Zap - Recent Material Event
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ITEM NO. PAGE
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS........................................... 4
ITEM 2. DESCRIPTION OF PROPERTY........................................... 16
ITEM 3. LEGAL PROCEEDINGS................................................. 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 18
PART II
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ITEM 5. MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES................. 19
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......... 20
ITEM 7. FINANCIAL STATEMENTS.............................................. 29
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................ 57
ITEM 8A. CONTROLS AND PROCEDURES........................................... 57
ITEM 8B. OTHER INFORMATION................................................. 58
PART III
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ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.............. 58
ITEM 10. EXECUTIVE COMPENSATION ........................................... 61
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS ............................... 65
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 66
ITEM 13. EXHIBITS.......................................................... 69
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES............................ 72
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PART 1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-KSB and the documents incorporated by reference
herein contain forward-looking statements that are not statements of historical
fact and may involve a number of risks and uncertainties. These statements
relate to analyses and other information that are based on forecasts of future
results and estimates of amounts not yet determinable. These statements may also
relate to our future prospects, developments and business strategies.
We have used the words "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "will," "plan," "predict," "project" and similar terms and
phrases, including references to assumptions, in this annual report on Form
10-KSB and our incorporated documents to identify forward-looking statements.
These forward-looking statements are made based on expectations and beliefs
concerning future events affecting us and are subject to uncertainties and
factors relating to our operations and business environment, all of which are
difficult to predict and many of which are beyond our control, that could cause
our actual results to differ materially from those matters expressed in or
implied by these forward-looking statements. The following factors are among
those that may cause actual results to differ materially from our
forward-looking statements:
o general economic and industry conditions;
o our history of losses, deficits and negative operating cash flows;
o our limited operating history;
o industry competition;
o environmental and government regulation;
o protection and defense of our intellectual property rights;
o reliance on, and the ability to attract, key personnel;
o other factors including those discussed in "Risk Factors" in this
annual report on Form 10-KSB and our incorporated documents.
You should keep in mind that any forward-looking statement made by us in this
annual report or elsewhere speaks only as of the date on which we make it. New
risks and uncertainties arise from time to time, and it is impossible for us to
predict these events or how they may affect us. We have no duty to, and do not
intend to, update or revise the forward-looking statements in this annual report
after the date of filing, except as may be required by law. In light of these
risks and uncertainties, you should keep in mind that any forward-looking
statement made in this annual report or elsewhere might not occur.
In this annual report on Form 10-KSB the terms "ZAP," "Company," "we," "us" and
"our" refer to ZAP and its subsidiaries.
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ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
ZAP stands for Zero Air Pollution(R). With its new product offerings, the
Company is positioned to become a leading brand and distribution portal of
electric and other advanced technology vehicles. ZAP is committed to running its
business based on a strong philosophical foundation that supports the
environment, social responsibility and profitability.
ZAP's strategy is to serve the growing and underrepresented consumer that seeks
electric and fuel efficient vehicles. With the recent increases in the cost of
oil and increasing concern about the environment and the effects of global
warming, we believe there is a large and untapped demand in the areas of
transportation and consumer products. During the energy crisis of the 1970s,
Japanese automobile manufacturers penetrated the United States market when
domestic automobile manufacturers failed to anticipate changes. ZAP believes a
similar opportunity is present today, enhanced by heightened environmental
awareness, climate changes and economic pressures. ZAP has assembled a complete
line of products to meet the growing demands of the environmentally conscious
consumer focused on two primary businesses: ZAP Automotive and ZAP Power
Systems.
ZAP was incorporated as "ZAP Power Systems" under the laws of the State of
California on September 23, 1994, and we changed our name to ZAP on June 18,
2001. Our principal executive offices are located at 501 Fourth Street, Santa
Rosa, California, 95401 and our telephone number is (707) 525-8658.
SUBSIDIARIES
We have the following wholly owned subsidiaries : Voltage Vehicles, a Nevada
company ("Voltage Vehicles"), RAP Group, Inc., a California company ("RAP
Group"), ZAP Rental Outlet, a Nevada company ("ZAP Rentals"), ZAP Stores, Inc.,
a California company ("ZAP Stores"), ZAP Manufacturing, Inc., a Nevada company
("ZAP Manufacturing") and ZAP World Outlet, Inc., a California company ("ZAP
World"). RAP Group was engaged primarily in the sale and liquidation of
conventional automobiles; Voltage Vehicles is engaged primarily in the
distribution and sale of advanced technology and conventional automobiles; ZAP
Stores is engaged primarily in consumer sales of ZAP products and ZAP
Manufacturing is engaged primarily in the distribution of ZAP products. ZAP
World Outlet and ZAP Rental Outlet are not currently operating subsidiaries. RAP
Group and Voltage Vehicles were acquired by the Company in July 2002. On October
1, 2006, the RAP Group surrendered its Dealer Vehicle License and ceased
operations. A new Electric Vehicle Dealership opened on the old automobile lot
location. All subsidiaries are 100% owned by ZAP.
BUSINESS DEVELOPMENT
Founded in 1994, ZAP has invented, designed, manufactured, and marketed numerous
innovative products since the Company's inception. In 1995, ZAP began marketing
electric transportation on the Internet through our website, www.zapworld.com.
ZAP has been a pioneer in developing and marketing electric vehicles such as a
zero-emission ZAP(R) electric bicycle, ZAP Power System, which adapts to most
bicycles, and the ZAPPY(R) folding electric scooter. From 1996 through 1998, we
continued to add to our product line; in 1999, ZAP added electric motorbikes; in
2001, it added electric dive scooters; in 2003, ZAP announced its first electric
automobiles, including the first-ever production electric automobile imported
from its manufacturing partner in China; in 2004 ZAP introduced electric
all-terrain vehicles and the fuel-efficient Smart Car; and in 2005 ZAP
introduced multi-fuel vehicles, capable of running on ethanol and/or gasoline.
To date, we have delivered more than 100,000 electric vehicles and consumer
products to customers in more than 75 countries, which we believe establishes us
as one of the leaders in the alternative transportation marketplace.
Today, ZAP is continuing its focus as one of the pioneers of advanced
transportation technologies and leveraging its place in the market as a magnet
for new technologies. The Company believes there is a growing and
underrepresented market for fuel efficient transportation vehicles and we are
capitalizing on the opportunities, enhanced by heightened environmental
awareness, climate changes and economic pressures. The technology is available
to deliver transportation solutions that are practical and affordable. With our
products such as the XEBRA and ZAPPY 3, ZAP is already delivering such solutions
to the market. Our goal is to become one of the largest and most complete brand
and distribution portals in the United States for advanced technology vehicles.
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To distribute our practical, affordable and advanced transportation
technologies, we have established and are growing both our portal of qualified
automotive dealers and our relationships with specialty dealers/distributors for
our power system products. Through these distribution channels, coupled with the
continued establishment of partnerships with select manufacturers, we intend to
expand our market recognition by building awareness of the evolving technologies
available for automotive transportation and in reducing our nation's dependency
on foreign oil.
PRODUCT SUMMARY
Our existing product line, which includes completed, market ready products and
planned introductions, is as follows:
ZAP AUTOMOTIVE
--------------
ZAP believes it is positioned to become one of the leading distributors of fuel
efficient alternative energy vehicles in the United States. We believe that we
are one of only a few companies distributing a 100% production electric vehicle
capable of speeds up to 40 mph in 2007. Within the next twelve to thirty-six
months, we hope to have distribution agreements in place with three to four
vehicle manufacturers whose products fit ZAP's mission. To distribute our
product to end consumers and fleets, we have established more than 30 licensed
automotive dealers and intend to grow this base significantly over the next
several years.
In 2006, ZAP Automotive introduced the following automobile products:
o the 100% electric XEBRA sedan with an MSRP of approximately
$11,000;
o the 100% electric XEBRA utility vehicle truck with an MSRP of
approximately $11,200; and
o the Smart micro-car with an MSRP of approximately $25,000 (no
longer distributed after September 30, 2006 due to interference
from Daimler Chrysler).
In 2007, ZAP Automotive introduced a new electric scooter, the ZAPINO, with an
advanced 3,000 watt brushless DC hub motor, perfect for city commuting and able
to reach speeds of 30 MPH with an MSRP of $3,000.
Our future offerings that are currently in the developmental stage include:
o the OBVIO 828, an economy micro-car from Brazil with an estimated
MSRP of $16,000,
o CNG and Electric busses
o the ZAP-X, a 100% electric vehicle which will use Lotus
Engineering's Aluminum Performance Crossover ("APX") design.
o The ZAP Alias, which has a target price of $32,500 per vehicle and
an estimated range of 100 miles per charge. This vehicle launch
date is for 2009.
We are also in discussions with other foreign manufacturers and hope to
establish additional relationships within the next twelve to thirty-six months
for other vehicle platforms.
XEBRA
We believe that XEBRA is the only series production electric vehicle in the
United States that can legally travel faster than 25 mph. The car's suggested
retail price of $11,000 is significantly less expensive than most of its
competitors, some of which cost more than $100,000 and are not yet widely
available today. XEBRA has three wheels and is being imported as a motor-driven
cycle, yet, unlike most other motor-driven cycles, the XEBRA is enclosed with
windows and a roof, affording it protection from inclement weather.
Working with our Chinese manufacturing partner, we have designed two XEBRA
models: a sedan and a utility pick-up truck. The Chinese manufacturer's current
manufacturing capacity is approximately 1,000 vehicles per month. Subject in
large part to the level of financing secured, our current target is to
distribute approximately 200 vehicles per month over the next 12 months. Initial
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market demand has been strong, both from end consumers using the vehicle as a
"city-car" and from fleet managers of municipalities, states, green friendly
corporations, and universities who have a preference or mandate to purchase zero
emission vehicles.
We are working closely with our manufacturing partner to continually upgrade the
XEBRA, adding features while balancing the goal of maintaining an affordable
price level. We are in the process of looking into incorporating options to
enhance the consumer's experience, including providing lithium battery packs for
additional (up to 100 mile) range and solar panels for low cost and true zero
air pollution charging. Solar options were introduced in the current quarter.
XEBRA Sedan (ZAPCAR (R))
ZAP launched the sedan version of its XEBRA ZAPCAR on July 11, 2006. The sedan
has a seating capacity for four and is being targeted for city/commuter use.
Based on initial feedback, ZAP will be marketing the XEBRA sedan to government
and corporate fleets as well as to families with two or more cars, but with
plenty of occasion to use their vehicles for short, city drives.
XEBRA PK ( ZAPTRUCK(R))
ZAP launched its utility pick-up truck version of the XEBRA, the XEBRA ZAPTRUCK,
on August 24, 2006. This electric vehicle seats two with a multi-purpose
platform behind the passenger compartment that serves as a hauler, dump truck or
flatbed. The XEBRA ZAPTRUCK is targeted to municipalities, maintenance
facilities, universities, ranches and warehouses. Since its launch, we have
received overwhelming inquiries for test drives. To date, we have focused on our
west coast market and sales have exceeded our initial distribution and sales
plans.
Smart Car
The Smart Car was our initial automotive product. The project provided us with
an excellent entry level opportunity in the micro-car market in the United
States and confirmed our belief that there is a sizable demand for smaller, more
fuel efficient (or alternatively fueled) vehicles. The Smart Car was
manufactured by Daimler Chrysler, who we believe failed to identify the United
States as a potential market. In Daimler Chrysler's absence, we contracted with
a third party unaffiliated with Daimler Chrysler to have the Smart Car imported
and "Americanized" to meet the growing demand for micro-cars. The process of
Americanizing the Smart Car involved having the car modified to meet all Federal
Motor Vehicle Safety Standards, United States Department of Transportation
requirements, and Environmental Protection Agency regulations and applicable
state requirements.
