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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-KSB/A
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 1999
ZAPWORLD.COM
(Name of small business issuer in its charter)
CALIFORNIA 94-3210624
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
117 Morris Street
Sebastopol, CA 95472
(707) 824-4150
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Securities registered under section 12(b) of the Exchange Act:
None
Securities registered under section 12(g) of the Exchange Act:
None
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YesX No
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. Yes XNo
State issuer's revenues for its most recent fiscal year: $6,437,200
The aggregate market value of the Company's voting common stock held by
non-affiliates as of March 27, 2000, based on the average Bid and Ask price on
that date was $49,126,100.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
5,204,034 shares of common stock as of March 27, 2000.
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<PAGE>
TABLE OF CONTENTS
Part I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7. Consolidated Financial Statements and Supplementary Data
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership and Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
Item 14. Additional Exhibits
Item 15. Signatures
2
<PAGE>
Part I
Item 1. Description of Business
The information on Form 10-KSB contain forward-looking statements based on
current expectations, estimates and projections about the Company's industry,
management's beliefs and certain assumptions made by management. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Forward Looking Statements."
A. Business Development
ZAPWORLD.COM (the "Company" or "ZAP") was incorporated under the laws of the
State of California, on September 23, 1994, under its original name, "ZAP Power
Systems". The name of the Company was changed on May 16, 1999 to reflect the
company's growth and entry into larger markets. The Company has grown from a
single product line to a full line of electric vehicle products. At its
Sebastopol facilities, the Company designs, assembles, manufactures and
distributes electric bicycle power kits, electric bicycles and tricycles,
electric scooters, electric motorcycles and other personal electric
transportation vehicles.
The Company was established 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. The Company's objective is to leverage
its proprietary technology and name recognition to serve a number of high
potential markets in the electric bicycle, electric scooter, and other light
electric vehicle transportation industries. Since the Company's management
believed that the primary barrier to widespread use of electric vehicles was
their high cost, the Company's activity and revenue was initially derived from
development contracts from domestic government agencies and a foreign private
entity. These contracts were set up to develop low cost Zero Air Pollution (or
ZAP) type electric vehicles. The Company continues to focus its research efforts
on making electric vehicles cost effective, while developing an international
distribution network for personal vehicle products.
The Company is developing proprietary technologies that are important elements
of the ZAP brand of personal electric vehicles. Each of these components will be
marketed under the ZAP brand name. In addition to new electric vehicles, ZAP is
currently focusing its development efforts on a new generation of microprocessor
drive controllers.
B. Business of Issuer
The Company's business strategy has been to develop, acquire and commercialize
electric vehicles and electric vehicle power systems that have fundamental
practical and environmental advantages over available internal combustion modes
of transportation that can be produced commercially on an economically
competitive basis. In 1999, the Company continued to enhance and broaden its
electric vehicle product line.
3
<PAGE>
The Company manufactures an electric motor system that is sold as a kit to be
installed by the customer on their own bicycle. The system was designed to
assist the rider during more difficult riding situations, rather than as a
replacement for pedaling. The Company also installs the motor system on
specially designed bicycles that the Company has manufactured under contract.
The completed bicycles, with motor, are then sold to the customer. Additionally,
the Company produces the electric scooter, known as the ZAPPY(TM), which is
manufactured by the Company, using parts manufactured by various subcontractors.
The Company is the U.S. distributor of the Electricycle(TM) scooter that is
imported from Taiwan. Additionally, the Company is a distributor of an electric
motorcycle known as the Lectra(TM) and an electric neighborhood vehicle, known
as the GEM(TM).
The Company manufactures several electric motor vehicle kits. The electric motor
kit manufacturing and installation of the motor systems to the bicycles is done
at its Sebastopol location. The electric motors are purchased from an original
equipment manufacturer (OEM) in the auto and air-conditioning industry. The
Company is primarily using one company for its motors, Revco Molded Plastics
Company, although there are other companies that could be used with slight
modifications to the motor support brackets. The batteries are standard
batteries used in the computer industry for power interrupt systems. The
electronic system uses standard electronic components. The Company has developed
long-term purchase arrangements with its key vendors. The Company has a
contractual relationship with Smith & Wesson who provides the Company with law
enforcement bicycles. The Company has agreed to purchase at least 200 bikes from
Smith & Wesson in exchange for specific exclusive distribution and pricing
rights. Smith & Wesson has agreed to purchase at least 100 power kits from the
Company in exchange for specific exclusive distribution and pricing rights.
The Company has been granted exclusive market rights in selective electric
vehicle markets from Evercel Corporation in exchange for specifying the
Evercel(TM) battery in a specific electric vehicle made by the Company. The
Company has no other contractual agreements with any of its other vendors.
Environmental Initiatives and Legislation
Federal legislation was enacted to promote the use of alternative fuel vehicles,
including electric vehicles. Several states have also adopted legislation that
sets mandates for the introduction of electric vehicles. In 2003 the State of
California will require that 4% of the cars offered for sale are electric.
However, there is strong political opposition to this mandate. Other states,
such as the State of Arizona, currently offer tax credits for electric vehicles.
Foreign countries have also initiated either mandates or incentives for electric
vehicles or are planning such programs in the future. As ZAP commercializes new
transportation technology, it has been required to expend Company's resources in
educating legislators of the benefits of these vehicles. On January 1, 2000, a
new law that was sponsored by ZAP and creates guidelines for the legalized use
of light electric scooters such as the ZAPPY(TM) went into effect in the State
of California. Although many government agencies are concerned about rising
global air pollution, it is expected that the Company will need to continue to
expend considerable resources in the future 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 the Company's 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
competitive advantage. The Company is developing a new generation of
micro-processor drive controllers.
Company funded research and development expense charged to operations in fiscal
years 1999 and 1998 was $364,600 and $202,600 respectively.
4
<PAGE>
Sources and Availability of Raw Materials
Materials, parts, supplies and services used in the Company's business are
generally available from a variety of sources. However, interruptions in
production or delivery of these goods could have an adverse impact on the
Company's manufacturing operations.
Licenses, Patents and Trademarks
The Company has a number of patents and trademarks covering its electric
vehicles. The Company was issued its first United States Patent on February 13,
1996 on its electric motor power system for bicycles, tricycles, and scooters
(Patent #5,491,390). On September 30,1997, the Company was issued its second
United States Patent on its electric motor system (Patent #5,671,821). On
December 15, 1998, the Company was issued a third United States Patent for its
ZAPPY scooter (Patent #5,848,660). ZAP also holds several trademarks: the
trademark ZAP(R) was assigned to the Company on September 23, 1994, under
registration no. 1,794,866; the ELECTRICRUIZER(R) mark was registered on April
2, 1999 under registration no. 2,248,753; and, the POWERBIKE(R) mark was
registered on June 1, 1999 under registration no. 2,248,753. The Company also
acquired various pending patent applications and trademark rights from emPower
when they acquired this company on December 30, 1999. The company acquired all
of the assets of EVSI, including the trademark PowerSki(R), trademark
registration no. 2,224,640 and two U.S. Patents, (Patent #5,735,361) and (Patent
#5,913,373). This transaction was finalized on February 29, 2000. Marketing
strategies for PowerSki will begin in the year 2000. The trademark ZAPPY(R) was
registered on March 21, 2000, and the trademark ZAP Elecrtric Vehicle Outlet(R)
was registered on March 28, 2000. Other patents and trademarks are pending.
