OTC Journal: My name is OTC Larry Isen, and I am the editor and publisher of the OTC Journal. Steve Schneider, the CEO of ZAP, which trades on the OTC Bulletin Board under the symbol Z-A-P-Z, has kindly agreed to join us today and discuss recent developments of the company.

Before we get started, I have to read the Safe Harbor statement.

This interview may contain forward-looking statements. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including without limitation continued acceptance of the company’s products, increased levels of competition for the company, new products and technological changes, the company’s dependence on third-party suppliers, intellectual property rights, and other risks detailed from time to time in the company’s periodic reports filed with the Securities and Exchange Commission.

 That out of the way, let’s get started. Steve, thanks for taking the time to participate today. Last week was a pretty crazy week for ZAP and I’m glad you’ve agreed to come on and discuss last week’s developments. For listeners not familiar with ZAP and its history, please visit the OTC Journal’s website at otcjournal.com. You will find an archive section with past editions that describe the history of the company and a blog with a fairly lively question and comments section.

 For the purpose of this interview, I’m going to adopt the role of an investor who wants answers to some hard questions in order to evaluate the upside potential in the stock. 

 Although most people know ZAP, which is an acronym for Zero Air Pollution, is involved in a number of product lines, last week’s news was all about the Smart Car which ZAP managed to Americanize. 

 The Smart Car is considered a gas sipper. It’s a two-seat coupe, which is only eight feet long, has a three-cylinder engine, and a top speed of 85 miles an hour. It was designed by the Smart Car division of Mercedes Benz, and the very snappy interior was designed by the Swatch company. 

 The car has been very popular worldwide. There have been over 600,000 sold, and the Smart Car division of Mercedes Benz achieved $1.5 billion in sales last year. Mercedes Benz has never offered the Smart Car for sale in the United States. However, it is sold in Canada and of course in Europe.

 Steve, let’s start by asking you this question. Do you know why Mercedes Benz did not bring the Smart Car to the U.S.? And tell us why your EPA and DOT approvals would be hard for them to duplicate.

Steve Schneider: Well, I think there was uncertainty on their behalf whether, you know, a microcar would be a saleable product in a country that’s generally used to large automobiles and an environment where gasoline is relatively cheap compared to the rest of the world.

OTC Journal: So they weren’t certain about the market which segues perfectly into the next question.

 Steve, according to ZAP’s recent public disclosures, you visited with Mercedes Benz in Germany on March 21. How did Mercedes respond to learning that at that point in time you had Americanized their car, and were they surprised to learn that you had generated over 400 million -- in excess of 400,000 in orders -- when you went to see them?

Steve Schneider: Well, I - they - I believe they were a bit surprised that there may have been that many orders and that we indeed have the technology to do so. They weren’t doubting us, but they were, you know, they were, you know, actually commending us that we actually had achieved that. It was a very pleasant visit, actually, and seemed like one of good communication and potential cooperation.

OTC Journal: Yeah I would have to imagine they were surprised with the volume of orders you came in hand with, but you’re actually promoting their product in a market they’re not in, so how could they not respond positively?

Steve Schneider: And that was our feeling as well.

OTC Journal: So let’s get on to the news of last week. 

 Last Tuesday ZAP announced that you had placed a $1 billion purchase order for 76,500 cars with the Smart division of Mercedes Benz. Shortly afterwards, Reuters published a press release starting Smart knew nothing of your order, then CBS MarketWatch published a press release claiming the Smart division of Mercedes Benz would not be selling any cars to ZAP. You then issued a press release stating that you could get thousands of cars through distributors. 

 Well, the net result of all this publicity was a huge percentage decline in the stock despite it having come back from the early lows of the day. So, Steve, I think people want to know, what is the exact state of your relationship with Mercedes Benz today?

Steve Schneider: Well, I guess, you know, the reality of the steps that took place, or what needs to be known - the process were that after our trip to Germany that the - there seemed to be an interest in some sort of a relationship with ZAP if we did indeed have the technology that we had claimed, which was that to have the cars meet U.S. standards both with EPA and DOT.

 Now, at our next step were to have engineers come out and verify this technology that we have. And in between then, the orders were pouring in at a much more alarming rate than we expected, and the demand was growing very rapidly.

