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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 June 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
501 FOURTH STREET
SANTA ROSA, CA 95401
(707) 525-8658
(Address, including zip code, and telephone number, including area code, of
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.
14,879,211 shares of common stock as of August 13, 2003.
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, 2003
--------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 453
Accounts receivable, net of allowance
for doubtful accounts of $885 500
Inventories 1,305
Prepaid expenses and other current assets 549
--------
Total current assets 2,807
PROPERTY AND EQUIPMENT, net of 3,557
accumulated depreciation of $1,047
OTHER ASSETS
Patents and trademarks, net 235
Goodwill 851
Deposits and other 8
--------
Total assets $ 7,458
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 231
Accounts payable 760
Accrued liabilities 222
Advances from related party 21
--------
Total current liabilities 1,234
LONG-TERM LIABILITIES
Long -term debt, less current portion 2,195
--------
Total liabilities 3,429
--------
SHAREHOLDERS' EQUITY
Preferred stock: authorized 50,000 shares; no par value,
no shares outstanding
Common stock: authorized 100,000 shares;
no par value, issued and outstanding 14,479 shares 24,210
Notes receivable from shareholders, net of allowance of $205 (810)
Accumulated deficit (19,371)
--------
Total shareholders' equity 4,029
--------
Total liabilities and shareholders' equity $ 7,458
========
See accompanying notes to condensed consolidated financial statements (unaudited)
2
ZAP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
--------------------------- ---------------------------
2003 2002 2003 2002
-------- -------- -------- --------
NET SALES $ 1,366 $ 360 $ 2,894 $ 780
COST OF GOODS SOLD 1,190 226 2,395 540
-------- -------- -------- --------
GROSS PROFIT 176 134 499 240
OPERATING EXPENSES
Sales and marketing 151 66 342 133
General and administrative 754 574 1,318 1,116
Research and development -- 13 -- 30
Loss on disposals of fixed assets 100 -- 100 --
-------- -------- -------- --------
1,005 653 1,760 1,279
-------- -------- -------- --------
LOSS FROM OPERATIONS (829) (519) (1,261) (1,039)
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest income (expense) 1 5 (7) (10)
Other income (expense) (207) 13 (207) 27
-------- -------- -------- --------
(206) 18 (214) 17
-------- -------- -------- --------
LOSS BEFORE REORGANIZATION ITEMS
AND EXTRAORDINARY GAIN (1035) (501) (1,475) (1,022)
REORGANIZATION ITEMS:
Professional fees 15 126 15 165
Cost to reject executory contracts -- 31 -- 31
-------- -------- -------- --------
15 157 15 196
-------- -------- -------- --------
LOSS BEFORE EXTRAORDINARY GAIN (1,050) (658) (1,490) (1,218)
EXTRAORDINARY GAIN ON FORGIVENESS OF DEBT -- 4,058 -- 4,058
-------- -------- -------- --------
NET INCOME (LOSS) $ (1,050) $ 3,400 $ (1,490) $ 2,840
======== ======== ======== ========
NET LOSS PER COMMON SHARE --
BASIC AND DILUTED
Loss per share before extraordinary gain $ (0.07) $ (0.54) $ (0.11) $ (1.24)
Extraordinary gain -- 3.36 -- 4.14
-------- -------- -------- --------
Net income (loss) per share $ (0.07) $ 2.82 $ (0.11) $ 2.90
======== ======== ======== ========
WEIGHTED AVERAGE OF
COMMON SHARES OUTSTANDING --
BASIC AND DILUTED 14,139 1,206 13,147 980
-------- -------- -------- --------
See accompanying notes to condensed consolidated financial statements (unaudited).