The Company has an exclusive licensing agreement with Lucas Films Licensing
Division for the use of the trade name STARWARSTM and STAPTM in the
classification of electric scooters.
Backlog
The Company has a $787,700 backlog of orders for electric vehicles as of March
27, 2000. The Company expects to fill its entire current backlog within the
current fiscal year.
Competitive Conditions
The competition to develop and market electric vehicles has increased during the
last year and is expected to continue to increase. The electric bicycle industry
has four (4) major manufacturers and a large group of small manufacturers. The
major manufacturers are Honda, Suzuki, Sanyo and Yamaha. They mainly sell
products to Japan and Europe. The other group of manufacturers is much smaller
in size and sales volume. These manufacturers have products that sell into the
U.S., European, and Asian markets. There are also other manufactures both large
and small, of other personal electric vehicles. The principal competitive
advantages of the Company are its ownership of fundamental technology, its
ability to be a low cost manufacturer through domestic and international
connections, and its distribution network. The Company also currently benefits
from its high name recognition in the electric vehicle industry coupled with a
rapidly developing business on its Internet website ZAPWORLD.COM. The Company
offers one of the broadest lines of personal electric vehicles currently
available. According to published reports, the Company believes it currently
holds the leading electric bicycle and scooter market position in the United
States.
Employees
As of March 27, 2000, the Company had a total of 78 employees (14 are ZAPWORLD
Stores, Inc. employees). This is an increase of 33 employees from 1998. The
Company considers its relationship with its employees to be excellent.
5
<PAGE>
Item 2. Description of Property. A summary of the principal facilities of the
Company follows:
Location Use Number of Square Feet
- -------- --- ---------------------
117 Morris Street Office and Motor Assembly 6,500
111 Morris Street Machine Shop 3,000
7190 Keating Production 10,000
6780 Depot Office, Production, and R & D 5,000
6784 Depot Engineering 4,200
2715 Hyde Street Retail/Rental Store 8,000
All of the above buildings, except Hyde Street in San Francisco, are located in
Sebastopol, California. The Company leases all of its manufacturing research and
office facilities. All of the leases are term leases, none include options to
purchase. The Company's property consists primarily of manufacturing equipment
and office computer systems. It is management's opinion that the Company's
insurance policies cover all insurance requirements of the landlords. The
Company owns the basic tools, machinery and equipment necessary for the conduct
of its production, research and development, and vehicle prototyping activities.
Management believes that the above facilities are generally adequate for present
operations.
Item 3. Legal Proceedings
There are no legal proceedings to which the Company is a party which management
believes to be material.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were pending a vote by the security holders at 1999 year-end.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company was one of the early pioneers of direct public offerings, by
offering stock directly to the public in 1996, and 1998. The National
Association of Security Dealers (NASD) cleared ZAP's common stock for quotation
on the OTC Bulletin Board on February 10, 1998 and on March 11, 1998, the
Company's Common Stock commenced trading on the OTC Bulletin Board under the
stock symbol "ZAPP". During 1998, the Company sold 78,247 shares directly to the
public and received $472,482 in proceeds. The second public stock offering was
closed in January, 1999. Additionally in 1998, the Company 1) realized $15,000
in proceeds from the exercise of stock options and issued 15,000 shares, 2)
converted $14,317 in notes payable and accrued interest into 2,727 shares ($5.25
per share) and, 3) issued 25,136 shares in payment for current and future
services at an average price per share of $5.98.
In 1999 the Company sold 29,833 shares and realized gross proceeds of $177,900.
The Company also achieved private placements of 746,119 shares with net proceeds
of $1,720,600 in 1999 (on which expenses of $613,500 were incurred). The company
issued 279,600 shares at a value of $2,264,100 on new and pending acquisitions
of companies and technologies. The Company exchanged 27,479 shares valued at
$140,900 in payment of current and future services. A total of $5,600 was
realized on the sale of stock to employees through a stock purchase plan. The
exercise of 559,086 employee stock options raised $423,400 in capital. A total
of 165,111 shares were issued to convert $664,700 of debt to equity. A total of
1,785 shares were repurchased at a value of $10,700. In settlement of
litigation, 8,666 shares were issued with a value of $50,000. Additionally, the
fair value of $136,700, associated with the issuance of stock options and
warrants, was added to stockholders' equity.
6
<PAGE>
The Board of Directors created the 1999 employee stock option pool of 500,000
shares and expanded it to 1,500,000 shares at year-end. Additionally the board
authorized the issuance of 10,000,000 shares of Common Stock (making a total of
20,000,000 shares) and authorized 10,000,000 shares of "indeterminate" Preferred
Stock.
The Company's Common Stock is presently traded in the over-the-counter market
and quoted on the National Association of Securities Dealers (NASD) "Bulletin
Board" under the symbol "ZAPP." As of April 27, 2000, there were approximately
3,500 holders of record of Common Stock.
<TABLE>
The following table sets forth the high and low prices of the Common Stock as
reported on the NASD Bulletin Board by the National Quote Bureau for the fiscal
quarters indicated. The following over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, markdowns, or commission, and may
not necessarily represent actual transactions:
<CAPTION>
2000 1999 1998
High Low High Low High Low
---- --- ---- --- ---- ---
(through
3/27/2000)
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C>
First Quarter .......... 13.75 7.50 4.375 3.0625 6.00 4.50
Second Quarter .......... -- -- 8.75 4.25 6.50 4.50
Third Quarter ........... -- -- 6.875 5.00 5.0625 2.00
Fourth Quarter .......... -- -- 18.25 5.00 4.3125 2.875
</TABLE>
Dividend Policy
The Company has paid no cash dividends in the past and no cash dividends are
anticipated in the foreseeable future.
Related Parties
William Evers is a member of the Board of ZAP. His firm Evers & Hendrickson
provided legal services for the Company during 1999, which received $299,000 in
compensation for these services. Additionally, Mr. Evers was granted stock
options to acquire 75,000 shares ranging in price from $3.02 to $6.50 per share.
7
<PAGE>
Item 6. Management's Discussion and Analysis of Plan of Financial Condition and
Results of Operations.