 So in order to try to shortcut the process, we elected to deliver a car to the first U.S. consumer as a proof of concept to say, “Hey, the cars are legal. Couldn’t deliver it if it wasn’t.” So we did that, and that was enabling us to go ahead and issue a purchase order and try to cut out one step which was the verification step.

 And so simply, that’s really what we had attempted to do. We had proven that the technology was there, tried to shorten the time period up so that the consumers could end up with these cars in a more rapid manner.

OTC Journal: So has Mercedes Benz given you any formal response to the purchase order yet?

Steve Schneider: Well, I mean, my position is I just don’t understand why anyone would not want to, you know, fulfill $1 billion worth of orders. And, you know, at this point it would seem that, you know, doing that would just make sense for both parties.

OTC Journal: So the - ZAP did in fact present them with a $1 billion purchase order, and you have not gotten a response from Mercedes Benz one way or another at this point in time?

Steve Schneider: They have not responded to wanting to fulfill the order.

OTC Journal: Okay. And so that takes me to the next question, Steve. How important is getting the Smart Car directly from Mercedes Benz to the future of ZAP, and then what would prevent Mercedes Benz from Americanizing the car themselves and benefiting from the groundwork that you’ve laid?

Steve Schneider: Well, our plan has never been to have a relationship with Mercedes Benz. Our core business plan was always to get -- has and always been -- was to get the vehicles from other importers, which we have many at our dispose. So it’s never been part of our business plan.

 You know, with the large number of orders that has come in, you know, our concern were that the customers get the right ownership experience and get the right service and support with, you know, the backing of the manufacturer.

 So we felt that it would be in the best interest of both ZAP and Smart to have their support and some involvement in what we were doing. And that’s simply all we were trying to achieve.

OTC Journal: Steve, can you talk to us a little bit about the character of the purchase orders for 76,500 cars that you have in hand right now? Are those firm purchase orders or are those sort of loose indications of interest?

Steve Schneider: Well I’m glad you brought that up. You know, first of all, you know, the amount of purchase orders that we have are, you know, far exceed the purchase orders that we gave. And second of all, the quality of the purchase orders are primarily from new car franchise dealers that are very well established, very credible, and that I believe could give the owners of the Smart Cars the right ownership experience with full service and support. And, you know, just adding the manufacturer behind it would just make it one piece better. 

 So, these dealers are committed. The purchase orders do say “non-cancelable” on them, so they have, you know, financial interest in it. You know, we’ve run Dun & Bradstreet reports that verify their credibility and have done everything possible. These are very tight orders.

OTC Journal: Okay. And you also disclosed last week that you delivered the very first U.S. legal version of the car to a customer in Reno. Assuming you end up working with distributors versus directly with Mercedes Benz, and with your current infrastructure, how many cars can you deliver annually to fulfill the purchase orders you have in hand right now?

Steve Schneider: Well, our - we have several different parallel courses that we’re trying to operate under. 

 You know, our first and best wish of course would be to have some sort of relationship with Mercedes and Smart, but it wasn’t part of our business plan. 

 And our second plan, and we’re currently in discussions with Tier 1 manufacturers that have the capacities to do a large amount of -- in this process we’ll call the Americanization -- of these vehicles, and so we are in discussion so that we can still fulfill the purchase order that’s at hand.

 And, you know, currently of course we’ve had - always had the capacity to do approximately 15,000. 

 So, you know, we have three different courses of action and are ready to implement, you know, whatever the best plan is available for us at the time.

OTC Journal: So Steve to clarify, the number one choice would be to get cars directly from Mercedes Benz and have them convert them -- Americanize them, in essence -- right at the manufacturing point and then you distribute. 

 Course two would be to enlist the help of a Tier 1 manufacturer to do the conversions in which case you could do a lot more than 15,000 cars annually. 

 And the third choice would be to just simply obtain the cars from distributors and produce 15,000 cars annually with the current infrastructure that you have in place right now. Did I sum it up correctly?

Steve Schneider: I couldn’t have said it better myself.

OTC Journal: And I’d like to point out to everybody’s that listening… If ZAP does sell 15,000 cars, that equates to nearly a half a billion in sales for ZAP. So people should be aware of the kinds of numbers we’re talking about here. 

 Okay Steve, I think we’ve covered pretty much what everybody wants to know about the Smart Car, but I think we should talk about some of the other vehicles ZAP is working on. Can you talk a little bit about other vehicles you have in development and some of the electric cars and others that you’re selling right now?

