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ZAP · 10QSB · For 6/30/06

Filed On 8/14/06 2:50pm ET   ·   SEC File 1-32534   ·   Accession Number 1072613-6-1771

  in   Show  and 
  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 8/14/06  ZAP                               10QSB       6/30/06    6:81                                     Express Filing Svcs/FA

Quarterly Report -- Small Business   ·   Form 10-QSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10QSB       Zap Form 10-Qsb                                     HTML    306K 
 2: EX-3.4      Certificate of Amendment                            HTML     10K 
 3: EX-31.1     Section 302 Certification of C.E.O.                 HTML     12K 
 4: EX-31.2     Section 302 Certification of C.F.O.                 HTML     12K 
 5: EX-32.1     Section 906 Certification of C.E.O.                 HTML      8K 
 6: EX-32.2     Section 906 Certification of C.F.O.                 HTML      7K

10QSB   ·   Zap Form 10-Qsb

This is an EDGAR HTML document rendered as filed.  [ Alternative Formats ]

  WWW.EXFILE.COM, INC. -- 14550 -- ZAP -- FORM 10-QSB  

 
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, 2006

Commission File Number 001-32534


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)

 
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 o
 
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)      Yes o    No x
 
Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.        Yes x  No o
 
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

 35,569,195  shares of common stock as of August 11, 2006.

Transitional Small Business Disclosure Format          Yes o    No x
 
 

 
 
 
 
 
 

ZAP

FORM 10-QSB
 
INDEX

 
 
 
Page No.
PART I.
Financial Information
 
 
 
Item 1.
Consolidated Financial Statements (unaudited) :
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheet as of June 30, 2006
2
 
 
 
 
 
 
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2005
3
 
 
 
 
 
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005
4
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements
5
 
 
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
 
 
 
 
 
Item 3.
Controls and Procedures
22
 
 
 
 
PART II.
Other Information
 
 
 
Item 1.
Legal Proceedings
22
 
 
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
24
 
 
 
 
 
Item 3.
Defaults Upon Senior Securities
24
 
 
 
 
 
Item 4.
Submission of Matters to a Vote of Security Holders
24
 
 
 
 
 
Item 5.
Other Information
25
 
 
 
 
 
Item 6.
Exhibits
25
 
 
 
 
SIGNATURES
 
26
     
 
 
 
 
 
 
 
 
Part I.     FINANCIAL INFORMATION
Item 1.    Financial Statements
 ZAP
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(In thousands) 
 
 
 
June 30,
2006
 
ASSETS 
 
 
 
CURRENT ASSETS
 
 
 
 Cash and cash equivalents  
 
$
1,663
 
Accounts receivable, net of allowance for doubtful accounts of $215
 
 
312
 
Advances on Smart Car inventory
 
 
460
 
Inventories
 
 
1,852
 
Prepaid expenses and other current assets
 
 
425
 
Total current assets
 
 
4,712
 
 
 
 
  
 
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $983
 
 
5,144
 
 
 
 
  
 
OTHER ASSETS
 
 
  
 
Smart Automobile license, net
 
 
2,314
 
Patents and trademarks, net   
 
 
54
 
Goodwill     
 
 
175
 
Deposits and other assets
 
 
576
 
Total assets
 
$
12,975
 
 
 
 
  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
  
 
CURRENT LIABILITIES
 
 
  
 
Current portion of long-term debt
 
$
104
 
Accounts payable
 
 
50
 
Accrued liabilities  
 
 
1,533
 
Liability to Smart Auto
 
 
7,052
 
Deferred revenue
 
 
1,089
 
Put-option Liability       291  
Total current liabilities
 
 
10,119
 
LONG-TERM LIABILITIES
 
 
  
 
Long-term debt, less current portion
 
 
1,854
 
Total liabilities
 
 
11,973
 
SHAREHOLDERS’ EQUITY 
 
 
  
 
PrPreferred stock, authorized 50 million shares; no par value, no shares issued and outstanding
 