Overview
Forward-looking statements in this release are made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties, including, without limitation, continued acceptance of the
company's products, increased levels of competition for the products and
technological changes, the company's dependence upon third party suppliers,
intellectual property rights, and other risks detailed from time to time in the
company's periodic reports filed with the Securities and Exchange Commission.
The Company designs, assembles, manufactures and distributes electric bicycle
power kits, electric bicycles and tricycles, electric scooters, electric
motorcycles, and other electric transportation vehicles.
The Company sells its electric vehicles through the Internet. The Company also
sells its electric vehicles to retail customers, international distributors, law
enforcement agencies, electric utility companies, bicycle dealerships,
motorsport dealers, its franchisees and mail order catalogs. The Company sells
to mail order catalogs and selected customers on various credit terms.
Occasionally accounts are factored with a local bank. Many of the smaller
dealerships are sold on a cash on delivery basis. The Internet and retail sales
are primarily paid for with a credit card or personal check before shipment of
the product.
On July 19, 1999, the Company created two subsidiaries, ZAPWORLD Stores, Inc.
and ZAPWORLD Outlets, Inc. ZAPWORLD Stores, Inc. was established to record the
activity for acquired stores and ZAPWORLD Outlets was established to record the
activity for future franchise stores. Both subsidiaries are wholly owned by
ZAPWORLD.COM.
The Company's growth strategy is to increase net sales by increasing
distribution channels through its website at ZAPWORLD.COM, retail organizations
and wholesale distributors, both domestically and overseas, as well as setting
up Company outlet and franchise stores to assist in the retail sales arena. The
Company will continue to increase its production capability to meet the
increasing demand for its product. The Company will continue to develop the
products so that it is the low cost leader in the industry. Product
improvements, new product introductions, and the expansion of the ZAP electric
outlet franchise network will continue to enlarge ZAP's presence in the electric
vehicle industry.
In order to access new markets in 1999, ZAPWORLD Stores, Inc. acquired the
following rental/retail operations:
1. Big Boy Bikes, a bicycle rental business in Key West, Florida.
2. American Scooter and Rental, a bicycle rental business in San
Francisco, California.
Operating under the name ZAPWORLD Stores, Inc., this wholly owned subsidiary
accounted for $316,000 (5%) of total sales. The gross profit margin for the
stores was 34%. The San Francisco store was purchased in July 1999. The Key West
location was purchased in November 1999. The lease for the Key West store
expired in February 2000, and at that time, all the assets were sold.
The Company acquired emPower, Inc., a designer and manufacturing business of
proprietary electric scooters to provide new technologies and broaden product
lines.
The Company also signed agreements to acquire:
1. ZAP of Santa Cruz, a bicycle rental business in Santa Cruz, California.
2. Electric Vehicle Systems, Inc., an electric vehicle development
business.
8
<PAGE>
The acquisition of Electric Vehicles Systems, Inc. was completed in February
2000. The acquisition of ZAP of Santa Cruz was completed in March 2000.
In December 1999, the Company signed a term sheet agreement to merge with Global
Electric MotorCars, LLC (GEM), the largest manufacturer of neighborhood electric
vehicles, and EV Rentals, LLC. A revised non-binding term sheet was signed in
January 2000. As of March 27, 2000 there is not an approved final contract for
either the GEM or EV Rentals mergers. The common shareholders have not approved
the transaction.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales for the year ended December 31, 1999 were $6,437,200 compared to
$3,518,600 in the prior year, an increase of $2,918,600 or 83%. The increase in
sales was due to greater acceptance of ZAP products in the marketplace. Internet
sales were $259,100 and $57,100 in 1999 and 1998 respectively. This represented
a 354% increase for 1999. A total of $680,100 in products was sold to one
customer during the year ended December 31, 1999, representing 11% of sales. In
the year ended December 31, 1998, $617,000, or 18% of net sales, was sold to one
customer.
Gross profit. Gross profit decreased as a percentage of net sales to 31% from
32%. The gross profit percentage decrease of 1% is largely due to a one-time
sale to a large distributor at a significant discount in the third quarter of
1999. Direct materials were 58% of net sales for the year ended December 31,
1998, as compared to 59% of net sales for the year ended December 31, 1999.
Selling. Selling expenses in 1999 were $1,186,700. This was an increase of
$219,000, or 22% from 1998 to 1999. Due to greater market acceptance through
Zap's distribution channels, selling expenses as a percentage of sales,
decreased from 28% of sales to 18% of sales. Costs increased as a result of
additional personnel being added to the sales force.
General and administrative expenses for 1999 were $1,945,000. This is an
increase of $965,800 or 100% over 1998. As a percentage of sales, general and
administrative expense increased from 28% to 30% of net sales. Expense increases
during 1999 as compared to 1998 occurred due to added personnel in the
administrative and accounting areas. Additionally, legal expenses of $300,000
were incurred in 1999 relating to acquisition activities and patent issues.
Research and development was $364,600 in 1999 as compared to $202,600 in 1998,
an 80% increase. As a percentage of net sales, Research and Development remained
6% in 1998 and 1999. The Company invested in developing new electric vehicle
products and tooling that is expected to lower manufacturing costs and broaden
the ZAP product line in 2000.
Other income increased $81,000 in 1999 over 1998. This 100% increase can be
attributed to interest earned on a commercial paper money market fund from the
proceeds of private placement investments.
Interest Expense increased $167,000, 166% in 1999 over 1998. This increase is
due primarily higher outstanding debt in 1999.
9
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales for the year ended December 31, 1998 were $3,518,600 compared to
$1,640,200 in the prior year, an increase of $1,878,400 or 115%. The increase in
sales was primarily due to the Company's introduction of the ZAPPY(TM) scooter
that accounted for $1,381,500 or 39% of total sales. Additionally, international
sales of bicycles and kits, including the new single speed low cost motor
system, for 1998 increased $520,500 over 1997 levels as new dealers acquired
interest in selling ZAP products overseas. During the year ended December 31,
1998, $617,000 in sales representing 18% of total sales was with one customer.
In 1997, a different single customer accounted for 26% of the Company's net
sales.
Gross profit. Gross profit increased as a percentage of net sales in 1998 to 32%
from 22%. The total gross profit increased $761,800 or 208%. The increase in
gross profit dollars can principally be attributed to the gross margins realized
on the sales of the new ZAPPY(TM) scooter and other products. The increase in
gross margin percentage was the result of greater cost controls and improved
efficiencies in the manufacturing process of all products for the year ended
December 31, 1998 as compared to the year ended December 31, 1997. Direct
materials were 58% of net sales for the year ended December 31, 1998, as
compared to 70% of net sales for the year ended December 31, 1997.