We proved that we could introduce and sell the Smart Car Americanized by ZAP
took purchase orders for tens of thousands of vehicles and received a credit
line of $425 million to purchase them. We consequently sold approximately 300
Smart Cars, but due to the legal conflict with Daimler-Chrysler and others, and
the uncertainty of auto supply, we discontinued distribution of the Smart Car in
September of 2006.
OBVIO!
In September 2005, we entered into an exclusive (in North America) distribution
contract with the Brazilian automobile manufacturer OBVIO! for the future
importation of two models of micro-cars - an economy 828 model and a full
performance 012 model. The cars will have butterfly doors, seating capacity to
accommodate three persons, up to 250 horsepower output and accessories such as
iMobile and air conditioning. This car will function on multi-fuel technology,
meaning they will have the ability to be powered by ethanol, gasoline, or any
combination thereof. We are also working with OBVIO! to produce a 100% electric
version. Although the prototype was completed, we are awaiting a firm production
schedule from the manufacturer.
LOTUS
In 2007, we announced and entered into a development contract with Lotus
Engineering to develop a electric all-wheel drive crossover high performance
vehicle for the U.S. market. A combination of the lightweight aluminum vehicle
architecture, a new efficient drive and advanced battery management systems is
intended to enable a range of up to 350 miles between charges, with a rapid
10-minute recharging time. An auxiliary power unit is planned to support longer
distance journeys.
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The ZAP-X is proposed to be powered by revolutionary in-hub electric motors,
delivering 644 horsepower in all wheel drive mode, theoretically capable of
powering the ZAP-X to a potential top speed of 155mph. A new, strong,
lightweight and highly efficient structure based on the Lotus technology is
planned to give the car a very attractive power-to-weight ratio. We are in the
midst of the development plan for the ZAP-X.
We are also developing a $32,000 all electric vehicle with a targeted 100 mile
range, the ZAP Alias (TM), which is expected by 2009.
Future Automotive Offerings
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Over the next 36 months, we hope to establish relationships with two to four
additional manufacturers who can supply automobiles and related vehicles that
meet our mission of affordable, advanced transportation technologies that are
socially responsible and environmentally sustainable. In 2007, we have
identified the following products as potential future offerings for the Company:
(1) an affordable 100% electric two-seater sports coupe; (2) a high performance
highway all electric vehicle, (3) electric busses and (4) electric trucks.
ZAP Power Systems
-----------------------
We launched the Company in 1994 with the invention of the ZAPPY electric scooter
and quickly established a presence as one of the market leaders in the electric
"personal" transportation product segment. Since inception, the Company has been
able to maintain a steady business and committed buyers in this segment. In
keeping with our initial product offerings, at the beginning of 2006, we
revitalized our consumer products line (recently renamed "Power Systems"),
including an updated version of the electric scooter. As part of the segment's
revitalization, we reduced the number of suppliers and placed more emphasis on
upgrading existing models with newer component technology and more robust
features in order to provide a higher quality consumer experience and product.
Our current product offerings include:
o Three-wheeled personal transporters (ZAPPY3, ZAPPY3 Pro, ZAPPY3
EZ);
o Off-road vehicles (electric quads and motorcycles); and
o Portable energy (universal recharge-it-all batteries and auxiliary
batteries).
The ZAPPY3 Personal Transporters
Segway's highly publicized "human transporter to change the world" unearthed a
growing need for a "scooter for adults," better known as personal electric
transportation. The Company responded to this demand by designing the ZAPPY3.
Unlike the Segway, the ZAPPY3's 3-wheeled vehicle design provides stability and
maneuverability allowing just about anyone to ride this vehicle without
training. It has a top speed of 15 mph, and the Pro has the farthest range of
any personal transporter available today at 25 miles range per charge.
The Company initially thought that the ZAPPY3 would be great for the consumer
market. Over the past year, the Company has revisited its sales strategy and
come to recognize that the largest market opportunities are in the industrial
and commercial applications. The Company's primary sales channels are now more
clearly defined as security, sporting goods and material handling.
With the increased emphasis on homeland security, there are several product
competitors in the security and police market segment. Segway, the most well
known, can be found in select police departments and airports and sells for
about $5,500. American Chariot, which is a chariot-like transporter, has entered
the market selling between $1,500 to $2,500. Newest to the security transporter
business is T3Motion, which is built like a small tank and priced at up to
$8,000. The ZAPPY3 meets the need of a majority of the security transportation
needs and with an selling price range of $530 to $900, depending on the model
purchased, which we believe is the most economical of all offerings.
The ZAPPY3 retail focus has continued strong in 2007. As the product line has
gained momentum and market
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acceptance, we plan to grow distribution in the retail channel through larger
regional and specialized chain stores.
The material handling, warehousing, fabrication, and construction industries are
the ideal markets for the ZAPPY3 Pro. We are not currently aware of any major
competitors in this market. The traditional solution for short distance
transportation has been bicycles. The ZAPPY Pro offers the perfect utility
vehicle for shuttling, picking and packing and getting into small areas like
elevators. While the Company's entrance into this market is still in the early
stages, the product response has been very favorable, demonstrated by our newly
established relationship with Indoff, the largest distributor of material
handling equipment in the United States.
The Zapino is an electric scooter that is a great link between ZAP's personal
transporters and electric cars. Not only economical and eco-friendly, the Zapino
is powerful with an advanced 3000-watt brushless DC hub motor, perfect for city
commuting. Able to reach speeds of 30 MPH, the Zapino is able to keep up with
city traffic without contributing to city pollution. The rear wheel hub motor on
the Zapino creates more room on board for additional batteries and performance.
This innovative drive system eliminates the need for belts or chains with lower
overall maintenance. It also delivers a more enjoyable ride because it is nearly
silent, accelerates smoothly with no shifting, has no engine vibration, no
tailpipe or heat exhaust -- just good, clean fun.
Off-Road Vehicles
All terrain vehicle ("ATV") manufacturers recognized in excess of $5.0 billion
in revenues in 2006 with the market for ATVs. In the United States alone,
approximately 800,000 units were sold in 2006. To date, all of the ATV's on the
market are gas-powered. We believe electric ATV's have practical environmental
benefits over their gas-powered counterparts: they are silent and generate no
emissions. Moreover, there are now over 8,000 organic farms in the United States
which are committed to reducing pollutants that may put organic certification at
risk. The electric ATVs can provide the ruggedness of the traditional ATV in
areas never before accessible, while being more versatile than golf carts.
We entered the electric ATV market in 2006 with our ZAP Buzzz mini ATV. The
Buzzz has a 450 watt geared-motor and a top speed of 15 mph with a range of
approximately 20 miles. In the 1st quarter of 2007, we introduced the 800 watt
"mid size" ATV for sale in the United States and some of our existing ZAP
dealers already have placed preorders. We hope to launch a heavy duty ATV in the
3rd quarter 2008 with product features and styling comparable to existing
gas-models. We believe our position as an innovator in the electric vehicle
market, coupled with first-mover advantage in the electric ATV market, will
allow us to capitalize on this market segment. If we are able to capture 1% of
the all terrain vehicle market share, it could equate to over $40 million in
revenues per year. However, there can be no assurances that we will be able to
achieve such market share.
Portable Energy - Recharge-It -All Batteries
We believe we were one of the first and now one of the leading producers of
rechargeable battery sources using lithium-ion and lithium polymer technology.
Through our Recharge-It-All line, we sell battery packs to power or charge a
wide range of mobile electronics such as cellular phones, digital cameras and
laptops, providing significantly more charge time than currently available
technologies. Our Portable Energy devices fall under two product lines:
universal chargers and made-for iPOD models. The universal chargers are
rechargeable battery packs that extend the use of most small and medium-sized
electronic devices up to 2 to 5 times their normal battery life. The made-for
iPOD models are a series of portable energy devices designed to work
specifically with all the major iPOD products, including the iPOD, iPOD nano,
iPOD shuffle and the iPOD with video.
We launched our Portable Energy products at the end of 2006 with marketing
targeted to large electronic retailers. Market statistics indicate that there
will be over two billion users of mobile electronic devices by the end of 2007.
Our goal with Portable Energy is to provide a solution that helps solve the
energy management challenge for electronic and mobile internet users. Today,
there are only a few companies that have begun to address the mobile device
backup power/charge market. The currently available products include Energizer's
"Energi to Go", Charge 2 Go, Cell Boost, and Medis Power Pack. We believe that
no manufacturer offers rechargeable devices that offer the ability to re-charge
a myriad of electronic devices from the same device as effectively as ZAP's
Portable Energy.
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RISK FACTORS
We have a history of losses and our future profitability on a quarterly or
annual basis is uncertain, which could have a harmful effect on our business and
the value of ZAP's common stock.
Since we began operation in 1994, we have generated a profit only for the three
month period ended September 30, 2006 and not in any other fiscal quarters or
any fiscal year. We incurred net losses of $28.0 million, $11.9 million, $23.5
million for the years ended December 31, 2007, 2006 and 2005, respectively. We
can give no assurance that we will be able to operate profitably in the future.
In each of the thirteen years since we began operations, we have not generated
enough revenue to exceed our expenditures. Since our inception, we have financed
our operations primarily through private and public offerings of our equity
securities. Our planned expenditures are based primarily on our internal
estimates of our future sales and ability to raise additional financing. If
revenues or additional financing do not meet our expectations in any given
period of time, we will have to cut our planned expenditures which could have an
adverse impact on our business or force us to cease operations. Our cash on hand
was $4.3 million on December 31, 2007. Failure to achieve profitable operations
may require us to seek additional financing when none is available or is only
available on unfavorable terms.
WE MAY FACE LIQUIDITY CHALLENGES AND NEED ADDITIONAL FINANCING IN THE FUTURE.
We currently expect to be able to fund our working capital requirements from our
existing cash and cash flows from operations through at least December 31, 2008.
However, we could experience unforeseen circumstances, such as an economic
downturn, unforeseen difficulties in manufacturing/distribution, or other
factors that could increase our use of available cash and require us to seek
additional financing. We may find it necessary to obtain equity or debt
financing due to the factors listed above or in order to support our expansion,
develop new or enhanced products, respond to competitive pressures, or respond
to unanticipated requirements.
We may seek to raise additional funds through private or public sales of
securities, strategic relationships, bank debt, or otherwise. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of our stockholders will be reduced, stockholders may experience
additional dilution or any equity securities we sell may have rights,
preferences or privileges senior to those of the holders of our common stock. We
expect that if we are unable to obtain additional financing on acceptable terms,
we may be unable to pay our debts as they become due, develop our products, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements, which could have a material effect on our business,
financial condition and future operating results.
WE FACE INTENSE COMPETITION WHICH COULD CAUSE US TO LOSE MARKET SHARE.
In the advanced technology vehicle market in the United States, we compete with
large manufacturers, including Honda, Toyota, and Daimler-Chrysler, who have
more significant financial resources, established market positions,
long-standing relationships with customers and dealers, and who have more
significant name recognition, technical, marketing, sales, manufacturing,
distribution, financial and other resources than we do. Each of these companies
is currently working to develop, market, and sell advanced technology vehicles
in the United States market. The resources available to our competitors to
develop new products and introduce them into the marketplace exceed the
resources currently available to us. We also face competition from smaller
companies with respect to our consumer products, such as our electric bicycle
and scooter. We expect to face competition from the makers of consumer batteries
and small electronics with respect to the ZAP Portable Energy line. This intense
competitive environment may require us to make changes in our products, pricing,
licensing, services, distribution, or marketing to develop, maintain, and extend
our current technology and market position.