3
ZAP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED JUNE 30
-------------------------
2003 2002
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,490) $ 2,840
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
Depreciation and amortization 133 123
Reorganization items, net -- 196
Extraordinary gain on forgiveness of debt -- (4,058)
Loss on disposal of assets 100 --
Allowance for doubtful accounts 205 121
Issuance of common stock for services 189 --
Issuance of common stock for interest expense 19 --
Changes in:
Accounts receivable (96) 248
Inventories 335 134
Prepaid expenses and other current assets (70) 102
Deposits 13 (19)
Accounts payable 262 100
Accrued liabilities and customer deposits (24) (245)
Advances from related party (54) --
------- -------
Net cash used for operating activities (478) (458)
------- -------
CASH FLOWS FROM INVESTING ACTIVITES
Purchase of equipment (5) (5)
Investment in joint venture -- (47)
------- -------
Net cash used for investing activities (5) (52)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock, net of stock offering costs 436 28
Proceeds from debt 228 --
Draw on convertible promissory note -- 4
Principal repayments on long-term debt (78) --
Payments on obligations under capital leases -- (17)
------- -------
Net cash provided by financing activities 586 15
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 103 (494)
CASH AND CASH EQUIVALENTS, beginning of period 350 842
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 453 $ 348
======= =======
See accompanying notes to condensed consolidated financial statements (unaudited).
4
ZAP
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The financial statements included in this Form 10-QSB have been prepared by the
Company, 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 June 30, 2003 and for the three
and six months ended June 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 net loss per common share is based on the weighted average
number of common shares outstanding in each period. Potential dilutive
securities associated with stock options, warrants and conversion of debt and
preferred stock 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:
June 30, 2002
-----------------------------------------
3 months ended 6 months ended
--------------- ---------------
Net sales $ 2,352 $ 4,764
Loss before extraordinary gain (565) (1,033)
Loss per share before extraordinary gain (0.15) (0.41)
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 six
months ended June 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 JUNE 30 SIX MONTHS ENDED JUNE 30
------------------------- -------------------------
2003 2002 2003 2002
------------------------- -------------------------
Net loss before extraordinary gain (As reported) $(1,050) $ (658) $(1,490) $(1,218)
Deduct: Employee stock-based compensation expense
determined under fair value (10) (5) (60) (15)
------------------------- -------------------------
Pro forma $(1,060) $ (663) $(1,550) $(1,233)
========================= =========================
Basic and diluted per share:
As reported $ (0.07) $ (0.54) $ (0.11) $ (1.26)
========================= =========================
Pro forma $ (0.07) $ (0.54) $ (0.12) $ (1.26)
========================= =========================
5
RISKS RELATED TO THE COMPANY'S BUSINESS
The Company has a history of losses, and may not achieve or maintain
profitability. The Company's continuation as a going concern is directly
dependent upon its ability to increase sales or implement cost savings measures,
and obtain additional financing on acceptable terms. 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 resulted
from 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:
The Company faces intense competition, which could cause it to lose market
share. Changes in the market for electric vehicles could cause the Company's
products to become obsolete or lose popularity. Assurances cannot be made that
growth in the electric vehicle industry will continue. The Company's business
may suffer if growth in the electric vehicle industry ceases or if the Company
is unable to maintain the pace of industry demands. The Company may be unable to
keep up with changes in electric vehicle technology and, as a result, may suffer
a decline in its competitive position. The failure of certain key suppliers to
provide the Company with components could have a severe and negative impact on
the Company's business. Product liability or other claims could have a material
adverse effect on the Company's business. The Company may not be able to protect
its Internet address. The Company's success is heavily dependent on protecting
its intellectual property rights and distribution contracts.
(2) PRINCIPLES OF CONSOLIDATION-The accounts of the Company and its subsidiaries
are included in the consolidated financial statements after elimination of
significant intercompany accounts and transactions.
(3) 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.
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.
LEGAL ACCOUNTS. The Company estimates the amount of potential exposure it may
have with respect to litigation claims and assessments.
(4) PROPERTY AND EQUIPMENT-During March 2003, the Company purchased a
three-story office building in downtown Santa Rosa, California at 300 B Street
with approximately 20,000 square feet of space for approximately $3.2 million
consisting of $2 million convertible debt, 581,395 shares of common stock and
250,000 shares of Class B warrants. The $2 million convertible note is due in 22
years, with annual interest at 2% for the first two years, and at the prime rate
(as defined) plus 2% thereafter. 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 will be 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.