Selling. Selling expenses in 1998 were $967,700. This was an increase of
$334,700 or 53% from 1997 to 1998. As a percentage of sales, selling expenses
decreased from 39% of sales to 28% of sales. Costs have increased as a result of
additional personnel being added to the sales force, increased promotion through
the Internet, a print media campaign, and added marketing efforts overseas.
General and administrative expenses for 1998 were $979,200. This is an increase
of $158,800 or 19% over 1997. As a percentage of sales, general and
administrative expense decreased from 50% to 28% of net sales. Expense increases
during 1998 as compared to 1997 occurred due to added personnel in the
administrative and accounting areas. Additionally, a consultant was enlisted to
assist with obtaining additional equity funding.
Research and development decreased $43,500 or 18% from 1997 to 1998. As a
percentage of net sales, it decreased from 15% to 6% respectively. Extensive
efforts in developing the ZAPPY(TM) scooter and single speed low-cost motor
system resulted in higher costs in 1997 that were not duplicated in 1998.
Other income (expense). Interest expense increased to $100,300 in 1998, an
increase of $12,700 over 1997. This increase can primarily be attributed to the
warrant costs associated with warrants given to an investment banker for
securing equity financing for the company.
Liquidity and Capital Resources
The Company used cash from operations of $1,461,400 and $1,307,400 during the
years ended December 31, 1999 and 1998 respectively. Cash used in operations in
1999 was the result of the net loss incurred for the year of $1,692,600, offset
by net non-cash expenses of $636,700, and the net change in operating assets and
liabilities resulting in a further use of cash of $405,500. Cash used in
operations in 1998 was the result of the net loss incurred for the year of
$1,109,400, offset by non-cash expenses of $255,300, and the net change in
operating assets and liabilities resulting in a further use of cash of $453,300.
Investing activities provided cash of $601,000 during the year ended December
31, 1999. Proceeds from the emPower acquisition provided cash in 1999. Investing
activities used cash for the purchase of fixed assets, additional capitalized
patent costs, intangibles, and purchases of the San Francisco and Key West Store
locations. Investing activities used cash of $161,900 during the year ended
December 31, 1998 for the purchase of fixed assets and intangibles.
10
<PAGE>
Financing activities provided cash of $3,569,000 and $1,254,100 during the years
ended December 31, 1999 and 1998 respectively. In 1999, cash was provided by the
sale of common stock in the amount of $1,818,100. Cash provided by the sale of
stock in 1999 was partially used to extinguish notes payable to individuals of
$361,900. In 1998, cash was provided by the issuance of notes payable of
$1,280,800. Cash provided in 1998 was offset by principal payments on
outstanding debt.
At December 31, 1999, the Company had cash of $3,183,900 as compared to $475,300
at December 31, 1998. At December 31, 1999, the Company had working capital of
$4,450,300 as compared to working capital of $128,600 at December 31, 1998. The
increase in cash and is primarily due to financing provided by private placement
investments. The increase in working capital is also explained by funding from
private placement investments.
The Company believes that the cash and cash equivalents on hand at December 31,
1999 will be sufficient to allow the Company to continue its expected level of
operations for at least 12 months. There is also an Agreement in Principle with
a private investment source for up to $7.5 million in equity capital.
The Company's primary capital needs are to fund its growth strategy, which
includes increasing its Internet shopping mall presence, increasing distribution
channels, establishing company owned and franchised ZAP stores, introducing new
products, improving existing product lines and development of a strong corporate
infrastructure.
Seasonality and Quarterly Results
The Company's business is subject to seasonality influences. Sales volume in
this industry typically slows down during the winter months, November to March
in the U.S. The Company is marketing worldwide and is not impacted 100% by U.S.
seasonality.
Inflation
The Company's raw materials are sourced from stable cost competitive industries.
As such, the Company does not foresee any material inflationary trends for its
raw material sources. However, with the low unemployment rate currently seen in
Sonoma County, the Company expects that current wage rates will be driven up due
to competitive pressures put on by other local manufacturing companies.
11
<PAGE>
Item 7. Consolidated Financial Statements and Supplementary Data
Table of Contents
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.............................2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet................................................3
Consolidated Statements of Operations.....................................4
Consolidated Statement of Stockholders' Equity............................5
Consolidated Statements of Cash Flows.....................................7
Notes to Consolidated Financial Statements................................9
<PAGE>
Report of Independent Certified Public Accountant
To the Board of Directors and Stockholders
ZAPWORLD.COM
We have audited the accompanying consolidated balance sheet for ZAPWORLD.COM and
subsidiaries as of December 31, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
two-year period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provided a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above represent fairly, in
all material respects, the consolidated financial position of ZAPWORLD.COM and
subsidiaries as of December 31, 1999, and the consolidated results of their
operations and their cash flows for each of the years in the two year period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
GRANT THORNTON, LLP
San Francisco, California
March 1, 2000
<PAGE>
<TABLE>
ZAPWORLD.COM and Subsidiaries
Consolidated Balance Sheet
December 31, 1999
(Hundreds)
ASSETS
<CAPTION>
<S> <C>
CURRENT ASSETS
Cash $ 3,183,900
Accounts receivable, less allowance for doubtful accounts of $35,000 352,700
Inventories 1,725,100
Note receivable 20,000
Prepaid expenses and other assets 303,000
------------
Total current assets 5,584,700
PROPERTY AND EQUIPMENT - less accumulated depreciation 350,300
------------
OTHER ASSETS
Patents & Trademarks, less accumulated amortization 1,176,100
Goodwill 112,200
Advance to retail stores and technology companies 478,800
Deposits 24,500
------------
Total other assets 1,791,600
------------
Total assets $ 7,726,600
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 742,200
Accrued liabilities 367,900
