal repayments on long-term debt -- (3)
Payments on obligations under capital leases (17) (4)
---------- ----------
Net cash provided by(used for) financing activities 15 (2)
---------- ----------
NET DECREASE IN CASH (494) (2,334)
CASH, beginning of period 842 3,543
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CASH, end of period $ 348 $ 1,209
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the six months for interest $ 15 $ 27
Non-cash investing and financing activities
Debt issued to repurchase common stock $ 1,500 $ --
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 six months ended
June 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 flow 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 March 1, 2002 the Company filed a voluntary petition for reorganization under
Chapter 11 of the U. S. Bankruptcy Code with the U.S. Bankruptcy Court. The
first impact of the Chapter 11 filing was to stay certain legal proceedings that
had been instituted against the Company. Management also believed that the
Chapter 11 filing would allow the Company to reorganize and rethink its
direction, and to seek debtor-in-possession financing.
On June 20, 2002,the Bankruptcy Court entered an order (the " Confirmation
Order") confirming the Debtors' Second Amended Plan of Reorganization (the
"Plan").
The primary objectives of the Plan are to: (a) alter the Debtor's equity and
debt structures to permit the Debtor to emerge from the reorganization
proceedings with a viable capital structures; (b) maximize the value of the
ultimate recoveries to all creditor groups on a fair and equitable basis; and
(c) settle, compromise, or otherwise dispose of certain claims and interests on
terms that the Debtors believe to be fair and reasonable and in the best
interests of their respective estates, creditors, and stakeholders. The Plan
provides for, among other things:
o the cancellation of certain indebtedness in exchange for cash, common
stock, no par value, in Reorganized ZAP (as defined below) (the "new
Common Stock"), which will then be reversed split on a 2:1 basis,
and/or warrants to purchase shares of New Common Stock (the "New
Warrants"). The warrants will be issued to each claimant by August 20,
2002.
o the claimant of secured pre-petition debt will be paid $50,000, the
estimated value of the collateral, plus 5% interest on a declining
balance, payable monthly over three years, commencing 60 days
following June 20, 2002;
o ZAP's Preferred Stock of 2,250 shares, originally valued at $1,000 per
share will be converted to 1,260,000 shares of common stock in
Reorganized ZAP, which will then be reversed split on a 2:1 basis.
Thus, the former Preferred Shareholders' will receive approximately
630,000 of common stock in the reorganized ZAP, after the split. The
Preferred Shareholders' will also receive 2.5 million Series A
Warrants vested in accordance with the schedule as outlined in the
Plan and one Warrant in Series B, C and D to purchase common stock in
the Reorganized ZAP for each common share issued to the claimant;
5
o ZAP's common stock of 6,693,643 shares will be converted to 2,231,214
shares of common stock in the Reorganized ZAP, which will then be
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 will receive one share of common
stock in the Reorganized ZAP. The Common Shareholders' will also
receive one Warrant in Series B, C and D to purchase common stock in
the Reorganized ZAP for each common share issued to the claimant,
o the effective date of the reverse split shall be July 15, 2002 or as
soon as the Board of Directors can set a date; The Board of Directors
of ZAP set the effective date of July 1, 2002 for the reverse split.
o the assumption and assignment, or rejection of executory contract or
unexpired leases to which the debtor is a party;
o authorization to issue 100 million shares of common stock and 50
million shares of preferred stock.
o the authority to issue 10 million each for the following Warrants: A,
B, C, D and K for a total of 50 million warrants, the expiration date
for the warrants range from 12 to 36 months;
o the creation of an Incentive Stock Option Plan for employees within the
meaning of Section 423 of the Internal Revenue of 1986, as amended, the
Plan will have options to purchase 10 million shares of New ZAP common
stock at an exercise price equal to the closing price on date options are
granted;
o temporary appointment of certain new members to the Board of Directors,
pending election at the first annual stockholders' meeting;
o the authority to execute a $500,000 of convertible debenture to purchase
inventory from a new supplier with interest payable at 6% per annum or may
be converted to common stock at $.50 per share, or 15 % of the issued
shares of the Reorganized ZAP. An option will also be given to the supplier
to purchase one Warrant in Series B, C and D for each common share owned;
o to authorize the completion of the proposed acquisition of Voltage Vehicles
and RAP Group, Inc effective July 1, 2002. These Companies will become
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 the lesser of 49% of the issued shares to
any new equity shareholders or 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.
EXTRAORDINARY GAIN ON FORGIVENESS OF DEBT
Under ZAP's approved Plan of reorganization, Ridgewood ZAP, LLC agreed to
convert approximately $3 million in long-term debt due to Ridgewood ZAP, LLC 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 as outlined previous. 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. The Company will issue any stock and warrants for the equity
elections by August 20,2002. 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.