CHANGES IN THE MARKET FOR ELECTRIC VEHICLES COULD CAUSE OUR PRODUCTS TO BECOME
OBSOLETE OR LOSE POPULARITY.
The electric vehicle industry is in its infancy and has experienced substantial
change in the last few years. To-date, demand for and interest in electric
vehicles has been sporadic. As a result, growth in the electric vehicle industry
depends on many factors, including:
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o continued development of product technology;
o the environmental consciousness of customers;
o the ability of electric vehicles to successfully compete with
vehicles powered by internal combustion engines;
o widespread electricity shortages and the resultant increase in
electricity prices, especially in our primary market, California,
which could derail our past and present efforts to promote electric
vehicles as a practical solution to vehicles which require
gasoline; and
o whether future regulation and legislation requiring increased use
of nonpolluting vehicles is enacted.
We cannot assure you that growth in the electric vehicle industry will continue.
Our business may suffer if the electric vehicle industry does not grow or grows
more slowly than it has in recent years 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.
Our current products are designed for use with, and are dependent upon, existing
electric vehicle technology. As technologies change, we plan to upgrade or adapt
our products in order to continue to provide products with the latest
technology. However, our products may become obsolete or our research and
development efforts may not be sufficient to adapt to changes in or create
necessary technology. As a result, our potential inability to adapt and develop
the necessary technology may harm our competitive position.
THE FAILURE OF CERTAIN KEY SUPPLIERS TO PROVIDE US WITH COMPONENTS COULD HAVE A
SEVERE AND NEGATIVE IMPACT UPON OUR BUSINESS.
We rely on a small group of suppliers to provide us with components for our
products, some of whom are located outside of the United States. If these
suppliers become unwilling or unable to provide components, there are a limited
number of alternative suppliers who could provide them. Changes in business
conditions, wars, governmental changes, and other factors beyond our control or
which we do not presently anticipate could affect our ability to receive
components from our suppliers. Further, it could be difficult to find
replacement components if our current suppliers fail to provide the parts needed
for these products. A failure by our major suppliers to provide these components
could severely restrict our ability to manufacture our products and prevent us
from fulfilling customer orders in a timely fashion.
As described elsewhere, we have entered into a contract with a Brazilian
automobile manufacturer, OBVIO, for the delivery of 50,000 flex-fuel vehicles in
two different models. We may not be able to obtain the vehicles that we expect
to obtain from OBVIO because OBVIO is a new developer and manufacturer of
automobiles in Brazil and there are many risks associated with its design and
manufacturing of cars for us, including, but not limited to, risks associated
with the constructing its factory, hiring personnel, acquiring equipment,
assembling a network of suppliers and developing the vehicle assembly process.
If we cannot get the vehicles from OBVIO that we expect to, our business will be
adversely affected.
LITIGATION RISKS
ZAP v. Daimler Chrysler AG, et al., Superior Court of California, County of Los
Angeles, Case No. BC342211. On October 28, 2005, ZAP filed a complaint against
Daimler Chrysler Corporation and others in the Los Angeles Superior Court in
excess of $500 million. The complaint includes claims for intentional and
negligent interference with prospective economic relations, trade libel,
defamation, breach of contract - agreement to negotiate in good faith, breach of
implied covenant of good faith and fair dealing, and unfair competition. The
complaint alleges that Daimler Chrysler has engaged in a series of
anti-competitive tactics aimed at defaming ZAP and disrupting its third-party
business relationships. As a result of the allegations, the complaint requests
damages in excess of $500 million and such other relief as the court deems just
and proper. Daimler Chrysler has successfully filed a motion to quash that
complaint for lack of personal jurisdiction, and the court's ruling on that
matter is in the process of being appealed to the State of California Supreme
Court.
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PRODUCT LIABILITY OR OTHER CLAIMS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.
The risk of product liability claims, product recalls, and associated adverse
publicity is inherent in the manufacturing, marketing, and sale of electrical
vehicles. Although we have product liability insurance for our consumer products
for risks of up to an aggregate of $5,000,000, that insurance may be inadequate
to cover all potential product claims. We also carry liability insurance on our
automobile products. Any product recall or lawsuit seeking significant monetary
damages either in excess of our coverage, or outside of our coverage, may have a
material adverse effect on our business and financial condition. We may not be
able to secure additional product liability insurance coverage on acceptable
terms or at reasonable costs when needed. A successful product liability claim
against us could require us to pay a substantial monetary award. Moreover, a
product recall could generate substantial negative publicity about our products
and business and inhibit or prevent commercialization of other future product
candidates. We cannot assure you that such claims and/or recalls will not be
made in the future.
WE MUST DEVOTE SUBSTANTIAL RESOURCES TO IMPLEMENTING A PRODUCT DISTRIBUTION
NETWORK.
Our dealers are often hesitant to provide their own financing to contribute to
our product distribution network. As a result, we anticipate that we may have to
provide financing or other consignment sale arrangements for dealers who would
like to participate as our regional distribution centers.
The further expansion of our product distribution network will require a
significant capital investment and will require extensive amounts of time from
our management. A capital investment such as this presents many risks, foremost
among them being that we may not realize a significant return on our investment
if the network is not profitable. Our inability to collect receivables from our
dealers could cause us to suffer losses. Lastly, the amount of time that our
management will need to devote to this project may divert them from performing
other functions necessary to assure the success of our business.
FAILURE TO MANAGE OUR GROWTH EFFECTIVELY COULD ADVERSELY AFFECT OUR BUSINESS.
We plan to increase sales and expand our operations substantially during the
next several years through internally-generated growth and the acquisition of
businesses and products.
To manage our growth, we believe we must continue to implement and improve our
operational, manufacturing, and research and development departments. We may not
have adequately evaluated the costs and risks associated with this expansion,
and our systems, procedures, and controls may not be adequate to support our
operations. In addition, our management may not be able to achieve the rapid
execution necessary to successfully offer our products and services and
implement our business plan on a profitable basis. The success of our future
operating activities will also depend upon our ability to expand our support
system to meet the demands of our growing business. Any failure by our
management to effectively anticipate, implement, and manage changes required to
sustain our growth would have a material adverse effect on our business,
financial condition, and results of operations. We cannot assure you that we
will be able to successfully operate acquired businesses, become profitable in
the future, or effectively manage any other change. An inability to successfully
operate recently acquired businesses and manage existing business would harm our
operations.
THE LOSS OF CERTAIN KEY PERSONNEL COULD SIGNIFICANTLY HARM OUR BUSINESS.
The Company's performance is substantially dependent upon the services of its
executive officers and other key employees, as well as on its ability to
recruit, retain, and motivate other officers and key employees. Competition for
qualified personnel is intense and there are a limited number of people with
knowledge of and experience in the advanced technology vehicle industry. The
loss of services of any of our officers or key employees, or our inability to
hire and retain a sufficient number of qualified employees, will harm our
business. Specifically, the loss of Mr. Schneider, our Chief Executive Officer
or Mr. Starr, our Chairman of the Board, whose specialized knowledge of the
electric vehicle industry is essential to our business, would be detrimental. We
11
have employment agreements with Mr. Schneider and Mr. Starr that provide for
their continued service to the Company until October 1, 2013.
REGULATORY REQUIREMENTS MAY HAVE A NEGATIVE IMPACT UPON OUR BUSINESS.
While our products are subject to substantial regulation under federal, state,
and local laws, we believe that the products we have sold are materially in
compliance with all applicable laws. However, to the extent the laws change, or
if we introduce new products in the future, some or all of our products may not
comply with applicable federal, state, or local laws. Further, certain federal,
state, and local laws and industrial standards currently regulate electrical and
electronics equipment. Although standards for electric vehicles are not yet
generally available or accepted as industry standards, our products may become
subject to federal, state, and local regulation in the future. Compliance with
this regulation could be burdensome, time consuming, and expensive.
Our automobile products are subject to environmental and safety compliance with
various federal and state regulations, including regulations promulgated by the
EPA, NHTSA, and Air Resource Board of the State of California, and compliance
certification is required for each new model year. The cost of these compliance
activities and the delays and risks associated with obtaining approval can be
substantial. Although the Company had marketed its Smart Car product in the
United States, the car must be certified by the California Air Resources Board
before it can be sold in California, New York, and three other states. In
addition, the two models of our OBVIO products will need to satisfy all
regulatory requirements before they can be sold in the United States. The risks,
delays, and expenses incurred in connection with such compliance could be
substantial.
MANUFACTURING OVERSEAS MAY CAUSE PROBLEMS FOR US.
We have been shifting our manufacturing overseas, including Chinese companies
and a Brazilian company. There are many risks associated with international
business. These risks include, but are not limited to, language barriers,
fluctuations in currency exchange rates, political and economic instability,
regulatory compliance difficulties, problems enforcing agreements, and greater
exposure of our intellectual property to markets where a high probability of
unlawful appropriation may occur. A failure to successfully mitigate any of
these potential risks could damage our business.
WE MAY NOT BE ABLE TO PROTECT OUR INTERNET ADDRESS.
We currently hold the internet address, http://www.zapworld.com, a portal
through which we sell our products. We may not be able to prevent third parties
from acquiring internet addresses that are confusingly similar to our address,
which could adversely affect our business. Governmental agencies and their
designees generally regulate the acquisition and maintenance of internet
addresses. However, the regulation of internet addresses in the United States
and in foreign countries is subject to change. As a result, we may not be able
to acquire or maintain relevant internet addresses in all countries where we
conduct business.
OUR SUCCESS IS HEAVILY DEPENDENT ON PROTECTING OUR INTELLECTUAL PROPERTY RIGHTS.
We rely on a combination of patent, copyright, trademark, and trade secret
protections to protect our proprietary technology. Our success will, in part,
depend on our ability to obtain trademarks and patents. We hold several patents
registered with the United States Patent and Trademark Office. These
registrations include both design patents and utility patents. In addition, we
have recently submitted provisional patents which may or may not be afforded the
limited protection associated with provisional patents. We have also registered
numerous trademarks with the United States Patent and Trademark Office, and have
several pending at this time. We cannot assure you that the trademarks and
patents issued to us will not be challenged, invalidated, or circumvented, or
that the rights granted under those registrations will provide competitive
advantages to us.
We also rely on trade secrets and new technologies to maintain our competitive
position. Although we have entered into confidentiality agreements with our
employees and consultants, we cannot be certain that others will not gain access
to these trade secrets. Others may independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
our trade secrets.
12
WE MAY BE EXPOSED TO LIABILITY FOR INFRINGING INTELLECTUAL PROPERTY RIGHTS OF
OTHER COMPANIES.
Our success will, in part, depend on our ability to operate without infringing
on the proprietary rights of others. Although we have conducted searches and are
not aware of any patents and trademarks which our products or their use might
infringe, we cannot be certain that infringement has not or will not occur. We
could incur substantial costs, in addition to the great amount of time lost, in
defending any patent or trademark infringement suits or in asserting any patent
or trademark rights, in a suit with another party.
RISK OF UNREGISTERED SECURITIES OFFERING.
