Registration No. 000-30300
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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ZAPWORLD.COM
(Exact name of registrant as specified in its charter)
California 94-3210624
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
117 Morris Street
Sebastopol, California 95472
(Address of registrant's principal executive offices)
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Gary Starr
Chief Executive Officer
Zapworld.com
117 Morris Street
Sebastopol, California 95472
(707) 824-4150
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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With a copy to:
William D. Evers
Foley & Lardner
1 Maritime Plaza, Sixth Floor
San Francisco, California
94111-3404
(415) 434-4484
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
_________________________
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
of the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
of the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [_]
CALCULATION OF REGISTRATION FEE
=========================== ================== ======================= ================== =====================
Proposed maximum
Title of each Dollar amount Proposed maximum aggregate
class of securities to be offering price offering Amount of
to be registered registered per unit) price registration fee
--------------------------- ------------------ ----------------------- ------------------ ---------------------
Common Stock, no par value $12,000,000 $5.00 $12,000,000 $3,000
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of Common Stock. This prospectus is
not an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
See the section of this prospectus entitled "RISK FACTORS" for a
discussion of certain factors that you should consider before investing in the
Common Stock offered in this prospectus.
Certain statements under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis," and "Description of Business"
and elsewhere in this prospectus are forward-looking statements. These
forward-looking statements include, but are not limited to, statements about our
plans, objectives, expectations and intentions and other statements contained in
the prospectus that are not historical facts. When used in this prospectus, the
words "expects," "anticipates," "intends," "plans," "believes," "seeks" and
"estimates" and similar expressions are generally intended to identify
forward-looking statements. Because these forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by these
forward-looking statements, including our plans, objectives, expectations and
intentions and other factors discussed under the "Risk Factors" section of this
document.
All trademarks and trade names appearing in this prospectus are the
property of their respective holder.
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[LOGO]
ZAPWORLD.COM(R)
2,400,000 shares of Common Stock
We are offering 2,400,000 shares of Zapworld.com(R) Common Stock at a price
of $5.00 per share. This price may not reflect the market price of our shares
after this offering. While we intend to directly place these shares without the
use of an underwriter, we may, at our discretion, use a broker-dealer for the
placement of some or all of these shares. There are no escrow arrangements
pertaining to this offering and there is no minimum amount we are required to
raise in this offering before we may have access to funds received from
investors.
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ZAPWORLD.COM(R) OFFERING Per Share Total
Public Offering Price $5.00 $12,000,000
Underwriting Discounts and Commissions(1) $0.00 $0
Proceeds Before Expenses $5.00 $12,000,000
(1) Does not include the cost of possible broker-dealer commissions of up to 10%
of all investment funds raised and an additional 3% of unaccountable expenses.
The proceeds before expenses are calculated before deducting estimated
expenses of $100,000, including registration fees, legal and accounting fees,
and other offering costs.
Our shares are currently traded on the NASDAQ SmallCap Market under the
trading symbol "ZAPP." On February 8, 2001, the last reported sale price of our
Common Stock was $2.6875 per share.
Investing in our Common Stock involves risks. You should invest in our
Common Stock only if you can afford to lose your entire investment. Consider
carefully the "Risk Factors" Section beginning on page 5 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
This prospectus is dated February 12, 2001.
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TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY............................................................1
ZAPWORLD.COM(R).......................................................1
The Offering..........................................................2
SUMMARY FINANCIAL INFORMATION.................................................3
RISK FACTORS..................................................................5
Risks Related to Our Business.........................................5
We have a history of losses, and we might not achieve or
maintain profitability.............................................5
We may not be able to obtain additional capital to fund our
operations when needed.............................................5
We face intense competition which could cause us to lose
market share.......................................................5
Changes in the market for electric vehicles could cause our
products to become obsolete or lose popularity.....................6
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...........................................6
We will need to increase our research and development spending,
which could substantially increase our costs and adversely
affect our cash flow...............................................7
The failure of certain key suppliers to provide us with
components could have a severe and negative impact
upon our business.............. ...................................7
Product liability or other claims could have a material
adverse effect on our business. ...................................7
Failure to manage our growth effectively could adversely
affect our business................................................8
The loss of certain key personnel could significantly
harm our business..................................................8
Changes in the law may have a negative impact upon our business.......8
International expansion may cause problems for us.....................8
Internet address......................................................9
Our success is heavily dependent on protecting our
intellectual property rights.......................................9
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We may be exposed to liability for infringing intellectual
property rights of other companies................................10
Risks Related to this Offering.......................................10
The market price for our stock may drop below the offering
price, which could render us unable to sell shares in
this offering.....................................................10
The Price of Our Common Stock is Likely to Be Volatile and
Subject to Wide Fluctuations......................................10
Sales of a Substantial Amount of Our Common Stock After
This Offering Could Cause Our Stock Price to Fall.................10
FORWARD-LOOKING STATEMENTS...................................................11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............14
PLAN OF DISTRIBUTION.........................................................16
LEGAL PROCEEDINGS............................................................16
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.................17
DESCRIPTION OF SECURITIES....................................................19
General..............................................................19
Common Stock.........................................................19
Preferred Stock......................................................19
Series A-1 and Series A-2 Convertible Preferred Stock................19
Rights, Privileges, and Preferences..................................20
Transfer Agent and Registrar.........................................20
Warrants.............................................................20
Stock Options........................................................21
INTEREST OF NAMED EXPERTS AND COUNSEL........................................23
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES...........................................................23
DESCRIPTION OF BUSINESS......................................................24
Generally............................................................24
Principal products or services and their markets.....................24
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New Product Development..............................................26
Distribution.........................................................28
Internet and Dealership Network......................................28
Environmental Initiatives and Legislation............................28
Research and Product Development.....................................29
Sources and Availability of Raw Materials............................30
Licenses, Patents and Trademarks.....................................30
Backlog..............................................................30
Competitive Conditions...............................................31
Employees............................................................31
Development of Business..............................................31
MANAGEMENT'S DISCUSSION AND ANALYSIS.........................................32
Overview.............................................................32
Distribution.........................................................33
Mergers and Acquisitions.............................................33
Partnerships or Strategic Alliances..................................34
Results of Operations................................................35
Year Ended December 31, 1999 Compared to Year Ended
December 31, 1998.................................................36
Nine Months Ended September 30, 2000 Compared to Nine Months
Ending September 30, 1999.........................................37
Liquidity and Capital Resources......................................38
Seasonality and Quarterly Results....................................39
Inflation............................................................39
DESCRIPTION OF PROPERTY......................................................39
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................40
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................40
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DIVIDEND POLICY..............................................................41
EXECUTIVE COMPENSATION.......................................................41
Compensation of Directors............................................42
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..................................................42
LEGAL MATTERS................................................................43
EXPERTS......................................................................43
ADDITIONAL INFORMATION.......................................................43
FINANCIAL STATEMENTS.........................................................44
PART II INFORMATION NOT REQUIRED IN PROSPECTUS...............................45
Until 90 days after the effective date of this prospectus all dealers
effecting transactions in the registered securities may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
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PROSPECTUS SUMMARY
The following summary highlights information contained elsewhere in this
prospectus and should be read together with the more detailed information
regarding our company, the Common Stock being sold in this offering, our
financial statements, and the notes to those financial statements appearing
elsewhere in this prospectus.
ZAPWORLD.COM(R)
Our company, ZAPWORLD.COM(R) ("Zapworld") was incorporated in California
in 1994 under the name "ZAP Power Systems." We design, assemble, manufacture and
distribute electric and non-electric scooters, electric bicycle power kits,
electric bicycles, electric motorcycles and other personal electric
transportation vehicles, including electric wheelchairs and electric aquatic
propulsion devices.
We develop proprietary technologies that are important elements of our
own brand of personal electric vehicles. Each of these components is marketed
under our own brand name. Along with our commitment to develop new electric
vehicles, we are also focusing our development efforts on a new generation of
microprocessor drive controllers.
Our principal offices are located at 117 Morris Street, Sebastopol,
California 95472, our telephone number is (707) 824-4150, and our internet
address is http://www.zapworld.com. The information on our Web site does not
constitute part of this prospectus.
The Offering
Type of security............................Common stock
Common stock registered by company..........2,400,000 shares
Common stock offered for sale
by our company in this offering.........2,400,000 shares
Common stock to be outstanding after
this offering...........................8,339,033 shares
Use of proceeds.............................The proceeds shall be used for the
purposes of expanding our sales
force, increasing our marketing and
distribution capacities, expanding
our domestic and international
business operations, acquisitions,
working capital and for general
corporate purposes. See page 12 for
a more detailed explanation.
There is no minimum number of shares that must be sold. There can be no
assurance that all of the shares offered will be sold. We intend to offer all of
the shares directly to the public without the use of an underwriter. However, we
retain the right, in our sole discretion, to use an underwriter or broker-dealer
for selling these shares.
Funds from this offering will not be placed in an escrow or trust
account and will be available for use as the funds are received.
This offering will begin as of the effective date of this prospectus and
continue for 12 months or such earlier date as we may terminate this offering.
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SUMMARY FINANCIAL INFORMATION
The summary financial data for the years ended December 31, 1998 and
1999 have been derived from the Financial Statements and Notes to Financial
Statements. The summary financial data for the nine months ended September 30,
1999 and 2000 is derived from our unaudited financial statements which, in the
opinion of management, includes all adjustments, none of which were other than
normal recurring adjustments necessary for a fair presentation of the financial
position and results of operations for those periods. The financial information
for the nine months ended September 30, 1999 and 2000 is not necessarily
indicative of the results of operations for subsequent periods or a full fiscal
year. The selected financial data should be read in conjunction with the
Financial Statements and Notes thereto included elsewhere in this prospectus.
Summary Financial Data
(in thousands except per share amounts)
Nine Months ended
Year ended December 31, September 30,
(unaudited)
--------------- -------------- --------------- --------------
1999 1998 2000 1999
--------------- -------------- --------------- --------------
Summary of Operating Data:
-----------------------------------
Revenue $6,437 $3,518 $8,128 $4,444
Cost of Goods Sold 4,446 2,391 5,190 2,978
------- ------- -------- --------
Gross Profit 1,991 1,127 2,938 1,466
Operating Expenses 3,497 2,150 4,060 1,812
------- ------- -------- --------
Operating Loss (1,506) (1,023) (1,122) (346)
Other Income (expense) 81 14 (27) (86)
Interest Income (expense) (267) (100) 135 41
------- ------- -------- --------
Income before provision
for taxes (1,692) (1,109) (1,014) (391)
Provision for taxes on
Income 1 1 - -
------- ------- -------- --------
Net Loss $(1,693) $(1,110) $(1,014) $(391)
============================================================
Net Loss attributable to
shares
Net Loss $(1,693) $(1,110) $(1,014) $(391)
------- ------- -------- --------
Preferred Dividend - - (3,100) -
------- ------- -------- --------
$(1,693) $(1,110) $(1,914) $(391)
======= ======= ======== ========
Net loss per Common
share basic and
diluted $(0.43) $(0.42) $(0.79) $(0.11)
============================================================
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December 31 September 30,
-------------------------------------- 2000
(unaudited)
Balance Sheet Data: 1999 1998
----------------------------------- ------------------ ------------------- ----------------------
Working Capital $4,450 $129 $6,447
Total Assets $7,727 $1,760 $11,061
Long-Term Debt, less
current portion $ 24 $ 11 $ 390
Stockholders' Equity $6,554 $ 386 $9,282
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RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our Common Stock. The risks and uncertainties described below
are not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations. If any of the following risks actually occur, our business could be
harmed. In that case, the trading price of our Common Stock could decline, and
you might lose all or part of your investment. You should refer to the other
information set forth in this prospectus, including our financial statements and
the related notes for more information.
Risks Related to Our Business
We have a history of losses, and we might not achieve or maintain profitability
Since we began operation in 1994, we have not generated a profit from
operations during any fiscal year. To date, we have concentrated primarily on
increasing our revenues and expanding our market share through acquisitions
rather than on maximizing profits. As a result, although we experienced revenue
growth from fiscal year 1998 to fiscal year 1999, we incurred net losses of
$1,109,400 and $1,692,600 for the years ended December 31, 1998 and 1999,
respectively. Our nine month loss through September 30, 2000 was $1,014,000.
There is no assurance that we will be able to operate profitably in the future.
Because we will ultimately need to operate profitably or sell our operations,
our failure to generate profits from operations could harm our ability to
continue operations in the long term.
We may not be able to obtain additional capital to fund our operations when
needed.
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, the adverse impact on our finances
will be magnified by our inability to adjust spending quickly enough to
compensate for revenue or financing shortfalls. Failure to achieve profitable
operations may require us to seek additional financing when none is available or
on extremely unfavorable terms.
We face intense competition which could cause us to lose market share.
Some of our competitors are large manufacturers, including Honda,
Suzuki, Sanyo and Yamaha, who have significant financial resources, established
market positions, longstanding relationships with other customers, and
significantly greater name recognition, technical, marketing, sales,
manufacturing, distribution and other resources than we do. These factors may
make it difficult for us to compete with these businesses in the production and
sale of our products.
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Many smaller manufacturers sell electric bicycles to key segments of our
market in the United States, Europe and Asia. We also compete against the makers
of electric scooters as well as non-motorized scooters and bicycles. Although we
believe we have a competitive advantage from our name recognition in the
electric vehicle industry and ownership of fundamental technology, the market
for the sale of these products is subject to rapid change and ease of entry by
new competitors. We cannot be certain that we will be able to meet changes in
the marketplace and remain competitive.
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 growth and change in the last few years. Demand for and interest in
electric vehicles appears to be increasing. However, growth in the electric
vehicle industry may depend on many factors, including:
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 future regulation and legislation requiring increased use of nonpolluting
vehicles.
We cannot assure you that growth in the electric vehicle industry will
continue. Our business may suffer if growth in the electric vehicle industry
ceases.
In the last several years there has been a substantial increase in the
number of electric vehicles and non-motorized vehicles which are competitive
with our products. One of our principal challenges is to continue to develop and
market products which keep pace with the rapid changes in the market. If we are
unable to introduce new products and maintain our current market share, we will
likely be unable to continue to increase revenue or begin to operate profitably.
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
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changes in or create necessary technology. As a result, our potential inability
to adapt and develop the necessary technology may harm our competitive position.
We will need to increase our research and development spending, which could
substantially increase our costs and adversely affect our cash flow.
To keep pace with technological changes and developments in the market
for electric vehicles, we have substantially increased spending on research and
development. Our research and development costs in 1999 were $364,600, as
compared to $202,600 in 1998, an 80% increase. Because we plan to develop new
electric vehicle products and tooling that will broaden our product line in
2001, we expect to incurring increased research and development costs in 2001.
Our research and development costs for the period ended September 30, 2000 were
$464,000. Should we be unable to raise sufficient funds in the future to meet
our research and development costs, we could suffer a materially adverse effect
on our business, results of operations and financial condition.
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. A failure by our major suppliers to provide these
components could severely restrict our ability to manufacture our products and
prevent us from filling customer orders in a timely fashion.
For example, our Zappy(R) and Kick(TM) products account for
approximately 85% of our total sales. We acquire the major components of these
products from only one or two suppliers. It could be difficult to find
replacement components if our current suppliers fail to provide the parts needed
for these products. This would affect our ability to timely fulfill customer
orders, which, in turn, could greatly affect our market position.
Product liability or other claims could have a material adverse effect on our
business.
As producers of electric vehicles sold to the general public, we face
the risk of product liability claims and unfavorable publicity if the use of our
products causes injury or has other adverse effects. Although we have product
liability insurance for risks of up to $10,000,000, that insurance may be
inadequate to cover all potential product claims. In addition, we may not be
able to maintain this insurance indefinitely or be able to avoid product
liability exposure.
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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.