6
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
Our Common Stock has been listed on the NASDAQ SmallCap Market under the symbol
"ZAPP" since May 22, 2000. On February 14, 2002, the Company received a NASDAQ
staff determination notice indicating that the Company's common stock would be
subject to delisting from the NASDAQ National Market System for failure to
comply with certain Marketplace Rules. Under the rules, the Company had until
August 13, 2002, to comply. If the Company met certain listing criteria it may
be granted an additional 180-day grace period to demonstrate compliance. On
March 1, 2002, ZAP was suspended from trading on the NASDAQ Small Cap Market due
to our Chapter 11 Bankruptcy filing. On March 20, 2002, we resumed trading under
the symbol "ZAPPQ". On April 29, 2002, the NASDAQ Stock Market notified ZAP that
its shares of common stock would be delisted from the NASDAQ Small Cap Market
effective with the open of business on April 30, 2002. As primary grounds for
its decision was cited uncertainty over the Company's future in light of its
current chapter 11 proceedings. In particular, the panel noted that the timing
and the completion of the Company's plan are uncertain. 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 will be converted to 2,231,214 shares of common stock in the
Reorganized ZAP, which will then be 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 will receive 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
split. The Common Shareholders' will also receive one Warrant in Series B, C and
D to purchase common stock in the Reorganized ZAP for each common share issued
to the claimant.
The approved plan, as outlined previous in Note 2, permitted the Company to
complete the following: increase the authorized common stock to 100 million
shares, issue 50 million warrants for common stock, create an Incentive Stock
Option Plan, and execute a reverse stock split. As of June 30, 2002, no warrants
are outstanding, according to the approved Plan of Reorganization they will be
issued by August 20, 2002. The reverse split was effected on July 1, 2002.
The Company also issued 660,000, pre-split shares of common stock for consulting
services during the quarter.
7
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, that 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 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 the 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 the 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.
The Company has a $331,800 backlog of orders and purchase contracts in hand for
electric vehicles as of August 9, 2002. The Company expects to fill these orders
within the current fiscal year.
8
Some of the significant events for the Company that occurred during the second
quarter of 2002 or prior to the filing of this Form 10-Q document were as
follows:
(1) On June 20, 2002, The United States Bankruptcy Court confirmed ZAP's
Plan of Reorganization which cleared the way for the Company to emerge
immediately from bankruptcy.
(2) 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.
(3) 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.
(4) ZAP signed a distribution agreement with Daka Development Ltd, for the
design, manufacturing and marketing of a full line of advanced
transportation and alternative energy products. The Plan of
Reorganization also approved the execution of a $500,000 Secured
Convertible Promissory Note to Daka for financing of the inventory
purchases.
(5) ZAP announced an electric car rental program in conjunction with
Global Electric Motorcars, LLC, (GEM) a Daimler Chrysler Company. GEM
will sell the electric vehicles to ZAP who will in turn operate a
rental management company, handling all insurance and processing.
ZAP's first rental location opened recently on Balboa Island in
Newport Beach, California, with more locations expected during the
course of the summer.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, certain items
included in the Company's Income Statements (see Financial Statements and Notes)
for the periods indicated:
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------- -------------------------
2002 2001 2002 2001
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STATEMENTS OF INCOME DATA:
--------------------------
Net sales........................................................ 100% 100.0% 100% 100.0%
Cost of sales ................................................... (62.7) (146.3) (69.2) (98.8)
Gross profit (loss).............................................. 37.2 (46.4) 30.7 1.2
Operating expenses............................................... 181.3 162.2 163.4 111.8
Loss from operations before reorganization items and
extraordinary gain............................................... (144.1) (208.6) (133.7) (110.6)
Other Income..................................................... 5.0 - 2.1 1.0
Net loss before reorganization items and extraordinary gain...... (139.1) (208.6) (131.6) (109.6)
Reorganization items-Professional fees,etc....................... 43.6 - 25.1 -
Net loss before extraordinary gain............................... (182.7) (212.8) (156.7) (113.2)
QUARTER ENDED JUNE 30, 2002 COMPARED TO QUARTER ENDED JUNE 30, 2001
NET SALES for the quarter ended June 30, 2002, were $360,000 compared to
$940,000 in the prior year. Sales were less in all areas due to the overall poor
world-wide economy. The Company's filing of Chapter 11 Bankruptcy also adversely
affected our sales during the current quarter.
GROSS PROFIT increased from a loss of $436,000 in 2001 to a profit of $134,000
in 2002 due to product mix and less sales to liquidators, which were done last
year at little or no margin to move product.
9
SELLING AND MARKETING expenses in the quarter ended June 30, 2002 were $66,000
as compared to $306,000 for the quarter ended June 30, 2001. As a percentage of
sales, selling and marketing expenses decreased from 32% to 18% 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 June 30, 2002 were
$574,000 as compared to $1.1 million for the quarter ended June 30, 2001. This
is a decrease of $504,000 or 47%. However, as a percentage of sales, general and
administrative expense increased from 115% to 159% of net sales in 2002. This
increase is due to the lower sales volume where although expenses have been
reduced in all areas, certain general and administration costs are fixed. 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 decreased $128,000 or 91% in the 2nd quarter of 2002 as
compared to the 2nd quarter of 2001. As a percentage of net sales it decreased
to 4 % of sales in the 2nd quarter of 2002 as compared to 15% of sales in the
2nd quarter of 2001. Expense decreases in the second quarter of 2002 as compared
to the second quarter of 2001 were the result of less spending.