In the past, we have had numerous sales of our securities which were not
registered under federal or state securities laws. We have strived to comply
with all applicable Federal and state securities laws in connection with our
issuances of unregistered securities. However, to the extent we have not
complied, there may be liability for the purchase price of the securities sold
together with interest and the potential of regulatory sanctions.
OUR STOCK PRICE AND TRADING VOLUME MAY BE VOLATILE, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES FOR OUR STOCKHOLDERS.
The equity trading markets may experience periods of volatility, which could
result in highly variable and unpredictable pricing of equity securities. The
market price of our common stock could change in ways that may or may not be
related to our business, our industry or our operating performance and financial
condition. In addition, the trading volume in our common stock may fluctuate and
cause significant price variations to occur. We have experienced significant
volatility in the price of our stock over the past few years. If the market
price of our common stock declines significantly, you may be unable to resell
your common stock at or about its purchase price. We cannot assure you that the
market price of our common stock will not fluctuate or decline significantly in
the future. In addition, the stock markets in general can experience
considerable price and volume fluctuations.
A substantial number of shares we have issued in exempt transactions are, or are
being made, available for sale on the open market, and the resale of these
securities might adversely affect our stock price.
We have on file with the SEC effective registration statements for a substantial
number of shares for resale. The selling stockholders under our effective
registration statements will be permitted to sell their registered shares in the
open market from time to time without advance notice to us or to the market and
without limitations on volume.
The sale of a substantial number of shares of our common stock under our
registration statements, or the anticipation of such sales, could make it more
difficult for us to sell equity or equity-related securities in the future at a
time and at a price that we might otherwise wish to effect sales.
We have not paid cash dividends on our common stock and do not anticipate paying
any cash dividends on our common stock in the foreseeable future.
We have not achieved profitable operations and if we do realize a profit in the
future, we anticipate that we will retain all future earnings and other cash
resources for the future operation and development of our business. Accordingly,
we do not intend to declare or pay any cash dividends on our common stock in the
foreseeable future. Payment of any future dividends will be at the direction of
our board of directors after taking into account many factors, including our
operating results, financial conditions, current and anticipated cash needs and
plans for expansion.
SOURCES AND AVAILABILITY OF PARTS AND SUPPLIES
Materials, parts, supplies and services used in our business are generally
available from a variety of sources. However, interruptions in production or
delivery of these goods could have an adverse impact on our general operations,
or our manufacturer's operations and production of ZAP products. We strive to
have dual sources.
13
LICENSES, PATENTS AND TRADEMARKS
We have the following patents covering our electric vehicles:
------------------------- -------------- ---------------------------------------
United States Patent Date Subject
------------------------- -------------- ---------------------------------------
Patent No. 5,491,390 2/13/1996 Electric motor power system for
bicycles, tricycles, and scooters
------------------------- -------------- ---------------------------------------
Patent No. 5,671,821 9/30/1997 Electric motor system
------------------------- -------------- ---------------------------------------
Patent No. 5,848,660 12/15/1998 Portable Collapsible Scooter (ZAPPY)
------------------------- -------------- ---------------------------------------
Patent No. 5,634,423 6/3/1997 Personal Submersible Marine Vehicle
------------------------- -------------- ---------------------------------------
Patent No. 5,423,278 6/13/1995 Submersible Marine Vessel
------------------------- -------------- ---------------------------------------
Patent No. 5,303,666 4/19/1994 Submersible Marine Vessel
------------------------- -------------- ---------------------------------------
Patent No. 6,748,894 6/15/2004 Submersible Marine Vessel (sea scooter)
------------------------- -------------- ---------------------------------------
Patent No. 6,588,528 7/8/2003 Electric Vehicle Drive System
------------------------- -------------- ---------------------------------------
Patent No. 5,842,535 12/1/1998 Electric Drive Assembly for Bicycles
------------------------- -------------- ---------------------------------------
Patent No. 6,050,357 4/18/2000 Powered Skateboard
------------------------- -------------- ---------------------------------------
Patent No. 6,059,062 5/9/2000 Powered Roller Skates
------------------------- -------------- ---------------------------------------
Patent No. 5,735,361 4/7/1998 Dual-Pole Personal Towing Vehicle
------------------------- -------------- ---------------------------------------
Patent No. 5,913,373 6/22/1999 Dual-Pole Dual-Wheel Personal Towing
Vehicle
------------------------- -------------- ---------------------------------------
Patent No. DS40400 4/10/2007 Three-Wheeled Vehicle (ZAPPY 3 Scooter)
------------------------- -------------- ---------------------------------------
Patent No. D433,718 11/14/2000 Portable Collapsible Scooter (ZAPPY)
------------------------- -------------- ---------------------------------------
Patent No. D347,418 5/31/1994 Scuba Scooter
------------------------- -------------- ---------------------------------------
Patent No. D359,022 6/6/1995 Scuba Scooter
Patent No D555,043 11/13/2007 Xebra
------------------------- -------------- ---------------------------------------
14
We have the following trademarks covering our electric vehicles:
---------------------------------------------- ---------------------------------
United States Trademark Subject
---------------------------------------------- ---------------------------------
Trademark No. 2759913 Cap'n Billy's Wiz-Bang and design
---------------------------------------------- ---------------------------------
Trademark No. 2240270 Electricruizer
---------------------------------------------- ---------------------------------
Trademark No. 2534197 ETC Express
---------------------------------------------- ---------------------------------
Trademark No. 2878219 ETC Traveler
---------------------------------------------- ---------------------------------
Trademark No. 2248753 Powerbike
---------------------------------------------- ---------------------------------
Trademark No. 2224640 Powerski
---------------------------------------------- ---------------------------------
Trademark No. 2329466 The Future is Electric
---------------------------------------------- ---------------------------------
Trademark No. 1794866 ZAP
---------------------------------------------- ---------------------------------
Trademark No. 2912329 ZAP Car
---------------------------------------------- ---------------------------------
Trademark No. 2335090 ZAP Electric Vehicle Outlet
---------------------------------------------- ---------------------------------
Trademark No. 2885816 ZAP Seascooter
---------------------------------------------- ---------------------------------
Trademark No. 2330894 ZAPPY
---------------------------------------------- ---------------------------------
Trademark No. 2371240 Zapworld.com
---------------------------------------------- ---------------------------------
Trademark No. 2320346 Zero Air Pollution
---------------------------------------------- ---------------------------------
Trademark No. 2689203 Swimmy
Trademark No. 3376385 Recharge-IT-All
Trademark No. 3254373 ZAP Battery
Trademark No. 3297900 Xebra
Trademark No. 3318875 Zapino
Trademark No. 3318875 Empower
---------------------------------------------- ---------------------------------
BACKLOG
As of April 8, 2008, the Company has $6.8 million in backlog orders from
auto-dealer purchase contracts for Xebra(R)Electric vehicles. We anticipate
shipping these units from on hand inventory and future shipments. ZAP has a
ready supply of Xebras from our China manufacturer who has excess production
capacity available. The backlog for our consumer products on the same date was
$712,000. We anticipate shipping the consumer products throughout the year of
2008.
COMPETITIVE CONDITIONS
The competition to develop and market advanced technology vehicles has been
intense and is expected to continue to increase. Our principal competitive
advantages over our competitors are our ownership of fundamental technology, our
trade name and brand recognition, our ability to be a low cost manufacturer
through domestic and international contract manufacturing arrangements and our
growing distribution network. We benefit from our high name recognition in the
advanced transportation vehicle industry coupled with a rapidly developing
consumer sales business on our website. In order to reduce costs, our production
activities have been transferred to lower cost contract manufacturers outside
the United States, which enables us to offer our products at competitive prices.
This also enables us to concentrate on our marketing and sales efforts and the
growth of our distribution network. We offer one of the broadest lines of
personal electric vehicles currently available, which we believe reinforces our
name recognition in the market place.
In the advanced technology vehicle market in the United States, we compete with
large manufacturers, including Honda, Toyota, and Daimler-Chrysler, who have
more significant financial resources, established market positions, longstanding
relationships with customers and dealers, and who have more significant name
recognition, technical, marketing, sales, manufacturing, distribution and other
resources than we do. Each of these companies is currently working to develop,
market and sell advanced technology vehicles in the United States market. The
15
resources available to our competitors to develop new products and introduce
them into the market place exceed the resources currently available to our
Company. We also face competition from smaller companies with respect to our
consumer products, such as our electric bicycle and scooter. We expect to face
competition from the makers of consumer batteries and small electronics with
respect to the ZAP portable energy line. This intense competitive environment
may require us to make changes in our products, pricing, licensing, services,
distribution or marketing to develop, maintain and extend our current technology
and market position.
EMPLOYEES
As of April 8, 2008, the Company had a total of 53 employees. We have employment
agreements with the following: Mr. Schneider (Chief Executive Officer and
Director), Mr. Starr (Chairman of the Board ), and Ms. Cude (Corporate Secretary
and Director) until 2013, Mr. Hartman until August 2008 with annual extensions
and Mr. Kazzaz until 2010. We believe our employee relations are generally good.
Our employees are not represented by a collective bargaining unit.
ITEM 2. DESCRIPTION OF PROPERTY.
The chart below contains a summary of our principal facilities
Location Use Square Feet Rent
--------------------------- ------------------- ----------- --------
501 Fourth Street, SR Corporate Headquarters 20,000 $ -- (1)
44720 Main Street,Mendocino Retail Outlet 5,507 $ --
2 West Third Street Main Warehouse 22,000 $ 9,000
806 Donahue Street Vehicle Storage 21,954 $ 8,800
3362 & 3405 Fulton Road, SR Office, Automobile Lot 21,780 $ 7,000
(1) Under the terms of the Mortgage, dated March 7, 2003, between the
Company and Atocha Land LLC concerning the Fourth Street location,
monthly payments of principal and interest amortizing the underlying $2
million debt have commenced on April 7, 2005, with the interest at 7.5%.
The underlying debt may be converted to ZAP's common shares at Atocha's
option. See also below.
The Company purchased the Fourth Street building in March 2003 to use as our
principal executive offices. The building was built originally in 1906 and is in
downtown Santa Rosa. Over the years it was updated and remodeled by previous
owners and the Company. The Company has renovated the building during its
ownership with new carpets, paint and remodeled to include a new showroom and
conference room. The building and contents are adequately insured in the opinion
of management. The Company occupies more than 90 percent of the building. The
property tax rate is set at 1 percent per year of the assessed value (currently
set at the 2004 appraised value of $2.9 million). The building is being
depreciated over a 30 year useful life. The Company has a $2 million convertible
note due in March 2025, with annual interest at 7.5%. The Company began making
payments in April 2005 of $15,166 per month. The note is payable with equal
principal and interest payments over the next 240 months. 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 $2.15 per share or an agreed upon conversion
price (as defined). The seller also received common stock and warrants in
connection with the transaction. The Company purchased the Mendocino California
property in May 2005 which is currently being used as a retail outlet. The net
book value of our real estate holdings at December 31, 2007 was approximately
$3.8 million.
The rest of our facilities are rented or leased. The properties located at 3362
and 3405 Fulton Road are rented on a month-by-month basis from ZAP's Chief
Executive Officer. The Company plans to continue to rent properties based on the
Company's needs. The Company believes these properties are adequate for the
Company's foreseeable needs.
It is management's opinion that our insurance policies cover all insurance
requirements of the landlords. We own the basic tools, machinery and equipment
necessary for the conduct of our repairs, our minimal research and development,
and vehicle prototyping activities. We believe that the above facilities are
generally adequate for present operations. At present, the manufacturing for the
Company is being contracted out as well as certain research and developments
projects such as the Lotus Arrangement mentioned earlier.