Our performance is substantially dependent on the services of our
executive officers and other key employees, as well as on our 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 electric vehicle industry. The loss of the
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.
Changes in the law 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 our products are materially in compliance
with all laws governing their manufacture, sale and use. 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.
International expansion may cause problems for us.
We intend to expand our business globally. Assuming we conduct this
expansion, we may encounter many of the risks associated with international
business expansion. These risks include, but are not limited to language
barriers, fluctuations in currency exchange rates, political and economic
instability, regulatory compliance difficulties, problems enforcing
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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.
Internet address
We currently hold the internet address http://www.zapworld.com. We may
not be able to prevent third parties from acquiring internet addresses that are
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 and to operate
without infringing on the proprietary rights of others. We may not be able to do
this successfully, however. 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. For example, at the
present time one of our patents, covering various aspects of our electric
bicycle, is being reexamined by the United States Patent and Trademark Office to
determine if one or more of its claims are invalid. If that proceeding results
in an adverse ruling, the patent will be declared invalid. If this occurs, this
could severely and adversely affect our ability to prevent competitors from
copying and using key elements of our technology in developing and marketing
their own products. Additionally, we have recently learned that several
companies are attempting to sell an electric scooter in the United States which
we believe infringes one or more of our patents and trademarks. We have also
discovered that at least one company has unlawfully sampled our copyrighted
advertising copy. In this regard, we have already begun to incur legal fees in
our attempt to prosecute this matter, and, in addition, we may have to incur
substantial legal fees and costs in litigating these matters in the future.
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.
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We may be exposed to liability for infringing intellectual property rights of
other companies.
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
defending any patent or trademark infringement suits or in asserting any patent
or trademark rights, in a suit with another party.
Risks Related to this Offering
The market price for our stock may drop below the offering price, which could
render us unable to sell shares in this offering
We are offering to sell shares at the price on the cover page of this
prospectus, whereas the market price for our stock may vary significantly. If
the market price for the shares drops below the offering price, prospective
investors will likely choose to purchase shares on the open market rather than
directly from us. If this happens, the amount of financing we receive from this
offering will be significantly reduced and we may be unable to raise any funds
from this offering.
The Price of Our Common Stock is Likely to Be Volatile and Subject to Wide
Fluctuations
The market price of our Common Stock has been, and will likely continue
to be, subject to wide fluctuations. If our revenues do not grow or grow more
slowly than we anticipate, or if operating or capital expenditures exceed our
expectations and cannot be adjusted accordingly, or some other event adversely
affects us, the market price of our Common Stock could decline. In addition, if
the stock market in general experiences a loss in investor confidence or
otherwise fails, the market price of our Common Stock could fall for reasons
unrelated to our business, results of operations and financial condition.
Investors might be unable to resell their shares of our Common Stock at or above
the offering price. In the past, companies that have experienced volatility in
the market price of their stock have been the subjects of securities class
action litigation. If we were to become the subject of securities class action
litigation, it could result in substantial costs and a diversion of our
management's attention and resources.
Sales of a Substantial Amount of Our Common Stock After This Offering Could
Cause Our Stock Price to Fall
Sales of a substantial number of shares of our Common Stock in this
offering and thereafter could cause our stock price to fall. In addition, the
sale of shares by our stockholders could impair our ability to raise capital
through the sale of additional stock.
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All forward-looking statements are
inherently uncertain as they are based on current expectations and assumptions
concerning future events or our future performance. You are cautioned not to
place undue reliance on these forward-looking statements, which are only
predictions and speak only as of the date of this prospectus. Forward-looking
statements usually contain the words "estimate," "anticipate," "believe,"
"expect," "plan," or similar expressions, and are subject to numerous known and
unknown risks and uncertainties. In evaluating these statements, prospective
investors should carefully review various risks and uncertainties identified in
the Risk Factors section beginning on page 5 of this prospectus, as well as the
matters set forth in our annual report on Form 10K-SB for the year ended
December 31, 1999 and our other SEC filings. These risks and uncertainties could
cause our actual results to differ materially from those indicated in the
forward-looking statements. We are under no obligation to update or publicly
announce revisions to any forward-looking statements to reflect future events or
developments.
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USE OF PROCEEDS
If the entire offering is sold, the net proceeds from the sale of Common
Stock, after deducting possible expenses, are estimated to be approximately
$11,900,000 without the use of any broker-dealers, and approximately as low as
$10,400,000 with the use of broker-dealers. We are estimating one-half of the
offering will be sold using broker-dealers at a cost of 13% for their fees, or
$780,000, plus $100,000 of other expenses.
The net proceeds have been calculated using an aggregated maximum
offering price of $12,000,000 and then deducting $100,000 in expenses. There is
no guarantee that we will receive any proceeds from this offering. The following
table presents how we intend to use the proceeds of 100% of the offering, minus
expenses, without use of broker-dealers. We expect to use the net proceeds over
a 12-month period in approximately the following amounts and percentages:
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Net Proceeds: $ 12,000,000 Percentage
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Taiwan Factory $ 1,000,000 8.33%
Product Distribution $ 2,000,000 16.67%
Product Engineering $ 1,000,000 8.33%
Product Marketing $ 3,000,000 25.00%
Acquisitions $ 2,900,000 24.16%
Working Capital $ 2,000,000 16.67%
Expenses(1): $ 100,000 0.84%
Legal & Accounting Fees $ 90,000 0.76%
Miscellaneous $ 10,000 0.08%
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Totals: $12,000,000 100%
(1) As noted above, we may be obligated to provide 10% of all investment funds
received or $780,000, plus 3% of unaccountable expenses, for using
broker-dealers for one-half of the offering. Should we utilize broker-dealers,
the net use of proceeds set forth above shall decrease ratably.
The above listed use of proceeds represents our best estimate of the
allocation of the net proceeds of this offering based upon the current status of
our business operations, our current plans and current economic conditions.
Future events, including the problems, delays, expenses and complications
frequently encountered by emerging companies, as well as changes in regulatory,
political and competitive conditions affecting our business and the success or
lack thereof of our marketing efforts, may make shifts in the allocation of
funds necessary or desirable. The following represent the:
o Taiwan Factory: The Taiwanese government is currently providing a
30-60% rebate to purchasers of electric scooters. Last year,
approximately 800,000 scooters were sold in Taiwan, and
approximately 5,000 of these were electric. However, most of the
participants in this industry are small businesses. We are
currently contracting with factories in Taiwan for the manufacture
of bicycle and scooter parts. We anticipate completing agreements
to fully manufacture electric scooters and motorcycles in Taiwan
to be able to tap into this market and supply
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low-cost units for international distribution. We estimate
required proceeds for the establishment of a factory in Taiwan to
be $1,000,000.
o Product Distribution: One of our primary goals is to expand upon
and dominate the Electric Vehicle distribution network.
Unfortunately, dealers are often hesitant to provide their own
financing to contribute to this network. As a solution, we are
contemplating a strategy that would allow us to provide financing
for our dealers who would like to participate as regional
distribution centers for Zapworld.com(R). We anticipate that we
will need $2,000,000 to implement this strategy.
o Product Engineering: Capital improvement, such as new molds, jigs,
and assembly systems, will provide efficiency, improve uniformity,
and lower costs. New products, such as an electric wheelchair
retrofit, and new models of the Zappy(R) electric scooter, as well
as other personal electric vehicles, including water scooters, are
being developed. We estimate that the proceeds necessary for these
capital improvements and new products to be $1,000,000.
o Product Marketing: Our marketing strategy is based on a superior
product, consistent quality and the delivery of a unique name and
image. However, we also recognize that competition is imminent as
the market for Electric Vehicles becomes more mature.
Consequently, marketing support, through tradeshows, printed
materials, and conventional media support packages, including
radio, television, and billboard advertising, need to be
implemented to ensure our success in retaining market leadership,
promoting our dealer network, and attempting to guarantee that our
ZAP(R)products are the preeminent Electric Vehicle brand name in
the industry. Lobbying efforts are also required to continue our
forward-progress in establishing governmental incentives for our
Electric Vehicle product line. In addition, we plan to develop and
air two infomercials highlighting our products. We estimate the
necessary proceeds to implement this marketing campaign to be
$3,000,000.
o Acquisitions: We anticipate that we will be acquiring other
companies that either complement our product line, increase the
capability and scope of our distribution networks, or provide us
product advantages over our competitors. We anticipate the
requisite proceeds to be $2,900,000.
o Working Capital: We will require $2,000,000 for working capital in
order to grow our business through infrastructure and management
resources called for by our program for expansion.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information with respect to beneficial
ownership of our Common Stock as of February 12, 2001 and as adjusted to reflect
the sale of the shares offered by this prospectus by:
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o Each person or entity who beneficially owns more than 5% of the Common
Stock;
o Each of our directors;
o Each of our Named Executive Officers; and
o All Executive Officers and directors as a group.
Unless otherwise indicated, the address for each person or entity named
below is c/o Zapworld.com, 117 Morris Street, Sebastopol, California 95472. The
table includes all shares of Common Stock issuable within 60 days of February
12, 2001 upon the exercise of options and other rights beneficially owned by the
indicated stockholders on that date. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities. Except
as indicated by footnote, and except for community property laws where
applicable, the persons named in the table below have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned by
them.
The applicable percentage of ownership is based on 10,802,595 shares of
Common Stock outstanding on a fully diluted basis as of February 12, 2001. The
number of shares of Common Stock outstanding on a fully diluted basis includes
836,266 shares of Common Stock issuable upon the exercise of certain warrants,
2,201,414 shares of Common Stock issuable upon the exercise of certain options,
and 1,825,882 shares of Common Stock issuable upon the conversion of shares of
our outstanding Series A-1 and A-2 Preferred Stock into shares of Common
Stock.(1)
(1) The holders of Series A-1 and Series A-2 Preferred Stock may convert their
shares at their option subject to a formulaic Conversion Price set forth in the
Certificate of Determination of Rights and Preferences of Preferred
stockholders. Such formula divides each Preferred Stockholder's Stated Value,
which is $1,000 per share, by the formula conversion price, which is determined
at different times according to the time at which the Preferred Stockholder
converts. In addition, all Preferred Stockholders are subject to automatic
conversion three years from the date of purchasing the Preferred Stock. The
number of shares of Common Stock that Preferred Stockholders receive upon
automatic conversion results from the division of the stated value of $1,000 by
the formula conversion price.
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Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned After Offering
Name of Beneficial Owner Number Percent Number Percent
The Endeavour Capital
Fund, S.A.. 1,222,470 .8 1,222,470 9.3
P.O.B. 57116
Jerusalem 91570 Israel (1)
Douglas R. Wilson (2) 1,250,357 11.6 1,250,357 9.5
Lee Sanella (3) 71,952 * 71,952 *
William D. Evers (4) 76,723 * 76,723 *
Robert E. Swanson (5) 1,250,357 11.6 1,250,357 9.5
Gary Starr(6) 520,117 4.8 520,117 3.9
Harry Kraatz (7) 108,571 * 108,571 *
All Executive Officers
and directors as a group
(6 persons) 2,027,720 17.8 2,027,720 15.3
* Represents beneficial ownership of less than 1%.
(1) Includes 1,176,470 shares of Common Stock issuable upon the conversion of
2,500 shares of Series A-1 and Series A-2 Preferred Stock.
(2) These shares are held by Ridgewood Power, LLP and include 100,000 shares of
Common Stock issuable upon the exercise of warrants exercisable within 60 days
of February 12, 2001 by Ridgewood Power, LLP. Mr. Wilson is one of our directors
and a principal of Ridgewood Power, LLP. Mr. Wilson does not personally own any
of our shares.
(3) Mr. Sanella is one of our directors.
(4) Includes 75,000 shares of Common Stock issuable upon the exercise of stock
options exercisable within 60 days of February 12, 2001. Mr. Evers is one of our
directors.
(5) These shares are held by Ridgewood Power, LLP and include 100,000 shares of
Common Stock issuable upon the exercise of warrants exercisable within 60 days
of February 12, 2001 by Ridgewood Power, LLP. Mr. Swanson is the Chairman of our
board and a principal of Ridgewood Power, LLP. Mr. Swanson does not personally
own any of our shares.
(6)Includes 135,000 shares of Common Stock issuable upon the exercise of
incentive stock options exercisable within 60 days of February 12, 2001. Mr.
Starr is our President, CEO and a director.
(7) Includes 100,000 shares of Common Stock issuable upon the exercise of stock
options exercisable within 60 days of February 12, 2001. Mr. Kraatz is one of
our directors.
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PLAN OF DISTRIBUTION
We are offering our shares directly to the public as a direct placement
or distribution. There is no minimum number of shares that must be sold. There
can be no assurance that all of the shares offered will be sold. Accordingly,
investors will bear the risk that we will accept subscriptions for less than
2,400,000 shares and then be unable to successfully complete all of the
anticipated uses of the proceeds of this offering. If fewer than 2,400,000
shares are sold, our business, financial condition, and results of operations
could be adversely affected.
Funds from this offering will not be placed in an escrow or trust
account and will be available for use as the funds are received.
The shares will initially be sold through our executive officers who
will not receive commissions and who will be registered as sales representatives
where required under state securities laws. We currently intend to solicit
prospective investors directly through in-person communications only. We
currently do not have a broker-dealer involved with the sale of our shares;
however, we may obtain a broker-dealer to sell our shares on a best efforts
basis. If we do determine to use a broker-dealer, we anticipate paying that
broker-dealer a commission of a maximum of 10% of the investment funds that
broker obtains, plus up to 3% for unaccountable expenses. Any selected
broker-dealer that sells securities in this type of an offering would be deemed
an underwriter as defined in Section 2(11) of the Securities Act. Prior to the
involvement of any broker-dealer in the offering, that broker must obtain a no
objection position from the NASD regarding the contemplated underwriting
compensation and arrangements. Under the securities laws of certain states, the
shares may be sold in such states only through registered or licensed brokers or
dealers. In addition, in certain states the shares may not be sold unless they
have been registered or qualified for sale in that state or an exemption from
registration or qualification is available and is met.
LEGAL PROCEEDINGS
We are currently involved in a lawsuit against Mastershine USA, Inc.,
and its related affiliates and subsidiaries ("Mastershine"), over alleged
copyright, patent, and trademark infringement regarding Mastershine's
importation and sale of electric scooters that are substantially similar to our
Zappy(R) electric scooter. Upon our discovery of Mastershine's potentially
infringing electric scooters, we attempted to negotiate a business solution to
the problem. Prior to a business solution, however, Mastershine filed a lawsuit,
in December 2000 in federal court, seeking declaratory relief. Since that time,
we have filed a cross-complaint seeking unspecified damages and equitable
relief.
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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
MANAGEMENT
Name Age Position
Gary Starr 45 Director, Chief Executive Officer
Robert Swanson 53 Director, Chairman of the Board
Doug Wilson 40 Director
William Evers 73 Director
Lee S. Sannella, M.D. 84 Director
Harry Kraatz 51 Director
Andrew Hutchins 40 Vice President Operations
Scott Cronk 35 Vice President Business Development
Joni Arellanes 45 Corporate Secretary
Gary Starr has been a director and executive officer since our inception
in 1994, and our Chief Executive Officer since September 1999. Mr. Starr has
been building, designing, and driving electric cars for more than 25 years. In
addition to overseeing the marketing of more than 50,000 electric bicycles and
other electric vehicles, Mr. Starr has invented several solar electric products
and conservation devices. Mr. Starr has a Bachelor of Science Degree from the
University of California, Davis in Environmental Consulting and Advocacy.