INTEREST INCOME (EXPENSE) decreased from income of $23,000 in 2001 to $5,000 in
2002. The decrease was due to less interest income due to lower cash investment
balances.
OTHER INCOME (EXPENSE) increased to $13,000 as the result of reimbursement of
expenses from two government grants.
REORGANIZATION ITEMS- The increase in reorganization items was primarily due to
legal expenses incurred for the reorganization.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
NET SALES for the six months ended June 30, 2002 were $780,000 compared with
$2.9 million in the six months ended June 30, 2001, a decrease of $2.1 million
or 73 %. 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 in the first six months of 2002 to $240,000 from
$35,000 in the first half of 2001. As a percentage of sales, gross profit
increased to 31% in the first half of 2002 compared with 1% in the first six
months of 2001. The primary reasons for the increase were product mix and fewer
sales to liquidators at low profit.
SELLING expenses for the six months ended June 30, 2002 were $133,000 as
compared to $732,000 for the six months ended June 30, 2001. This was a decrease
of $599,000 or 82% from 2001 to 2002. As a percentage of sales, selling expenses
decreased from 25% of sales to 17% of sales. The decrease was primarily due to
fewer salaries and commissions for sales personnel, and less marketing and
promotion expenses.
GENERAL AND ADMINISTRATIVE expenses for the six months ended June 30, 2002 were
$1.1 million. This is a decrease of $1.1 million or 50% 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 $330,000 or 92% from the first six
months of 2002 as compared to the first six months of 2001. As a percentage of
net sales, research and development decreased to 4% of sales in the first six
months of 2002 as compared to 12% of sales in the first six months of 2001.
INTEREST INCOME (expense) decreased $44,000 in the first six months of 2002 as
compared to the first six months of 2001due to lower available cash balances for
investment.
OTHER EXPENSE increased $31,000 from the first six months of 2001 to the first
six months of 2002, which was primarily due the receipt of government grant
money from two projects.
10
LIQUIDITY AND CAPITAL RESOURCES
In the first six months of 2002 net cash used by the Company for operating
activities was $ 458,000. In the first half of 2001, the Company used cash for
operations of $2.2 million. Cash used in the first six months of 2002 was
comprised of the net loss before reorganization items and the extraordinary gain
incurred for the period of $1,022,000 offset by net non-cash expenses of
$244,000 and the net change in operating assets and liabilities resulting in
providing cash of $320,000. Cash used in operations in the first six months of
2001 was comprised of the net loss incurred for the first six months of $3.2
million, offset by net non-cash expenses of $445,000, and the net change in
operating assets and liabilities resulting in a further use of cash of $582,000.
Investing activities used cash of $52,000 and $122,000 in the first six months
of 2002 and 2001, respectively for the purchase of equipment and patents.
Financing activities used cash of $15,000 and provided cash of $2,000 during the
first six months ended June30, 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 will receive 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 June 30, 2002 the Company had cash of $348,000 compared to $1.2 million at
June 30, 2001. At June 30, 2002, the Company had working capital of $1.6
million, as compared to working capital of $3.9 million at June 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 is scheduled to mature on September 17, 2002, for all
items that were received. As of June 30, 2002 there was $4,000 drawn on the
note. On the maturity date, Daka may at their option, convert the principle to
common stock of ZAP at $.50 per share or 15 % of the issued shares of ZAP. 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.
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 will issue the lesser of
49% of the issued shares to any new equity shareholders or 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.
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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
There are no legal proceedings outstanding against the Company
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
In May, 2002 the security holders voted to accept ZAP's Plan of
Reorganization
Item 5. Other Information
The Company signed distribution agreements with DAKA Development and
began a rental program with Global Electric Motorcars, LLC a Daimler
Chrysler Company. See previous discussion in Item 2.
Item 6. Exhibits and Reports on Form 8-K
The Company filed the following Form 8-K's during the period:
o On April 15, 2002, the Company filed its Disclosure Statement
and Proposed Plan of Reorganization, which was subject to
approval of the U.S. Bankruptcy court prior to submission to the
creditors and shareholders for vote.
o April 29, 2002, the Company also filed a Form 8-K to report that
it changed their independent auditors for the year ended
December 31, 2002 from Grant Thornton LLP to Odenberg, Ullakko,
Muranishi & Co. LLP.
o Ju1y 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.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ZAP
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(Registrant)
SIGNATURE TITLE DATE
/s/ Gary Starr Director / CEO August 9, 2002
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/s/ William R. Hartman CFO August 9,2002
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