16
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of business, we may become involved in various legal
proceedings. Except as stated below, we know of no pending or threatened legal
proceeding to which we are or will be a party which, if successful, might result
in a material adverse change in our business, properties or financial condition.
However, as with most businesses, we are occasionally parties to lawsuits
incidental to our business, none of which are anticipated to have a material
adverse impact on our financial position, results of operations, liquidity or
cash flows. The Company estimates the amount of potential exposure it may have
with respect to litigation claims and assessments.
ZAP v. Daimler Chrysler AG, et al., Superior Court of California, County of Los
Angeles, Case No. BC342211. On October 28, 2005, ZAP filed a complaint against
Daimler Chrysler Corporation and others in the Los Angeles Superior Court in
excess of $500 million.. The complaint includes claims for intentional and
negligent interference with prospective economic relations, trade libel,
defamation, breach of contract - agreement to negotiate in good faith, breach of
implied covenant of good faith and fair dealing, and unfair competition. The
complaint alleges that Daimler Chrysler has engaged in a series of
anti-competitive tactics aimed at defaming ZAP and disrupting its third-party
business relationships. As a result of the allegations, the complaint requests
damages in excess of $500 million and such other relief as the court deems just
and proper. Daimler Chrysler has successfully filed a motion to quash that
complaint for lack of personal jurisdiction, and the court's ruling on that
matter is in the process of being appealed to the State of California Supreme
Court.
ZAP v. Norm Alvis, et al., Superior Court of California, County of Sonoma, Case
No. SCV-238419, complaint filed March 27, 2006. Mr. Alvis was engaged by the
Company and Rotoblock Corporation ("Rotoblock") as a consultant to perform
public relations work on behalf of the Company and Rotoblock. As consideration
for Mr. Alvis' consent to the contract with the Company, the Company provided
Mr. Alvis with use of a motor home worth approximately $306,000. The Company
then sued Mr. Alvis, claiming he failed to perform his obligations under the
contract and refused to return the consideration he received therefore (i.e. the
motor home). The Company is seeking either the return of the motor home or
$500,000 in damages. Mr. Alvis initially did not respond to the complaint, which
prompted the Company to take his default on May 9, 2006. The court then entered
a default judgment on May 16, 2006, on which date the Company obtained a writ of
possession allowing it to reclaim possession of the disputed motor home. On June
18, 2006, Mr. Alvis moved the court to set aside the default and default
judgment and to vacate its order authorizing issuance of the writ of possession.
The court agreed to set aside the default judgments, but it left intact the writ
of possession. The court also required Mr. Alvis to pay the Company $1,000 as
compensation for forcing the Company to initially take his default. Mr. Alvis
has paid the Company the required $1,000. Mr. Alvis then filed (1) an answer
denying the Company's allegations, and (2) a cross-claim against the Company,
Steve Schneider in his individual capacity, and Rotoblock, alleging two counts
of breach of contract, one common count of work, labor, and services received,
and one count of fraud. All of Mr. Alvis' claims relate to the two contracts he
executed with the Company and Rotoblock. Mr. Alvis claims he provided services
to the Company and Rotoblock pursuant to these contracts but received no
consideration in exchange therefore. For the fraud claim, the defendant claims
the Company and Schneider executed the contracts with no intent to perform. Mr.
Alvis has prayed for damages of $2,000,000, interest according to proof,
punitive damages, and an order directing the Company to perfect title to the
motor home. Mr. Alvis then moved the court to quash the writ of possession. The
parties attended mediation on March 4, 2008 and reached a tentative settlement
by which the matter would be resolved according to the following terms: (1) a
mutual release of all claims; (2) ZAP would pay $25,000 to Mr. Alvis;. (3) ZAP
would issue to Alvis $25,000 worth of shares of restricted ZAP common stock; (4)
ZAP would issue Alvis warrants for 100,000 shares of restricted ZAP common
stock, at a strike price of $.70 per share; and (5) ZAP would transfer title of
disputed motor home to Alvis. While ZAP has signed the mediation agreement with
these terms, Alvis has not yet done so. No definitive agreement has been
executed, therefore, pending execution of the mediation agreement by Alvis, then
approval of the settlement terms by the Company's Board of Directors, and
preparation of a definitive settlement agreement. The next case management
conference was scheduled for March 20, 2008, but the court continued same until
July 3, 2008 to allow the parties time to negotiate a settlement.
Robert Chauvin; Mary Chauvin; Rajun Cajun, Inc. dba ZAP of Carson City, dba ZAP
of Reno, dba ZAP of Sparks ("Robert Chauvin, et al.") v. Voltage Vehicles; ZAP;
17
ZAP Power Systems Inc.; ZAPWORLDCOM; Elliot Winfield; Steven Schneider; Phillip
Terrazzi; Max Scheder-Breschin; Renay Cude; [sic] and Does I-XX, Second Judicial
District Court State of Nevada, County of Washoe, Case No. CV06 02767. On
November 17, 2006, Robert Chauvin, et al. filed a complaint alleging breach of
contract, breach of the covenant of good faith and fair dealing, breach of
warranties, fraud/misrepresentation, negligent misrepresentation, quantum merit
or unjust enrichment, civil conspiracy, violation of Security [sic] and Exchange
Act/federal securities law, and deceptive trade practices, pursuant to a License
Agreement (for a distribution license) entered into between Rajun Cajun, Inc.
dba ZAP of Carson City, dba ZAP of Reno, dba ZAP of Sparks ("Rajun Cajun") and
Voltage Vehicles. The complaint seeks general damages in an amount in excess of
$10,000, special damages in an amount in excess of $10,000, punitive damages in
an amount in excess of $10,000, attorneys' fees and cost of suit, for judgment
in an amount equal to treble actual damages, and recession in the amounts of
$397,900 and $120,000. On January 19, 2007, defendants Voltage Vehicles and ZAP
filed a Motion to Dismiss on the grounds that the License Agreement entered into
between Rajun Cajun and Voltage contains a forum selection clause designating
Sonoma County, State of California as the only appropriate forum. The court
granted that Motion on April 13, 2007. In its order on that motion, the court
also found that all other motions pending in the Nevada court in this matter are
now moot. (As of that time, the following motions were still pending: (1)
Chauvin, et al.'s Notices of Intent to Take Default against two of the named
corporate defendants and against the individual defendants, except Renay Cude;
(2) a Motion to Quash Service of Process or Alternatively for Dismissal by each
of the individual defendants and both of the defunct corporate defendants; and
(3) Chauvin, et al.'s Motion for Publication of Summons against the named
individual defendants.)
Voltage Vehicles v. Rajun Cajun, et al., Superior Court of California, County of
Sonoma, Case No. SCV 240179, filed February 9, 2007. (This suit is related to
the Nevada case of Robert Chauvin, et al. v. Voltage Vehicles, et al. discussed
immediately above.) In its complaint, Voltage Vehicles requests Declaratory
Relief against Rajun Cajun, asking the Court to declare that the License
Agreement between those two parties does not grant Rajun Cajun an exclusive
dealership in northern Nevada to distribute Voltage Vehicle products and that
Voltage Vehicles has performed its obligations under the License Agreement. On
May 24, 2007, Rajun Cajun filed a Cross-Complaint in substantially the same form
as the Complaint filed in Nevada, alleging breach of contract, breach of the
covenant of the good faith, etc. The Cross-Complaint seeks general damages in an
amount in excess of $25,000, special damages in an amount in excess of $25,000,
punitive damages in an amount in excess of $25,000, attorneys' fees and cost of
suit, for judgment in the amount equal to treble actual damages, and rescission
in the amounts of $397,900 and $120,000, plus interest. Cross-Defendants intend
to vigorously defend against the claims set forth in the Cross-Complaint and so,
on August 22, 2007, Cross-Defendants filed both a special demurrer for abatement
to prohibit Cross-Complainants from maintaining a cross-complaint and a demurrer
to the Cross-Complaint itself. On February 11, 2008 ZAP and Voltage Vehicles
filed a demurrer to Cross-complainants' third through fifteenth causes of
action. A hearing on that demurer is currently set for June 11, 2008. The next
case management conference is scheduled for April 2, 2008.
ZAP v. International Monetary Group,(Patrick J Harrington President and CEO)
Inc., a Delaware corporation; Michael C. Sher dba the Law Offices of Michael C.
Sher, Case No. SCV 240277, complaint filed March 1, 2007 in Sonoma County
Superior Court. ZAP sued International Monetary Group ("IMG") whose President
and CEO is Patrick D. Harrington and Michael Sher for declaratory relief,
rescission, and breach of contract. ZAP had entered into an agreement with IMG,
a merchant banking company, to procure financing, and ZAP alleges that IMG,
contrary to the parties' agreement, is seeking to enforce a $500,000 promissory
note. The parties settled the litigation in December, 2007, providing each other
with general releases of all claims. In connection with the settlement of this
matter and the matter International Monetary Group, Inc., a Delaware
corporation; and Michael C. Scher dba the Law Offices of Michael C. Scher v. ZAP
Corporation, a California corporation; and Steven Schneider, an individual,
Scher returned stock certificates representing 1,431,294 shares of ZAP's common
stock to Company for cancellation and ZAP issued 387,500 shares of ZAP common
stock to IMG. .
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None during the fourth quarter of 2007.
18
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND SMALL
BUSINESS PURCHASES OF EQUITY SECURITIES.
MARKET INFORMATION
On July 1, 2002, ZAP's stock began trading on the National Association of
Securities Dealers, Inc. Electronic Bulletin Board (the "OTC Bulletin Board")
under the stock symbol of "ZAPZ." In 2006, the Company briefly traded on the
ACRAEX under the symbol "ZP". In November, 2006, since the Company could not
meet the listing requirements of the ARCEX, ZAP's common stock was approved for
quotation on the OTC Bulletin Board under the symbol "ZAAP."
BID PRICE
---------------------------
PERIOD HIGH LOW
-------------------------- ------ ------
FISCAL YEAR 2007:
DECEMBER 31, 2007 $ 0.81 $ 0.74
SEPTEMBER 30, 2007 1.04 1.02
JUNE 30, 2007 0.96 0.93
MARCH 31, 2007 1.15 1.05
FISCAL YEAR 2006:
DECEMBER 31, 2006 $ 1.18 $ 0.79
SEPTEMBER 30, 2006 1.74 0.69
JUNE 30, 2006 2.59 1.12
MARCH 31, 2006 1.81 0.28
HOLDERS
We have approximately 3,590 record holders of our common stock as of April 8,
2008, according to a shareholders' list provided by our transfer agent as of
that date. The number of registered shareholders does not include any estimate
by us of the number of beneficial owners of common shares held in street name.
The transfer agent and registrar for our common stock is Continental Trust &
Transfer Company.
DIVIDENDS
We have never declared nor paid any cash dividends on our common stock, and we
do not anticipate that we will pay any cash dividends on our common stock in the
foreseeable future. Any future determination to declaration and payment of cash
dividends will be at the discretion of our board of directors, and will be
dependent upon our financial condition, results of operations, capital
requirements and other factors as our board of directors may deem relevant at
that time. On November 9, 2006, ZAP's Board of Directors approved a 10% stock
dividend to be issued, effective February 28, 2007, to all shareholders of
record as of February 15, 2007.
