ZAP (OTCMKTS:ZAAP) Accelerates on News
There aren’t a whole lot of automobile manufacturers on the OTC Markets. The number of penny stocks in this sector that have actually managed to start generating revenues by selling vehicles is even smaller. ZAP (OTCMKTS:ZAAP) is one of the few such enterprises.
One of their main focuses is the commercialization of China-built electric cars which is bound to cause even more stir among investors. Needless to say, there are people who compare ZAAP to Tesla Motors Inc (NASDAQ:TSLA), but unlike TSLA whose stock is traded at more than $250 per share and who have a market cap of around $30 billion, ZAAP was stuck at $0.10 per share twenty-four hours ago. So, what’s the reason for this?
There are certainly a few problems. Back in 2008, they tried to introduce a three-wheeled electric vehicle called the Zap Xebra to the US market. The car has received some reviews and it’s clear that not all of them are positive. Unfortunately, it wasn’t only motoring journalists that didn’t like the three-wheeled contraption. We read in the latest 10-Q that some legal issues arose around the Xebra and, as a result, ZAAP were forced to initiate a buy-back program. On November 14, 2013, they said that there have been 284 refund requests, 247 of which were deemed eligible.
ZAAP had another operating segment through which they sold second-hand conventional vehicles. According to the Q3 report, however, a former officer called Steven Schneider attempted to take control of the company and he took, without ZAAP‘s authorization, more than $850 thousand worth of inventory, which he now refuses to release. The retail car segment was closed and ZAAP generated no revenues from it during the third quarter of 2013.
That didn’t really help with their financial situation which, as of September 30, wasn’t that rosy at all. Here are the figures as found in the latest 10-Q:
- cash: $570 thousand
- current assets: $30.4 million
- current liabilities: $92.8 million
- quarterly revenues: $9.9 million
- quarterly net loss: $3.3 million
If you check out the rest of the reports, you’ll see some other things that you need to consider well before making your investment decision. The sales have decreased by around 5% year over year and by 27% quarter over quarter. There is also quite a lot of convertible debt which can be turned into common stock, potentially diluting the shareholders.
As you can see, ZAAP‘s business plan is certainly interesting and they have managed to make some progress over the years, but there are still quite a lot of issues that need to be addressed. Despite this, the stock jumped yesterday, racking up daily price gains of more than 300% and a dollar volume of around $1.1 million. It closed the session at $0.40 per share which commands a market cap of $121 million.
Even more surprisingly, it managed to do it in just one hour of trading – up until 3:30 PM, the ticker was pretty much stationary. The reason for the sudden and violent jump was a press release which informed us that Jonway Auto, ZAAP‘s Chinese subsidiary, will be launching a new car. It’s called the SPARKEE and it will be a available with either lead acid batteries, or with the more modern lithium ones. The first cars should be delivered to Chinese customers by June, the model could also appear in South America, and the management team are researching the possibilities of launching it in the US. ZAAP also say that they want to start offering cars on the Eastern European market and are currently in negotiations with some partners there.
By all means, the news is good. If the new car turns out to be a success, it could stabilize the revenue flow a bit. We’re quite sure that if this happens, ZAAP‘s shareholders will have something to cheer about and the ticker might also draw in some potential investors. At the moment, however, the market cap is a bit steep for what the company has to offer and we’re not convinced that the press release alone is enough to support it. That’s why, careful evaluation of all the risks is absolutely essential.