Current maturities of long-term debt 15,300
Current maturities of obligations under capital leases 9,000
------------
Total current liabilities 1,134,400
------------
OTHER LIABILITIES
Long-term debt, less current maturities 24,200
Obligations under capital leases, less current maturities 13,500
------------
Total other liabilities 37,700
------------
STOCKHOLDERS' EQUITY
Preferred stock, authorized 10,000,000 shares; no shares issued or
outstanding Common stock, authorized 20,000,000 shares of no par value;
issued
and outstanding 5,109,180 12,053,200
Accumulated deficit (5,118,100)
Unearned compensation (95,800)
------------
6,839,300
Less: notes receivable from shareholders (284,800)
------------
Total stockholders' equity 6,554,500
------------
Total liabilities and stockholders' equity $ 7,726,600
============
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
ZAPWORLD.COM and Subsidiaries
Consolidated Statements of Operations
Year ended December 31, 1998 and 1999
(Hundreds, except shares and per share amounts)
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
NET SALES $ 6,437,200 $ 3,518,600
COST OF GOODS SOLD 4,446,400 2,391,300
----------- -----------
GROSS PROFIT 1,990,800 1,127,300
OPERATING EXPENSES
Selling 1,186,700 967,700
General and administrative 1,945,000 979,200
Research and development 364,600 202,600
----------- -----------
3,496,300 2,149,500
----------- -----------
LOSS FROM OPERATIONS (1,505,500) (1,022,200)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (267,300) (100,300)
Other income 81,000 --
Miscellaneous -- 13,900
----------- -----------
(186,300) (86,400)
----------- -----------
LOSS BEFORE INCOME TAXES (1,691,800) (1,108,600)
----------- -----------
PROVISION FOR INCOME TAXES 800 800
----------- -----------
NET LOSS $(1,692,600) $(1,109,400)
=========== ===========
NET LOSS PER COMMON SHARE
Basic and diluted $ (0.43) $ (0.42)
----------- -----------
SHARES USED IN CALCULATION OF NET LOSS PER SHARE 3,927,633 2,614,563
=========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
ZAPWORLD.COM and Subsidiaries
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1998 and 1999
<CAPTION>
Unearned Note
Compensation Receivable
Common Stock Accumulated and From
Shares Amount Deficit services Shareholder Total
--------- ----------- ----------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 2,542,700 $ 3,168,900 $(2,316,100) $ -- $ -- $ 852,800
Issuance of common stock in connection with
direct public offering at $6 per share, net
expenses of $91,000 78,800 383,300 -- -- -- 383,300
Fair value of stock options granted to
non-employees -- 17,600 -- -- -- 17,600
Exercise of stock options 15,000 15,000 -- -- -- 15,000
Conversion of notes payable and accrued interest
into common stock at $5.25 2,700 14,300 -- -- -- 14,300
Issuance of warrants in connection with debt -- 61,800 -- -- -- 61,800
Stock issued for current and future services 25,500 150,300 -- -- -- 150,300
Net loss -- -- (1,109,400) -- -- (1,109,400)
------------------------------------------------------------------------------
Balance, December 31, 1998 2,664,700 3,811,200 (3,425,500) -- -- 385,700
Issuance of common stock:
Cash 29,833 177,900 177,900
Private placement, net of expenses of 746,119 1,720,600 1,720,600
$613,500
Acquisitions 279,600 2,264,100 2,264,100
Advance to retail stores & technology co.'s 57,803 406,300 406,300
Employee stock purchase plan 1,139 5,600 5,600
Repurchase of shares (1,785) (10,700) (10,700)
Services 27,479 140,900 140,900
Litigation settlement 8,666 50,000 50,000
Conversion of debt 165,111 664,700 664,700
Exercise of employee stock options 559,086 423,400 423,400
Exercise of non-employee stock options 571,429 2,000,000 2,000,000
</TABLE>
5
<PAGE>
<TABLE>
ZAPW ORLD.COM and Subsidiaries
Consolidated Statement of Stockholders' Equity (cont.)
Years Ended December 31, 1998 and 1999
<CAPTION>
Note
Unearned Receivable
Common Stock Accumulated Compensation From
Shares Amount Deficit and services Shareholder Total
------ ------ ------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
(Hundreds, except shares)
Fair value of stock options issued to employees -- 1,700 -- -- -- 1,700
Fair value of stock options and warrants issued -- 135,000 -- -- -- 135,000
to non-employees
Stock options and warrants issued for future -- 262,500 -- (95,800) -- 166,700
compensation and services
Note receivable from shareholders -- -- -- -- (284,800) (284,800)
Net loss -- -- (1,692,600) -- -- (1,692,600)
-----------------------------------------------------------------------------
Balance, December 31, 1999 5,109,180 $12,053,200 $(5,118,100) $ (95,800) $(284,800) $6,554,500
=============================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
ZAPWORLD.COM and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999
(Hundreds)
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,692,600) $(1,109,400)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 124,000 86,500
Allowance for doubtful accounts -- (30,000)
Issuance of common stock for services rendered 140,900 150,300
Issuance of common stock for litigation settlement 50,000 --
Issuance of stock options for services rendered 136,700 17,600
Noncash charges & settlement of debt 154,200 --
Amortization of fair value of warrants 30,900 30,900
Changes in:
Accounts receivable (68,900) (192,100)
Inventories (877,700) (366,600)
Prepaid expenses and other assets 24,100 (32,200)
Deposits (12,600) 1,600
Accounts payable 312,400 172,600
Accrued liabilities and customer deposits 217,200 (36,600)
----------- -----------
Net cash used in operating activities (1,461,400) (1,307,400)
Cash flows from investing activities:
Purchases of property and equipment (188,100) (97,800)
Purchase of American Scooter and Cycle Rental (70,000) --
Purchase of Big Boy Bicycles (15,200) --
Proceeds from emPower acquisition 1,033,000 --
Payment advances for acquisitions (72,500) --
Issuance of note receivable (20,000) --
Purchase of intangibles (66,200) (64,100)
----------- -----------
Net cash provided by (used in) investing 601,000 (161,900)
Cash flows from financing activities:
Sale of common stock, net of stock offering costs 1,812,500 --
Issuance of common stock under employee purchase plan 5,600 --
Proceeds from issuance of long-term debt (361,900) 1,280,800
Proceeds from exercise of stock options 2,423,400 (10,700)
Repurchase of common stock (10,700) (16,000)
Advances on notes receivable to shareholders (284,800) --
Payments on obligations under capital leases (15,100) --
----------- -----------
Net cash provided by financing activities 3,569,000 1,254,100
----------- -----------
NET INCREASE/(DECREASE) IN CASH 2,708,600 (215,200)
Cash, beginning of year 475,300 690,500
----------- -----------
Cash, end of year $ 3,183,900 $ 475,300
=========== ===========
</TABLE>
7
<PAGE>
<TABLE>
ZAPWORLD.COM and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (contd.)