RECENT SALES OF UNREGISTERED SECURITIES
The following lists sales of unregistered securities during the last fiscal year
that were not previously included in a Quarterly Report on Form 10-QSB or a
Current Report on Form 8-K. We relied on the exemption from registration
afforded by Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") for the issuance of these securities. Except as stated below,
no underwriting discounts or commissions were payable with respect to any of the
following transactions. The offer and sale of the following securities was
exempt from the registration requirements of the Securities Act under Rule 506
insofar as (1) except as stated below, each of the investors was accredited
within the meaning of Rule 501(a); (2) the transfer of the securities were
restricted by the company in accordance with Rule 502(d); (3) there were no more
than 35 non-accredited investors in any transaction within the meaning of Rule
506(b), after taking into consideration all prior investors under Section 4(2)
of the Securities Act within the twelve months preceding the transaction; and
(4) none of the offers and sales were effected through any general solicitation
or general advertising within the meaning of Rule 502(c).
On October 3, 2007 the Company also issued 90,000 shares for an asset purchase
valued at $90,000. On this same date the Company also issued 15,000 shares for
charitable contributions valued at $15,000.
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On November 9, 2007 the Company issued 3,723 shares were issued for professional
services valued at $3,500.
On December 18, 2007, the Company issued 72,289 shares of common stock for
professional services valued at $60,000. On this same date the Company also
issued 50,000 shares for an asset purchase valued at $41,500.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THIS ANNUAL REPORT, INCLUDING THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS, AND OTHER REPORTS FILED BY THE REGISTRANT FROM TIME TO TIME WITH THE
SECURITIES AND EXCHANGE COMMISSION (COLLECTIVELY THE "FILINGS") CONTAIN
FORWARD-LOOKING STATEMENTS WHICH ARE INTENDED TO CONVEY OUR EXPECTATIONS OR
PREDICTIONS REGARDING THE OCCURRENCE OF POSSIBLE FUTURE EVENTS OR THE EXISTENCE
OF TRENDS AND FACTORS THAT MAY IMPACT OUR FUTURE PLANS AND OPERATING RESULTS.
Please read the "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" at the
beginning of this Annual Report for important information about our
forward-looking statements.
SUMMARY OF KEY ACCOMPLISHMENTS DURING 2007
Recent Developments
Some of the significant events for the Company that occurred during the year of
2007 and through the date of this report are as follows:
1. In November we received $5 million from the issuance of common stock in
a private placement to a qualified investor.
2. We signed a joint venture agreement with Youngman Automotive Group,
China's number one luxury motor coach and high-quality commercial truck
manufacturer, to manufacture, market and distribute electric and hybrid
vehicles for the passenger car, truck and bus markets. This new venture
is called Detroit Electric. We have invested a total of approximately
$700,000 to date.
3. During the third quarter we received orders for over 50,000 units of our
Recharge-It-All line of rechargeable lithium battery storage devices.
ZAP's Recharge-It-All line is a unique rechargeable battery system that
can provide a portable power source for almost any kind of mobile
electronic device, from cell phones, to digital cameras, to laptops.
More than just a battery, Recharge-It-All can automatically sense and
deliver the appropriate voltage for a range of power settings.
4. We signed an agreement with Coca-Cola's Latin America subsidiary,
Montevideo Refrescos Sociedad SA (Monresa). The contract is a purchase
and service agreement for ZAP XEBRA(R) trucks. The first shipment of ZAP
trucks is in transit from China and more details are expected to be
announced with the rollout of the business model between ZAP and
Coca-Cola.
5. We are now developing a new highway capable electric vehicle that is
affordable for consumers. With a targeted price of $32,000, the
technology for the new vehicle is similar to that of an electric SUV
concept announced earlier this year called ZAP-Alias, with a target
release date in 2009.
6. We have been allowed a patent and trademark for the ZAP XEBRA(R)
city-speed electric car and truck from the United States Patent and
Trademark Office. Over 600 Xebra trucks and sedans have been delivered
through December 31, 2007.
7. To help mitigate pollution and traffic congestion, Chile's largest power
company, CHILECTRA, will allow its customers to use their monthly
utility bill to finance the purchase of electric bicycles, scooters,
mopeds and other vehicles from us. As part of the program, CHILECTRA has
signed an exclusive agreement with ZAP to distribute its full-line of
electric transportation in Chile.
20
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED DECEMBER 31, 2006
NET SALES for the year ended December 31, 2007, were $5.7 million compared to
$10.8 million for the year ended December 31, 2006. The decrease was due to less
sales of Smart Cars Americanized by ZAP. During the year ended December 31,
2007, the Company had approximately $2.1 million in Xebra sales, as compared to
$737,000 for the year of 2006. Sales of the new product line of portable energy
accounted for approximately $875,000 of the net sales for year ended December
31, 2007.
GROSS PROFIT increased by $250,000 from $525,000 in 2006 to $775,000 for the
year ended December 31, 2007.
The major reason for the increase was due to more vehicle unit sales of Xebras,
with higher sales margins in 2007, and sales of the new portable energy product
line, which also has greater profit margins.
SALES AND MARKETING EXPENSES for the year ended December 31, 2007 increased by
approximately $200,000 from $1.3 million in 2006 to $1.5 million in 2007. The
increase was primarily due to greater marketing and promotion expenses for the
Xebras and portable energy product lines during the year.
GENERAL AND ADMINISTRATIVE EXPENSES increased by $9.8 million from $15.4 million
in 2006 to $25.2 million in 2007. The primary increase was due to non-cash
expenses of $11.7 million to account for the modification and extension of
certain expiring warrants that were issued to shareholders pursuant to the plan
of reorganization in June of 2002 and also to current ZAP employees for
compensation purposes. The warrants were extended by five years until July 2012
with the exercise prices also adjusted. The aforementioned increase also
included expensing of stock options in accordance with SFAS123R, which was
offset by lower expenses in 2007 as compared to 2006 related to professional
fees and amortization for previously terminated licenses agreements.
RESEARCH AND DEVELOPMENT EXPENSES of $616,000 in 2007 were primarily for the
Company's investment in a project with Lotus Engineering to develop a new
electric car based on the APX (Aluminum Performance Crossover) concept, which
showcases Lotus Engineering's Versatile Vehicle Architecture technology. The
vehicle, the ZAPX, will be a production-ready electric all-wheel drive crossover
high performance vehicle for ZAP in the USA market. Additionally, we purchased
various scooter prototypes in 2007 for evaluation of future model introductions.
This compares to research and development expenses of $715,000 in 2006.
IMPAIRMENT LOSS ON THE SMART AUTOMOBILE LICENSE resulted from the cancellation
of the Smart Auto License and distribution agreement during the third quarter of
2006. The expense of $2.2 million represents the write-off of the net book value
of the Smart Automobile license, advances for inventory and related equipment.
21
GAIN ON SETTLEMENT OF SMART AUTO LIABILITY the Company realized a gain of $7.1
milllion resulting from the discharge of the liability from Smart Auto during
the third quarter of 2006. The agreement with Smart Auto was previously
cancelled in the second quarter of 2006 with a residual liability of $7.1
million at June 30, 2006. The discharge of the liability was largely due to
Smart Auto's inability to supply smart Cars for ZAP to convert to Smart Cars
Americanized by ZAP.
INTEREST EXPENSE, NET increased by $1.2 million from an interest expense of
$241,000 for the year ended 2006 to interest expense of $1.4 million for the
year ended December 31, 2007. The increase was due to interest and the
amortization of the discounts in connection with the senior convertible debt
that was issued in late 2006 and early 2007.
NET LOSS was $28.0 million for the year ended December 31, 2007 as compared to a
net loss of $11.9 million for year ended December 31, 2006. The additional
losses in 2007 were primarily due to the modification and extension of certain
expiring warrants that were issued by the Company to selected shareholders and
current ZAP employees.
LIQUIDITY AND CAPITAL RESOURCES
The Company used cash in operations of $5.3 million and $4.9 million during the
years ended December 31, 2007 and 2006, respectively. Cash used in operations in
2007 was the result of the net loss incurred for the year of $28 million, offset
by non-cash expenses of $23 million. In 2007, non-cash expenses included $4.4
million for stock -based compensation for consulting and other services, $17.3
million for stock-based compensation to employees. Cash used in operations in
2006 was the result of the net loss incurred for the year of $11.9 million,
offset by non-cash expenses of $5.1 million. In 2006, non-cash expenses included
$4.7 million related to stock-based compensation for consulting and other
services, $4.1 million for stock-based compensation to employees, $2.4 million
related to the Smart Auto license and equipment impairment offset by a $7.1
million gain resulting from the settlement of the Smart Auto liability .
In 2007, the net change in operating assets and liabilities resulted in a cash
decrease of $834,000. The change was primarily due to increases for inventory.
In 2006, the net change in operating assets and liabilities resulted in a cash
increase of $2 million. The change was primarily due to decreases in inventory.
Investing activities used cash of $189,000 and $42,000 during the year ended
December 31, 2007 and 2006, respectively.
Financing activities provided cash of $7.7 million and $5.5 million during the
year ended December 31, 2007 and 2006, respectively.
The Company had cash and cash equivalents of $4.3 million at December 31, 2007
as compared to $2.2 million at December 31, 2006. The Company had a working
capital of $3.4 million at December 31, 2007 as compared to working capital
deficit of $71,000 at December 31, 2006.
During the second half of 2007, the Senior Convertible note holders have
converted approximately $2.1 million of the notes into ZAP common stock leaving
an outstanding balance of $681,000 at December 31, 2007.
In November 2007, we received $5 million from the issuance of common stock in a
private placement to a qualified investor.
We do not have a bank operating 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.
At present, the Company needs additional capital to continue expanding its
current operations. The Company's primary capital needs are: (i) to purchase
Xebra(TM) vehicles, both sedan and utility trucks from ZAP's Chinese partner to
fulfill the increasing demand for 100% electric vehicles in the United States,
and (ii) to continue building our dealer network and expanding ZAP's market
initiatives. ZAP also requires financing to purchase consumer product inventory
22
for the continued roll-out of new products, to add qualified sales and
professional staff to execute on ZAP's business plan, and to expand ZAP's
efforts in the research and development of advanced technology vehicles, such as
the ethanol-driven OBVIO! Automobiles, the new ZAP Alias, and ZAP-X program and
other fuel efficient vehicles.
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 of 500,000 of the shares, and
the collaterized shares were reduced to 2,441,176 shares. In September of 2006,
the Company signed a Settlement Agreement with Phi-Nest Fund,L.P.requiring that
the common stock being held as collateral be transferred to an independent third
party (Michael C. Sher dba the Law Offices of Michael C. Sher), to hold the
securities in a depository account pending the possible funding of a loan by
January of 2007. In return, Phi-Nest Fund, L.P., received for consulting
services 150,000 shares of the collateral stock and forgiveness of a note
receivable for $56,000 owed by a cousin of Steven Schneider, ZAP CEO. As a
result, the Company recognized $236,000 in non cash charges in the accompanying
2006 consolidated statement of operations. Later in September, the Board of
Directors approved the sale of 500,000 of the collateral stock to a qualified
investor with proceeds of $487,500 received by the Company in October of 2006.
Also in October 2006, the Company authorized the issuance of 250,000 shares of
the collateral stock to International Monetary Group, a merchant banking company
that was to procure financing for the Company, and 250,000 of the collateral
stock to Michael C. Sher for consulting services and recognized $600,000 in
non-cash consulting expense.