Steve Schneider: Well certainly, and maybe it’s important to, you know, clarify that, you know, what ZAP is doing is trying to become the pre-eminent portal for high efficiency, low emission, advanced technology vehicles that can make a positive impact on society and the environment. That’s what we’re trying to do as a company, and we’re achieving that. We’ve definitely positioned ourselves to become a leader in creating a marketplace and distribution channel for these new technology vehicles in the U.S. market. 

 And it’s also important to understand that what we have done with the Smart Car, I believe, to the best of my knowledge is the first time in history that an automotive distributor has brought a vehicle up to the full U.S. standards and full compliance. 

 Most vehicles are typically brought in under some sort of exemption or another. And with the setting up of this infrastructure, it is allowing us to obtain the interest of many other manufacturers that are producing advanced technology vehicles and high efficiency vehicles, and the portal that we’re setting up -- the dealers understand this. They’re not buying the cars just because they’re Smart Cars. They’re buying the cars because there’s a future in advanced technology and high efficiency vehicles, and -- 

OTC Journal: So down the road you see this dealer network as being a potential conduit for sales of electric cars, hybrid cars, some of the electric scooters you guys manufacture, things like that, is that correct?

Steve Schneider: Absolutely and that’s the, you know, the pitch that we give to our dealers is just that. They’re not buying, you know, a one-shot Smart Car allocation. They’re buying, you know, a package of the future of where transportation is going.

OTC Journal: Yeah, I know that there is a lot of demand for electric cars when people live in planned communities and, you know, a lot of people are starting to drive electric cars in the inner city and places like that. So you perceive that the company has great growth potential along those lines as well, correct?

Steve Schneider: The needs of the American consumers are changing, and ZAP wants to position itself to fill those needs.

OTC Journal: Can you also talk a little bit about what I think is one of the most exciting and most overlooked products that the company’s developed? Talk a little bit about the rechargeable battery technology you guys are introducing for handheld portable devices.

Steve Schneider: Well, the technology that we were developing for automobiles for large format battery technology was kind of a by-product while we were waiting for regulatory approval for our electric vehicles, and our battery technology division just established. 

 And we came up with a whole lineup of fantastic portable batteries that give high efficiency to a consumer, so you don’t have to carry around, you know, dozens of transformers of different voltages. It’s like a voltage output unit so that one unit fits all. It’s affordable, it has the availability to not only be used as a battery backup but to transfer energy from one device to another, and it’s very universal, fitting almost, you know, the majority of the electronic devices that are on the market.

OTC Journal: Well, when I travel I know I have to drag along a recharger for my digital camera. I have to bring a recharger for my cell phone. I have to bring a recharger for my PDA, and a recharger for my laptop computer. So, you have a product now that would replace the need for me to bring along all four of those rechargers all in one product, correct?

Steve Schneider: That’s exactly what we have.

OTC Journal: And as I understand it, this product you can actually recharge something on the fly. You can take it out of your briefcase; with no electrical outlet, you can recharge your cell phone right on the spot.

Steve Schneider: It’s like having a wall socket in your pocket.

OTC Journal: And describe the size of this particular product.

Steve Schneider: Our base unit is not a whole lot bigger than the size of a deck of cards. And then we also have a larger laptop unit that is about the size of, I don’t know, half a sheet of paper - about half a sheet of paper, a half-inch thick, and then we have a new stackable product that will allow you to just decide how much energy you want to carry with you. And they all clip together like Legos.

OTC Journal: And where can somebody get this product now?

Steve Schneider: We’re starting to put them out in mass merchants like Target and others that you’ll be able to see as well as just going to ZapWorld.com and buying them directly from us.

OTC Journal: And what’s the cost?

Steve Schneider: These batteries are, you know, typically the cost of a replacement battery for your cell phone.

OTC Journal: So, somewhere in the $50-$150 range?

Steve Schneider: Yeah, depending on your needs.

OTC Journal: Well I think that’s a very exciting product that people are overlooking. 

 Well at any rate, Steve, thanks a lot for joining us today. I think that wraps up the interview and I think that covers pretty much what people want to know at this point in time.

Steve Schneider: Well thank you, Larry.

OTC Journal: I really appreciate you spending the time. The OTC Journal feels fortunate to bring this kind of information to people, and I hope you take advantage of it, and we’ll be back with another compelling interview in the future.
 

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