 
—
 
Common stock, authorized 200 million shares; no par value; 35,321,980 shares issued and outstanding
 
 
84,272
 
Common stock issued as loan collateral
 
 
(2,929
)
Notes receivable from shareholders, net
 
 
(56
)
Accumulated deficit
 
 
(80,285
)
Total shareholders’ equity
 
 
1,002
 
Total liabilities and shareholders’ equity
 
$
12,975
 
 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, 2006 
  
Three Months
ended
June 30, 2005 
  
Six Months
ended
June 30, 2006 
  
Six Months
ended
June 30, 2005 
  
NET SALES
  
$
4,359
  
$
923
  
$
7,288
  
$
2,085
  
 
                  
COST OF GOODS SOLD
    
4 ,071
    
792
    
6,576
    
1,920
  
 
                  
GROSS PROFIT
    
288
    
131
    
712
    
165
  
 
                  
OPERATING EXPENSES
                  
Sales and marketing
    
353
    
299
    
604
    
492
  
General and administrative (non-cash of $1.1 million and $.1 million and $2.9 million and $.7 million for the three and six months ended June 30, 2006 and 2005)
    
2,865
   
1,790
    
5,933
    
4,650
  
Research and development
          
60
    
—
    
100
  
 
    
3,218
    
2,149
    
6,537
    
5,242
  
LOSS FROM OPERATIONS
    
(2,930
)
  
(2,018
 )   
 (5,825
)
  
(5,077
)
OTHER INCOME (EXPENSE)
                  
Gain on revaluation of warrant and put option liabilities
   
169
    
—
    
304
    
1,519
  
Interest income (expense), net
    
(3
)
  
5
    
(9
)
  
2
  
Other income (expense)
    
7
    
129
    
4
    
125
  
 
    
173
    
134
    
299
    
1,646
  
LOSS BEFORE INCOME TAXES
    
(2,757
)
  
(1,884
 )   
 (5,526
)
  
(3,431
)
 
                  
PROVISION FOR INCOME TAXES
    
—
    
—
    
4
    
4
  
NET LOSS
  
$
(2,757
)
$
( 1,884
 ) 
$
 (5,530
)
$
(3,435
)
 
                  
NET LOSS PER COMMON SHARE
                  
BASIC AND DILUTED
   $
(0.08
)
 $
(0.06
 )  $
 (0.16
)
$
(0.11
)
 
                  
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING — BASIC AND DILUTED
    
34,748
    
31,459
    
33,753
    
30,877
  
 
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,
 
 
  
2006
  
2005
  
CASH FLOWS FROM OPERATING ACTIVITIES
  
 
  
 
  
Net loss
 
$
(5,530
)
$
(3,435
)
 
              
Items not requiring the use of cash:
              
Amortization of note discount
    
—
    
10
  
Stock-based compensation for consulting and other services
    
1,987
    
6,292
  
Stock-based employee compensation 
    
946
    
(5,000
)
Gain on revaluation of warrant and put option liabilities
    
(304
)
  
(1,519
)
Depreciation and amortization
    
1,036
    
702
  
Loss on disposal of equipment
    
4
    
—
  
Allowance for doubtful accounts
    
(118
)
  
199
  
Changes in other items affecting operations:
              
Receivables
    
(9
)
  
(220
)
Note receivable from Smart Auto
    
—
    
(1,000
)
Smart car inventory
    
918
    
188
  
Inventories
    
20
    
362
  
Prepaid expenses and other assets
    
(541
)
  
(88
)
Accounts payable
    
(139
)
  
191
  
Accrued liabilities
   
(223
)
  
313
  
Deferred revenue
    
39
    
—
  
Net cash used for operating activities
    
(1,914
)
  
(3,005
)
CASH FLOWS FROM INVESTING ACTIVITES
              
Purchase of equipment
    
(357
)
  
(419
)
Proceeds from sale of equipment
    
35
    
—
  
Net cash used for investing activities
    
(322
)
  
(419
)
 