In 2007, Michael C. Sher dba the Law Offices of Michael C. Sher who is holding
the restricted common stock of 1,291,176 shares, has refused to release the
stock to the Company due to a dispute over an alleged debt obligation which
Michael C. Sher dba the Law Offices of Michael C. Sher believes the Company owes
to his investment firm. The parties settled the litigation in December, 2007,
providing each other with general releases of all claims. In connection with the
settlement of this matter and the matter International Monetary Group, Inc., a
Delaware corporation; and Michael C. Sher dba the Law Offices of Michael C. Sher
v. ZAP Corporation, a California corporation; and Steven Schneider, an
individual, Sher returned stock certificates representing 1,431,294 shares of
ZAP's common stock to Company for cancellation and ZAP issued 387,500 shares of
ZAP common stock to IMG. Although the parties agreed to the settlement, the
stock was not transferred until January 2008, thus completing the transaction.
In January 2005, the Company paid $1,000,000 to Smart Automobile LLC and Thomas
Heidemann (President of Smart Auto LLC) in exchange for a note receivable. The
note bears interest at 5% per annum, payable in 24 equal monthly installments
beginning January 7, 2006. The loan was secured by an interest in certain Smart
Cars owned by Smart Auto LLC. The note was in default as of January 7, 2006
since the Company has not received the required payments and is uncertain if any
payments will be received in the future and has therefore established a reserve
a $1 million in the event efforts to collect the note are unsuccessful.
In September 2005, the Company signed a $425 million revolving financing
facility with Surge Capital II, LLC that, subject to certain conditions, can be
used by ZAP to import Smart Cars Americanized by ZAP and other advanced
transportation vehicles for ZAP dealers. The financing agreement had a term of
one year, but may be extended upon agreement by both parties. The financing is
based on orders ZAP receives from dealers who must be approved in advance by
Surge Capital II, LLC and is secured by a first lien on substantially all of
ZAP's assets. In September of 2006, the financing facility expired with neither
party wishing to continue the agreement. No amounts were outstanding and due
under the agreement and all liens placed on behalf of Surge Capital II, LLC have
been cancelled.
8% Senior Convertible Notes
On December 5, 2006, when the market price of the Company's common stock was
$0.89 per share, the Company entered into a Securities Purchase Agreement with
23
three institutional and accredited investors or purchasers pursuant to which the
Company sold to the purchasers $1.5 million aggregate principal amount of 8%
senior convertible notes due December 5, 2008 (the "Notes due 2008") and
warrants to purchase 450,000 shares of common stock of the Company (the "Initial
Warrants") in a private placement. The Notes due 2008 were originally
convertible at $1.00 per share (the "Conversion Price") into 1,500,000 shares of
the Company's common stock, subject to anti-dilution and other adjustments. The
Initial Warrants, each immediately exercisable and expiring on December 5, 2011,
are exercisable at $1.10 per share, subject to anti-dilution and other
adjustments.
On February 20, 2007, when the market price of the Company's common stock was
$1.08 per share, the Company entered into a Purchase and Amendment Agreement
(the "Amendment"), amending the Securities Purchase Agreement entered into by
the Company on December 5, 2006 (the "Original Agreement" and as amended by the
Amendment, the "Agreement"), with several institutional and accredited investors
or purchasers pursuant to which the Company sold to the purchasers $1.2 million
aggregate principal amount of 8% senior convertible notes due February 2009 (the
"Notes due 2009" and with the Notes due 2008, the "Notes") and warrants to
purchase 360,000 shares of the common stock of the Company (the "Additional
Warrants" and with the Initial Warrants, the "Warrants"), in a private
placement. The transaction closed on February 22, 2007 (the "February 2007
financing"). The Notes due 2009 were originally convertible at $1.00 per share
into 1,200,000 shares of the Company's common stock, subject to anti-dilution
and other adjustments.
On April 30, 2007, the Company entered into Certificates of Adjustments to the
Notes and Warrants (the "Adjustments") to adjust certain provisions of the Notes
and Warrants as a consequence of the declaration by the Company of a ten percent
(10%) common stock dividend to common shareholders of record on February 15,
2007, payable February 28, 2007. As a result of the Adjustments, the conversion
price of the Notes was reduced to $0.90 per share, the Initial Warrants were
increased to 495,000 at an exercise price of $1.00 per share, and the Additional
Warrants were increased to 396,000 at an exercise price of $1.20 per share.
On June 26, 2007, the Company entered into an Amendment Agreement (the "Second
Amendment") with the purchasers to adjust certain provisions of the Notes and
Initial Warrants as a consequence of selling shares to a third party investor
for per share consideration less than the conversion price of the Notes and
exercise price of the Initial Warrants. As a result, the conversion price of the
Notes was reduced to $0.72 per share convertible into 3,713,892 shares of common
stock and the initial Warrants were increased to 594,001 at an exercise price of
$0.80 per share. The Second Amendment also deferred the June and July 2007
payments of the principal due under the Notes to August 1, 2007, extended the
filing deadline of the Registration Statement to July 9, 2007, reduced the
number of shares required to be registered under the Agreement to 130% of the
shares underlying the Notes and Warrants, and allowed for the inclusion of an
aggregate of 4,490,630 additional shares of common stock in any registration
statement filed by the Company in connection with the Agreement. In
consideration for these modifications, the Company agreed to pay the purchasers
liquidated damages, payable in 141,750 shares of common stock of the Company,
and warrants to purchase an aggregate of 200,000 shares of common stock of the
Company at an exercise price of $1.10 per share. The Company also agreed to
include the shares and warrants issued pursuant to the Second Amendment in the
registration statement required to be filed by the Company pursuant to the
Agreement.
The Notes provide for anti-dilution adjustments of issuable shares and the
conversion price should the Company issue common stock or common stock
equivalents for a price less than the conversion price, on or prior to the later
of 1) the earlier of (x) the date a registration statement is declared effective
by the SEC and (y) the two year anniversary of the issue date and 2) the six
month anniversary of the issue date. The Warrants provide for anti-dilution
adjustments of the issuable shares and the exercise prices thereof should the
Company issue common stock or common stock equivalents for a price less than the
exercise price of the Warrants, on or prior to the later of 1) the earlier of
(x) the date a registration statement is declared effective by the SEC and (y)
the two year anniversary of the issue date and 2) the six month anniversary of
the issue date. The anti-dilution provided by the Warrants calls for the
exercise price of the Warrants to adjust to 110% of the price of any dilutive
issuances, on a per share basis. After December 31, 2007 and if the daily volume
weighted average price of its common stock is equal to or greater than the
Forced Conversion Price (as defined) for 20 trading days occurring during any
24
period of thirty consecutive trading days, the Company has the right to require
the conversion of any unconverted Notes into shares of common stock. After
December 31, 2007, and if the daily volume weighted average price of its common
stock is equal to or greater than the $2.20 for 20 trading days occurring during
any period of thirty consecutive trading days, the Company has the right to
require the exercise of any unexercised Warrants into shares of common stock.
The Notes provide for quarterly interest to be paid in cash, or subject to
certain conditions, by issuing shares of common stock. If the Company is
eligible and elects to pay quarterly interest in stock, the price per share used
to calculate the number of shares due for interest will be calculated by
reducing the market price of the shares by 5% (as defined).
The Company will use the proceeds from the issuance of the Notes for general
working capital purposes and to increase the capacity of its product
distribution network.
Under terms of a registration rights agreement, the Company was obligated to
file a registration statement within 90 days of the closing date of the sale of
the Notes due 2008 for the resale of the shares of common stock underlying the
Notes, the Warrants and any other shares issuable pursuant to the terms of the
Notes or the Warrants and to cause the registration statement to become
effective within 180 days of the closing date. The Company is also required to
maintain the effectiveness of the registration statement until all shares have
been sold or may be sold without a registration statement.
The Company filed the required registration statement on July 3, 2007, which
became effective on October 2, 2007. If the Company issues additional common
stock or common stock equivalents for a price less than the Conversion Price, on
or prior to the later of 1) the earlier of (x) the date a registration statement
is declared effective by the SEC and (y) the two year anniversary of the issue
date and 2) the six month anniversary of the issue date of the Notes, the
investors will have the right, but not the obligation, to participate in such
issuance, upon the same terms as those offered, so that each Investor's
percentage ownership of the Company remains the same.
The Company paid fees of $40,000 related to the Notes. These cash fees have been
recorded as deferred offering costs and are being amortized over the life of the
Notes.
On January 1, 2007, we adopted Financial Accounting Standards Board (FASB) Staff
Position (FSP) Emerging Issues Task Force (EITF) 00-19-2, "Accounting for
Registration Payment Arrangements". This FASB staff position addresses how to
account for registration payment arrangements and clarifies that a financial
instrument subject to a registration payment arrangement should be accounted for
in accordance with other generally accepted accounting principles (GAAP) without
regard to the contingent obligation to transfer consideration pursuant to the
registration payment arrangement. Prior to the adoption of this FSP, the Company
classified as a note derivative liability and as a warrant liability, financial
instruments included in or issued in conjunction with our December 2006
financing, since the resale of the underlying shares issuable upon conversion of
the notes and exercise of the warrants was required to be registered with the
SEC, and the Company's failure to file, and obtain and maintain the
effectiveness of a registration statement would result in potential cash
payments which were not capped. The Company's adoption of this accounting
pronouncement as of January 1, 2007 resulted in a reclassification of the note
derivative liability to the note liability and the warrant liability to equity,
and an adjustment to the note discount to reflect the allocated value of the
warrant and a beneficial conversion feature, accreted to December 31, 2006, both
calculated in accordance with EITF Nos. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios," and "EITF 00-27, "Application of Issue No. 98-5, to Certain
Convertible Instruments." The cumulative effect of this accounting change of
$24,000 was credited to the opening accumulated deficit balance as of January 1,
2007.
The Company allocated the note proceeds of $1.5 million from the December 2006
financing between the fair value of the notes and the fair value of the
warrants. The Company valued the warrants at $0.844 per share using the binomial
option pricing model with the following assumptions: risk free interest rate of
4.39%; effective dividend rate of 0.00%; volatility of 142.17%; and expected
term of 5 years. The relative fair value of the warrants is $303,000, which was
recorded as a discount to the notes, with a corresponding credit to equity, or
25
common stock. The Company determined that the proceeds allocated to the warrants
should be treated as equity in accordance with the provisions of EITF 00-19 and
FSP 00-19-2. The Company further determined that there was a beneficial
conversion feature associated with the notes of $138,000, calculated as the
difference between the fair value of the shares of common stock issuable upon
conversion of the notes and the proceeds allocated to the notes. The Company
recorded the amount of the beneficial conversion feature as an additional
discount to the notes, with a corresponding credit to equity, or common stock.
The aggregate amounts of the discounts to the notes was $441,000, which is being
amortized to interest expense using the effective interest method prescribed by
APB Opinion No. 21, "Interest on Receivables and Payables," over the life of the
notes. The effective interest rate of these notes is approximately 17.6% based
on the stated interest rate, the amount of amortized discount, the amount of
deferred offering costs attributable to the notes and their term.