6
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, and for 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 of the shares were issued for
cash (weighted average price per share $1.13), advertising and professional
services (per share price between $1.13 and $1.57). Of the remaining 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. At June 30, 2003 the Company had a total of approximately $1 million in
notes receivable from shareholders for common stock issued to them. A reserve of
$205,000 (and charged to other expense) was also established in the quarter
ended June 30, 2003, since one shareholder has not met the payment terms. The
Company is presently seeking repayment from the shareholder.
(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.
On May 20, 2003 the RAP Group, Inc, a wholly owned subsidiary of ZAP, was named
as a defendant in a lawsuit filed in the Superior Court of California by
Fireside Thrift Co. The suit alleges breach of contract and misrepresentation
with respect to a Dealer Agreement. The plaintiff is seeking damages in the
amount of $ 546,108 plus interest. The pending action is in the preliminary
stage. The Company intends to mount a vigorous defense in this action.
Management believes that the ultimate resolution of these claims will not have a
material adverse effect on the Company's financial position or results of
operations.
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 the dealership into a wholesale distributor for its
electric cars.
(7) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
SIX MONTHS ENDED
JUNE 30,
------------------
2003 2002
------ ------
Cash paid during the period for interest $ -- $ 15
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 $1,015 $ --
Inventory purchases $ 28 $ --
Advance on future inventory purchases $ 325 $ --
Repayment of long-term debt $ 56 $1,500
Purchase of equipment $ 13 $ --
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SPECIAL NOTE REGARDING FORWARD-LOOKING 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" constitutes "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
domestic 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,
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.
Some of ZAP's major product lines are:
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.
8
SEA-DOO(R) SEASCOOTER(TM) -The Sea-Doo 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 VEHICLE RENTAL PROGRAM- ZAP established ZAP Rental Outlet in 2002 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.
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 Vehicles
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 acquisition of Voltage Vehicles
and the RAP Group is expected to enhance ZAP's financial base by providing
access to the two companies' services and relationships. The move is also
expected to advance ZAP's goal of becoming a leading full-service brand in the
electric and alternate fuel transportation industry. Since the acquisition, 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 Company has a $1.3 million backlog of orders and purchase contracts on hand
for various products and electric vehicles as of August 13, 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 Statements of Operations (see Financial Statements and
Notes) for the periods indicated:
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- ------------------------
2003 2002 2003 2002
---- ---- ---- ----
STATEMENTS OF OPERATIONS DATA:
Net sales ..................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales ................................. 87.1 62.8 82.7 69.2
Gross profit loss ............................. 12.9 37.2 17.3 30.8
Operating expenses ............................ 73.6 181.4 60.8 164.0
Loss from operations .......................... (60.7) (144.2) (43.6) (133.2)
Other income (expenses) ....................... (15.1) 5.0 (7.4) 2.1
Loss before reorganization items
and extraordinary gain ...................... (75.8) (139.2) (51.0) (131.1)
Reorganization items-professional fees, etc ... 1.1 43.6 0.5 25.1
Loss before extraordinary gain ................ (76.9) (182.8) (51.5) (156.2)
NOTE: The results for 2003 include two quarters' activity for the newly acquired
companies of RAP Group Inc. and Voltage Vehicles. Since Voltage Vehicles is
still in the development stage the majority of the results of the combined
Company are affected by RAP.
QUARTER ENDED JUNE 30, 2003 COMPARED TO QUARTER ENDED JUNE 30, 2002
NET SALES for the quarter ended June 30, 2003 were $1.4 million compared to
$360,000 for the quarter ended June 30, 2002. RAP's net sales accounted for
$795,000 of second quarter sales in 2003. Net sales of ZAP excluding the RAP
Group were $571,000 for the quarter ended June 30, 2003 compared to $360,000 for
the quarter ended June 30, 2002. The increase in overall sales of the combined
Company was primarily due to the acquisition of the RAP Group. Sales of ZAP
excluding the RAP Group were higher due to increased shipments of SeaScooters.
