These scam artists could learn something from Lanza...
FORBES
OutFront
Shock Jocks
Jonathan Fahey 06.18.07
A small electric vehicle company stays alive by promising wonderful things--just around the corner. The Zap-X is a marvel. It solves every problem that has foiled attempts to build electric vehicles. It can recharge in ten minutes and can travel 350 miles on that charge. This rocket produces 644hp and goes from zero to 60mph in 4.8 seconds, with a top speed of 155mph. It carries seven passengers. Oh, and the windows are made out of photovoltaic glass that turns sunlight into horsepower.
If, of course, it existed.
There are no standard-size electric automobiles sold in the U.S. today at all, never mind one with statistics approaching those that Zap claims. Yet Zap, an outfit in Santa Rosa, Calif. that makes its money selling repossessed cars, electric scooters and a handful of Chinese-made three-wheeled electric cars, says the world-shattering Zap-X is "coming soon." The company even asks for deposits of $25,000 on the cars--without saying how much they will eventually cost or when they will arrive.
Zap has a history of promising greatness just around the corner. The company issues press releases about twice a week to make sure the good news keeps flowing. And it pays a service called RenewableEnergyStocks.com to tout its shares.
God forbid that the share price fall. The company issues stock for just about everything: sponsorship, property, legal fees, even room rentals. It issued 450,000 shares to buy property in 2005, but if the stock falls, Zap has to pony up even more shares.
Last year this company issued $4.1 million in stock-based compensation to employees and $4.7 million in stock to "consultants," including family members. Quite a lot of equity activity for a company that lost $11.9 million on sales of $11 million (most of which came from a one-year operation that has been shut down). Still, it's an improvement over 2005, when the company booked $15.9 million in stock for "consultants" during the year while recording only $3.6 million in sales and a loss of $23.5 million.
In January of this year Zap repriced 22 million warrants issued to employees and extended their expiration five years. The warrants, once priced between $1 and $8, are now priced between $1 and $1.20. That cost the company an earnings charge of $12 million in the first quarter--ten times revenue. And it set a not exactly ambitious goal for executives, to boost the share price 8 cents from a recent $1.12, over five years.
"As a public company, stock is our currency," explains the company's chief, Steven Schneider, who took the top job when Zap, which stands for "zero air pollution," bought Schneider's auto repossession business in 2002. Schneider owns 16 million Zap shares, 32% of the company. But that isn't the only way he and his family benefit. He leases real estate back to the company; two of his cousins receive stock for things like consulting services and Web site design; a cousin had a $56,000 loan forgiven by the company last year; and his brother runs one of the company's distribution units.
Public since 1996, the company has had just one quarter of profits, and that came from unwinding a liability that had been booked for another big-promise idea that went nowhere. Zap had tried to become the distributor of DaimlerChrysler (nyse: DCX - news - people )'s tiny Smart Cars, going so far as to announce that it had $1 billion in orders for them. When Zap announced sales plans of 15,000 cars per year in November of 2004, its share price doubled. But Zap had no relationship with DaimlerChrysler and ended up delivering a total of 342 Smart Cars before the project disintegrated in lawsuits.
Schneider acknowledges the Smart Car fiasco hurt the company's credibility, but he swears electric vehicles are closer than we think. "This is our year of execution," he says.
When hydrogen was the rage, Zap promised fuel cell vehicles with an announcement of a $100 million agreement with a fuel cell maker. That was in 2004; the vehicles don't exist yet. Then it was ethanol. Zap said in 2005 it had ordered 50,000 Brazilian-made vehicles that can run on 100% ethanol or gasoline. None has been delivered. Zap's latest big claim came this April: It received a $79 million order for its electric vehicles, the "largest order in history." The stock rose 14% on the day of the announcement. The "order," however, came from a new electric vehicle distributor set up by a pair of hedge funds. These hedge funds own stakes in Zap.