In accordance with EITF 98-5 and EITF 00-27, the Company allocated the note
proceeds of $1.2 million from the February 2007 financing between the fair value
of the notes and the fair value of the warrants. The Company valued the warrants
at $0.97 per share using the binomial option pricing model with the following
assumptions: risk free interest rate of 4.69%; effective dividend rate of 0.00%;
volatility of 140%, and expected term of 4 years. The relative fair value of the
warrants is $272,000, which was recorded as a discount to the notes, with a
corresponding credit to equity or common stock. The Company determined that the
proceeds allocated to the warrants should be treated as equity in accordance
with the provisions of EITF 00-19 and FSP 00-19-2. The Company further
determined that there was a beneficial conversion feature associated with the
notes of $368,000, calculated as the difference between the fair value of the
shares of common stock issuable upon conversion of the notes and the proceeds
allocated to the notes. The Company recorded the amount of the beneficial
conversion feature as an additional discount to the notes, with a corresponding
credit to equity, or common stock. The aggregate amounts of the discounts to the
notes was $640,000, which is being amortized to interest expense using the
effective interest method prescribed by APB Opinion No. 21, "Interest on
Receivables and Payables," over the life of the notes. The effective interest
rate of these notes is approximately 46.7% based on the stated interest rate,
the amount of amortized discount, the amount of deferred offering costs
attributable to the notes and their term.
The Company was initially required to make monthly principal payments beginning
on June 1, 2007, in twelve equal installments. However, the note-holders have
extended the first payment to August 1, 2007, which was made by issuing common
stock. The initial first two payments, which were deferred, have extended the
maturity of the notes by two months. Under certain circumstances, the Company
may make all or a portion of these principal payments with common stock. The
Company may not issue its stock in payment of such principal at a price below
the lower of $0.75 per share or the adjusted conversion price in effect. If the
Company chooses to repay principal with common stock, it will be based on the
lower of a 10% discount to the lowest daily volume weighted average price for
any trading day among the immediately preceding ten consecutive trading days and
the conversion price in effect on such principal payment date.
Scheduled annual maturities for this long-term debt for years ending after
December 31, 2007 are as follows: $682,000 in 2008 (eight months).
The note agreements contain certain affirmative and restrictive covenants,
including a covenant requiring the Company to file, and achieve and maintain the
effectiveness of a registration statement. If the Company breaches any of the
covenants and if, after receiving notice from note holders, does not, within a
certain period of time, cure the breach, the note holders may call the loan,
thereby requiring the payment of the principal balance of the notes plus a 20%
penalty.
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 intends to develop a wide auto distribution network to counter
any seasonality effects.
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 raw materials and finished goods sources.
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USE OF ESTIMATES
The preparation of financial statements in conformity with U. S. generally
accepted accounting principles generally accepted in the United States of
America requires management of the Company to make estimates and assumptions
affecting the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as revenues and expenses during the reporting period. The amounts estimated
could differ from actual results.
CRITICAL ACCOUNTING POLICIES JUDGMENTS AND ESTIMATES
This management's discussion and analysis of our financial condition and results
of operations is based upon our consolidated financial statements, which have
been prepared in accordance with U.S. generally accepted accounting principles.
In preparing these financial statements, we are required to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to doubtful
accounts, stock-based compensation, investments, goodwill and intangible assets
and income taxes as well as contingencies and litigation. We base our estimates
on historical experience and on various other assumptions that we believe are
reasonable, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates using different
assumptions or conditions. We believe the following critical accounting policies
reflect the more significant judgments and estimates used in the preparation of
our consolidated financial statements.
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.
Allowance for Doubtful Accounts
-------------------------------
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The Company
records an allowance for doubtful accounts receivable for credit losses at the
end of each period based on an analysis of individual aged accounts receivable
balances. As a result of this analysis, the Company believes that its allowance
for doubtful accounts is adequate at December 31, 2007 and 2006. 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 Valuation
-------------------
We adjust the value of our inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions and development of new products by our competitors. Inventories
consist primarily of vehicles gas and electric, parts and supplies, and finished
goods and are carried at the lower of cost (first-in, first-out method) or
market.
Deferred Tax Asset Realization
------------------------------
We record a full valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event we were to
determine that we would be able to realize our deferred tax assets in the future
in excess of its net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made.
27
Classification of Financial Instruments with Characteristics of both Liability
------------------------------------------------------------------------------
and Equity
----------
We account for financial instruments that we have issued and that have
characteristics of both liability and equity in accordance with SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. SFAS No. 150 specifies that mandatory redeemable
financial instruments are to be recorded as liabilities unless the redemption is
required to occur upon the liquidation or termination of the issuer. SFAS No.
150 also specifies that a financial instrument that embodies a conditional
obligation that an issuer may settle by issuing a variable number of its equity
shares is to be classified as a liability if, at inception, the value of the
obligation is based solely or predominantly on variations inversely related to
changes in the fair value of the issuer's equity shares. Should a financial
instrument not be classified as a liability under the provisions of SFAS No.
150, we further apply the criteria in Emerging Issues Task Force (EITF) Issue
No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock, which enumerates additional
criteria to determine the appropriate classification as liability or equity. We
also evaluate the anti-dilution and/or beneficial conversion features that may
be included in our financial instruments in accordance with the provisions of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
which may classify the feature as an embedded derivative and require that the
financial instrument be bifurcated and the feature accounted for separately. We
evaluate each financial instrument on its own merits at inception or other
prescribed measurement or valuation dates and may engage the services of
valuation experts and other professionals to assist us in our detemination of
the appropriate classification.
Accounting for Stock-Based Compensation
---------------------------------------
Effective January 1, 2006, we adopted the fair value recognition provisions of
SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS 123(R)"), using the
modified-prospective transition method. Under the fair value recognition
provisions of SFAS 123(R), share-based compensation cost is estimated at the
grant date based on the fair value of the award and is recognized as expense,
net of estimated pre-vesting forfeitures, ratably over the vesting period of the
award.
In addition, the adoption of SFAS 123R requires additional accounting related to
the income tax effects and disclosure regarding the cash flow effects resulting
from share-based payment arrangements. In January 2005, the SEC issued Staff
Accounting Bulletin ("SAB") No. 107, which provides supplemental implementation
guidance for SFAS 123R. We selected the Black-Scholes option-pricing model as
the most appropriate fair-value method for our awards. Calculating share-based
compensation expense requires the input of highly subjective assumptions,
including the expected term of the share-based awards, stock price volatility,
and pre-vesting forfeitures. The assumptions used in calculating the fair value
of stock-based awards represent our best estimates, but these estimates involve
inherent uncertainties and the application of management judgment. As a result,
if factors change and we use different assumptions, our share-based compensation
expense could be materially different in the future. In addition, we are
required to estimate the expected pre-vesting forfeiture rate and only recognize
expense for those shares expected to vest. If our actual forfeiture rate is
materially different from our estimate, our share-based compensation expense
could be significantly different from what we have recorded in the current
period. The total amount of stock-based compensation expense recognized during
the year ended December 31, 2007 was $ 16.9 million which has been recorded in
general and administrative expenses. At December 31, 2007, total unrecognized
estimated compensation expense related to non-vested stock options granted prior
to that date was $8.9million, which is expected to be recognized through 2010.
On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3
"Transition Election Related to Accounting for Tax Effects of Share-Based
Payment Awards " (FSP 123(R)-3). We adopted the alternative transition method
provided in the FASB Staff Position for calculating the tax effects of
stock-based compensation pursuant to SFAS 123R in the fourth quarter of fiscal
2006. The alternative
28
transition method includes simplified methods to establish the beginning balance
of the additional paid-in capital pool (APIC pool) related to the tax effects of
employee stock-based compensation, and to determine the subsequent impact on the
APIC pool and Consolidated Statements of Cash Flows of the tax effects of
employee stock-based compensation awards that are outstanding upon adoption of
SFAS 123R. The adoption did not have a material impact on our results of
operations and financial condition.
Prior to January 1, 2006, we accounted for share-based payments to our employees
and non-employee members of our board of directors under the recognition and
measurement provisions of Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related guidance, as permitted by
SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), and amended
by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure ("SFAS 148") . We did not recognize any significant share-based
employee compensation costs in our statements of operations prior to January 1,
2006, as options granted to employees and non-employee members of the board of
directors generally had an exercise price equal to the fair value of the
underlying common stock on the date of grant. As required by SFAS 148, prior to
the adoption of SFAS 123(R), we provided pro forma disclosure of net income
(loss) applicable to common shareholders as if the fair-value-based method
defined in SFAS No. 123 had been applied. In the pro forma information for
periods prior to 2006, we accounted for pre-vesting forfeitures as they
occurred. Our operating results for prior periods have not been restated.
ITEM 7. FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Shareholders of ZAP
We have audited the accompanying consolidated balance sheet of ZAP as of
December 31, 2007, and the related consolidated statement of operations,
shareholders' equity, and cash flows for the year ended December 31, 2007. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the consolidated financial position of ZAP at December 31,
2007, and the consolidated results of its operations and its cash flows for the
year ended December 31, 2007, in conformity with U.S. generally accepted
accounting principles.
/s/ Bagell, Josephs, Levine & Company, LLC
------------------------------------------
Marlton, New Jersey
March 30, 2008
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Shareholders of ZAP
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of ZAP for the year ended December 31,
2006. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations, changes in
shareholders' equity and cash flows of ZAP for the year ended December 31, 2006
in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for share-based compensation when it adopted
SFAS No. 123 (revised 2004), "Share-Based Payments" in accounting for its
employee stock-based compensation, applying the modified prospective method
effective January 1, 2006.
/s/ ODENBERG, ULLAKKO, MURANISHI & CO. LLP
------------------------------------------
San Francisco, California
March 30, 2007
30
ZAP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2007
(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 4,339
Accounts receivable, net of allowance of $172 373
Inventories 1,437
Prepaid non-cash professional fees 283
Other prepaid expenses and other current assets 747
------------
Total current assets 7,179
Property and equipment, net 4,471
Other assets:
Patents and trademarks, net 10
Prepaid non-cash professional fees, less current portion 82
Deferred offering costs 20
Deposits and other 176
------------
$ 11,938
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 104
Accounts payable
128
Accrued liabilities 2,259
Deferred revenue 752
8% Senior convertible debt, net of discount of $136 546
------------
Total current liabilities 3,789
Secured convertible note, less current portion 1,724
------------
Total Liabilities 5,513
------------
Commitments and contingencies
Shareholders' equity:
Common stock; 400 million shares authorized; no par value;
57,478,158 shares issued and outstanding 122,672
Common Stock issued as loan collateral (1,549)
Accumulated deficit
(114,698)
------------
Total shareholders' equity 6,425
------------
$ 11,938
============
The accompanying notes are an integral part of these consolidated financial
statements.
31
ZAP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands; except per share data)
<TABLE><CAPTION>
Year ended December 31
-----------------------------
2007 2006
------------ ------------
<S> <C> <C>
Net sales $ 5,712 $ 10,830
Cost of goods sold (exclusive of amortization
of smart license) 4,937 10,305
------------ ------------
Gross profit 775 525
------------ ------------
Operating expenses:
Sales and marketing 1,508 1,319
General and administrative (non-cash of
$21,735 in 2007 and $8,749 in 2006, respectively) 25,284 15,452
Research and development 616 715
Impairment loss on Smart Automobile license, 175 2,448
fixed assets and goodwill
------------ ------------
Total operating expenses 27,583 19,934
------------ ------------
Loss from operations (26,808) (19,409)
------------ ------------
Other income (expense):
Gain on settlement of Smart Auto liability -- 7,051
Gain on revaluation of put-option, warrant and
note derivative liabilities -- 581
Interest expense, net (non-cash of $0 in 2007 (1,393) (241)
and $207 in 2006, respectively)
Other income, net 199 107
------------ ------------
(1,194) 7,498
------------ ------------
Loss before income taxes (28,002) (11,911)
Provision for income taxes ]]> |