9
GROSS PROFIT was $176,000 for the quarter ended June 30, 2003 compared to
$134,000 for the quarter ended June 30, 2002. The RAP Group accounted for
$54,000 of the gross profit for the quarter ended June 30, 2003. The gross
profit of ZAP excluding the RAP Group decreased from $134,000 for the quarter
ended June 30, 2002 to $122,000 for the quarter ended June 30, 2003. The
decrease in gross profit results from a change in ZAP's product mix.
SALES AND MARKETING expenses in the second quarter of 2003 were $151,000 as
compared to $66,000 in 2002. RAP's expenses were $33,000. The expenses of ZAP
excluding the RAP Group were $118,000 for the second quarter of 2003 compared to
$66,000 for the second quarter of 2002. The expenses of ZAP excluding the RAP
Group increased by $52,000, or 79%, from 2002 to 2003. As a percentage of sales,
selling expenses of ZAP excluding the RAP Group were 21% for the second quarter
of 2003 compared to 18% for the second quarter of 2002. The higher expenses were
due to greater expenses for trade shows and advertising and marketing. ZAP began
a new campaign to promote the SeaScooters with magazine ads, etc., and the ZAP
LUV(TM) line and ZAP's full line of electric vehicles.
GENERAL AND ADMINISTRATIVE expenses for the second quarter of 2003 were $754,000
as compared to $574,000 in 2002. RAP's portion of the 2003 expenses were
$172,000. The expenses of ZAP excluding the RAP Group increased from $574,000 to
$582,000. This is an increase of $8,000 or 1% from 2002. The minor increase in
expenses reflects continuing efforts by the Company to control and reduce costs.
RESEARCH AND DEVELOPMENT decreased to zero in the second quarter of 2003 as
compared to $13,000 for the second quarter 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 of $100,000 represents write-offs of leasehold
improvements at ZAP's former corporate headquarters and molds held by ZAP's
previous foreign contract manufacturer. The Company is currently attempting to
have the molds returned.
INTEREST INCOME decreased from $5,000 in the second quarter of 2002 to $1,000 in
the second quarter of 2003. The difference was primarily due to an interest
expense adjustment.
OTHER INCOME (EXPENSE) decreased from $13,000 in income in the first quarter of
2002 to an expense of ($207,000) in 2003. Included in other expense is a
$205,000 reserve for notes receivable from shareholders. One shareholder has not
met the repayment terms required by the note due to the Company.
REORGANIZATION ITEMS were less in the second quarter of 2003 compared to 2002,
because the Company has completed its reorganization. In 2003 the amount
reflects the quarterly trustee fee of approximately $15,000.
SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002
NET SALES for the six months ended June 30, 2003, were $2.9 million compared to
$780,000 for the six months ended June 30 in the prior year. RAP accounted for
$1.9 million of overall net sales for the six months ended June 30, 2003. The
net sales for ZAP excluding the RAP Group were $1 million and $780,000 for the
six months ended June 30, 2003 and 2002, respectively, an increase of
approximately $200,000. The increase in overall sales for the combined Company
was primarily due to the acquisition of the RAP Group. The sales of ZAP
excluding the RAP Group were greater due to higher shipments of SeaScooters, a
product that was launched subsequent to June 30, 2002.
GROSS PROFIT was $499,000 for the six months ended June 30, 2003 compared to
$240,000 for the six months ended June 30, 2002. The RAP Group accounted for
$270,000 of the gross profit for the six months ended June 30, 2003. ZAP's gross
profit excluding the RAP Group, decreased from a $240,000 to $229,000 in 2003.
The decrease in gross profit results from a change in ZAP's product mix.