Robert E. Swanson has served as Chairman of our board of directors since
1999. Mr. Swanson is also chairman of the board, sole director, and sole
stockholder of Ridgewood Capital Corporation. Mr. Swanson organized Ridgewood
Power, LLC, formerly known as Ridgewood Power Corporation ("Ridgewood Power"),
for the purposes of, among other things, sponsoring six investment trusts that
have primarily invested in the deregulated electric power industry and in
related or similar infrastructure assets. Mr. Swanson is also chairman of the
board of the Ridgewood Power Growth Fund, and president, registered principal
and sole stockholder of Ridgewood Securities Corporation. Mr. Swanson was a tax
partner at the former New York and Los Angeles law firm of Fulop & Hardee and an
officer in the Investment Division of Morgan Guaranty Trust Company. He is a
graduate of Amherst College and Fordham University Law School.
Doug Wilson has been a director of our company since 1999. Mr. Wilson
was a principal of Monhegan Partners, Inc., which provided acquisition and
financial advisory services for Ridgewood Power and its investment funds from
October 1996 until September 1998, at which time he joined Ridgewood Power as
Vice President of Acquisitions. Mr. Wilson has over 14 years of capital markets
experience, including specialization in complex lease and project financing in
energy-related businesses. He has a Bachelor of Business Administration from the
University of Texas and a Masters degree in Business Administration from the
Wharton School of the University of Pennsylvania.
William D. Evers has been a director of our company since 1999. Mr.
Evers is a partner at the law firm of Foley & Lardner and is one of the leading
securities law attorneys in California, specializing in private placements,
Section 25102(n) offerings, Small Corporate Offering Registration, Regulation A
Exemptions and Small Business Registrations. He has
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handled numerous mergers and acquisitions. Mr. Evers has also has extensive
experience in franchising and has been the CEO or President of various business
ventures. He holds a Bachelor of Arts Degree from Yale University and a Juris
Doctor Degree from the University of California, Berkeley.
Lee Sannella, M.D. has been a director of our company since its
inception in 1994. Dr. Sannella has been an active researcher in the fields of
alternative transportation, energy, and medicine for more than 25 years and has
been a founding shareholder in many start-up high technology companies. A
graduate of Yale University, he maintained an active medical practice for many
years in ophthalmology and psychiatry.
Harry Kraatz became one of our directors on December 7, 2000. Since
investing in our business in 1998, he has provided franchise consulting and
certain financial services. Beginning in June 1986, Mr. Kraatz has been the sole
officer and director of The Embarcadero Group II, and T.E.G. Inc., a franchise
management and financial consulting company located in San Francisco,
California. Working with those companies he has provided consulting services to
numerous finance and franchising companies including Montgomery Medical
Ventures, Commonwealth Associates, Westminster Capital and World Wide Wireless
Communications, Inc. He received a degree from SMSU in 1971.
Andrew Hutchins was appointed Vice President for Operations of our
company in October 1999. He joined our company in December 1996 and since June
1997 has been our General Manager. Successful as an entrepreneur, Mr. Hutchins
started, developed and managed a retail bicycle business for 11 years prior to
selling it for several times his initial investment. In 1982, Mr. Hutchins
received a Bachelor of Arts degree with a double major in Business Economics and
Communication Studies from the University of California at Santa Barbara.
Scott Cronk was appointed Vice President of Business Development of our
company in December 1999. He was the founder of Electric MotorBike, Inc. and
served as its President from 1995 to 1999. Previously, as Director of Business
Development & International Programs, Mr. Cronk led strategic venturing
activities for U.S. Electricar, Inc. Mr. Cronk has a Bachelor of Science degree
in Electrical Engineering from GMI Engineering & Management Institute (now
Kettering University) and a Masters of Business Administration degree from the
City University of London, England.
Joni Arellanes has been with us since 1998. Currently the Executive
Administrator to the President, Vice President and CEO, Ms. Arellanes was
appointed our Corporate Secretary in December 2000. Prior to joining our
company, Ms. Arellanes was a program administrator for a certified autodesk
training center program with over 200 locations in the United States and Canada.
Ms. Arellanes holds a Bachelor of Arts degree in Environmental Studies and
Planning from Sonoma State University.
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DESCRIPTION OF SECURITIES
General
Our Amended Articles of Incorporation authorize the issuance of up to
20,000,000 shares of Common Stock, and up to 10,000,000 shares of Preferred
Stock, the rights and preferences of which may be established from time to time
by our board of directors. As of February 12, 2001, 5,939,033 shares of our
Common Stock, 1,880 shares of our Series A-1 Preferred Stock and 2,000 shares of
our Series A-2 Preferred Stock were outstanding. As of February 12, 2001 we have
of record 1,918 holders of our Common Stock and 7 holders of Series A-1 and
Series A-2 Preferred Stock.
Common Stock
Each holder of Common Stock is entitled to one vote for each share on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences to which holders of Preferred Stock may be
entitled, holders of Common Stock will be entitled to receive ratably any
dividends that may be declared from time to time by our Board of Directors out
of funds legally available for that purpose. Please see the section of this
document entitled "Dividend Policy" for further information regarding dividends.
In the event of our liquidation, dissolution or winding up, holders of our
Common Stock will be entitled to share ratably in our assets remaining after the
payment of liabilities and the satisfaction of any liquidation preference
granted to the holders of any outstanding shares of Preferred Stock. Holders of
Common Stock have no preemptive or conversion rights or other subscription
rights and there are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of our Common Stock are, and the shares of
Common Stock in this offering, when paid for, will be, fully paid and
nonassessable. The rights, preferences and privileges of the holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock.
Preferred Stock
Our Board of Directors has the authority, subject to any limitations
prescribed by law, without stockholder approval, from time to time to issue up
to an aggregate of 10,000,000 shares of Preferred Stock, in one or more series,
each series to have rights and preferences, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
may be determined by our Board of Directors. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, a majority of our outstanding voting stock.
Series A-1 and Series A-2 Convertible Preferred Stock
As of the date of this prospectus, we have authorized and designated
3,330 shares of Series A-1 Convertible Preferred Stock and 2,220 shares of
Series A-2 Convertible Preferred Stock. No other series of Preferred Stock has
been designated. As of February 12, 2001, there were 1,880 shares of Series A-1
Convertible Preferred Stock outstanding and 2,000 shares of Series A-2
Convertible Preferred Stock outstanding. The Series A-1 and Series A-2
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Convertible Preferred Shares have a par value of $1,000 per share and a stated
value of $1,000 per share
Rights, Privileges, and Preferences
Holders of the Series A-1 and A-2 Convertible Preferred Stock are
entitled to receive a dividend, payable in cash at a rate of 6% per annum of the
stated value of the Preferred Stock. Dividends are payable upon June 30 of each
year and accrue if not paid. Failure to pay dividends will result in an increase
in the number of shares of Common Stock into which the Series A-1 and A-2
Preferred Stock is convertible. The liquidation preference on the Series A-1 and
Series A-2 Preferred Stock is equal to the stated value per share. This payment
shall be prior to any payment we make to the holders of our Common Stock or
other shares of stock which are junior to the Series A-1 and A-2 Preferred
Stock.
Transfer Agent and Registrar
The transfer agent and registrar for our Common Stock is Computershare
Trust Company.
Warrants
As of February 12, 2001 we have issued warrants to purchase 836,266
shares of our Common Stock. The holders of the warrants may pay for the shares
in cash or through the use of a net exercise procedure without the payment of
cash by surrendering shares otherwise purchasable upon exercise of the warrant
with a fair market value equal to the exercise price for the shares they are
purchasing. The exercise price is subject to adjustments if we declare a stock
split or dividend of our Common Stock. The warrants are presently exercisable
and have a term of five years.
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Stock Options
1999 Stock Option Plan
Our Board of Directors adopted, and our Shareholders approved, a 1999
Stock Incentive Plan reserving 1,500,000 shares of Common Stock for issuance.
The Plan provides for the grant of incentive stock options, as defined in
Section 422 of the Internal Revenue Code, to our officers and employees, and
nonstatutory stock options to employees, directors and consultants. It may be
administered by the Board of Directors or delegated to a committee.
The exercise price of incentive stock options granted under the 1999
Stock Option Plan must be at least equal to the fair market value of our common
stock on the date of grant. However, for any employee holding more than 10% of
the voting power of all classes of our stock, the exercise price will be no less
than 110% of the fair market value on the date of grant. Nonstatutory stock
options granted to a person who at the time the option is granted does not hold
more than 10% of the voting power of all classes of our stock will have an
exercise price of no less than 85% of the fair market value of the stock on the
date of grant.
Options granted to our employees will become exercisable over a period
of no longer than 5 years, and no less than 20% of the shares covered will
become exercisable annually. No options will be exercisable prior to one year
from the date it is granted unless the Board specifically determines otherwise.
In no event will any option be exercisable after the expiration of 10 years from
the date it is granted, and no Incentive Stock Option granted to a holder of
more than 10% of the voting power of all classes of our stock will be
exercisable after the expiration of 5 years from the date it is granted.
If an optionee's status as an employee with us terminates for any
reason, other than death or disability, then the optionee may exercise Incentive
Stock Options in the three-month period following such cessation. The
three-month period is extended to 12-months for termination due to death or
disability. In the event of a merger or consolidation in which we are not the
surviving entity, or a sale of all or substantially all of our assets or capital
stock, if the surviving entity does not tender to the optionees stock options or
capital stock of substantially the same economic benefit as optionees
unexercised options, then the Board may grant to optionees the right to exercise
any unexpired options for a period of thirty days.
The 1999 Stock Option Plan will terminate in 2009, unless sooner
terminated by the Board of Directors.
1996 Stock Option Plan
Our Board of Directors adopted, and our Shareholders approved, a 1996
Stock Incentive Plan reserving 600,000 shares of Common Stock for issuance. The
Plan provides for the grant of incentive stock options, as defined in Section
422 of the Internal Revenue Code, to our officers and employees, and
nonstatutory stock options to employees, directors and consultants. It may be
administered by the Board of Directors or delegated to a committee.
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The exercise price of incentive stock options granted under the 1996
Stock Option Plan must be at least equal to the fair market value of our common
stock on the date of grant. However, for any employee holding more than 10% of
the voting power of all classes of our stock, the exercise price will be no less
than 110% of the fair market value on the date of grant. Nonstatutory stock
options granted to a person who at the time the option is granted does not hold
more than 10% of the voting power of all classes of our stock will have an
exercise price of no less than 85% of the fair market value of the stock on the
date of grant.
Options granted to our employees will become exercisable over a period
of no longer than 5 years, and no less than 20% of the shares covered will
become exercisable annually. No options will be exercisable prior to one year
from the date it is granted unless the Board specifically determines otherwise.
In no event will any option be exercisable after the expiration of 10 years from
the date it is granted, and no Incentive Stock Option granted to a holder of
more than 10% of the voting power of all classes of our stock will be
exercisable after the expiration of 5 years from the date it is granted.
If an optionee's status as an employee with us terminates for any
reason, other than death or disability, then the optionee may exercise Incentive
Stock Options in the three-month period following such cessation. The
three-month period is extended to 12-months for termination due to death or
disability. In the event of a merger or consolidation in which we are not the
surviving entity, or a sale of all or substantially all of our assets or capital
stock, if the surviving entity does not tender to the optionees stock options or
capital stock of substantially the same economic benefit as optionees
unexercised options, then the Board may grant to optionees the right to exercise
any unexpired options for a period of thirty days.
The 1996 Stock Option Plan will terminate in 2006, unless sooner
terminated by the Board of Directors.
1995 Stock Option Plan
Our Board of Directors adopted, and our Shareholders approved, a 1995
Stock Incentive Plan reserving 750,000 shares of Common Stock for issuance. The
Plan provides for the grant of incentive stock options, as defined in Section
422 of the Internal Revenue Code, to our officers and employees. It may be
administered by the Board of Directors or delegated to a committee.
The exercise price of incentive stock options granted under the 1995
Stock Option Plan must be at least equal to the fair market value of our common
stock on the date of grant. However, for any employee holding more than 10% of
the voting power of all classes of our stock, the exercise price will be no less
than 110% of the fair market value on the date of grant.
Options granted to our employees will become exercisable over a period
of no longer than 5 years, and no less than 20% of the shares covered will
become exercisable annually. No options will be exercisable prior to one year
from the date it is granted unless the Board specifically determines otherwise.
In no event will any option be exercisable after the expiration of 10 years from
the date it is granted, and no Incentive Stock Option granted to a
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holder of more than 10% of the voting power of all classes of our stock will be
exercisable after the expiration of 5 years from the date it is granted.
If an optionee's status as an employee with us terminates for any
reason, other than death or disability, then the optionee may exercise Incentive
Stock Options in the three-month period following such cessation. The
three-month period is extended to 12-months for termination due to death or
disability. In the event of a merger or consolidation in which we are not the
surviving entity, or a sale of all or substantially all of our assets or capital
stock, if the surviving entity does not tender to the optionees stock options or
capital stock of substantially the same economic benefit as optionees
unexercised options, then the Board may grant to optionees the right to exercise
any unexpired options for a period of thirty days.
The 1995 Stock Option Plan will terminate in 2005, unless sooner
terminated by the Board of Directors.
INTEREST OF NAMED EXPERTS AND COUNSEL
Since our inception in 1994, other than as described below, we have
neither hired any experts or counsel on a contingent basis nor will any expert
or counsel receive a direct or indirect interest in our business. Further, no
expert or counsel, except as described below, was or is a promoter, underwriter,
voting trustee, director, officer or employee of our company. As explained
further in the section of this document entitled "Certain Relationships and
Related Transactions," William D. Evers, Esq., who provides legal services to
our company, via the firm of Foley & Lardner, of which he is a partner, has been
one of our directors since 1999. In 1999 and 2000 Mr. Evers was granted options
to purchase up to and including 75,000 shares of our Common Stock at an exercise
price ranging from $3.02 to $6.50 per share.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Our Amended Bylaws and Amended Articles of Incorporation provide that we
shall indemnify our directors and officers, and may indemnify our other
employees and agents, to the fullest extent permitted by California law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be afforded to our directors, officers
and controlling persons pursuant to our Amended Bylaws and Amended Articles of
Incorporation, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
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DESCRIPTION OF BUSINESS
Generally
We incorporated under the laws of the State of California, on September
23, 1994, as "ZAP Power Systems." We subsequently changed our name to
Zapworld.com on May 16, 1999 to reflect our growth and entry into larger
markets. We have grown from offering a single product line to providing a full
line of electric vehicle products. At our Sebastopol facilities, we design,
assemble, manufacture and distribute electric bicycle power kits, electric
bicycles and tricycles, electric scooters, electric motorcycles and other
personal electric transportation vehicles.
Principal products or services and their markets
We look to develop and commercialize electric vehicles and electric
vehicle power systems that have underlying practical and environmental
advantages over available internal combustion modes of transportation. We
further aim to develop electric vehicles and electric vehicle power systems that
can be produced on an economically-competitive basis. In addition to broadening
our electric vehicle product line, we are producing non-electric scooters and
looking to expand into the area of microprocessor drive controllers.
Our principal products are described below:
o Electric Scooters
The Zappy(R) is a stand-up, portable, lightweight scooter
featuring a 12-volt battery with a built-in charger and a
collapsible frame. Its patented design includes a unique folding
mechanism and proprietary circuitry which increases the efficiency
and range of the vehicle. Zappy Mobility(TM) is a low-cost
electric scooter with a seat designed for the aging baby boomer
market. The Zappy(R) accounts for over 70% of our sales. All
Zappy(R) scooters are produced at our Sebastopol, California
assembly plant. In an attempt to diversify the risk of the
production of the Zappy(R), we are working with our foreign
partners in Taiwan and China to expand production of the Zappy(R)
and other new products. On August 30, 2000 our sourcing engineer
moved to Taiwan to assist in establishing a production facility
and implementing quality control measures. We presently rely on a
single supplier to provide 80% of the materials for the Zappy(R).
o Power Assist Retrofit Kits
This product enables bicyclists to ride their existing bicycles
more often by providing additional power to overcome hills or
headwinds. We currently offer a number of different power
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assist retrofit kits. These kits include dual or single motors, a
sealed maintenance-free battery, a one or two-speed controller and
an automatic battery charger.
The ZPS-2 power system is designed for mountain, road and cruiser
type bicycles. The ZPS-T is designed for tricycles.
A motor kit may have up to 62 unique parts. The electric motor kit
manufacturing, and installation of the motor systems to bicycles
and scooters, is done at our Sebastopol, California location.
Since 1994, the electric motors used for the electric motor kit,
our Zappy(R) scooter and our electric bicycle products have been
produced by an original equipment manufacturer ("OEM") in the
automobile and air-conditioning industry. We have recently entered
into an agreement with a manufacturer in China to manufacture
motors that meet the specifications of our products. We own the
proprietary rights to the mold for the motors that will be
produced by this manufacturer. Motors produced by this Chinese
manufacturer will come at a reduced price and have improved
performance over the motors made by the OEM described above. The
Chinese manufacturer will serve as a primary source of our motors
and the OEM will continue to serve as a proven secondary source
for our motors.
We have a contractual relationship with a provider of law
enforcement bicycles pursuant to which we agreed to purchase at
least 200 bicycles in exchange for specific exclusive distribution
and pricing rights. The enforcement bicycle producer has agreed to
purchase at least 100 of our power kits in exchange for specific
exclusive distribution and pricing rights.
o The Kick(TM)
The Kick(TM) in-line scooter is manufactured in Taiwan to our
specifications. We have an exclusive distribution agreement with
our manufacturer in Taiwan to exclusively distribute the Kick(TM)
in the United States. This is a push type scooter on in-line
skate-type wheels.
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o Bicycles
Our bicycles incorporate the our patented power system technology.
The ElectriCruizer(R) is a cruiser style bicycle that has upright
comfort style handle bars and six manual gears. The Zap
Powerbike(R) is a mountain bike with 18 manual gears. The
ZapTrike(TM) is a three-wheeled trike which contains a larger
battery and a carry basket. The Zap PatrolBike(TM) is a suspension
mountain bike with built-in lights and siren.
o Neighborhood Electric Vehicle
Recently, the U.S. Department of Transportation classified a new
type of car. This vehicle is known as the Neighborhood Electric
Vehicle or NEV. This vehicle must be electric and have a top speed
of 25 miles per hour and meet minimum safety standards. We are
currently a dealer for Global Electric Motorcars, LLC, and are
exploring other manufacturing and distribution arrangements for
the Neighborhood Electric Vehicles at this time.
o Electric Motorcycle -- Lectra(TM)
The Lectra(TM) is believed to be the only production ready
electric motorcycle in the world. Zapworld completed the
acquisition of the Electric Motorbike, Inc. (EMB) in October,
2000. Under the terms of the agreement, we acquired all assets,
technology, engineering capabilities and customer contracts from
EMB.
o Sea Scooter(TM)
The Sea Scooter(TM) is an electric water scooter which pulls a
diver or swimmer through the water without gas emissions. It can
also be used to as a water toy for swimming pools or for more
efficient snorkeling.
New Product Development
o Zappy Jr.(TM)
The Zappy Jr.(TM)is a smaller version of the Zappy(R)designed for
children ages 6-10, and under 100 pounds. It will have a lower
speed, and a lower cost.
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o Lepton
The Lepton is similar to a gas 50cc type scooter. With a top speed
of approximately 30 miles per hour. We are the distributor for the
Italian scooter company and expect sales primarily in resort and
university localities.
o E-Bike Chopper(TM)
The E-Bike Chopper(TM) is a lower priced Lectra(TM) with a styling
similar to the "chopper" style motor bikes.
o PowerSki(R)
The Powerski(R) is an electric motor device designed to pull an
in-line skater, skateboard, or roller skater along the road or
pathway. This device was developed by Electric Vehicles Systems, a
company we purchased in the first quarter of 2000.
o Swimmy(TM)
We recently unveiled our new Swimmy(TM) Water Scooter. This
water-borne electric propulsion device is designed to assist or
pull swimmers and snorkelers, providing a fun boost up to 2.5 MPH
on the surface or underneath water. We already manufacture a Sea
Scooter(TM) for scuba divers, but believe there will be a strong
demand for a swimming pool version that children and fitness
swimmers can use.
o Electri Pedi-Cab(TM)
We distribute the Electric Pedi-Cab(TM), which can be pedaled like
a regular ped-cab and has the ability to travel electrically at
speeds up to 15 miles per hour.
o Micro-processor drive controllers
We are working to develop a series of low cost micro-processor
drive controllers for all of our electric vehicles, which we
believe will increase efficiency and lower costs.
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Distribution
Internet and Dealership Network
Our Web site has become known world-wide as the ultimate portal for
personal electric vehicles. It has been very effective in drawing new retail,
wholesale and international customers.
We distribute our products through a network of over 350 distributors,
dealers, and specialty stores worldwide.
We sell our electric vehicles to retail customers, international
distributors, law enforcement agencies, electric utility companies, bicycle
dealerships, motorsport dealers, and through franchisees and mail order
catalogs. Our sales to mail order catalogs and selected customers are on various
credit terms, with many sales to smaller dealerships being on a cash delivery
basis only.
We intend to franchise outlets in areas that do not have existing
stores. To accomplish this, we have received qualification to franchise in
California, Florida and Texas, and we plan to seek qualification to franchise in
additional states. However, we are still evaluating franchising as a longer tier
mode of distribution.
We are the U.S. distributor of the imported Lepton scooter. Additionally,
we are a dealer for an electric neighborhood vehicle, known as the GEM(TM).
We have been granted exclusive market rights in selective electric
vehicle markets from Evercel, Inc., in exchange for specifying that company's
battery in a specific electric vehicle we make. We have no other contractual
agreements with any of our other vendors.
Environmental Initiatives and Legislation
Federal legislation has been enacted to promote the use of alternative
fuel vehicles, including electric vehicles. The U.S. Energy Policy Act of 1992
provides that federal, state and public utility fleets must begin to purchase
alternative fuel vehicles with major acceleration of these purchases to begin in
2000. Neighborhood Electric Vehicles qualify for this tax credit which is in
place through the year 2005. The Department of Energy Clean Cities Organization
has pledged to purchase 1 million alternative fuel vehicles by the year 2010.
There is also a 10% federal tax credit, to a maximum of $4,000, available to
purchasers of qualified electric vehicles.
Several states have also adopted legislation that sets mandates for the
introduction of electric vehicles. In 2003, the State of California will require
that 4% of the cars offered for sale be electric. However, there is strong
interest group opposition to this mandate. To combat this interest group
opposition, many states currently offer tax credits for electric vehicles.
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The State of Arizona gives a state tax credit of up to $5,000 for
electric vehicles that meet Federal Motor Vehicle Safety Standards. Neighborhood
Electric Vehicles are one of the few Low Speed Vehicles that currently meet
these standards. New York, Connecticut and other states in the northeastern
United States have similar directives. In addition, a $3,000 state electric
vehicle tax credit bill has been recently been passed in California. In support
of these laws, utility companies have set up over 500 "free" public charging
stations in the state of California. High-profile retailers such as WalMart,
Denny's, Costco, and Raley's have agreed to participate in the program to
promote the use of electric vehicles. Other incentives such as free charging and
parking in the State of Hawaii are now in place.
Honda and Toyota have begun to offer hybrid electric vehicles through
specific auto dealers in select markets. Our Management believes that these
expensive high-profile electric vehicles will assist the market for low-cost
electric vehicles.
Foreign governments have also taken measures to promote the use of
electric vehicles. The Republic of China (Taiwan), where we presently
manufacture the Zappy(R) and the Kick(TM), gives buyers of electric scooters a
rebate equivalent to 30-60% of the cost. Taiwan is considering a Zero Emission
Vehicle scooter mandate by the year 2001. Japan, Thailand, and Costa Rica have
agreed to provide low duties on any electric vehicle sub-components. China has
recently banned the licensing of new gas powered bicycles in the cities of
Shanghai and Beijing. France has agreed to provide rebates of the additional
cost of electric vehicles over conventional vehicles and is providing free
parking to electric vehicles in Paris. Austria is providing a $150 rebate
towards the purchase of electric bicycles.
As we commercialize new transportation technology, we have been required
to expend resources in educating legislators of the benefits of these vehicles.
On January 1, 2000 a law we sponsored that creates guidelines for the legalized
use of light electric scooters, such as our Zappy(R), went into effect in the
State of California. Although many government agencies are concerned about
rising global air pollution, we expect that we will need to continue to expend
considerable resources in the governmental process, and there cannot be
assurance that the current favorable governmental climate for these zero
emission vehicles will remain in the future.
Research and Product Development
The nature of our business has required and will continue to require
expenditures for research and product development. The development and
introduction of new products are essential to establishing and maintaining a
competitive advantage.
Research and development expense charged to our operations in fiscal
years 1999 and 1998 was $364,600 and $202,600 respectively, and $464,000 for the
nine months ended September 30, 2000.
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Sources and Availability of Raw Material
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
manufacturing operations.
Licenses, Patents and Trademarks
We have a number of patents and trademarks covering our electric
vehicles. We were issued our first United States Patent on February 13, 1996 on
our electric motor power system for bicycles, tricycles, and scooters (Pat. No.
5,491,390). On September 30,1997, we were issued our second United States Patent
on our electric motor system (Pat. No. 5,671,821). On December 15, 1998, we were
issued a utility patent for our ZAPPY(R)scooter (Pat. No. 5,848,660). On
November 14, 2000, we were issued a design patent on our Zappy(R)scooter (Des.
No. 433,718).
We also hold several trademarks: the trademark Zap(R)was assigned to our
company on September 23, 1994 (Reg No. 1,794,866); the trademark
ElectriCruizer(R)was registered with the United States Patent and Trademark
Office on April 2, 1999 (Reg. No. 2,248,753); the Zappy(R)mark was registered on
March 21, 2000 (Reg. No. 2,330,894); the PowerBike(R)mark was registered on June
1, 1999 (Reg. No. 2,248,753); the trademark Zapworld.com(R)was registered on
July 25, 2000 (Reg. No. 2,371,240); the trademark Zap Electric Vehicle
Outlet(R)was registered on March 28, 2000 (Reg. No. 2,335,090); and the mark
Zero Air Pollution(R)was registered on February 22, 2000 (Reg. No. 2,320,346).
We also acquired various pending patent applications and trademark rights from
emPower, Inc. when we acquired this company on December 30, 1999. We acquired
all of the assets of Electric Vehicles Systems, Inc., including the trademark
PowerSki(R)(Reg. No. 2,224,640) and two U.S. Patents, (Patent #5,735,361 and
Patent #5,913,373). This transaction was finalized on February 29, 2000.
Marketing strategies for PowerSki(R)will begin in the year 2001. In addition to
the patents and trademarks listed above, we have several applications pending
before the United States Patent and Trademark Office. We also have several
copyright registrations for various advertisements that we use to promote our
products.
Lastly, we have an exclusive licensing agreement with Lucas Films
Licensing Division for the use of the trade name STARWARS(TM) and STAP(TM) in
the classification of electric scooters.
Backlog
As of February 12, 2001, we have a backlog in orders for electric
vehicles which is worth approximately $682,000. We expect to fill our entire
current backlog within 60 days. We also have a signed contract of $2,300,000 for
items to be shipped throughout 2001.
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Competitive Conditions
Competition to develop and market electric vehicles has increased during
the last year and is expected to continue to increase. The electric bicycle
industry has four (4) major manufacturers and a large group of small
manufacturers. The major manufacturers are Honda, Suzuki, Sanyo and Yamaha. They
primarily sell products to Japan and Europe. The other group of manufacturers is
much smaller in size and sales volume. These manufacturers have products they
sell in the U.S., European, and Asian markets. There are also manufacturers of
other personal electric vehicles. Our principal competitive advantages are our
ownership of fundamental technology, our ability to be a low cost manufacturer
through domestic and international connections, and our distribution network. We
also currently benefit from our high name recognition in the electric vehicle
industry coupled with a rapidly developing business on our internet site,
http://www.zapworld.com. We offer one of the broadest lines of personal electric
vehicles currently available. According to published reports, we believe that we
currently hold the leading electric bicycle and scooter market position in the
United States.
Employees
As of February 12, 2001, we had a total of 96 full-time employees. This
is an increase of 44 employees from 1998. We consider our relationship with our
employees to be good. None of our employees are represented by a collective
bargaining unit, and we have never had a work stoppage. We believe that our
future success will depend in part on our continuing ability to attract,
integrate, retain and motive highly qualified personnel, and upon the continued
service of our key technical personnel and senior management.
Development of Business
We have grown from a single product line to a full line of electric
vehicle products, and currently develop, manufacture, and market low-speed
electric vehicles in over 60 countries. We have established a system to develop
low cost electric vehicles to provide alternative modes of transportation as a
means of providing relief from the emissions associated with gas powered
vehicles and to become a leader in the emerging light electric vehicle industry.
Since our management founding believed that the primary barrier to widespread
use of electric vehicles was their high cost, our activity and revenue was
initially derived from development contracts with domestic government agencies,
the California Energy Commission, EPA, EPRI and a foreign private entity. These
contracts were set up to develop low cost, Zero Air Pollution(R) (or "ZAP(R)")
electric vehicles. We continue to focus our research efforts on making electric
vehicles cost effective, while developing an international distribution network
for personal vehicle products.
We are developing proprietary technologies that are important elements
of the our brand of personal electric vehicles. Each of these components will be
marketed under the Zapworld brand name. Our objective is to leverage our
proprietary technology and name recognition to serve a number of potential
markets in the electric bicycle, electric scooter and other light electric
vehicle transportation industries. In addition to new electric vehicles, we
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are currently focusing our development efforts on a new generation of
microprocessor drive controllers.
In following our plan to increase sales and expand operations
substantially through internally generated growth and the acquisition of
businesses and products which we view strategically advantageous, we have
acquired or merged with a number of companies during the past three years. In
1999, we acquired Big Boy Bikes, a bicycle rental business in Key West, Florida,
and American Scooter and Rental, a bicycle rental business in San Francisco,
California. In 2000, we acquired ZAP of Santa Cruz, a bicycle rental business in
Santa Cruz, California, and Electric Vehicle Systems, Inc. an electric vehicle
development business in California. We acquired emPower in December 1999. Also,
in 2000, we acquired Aquatic Propulsion Technology, Inc., a Bahaman corporation
that operated in Florida. From this acquisition, we received technology that
allows us to develop water-borne electric propulsion devices.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion of our financial condition and results of
operations should be read together with the financial statements and related
notes that are included later in this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth under the
"Risk Factors" section or other parts of this prospectus.
Overview
We design, assemble, manufacture and distribute electric and
non-electric scooters, electric bicycle power kits, electric bicycles, and other
personal electric transportation vehicles. We also manufacture several types of
electric motor kits and install motor systems to bicycles and scooters at our
Sebastopol, California facilities.
We plan to become a profitable light electric transportation company
that utilizes our technology and products while improving the environment. Our
initial objective is to establish ourselves as the dominant manufacturer and
market leader of personal electric and other Zero Air Pollution(R) vehicles. To
achieve this objective, we plan to:
o expand our existing distribution system;
o strengthen existing marketing efforts;
o form partnerships with or acquire companies that offer services
or products we consider crucial to our success in the electric
vehicle industry; and
o improve our existing products and develop new products by
forming manufacturing alliances with offshore partners to assure
low cost production.
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The achievement of our objectives is highly dependent, on many factors,
including:
o our ability to improve our existing products;
o our ability to produce attractive new products, either on our
own or with companies that we form partnerships with or that we
acquire; and
o our ability to raise the necessary capital to develop and
produce new products, as well as strengthen our existing
distribution network.
Distribution
We sell our electric vehicles to retail customers, international
distributors, law enforcement agencies, electric utility companies, bicycle
dealerships, motorsport dealers, auto dealers, sporting goods stores, specialty
dealers and foreign distributors. In addition, we sell our electric vehicles
through mail order catalogs and to selected customers on various credit terms
and on a cash-only delivery basis. We also sell our electric vehicles through
the internet.
Part of our growth strategy is to increase net sales by increasing
distribution channels through our Web site, http://www.zapworld.com, retail
organizations, and domestic and overseas wholesale distributors. In addition, we
plan to set up Zapworld outlet and specialty stores to assist in the retail
sales arena. In July 1999, we created two wholly-owned subsidiaries to oversee
acquired and franchise stores, respectively. These subsidiaries are Zapworld
Stores, Inc. (acquired stores) and Zapworld Outlets, Inc. (franchise stores).
One alternative we are presently considering is the creation of a
traditional distribution network, with small to medium retail outlets supplied
by regional distributors. A second option is to distribute our products through
the creation of a series of franchises strategically located in our primary
markets. A third method is the expansion of current internet selling and
marketing efforts. We are also evaluating the creation of a distribution system
similar to that of an automobile dealership.
Mergers and Acquisitions
In order to satisfy the increasing demand for our products, we
implemented a plan to increase production capacity via mergers and acquisitions.
Other positive effects resulting from this expansion plan include increased
sales support, as well as increased technological resources and manpower to aid
in new product development. Our merger and acquisition activities are summarized
below.
On October 6, 2000, we completed our purchase of Electric Motorbike,
Inc. We issued 140,000 shares of our Common Stock and $735,000 as the final
purchase price.
On June 24, 2000, our shareholders approved our acquisition by merger of
Aquatic Propulsion Technology, Inc., a Bahaman corporation which sells electric
water scooters. We acquired all of Aquatic Propulsion Technology, Inc.'s
technology rights, including 5 patents on electric sea scooters, as well as all
of Aquatic Propulsion Technology, Inc.'s assets and current operations in
exchange for 120,000 shares of our Common Stock, $20,000 in cash and the
assumption of Aquatic Propulsion Technology, Inc.'s liabilities of approximately
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$400,000. The contractual acquisition was completed as of July 1, 2000, and the
merger documents were filed with the California Secretary of State as of August
8, 2000.
In order to access new markets, we also acquired two rental/retail
operations in 1999: Big Boy Bikes, a bicycle rental business in Key West,
Florida, and American Scooter and Rental, a bicycle rental business in San
Francisco, California. We created a wholly-owned subsidiary, Zapworld Stores,
Inc., to operate these operations. Zapworld Stores accounted for 5%, or
$316,000, of our total revenues during 1999, with a gross profit margin of 34%.
The lease for the Key West store expired in February 2000, and at that time all
the assets for that store were sold. In October 2000 we ceased operating our
store in San Francisco, California.
EmPower, Inc., a design and manufacturing business of proprietary
electric scooters, was acquired in December, 1999 to provide new technologies
and broaden product lines. We acquired Electric Vehicle Systems, Inc., an
electric vehicle development business, in February 2000. This acquisition
brought us into a new product area, the patented Powerski(R). Finally, ZAP of
Santa Cruz, a bicycle rental business in Santa Cruz, California, was acquired in
March 2000.
In 1999 and in the early part of 2000, we held discussions with Global
Electric MotorCars, LLC, the largest manufacturer of Neighborhood Electric
Vehicles, regarding a potential merger between our company and Global Electric
MotorCars, LLC. While both companies have mutually agreed to terminate further
merger discussions, we did enter into a distribution agreement with Global
Electric MotorCars, LLC, to sell its GEM(TM) Neighborhood Electric Vehicle at
select Zapworld locations. In addition, we continue to discuss strategic
alliances with other potential manufacturers of Neighborhood Electric Vehicles.
Our strategy is to transform Zapworld into a light electric
transportation company with standards of measurement similar to the auto
industry. We will continue to develop products with the goal of being the low
cost leader in the industry. Product improvements, new product introductions,
and the development of the Zap Electric Vehicle Outlet(R) franchise network
continue to fortify our presence in the electric vehicle industry.
Partnerships or Strategic Alliances
Our growth plan for the future includes strengthening our distribution
channels through forming partnerships or strategic alliances with businesses,
factories or manufacturers in related industries.
On August 9, 2000, we entered into an agreement with a manufacturer
located in the People's Republic of China to work toward establishing production
facilities that would allow full assembly of the Zappy(R) in China. Our initial
plan is to sell these Zappy(R) products within China, but we may also transport
these Zappy(R) products to the United States or other parts of the world for
distribution.
In order to have complete assembly of our products in Taiwan, we are
working with our trading partner in Taiwan to establish factories there. We
presently have an exclusive
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distribution agreement with our Taiwanese trading partner for distribution of
our Kick(TM) scooter exclusively in the United States.
On September 1, 2000, we received an order for approximately 1,500
Zappy(R) scooters from Oxygen SpA of Italy. We are exploring opportunities for
Oxygen SpA to serve as our distributor in Italy and other select European
countries.
We plan to grow our business by forming exclusive alliances with leading
developers of electric vehicle technologies, structuring joint ventures with
strong manufacturing partners around the world, creating alliances with
governmental and private entities that support the electric vehicle industry,
acquiring other electric vehicle companies, setting up various electric vehicle
distribution networks through possible franchising and creating additional
electric vehicle superstores, otherwise known as Zap Electric Vehicle
Outlets(R).
We are also considering a plan to establish ZAP Financial Services(TM),
a finance company for our dealers and retail customers.
At the present time, there are no bankruptcy, receivership or similar
proceedings against our company. In addition, we are not presently participating
in any material reclassification, merger, consolidation, or purchase or sale of
a significant amount of assets that is not within the ordinary course of our
business.
Results of Operations
The following table sets forth, as a percentage of net sales, certain
items included in our Income Statements for the periods indicated. For further
information please see the section of this document entitled "Financial
Statements."
Years ended December 31, Nine months ended September
30,
1999 1998 2000 1999
---- ---- ---- ----
Statements of Operations Data:
Net sales.......................... 100.0% 100.0% 100.0% 100.0%
Cost of Sales...................... 69.1 67.9 63.9 67.0
Gross profit....................... 30.9 32.1 36.1 33.0
Operating expenses................. 54.3 61.1 49.9 40.8
Loss from operations............... (23.4) (29.0) (13.8) (7.8)
Other income (expenses) (2.9) (2.58) 1.3 (1.0)
Loss before income taxes........... (26.3) (31.5) (12.5) (8.8)
Provision for income taxes......... 0.0 0.0 0.0 0.0
Net Loss........................... (26.3) (31.5) (12.5) (8.8)
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Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Sales
Net sales for the year ended December 31, 1999 were $6,437,200 compared
to $3,518,600 in the prior year, an increase of $2,918,600 or 83%. The increase
in sales was due to greater acceptance of our products in the marketplace.
Internet sales were $259,100 and $57,100 in 1999 and 1998, respectively. This
represented a 354% increase for 1999. A total of $680,100 in products were sold
to one customer during the year ended December 31, 1999, representing 11% of
sales. In the year ended December 31, 1998, $617,000, or 18% of net sales, were
sold to one customer.
Gross Profit
Gross profit decreased as a percentage of net sales to 31% from 32%. The
gross profit percentage decrease of 1% is largely due to a one-time sale to a
large distributor at a significant discount in the third quarter of 1999. Direct
materials were 58% of net sales for the year ended December 31, 1998, as
compared to 59% of net sales for the year ended December 31, 1999.
Selling Expenses
Selling expenses in 1999 were $1,186,700. This was an increase of
$219,000, or 22% from 1998 to 1999. Due to greater market acceptance through our
distribution channels, selling expenses as a percentage of sales, decreased from
28% of sales to 18% of sales. Costs increased as a result of additional
personnel being added to our sales force.
General and Administrative Expenses
General and administrative expenses for 1999 were $1,945,000. This is an
increase of $965,800 or 101% over 1998. As a percentage of sales, general and
administrative expense increased from 28% to 30% of net sales. Expense increases
during 1999 as compared to 1998 occurred due to added personnel in the
administrative and accounting areas. Additionally, legal expenses of $300,000
were incurred in 1999 relating to acquisition activities and patent issues.
Research & Development
Research and development costs were $364,600 in 1999 as compared to
$202,600 in 1998, an 80% increase. As a percentage of net sales, Research and
Development costs remained 6% of revenues in 1998 and 1999. We invested in new
product developments such as the Zappy Jr.(TM), and the PowerSki(R) and tooling
that is expected to lower manufacturing costs and broaden our product line.
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Other Income (Expense)
Other income increased $67,000 in 1999 over 1998. This 579% increase can
be attributed to interest earned on a commercial paper money market fund from
the proceeds of private placement investments.
Interest Expense
Interest Expense increased $167,000, 166% in 1999 over 1998. This
increase is due primarily to higher outstanding debt in 1999.
Nine Months Ended September 30, 2000 Compared to Nine Months Ending September
30, 1999.
Net sales for the nine months ended September 30, 2000 were $8,128,000
compared with $4,444,000 in the nine months ended September 30, 1999, an
increase of $3,684,000 or 83%. The increase in sales, both domestically and
oversees, is primarily attributable to increased production of our products.
Additionally, we have added new product lines to diversify our core products.
Gross profit dollars increased in the third quarter of 2000 to
$2,938,000 from $1,466,000 in the third quarter of 1999 an increase of
$1,472,000 or 100%. The increase is gross profit dollars can be attributed to
the increase in net sales and greater cost controls. As a percentage of sales,
gross profit increased to 36% in the third quarter of 2000 compared with 33% in
the third quarter of 1999. The increase in gross margin percentage can be
directly attributed to increased efficiencies with our production processes.
Selling expenses for the nine months ended September 30, 2000 were
$1,327,000 as compared to $729,000 for the nine months ended September 30, 1999.
This was an increase Of $598,000 or 82% from 1999 to 2000. As a percentage of
sales, selling expenses remained constant at 16% of sales. Added personnel costs
incurred from our San Francisco location and increased promotional efforts
worldwide led to increased costs in the nine months ended September 30, 2000.
General and administrative expenses for the nine months ended September
30, 2000 were $2,269,000. This is an increase of $1,391,000 or 158% from 1999.
As a percentage of sales, general and administrative expense increased to 28%
from 20% of net sales. Expense increases during the first nine months of 2000 as
compared to the first nine months of 1999 occurred due to overall salary
increases in all administrative areas due to the pressures of low unemployment.
Legal costs incurred from acquisitions and costs of options associated with
operational consulting contributed to $156,000 in increased expenses.
Additionally, the amortization of patents, trademarks and goodwill accounted for
$110,000 in expenses during the first nine months of 2000 from acquisitions
completed during the fourth quarter of 1999. Furthermore, the costs incurred to
manage our San Francisco store accounted for $236,000 in expenses for the first
nine months of 2000 that were not incurred in the first nine months of 1999.
-37-
Research and development expenses increased $259,000 or 126% from the
first nine months of 1999 as compared to the first nine months of 2000. As a
percentage of net sales, research and development increased to 6% of sales in
the first nine months of 2000 as compared to 5% of sales in the first nine
months of 1999. Increased personnel and facilities costs incurred to accommodate
new product development and improve existing products led to higher costs in the
first nine months of 2000.
Interest income (expense) increased $94,000 in the first nine months of
2000 as compared to the first nine months of 1999. This increase is attributed
primarily to interest income derived from proceeds from financing.
Other expense decreased $59,000 from the first nine months of 1999 to the
first nine months of 2000. This decrease can be primarily attributed to the
completion of the amortization of the fair value of warrants issued for
services.
Liquidity and Capital Resources
We used cash from operations of $2,565,000 and $733,000 during the nine
months ended September 30, 2000 and 1999 respectively. Cash used in operations
in the first nine months of 2000 was the result of the net loss incurred for the
period of $1,014,000, offset by net non-cash expenses of $372,000, and the net
change in operating assets and liabilities resulting in a further use of cash of
$1,923,000. Cash used in operations for the first nine months of 1999 was the
result of the net loss incurred for the first nine months of $391,000, offset by
the net non-cash expenses of $884,000, and the net change in operating assets
and liabilities resulting in a use of cash of $1,226,000.
Investing activities used cash of $1,129,000 and $304,000 during the
nine months ended September 30, 2000 and 1999 respectively. The uses of cash
were for the purchase of fixed assets and patents and the acquisition of
additional technology.
Financing activities provided cash of $4,046,000 and $2,903,000 during
the first nine months ended September 30, 2000 and 1999 respectively. In both
years, the cash provided by financing activities resulted from the sales of
Common and Preferred Stock, $3,561,000 and $3,750,000 for the first nine months
ended September 30, 2000 and 1999 respectively, offset by principal payments on
outstanding debt.
At September 30, 2000, we had cash and cash equivalents of $3,536,000 as
compared to $2,341,000 at September 30, 1999. At September 30, 2000, we had
working capital of $6,447,000 as compared to working capital of $3,970,000 at
September 30, 1999. The increases in both cash and working capital in the first
nine months of 2000 from the first nine months of 1999 are mostly due to the
equity financing raised during the year. At present, we do not have a credit
facility in place with a bank or other financial institution. Additionally, by
October 24, 2000, we had sold an additional $2.0 million in Preferred Stock
financing to Union Atlantic Capital L.C. We believe that the cash on hand at
September 30, 2000 will be sufficient to allow us to continue our expected level
of operations for the remainder of the year.
-38-
We need capital to fund our growth strategy, which includes increasing
our internet shopping mall presence, improving and increasing distribution
channels, establishing franchised stores, introducing new products, improving
existing product lines and developing a strong corporate infrastructure.
Seasonality and Quarterly Results
Our business is subject to seasonal influences. Sales volumes in the
bicycle industry typically slow during the winter months, November to March, in
the U.S. However, because we market worldwide, we are not fully subject to the
dictates of U.S. seasonality influences.
Inflation
A majority of our raw materials are sourced from stable cost competitive
industries. Because of this, we do not foresee any material inflationary trends
for our raw material sources.
DESCRIPTION OF PROPERTY
A summary of our principal facilities are as follows:
-------------------- --------------------------- --------- ------------------ -------------------
Location Use Square Lease Expiration Minimum Monthly
Feet Date Rental
-------------------- --------------------------- --------- ------------------ -------------------
-------------------- --------------------------- --------- ------------------ -------------------
117 Morris St. Office & Motor Assembly 6,500 June 2002 $4,400
-------------------- --------------------------- --------- ------------------ -------------------
111 Morris St. Machine Shop 3,000 June 2001 $2,000
-------------------- --------------------------- --------- ------------------ -------------------
7190 Keating Production 10,000 June 2004 $5,000
-------------------- --------------------------- --------- ------------------ -------------------
6780 Depot Office, Production, R&D 5,000 June 2004 $2,500
-------------------- --------------------------- --------- ------------------ -------------------
6780-B Depot Engineering 4,200 May 2004 $2,188
-------------------- --------------------------- --------- ------------------ -------------------
2715 Hyde St. Retail/Rentals 8,000 April 2001 $12,000
-------------------- --------------------------- --------- ------------------ -------------------
6784 Sebastopol Warehouse 9,800 August 2005 $5,880
-------------------- --------------------------- --------- ------------------ -------------------
All of the above buildings, except the store at 2715 Hyde Street in San
Francisco, are located in Sebastopol, California. We lease all of our
manufacturing, research, and office facilities. All of the leases are term
leases, and none of these leases include options to purchase. Our property
consists primarily of manufacturing equipment and office computer systems. 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 production, research and development, and
vehicle prototyping activities. Management believes that the above facilities
are generally adequate for present operations.
-39-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since our inception in 1994, we have not been a party to any transaction
or series of similar transactions in which the amount involved exceeded or will
exceed $60,000 and in which any director, executive officer or holder of more
than 5% of our Common Stock had or will have an interest, other than as
described under "Management," "Interest of Named Experts and Counsel" and the
transactions described below.
William D. Evers, is a member of our Board of Directors and our
principal outside counsel. During 1999 and in 2000, until July 31, 2000, Mr.
Evers' law firm received $430,408 in compensation for legal services provided to
us. Additionally, Mr. Evers was granted stock options to acquire 75,000 shares
with an exercise price ranging from $3.02 to $6.50 per share.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock was quoted on the National Association of Security
Dealers (NASD) OTC Bulletin Board under the market symbol "ZAPP" from March 11,
1998 through May 22, 2000. On May 22, 2000, our Common Stock qualified for
listing on the NASDAQ SmallCap stock exchange under the symbol "ZAPP." Before
March 1998 there was no public market for our Common Stock. The following table
presents, for the period indicated, the high and low prices per share as
reported on the OTC Bulletin Board through the second quarter of 2000, and the
high and low prices per share as reported on the NASDAQ SmallCap stock exchange
through the third and fourth quarter of 2000.
2000 1999 1998
High Low High Low High Low
---- --- ---- --- ---- ---
$ $ $ $ $ $
First Quarter 10.00 8.00 4.375 3.0625 6.00 4.50
Second Quarter 6.00 5.4375 8.75 4.25 6.50 4.50
Third Quarter 5.875 5.3125 6.875 5.00 5.0625 2.00
Fourth Quarter 3.25 2.50 18.25 5.00 4.3125 2.875
On February 8, 2001 the last reported quotation price of our Common
Stock on the NASDAQ SmallCap stock exchange was $2.6875. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
As of February 12, 2001 there were 5,939,033 outstanding issued shares
of our Common Stock, warrants to purchase 1,199,902 shares of our Common Stock,
options to purchase 1,849,090 shares of our Common Stock, 1,880 shares of Series
A-1 Preferred Stock
-40-
and 2,000 shares of Series A-2 Preferred Stock outstanding. As of February 12,
2001, we had approximately 1,918 holders of record of Common Stock and 7 holders
of record of Preferred Stock.
DIVIDEND POLICY
We have not declared or paid any dividend on our Common Stock. We do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of our board of directors and will depend upon our
financial condition, operating results, capital requirements and other factors
our board of directors deems relevant.
EXECUTIVE COMPENSATION
The following tables set forth information concerning the compensation
we paid for services rendered during our fiscal years ended December 31, 1999,
1998 and 1997, by the Named Executive Officers. The Named Executive Officers are
our company's Chief Executive Officer, regardless of compensation level, and the
other executive officers of our company who each received in excess of $100,000
in total annual salary and bonus for the fiscal years ended December 31, 1999,
1998 and 1997.
Summary Compensation Table
Annual Compensation Long -Term Compensation
Awards Payouts
--------------------- -------- ---------
Other Restricted Stock All
Annual Stock Underlying Other
Salary Bonus Compensation Award Options LTIP Compen-
/SARs Payouts sation
Name and Principal Year ($) ($) ($) ($) (#) ($) ($)
Position
------------------------- ----- -------- ------- ------------ ---------- ---------- -------- ---------
Gary Starr 1997 35,000
Chief Executive officer 1998 35,700
And President 1999 39,500 200 135,000
-41-
The following table shows all individual grants of stock options to the
Named Executive Officers (as defined above) for the fiscal year ended December
31, 1999.
Option/SAR Grants in Last Fiscal Year (Individual Grants)
Name Year Number of % of Total Exercise Expiration
Options Securities Options/SARs or Base Date
Granted Underlying Granted to Price
Options/SARs Employees in Fiscal ($/Sh)
Granted Year
---------------------- ----------- ------------------ --------------------- ----------- ----------
Gary Starr 1999 35,000 $7.00 07/19/02
1999 100,000 $6.25 12/21/02
------- -----
135,000 19.8
The following table shows all individual grants of stock options
exercised by the Named Executive Officers (as defined above) for the fiscal year
ended December 31, 1999.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Options/SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Option/SARs at Options/SARs at
Acquired on Value FY-End(#) FY-End($)
Name Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- ----------- ------------------------- -------------------------
Gary Starr 32,319(1) 189,874 18,333/31,944 213,121/371,349
72,000(2) 354,960
15,181(3) 88,239
(1) Exercised on November 8, 1999 at a price of $1.00 per share.
(2) Exercised on March 6, 1999 at a price of $0.40 per share.
(3) Exercised on September 30, 1999 at price of $1.00 per share.
Compensation of Directors
Our directors do not receive any cash compensation for their service on
our Board of Directors, but they may be reimbursed for certain expenses in
connection with their attendance at board meetings. During our fiscal year ended
December 31, 1999 we granted options for 75,000 shares of our Common Stock to
two of our directors. These options vest over a three year period and have an
exercise price ranging from $3.25 to $6.25 per share.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
During our two most recent fiscal years our principal independent
accountant has neither resigned (or declined to stand for re-election) nor been
dismissed.
-42-
LEGAL MATTERS
Certain legal matters in connection with the Common Stock being offered
in this prospectus will be passed upon by Foley & Lardner, One Maritime Plaza,
Sixth Floor, San Francisco, California 94111-3404.
EXPERTS
Our financial statements as of and for the years ended December 31, 1999
and 1998 appearing in this prospectus have been audited by Grant Thornton LLP,
independent certified accountants. The financial statements are included in
reliance upon the authority of that firm as an expert in accounting and
auditing.
ADDITIONAL INFORMATION
A registration statement on Form SB-2, including amendments, relating to
the shares offered has been filed with the Securities and Exchange Commission,
Office of Small Business Policy, Washington, D.C. This prospectus does not
contain all the information set forth in the registration statement and the
exhibits and schedules to the registration statement. Statements made in this
prospectus as to the contents of any contract or other document are not
necessarily complete, and, in each instance, we refer you to the copy of the
contract or other document filed as an exhibit to the registration statement.
Each statement about those contracts and other documents is qualified in all
respects by that reference.
The registration statement and exhibits and schedules, as well as other
reports and other information required to be filed with the Securities and
Exchange Commission in accordance with the reporting requirements of the
Securities Exchange Act of 1934, can be inspected without charge and copied, at
proscribed rates, at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room
by calling the Securities and Exchange Commission at 1-800-SEC-0300. In
addition, the Securities and Exchange Commission maintains a Web site on the
internet at http://www.sec.gov that contains reports, proxy and information
statements and other documents filed electronically with the Securities and
Exchange Commission, including the registration statement.
We furnish our shareholders with annual reports containing financial
statements audited by our independent accountants and quarterly reports
containing unaudited financial information for the first three quarters of each
fiscal year.
-43-
FINANCIAL STATEMENTS
Table of Contents
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS .......................F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS .........................................F-3
CONSOLIDATED STATEMENTS OF OPERATIONS ...............................F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS ...............................F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY .....................F-7
NOTES TO FINANCIAL STATEMENTS .......................................F-8
F-1
Report of Independent Certified Public Accountant
To the Board of Directors and Stockholders
ZAPWORLD.COM
We have audited the accompanying consolidated balance sheets of ZAPWORLD.COM
and subsidiaries as of December 31 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the two year period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion o these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provided a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above represent fairly, in
all material respects, the consolidated financial position of ZAPWORLD.COM and
subsidiaries as of December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the years in the two year
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States of America.
GRANT THORNTON LLP
San Francisco, California
March 1, 2000
F-2
ZAPWORLD.COM and Subsidiaries
Consolidated Balance Sheets
(in thousands except per share amounts)
December 31, 1999 December 31, 1998 September 30, 2000
(unaudited)
ASSETS
CURRENT ASSETS
Cash $3,184 $475 $3,536
Accounts Receivable 353 284 1,286
Inventories 1,725 634 1,708
Note Receivable 20 - 35
Prepaid Expenses and other assets 303 98 1,236
------- -------- -------
Total Current Assets 5,585 1,491 7,801
------- -------- -------
PROPERTY AND EQUIPMENT 350 177 507
OTHER ASSETS
Patents & Trademarks, less accumulated
amortization 1,176 80 1,440
Goodwill 112 - 1,197
Advance to retail stores and technology
companies 479 - 63
Deposits 25 12 53
------- -------- -------
Total Other Assets 1,792 92 2,753
------- -------- -------
Total Assets $7,727 $1,760 $11,061
======= ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $742 $334 $612
Accrued Liabilities 368 151 697
Current maturities of long-term debt 16 867 41
Current maturities of obligations under
capital leases 9 10 4
------- -------- -------
Total Current Liabilities 1,135 1,362 1,354
------- -------- -------
OTHER LIABILITIES
Long-term debt, less current maturities 24 11 390
Obligations under capital leases, less
current
maturities 14 1 35
------- -------- -------
Total Other Liabilities 38 12 425
STOCKHOLDERS' EQUITY
Preferred stock, authorized 10,000,000
shares, 2,372 shares issued and outstanding - - 2,868
Common stock, authorized 20,000,000 shares
of no par value; issued and outstanding
5,109,180 shares in 1999, 2,664,700 shares
in 1998 and 5,557,100 shares in 2000 12,053 3,732 15,909
Accumulated deficit (5,118) (3,346) (9,232)
Unearned Compensation (96) - (55)
------- -------- -------
6,839 386 9,490
Less: notes receivable from shareholders (285) - (208)
------- -------- -------
Total stockholders' equity 6,554 386 9,282
------- -------- -------
Total liabilities and stockholders' equity $7,727 $1,760 $11,061
======= ======== =======
The accompanying notes are an integral part of the consolidated financial
statements
F-3
ZAPWORLD.COM
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except share amounts)
Year Ended December 31, Nine Months ended September 30,
1999 1998 2000 1999
-----------------------------------------------------------------------------------------------------------
(unaudited)
NET SALES $6,437 $3,518 $8,128 $4,444
COST OF GOODS SOLD 4,446 2,391 5,190 2,978
------- -------- ------- ------
GROSS PROFIT 1,991 1,127 2,938 1,466
OPERATING EXPENSES
Selling 1,187 968 1,327 729
General and administrative 1,945 979 2,269 878
Research and development 365 203 464 205
------- -------- ------- ------
3,497 2,150 4,060 1,812
------- -------- ------- ------
LOSS FROM OPERATIONS (1,506) (1,023) (1,122) (346)
------- -------- ------- ------
OTHER INCOME (EXPENSE)
Interest income (expense) (267) (100) 135 41
Other income (expense) 81 14 (27) (86)
------- -------- ------- ------
(186) (86) 108 (45)
------- -------- ------- ------
LOSS BEFORE INCOME TAXES (1,692) (1,109) (1,014) (391)
PROVISION FOR INCOME TAXES 1 1 - -
------- -------- ------- ------
NET LOSS $(1,693) $(1,110) $(1,014) $ (391)
------- -------- ------- ------
NET LOSS ATTRIBUTABLE TO
COMMON SHARES
Net Loss $ (1,693) $(1,110) $ (3,100) $ (391)
Preferred Dividend - - (900) -
------- -------- ------- ------
$(1,693) $(1,110) $(4,114) $ (391)
------- -------- ------- ------
NET LOSS
PER COMMON SHARE,
BASIC AND DILUTED $ (0.43) $ (0.42) $ (0.79) $ (0.11)
------- -------- ------- ------
WEIGHTED AVERAGE OF
COMMON SHARES OUTSTANDING 3,927,633 2,614,563 5,213,000 3,668,000
========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
ZAPWORLD. COM and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months ended
Year ended December 31, September 30
1999 1998 2000 1999
--------------------------------------------------------- ------------- ------------ ------------------------
(unaudited)
Cash flows from operating activities:
Net loss $(1,693) $(1,110) $(1,014) $(391)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 124 86 250 79
Allowance for doubtful accounts - (30) 18 -
Issuance of common stock for services rendered 141 150 63 805
Issuance of common stock for litigation settlement 50 - - -
Issuance of stock options for services rendered 137 18 - -
Noncash charges related to the settlement of debt 154 - - -
Amortization of fair value of warrants, unearned
compensation 31 31 41 -
Changes in:
Accounts receivable (69) (192) (966) (489)
Inventories (876) (366) 17 (653)
Prepaid expenses and other assets 24 (32) (933) (314)
Deposits (13) 2 (29) (88)
Other Assets - - (211) (59)
Accounts payable 312 173 (130) 74
Accrued liabilities and customer deposits 217 (37) 329 303
------- ------- ------- ------
Net cash used in operating activities (1,461) (1,307) (2,565) (733)
Cash flows from investing activities:
Purchases of property and equipment (188) (98) (285) (158)
Purchase of American Scooter and Cycle Rental (70) - 132 (19)
Purchase of Big Boy Bicycles (15) - - -
Proceeds from emPower acquisition 1,032 - - -
Investment In Technology Companies - - 167 (127)
Purchase of Acquatic Propulsion Technologies - (981) -
Purchase of Patents from EVS - - (162) -
Payment advances for acquisitions (72) -
Issuance of note receivable (20) - - -
Purchase of intangibles (66) (64)
------- ------- ------- ------
Net cash provided by (used in) investing 601 (162) (1,129) (304)
Cash flows from financing activities:
Proceeds (repayment) from issuance of long-term debt (362) 1,281 398 27
Sale of common stock, net of stock offering costs 1,812 - 1,589 3,750
Issuance of common stock under employee purchase plan 6 - - -
Repurchase of common stock (11) (16) - -
Proceeds from exercise of stock options 2,423 (11) - -
Sale of Preferred Stock, net of Preferred stock offering - - 1,972 -
costs
Increase in Capital Leases - - 26 22
Payments on obligations under capital leases (15) - (10) (7)
F-5
Nine Months ended
Year ended December 31, September 30
1999 1998 2000 1999
--------------------------------------------------------- ------------- ------------ ------------------------
(unaudited)
Principal Repayments on Note Payable - - (6) (889)
(Advances) receipts on notes receivable to shareholders (284) 77 -
------- ------- ------- ------
Net cash provided by financing activities 3,569 1,254 4,046 2,903
NET INCREASE/(DECREASE) IN CASH 2,709 (215) 352 1,866
Cash, beginning of period 475 690 3,184 475
------- ------- ------- ------
Cash, end of period $3,184 $475 $3,536 $2,341
======= ======= ======= ======
Supplemental cash flow information:
Cash paid during the year for:
Interest $115 $69 $7 $77
Income taxes 1 1 1 1
Non-cash investing and financing activities:
Conversion of debt into common stock $475 $475
Conversion of accounts payable into common stock 35 35
Equipment acquired through capital lease 27 27
obligations
Notes payable used to exercise stock options 32 32
Issuance of common stock upon acquisition of
American Scooter and Cycle Rental, Big Boy
Bicycles, and emPower Corporation $2,312 $2,312
Assets and liabilities recognized upon acquisition
of
American Scooter and Cycle Rental, Big Boy
Bicycles, and emPower Corporation
Cash $1,032 $1,032
Inventories 213 213
Prepaid expenses and other 56 56
Property and equipment 70 70
Patent 1,155 1,155
Accounts payable 131 131
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
ZAPWORLD.COM AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
Note
Common Stock Preferred Stock Unearned Receivable
----------------------- ------------------------ Accumulated Compensation from
Shares Amount Shares Amount Deficit and Services Stockholder Total
---------- ------------ ----------- ------------ ------------- -------------- ------------- ----------
Balance, January 1, 1998 2,543 $ 3,169 $ $ (2,315) $ - $ - $ 854
Issuance of common stock 79 383 383
Exercise of stock options 15 15 15
Conversion of notes
payable and issuance of
warrants in connection
with debt 3 76 76
Common Stock issued for
services 25 168 168
Net loss (1,110) (1,110)
-------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 2,665 3,811 (3,425) 386
Issuance of common stock:
Private placement, net of
expenses of $614 746 1,721 1,721
Acquisitions 337 2,670 2,670
Conversion of Debt 165 665 665
Other 65 363 363
Exercise of stock options 1,131 2,423 2,423
Stock options and warrants
issued for compensation
and services 400 (96) 304
Notes receivable from
shareholders (285) (285)
Net loss (1,693) (1,693)
-------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 5,109 12,053 (5,118) (96) (285) 6,554
Issuance of common stock
Acquisitions 120 726 726
Services and others 74 83 83
Issuance of Preferred
Stock, net of expenses
of $400 and fair value
of warrants 2,100 3 500 2,600
Beneficial Conversion
Features on Preferred
Stock 3,100 (3,100)
Conversion of Preferred
Stock to Common Stock 156 735 (1) (732) 3
Exercise of stock options 98 212 212
Amortization of Unearned
compensation 41 41
Note receivable from
shareholders 77 77
Net Loss (1,014) (1,014)
-------------------------------------------------------------------------------------------------------
Balance, September 30,
2000
(unaudited) 5,557 $15,909 2 $2,868 $ (9,232) $ (55) $ (208) $ 9,282
=======================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements
F-7
ZAPWORLD.COM and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
Information as of and for nine months ended
September 30, 2000 is unaudited
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
o Nature Of Operations
ZAPWORLD.COM (the "Company" or "ZAP") was incorporated in California in
September, 1994 under its original name "Zap Power Systems". The name
changed on May 16, 1999. ZAP designs, manufactures, and distributes
electric bicycle power kits, electric bicycles and tricycles, and other
personal electric transportation vehicles. Company products are sold
directly to end-users and to distributors throughout the United States
and the world.
o Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company, ZAPWORLD stores, Inc., and all wholly-owned
subsidiaries. All significant inter-company transactions and balances
have been eliminated.
o Revenue Recognition
The Company recognizes revenues when earned; generally when products are
shipped.
o Inventories
Inventories consist primarily of raw materials, work-in-process, and
finished goods and are carried at the lower of cost (first-in, first-out
method) or market.
o Property and Equipment
Property and equipment are stated at cost and depreciated using
straight-line and accelerated methods over the assets' estimated useful
lives. Costs of maintenance and repairs are charged to expenses as
incurred. Significant renewals and betterments are capitalized.
Estimated useful lives are as follows:
Machinery and equipment 7 years
Equipment under capital leases 5 years
Demonstration bicycles 2 years
Office furniture and equipment 7 years
Vehicle 5 years
Leasehold improvements 15 years or life of lease,
whichever is shorter
F-8
o Patents & Trademarks
Patents & Trademarks consist of costs expended to perfect certain
patents and trademarks acquired in the emPower acquisition. These costs
will be amortized over an estimated useful life of ten years.
o Goodwill
Goodwill consists of the excess consideration paid over net assets
acquired. Goodwill is amortized over a ten-year period.
o Income Taxes
The Company uses an asset and liability approach to financial accounting
and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future bases on enacted tax laws
and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to
be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change in deferred tax assets and liabilities
during the period.
o Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
o Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. The fair value of a
financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties. For certain
of the Company's financial instruments, including cash, accounts
receivable and accounts payable, the carrying amount approximates fair
value because of the short maturities. The carrying amount of the bank
note payable and current notes payable approximate fair value as current
interest rates available to the Company for similar debt are
approximately the same. The fair value of related party debt is
impracticable to determine.
F-9
o Net Loss Per Common Share
Net loss per common share, basic and diluted, has been computed using
weighted average common shares outstanding. Potentially dilutive
securities have been excluded from the weighted average shares
outstanding, as their inclusion would be anti-dilutive (see note F).
o Segment Information
In 1999, the company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". The Company operates in one
reportable segment, the design, assembly, manufacture and distribution
of electric bicycle power kits, electric bicycles and tricycles,
electric scooter, electric motorcycles and other personal electric
transportation vehicles.
o Unaudited Interim Financial Information
The financial information as of September 30, 2000 and for the nine
months ended September 30, 1999 and 2000 is unaudited, but includes all
adjustments (consisting only of normal recurring adjustments) that the
Company considers necessary for fair presentation of the financial
position at such dates and the results of operations and cash flows for
the periods then ended. Operating results for the nine months ended
September 30, 2000 are not necessarily indicative of results that may be
expected for the entire year.
NOTE B - INVENTORIES
Year ended December 31, September 30,
1999 1998 2000
(unaudited)
Inventories consisted of the
following:
Raw materials $661,700 $ 442,100 $1,054,900
Work-in-process 349,200 104,100 49,200
Finished goods 714,200 87,700 603,900
-------------- ---------------- -------------------
$1,725,100 $ 633,900 $1,708,000
-------------- ---------------- -------------------
-------------- ---------------- -------------------
F-10
NOTE C - PROPERTY AND EQUIPMENT
Year ended December 31, September 30,
Property and equipment consist of the following: 1999 1998 2000
(unaudited)
Machinery and equipment $ 187,000 $ 81,600 $ 325,000
Equipment and per capital lease - 45,900 -
Computer Equipment 209,600 - 274,100
Demonstration bicycles 89,600 89,600 89,600
Office furniture and equipment 52,000 76,000 97,300
Leasehold improvements 78,400 25,400 91,900
Vehicles 97,600 56,200 118,100
------------- -------------- -------------------
714,200 374,700 996,000
Less accumulated depreciation and
amortization 363,900 197,700 489,000
------------- -------------- -------------------
$ 350,300 $ 177,000 $ 507,000
------------- -------------- -------------------
------------- -------------- -------------------
D - ADVANCE TO RETAIL STORES AND TECHNOLOGY COMPANIES
During the year ended December 31, 1999 the Company issued shares of
common stock and paid cash as advances toward the acquisition of retail
stores and technology companies. The Company issued 57,803 shares of
common stock in the amount of $406,300 and paid cash in the amount of
$72,500.
E - PROVISION FOR INCOME TAXES
1999 1998
Current tax expense
Federal $ - $ -
State 800 800
800 800
Significant components of the Company's net deferred tax assets as of
December 31 are as follows:
1999 1998
Tax loss carry forward $1,819,600 $1,263,700
Inventory capitalization (99,100) (22,000)
Other (70,800) (27,400)
Total 1,649,700 1,214,300
Less valuation allowance (1,649,700) (1,214,300)
Net deferred tax asset $ - $ -
F-11
The Company has available carry forward of approximately $4,758,300 and
$2,819,400 of federal and state net operating losses, respectively,
expiring through 2019. The Tax Reform Act of 1986 and the California
Conformity Act of 1987 impose restrictions on the utilization of net
operating losses in the event of an "ownership change" as defined by
Section 382 of the Internal Revenue Code. There has been no
determination whether an ownership change, as defined, has taken place.
Therefore, the extent of any limitation has not been ascertained.
A valuation allowance is required for those deferred tax assets that are
not likely to be realized. Realization is dependent upon future earnings
during the period that temporary differences and carry forwards are
expected to be available. Because of the uncertain nature of their
ultimate utilization, a full valuation allowance is recorded against
these deferred tax assets. The valuation allowance increased $435,400 in
1999 and $386,700 in 1998.
The difference between the income tax expense at the federal statutory
rate and the Company's effective tax rate is as follows:
1999 1998
Statutory federal income tax rate 34% 34%
State income tax rate 6 6
Valuation allowance (40) (40)
-% -%
NOTE F - STOCK OPTIONS AND WARRANTS
Options to purchase common stock are granted by the Board of Directors
under three Stock Option Plans, referred to as the 1999, 1996 and 1995
plans. Options granted may be incentive stock options (as defined under
Section 422 of the Internal Revenue Code) or nonstatutory stock options.
The number of shares available for grant under the 1999, 1996 and 1995
Plans are 1,500,000, 600,000 and 750,000, respectively. Options are
granted at no less than fair market value on the date of grant, become
exercisable as they vest (over a 2 or 3 year period) and expire ten
years after the date of grant
F-12
Option activity under the three plans is as follows:
1999 Plan 1996 Plan 1995 Plan
Wtd Avg Wtd Avg Wtd Avg
Number Exercise Number Exercise Number Exercise
Of Shares Price of Shares Price of Shares Price
------------ ------------- ------------ -------------- ------------ --------------
Outstanding at 1/1/98 383,500 $ 1.38 446,300 $ 0.56
Granted 20,000 4.31 -
Exercised (12,500) 1.00 - -
Canceled (26,500) 1.48 (27,400) $ 0.40
-------- ---------- --------
Outstanding at 12/31/98 - $ - 364,500 1.55 418,900 $ 0.56
Granted 481,000 6.33 35,000 4.06 - -
Exercised (586) 5.00 (259,500) 1.15 (299,000) $ 0.40
Forfeited ( (1,000) 5.00 (14,500) 3.50 (49,900) $ 1.00
-------- ---------- --------
Outstanding at 12/31/99 479,414 $ 6.34 125,500 $ 2.85 70,000 $ 1.00
-------- ---------- --------
The weighted average fair value of all options granted during the years
ending December 31, 1999 and 1998 was $4.33 and $3.66 respectively.
The following information applies to employee incentive stock options
outstanding at December 31, 1999:
Plan: 1999 1996 1995
----------- ----------------------------- -----------
Range of exercise prices $5.00-$7.00 $ 1.00-$1.00 $3.68-$5.25 $1.00-$1.00
Options outstanding 479,414 47,500 78,000 70,000
Weighted average exercise price $ 6.34 $ 1.00 $ 3.98 $ 1.00
Weighted average remaining life (years) 9.79 6.58 8.03 6.50
Options exercisable 46,833 47,500 62,806 70,000
Weighted average exercise price $ 6.31 $ 1.00 $ 3.97 $ 1.00
The Company recorded the non-employee options and warrants based on the
grant date fair value in accordance with SFAS 123. The grant date fair
value of each stock option was estimated using the Black-Scholes
option-pricing model. The company recorded expense in the amount of
$135,000 and $48,500 for the year ended December 31, 1999 and 1998,
respectively. As of December 31, 1999 the Company has recorded prepaid
expense in the amount of $166,700 for future services.
F-13
Options and warrant activity for non-employees is as follows:
Weighted
Avg.
Outstanding at 1/1/98 46,000 $4.33
Granted 82,800 4.86
Exercised (2,500) 1.00
---------------
Outstanding at 12-31-98 126,300 4.74
Granted 1,138,429 4.58
Exercised (571,429) 3.50
Forfeited (64,300) 4.75
Outstanding at 12-31-99 629,000 5.51
The Company accounts for stock options issued to employees under the
policy of APB 25 "Accounting for Stock Issued to Employees". The Company
has adopted the disclosure only provision of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation
(SFAS 123)". Accordingly, no compensation expense has been recognized
for stock options issued to employees during 1999 and 1998. Had
compensation cost for the Company's options been based on the fair value
of the awards at the grant date consistent with the provisions of SFAS
No. 123, the Company's net loss and loss per share would have
approximated the following proforma amounts:
1999 1998
Net loss - as reported $(1,692,600) $(1,109,400)
Net loss - pro forma (2,686,700) (1,254,600)
Loss per share - as reported (.43) (.42)
Loss per share - pro forma (.68) (.48)
F-14
The fair value of each option and warrant is estimated on date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1999 1998
Dividends None None
Expected volatility 86.00% 100%
Risk free interest rate 6.00% 6.00%
Expected life 5 years 10 years
In connection with the issuance of $800,000 of notes payable in 1998,
the Company issued 20,000 warrants at $4.00 per share, to purchase the
Company's common stock, to an entity that assisted the Company in
arranging the financing. The warrants are immediately exercisable and
expire September, 2001. The fair value of warrants at the time of
issuance was $61,800 and is being amortized as additional interest
expense over the term of the debt. Amortization expense of $30,900 was
recorded for both 1998 and 1999.
NOTE G - MAJOR CUSTOMERS and VENDORS
During 1999, one customer accounted for $680,100 or 11% of the Company's
net sales. During, 1998, one customer accounted for $617,000 or 17.5% of
the Company's net sales, and during late 1998 the Company ceased selling
to this customer.
During 1999, one vendor accounted for $798,600 or 12% of the Company's
supplies and materials. During 1998 one vendor accounted of $440,000 or
7%, of the Companies supplies and materials.
NOTE H - COMMITMENTS
The Company rents warehouses and office space under leases that expire
in June 2001. An option exists to extend the lease for an additional
five-year period. Rent expense under part of the applicable leases was
$342,000 and $289,200 in 1999 and 1998, respectively.
F-15
Future minimum lease payments on the lease are as follows:
Year ending December 31,
2000 $ 320,600
2001 222,600
2002 138,300
2003 115,200
2004 and thereafter 54,300
Total $ 851,000
NOTE I - PREFERRED STOCK
The Board of Directors authorized 10,000,000 shares of Preferred Stock in
December 1999. The Preferred Stock which has been issued may be converted into
Common Stock at a price which is specified in the Securities Purchase Agreement.
The holders of the outstanding Preferred Stock are also entitled to receive a
dividend based upon 6% of the stated value per annum.
On July 19, 2000, ZAP received funding for the purchase of $3.0 million in a
Preferred Stock offering from Union Atlantic L.C.. The Union Atlantic Capital
L.C. investors purchased $3.0 million of Series A-1 Convertible Preferred Stock
at a price of $1,000 per share. Additionally, by October 24, 2000, the Company
received additional funding totaling $2.0 million from Union Atlantic Capital
L.C. for Series A-2 Convertible Preferred Stock at a price of $1,000 per share.
This $2.0 million preferred stock financing was received in two parts:
$1,333,333 on October 6, 2000, and the remaining $666,666 on October 24, 2000.
In connection with the Preferred Stock Offering we also issued warrants to
purchase 816,666 shares of Common Stock at an exercise price of $5.43 pershare.
During the 3rd Quarter, Union Atlantic Capital L.C. converted 628 shares of
Preferred Stock for 155,989 shares of Common Stock at an average conversion
price of $4.35 per share.
During the third quarter of 2000, the company recorded a deemed divided on
preferred stock of $3,100,000. This is the result of the conversion price of the
convertible preferred stock issued during the quarter being less than the market
price of the common stock on the date of the transaction. All deemed dividends
related to the transaction have been recognized during the third quarter as a
result of the preferred stock being immediately convertible at the discretion of
the holder.
NOTE J - ACQUISITIONS
On December 30, 1999, the Company purchased all of the common stock of emPower,
Inc., a designer and manufacturing business of proprietary electric scooters,
for 265,676 shares of common stock. The Company issued warrants to emPower's
shareholders to purchase an aggregate of 200,000 shares of the Company's common
stock. The warrants expire three years after issuance. The acquisition has been
accounted for as a purchase at $5.75 per share. The purchase was allocated to
the assets acquired, including patents, and liabilities assumed based on their
estimated fair values. The acquisition resulted in no goodwill. Results of
operations for emPower have been included with those of the company for periods
subsequent to the date of acquisition.
F-16
The purchase price of emPower was allocated as follows:
Cash $ 1,033,000
Inventories 96,300
Property and equipment 64,100
Patents 1,042,400
Liabilities assumed (54,200)
-----------
$ 2,181,600
===========
Consideration paid:
Common stock $ 2,181,600
In September 1999, the Company purchased all assets of Big Boy Bicycles and
assumed certain liabilities. The company issued 1,000 shares of common stock and
paid $15,165 in cash. The purchase price was allocated to assets acquired and
liabilities assumed based on their estimated fair value. Results of operations
for American Scooter and Cycle Rental have been included with those of the
Company for the periods subsequent to the date of acquisition.
The purchase price of Big Boy was allocated as follows:
Inventories $ 73,800
Property and equipment 4,400
Goodwill 1,300
Expenses 1,900
Liabilities assumed (59,800)
--------
$ 21,600
========
Consideration paid:
Cash $15,200
Common stock 6,400
--------
$21,600
========
In July 1999, the Company purchased certain assets and assumed certain
liabilities of American Scooter and Cycle Rental. The Company issued 12,924
shares of common stock and paid $70,000 in cash. The purchase price was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values. Results of operations for American Scooter and Cycle
Rental have been included with those of the company for periods subsequent to
the date of acquisition.
The purchase price of certain assets and liabilities of American Scooter
and Cycle Rental were allocated as follows:
Inventories $ 43,300
Property and equipment 1,500
Goodwill 113,300
Expenses 4,600
Liabilities assumed ( 16,600)
---------
$ 146,100
=========
Consideration paid: $ 70,000
Cash 76,100
---------
Common stock: $ 146,100
=========
F-17
The above operations represent 5% of total revenues for the year ended December
31,1999.
NOTE K - SUBSEQUENT EVENTS
On January 20, 2000, the Company purchased all of the common stock of Zap of
Santa Cruz, Inc., a California corporation, for $25,000 in cash and 8,803 shares
of the Company's common stock. The acquisition will be accounted for as a
purchase. The purchase price is approximately $125,000 and will be allocated to
net assets acquired based on their estimated fair values. The acquisition closed
in the first quarter of calendar year 2000.
On February 29, 2000, the Company purchased all of the common stock of Electric
Vehicle Systems, Inc., a California corporation, for $20,000 in cash and 25,000
shares of the Company's common stock. The acquisition will be accounted for as a
purchase. The purchase price is approximately $285,000 and will be allocated to
the net assets acquired based on the estimated fair value. The acquisition
closed in the first quarter of calendar year 2000.
On June 24, 2000, the Company received approval from the shareholders to amend
the Articles of Incorporation to authorize the issuance of Preferred Stock.
Shareholder approval was also received to accept $3.0 million in new Preferred
Stock financing from Union Atlantic Capital L.C. The Union Atlantic investors
purchased $3.0 million of Series A Convertible preferred stock at a price of
$1,000 per share with a conversion price of $4.50 per share of common stock. The
Union Atlantic investors have the option to invest an additional $2.0 million,
with a conversion price of 110% of the closing bid price of the Common Stock on
the trading day of the closing of such investment. The funding was received on
July 19, 2000.
On July 1, 2000 ZAP completed its acquisition by merger of Aquatic Propulsion
Technology, Inc. (APT), a Florida electric sea scooter company. The merger
documents were filed with the California Secretary of State on August 8, 2000.
ZAP acquired all technology, including five patents on electric sea scooters,
assets, current operations from APT in exchange for 120,000 shares of ZAP common
stock, $95,000 in cash and the assumption of APT's liabilities to the extent of
$465,700.
On July 19, 2000, ZAP sold $3.0 million of a Preferred Stock offering to Union
Atlantic Capital L.C. The Union Atlantic Capital L.C. investors purchased $3.0
million of Series A-1 Convertible Preferred Stock at a price of $1,000 per
share. Additionally, by October 24, 2000, the Company sold an additional $2.0
million Series A-2 Convertible Preferred Stock at a price of $1,000 per share to
Union Atlantic Capital L.C.
On August 14, 2000, ZAP announced that it had signed an agreement to form a
joint venture with Ningbo Topp industrial Co. Ltd. of China. The purpose of the
joint venture will be for manufacturing and distributing electric vehicles in
China, starting with the ZAPPY scooter. Under the terms of the joint venture,
the joint venture company will purchase key components from ZAP, assemble and
distribute the ZAPPY in China, and pay ZAP a royalty on each electric scooter
sold in China. Additionally, ZAP will receive a share of the profits from the
joint venture. As of September 30, 2000 the joint venture has not been formed.
F-18
On October 6, 2000, ZAP completed its purchase of Electric Motorbike Inc. The
Company issued 140,000 shares of its common stock and $135,000 in cash as the
final purchase price.
F-19
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Our Amended Bylaws provide that we may indemnify any director, officer,
agent or employee against all expenses and liabilities, including counsel fees,
reasonably incurred by or imposed upon such persons in connection with any
proceeding to which any such persons may become involved by reason of such
persons being or having been a director, officer, employee or agent of our
company. Moreover, our Amended Bylaws provide that we shall have the right to
purchase and maintain insurance on behalf of any such persons whether or not we
would have the power to indemnify such person against the liability insured
against. Our Amended Articles of Incorporation provide that we may indemnify our
directors and officers to the fullest extent permissible under California law.
In accordance with these Articles of Incorporation, the liability of our
directors for monetary damages is eliminated to the fullest extent permissible
under California law.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth all expenses payable by the registrant in
connection with the sale of the Common Stock being offered. All the amounts
shown are estimates except for the registration fee.
Registration fee...........................$ 3,000
Printing and engraving expenses............$ 5,000
Legal fees and expenses....................$ 65,000
Accounting Fees and Expenses...............$ 25,000
Miscellaneous..............................$ 2,000
Total......................................$ 100,000
Item 26. Recent Sales of Unregistered Securities
Since our inception in 1994, we have issued or sold unregistered
securities in the amounts, at the times, for the consideration and pursuant to
the exemptions from registration provided by the Securities Act of 1933, as
amended (the "Act"), as follows:
In 1998, pursuant to an exemption under Rule 701 of Regulation D
promulgated under the Act and in connection with our 1996 Stock Option Plan, we
granted options to purchase 20,000 shares of our Common Stock to employees.
In 1998, pursuant to an exemption under Section 4(2) of the Act and in
connection with our 1996 Stock Option Plan we granted options to purchase 82,800
shares of our Common Stock to non-employees.
-45-
In 1998, pursuant to an exemption under Section 4(2) of the Act and in
connection with the issuance of $800,000 in notes payable, we issued a warrant
to purchase 20,000 shares of our Common Stock. This warrant is exercisable at a
price of $4.00 per share until September 2001.
In 1998, pursuant to an exemption under Section 4(2) of the Act we
issued 15,000 shares of our Common Stock to employees for an aggregate price of
$15,000.
In 1998, pursuant to an exemption under Section 4(2) of the Act and in
connection with the conversion of $14,317 of debt to equity, we issued 2,727
shares of our Common Stock.
In 1998, pursuant to an exemption under Section 4(2) of the Act, we
issued 25,136 shares of our Common Stock for payment of current and future
services.
On December 30, 1999, pursuant to an exemption under Section 4(2) of the
Act and in connection with our acquisition of the outstanding Common Stock of
emPower, Inc., a Massachusetts corporation, we issued 265,676 shares of our
Common Stock and a warrant to purchase 200,000 shares of our Common Stock,
exercisable until December 30, 2002, to the shareholders of emPower, Inc.
In September 1999, pursuant to an exemption under Section 4(2) of the
Act and in connection with our acquisition of the assets of Big Boy Bicycles, a
Florida corporation, we issued 1000 shares of our Common Stock to the
shareholders of Big Boy Bicycles.
In July 1999, pursuant to an exemption under Section 4(2) of the Act and
in connection with our acquisition of the assets of American Scooter and Cycle
Rental, a California corporation, we issued 12,924 shares of our Common Stock to
the shareholders of American Scooter and Cycle Rental.
In 1999, pursuant to an exemption under Section 4(2) of the Act and in
connection with the settlement of litigation, we issued 8,666 shares of our
Common Stock to Transmag, Inc.
In 1999, pursuant to an exemption under Rule 701 of Regulation D
promulgated under the Act and in connection with our 1996 Stock Option Plan, we
granted options to purchase 35,000 shares of our Common Stock to employees.
In 1999, pursuant to an exemption under Rule 701 of Regulation D
promulgated under the Act and in connection with our 1999 Stock Option Plan, we
granted options to purchase 481,000 shares of our Common Stock to employees.
In 1999, pursuant to an exemption under Section 4(2) of the Act and in
connection with our 1999 and 1996 Stock Option Plans we granted options to
purchase 1,138,429 shares of our Common Stock to non-employees.
In 1999, pursuant to an exemption under Section 4(2) of the Act, we sold
29,833 shares of our Common Stock to purchasers for an aggregate price of
$177,900.
-46-
In 1999, pursuant to an exemption under Section 4(2) of the Act, we sold
746,119 shares of our Common Stock to purchasers for an aggregate price of
$1,720,600.
In 1999, pursuant to an exemption under Section 4(2) of the Act, we
issued 27,479 shares of our Common Stock for payment of current and future
services.
In 1999, pursuant to an exemption under Section 4(2) of the Act and in
connection with our 1999 Employee Common Stock Purchase Plan, we sold 6,588
shares of our Common Stock to employees for an aggregate price of $5,600.
In 1999, pursuant to an exemption under Section 4(2) of the Act and in
connection with the conversion of $664,700 of debt to equity, we issued 165,111
shares of our Common Stock.
In 1999, pursuant to an exemption provided by Rule 701 of Regulation D
promulgated under the Act and in connection with the exercise of employee stock
options, we issued 559,086 shares of our Common Stock to employees for an
aggregate price of $423,400.
On January 20, 2000, pursuant to an exemption under Section 4(2) of the
Act and in connection with our acquisition of the outstanding Common Stock of
Zap of Santa Cruz, Inc., a California corporation, we issued 8,803 shares of our
Common Stock to the shareholders of Zap of Santa Cruz, Inc.
On February 29, 2000, pursuant to an exemption under Section 4(2) of the
Act and in connection with our acquisition of the outstanding Common Stock of
Electric Vehicle Systems, Inc., a California corporation, we issued 25,000
shares of our Common Stock to the shareholders of Electric Vehicle Systems, Inc.
In October 2000, pursuant to an exemption under Section 4(2) of the Act
and in connection with our acquisition of the assets of EMB, Inc., we issued
140,000 shares of our Common Stock.
In July 2000, pursuant to an exemption under Section 4(2) of the Act and
in connection with our acquisition of Acquatic Propulsion Technology, Inc., a
Bahaman corporation, we issued 120,000 shares of our Common Stock to the
shareholders of Acquatic Propulsion Technology, Inc.
In July 2000, pursuant to an exemption under Section 4(2) of the Act,
we sold 3,000 shares of our Series A-1 Preferred Stock to investors for an
aggregate purchase price of $3,000,000. In connection with this sale we issued
warrants to purchase 816,666 shares of our Common Stock.
In October 2000, pursuant to an exemption under Section 4(2) of the Act,
we sold 2,000 shares of our Series A-2 Preferred Stock to investors for an
aggregate purchase price of $2,000,000.
In 2000, pursuant to an exemption under Section 4(2) of the Act, we
issued warrants to purchase 19,600 shares of our Common Stock.
-47-
In 2000, pursuant to an exemption under Section 4(2) of the Act, we
issued 23,300 shares of our Common Stock.
In 2000, pursuant to an exemption under Section 4(2) of the Act and an
exemption provided by Rule 701 of Regulation D promulgated under the Act and in
connection with our 1999 Stock Option Plan, we issued 414,150 shares of our
Common Stock to employees.
In 2000, pursuant to an exemption under Section 4(2) of the Act and in
connection with our 1999 Stock Option Plan we granted options to purchase
100,000 shares of our Common Stock to non-employees.
Item 27. Exhibits
Exhibit
Number Document
3.1 Articles of Incorporation of ZAP Power Systems, endorsed and filed on
September 23, 1994.
3.2 Certificate of Amendment to Articles of Incorporation of ZAP Power
Systems, endorsed and filed on November 8, 1996.
3.3 Certificate of Amendment of Articles of Incorporation of ZAP Power
Systems, endorsed and filed on June 2, 1999.
3.4 Certificate of Amendment of Articles of Incorporation of ZAPWORLD.COM,
endorsed and filed June 28, 2000.
3.5 Certificate of Determination of Rights and Preferences of the Series
A-1 Convertible Preferred Stock and Series A-2 Convertible Preferred
Stock, endorsed and filed June 28, 2000.
3.6 Bylaws of ZAP Power Systems, dated September 26, 1994.
3.7 Amended Bylaws of ZAPWORLD.COM, dated June 24, 2000.
5.1 Opinion of Foley & Lardner
10.1 Agreement and Plan of Reorganization By and Among ZAPWORLD.COM and ZAP
OF SANTA CRUZ, INC. dated January 20, 2000.
10.2 Agreement of Merger of ZAPWORLD.COM and ZAP OF SANTA CRUZ, INC. dated
January 20, 2000.
-48-
10.3 Plan of Reorganization for EMB, Inc. dated May 5, 2000.
10.4 Agreement between ZAPWORLD.COM and American Scooter & Cycles Rental,
Inc. dated July 12, 1999.
10.5 Asset Purchase Agreement between ZAPWORLD.COM and American Scooter and
Cycle Rentals, Inc. dated January 31, 2000.
10.6 Stock Purchase Agreement and Plan of Reorganization between
ZAPWORLD.COM, Barbary Coast Pedi Cab Leasing Corporation, and Jeff
Sears and Helena Sears as Trustees of the Jeff Sears and Helena Sears
Revocable Trust dated January 31, 2000.
10.7 Agreement and Plan of Reorganization by and among ZAPWORLD.COM and
Aquatic Propulsion Technology, Inc. dated July 1, 2000.
10.8 Agreement of Merger of ZAPWORLD.COM and Aquatic Propulsion Technology,
Inc. dated July 1, 2000.
10.9 Agreement and Plan of Reorganization by and among ZAPWORLD.COM,
emPower Acquisition, Inc. and EMPower Corporation dated December 17,
1999.
10.10 Lease Agreement between ZAP Power Systems and Daniel O. Davis and
Robin H. Davis for premises known as 117 Morris Street dated January
12, 1996.
10.11 Extension of Lease Between ZAP Power Systems and Daniel O. Davis and
Robin H. Davis for premises known as 117 Morris Street dated July 10,
1998.
10.12 Lease Agreement Between ZAPWORLD.COM and Pine Creek Properties for
6780 Depot Street dated August 6, 1999.
10.13 Lease Agreement Between ZAPWORLD.COM and Pine Creek Properties for
6784 Sebastopol Ave. dated August 24, 2000.
10.14 Lease Agreement Between ZAP POWER SYSTEMS and Daniel O. Davis and
Robbin H. Davis for 111 Morris Street dated June 5, 1998.
-49-
10.15 Lease Agreement Between ZAPWORLD.COM and Ron Basso DBA/R. S. Basso
Company for 7190 Keating Avenue dated July 1, 1996.
10.16 Sublease Agreement Between ZAPWORLD.COM and Ron Basso, an individual
doing business as R.S. Basso Company for 7190 Keating Avenue dated
August 1, 1999.
10.17 Sublease Agreement Between ZAPWORLD.COM and American Scooter and Cycle
Rental, Inc. for 2715 Hyde Street, San Francisco, CA dated July 13,
1999, plus addendum thereto dated April 4, 2000.
10.18 Lease Agreement Between ZAPWORLD.COM and Pine Creek Properties for
6780-B Depot Street dated October 16, 2000.
23.1 Consent of Foley & Lardner
23.2 Consent of Grant Thornton LLP
Item 28. Undertakings
a) The Registrant hereby undertakes that it will:
1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
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(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change
in the information in the registration statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the bona fide
offering.
3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the Offering.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of San
Francisco, state of California, on February 12, 2001.
Zapworld.com
By: /s/ Gary Starr
Gary Starr
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Signature Title Date
/s/ Gary Starr Chief Executive Officer, Chief February 12, 2001
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Gary Starr Financial Officer, and Director
/s/ Robert E. Swanson Chairman of the Board February 12, 2001
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Robert E. Swanson and Director
/s/ William D. Evers Director February 12, 2001
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William D. Evers
/s/ Harry Kraatz Director February 12, 2001
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Harry Kraatz