              
CASH FLOWS FROM FINANCING ACTIVITIES
              
Repurchase of common stock
    
—
    
(500
)
Payments on note receivable to stockholder 
    
—
    
14
 
Issuance of common stock and warrants, net of offering costs
    
2,396
    
2,225
  
Borrowings and repayments of long-term debt
    
(44
)
  
(85
)
Net cash provided by financing activities
    
2,352
    
1,654
  
 
              
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
116
    
(1,770
)
 
              
CASH AND CASH EQUIVALENTS, beginning of period
    
1,547
    
5,354
  
 
              
CASH AND CASH EQUIVALENTS, end of period
  
$
1,663
  
$
3,584
  
See accompanying notes to condensed consolidated financial statements (Unaudited)

 
 
 
 
-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, and have not been audited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles 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, 2005.

The financial statements presented herein, for the three and six months ended June 30, 2006 and 2005 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 risks related to our business. The Company has a history of losses and might not achieve profitability. The Company will need additional capital to achieve its business plan. There can be no assurance that additional capital will be available, or if it is available, that it will be on acceptable terms. A substantial portion of the Company’s growth in the past four 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 electrical or fuel-efficient vehicles could cause our products to become obsolete or lose popularity. We cannot assure you that growth in the electric vehicle industry or fuel-efficient cars will continue and our business may suffer if growth in the electric vehicle industry or fuel-efficient market decreases or if we are unable to maintain the pace of industry demands. We may be unable to keep up with changes in electric vehicle or fuel-efficient technology and, as a result, may suffer a decline in our competitive position. The failure of certain key suppliers to provide us with components could have a severe and negative impact upon our business. Product liability or other claims could have a material 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 Company relies on other entities such as G&K Automotive to convert or Americanize Smart cars for sale in certain states in the United States; and to provide services under warranties and all other maintenance and repair services. If these entities are unable to supply or service Americanized Smart cars, and the Company is unable to obtain alternate sources of supply for these products and services, the Company might not be able to fill existing backorders and/or sell more Smart cars.

ZAP has shipped and sold approximately 270 smart cars in the first 6 month of 2006 and anticipates selling at least another 50 smart cars over the next quarter. However, due to the actions by Daimler Chrysler Corporation and others named in ZAP’s suit, ZAP cannot predict how many more smart cars the Company will be able to sell in the future. As part of ZAP’s business plan, ZAP had anticipated that Smart Car availability was uncertain and over the past 18 months was aggressively seeking out other advanced transportation vehicles for distribution. The Xebra is now under production and sales are accelerating beyond original expectations. The pre-production unit for Obvio the gas/ethanol vehicle from Brasil is now undergoing road testing and is slated for distribution in 2008. Other vehicles are also in the planning phase.


 
 
 
 
-5-
 
 
 
(2)    SIGNIFICANT ACCOUNTING POLICIES
 
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Basic and diluted 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 convertible preferred stock and debt have been excluded from the diluted per share amounts, since the effect of these securities would be anti-dilutive. At June 30, 2006, these potentially dilutive securities include options for 6,392,508 shares of common stock, warrants for 53,693,415 shares of common stock and debt convertible into 930,000 shares of common stock. 

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.

REVENUE RECOGNITION
The Company records revenues only upon the occurrence of all of the following conditions:

-The Company has received a binding purchase order or similar commitment from the customer or distributor authorized by a representative empowered to commit the purchaser (evidence of a sale);

-The purchase price has been fixed, based on the terms of the purchase order;

-The Company has delivered the product from its distribution center to a common carrier acceptable to the purchaser. The Company’s customary shipping terms are FOB shipping point; and

-The Company deems the collection of the amount invoiced probable.

The Company provides no price protection. Product sales are net of promotional discounts, rebates and return allowances.
 
The Company does not recognize sales taxes collected from customers as revenue.

DEFERRED REVENUE - One of the Company’s subsidiaries, Voltage Vehicles, sold licenses to auto dealerships under the ZAP name. The license agreements call for the licensee to purchase a minimum number of vehicles from ZAP each year. The Company collected $1,100,000 related to these agreements, which is classified as deferred revenue until the Company begins delivering a substantial number of vehicles to these dealerships on a regular basis. Accordingly, the Company has recognized approximately $11,000 of revenue for the six month period ended June 30, 2006 resulting in an ending balance of $1,089,000.

USE OF ESTIMATES - The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the Company’s financial statements and accompanying notes. Actual results could differ materially from those estimates. Significant estimates include:

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.

LEGAL ACCOUNTS - The Company estimates the amount of potential exposure it may have with respect to litigation claims and assessments.
 
 
 
 
 
-6-
 
 
 
RECOVERY OF LONG-LIVED ASSETS - The Company evaluates the recovery of its long-lived assets at least annually by analyzing its operating results and considering significant events or changes in the business environment.

STOCK ISSUED AS COLLATERAL - In December 2004, the Company issued 2.9 million common shares as collateral for a $1 million loan. The $3.529 million market value of these shares at the date of issuance was recorded in common stock with an offsetting contra equity account. These shares were previously issued to Mercatus Partners LLP in January 2003 as collateral for a loan that never funded. The shares were reported as lost to the Company in December 2003. In December 2004, the shares were reissued to Mercatus Partners who then assigned the shares and their interests to Phi-Nest Fund, L.P. as collateral for the $1 million loan commitment. The Company amended the Loan Agreement allowing them to purchase 500,000 shares for $1.16 per share. On March 30, 2006, the Company received $500,000 in net proceeds from the sale. The collateral was reduced to 2,441,176 shares and the loan is still pending.
 
WARRANTY - The Company provides 30 to 90 day warranties on its personal electric products and records the estimated cost of the product warranties at the date of sale. The estimated cost of warranties has not been significant to date. Should actual failure rates and material usage differ from our estimates, revisions to the warranty obligation may be required.
 
The Company also has an agreement with an outside company to provide a 36 month or 36,000 mile warranty on the Smart Car Americanized by ZAP. At June 30, 2006, the Company has recorded a warranty liability for $210,800.
 
CASH AND CASH EQUIVALENTS - The Company considers highly liquid investments with maturities from the date of purchase of three months or less to be cash equivalents.
 
(3)   STOCK-BASED COMPENSATION

We have stock compensation plans for employees and directors which are described in Note 10 to our consolidated financial statements in our 2005 Annual Report on Form 10-KSB as filed with the SEC on March 31, 2006. In June 2006, our shareholders approved the Company’s 2006 incentive stock plan. Under the 2006 plan, we may grant stock options for up to 4 million shares of common stock. We adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “ Share-Based Payment ,” (“SFAS 123R”) effective January 1, 2006. SFAS 123R requires the recognition of the fair value of stock compensation in net income (loss). We recognize the stock compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. All of our stock compensation is accounted for as an equity instrument. Prior to January 1, 2006, we followed Accounting Principles Board Opinion 25, “ Accounting for Stock Issued to Employees, ” (“APB 25”) and related interpretations in accounting for our stock compensation.

We elected the modified prospective method in adopting SFAS 123R. Under this method, the provisions of SFAS 123R apply to all awards granted or modified after the date of adoption. The unrecognized expense of awards not yet vested at the date of adoption is recognized in net income (loss) in the periods after the date of adoption using the same valuation method ( i.e. Black-Scholes) and assumptions determined under the original provisions of SFAS 123, “ Accounting for Stock-Based Compensation,” as disclosed in our previous filings. In accordance with the modified prospective method, the consolidated financial statements for periods prior to 2006 have not been restated to reflect SFAS 123R. Therefore, the results for the first quarter of 2006 are not directly comparable to the same period in the prior year.
  
Under the provisions of SFAS 123R, we recorded $423,010 and $916,275 of stock compensation, net of estimated forfeitures, in selling, general and administrative expenses, in our unaudited condensed consolidated statement of