10
SALES AND MARKETING EXPENSES in the first six months of 2003 were $342,000 as
compared to $133,000 in 2002. RAP's expenses were $112,000. ZAP's portion of
selling expenses was $230,000 in 2003 compared to $133,000 in 2002. This was an
increase of $97,000 or 73% from 2002 to 2003. As a percentage of sales of the
Company, sales and marketing expenses for ZAP excluding the RAP Group increased
from 17% to 23% for the six months ended June 30, 2003. The higher expenses were
due to greater expenses for trade shows and advertising and marketing. ZAP began
a new aggressive campaign to promote the SeaScooters with magazine ads etc. and
the ZAP LUV(TM) line and its ZAP line of electric vehicles.
GENERAL AND ADMINISTRATIVE expenses for the six months ended June 30, 2003 were
$1.3 million as compared to $1.1 million in the six months ended June 30, 2002.
RAP's portion of the 2003 expenses were $267,000. General and Administration
expenses for ZAP excluding the RAP Group decreased from $1.1 million to $1
million; this is a decrease of $100,000 or 9% from 2002. The decrease in expense
was due to less spending in most areas.
RESEARCH AND DEVELOPMENT expenses decreased to zero for the first six months of
2003 as compared to $30,000 for the first six 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 -- for an explanation see above under the
quarterly analysis.
INTEREST EXPENSE decreased by $3,000 to an expense of ($7,000) for the first six
months of 2003 as compared to ($10,000) for the first six months of 2002. The
decrease was due to an adjustment in interest due.
OTHER INCOME (EXPENSE) decreased from $27,000 of income in the first six months
of 2002 to $207,000 of expenses in 2003. The major reason for the decrease is
due to a $205,000 reserve for notes receivable from shareholders. One
shareholder has not met the repayment terms required by the note due to the
Company.
LIQUIDITY AND CAPITAL RESOURCES
In the first six months of 2003, net cash used by the Company for operating
activities was $478,000. In the first six months of 2002, the Company used cash
for operations of $458,000. Cash used in the first six months of 2003 was
comprised of the net loss of approximately $1.5 million plus net non-cash
expenses of $646,000, plus cash provided by the net change in operating assets
and liabilities of $366,000. Cash used in operations in the first six months of
2002 was comprised of the net income incurred for the period of approximately
$2.8 million, offset by net non-cash income of $3.6 million, and the net change
in operating assets and liabilities in providing cash of $320,000.
Investing activities used cash of $5,000 in the first six months of 2003 and
$52,000 during the first six months ended June 30, 2002. In 2003, the cash was
used to purchase equipment. In 2002 the funds were used to purchase equipment
and to invest in a joint venture.
Financing activities provided cash of $586,000 for the six months ended June 30,
2003. In the first six months ended June 30, 2002, financing activities provided
cash of $15,000.
At June 30, 2003 the Company had cash of $453,000 compared to $348,000 at June
30, 2002. The Company had working capital of $1.6 million at both June 30, 2003
and 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 our future cash requirements for the rest of
the current fiscal year unless new financing is obtained. Toward this end, we
have held discussions with various parties, but no formal agreements have been
reached to date. We will need short term outside investments on a continuing
basis to finance our current operations. Our revenues for the foreseeable future
may not be sufficient to attain profitability. We expect to continue to
experience losses for the near future.
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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.
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.
On May 20, 2003 the RAP Group, Inc, a wholly owned subsidiary of ZAP, was named
as a defendant in a lawsuit filed in the Superior Court of California by
Fireside Thrift Co. 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 Company intends to mount a vigorous defense in this action.
Management believes that the ultimate resolution of these claims will not have a
material adverse effect on the Company's financial position or results of
operations.
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 vehicle
sales 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 the dealership into a wholesale distributor for its
electric cars.
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
There were no matters submitted to the vote of security holders.
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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
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(Registrant)
SIGNATURE TITLE DATE
/s/ Steve Schneider Director / CEO August 13, 2003
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/s/ William Hartman CFO August 13, 2003
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