Years ended December 31, 1999
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Supplemental cash flow information: Cash paid during the year for:
Interest $ 115,200 $ 69,400
Income taxes 800 800
Non-cash investing and financing activities:
Conversion of debt into common stock 475,400
Conversion of accounts payable into common stock 35,100
Equipment acquired through capital lease obligations 26,700
Notes payable used to exercise stock options 32,300
Issuance of common stock upon acquisition of American Scooter
and Cycle Rental, Big Boy Bicycles, and emPower Corporation 2,311,700
Assets and liabilities recognized upon acquisition of American Scooter and
Cycle Rental, Big Boy Bicycles, and empower Corporation
Cash 1,033,000
Inventories 213,500
Prepaid expenses and other 56,400
Property and equipment 70,000
Patent 1,154,600
Accounts payable 130,600
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
8
<PAGE>
ZAPWORLD.COM and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
o Nature of Operations
ZAPWORLD.COM (the "Company" or "ZAP") was incorporated in California in
September, 1994 under its original name "Zap Power Systems". The name was
changed on May 16, 1999. ZAP designs, manufactures, and distributes
electric bicycle power kits, electric bicycles and tricycles, and other
personal electric transportation vehicles. Company products are sold
directly to end-users and to distributors throughout the United States
and the world.
o Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company, ZAPWORLD Stores, Inc., and emPower Corporation. ZAPWORLD
Stores, Inc. and emPower Corporation are 100% owned by ZAPWORLD.COM. All
significant inter-company transactions and balances have been eliminated.
o Revenue Recognition
The Company recognizes income when products are shipped.
o Inventories
Inventories consist primarily of raw materials, work-in-process, and
finished goods and are carried at the lower of cost (first-in, first-out
method) or market.
o Property and Equipment
Property and equipment are stated at cost and depreciated using
straight-line and accelerated methods over the assets' estimated useful
lives. Costs of maintenance and repairs are charged to 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
o Patents & Trademarks
Patents & Trademarks consist of costs expended to perfect certain patents
and trademarks acquired in the emPower acquisition. These costs will be
amortized over an estimated useful life of ten years.
o Goodwill
Goodwill consists of the excess consideration paid over net assets. This
asset will be amortized using the straight-line method over a ten-year
period.
o Income Taxes
The Company uses an asset and liability approach to financial accounting
and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future bases on enacted tax laws and
rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount
9
<PAGE>
expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change in deferred tax assets
and liabilities during the period.
o Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires Management of the Company to make
estimates and assumptions affecting the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, as well as revenues and expenses during
the reporting period. The amounts estimated could differ from actual
results.
o Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. The fair value of a
financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties. For certain
of the Company's financial instruments, including cash, accounts
receivable and accounts payable, the carrying amount approximates fair
value because of the short maturities. The carrying amount of the bank
note payable and current notes payable approximate fair value as current
interest rates available to the Company for similar debt are
approximately the same. The fair value of related party debt is
impracticable to determine.
o Net Loss Per Common Share
Net loss per common share, basic and diluted, has been computed using
weighted average common shares outstanding. The effect of outstanding
stock options and warrants has been excluded from the dilutive
computation, as their inclusion would be anti-dilutive (see note F).
o Segment Information
In 1999, the company adopted SFAS No.131, "Disclosures about Segments of
an Enterprise and related Information". The Company operates in one
reportable segment, the design, assembly, manufacture and distribution of
electric bicycle power kits, electric bicycles and tricycles, electric
scooter, electric motorcycles and other personal electric transportation
vehicles.
o Reclassification
Certain reclassifications have been made to the December 31, 1998
information to conform to the December 1999 presentation.
NOTE B - INVENTORIES
Inventories consisted of the following at December 31, 1999:
Raw materials $ 661,700
Work-in-process 349,200
Finished goods 714,200
-----------
$ 1,725,100
===========
10
<PAGE>
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1999:
Machinery and equipment $ 187,000
Computer Equipment 209,600
Demonstration bicycles 89,600
Office furniture and equipment 52,000
Leasehold improvements 78,400
Vehicle 97,600
714,200
Less accumulated depreciation and amortization 363,900
-----------
$ 350,300
NOTE D - ADVANCE TO RETAIL STORES AND TECHNOLOGY COMPANIES
During the year ended December 31, 1999 the Company issued shares of common
stock and paid cash as advances toward the acquisition of retail stores and
technology companies. The Company issued 57,803 shares of common stock in
the amount of $406,300 and paid cash in the amount of $72,500.
NOTE E - PROVISION FOR INCOME TAXES
1999 1998
----------- -----------
Current tax expense
Federal $ -- $ --
State 800 800
----------- -----------
$800 $800
=========== ===========
Significant components of the Company's net deferred tax assets as of
December 31, 1999 are as follows:
Tax loss carryforward $ 1,819,600 $ 1,263,700
Inventory capitalization (99,100) (22,000)
Other (70,800) (27,400)
----------- -----------
Total 1,649,700 1,214,300
Less valuation allowance (1,649,700) (1,214,300)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
The Company has available carry forward of approximately $4,758,300 and
$2,819,400 of federal and state net operating losses, respectively, expiring
through 2019. The Tax Reform Act of 1986 and the California Conformity Act
of 1987 impose restrictions on the utilization of net operating losses in
the event of an "ownership change" as defined by Section 382 of the Internal
Revenue Code. There has been no determination whether an ownership change,
as defined, has taken place. Therefore, the extent of any limitation has not
been ascertained.
A valuation allowance is required for those deferred tax assets that are
not likely to be realized. Realization is dependent upon future earnings
during the period that temporary differences and carry forwards are expected
to be available. Because of the uncertain nature of their ultimate
utilization, a full valuation allowance is recorded against these deferred
tax assets. The valuation allowance increased $435,400 in 1999 and $386,700
in 1998.
The difference between the income tax expense at the federal statutory rate
and the Company's effective tax rate is as follows:
1999 1998
---- ----
Statutory federal income tax rate 34% 34%
State income tax rate 6 6
Valuation allowance (40) (40)
---- ----
--% --%
==== ====
11
<PAGE>
NOTE F - STOCK OPTIONS AND WARRANTS
Options to purchase common stock are granted by the Board of Directors under
three Stock Option Plans, referred to as the 1999, 1996 and 1995 plans.
Options granted may be incentive stock options (as defined under Section 422
of the Internal Revenue Code) or nonstatutory stock options. The number of
shares available for grant under the 1999, 1996 and 1995 Plans are
1,500,000, 600,000 and 750,000, respectively. Options are granted at no less
than fair market value on the date of grant, become exercisable as they vest
(over a 2 or 3 year period) and expire ten years after the date of grant.
<TABLE>
Option activity under the three plans is as follows:
<CAPTION>
1999 Plan 1996 Plan 1995 Plan
Wtd Avg Wtd Avg Wtd Avg
Number Exercise Number Exercise Number Exercise
of Shares Price Of Shares Price of Shares Price
------------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at 12/31/97 383,500 $1.38 446,300 $0.56
Granted 20,000 $4.31 -- --
Exercised (12,500) $1.00 -- --
Canceled (26,500) $1.48 (27,400) $0.40
Outstanding at 12/31/98 -- $ -- 364,500 $1.55 418,900 $0.56
Granted 481,000 $6.33 35,000 $4.06 -- --
Exercised (586) $5.00 (259,500) $1.15 (299,000) $0.40
Forfeited (1,000) $5.00 (14,500) $3.50 (49,900) $1.00
------- ------- -------
Outstanding at 12/31/99 479,414 $6.34 125,500 $2.85 70,000 $0.93
======= ======= =======
</TABLE>
The weighted average fair value of all options granted during the years
ending December 31, 1999 and 1998 was $4.33 and $3.66 respectively.
<TABLE>
The following information applies to employee incentive stock options
outstanding at December 31, 1999:
<CAPTION>
Plan: 1999 1996 1995
---- -------------------------- ----
<S> <C> <C> <C> <C>
Range of exercise prices $5.00- $7.00 $1.00-$1.00 $3.68-$5.25 $1.00-$1.00
Options outstanding 479,414 47,500 78,000 70,000
Weighted average exercise price $ 6.34 $ 1.00 $ 3.98 $ 1.00
Weighted average remaining life (years) 9.79 6.58 8.03 6.50
Options exercisable 46,833 47,500 62,806 70,000
Weighted average exercise price $ 6.31 $ 1.00 $ 3.97 $ 1.00
</TABLE>
The company granted stock options and warrants to purchase common stock to
non-employees of the company. The options and warrants have exercise prices
ranging from $3.02 - $6.36.
The Company granted 671,429 in options and warrants 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.
12
<PAGE>
The Company recorded the non-statutory options and warrants based on the
grant date for value in accordance with FAS 123. The grant date fair value
of each stock option was estimated using the Black-Scholes option-pricing
model. The company recorded expense in the amount of $135,000 and $48,500
for the year ended December 31, 1999 and 1998, respectively. As of December
31, 1999 the Company has recorded prepaid expense in the amount of $166,700
for future services.
Options and warrant activity for non-employees is as follows:
Weighted
Avg.
Outstanding at 12-31-97 46,000 $ 4.33
Granted 82,800 4.86
Exercised (2,500) 1.00
---------
Outstanding at 12-31-98 126,300 4.74
Granted 1,138,429 4.58
Exercised (571,429) 3.50
Forfeited (64,300) 4.75
---------
Outstanding at 12-31-99 629,000 5.51
=========
The Company accounted for stock options and warrants under the policy of APB
25 "Accounting for Stock Issued to Employees". The Company has adopted the
disclosure only provision of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation (SFAS 123)". Accordingly, no
compensation expense has been recognized for stock options issued during
1999 and 1998. Had compensation cost for the Company's options been based on
the fair value of the awards at the grant date consistent with the
provisions of SFAS No. 123, the Company's net loss and loss per share would
have approximated the following proforma amounts:
1999 1998
------------- ------------
Net loss - as reported $ (1,692,600) $ (1,109,400)
Net loss - pro forma (2,686,700) (1,254,600)
Loss per share - as reported (.43) (.42)
Loss per share - pro forma (.68) (.48)
The fair value of each option and warrant is estimated on date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1999 1998
---------- ---------
Dividends None None
Expected volatility 86.00% 100%
Risk free interest rate 6.00% 6.00%
Expected life 5 years 10 years
In connection with the issuance of $800,000 of notes payable in 1998, the
Company issued 20,000 warrants at $4.00 per share, to purchase the Company's
common stock, to an entity that assisted the Company in arranging the
financing. The warrants are immediately exercisable and expire September,
2001. The fair value of warrants at the time of issuance was $61,800 and is
being amortized as additional interest expense over the term of the debt.
Amortization expense of $30,900 was recorded for both 1998 and 1999.
13
<PAGE>
NOTE G - MAJOR CUSTOMERS and VENDORS
During 1999, one customer accounted for $680,100 or 11% of the Company's
net sales. During 1998, one customer accounted for $617,000 or 17.5% of the
Company's net sales. The Company ceased selling to this customer in late
1998.
During 1999, one vendor accounted for $798,600 or 12% of the Company's
supplies and materials. For the year ended December 31, 1998 one vendor
accounted of $440,000 or 7%,of the Companies supplies and materials.
NOTE H - COMMITMENTS
The Company rents warehouses and office space under leases that expire in
June 2001. The monthly rent of $24,100 is adjusted annually to reflect the
average percentage increase in the Consumer Price Index. An option exists to
extend the lease for an additional five-year period. Rent expense under this
lease was $54,100 and $52,800 in 1998 and 1997, respectively.
Future minimum lease payments on the leases are as follows:
Year ending December 31,
2000 $ 320,600
2001 222,600
2002 138,300
2003 115,200
2004 and thereafter 54,300
------------
Total $ 851,000
============
NOTE I - PERFERRED STOCK
The Board of Directors authorized 10,000,000 shares of Preferred Stock in
December 1999. No financial features (participation in dividends, conversion to
warrants/common stock etc.) have been specified for these "indeterminate"
preferred shares to date.
NOTE J - ACQUISITIONS
On December 30, 1999, the Company purchased all of the common stock of emPower,
Inc., a designer and manufacturing business of proprietary electric scooters,
for 265,676 shares of its common stock. The Company issued warrants to emPower's
shareholders to purchase an aggregate of 200,000 shares of the Company's common
stock. The warrants expire three years after issuance. The acquisition has been
accounted for as a purchase at $5.75 per share. The purchase was allocated to
the assets acquired, including patents, and liabilities assumed based on their
estimated fair values. The acquisition resulted in no goodwill. Results of
operations for emPower have been included with those of the company for periods
subsequent to the date of acquisition.
The purchase price of emPower was allocated as follows
Cash $ 1,033,000
Inventories 96,300
Property and equipment 64,100
Patents 1,042,400
Liabilities assumed (54,200)
-----------
$ 2,181,600
===========
Consideration paid:
Common stock $ 2,181,600
===========
14
<PAGE>
In September 1999, the Company purchased all assets of Big Boy Bicycles and
assumed certain liabilities. The company issued 1,000 shares of common stock and
paid $15,165 in cash. The purchase price was allocated to assets acquired and
liabilities assumed based on their estimated fair value. Results of operations
for Big Boy Bicycles have been included with those of the Company for the
periods subsequent to the date of acquisition.
The purchase price of Big Boy Bicycles was allocated as follows:
Inventories $ 73,800
Property and equipment 4,400
Goodwill 1,300
Expenses 1,900
Liabilities assumed (59,800)
--------
$ 21,600
========
Consideration paid:
Cash $ 15,200
Common stock 6,400
--------
$ 21,600
========
In July 1999, the Company purchased certain assets and assumed certain
liabilities of American Scooter and Cycle Rental. The Company issued 12,924
shares of common stock and paid $70,000 in cash. The purchase price was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values. Results of operations for American Scooter and Cycle
Rental have been included with those of the company for periods subsequent to
the date of acquisition.
The purchase price of certain assets and liabilities of American
Scooter and Cycle Rental were allocated as follows:
Inventories $ 43,300
Property and equipment 1,500
Goodwill 113,300
Expenses 4,600
Liabilities assumed (16,600)
---------
$ 146,100
=========
Consideration paid:
Cash $ 70,000
Common stock 76,100
---------
$ 146,100
=========
The above operations represent 5% of total revenues for the year ended December
31, 1999.
NOTE K - SUBSEQUENT EVENTS
On January 20, 2000, the Company purchased all of the common stock of Zap of
Santa Cruz, Inc. a California corporation, for $25,000 in cash and 8,803 shares
of the Company's common stock. The acquisition will be accounted for as a
purchase. The purchase price is approximately $125,000 and will be allocated to
add the assets acquired and liabilities assumed based on their estimated fair
values. The acquisition closed in the first quarter of calendar year 2000.
On February 29, 2000, the Company purchased all of the common stock of Electric
Vehicle Systems, Inc., a California corporation, for $20,000 in cash and 25,000
shares of the Company's common stock. The acquisition will be accounted for as a
purchase. The purchase price is approximately $285,000 and will be allocated to
the net assets acquired and liabilities assumed based on the estimated fair
value. The acquisition closed in the first quarter of calendar year 2000.
Item 8. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable
15
<PAGE>
Item 9. Directors and Executive Officers of the Registrant.
MANAGEMENT
Name Age Position
---- --- --------
Gary Starr 44 Director, Chief Executive Officer, President
Robert Swanson 51 Director, Chairman of the Board
Doug Wilson 40 Director
William Evers 72 Director
Lee S. Sannella, M.D. 84 Director
Andrew Hutchins 39 Vice President Operations
Scott Cronk 35 Vice President Business Development
Sanford Theodore 36 Controller
Oonagh Duggan 28 Corporate Secretary
Gary Starr has been a Director and executive officer of the Company since its
inception in 1994. He has been the Chief Executive Officer and President of the
Company since September 1999. He has been building, designing, and driving
electric cars for more than 25 years. In addition to overseeing the marketing of
more than 35,000 electric bicycles and other electric vehicles, Mr. Starr has
invented several solar electric products and conservation devices. Mr. Starr
founded U.S. Electricar's electric vehicle operation in 1983. That Company
recently signed a licensing agreement with Hyundai. In 1993, Mr. Starr earned a
Private Industry Council Recognition Award for creating job opportunities in the
EV industry and was named as one of the ten most influential electric car
authorities by Automotive News. He has also received recognition awards for his
contributions toward clean air from the American Lung Association of San
Francisco, CALSTART and U.S. Senator Barbara Boxer. Mr. Starr has several
publications: Electric Cars: Your Guide to Clean Motoring, The Shocking Truth of
Electric Cars, and The True Cost of Oil. In addition, he has appeared on more
than 300 radio and television talk and news shows (including Larry King Live,
The Today Show, Inside Edition, CNN Headline News, Prime Time Live, and the CBS
Evening News and the McNeil Lehrer News Hour) as a recognized authority in the
field of electric vehicles. Mr. Starr has a Bachelor of Science Degree from the
University of California, Davis in Environmental Consulting and Advocacy.
Robert E. Swanson has been Chairman of the Board of ZAPWORLD.COM since 1999. Mr.
Swanson is Chairman of the Board, sole director and sole stockholder of
Ridgewood Capital Corporation. Mr. Swanson is also Chairman of the Board of the
Fund and President, registered principal and sole stockholder of Ridgewood
Securities Corporation. In addition, Mr. Swanson is President and sole
shareholder of Ridgewood Energy, Ridgewood Power and Ridgewood Power Management
Corporation. Ridgewood Power is a managing shareholder of each of the prior
Programs and Mr. Swanson is the President of each prior Program. Since 1982, Mr.
Swanson, through a number of entities, has sponsored and been a principal of
more than 47 investment programs involved in gas exploration and development,
which programs have raised approximately $200 million from the sale of
investment units. Mr. Swanson was also 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. His specialty was in personal and financial
planning, including income, estate and gift tax. Mr. Swanson is a member of the
New York State and Jersey bars. He is a graduate of Amherst College and Fordham
University Law School. Mr. Swanson and his wife Barbara Mardinly Swanson are the
authors of "Tax Shelters, A Guide for Investors and Their Advisors." published
by Jones-Irwin in 1982 and published in revised editions in 1984 and 1985.
16
<PAGE>
Doug Wilson has been a Director of ZAPWOLD.COM since 1999. Mr. Wilson is the
Vice President of Acquisitions for of RCC and the Ridgewood Fund. He was a
principal of Monhegan Partners, Inc., which provided acquisition and financial
advisory for Ridgewood Power and the Prior Programs, from October 1996 until
September 1998, when he joined Ridgewood Power as Vice President of
Acquisitions. He has over 14 years of capital markets experience, including
specialization in complex lease and project financings 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 ZAPWORLD.COM since 1999. Mr. Evers is
one of the leading SEC attorneys in California with extensive experience in
start-up and emerging companies, specializing for a number of years in private
placements, Section 25102(n) offerings, Small Corporate Offering Registration,
Re. A Exemptions and Small Business Registrations. He has handled numerous
mergers and acquisitions. Mr. Evers is a name partner the law firm of EVERS &
Hendrickson LLP. Mr. Evers heads the Evers and Hendrickson Internet Law Group
with its emphasis on Internet relationships. Mr. Evers has also had extensive
experience in franchising and has been the CEO or President of various business
ventures. He holds a BA from Yale University and JD from University of
California, Berkeley.
Lee Sannella, M.D. has been a Director of ZAPWORLD.COM 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. Dr. Sannella has
been a founding shareholder in many start-up high tech companies. He was a
Director of U.S. Electricar from 1983 to 1992. A graduate of Yale University, he
maintained an active medical practice for many years in ophthalmology and
psychiatry. He worked with the Sonoma Medical Society on improving radiation
standards and is a best-selling author. He has served on advisory boards of the
City of Petaluma, California, on the Board of Directors of the San Andreas
Health Council of Palo Alto, the Veritas Foundation of San Francisco, and the
AESOP Institute.
Andrew Hutchins was appointed Vice President, Operations of ZAPWORLD.COM in
October 1999. He joined the Company in December 1996 and since June 1997 has
been the Company's 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. He has been involved in the
bicycle industry since 1971 when he stared working for his family's bicycle
business. Mr. Hutchins was a charter member of the Transportation Advisory Board
for the City of Rohnert Park. He also worked for three years in the insurance
industry in management positions with Banker's Life and in Equity Qualified
Sales for Equitable Life Assurance. 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 ZAPWORLD.COM
in December 1999. He was the President and founder of Electric MotorBike from
1995 to 1999. Previously, as Director of Business Development & International
Programs, Mr. Cronk led strategic venturing activities for U.S. Electricar, Inc.
Before joining U.S. Electricar in 1994, