As filed with the Securities and Exchange Commission on May 24, 2001
Registration No. 333-55478
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
PRE-EFFECTIVE AMENDMENT NUMBER 2 TO 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 of incorporation) (I.R.S. Employer 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, and telephone number of agent for service)
-------------------------------------------
With a copy to:
William D. Evers
Foley & Lardner
1 Maritime Plaza, Sixth Floor
San Francisco, CA 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.
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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 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. [ ]
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CALCULATION OF REGISTRATION FEE
============================================================================================================
Title of each Amount Proposed maximum Proposed maximum
class of securities to be offering price aggregate offering Amount of
to be registered registered per unit) price Registration fee
------------------------------------------------------------------------------------------------------------
Series B Convertible Preferred 4,800,000 $2.50 $12,000,000 $ 6,000(1)
Stock, $2.50 par value
=======================================================================================
Common Stock, no par value(2) 8,000,000 $5.00 $40,000,000
=======================================================================================---------------------
Common Stock, no par value(3) 480,000 $3.00 $ 1,440,000 $360
=======================================================================================---------------------
(1) The Registration Fee has been calculated by multiplying the maximum conversion price of the Series B
Convertible Preferred Stock by the total number of shares of Series B Preferred Stock in this offering and
multiplying that number by .00025. $3,000 of the filing fee was previously paid.
(2) Consists of shares issuable upon the conversion of Series B Preferred Stock.
(3) Consists of shares purchasable upon the exercise of warrants issuable to the underwriters up to an amount
equal to 10% of the number of shares sold by the underwriters. 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.
============================================================================================================
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 capital 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.
Zapworld.com, a California corporation, is referred to herein by use of the
pronouns "we," "our," and "us."
See the section of this prospectus entitled "RISK FACTORS" for a discussion
of certain factors that you should consider before investing in our securities
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.
The information in this prospectus is not complete and may be changed. These
shares may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. The prospectus is not an offer
to sell these securities and is not a solicitation of offers to buy these
securities in any state where the offer or sale is not permitted.
[Logo]
ZAPWORLD.COM(R)
4,800,000 shares of Series B Convertible Preferred Stock
We are offering 4,800,000 shares of Zapworld.com(R) Series B Convertible
Preferred Stock at a price of $2.50 per share. The shares of Series B
Convertible Preferred Stock are convertible into shares of Common Stock at any
time at the option of the holder and automatically if certain conditions are
met. See the section of this document entitled "Description of Securities" for a
more detailed explanation. This price may not reflect the market price of our
shares after this offering. This is a best-efforts offering. Alexander, Wescott
& Co., Inc. and Donner Corp. International, whom we have engaged to sell the
shares, are not obligated to purchase any shares at any time. The shares may
also 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. 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.
----------------------
ZAPWORLD.COM(R)OFFERING Per Share Total
Public Offering Price $2.50 $12,000,000
Underwriting Discounts and Commissions $0.25 $ 1,200,000
Proceeds Before Expenses $2.25 $10,800,000
The proceeds before expenses are calculated before deducting estimated
expenses of $100,000, including registration fees, legal and accounting fees,
and other offering costs.
Shares of our Common Stock, into which shares of the Series B Preferred
Stock are convertible, are currently traded on the NASDAQ SmallCap Market under
the trading symbol "ZAPP." On May 17, 2001, the last reported sale price of our
Common Stock was $2.00 per share.
This offering will terminate on the date 12 months from the effective date,
or such earlier date as we may terminate this offering.
Investing in our securities involves risks. You should invest in our
securities 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.
---------------------------
Alexander, Wescott & Co., Inc.
Donner Corp. International
This prospectus is dated May ___, 2001.
NOTICE TO CALIFORNIA INVESTORS ONLY: THE SHARES OF THE COMPANY'S CAPITAL STOCK
IN THIS OFFERING MAY BE PURCHASED IN CALIFORNIA ONLY BY THOSE CALIFORNIA
INVESTORS WHO INDICATE IN WRITING THAT SUCH INVESTOR EITHER HAS (i) A LIQUID NET
WORTH OF NOT LESS THAN $75,000 AND A GROSS ANNUAL INCOME OF NOT LESS THAN
$50,000; OR (ii) A LIQUID NET WORTH OF $150,000, IN BOTH INSTANCES NET WORTH IS
CALCULATED EXCLUSIVE OF HOME, HOME FURNISHINGS, AND AUTOMOBILES AND IN EITHER
CASE, THE INVESTMENT IN THE SHARES DOES NOT EXCEED 10% OF THE INVESTOR'S NET
WORTH. CALIFORNIA INVESTORS WHOSE INVESTMENT IN THE COMPANY'S SHARES IS $2,500
OR LESS ARE NOT SUBJECT TO THE ABOVE SUITABILITY REQUIREMENTS.
CALIFORNIA INVESTORS SUBJECT TO THE SUITABILITY REQUIREMENTS MUST COMPLETE THE
SUBSCRIPTION AGREEMENT ATTACHED AS EXHIBIT A TO THIS PROSPECTUS AS A CONDITION
TO THEIR INVESTMENT IN THE SHARES.
TABLE OF CONTENTS
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Page
----
PROSPECTUS SUMMARY............................................................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.............................................................6
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.....................................................7
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........................9
We may not be able to protect our internet address.......................9
Our success is heavily dependent on protecting our intellectual
property rights..........................................................9
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 Common Stock is below the offering price
for the Series B Convertible Preferred Stock, which could render
us unable to sell shares in this offering...............................10
The price of our Series B Convertible Preferred Stock is likely to
be volatile and subject to wide price fluctuations......................10
This is a best-efforts offering, and we may not raise enough
capital from the sale of our Series B Convertible Preferred Stock
to adequately fund our planned method of growth and expansion...........11
Sales of a substantial amount of our capital stock after this
offering could cause our stock price to fall............................11
Holders of the Series A-1 and Series A-2 Convertible Preferred
Stock enjoy liquidation rights that are senior to the liquidation
rights of investors in this offering....................................11
FORWARD-LOOKING STATEMENTS...................................................11
USE OF PROCEEDS..............................................................12
DIVIDEND POLICY..............................................................13
MARKET FOR REGISTRANT'S COMMON STOCK EQUITY AND RELATED
STOCKHOLDER MATTERS.....................................................14
MANAGEMENT'S DISCUSSION AND ANALYSIS.........................................15
Overview................................................................15
Distribution............................................................15
Mergers and Acquisitions................................................16
Partnerships or Strategic Alliances.....................................17
Results of Operations...................................................18
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999...18
Liquidity And Capital Resources.........................................19
Seasonality.............................................................20
Inflation...............................................................20
Quarter Ended March 31, 2001 Compared to Quarter Ended March 31, 2000...20
Liquidity And Capital Resources.........................................22
DESCRIPTION OF BUSINESS......................................................24
Generally...............................................................24
Principal products or services and their markets........................24
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 Material................................30
Licenses, Patents and Trademarks........................................30
Backlog.................................................................30
Competitive Conditions..................................................30
Employees...............................................................31
Development of Business.................................................31
DESCRIPTION OF PROPERTY......................................................32
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.................32
EXECUTIVE COMPENSATION.......................................................35
Compensation of Directors...............................................35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............36
DESCRIPTION OF SECURITIES....................................................38
General.................................................................38
Common Stock............................................................38
Preferred Stock.........................................................38
Series A-1 and Series A-2 Convertible Preferred Stock...................38
Rights, Privileges, and Preferences.....................................39
Series B Convertible Preferred Stock....................................40
Rights, Privileges, and Preferences.....................................40
Transfer Agent and Registrar............................................41
Warrants................................................................41
Stock Options...........................................................41
PLAN OF DISTRIBUTION.........................................................45
LEGAL PROCEEDINGS............................................................46
INTEREST OF NAMED EXPERTS AND COUNSEL........................................46
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES..............................................46
LEGAL MATTERS................................................................47
EXPERTS......................................................................47
ADDITIONAL INFORMATION.......................................................47
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 securities 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.
-1-
The Offering
Type of security........................Series B Convertible Preferred Stock(1)
Series B Convertible Preferred Stock
registered by Company..............4,800,000 shares
Series B Convertible Preferred Stock
offered for sale by our Company
in this offering...................4,800,000 shares
Series B Convertible Preferred Stock
to be outstanding after
this offering (2)..................4,800,000 shares
Use of proceeds.........................We plan to use the proceeds of this
offering to expand our sales force,
increase our marketing and distribution
capacities, expand our domestic and
international business operations,
acquisitions, working capital and for
general corporate purposes. See the
section of this document entitled "Use
of Proceeds" for a more detailed
explanation.
This is a best-efforts offering. Our underwriters are not obligated to
purchase any shares at any time. While the underwriters have agreed to use their
best efforts to sell on our behalf all of the securities offered, there can be
no assurance that all of the shares offered will be sold. In addition, the
shares may also 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.
There is no minimum number of shares that must be sold. 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 until such earlier date as we may terminate this
offering.
(1) The Series B Convertible Preferred Stock is convertible, at the option of
the holder, at any time. Further, the Series B Convertible Preferred Stock shall
be converted automatically into shares of Common Stock on the day immediately
following the 30th consecutive trading day on which the closing price for our
Common Stock is equal to or exceeds the amount of $5.00 per share.
(2) Assumes that all shares we are offering will be sold.
-2-
SUMMARY FINANCIAL INFORMATION
The summary financial data for the twelve months ended December 31, 2000
and 1999, and the three months ended March 31, 2001 and 2000, have been derived
from the Financial Statements and Notes to Financial Statements. 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)
Year ended December 31, Three Months Three Months
ended ended
March 31, March 31,
(unaudited) (unaudited)
----------------------------------------------------------------
2000 1999 2001 2000
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Net Sales $12,443 $6,437 $2,013 $1,897
Cost of Goods Sold 7,860 4,446 1,542 1,183
----- ----- ----- -----
Gross Profit 4,583 1,991 471 714
Operating Expenses 6,727 3,497 1,777 1,226
----- ----- ----- -----
Operating Loss (2,144) (1,506) (1,306) (512)
Other Income 269 81 37 37
Interest Expense (21) (267) (15) (8)
---- ----- ---- ---
Loss before provision for (1,896) (1,692) (1,284) (483)
taxes
Provision for Income taxes 1 1 - -
- - - -
Net Loss $(1,897) $(1,693) $(1,284) $(483)
================================================================
Net Loss attributable to
Common shares
Net Loss $(1,897) $(1,693) $(1,284) $(483)
Preferred Dividend $(2,649) - (57) -
-------- -------- ---- ------
$(4,546) $(1,693) $(1,341) $(483)
-------- -------- -------- ------
Net loss per Common
share: basic and diluted $(0.85) $(0.43) $(0.22) $(0.09)
================================================================
-3-
December 31 March 31 March 31
----------------------------------------------------------------
Balance Sheet Data: 2000 1999 2001 2000
-----------------------------------------------------------------------------------------------------
Working Capital $7,054 $4,450 $5,851 $4,212
Total Assets $12,827 $7,727 $11,210 $6,980
Long-term Debt, less $126 $38 $144 $37
current portion
Stockholders' Equity $11,005 $6,554 $9,680 $6,289
-4-
RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our securities. 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, into which the
Series B Convertible Preferred Stock is convertible, 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 1999 to fiscal year 2000, we incurred net losses of
$1,693,000 and $1,897,000 for the years ended December 31, 1999 and 2000,
respectively. Further, we incurred net losses of $1,284,000 for the period ended
March 31, 2001. As a consequence, we can give 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.
A substantial portion of our growth in the past three years has come through
acquisitions and we may not be able to identify, complete and integrate future
acquisitions, which could adversely affect our future growth.
Our growth strategy is based in part upon acquiring other businesses with
strategic value to us. It is possible that we may not be able to identify
suitable acquisition candidates, obtain financing for future acquisitions or
complete future acquisitions. In addition, if any future acquisitions are
completed, we may not be able to integrate the acquired businesses or operate
them profitably. Additionally, the diversion of management attention, as well as
-5-
any other difficulties which may be encountered in the continuing integration
processes, could have an adverse impact on our financial condition,
profitability and cash flows.
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 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.
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
-6-
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 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 2000 were $699,000, as
compared to $365,000 in 1999, a 92% increase. Because we plan to develop new
electric vehicle products and tooling that will broaden our product line in
2001, we expect to incur increased research and development costs in 2001.
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,
-7-
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.
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.
-8
International expansion may cause problems for us.
We intend to shift our manufacturing overseas. Assuming we accomplish this
shift, we may encounter many of the risks associated with international
business. These risks include, but are not limited to, language barriers,
fluctuations in currency exchange rates, political and economic instability,
regulatory compliance difficulties, problems enforcing agreements, and greater
exposure of our intellectual property to markets where a high probability of
unlawful appropriation may occur. A failure to successfully mitigate any of
these potential risks could damage our business.
We may not be able to protect our internet address.
We currently hold the internet address http://www.zapworld.com. 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 the proprietary rights of others. However, we may not be able to do
this successfully. 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 electric bicycles. Additionally, we are currently litigating against a
company that is selling an electric scooter in the United States which we
believe infringes one or more of our patents and trademarks. We have also
discovered that this company has unlawfully sampled our copyrighted advertising
copy. While we cannot assure investors that we will prevail in this matter, we
hope to bring closure to this matter shortly. Regardless, we have already begun
to incur legal fees in prosecuting this matter, and may continue to incur
substantial legal fees and costs 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
-9-
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.
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 Common Stock is below the offering price for the Series
B Convertible Preferred Stock, which could render us unable to sell shares in
this offering.
We are offering to sell shares of Series B Convertible Preferred Stock at
the price on the cover page of this prospectus, whereas the market price for our
Common Stock, which is the underlying stock to which the Series B Preferred
Stock is convertible, is currently lower than this offering price. Our Common
Stock has experienced considerable volatility in price and if the market price
continues to be below the offering price, prospective investors will likely
choose to purchase shares of our Common Stock on the open market rather than
shares of Series B Convertible Preferred Stock 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 Series B Convertible Preferred Stock is likely to be volatile
and subject to wide price fluctuations.
Historically, the market price of our Common Stock has been, and will
likely continue to be, subject to wide price fluctuations. Because the Series B
Preferred Stock is convertible into shares of our Common Stock, the underlying
value of your Series B Preferred Stock is similarly volatile and subject to wide
price 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
underlying market price of your Series B Convertible Preferred 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. Consequently, investors might be unable to resell their
shares 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.
-10-
This is a best-efforts offering, and we may not raise enough capital from the
sale of our Series B Convertible Preferred Stock to adequately fund our planned
method of growth and expansion.
The underwriters, Alexander, Wescott & Co., Inc. and Donner Corp.
International are not obligated to purchase any number or dollar amount of
shares at any time. While the underwriters have separately agreed to use their
best efforts to sell on our behalf all of the Series B Convertible Preferred
Stock offered, there can be no assurance that all of the shares offered will be
sold. Our inability to obtain adequate financing may impede our growth and thus
negatively affect the return on your investment in our securities.
Sales of a substantial amount of our capital stock after this offering could
cause our stock price to fall.
Sales of a substantial number of shares of our capital 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.
Holders of the Series A-1 and Series A-2 Convertible Preferred Stock enjoy
liquidation rights that are senior to the liquidation rights of investors in
this offering.
Holders of the Series A-1 and Series A-2 Convertible Preferred Stock enjoy
liquidation rights that are senior to the liquidation rights of investors in
this offering. These investors have a right to receive an amount equal to the
Stated Value of their shares, plus any accrued and unpaid dividends that they
are entitled to receive, out of any assets liquidated in the event of our
dissolution. Nonetheless, holders of Series B Convertible Preferred Stock will
enjoy liquidation rights senior to holders of Common Stock, and on a pari passu
basis with respect to future holders of Preferred Stock.
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 10-KSB for the year ended
December 31, 2000, our quarterly report on Form 10-QSB for the period ended
March 31, 2001 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.
-11-
USE OF PROCEEDS
If the entire offering is sold, the net proceeds from the sale of the
securities we are offering, after deducting possible expenses and underwriting
fees, are estimated to be approximately $10,700,000. We are estimating that the
entire offering will be sold using two underwriters at a combined cost of 10.83%
for their fees, or $1,200,000, 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 $1,200,000 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 and underwriting fees. If we do not raise the maximum amount of
financing in this offering we plan to use the proceeds of this offering
according to the percentages listed below. However, we retain the right, in our
sole discretion, to change the manner in which we allocate the proceeds received
in this offering. We expect to use the net proceeds over a 12-month period in
approximately the following amounts and percentages:
--------------------------------------------------------------------------------
Net Proceeds: $ 12,000,000 Percentage
--------------------------------------------------------------------------------
Taiwan Factory $ 1,000,000 8.33%
Product Distribution $ 2,000,000 16.67%
Product Engineering $ 1,000,000 8.33%
Product Marketing $ 2,750,000 22.92%
Acquisitions $ 2,700,000 22.50%
Working Capital $ 1,250,000 10.42%
Expenses: $ 1,300,000 10.83%
Underwriting Fees $ 1,200,000 10.00%
Legal & Accounting Fees $ 90,000 0.75%
Miscellaneous $ 10,000 0.08%
--------------------------------------------------------------------------------
Totals: $12,000,000 100%
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
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motorcycles in Taiwan to be able to tap into this market and supply
low-cost units for international distribution. We estimate required
proceeds for the establishment of a factory of our own 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, needs 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 $2,750,000.
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
$2,700,000.
o Working Capital: We will require $1,250,000 for working capital in
order to grow our business through infrastructure and management
resources called for by our program for expansion.
DIVIDEND POLICY
We do not intend to declare or pay any cash dividends in the foreseeable
future on our Series B Convertible Preferred Stock or Common Stock. We presently
intend to retain all future earnings, if any, to fund the development of our
business. Cash dividends, if any, that may be paid in the future to holders of
Series B Convertible Preferred Stock or Common Stock
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will be payable when, as and if declared by our Board of Directors, based upon
our Board's assessment of our financial condition, our earnings, our need for
funds and other factors including any applicable laws.
MARKET FOR REGISTRANT'S COMMON STOCK
EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock has been listed in the NASDAQ Small Cap stock exchange
under the symbol "ZAPP" since May 22, 2000. Before this there was no public
market for our Common Stock.
As of May 17, 2001, there were 6,330,280 shares of Common Stock outstanding
held by 1,905 shareholders. The following table sets forth the high and low
prices of the Common Stock 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 Small Cap Stock exchange for the third quarter of 2000 through May 17,
2001.
2001 2000 1999
High Low High Low High Low
---- --- ---- --- ---- ---
(through
5/17/2001)
First Quarter 3.06 1.12 $10.00 $8.00 $4.375 $3.0625
Second Quarter 2.30 1.00 6.00 5.4375 8.75 4.25
Third Quarter - - 5.875 5.3125 6.875 5.00
Fourth Quarter - - 3.25 2.50 18.25 5.00
-14-
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 and
utilize 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 improve our existing products and develop new products by forming
manufacturing alliances with offshore partners to assure low-cost
production;
o expand our existing distribution system;
o strengthen existing marketing efforts; and
o form partnerships with or acquire companies that offer services or products
we consider crucial to our success in the electric vehicle industry.
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
-15-
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 product diversity 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.
("EMB") We issued 140,000 shares of our Common Stock and $100,000 in cash 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, and the assumption of Aquatic
Propulsion Technology, Inc.'s liabilities of approximately $500,000. 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, Inc. accounted for 5%, or
$316,000, of our total revenues during 1999, with a gross profit margin of 34%,
but a net loss after all expenses. 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.
-16-
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 production
facilities and 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 distribution agreement with our Taiwanese trading
partner for us to distribute the 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).
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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."
Year ended Year ended Quarter ended Quarter ended
December 31, 2000 December 31, 1999 March 31, 2001 March 31, 2000
----------------- ----------------- -------------- --------------
Statements of Operations Data:
Net sales............................ 100% 100.0% 100% 100%
Cost of Sales........................ 63.2 69.1 76.7 62.4
Gross profit......................... 36.8 30.9 23.3 37.6
Operating expenses................... 54.1 54.3 88.3 64.6
Loss from operations................. (17.3) (23.4) (65.0) (27.0)
Other income (expenses) 1.9 (2.9) 1.1 1.5
Loss before income taxes............. (15.4) (26.3) (63.9) (25.5)
Provision for income taxes........... 0.0 0.0 0.0 0.0
Net Loss............................. (15.4) (26.3) (63.9) (25.5)
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net sales for the year ended December 31, 2000 were $12.4 million compared
to $6.4 million in the prior year, an increase of $6 million or 93%. We
experienced such a dramatic increase due to a vastly expanded customer base with
larger retailers and distributors plus the addition of new products in 2000.
Fourth quarter sales for 2000 increased $2.3 million over the fourth quarter in
1999, which can be attributable to exceptionally strong holiday sales. Internet
sales were $602,800 and $259,100 in 2000 and 1999 respectively. This represented
a 133% increase for 2000. A total of $1.1 million in products was sold to one
customer during the year ended December 31, 2000, representing 9% of sales. In
the year ended December 31, 1999, $680,000, or 11% of net sales, was sold to one
customer.
Gross profit increased as a percentage of net sales to 37% from 31% during
the year ended December 31, 2000. The increase is primarily due to product mix
and is also the result of our emphasis to improve product margins through
greater cost controls and production efficiencies. It should also be noted that
the gross profit percentage in 1999 was adversely
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impacted as the result of a one-time sale to a large distributor at a
significant discount in the third quarter of 1999.
Selling and marketing expenses in 2000 were $2.2 million. This was an
increase of $1 million or 83% from $1.2 million in 1999. As a percentage of
sales, selling expenses remained consistent at 18% for both 2000 and 1999. This
increase was due to higher salaries and benefits as a result of expanding sales
and marketing personnel and greater expenses for marketing and promotional
items.
General and administrative expenses for 2000 were $3.8 million as compared
to $1.9 million in 1999, which represents an increase of $1.9 million over 1999.
As a percentage of sales, the General and Administrative Expenses remained
fairly consistent at 30% of sales for 2000 and 1999. The year-2000 increase was
due to higher salaries and benefits, greater expenses for consulting and
temporary labor, higher depreciation and amortization expenses as a result of
the current year acquisitions, increased general and liability insurance
premiums which are partially calculated on net sales for the year and finally
due to higher rent expense.
Research and development was $698,800 in 2000 as compared to $364,600 in
1999, which represents a $334,200 or 92% increase. As a percentage of net sales,
Research and Development remained consistent at 6% in 2000 and 1999. The overall
increase during the year was due to higher salary expense and greater R&D
activities.
Other income increased $188,000 from $81,000 in 1999 to $269,000 in 2000.
This increase can be attributed to $121,000 for higher interest earned on a
commercial paper money market fund from the proceeds of the issuance of
Preferred Stock. We also received a $67,000 grant during the year from a state
agency for a Neighborhood Electric Vehicle demonstration.
Interest Expense was $20,700 for the year ended 2000, which represents a
$246,300 decrease from $267,000 in 1999, which is the result of lower
outstanding debt in 2000.
Liquidity And Capital Resources
We used cash from operations of $3.7 million and $1.5 million during the
years ended December 31, 2000 and 1999 respectively. Cash used in operations in
2000 was the result of the net loss incurred for the year of $1.9 million,
offset by net non-cash expenses of $725,000, and the net change in operating
assets and liabilities resulting in a further cash use of $2.5 million . Cash
used in operations in 1999 was the result of the net loss incurred for the year
of $1.7 million, which was offset by net non-cash expenses of $637,000, and the
net change in assets and liabilities resulting in a further use of cash of
$407,000.
Investing activities used cash of $528,000 during the year ended December
31, 2000. Investing activities used cash for the purchase of fixed assets,
additional capitalized patent costs, intangibles and the purchase of Electric
Motorbike, Inc. In the year ended December 31, 1999, investing activities
provided cash of $602,000 which was principally due to proceeds from the emPower
acquisition.
Financing activities provided cash of $4.5 million and $3.6 million during
the years ended December 31, 2000 and 1999, respectively. In 2000, we received
$4.5 million in
-19-
proceeds from the issuance of $5 million of Series A-1 and Series A-2
Convertible Preferred Stock to a small group of private investors. The Series
A-1 and Series A-2 Convertible Preferred Stock may be converted into Common
Stock over a three-year period at a specified or variable price, which is
contained in the Securities Purchase Agreement with Union Atlantic. See section
entitled "Exhibits" for more information. A dividend is also attached to the
stock at a rate of 6% per annum. The dividend is payable in Common Stock or cash
at our discretion on June 30 each year or when the Series A-1 and Series A-2
Preferred Stock is converted into Common Stock. The private investors also
received warrants that expire in five years to purchase an additional 1.2
million shares of Common Stock at an exercise price ranging from $5.43 to $5.98.
In 1999, cash was provided by the sale of Common Stock in the amount of $1.8
million. Cash provided by the sale of stock in 1999 was partially used to
extinguish notes payable to individuals of $361,900. At December 31, 2000, we
had cash of $3.5 million as compared to $3.2 million at December 31, 1999. Our
working capital at December 31, 2000 was $7.1 million compared to $4.5 million
at December 31, 1999. The increase in cash and working capital is primarily due
to financing provided by private placement investments.
We believe existing cash and cash equivalents will be sufficient to meet
our operating requirements for at least the next twelve months, however we may
sell additional equity or debt securities to further enhance our liquidity
position.
Seasonality
Our business is subject to seasonality influences. Sales volume in this
industry typically slows down during the winter months of November through March
in the U.S. However, we are marketing worldwide, which mitigates the impact of
U.S. seasonality.
Inflation
Our raw materials are sourced from stable, cost competitive industries. As
such, we do not foresee any material inflationary trends for our raw material
sources. However, with the low unemployment rate currently seen in Sonoma
County, California, we expect that current wage rates will be driven up due to
competitive pressures from other local manufacturing companies. However, with
our recent focus on outsourcing our manufacturing requirements to overseas
facilities, we anticipate that our reliance on domestic production will
decrease.
Quarter Ended March 31, 2001 Compared to Quarter Ended March 31, 2000
Summary Comments Regarding First Quarter 2001 Results. Our overall
performance for the period ended March 31, 2001 was adversely affected by some
of the following key factors:
o Delays by former operations management to shift manufacturing from U.S. to
lower-cost overseas contract manufacturers.
o Loss of sales to low-cost competitors' products manufactured in China and
overseas as a result of alleged patent infringement. We have attempted
through legal action
-20-
to obtain unspecified damages and equitable relief from the alleged
infringement. See section below entitled "Legal Proceedings" for further
information.
o Delays in the manufacturing of new products such as the Swimmy(TM) due to
unexpected design modifications, which resulted from additional R&D
testing. Also some other planned new products have not been introduced as
timely as originally planned.
o Slower implementation of our plan to restructure the work force during the
quarter. Although 30% of personnel or 30 people have been cut since January
1, 2001, further reductions may be necessary as we transition from domestic
manufacturing to utilization of foreign contract manufacturers.
o Higher legal expenses associated with financing and lawsuit costs.
Net sales for the quarter ended March 31, 2001, were slightly higher than
the quarter ended March 31, 2000, or $2.0 million compared to $1.9 million in
the prior year. Foreign sales were higher by approximately $405,000 which was
offset by less domestic sales of $160,000 due to a post holiday lag.
Gross profit decreased from $714,000 to $471,000 or 34%. As a percentage of
net sales, it represents a decrease from 38% in 2000 to 23% in 2001. The gross
profit was affected by lower margins on the foreign contracts where price
reductions were made to move product and gain inroads into new markets. Market
pricing from offshore competitors and product mix also contributed to lower
gross profits. We are addressing this issue by shifting our manufacturing
overseas.
Selling and Marketing expenses in the quarter ended March 31, 2001 were
$426,000 as compared to $401,000 for the quarter ended March 31, 2000. As a
percentage of sales, selling and marketing expenses remained consistent at 21%
of net sales. The increase in expenses was due to higher salaries.
General and administrative expenses for the quarter ended March 31, 2001
were $1.1 million as compared to $680,000 for the quarter ended March 31, 2000.
This is an increase of $452,000 or 66%. As a percentage of sales, general and
administrative expense increased from 36% to 56% of net sales in 2001. The
increase in expenses for the first quarter of 2001 was due to higher salaries
and benefits, greater depreciation and amortization due to the business
acquisitions in the later half of 2000, higher legal and professional fees due
to the patent lawsuit and fund raising activities, and filing fees.
Research and development increased $74,000 or 51% in the 1st quarter of
2001 as compared to the 1st quarter of 2000. As a percentage of net sales it
increased to 11% of sales in the 1st quarter of 2001 as compared to 8% of sales
in the 1st quarter of 2000. Expense increases in the first quarter of 2001 as
compared to the first quarter of 2000 were the result of increased personnel
hired to assist in the development of new products.
Interest income for both quarters ended March 31, 2001 and 2000 remained
fairly consistent at $37,000.
-21-
Other expense increased from $8,000 to $15,000 in the first quarter of
2001. The reason for the increase was interest expense of approximately $15,000
in 2001 versus $1,000 in the first quartet of 2000.
Liquidity And Capital Resources
In the first quarter of 2001, net cash used by us for operating activities
was $1.9 million. In the first quarter of 2000, we used cash from operations of
$406,000. Cash used in the first quarter of 2001 was comprised of the net loss
incurred for the quarter of $1.3 million offset by net non-cash expenses of
$183,000 and the net change in operating assets and liabilities resulting in a
use of cash of $807,000. Cash used in operations in the first quarter of 2000
was comprised of the net loss incurred for the quarter of $483,000, offset by
net non-cash expenses of $131,000, and the net change in operating assets and
liabilities resulting in a further use of cash of $54,000.
Investing activities used cash of $65,000 in the first quarter of 2001 and
used $315,000 during the first quarter ended March 31, 2000. The uses of cash
were for the purchase of equipment and patents.
Financing activities used cash of $35,000 and provided cash of $198,000
during the first quarter ended March 31, 2001 and 2000, respectively.
At March 31, 2001, we had cash of $1.5 million, as compared to $2.7 million
at March 31, 2000. At March 31, 2001, we had working capital of $5.8 million, as
compared to working capital of $4.2 million at March 31, 2000. We, at present,
do not have a credit facility in place with a bank or other financial
institution. We believe that the cash on hand at March 31, 2001 will be
sufficient to allow us to continue our expected level of operations for the
remainder of the year.
Our primary capital needs are to fund our growth strategy, which includes
increasing our internet shopping mall presence, increasing distribution
channels, establish company owned and franchised ZAP stores, introducing new
products, improving existing product lines and development of strong corporate
infrastructure.
-22-
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 plan to
change our name to "ZAP" at our upcoming annual shareholders' meeting on June
16, 2001. We have grown from offering a single product line to providing a full
line of electric vehicle products. At our Sebastopol, California 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. As noted, we are closing down
most of our domestic manufacturing operations and have obtained lower-cost
overseas arrangements.
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 wheels.
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
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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.
o Lepton(TM)
The Lepton is similar to a gas 50cc type scooter (e.g., the "Moped"
overseas in Europe and, to lesser extent, in America). 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.
-25-
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.
o Zappy-XT(TM)
We introduced our new Zappy-XT(TM) at the Long Beach Action Sports
Retail (ASR) Expo in February 2001. The Zappy-XT(TM) is a
turbo-charged Zappy(R) with a new electric propulsion system that
offers an improved acceleration and hill climbing and has a high
performance mode that allows the scooter to reach speeds of 19.5 miles
per hour.
o ZapAdapt
We developed the ZapAdapt(TM), which is an electric assist for
wheelchairs. The motor device attaches to manual wheelchairs,
providing an affordable, convenient means of power-assist without
buying a fully powered wheelchair.
o Powerbike(R)
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The Powerbike(R) is primarily a mountain bike, with a new and improved
electric motor attached, designed to appeal to the low cost mass
merchant.
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.
In March, 2001, we opened a ZAPPYLAND(TM) store in Newport Beach,
California. This store is a joint venture between Donner Corporation and
Zapworld.com(R). We also intend to open additional 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.
We are the U.S. distributor of the Lepton(TM) scooter that is imported from
Italy. We also have agreements to distribute the Electric Pedi-Cab, the E-Kart,
the Golfcycle, and other electric vehicles.
We recently signed a distribution contract for exclusive distribution
rights in Korea. The contract is estimated to be worth sales of at least
$500,000 for 2001. It also includes a two-year extension option.
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.
-27-
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.
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 the implementation of a Zero
Emission Vehicle scooter mandate. 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
2000 and 1999 was $699,000 and $365,000, respectively, and $219,000 for the
three months ended March 31, 2001.
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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 No. 5,735,361 and
Patent No. 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 LucasFilms Licensing
Division for the use of the trade name STARWARS(TM) and STAP(TM) in the
classification of electric scooters.
Backlog
We have a $5.9 million backlog of orders and purchase contracts in hand for
electric vehicles as of May 17, 2001. We expect to fill our entire backlog
within the current fiscal year.
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,
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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 May 17, 2001, we had a total of 60 full-time employees. This is a
decrease of 25 employees from 1999. As we shift manufacturing overseas, we plan
to have further decreases in the number of employees. 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
founding, management has believed that the primary barrier to widespread use of
electric vehicles was their high cost. To offset these high costs, our activity
and revenue was initially derived from development contracts with domestic
government agencies, such as 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 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 2000, we acquired ZAP
of Santa Cruz, a bicycle rental business in
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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.
DESCRIPTION OF PROPERTY
A summary of our principal facilities are as follows:
Location Use Square Lease Minimum
Feet Expiration Date Monthly 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
6784 Sebastopol Warehouse 9,800 August 2005 $5,880
984 SW 13th Court Office, Distribution 3,100 July 2002 $2,200
All of the above buildings, except the store at 984 SW 13th Court, Pompano
Beach, Florida, 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. We are coordinating with various
individuals to franchise several retail stores in California by the end of
second quarter of 2001.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
MANAGEMENT
Name Age Position
---- --- --------
Gary Starr 45 Director, Chief Executive Officer
William R. Hartman 53 Chief Financial Officer
Robert Swanson 53 Director, Chairman of the Board
Doug Wilson 40 Director
William Evers 74 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
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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.
William R. Hartman was appointed Chief Financial Officer in March 2001. He
has been engaged as our financial consultant since January 2001. He has over 15
years of CFO or Controller experience in various industries. While in a previous
position as Division Controller for Sega of America he obtained extensive
experience in the consumer products manufacturing and distribution business.
Prior to his engagement at Zapworld.com, Mr. Hartman had been providing
financial and accounting consulting services to various Internet start-ups in
the San Francisco Bay area. Mr. Hartman is a Certified Public Accountant in the
State of California with a Masters in Accounting Degree from the State
University of New York. He also had previous public accounting experience as an
audit manager with Price Waterhouse Coopers in San Francisco.
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 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.
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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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EXECUTIVE COMPENSATION
The following tables set forth information concerning the compensation we
paid for services rendered during our fiscal years ended December 31, 2000,
1999, and 1998, 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
$100,000 in total annual salary and bonus for the fiscal years ended December
31, 2000, 1999, and 1998.
Summary Compensation Table
Annual Compensation Long -Term Compensation
Awards Payouts
------------------------------------------------
Other Restricted Stock
Annual Stock Underlying All Other
Salary Bonus Compensation Award Options LTIP Compen-
/SARs Payouts sation
Name and Principal Position Year ($) ($) ($) ($) (#) ($) ($)
---------------------------------------------------------------------------------------------------------------------------
Gary Starr 1998 35,700
Chief Executive officer 1999 39,500 200 135,000
And President 2000 59,600 700
Compensation of Directors
Our directors do not currently receive any cash compensation for service on
our board of directors. However, our directors may be reimbursed for expenses
they incur by attending board meetings.
In June 2000, Harry Kraatz was granted an option to purchase 100,000 shares
of common stock at an exercise price of $5.25 per share. The shares underlying
this option vest over a five-year period.
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 2000, Mr. Evers' law firm received $261,000 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.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information with respect to beneficial
ownership of our Common Stock as of May 17, 2001 and as adjusted to reflect the
sale of the shares offered by this prospectus by:
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 May 17,
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 12,742,590 shares of
Common Stock outstanding on a fully diluted basis as of May 22, 2001. The number
of shares of Common Stock outstanding on a fully diluted basis includes
6,330,280 shares of Common Stock outstanding, 1,642,000 shares of Common Stock
issuable upon the exercise of certain warrants and options granted to
non-employees, 1,438,000 shares of Common Stock issuable upon the exercise of
certain options granted to employees, 480,000 shares of Common Stock issuable
upon the exercise of certain warrants issuable to the underwriters and as much
as 2,852,310 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
at the current variable conversion price.(1)
As we believe that the conversion price for the Series A-1 Convertible
Preferred Stock was intended to be the fixed at $4.50 per share and the
conversion price for the Series A-2 Convertible Preferred Stock was intended to
be the fixed at $5.50 per share, without the alternative variable conversion
price, the board of directors has voted to discontinue honoring the conversions.
Negotiations between us and representatives of the holders of the Series A-1
Convertible Preferred Stock and the Series A-2 Convertible Preferred Stock are
currently underway.
Assuming that all presently outstanding shares of Series A-1 Convertible
Preferred Stock and Series A-2 Convertible Preferred Stock were converted into
common stock as of May 17, 2001, based upon the fixed conversion prices of $4.50
per share and $5.50 per share, respectively, the total number of shares issuable
upon conversion of those shares would be
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373,600 and 306,245, respectively. Assuming that all presently outstanding
shares of Series A-1 Convertible Preferred Stock and Series A-2 Convertible
Preferred Stock were converted into common stock, based upon the application of
a variable conversion price, the total number of shares issuable upon conversion
of those shares could be substantially greater.
(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 Series A-1 and Series
A-2 Preferred stockholders. Such formula divides each Series A-1 and Series A-2
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 Series A-1 and Series A-2 Preferred Stockholder converts. In
addition, all Series A-1 and Series A-2 Preferred Stockholders are subject to
automatic conversion three years from the date of purchasing the Series A-1 and
Series A-2 Preferred Stock. The number of shares of Common Stock that Series A-1
and Series A-2 Preferred Stockholders receive upon automatic conversion results
from the division of the stated value of $1,000 by the formula conversion price.
Shares Beneficially Owned Shares Beneficially Owned
Prior to Offering After Offering
Name of Beneficial Owner Number Percent Number Percent
The Endeavour Capital Fund, S.A. 1,878,137 14.7 1,878,137 9.1
P.O.B. 57116
Jerusalem 91570 Israel (1)
Douglas R. Wilson (2) 1,250,357 9.8 1,250,357 6.0
Lee Sanella (3) 71,952 * 71,952 *
William D. Evers (4) 77,029 * 77,029 *
Robert E. Swanson (5) 1,250,357 9.8 1,250,357 6.0
Gary Starr(6) 520,117 4.1 520,117 2.5
Harry Kraatz (7) 255,000 2.0 255,000 1.2
All Executive Officers and 2,174,455 17.1 2,174,455 10.5
directors as a group (6 persons)
* Represents beneficial ownership of less than 1%.
(1) Includes 1,878,137 shares of Common Stock issuable upon the conversion of
2,216 shares of Series A-1 and Series A-2 Preferred Stock. This assumes that we
will acquiesce to a conversion rate of less than $4.50 per share for the 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 May 17, 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
warrants exercisable as to 25,000 shares within 60 days of May 17, 2001, and as
to 50,000 shares, exercisable until April 2, 2002. 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 May 17, 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 May 17, 2001. Mr. Starr is
our CEO and a director.
(7) Includes 210,000 shares of Common Stock issuable upon the exercise of stock
options exercisable within 60 days of May 17, 2001. Mr. Kraatz is one of our
directors.
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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 May 17, 2001, 6,330,280 shares of our Common
Stock, 1,681 shares of our Series A-1 Preferred Stock and 1,684 shares of our
Series A-2 Preferred Stock were outstanding. There are currently no outstanding
shares of Series B Convertible Preferred Stock. As of May 17, 2001, we have of
record 1,905 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. 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 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 May 17, 2001, there were 1,681 shares of Series A-1
Convertible Preferred Stock outstanding and 1,684 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 or stock (at our convenience) 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. 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.
Each holder of Series A-1 and Series A-2 Convertible Preferred Stock may
convert that holder's shares into common stock at any time. The number of shares
of common stock that each holder of Series A-1 or Series A-2 Convertible
Preferred Stock is entitled to receive is determined by dividing the stated
value of the Series A-1 and A-2 Convertible Preferred Stock, which is presently
$1,000 by the conversion price for those shares. The conversion price for the
Series A-1 Convertible Preferred Stock is the lesser of $4.50 per share or the
variable conversion price for those shares. The conversion price for the Series
A-2 Convertible Preferred Stock is the lesser of $5.50 per share or the variable
conversion price for those shares. The variable conversion price means an amount
equal to the following:
o if shares of Series A-1 or Series A-2 Convertible Preferred Stock are
converted within one year of the sale of those shares, 85% of the
average of the three lowest closing bid prices over the 22 trading
days prior to the day the shares are converted;
o if shares of Series A-1 or Series A-2 Convertible Preferred Stock are
converted between one and two years after those shares were sold, 80%
of the average of the three lowest closing bid prices over the 22
trading days prior to the day the shares are converted; and
o if Series A-1 or Series A-2 Convertible Preferred Stock are converted
between two and three years after they were initially issued, 70% of
the average of the three lowest closing bid prices over the 45 days
prior to the day the shares are converted.
If any shares of Series A-1 or Series A-2 Convertible Preferred Stock have not
been converted prior to the third year anniversary of the sale of those shares,
then those shares shall be automatically converted into common stock on that
date.
As we believe that the conversion price for the Series A-1 Convertible
Preferred Stock was intended to be the fixed at $4.50 per share and the
conversion price for the Series A-2 Convertible Preferred Stock was intended to
be the fixed at $5.50 per share, without the alternative variable conversion
price, the board of directors has voted to discontinue honoring the conversions.
Negotiations between us and representatives of the holders of the Series A-1
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Convertible Preferred Stock and the Series A-2 Convertible Preferred Stock are
currently underway, however, this matter may not be resolved without litigation.
Assuming that all presently outstanding shares of Series A-1 Convertible
Preferred Stock and Series A-2 Convertible Preferred Stock were converted into
common stock as of May 17, 2001, based upon the fixed conversion prices of $4.50
per share and $5.50 per share, respectively, the total number of shares issuable
upon conversion of those shares would be 373,600 and 306,245, respectively.
Assuming that all presently outstanding shares of Series A-1 Convertible
Preferred Stock and Series A-2 Convertible Preferred Stock were converted into
common stock, based upon the application of a variable conversion price, the
total number of shares issuable upon conversion of those shares could be
substantially greater.
Series B Convertible Preferred Stock
We have authorized and designated 4,800,000 shares of Series B Convertible
Preferred Stock for the purpose of selling those shares pursuant to this
offering. Other than the Series A-1 and Series A-2 Convertible Preferred Stock,
no other series of Preferred Stock has been designated. As of the date of this
prospectus, there are no shares of Series B Convertible Preferred Stock
outstanding. The Series B Convertible Preferred Shares have a par value of $2.50
per share and a stated value of $2.50 per share.
Rights, Privileges, and Preferences
Following payment in full of the Series A-1 Preferred Stock cumulative
dividend and the Series A-2 Preferred Stock cumulative dividend, and prior to
any distributions of dividends to the holders of Common Stock, the holders of
outstanding Series B Preferred Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets at the time legally
available therefor, dividends on the same per share basis as the Common Stock
(the "Series B Dividend Preference"). No dividends or other distributions shall
be paid with respect to the Common Stock until the entire amount of the Series B
Dividend Preference shall have been declared and paid or set apart during the
year in which such dividend or other distribution to the Common Stock is paid or
proposed to be paid. The Series B Dividend Preference is non-cumulative and
shall be operative only at such time as the Board of Directors may decide to
pay, declare or set aside for payment any dividends on any shares of Common
Stock.
In the event of our liquidation, dissolution or winding up, either
voluntary or involuntary, and following payment in full of the Series A-1
Preferred Stock Liquidation Preference and the Series A-2 Preferred Stock
Liquidation Preference, the holders of Series B Preferred Stock shall be
entitled to receive, on a ratable basis out of our assets available for
distribution to shareholders, prior to and in preference to any distribution of
any of the assets of the Company to the holders of Common Stock, and ratable
with any other series of Preferred Stock (other than the Series A-1 Preferred
Stock and the Series A-2 Preferred Stock) based on the respective cost per share
of each other series, the amount of $2.50 per share (the "Series B Liquidation
Preference"). Following payment in full of the Series B Liquidation Preference
and the liquidation preferences (the cost of the shares) of any other series of
Preferred Stock, the holders of the Series B Preferred Stock shall participate
with any other series of Preferred Stock then outstanding and the Common Stock
on a pro rata per share basis
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in all additional distributions made upon liquidation, with each share of Series
B Preferred Stock and the other shares of Preferred Stock being deemed to equal
that number of shares of Common Stock into which that share of Preferred Stock
could be converted as of the date of the distribution; provided, however, that
the Series A-1 Preferred Stock and the Series A-2 Preferred Stock shall not
participate in any additional distributions.
Each share of Series B Preferred Stock shall be convertible, at the option
of the holder thereof, into fully paid and nonassessable shares of Common Stock
at any time after the date of issuance. In addition, each share of Series B
Preferred Stock shall be converted automatically into shares of Common Stock on
the day immediately following the thirtieth (30th) consecutive trading day on
which the closing price for our Common Stock was equal to or exceeded the amount
of $5.00 per share. The number of shares of Common Stock that each holder of
Series B Convertible Stock is entitled to receive upon conversion is determined
by dividing the Original Series B Preferred Stock Issue Price by the Conversion
Price at the time in effect for the series. The "Original Series B Issue Price"
shall be $2.50 per share. The "Conversion Price" per share for shares of Series
B Preferred Stock shall be the greater of $1.50 per share or the Variable
Conversion Price for those shares. The "Variable Conversion Price" means an
amount equal to 90% of the closing prices on the 5 trading days immediately
preceding the day we receive notice of conversion; provided, however, that the
Variable Conversion Price shall not exceed the amount of $5.00 per share.
Transfer Agent and Registrar
The transfer agent and registrar for our Common Stock and Preferred Stock
is Computershare Trust Company.
Warrants
As of May 17, 2001 we have issued warrants to purchase 1,379,512 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.
Pursuant to our Underwriting Agreement with Alexander, Wescott & Co., Inc.
and Donner Corp. International the underwriters are entitled to receive warrants
to purchase shares of Series B Convertible Preferred Stock in an amount equal to
10% of the number shares that each underwriter sells. The exercise price shall
be 120% of the offering price of the shares offered in this offering. The term
of the warrants shall be for three years from the date of effectiveness of the
SB-2 Registration Statement, of which this prospectus is contained within.
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
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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 option 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 the optionees' unexercised
options, then the board may grant to the 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.
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.
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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 option 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 the optionees' unexercised
options, then the board may grant to the 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 option 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
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the surviving entity does not tender to the optionees stock options or capital
stock of substantially the same economic benefit as the optionees' unexercised
options, then the board may grant to the 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.
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PLAN OF DISTRIBUTION
We have entered into an underwriting agreement with Alexander, Wescott &
Co., Inc. and Donner Corp. International providing for the sale of this
offering. The principal offices of Alexander, Wescott & Co., Inc. are located at
The Trump Building, 40 Wall Street, 31st Floor, New York, New York, 10005, and
its telephone number is (800) 713-3768. The principal offices of Donner Corp.
International are located at 2691 W. MacArthur Boulevard, Suite 120, Santa Ana,
California 92704-6931, and its telephone number is (800) 324-6050. Donner Corp.
International and Alexander, Wescott & Co., Inc., as the underwriters, may
engage other broker-dealer members of the NASD to participate as selected
placement agents in this offering of our capital stock.
This is a best-efforts offering. The underwriters are not obligated to
purchase any number or dollar amount of shares at any time. These agents have
agreed to use their best efforts to sell on our behalf all of the securities
offered by this prospectus. However, 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 the full amount of shares being offered
and then be unable to successfully complete all of the anticipated uses of the
proceeds of this offering. If fewer than the full amount of shares being offered
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.
We propose to offer our securities to the public at the public offering
price set forth on the cover of this prospectus, and will pay Alexander, Wescott
& Co., Inc. and Donner Corp. International the underwriters, commissions in an
amount equal to 10% of the aggregate purchase price of the securities sold. The
underwriters are also entitled to receive warrants to purchase shares of our
Series B Convertible Preferred Stock based on the number of shares sold by each
underwriter. Specifically, the underwriters are entitled to receive warrants in
an amount equal to 10% of the number shares that each underwriter sells. The
exercise price shall be 120% of the offering price of the shares offered in this
offering. The term of the warrants shall be for three years from the date of
effectiveness of the SB-2 Registration Statement, of which this prospectus is
contained within. The underwriters may allow all or any part of such commissions
to any selected placement agent. We and the underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933. The underwriters do not intend to conduct any
transaction for the purpose of stabilizing, maintaining, or otherwise affecting
the market price of our shares.
We may also sell through our executive officers who will not receive
commissions and who will be registered as sales representatives where required
under state securities laws. We also may appoint other broker-dealers to assist
in the sale of shares in the offering.
We will determine, in our sole discretion, to accept or reject
subscriptions within five days following their receipt. Funds of an investor
whose subscription is rejected will be promptly returned directly to such person
without interest or deduction. No subscription may be withdrawn, revoked or
terminated by the purchaser. We reserve the right to refuse to sell our
securities to any person at any time.
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LEGAL PROCEEDINGS
We are currently involved in a lawsuit against Master Shine USA, Inc., and
its related affiliates and subsidiaries ("Master Shine"), over alleged
copyright, patent, and trademark infringement regarding Master Shine's
importation and sale of electric scooters that are substantially similar to our
Zappy(R) electric scooter. In December 2000, Master Shine filed a lawsuit in the
U.S. District Court, Central District of California (Case No. CV 00-12078 NM
(CTx)) seeking declaratory relief. The Court has granted an injunction barring
Master Shine's use of our advertising materials. We are currently negotiating
with Master Shine a settlement with regard to our remaining allegations of
patent and trademark infringement.
We are currently defending a lawsuit brought by James McGreen, our former
president. Mr. McGreen is seeking approximately $100,000 for our alleged breach
of his employment contract. This matter is in arbitration. Mr. McGreen has also
filed a writ of attachment in California Superior Court against our bank
accounts. We are presently litigating the validity of this writ.
As we believe that the conversion price for the Series A-1 Convertible
Preferred Stock was intended to be the fixed at $4.50 per share and the
conversion price for the Series A-2 Convertible Preferred Stock was intended to
be the fixed at $5.50 per share, without the alternative variable conversion
price, the board of directors has voted to discontinue honoring the conversions.
Negotiations between us and representatives of the holders of the Series A-1
Convertible Preferred Stock and the Series A-2 Convertible Preferred Stock are
currently underway, however, this matter may not be resolved without litigation.
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.
-45-
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.
LEGAL MATTERS
Certain legal matters in connection with the capital 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, 2000
and 1999 appearing in this prospectus have been audited by Grant Thornton LLP,
independent certified public 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.
-46-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
ZAPWORLD.COM
We have audited the accompanying consolidated balance sheet of ZAPWORLD.COM
and Subsidiaries as of December 31, 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for the two years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ZAPWORLD.COM and Subsidiaries as of December 31, 2000, and the consolidated
results of their operations and their cash flows for the two years then ended in
conformity with accounting principles generally accepted in the United States of
America.
GRANT THORNTON LLP
San Francisco, California
March 9, 2001
F-1
ZAPWORLD.COM and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31,2000
(in thousands)
CURRENT ASSETS
Cash $ 3,543
Accounts receivable, net of allowance for doubtful accounts of $53 1,613
Inventories 2,898
Prepaid expenses and other assets 696
---------
Total current assets 8,750
PROPERTY AND EQUIPMENT - NET 510
OTHER ASSETS
Patents and trademarks, less accumulated amortization 1,432
Goodwill, less accumulated amortization 2,023
Deposits and other 112
---------
Total other assets 3,567
---------
Total assets $ 12,827
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 398
Accrued liabilities and customer deposits 1,167
Current maturities of long-term debt 99
Current maturities of obligations under capital leases 32
---------
Total current liabilities 1,696
OTHER LIABILITIES
Long-term debt, less current maturities 95
Obligations under capital leases, less current maturities 31
---------
126
COMMITMENT
STOCKHOLDERS' EQUITY
Preferred stock, authorized 10,000 shares of no par value;
issued and outstanding 4 shares 1,812
Common stock, authorized 20,000 shares of no par value;
issued and outstanding 5,816 shares 19,117
Accumulated deficit (9,664)
Unearned compensation (42)
---------
11,223
Less: notes receivable from shareholders (218)
---------
Total stockholders' equity 11,005
---------
Total liabilities and stockholders' equity $ 12,827
=========
See accompanying notes to financial statements.
F-2
ZAPWORLD.COM and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
(in thousands, except per share amounts)
2000 1999
---- ----
Net sales $ 12,443 $ 6,437
--------- --------
Cost of goods sold 7,860 4,446
Gross profit 4,583 1,991
Operating expenses
Selling 2,204 1,187
General and administrative 3,824 1,945
Research and development 699 365
--------- --------
6,727 3,497
--------- --------
Loss from operations (2,144) (1,506)
Other income (expense)
Interest expense (21) (267)
Other income 269 81
--------- --------
248 (186)
--------- --------
Loss before income taxes (1,896) (1,692)
Provision for income taxes 1 1
--------- --------
NET LOSS $ (1,897) $ (1,693)
========= ========
Net loss attributable to common shares
Net loss $ (1,897) $ (1,693)
Preferred dividend (2,649) -
--------- --------
$ (4,546) $ (1,693)
========= ========
Net loss per common share
Basic and diluted $ (0.85) (0.43)
========= ========
Weighted-average common shares outstanding 5,362 3,928
========= ========
See accompanying notes to financial statements.
F-3
ZAPWORLD.COM and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 2000 and 1999
(in thousands)
Unearned Note Receivable
Convertible Preferred Stock Common Stock Accumulated Compensation From
Shares Amount Shares Amount Deficit & Services Shareholder Total
------ ------- ------ ------- ------- -------- ------- -------
Balance, January 1, 1999 - $ - 2,665 $ 3,811 $(3,425) $ - $ - $ 386
Issuance of common stock
Cash 30 178 178
Private placement, net of expense of $614 746 1,721 1,721
Acquisitions 280 2,264 2,264
Advance to retail stores & technology co.'s 58 406 406
Employee stock purchase plan 1 6 6
Repurchase of shares (2) (11) (11)
Services 27 141 141
Litigation settlement 9 50 50
Conversion of Debt 165 665 665
Exercise of employee stock options 559 423 423
Exercise of non-employee stock options 571 2,000 2,000
Fair value of stock options granted to employees - 1 1
Fair value of stock options and warrants issued - 135 135
to non-employees
Stock options and warrants issued for future - 263 (127) 136
services
Amortization of unearned compensation 31 31
Note 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 convertible preferred stock
Series A-1 preferred stock, net of 3 2,705 2,705
issuance cost of $295
Series A-2 preferred stock, net of 2 1,808 1,808
issuance cost of $192
Common Stock warrants issued with - (2,292) - 2,292 -
preferred stock
Beneficial conversion feature of - 2,539 2,539
preferred stock
Deemed dividend from (2,539) (2,539)
preferred stock
Issuance of common stock
Cash 3 14 14
Acquisitions 260 1,522 1,522
Advance to retail stores & technology co.'s 10 50 50
Employee stock purchase plan 1 10 10
Services 11 42 42
Employee compensation 5 27 27
Preferred stock conversion (1) (409) 250 409 -
Cashless conversion of warrants 71 -
Exercise of employee stock options 84 96 96
Exercise of non-employee stock options 12 63 63
Amortization of unearned compensation 54 54
Payment on notes receivable 67 67
Dividend declared on preferred stock (110) (110)
Net loss (1,897) (1,897)
------ ------- ------ ------- ------- -------- ------- -------
Balance, December 31, 2000 4 $ 1,812 5,816 $19,117 $ (9,664) $ (42) $ (218) $11,005
====== ======= ====== ======= ======= ======== ======= =======
See accompanying notes to financial statements.
F-4
ZAPWORLD.COM and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
(in thousands)
2000 1999
---- ----
Cash flows from operating activities:
Net loss $ (1,897) $ (1,693)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 629 124
Issuance of common stock for services rendered 42 141
Issuance of common stock for litigation settlement - 50
Issuance of stock options for services rendered - 135
Noncash charges and settlement of debt - 156
Amortization of fair value of warrants 54 31
Changes in:
Receivables (1,260) (69)
Inventories (1,073) (878)
Prepaid expenses and other (393) 24
Deposits (18) (13)
Accounts payable (545) 312
Accrued liabilities and customer deposits 799 218
----- -----
Net cash used in operating activities (3,662) (1,462)
Cash flows from investing activities:
Purchase of property and equipment (239) (188)
Purchase of Electric Motorbike, Inc. (100) -
Purchase of American Scooter and Cycle Rental - (70)
Purchase of Big Boy Bicycles - (15)
Proceeds from emPower acquisition - 1,033
Purchase of intangibles (209) (66)
Payment advances for acquisitions - (72)
Issuance of note receivable - (20)
Payments on note receivable 20 -
----- ----
Net cash provided by (used in) financing activities (528) 602
Cash flows from financing activities:
Sale of preferred stock, net of preferred stock offering costs 4,513 -
Sale of common stock, net of stock offering costs 14 1,813
Issuance of common stock under employee purchase plan 10 6
Proceeds from issuance of long-term debt - (362)
Proceeds from exercise of stock options 159 2,423
Repurchase of common stock - (11)
Advances on note receivable to shareholder - (285)
Proceeds from payment of note receivable from shareholder 67 -
Payments on obligations under capital leases (13) (15)
Principal repayments on long-term debt (201) -
------ ------
Net cash provided by financing activities 4,549 3,569
------ ------
NET INCREASE IN CASH 359 2,709
Cash, beginning of year 3,184 475
------ ------
Cash, end of year $ 3,543 $ 3,184
========= =========
See accompanying notes to financial statements.
F-5
ZAPWORLD.COM
STATEMENTS OF CASH FLOWS
Year ended December 31,
(in thousands)
2000 1999
---- ----
Supplemental cash flow information:
----------------------------------
Cash paid during the year for:
Interest $ 21 $ 115
Income taxes 1 1
Non-cash investing and financing activities:
Conversion of debt into common stock - 475
Conversion of accounts payable into common stock - 35
Equipment acquired through capital lease obligations 27 27
Notes payable used to exercise stock options - 32
Issuance of common stock upon acquisition of Electric Motorbike,
Inc., and Aquatic Propulsion Technology 1,522 -
Issuance of common stock upon acquisition of American Scooter and
Cycle Rental, Big Boy Bicycles, and emPower Corporation - 2,264
Assets and liabilities recognized upon acquisition of Electric
Motorbike, Inc. and Aquatic Propulsion Technology
Inventories 100 -
Property and equipment 78 -
Other assets 19 -
Patent 196 -
Goodwill 1,991 -
Accounts payable 201 -
Advances from ZAPWORLD 206 -
Assets and liabilities recognized upon acquisition of American
Scooter and Cycle Rental, Big Boy Bicycles, and emPower
Corporation
Cash - 1,033
Inventories - 214
Prepaid expenses and other - 56
Property and equipment - 70
Patent - 1,155
Accounts payable - 131
See accompanying notes to financial statements.
F-6
ZAPWORLD.COM and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ZAPWORLD.COM ("the Company"), formerly the ZAP Power Systems, was
incorporated in California in September, 1994. The Company designs,
manufactures, and distributes electric bicycle power kits, electric bicycles
and tricycles, and other low power electric transportation vehicles. Company
products are sold directly to end-users and to distributors throughout the
United States.
1. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, ZAPWORLD Stores, Inc.,
and emPower Corporation. All significant inter-company transactions and
balances have been eliminated.
2. Revenue Recognition
The Company recognizes income when products are shipped.
3. 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.
4. 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 expense 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
5. Patents and Trademarks
Patents and trademarks consist of costs expended to perfect certain
patents and trademarks acquired and are amortized over ten years.
6. Goodwill
Goodwill consists of the excess consideration paid over net identifiable
assets acquired and is amortized over ten years.
F-7
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
7. Income Taxes
The Company accounts for income taxes using an asset and liability
approach for financial accounting and reporting purposes. Deferred
income tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities
and are measured using the currently enacted tax rates and laws.
8. Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management of the Company to make estimates and assumptions affecting
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements, as well as revenues and expenses during the reporting
period. The amounts estimated could differ from actual results.
9. Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with accounting principles generally accepted in the United States of
America. 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 fair
value of debt is not determinable due to the terms of the debt and no
comparable market for such note.
10. Net Loss Per Common Share
Net loss per common share, basic and diluted, has been computed using
weighted average common shares outstanding. The potential dilutive
securities of options and warrants of 2,859,000 and 1,304,000 in 2000
and 1999, respectively, and the conversion of preferred stock into
common stock as described in Note I, have been excluded from the
dilutive computations, as their inclusion would be anti-dilutive.
11. Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board ("APB")
No. 25, Accounting for Stock Issued to Employees, and complies with
disclosure provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation. Under APB No.
25, compensation cost is recognized over the vesting period based on the
difference, if any, on the date of grant between the quoted market price
of the Company's stock and the amount an employee must pay to acquire
the stock.
12. Segment Information
The Company operates in one reportable segment. The Company's chief
operating decision maker is the Chief Executive Officer who reviews a
single set of financial data that encompasses the Company's entire
operations for purposes of making operating decisions and assessing
performance.
13. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, which
defined derivatives, requires that all derivatives be carried at fair
value and provides for hedge accounting when certain conditions are met.
SFAS No. 133, as amended by SFAS No. 137, is effective for the Company
in fiscal 2001. Although the Company has not fully assessed the
implication of SFAS No. 133 as amended, the Company does not believe
that the adoption of this statement will have a material effect on its
financial condition or results of operations.
F-8
NOTE B - INVENTORIES
Inventories consist of the following at December 31, 2000 (thousands):
Raw materials $ 1,960
Work-in-process 78
Finished goods 860
----------
$ 2,898
==========
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 2000
(thousands):
Machinery and equipment $ 371
Computer equipment 289
Demonstration bicycles 90
Office furniture and equipment 111
Leasehold improvements 94
Vehicle 118
----------
1,073
Less accumulated depreciation and amortization 563
----------
$ 510
==========
NOTE D - DEBT
Promissory note payable in monthly installments of $6,000 through
June 30, 2001 and $7,000 per month through July 1, 2004. Interest
accrues at 10% per year. The note is convertible into common
stock at $5.00 per share and may be converted on or before
December 31, 2000. At December 31, 2000, none of the note
principal was converted (thousands) $ 165
Other 29
---------
194
Less current portion 99
---------
Long-term debt $ 95
=========
Installments due on debt principal are as follows (thousands):
Year ending December 31,
------------------------
2001 $ 99
2002 89
2003 6
-------
$ 194
=======
F-9
NOTE E - PROVISION FOR INCOME TAXES
2000 1999
---------- -----------
Current tax expense (thousands)
Federal $ - $ -
State 1 1
---------- -----------
$ 1 $ 1
========== ===========
Deferred tax assets (liabilities)
Tax loss carryforward $ 2,057 $ 1,820
Inventory capitalization (283) (99)
Other (37) (71)
---------- -----------
1,737 1,650
Less valuation allowance (1,737) (1,650)
---------- -----------
Net deferred tax asset $ - $ -
========== ===========
The Company has available for carryforward approximately $4,549,000 and
$2,660,000 of federal and state net operating losses, respectively, expiring
through 2020 for federal purposes and 2010 for state purposes. 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 carryforwards 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
change in the valuation allowance at December 31, 2000 and 1999 was $87,000
and $435,000, respectively.
The difference between the income tax expense at the federal statutory rate
and the Company's effective tax rate is as follows:
December 31,
-----------
2000 1999
---- ----
Statutory federal income tax rate 34% 34%
State income tax rate 6 6
Valuation allowance (40) (40)
------ ------
-% -%
====== ======
F-10
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 two or three year period, and expire ten years after the date of
grant.
Option activity under the three plans is as follows (thousands, except per
share amounts):
1999 Plan 1996 Plan 1995 Plan
----------------------- ------------------------ -------------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
---------- ----- ---------- ----- ----------- ------
Outstanding at January 1, 1999 - $ - 364 $1.55 419 $0.56
Granted 481 $6.33 35 $4.06 - -
Exercised (1) $5.00 (259) $1.15 (299) $0.40
Canceled (1) $5.00 (14) $3.50 (50) $1.00
---------- ---------- ----------- -----
Outstanding at December 31, 1999 479 $6.34 126 $2.85 70 $0.93
Granted 630 $5.17 - - -
Exercised (7) $5.00 (52) $1.23 (25) $1.00
Canceled (4) $5.25 - - - -
---------- ---------- ----------- ------
Outstanding at December 31, 2000 1,098 $5.71 74 $3.97 45 $1.00
========== ========== ========== =====
The weighted-average fair value of options granted during the years ending
December 31, 2000 and 1999 was $3.52 and $4.33, respectively.
The following information applies to options outstanding at December 31,
2000:
Plan: 1999 1996 1995
---- ---- ----
Range of exercise prices $4.12 - $9.87 $1.00 - 5.25 $1.00
Weighted-average remaining life (years) 9.15 7.07 5.50
Options exercisable 303,000 72,000 45,000
Weighted average exercise price $5.96 $3.97 $1.00
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 during 2000 and 1999. 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 common share would have approximated the following
proforma amounts (thousands, except per share amounts):
2000 1999
------------- ----------
Net loss - as reported $ (1,897) $ (1,693)
Net loss - pro forma (3,448) (2,687)
Loss per common share - as reported (0.85) (0.43)
Loss per common share - pro forma (1.14) (0.68)
F-11
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:
2000 1999
--------- -----------
Dividends None None
Expected volatility 72% 86%
Risk free interest rate 6% 6%
Expected life 5 years 5 years
The Company granted stock options and warrants to purchase common stock to
non-employees of the company. Total granted during 2000 was 1,437,000
consisting of 1,185,000 warrants to preferred shareholders and 32,000 to
other non-employees. The options and warrants have exercise prices ranging
from $5.43 to $5.98. Non-employee options and warrants exercisable at
December 31, 2000 is 1,607,000.
During 1999, the Company granted a total of 1,138,000 options and warrants
to purchase common stock to non-employees consisting of 671,000 in
connection with the private placement, 200,000 in connection with the
emPower acquisition, 100,000 in connection with placement fees and 167,000
to other non-employees. The options and warrants have exercise prices
ranging from $3.02 to $6.36.
The Company recorded the non-employee options and grants based on the grant
date for value in accordance with SFAS No. 123. The grant date fair value of
each stock option was estimated using the Black-Scholes option-pricing
model. The Company recorded expense including amortization of unearned
compensation in the amount of $54,000 and $166,000 for the years ended
December 31, 2000 and 1999, respectively.
Options and warrant activity for non-employees is as follows (in thousands
except per share amounts):
Weighted
Average
-------
Outstanding at 1/1/99 126 $4.74
Granted 1,138 4.58
Exercised (571) 3.50
Forfeited (64) 4.75
---------
Outstanding at 12/31/99 629 5.51
Granted 1,217 5.55
Exercised (83) 5.45
Forfeited (121) 5.51
--------
Outstanding at 12/31/2000 1,642 $5.37
========
NOTE G - MAJOR CUSTOMER
During 2000, one customer accounted for $1,112,000 or 9% of the Company's
net sales. During 1999, one customer accounted for $680,000 or 11% of the
Company's net sales.
During 2000, one vendor accounted for $3,054,000 or 44% of the Company's
supplies and materials. During 1999, one vendor accounted for $799,000 or
12% of the Company's supplies and materials.
F-12
NOTE H - COMMITMENT
The Company rents warehouse and office space under operating leases that
expire through 2005. The monthly rent is adjusted annually to reflect the
average percentage increase in the Consumer Price Index. An option exists to
extend each lease for an additional five- year period. Rent expense under
these leases were $250,000 and $125,000 in 2000 and 1999, respectively.
Future minimum lease payments on the lease are as follows (thousands):
Year ending December 31,
2001 $ 388
2002 338
2003 332
2004 173
2005 48
----------
Total $ 1,279
==========
NOTE I - PREFERRED STOCK
During 2000, the Company issued three thousand shares of Preferred Stock
Series A-1 and 2 thousand shares of Preferred Stock Series A-2. Both series
are immediately convertible into common stock at the lesser of the fixed
price of $4.50 for the Series A-1 and $5.91 for the Series A-2, or at the
variable conversion price determined as follows: (1) on or before the first
anniversary date, the amount of 85% of the average of the 3 lowest closing
price over the 22 trading days prior to conversion, (2) thereafter and or
before the second anniversary, the amount of 80% of the average of the 3
lowest closing prices over the 22 days prior to conversion, and (3)
thereafter and on or before the day prior to the third anniversary date, the
amount of 70% of the average of the 3 lowest closing prices over the 45
trading days prior to conversion. Dividends are cumulative and accrue at 6%
per year and payable on June 30th of each year or on conversion date.
Dividends are payable in cash or in common stock at the Company's option.
During the year, 920 shares of preferred stock were converted into common
stock. All preferred stockholders are subject to automatic conversion to
common stock three years from the date of purchase.
During the year, the Company recorded a deemed dividend on preferred stock
of approximately $2.5 million. This is a result of the effective conversion
price of the convertible preferred stock issued during the year being less
than the market price of the common stock on the commitment date of the
transaction. All deemed dividends related to the transaction have been
recognized during the year as a result of all preferred stock being
immediately convertible at the discretion of the holder.
In connection with the issuance of the above preferred stock, the Company
granted 1,185,000 warrants to purchase common stock. The warrants are
immediately exercisable and have exercise prices ranging from $5.43 to
$5.98.
F-13
NOTE J - ACQUISITIONS
In October 2000, the Company purchased all assets of Electric Motorbike Inc.
("EMB") and assumed certain liabilities. The Company issued 140,000 shares
of common stock at $5.68 and paid $100,000 in cash. The purchase price was
allocated to assets acquired based on their estimated fair value. Results of
operations for EMB have been included with those of the Company for the
periods subsequent to the date of acquisition. Pro forma information is not
presented as they are not significant.
The purchase price of EMB was allocated as follows (thousands):
Inventory $ 51
Goodwill 960
Advances from ZAPWORLD (63)
Liabilities assumed (53)
-----------------
$ 895
===============
Consideration paid (thousands):
Cash $ 100
Common stock 795
----------------
$ 895
================
In July 2000, the Company purchased all assets of Aquatic Propulsion Technology,
Inc. ("APT") and assumed certain liabilities. The Company issued 120,000 shares
of common stock at $6.05 per share. The purchase price was allocated to the
assets acquired and liabilities assumed based on their estimated fair values.
Results of operations for APT have been included with those of the Company for
periods subsequent to the date of acquisition. Pro forma information is not
presented as they are not significant.
The purchase price of APT was allocated as follows (thousands):
Inventory $ 49
Property & equipment 78
Patents 196
Other assets 19
Goodwill 1,031
Note payable assumed (356)
Advances from ZAPWORLD (143)
Liabilities assumed (148)
-----------------
$ 726
===============
Consideration paid (thousands):
Common stock $ 726
================
F-14
ZAPWORLD.COM
UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 2001
CONSOLIDATED BALANCE SHEET
(In thousands)
March 31,
2001
-----------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $1,535
Accounts receivable, net of allowance for doubtful accounts of $53 1,722
Inventories 3,602
Prepaid expenses and other assets 378
--------
Total current assets 7,237
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $600 509
OTHER ASSETS
Patents & Trademarks, net of accumulated amortization of $218 1,480
Goodwill, net of accumulated amortization of $224 1,872
Deposits and other 112
--------
Total other assets 3,464
Total assets $11,210
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $643
Accrued liabilities and other expenses 607
Current maturities of long-term debt 99
Current maturities of obligations under capital leases 37
--------
Total current liabilities 1,386
OTHER LIABILITIES
Long-Term Debt, less current maturities 106
Obligations under capital leases, less current maturities 38
--------
Total other liabilities 144
--------
Total liabilities 1,530
STOCKHOLDERS' EQUITY
Preferred stock, authorized 10,000 shares; 4 shares
Issued and outstanding 1,605
Common stock, authorized 20,000 shares of
no par value; issued and outstanding 6,040 shares 19,324
Accumulated deficit (11,003)
Unearned compensation (28)
--------
9,898
Less: notes receivable from stockholders' (218)
--------
Total stockholders' equity 9,680
--------
Total liabilities and stockholders' equity $11,210
------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
F-15
ZAPWORLD.COM
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except share amounts)
Three months ended March 31,
2001 2000
---- ----
NET SALES $2,013 $ 1,897
COST OF GOODS SOLD 1,542 1,183
----- -----
GROSS PROFIT 471 714
OPERATING EXPENSES
Selling and marketing 426 401
General and administrative 1,132 680
Research and development 219 145
--- ---
1,777 1,226
----- -----
LOSS FROM OPERATIONS (1,306) ( 512)
------- -----
OTHER INCOME (EXPENSE)
Interest income 37 37
Other expense (15) (8)
---- ---
22 29
-- --
NET LOSS $ (1,284) $ (483)
========== =======
Net loss attributable to common shares
Net loss $ (1,284) $ (483)
Preferred Dividend (57) -
---- -----
$ (1,341) $ (483)
======= =======
NET LOSS PER COMMON SHARE
BASIC AND DILUTED $(0.22) $(0.09)
======= =======
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 5,962 5,150
===== =====
See accompany notes to consolidated financial statements
F-16
ZAPWORLD.COM
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three months ended March 31,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,284) ($483)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 169 100
Allowance for doubtful accounts - 18
Amortization of the fair market value of warrants 14 13
Changes in:
Receivables (109) (141)
Inventories (704) 333
Deposits - (11)
Advances to retail stores & technology companies - 291
Prepaid expenses and other assets 317 (51)
Accounts payable 245 (284)
Accrued liabilities and customer deposits (556) (191)
-------- --------
Net cash used for operating activities (1,908) (406)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (46) (153)
Purchase of Patents and intangibles (19) (162)
-------- --------
Net cash used for investing activities (65) (315)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock, net of stock offering costs - 204
Accrual of Dividend on Preferred Stock (57) -
Principal repayments on long-term debt (22) (4)
Payments on obligations under capital leases 44 (2)
-------- --------
Net cash provided by (used for) financing activities (35) 198
-------- --------
NET DECREASE IN CASH (2,008) (524)
CASH, beginning of period 3,543 3,184
-------- --------
CASH, end of period $1,535 $2,660
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the quarter for interest $15 $2
See accompanying notes to consolidated financial statements.
F-17
ZAPWORLD.COM
NOTES TO THE INTERIM UNAUDITED FINANCIAL STATEMENTS
Basis of Presentation
The March 31, 2001 first quarter financial statements included herein have
been prepared by the Company, without audit. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted, although management believes the disclosures are
adequate to make the information presented not misleading. The results of
operations for any interim period are not necessarily indicative of results for
a full year. These statements should be read in conjunction with the December
31, 2000 year end financial statements and related notes included above.
The financial statements presented herein, for the three months ended March
31, 2001 and 2000 reflect, in the opinion of management, all material
adjustments consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position, results of operations and cash flow for
the interim periods.
The net loss per common share is based on the weighted average number of
common shares outstanding in each period. Potential dilutive securities
associated with stock options, warrants and conversion of preferred stock have
been excluded from the weighted average shares outstanding since the effect of
these securities would be anti-dilutive.
Principles Of Consolidation
The accounts of the Company and its consolidated subsidiaries are included
in the consolidated financial statements after elimination of significant
inter-company accounts and transactions.
Common Stock
The Company's Common Stock has been listed in the NASDAQ Small Cap stock
exchange under the symbol "ZAPP" since May 22,2000. From March 11, 1998 to May
22, 2000 the Company's Common Stock was listed on the OTC Bulletin Board under
the stock symbol "ZAPP".
F-18
ZAPWORLD.COM
SUBSCRIPTION AGREEMENT
(For California Investors Only)
California investors who are purchasing more than $2,500 of the Company's
shares (the "Shares") in this offering must meet certain minimum suitability
requirements as a condition to registration of the Shares under the California
Corporate Securities Law of 1968. This Subscription Agreement, as executed by
the investor, will serve to declare investor's qualification to purchase the
Shares pursuant to the minimum suitability requirements.
I hereby represent and warrant that I have a liquid net worth of not less
than $75,000 (exclusive of home, home furnishings and automobiles) and a $50,000
gross annual income or $150,000 liquid net worth (exclusive of home, home
furnishings and automobiles), and in either case my investment in the Shares
will not exceed 10% of my net worth.
Name of Investor(s):
-----------------------------------------------------------
Signature of Investor(s):
------------------------------------------------------
Signature of Joint Investor (if any):
Date:
--------------------------------------------------------------------------
Resident Address:
--------------------------------------------------------------------------
(Street) (City) (State) (Zip Code)
-47-
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 in connection with the
sale of the our capital stock being offered in this SB-2 Registration Statement.
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.
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
-48-
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.
-49-
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.
In December 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.
In December 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.
On June 1, 2000, pursuant to an exemption under Section 4(2) of the Act, we
granted options to purchase 200,000 shares of common stock to employees.
On June 24, 2000, pursuant to an exemption under Section 4(2) of the Act,
we granted an option to purchase 12,000 shares of common stock to a consultant
and granted an option to purchase 161,300 shares of common stock to employees.
We also issued 3,422 shares of common stock to discharge outstanding debts.
On July 19, 2000, pursuant to an exemption under Section 4(2) of the Act,
we issued 1,027 shares of common stock to a consultant and issued 3,400 shares
of common stock to discharge an outstanding debt.
On July 19, 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,
we granted options to purchase 261,500 shares of common stock to employees.
In July 2000, pursuant to an exemption under Section 4(2) of the Act and in
connection with the acquisition of Acquatic Propulsion Technology, Inc., a
Bahaman corporation, we
-50-
issued 120,000 shares of 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 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.
On September 12, 2000, pursuant to an exemption under Section 4(2) of the
Act, we issued 800 shares of common stock to employees.
On October 6, 2000, pursuant to an exemption under Section 4(2) of the Act,
we granted options to purchase 7,100 shares of common stock to consultants and
issued 10,940 shares of common stock pursuant to a consulting agreement and a
joint venture marketing agreement.
On October 6, 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,
we granted options to purchase 9,500 shares of common stock to employees.
In October 2000, pursuant to an exemption under Section 4(2) of the Act and
in connection with the acquisition of the assets of EMB, Inc., we issued 140,000
shares of Common Stock.
In October 2000, pursuant to an exemption under Section 4(2) of the Act, we
sold 2,000 shares of Series A-2 Preferred Stock to investors for an aggregate
purchase price of $2,000,000. In connection with this sale we issued warrants to
purchase 368,323 shares of our common stock.
On December 7, 2000, pursuant to an exemption under Section 4(2) of the
Act, we granted options to purchase 12,500 shares of common stock to consultants
and issued 2,300 shares of common stock to employees.
On December 7, 2000, pursuant to an exemption under Section 4(2) of the
Act, we issued 2,250 shares of common stock to consultants.
On March 27, 2001, 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,
we granted options to purchase 220,000 shares of common stock to four (4)
employees.
-51-
Item 27. Exhibits
------------------
Exhibit
Number Document
1.1 Underwriting Agreement between Zapworld.com, Alexander, Wescott &
Co., Inc. and Donner Corp. International, dated May __, 2001.
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.
3.8 Certificate of Determination of Rights and Preferences of the
Series B Convertible Preferred Stock.
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.
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.
-52-
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.
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.
-53-
23.1 Consent of Grant Thornton LLP.
23.2 Consent of Foley & Lardner.
* Filed with Pre-effective Amendment Number 1 to Form SB-2 registration
statement filed with the Securities and Exchange Commission on May 3, 2001.
-54-
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:
(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.
-55-
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 May 24, 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 May 24, 2001
---------------- and Director
Gary Starr
/s/ William R. Hartman Chief Financial Officer May 24, 2001
------------------------
William R. Hartman
/s/ Robert E. Swanson Chairman of the Board May 24, 2001
----------------------- and Director
Robert E. Swanson
/s/ William D. Evers Director May 24, 2001
----------------------
William D. Evers
/s/ Harry Kraatz Director May 24, 2001
------------------
Harry Kraatz
-56-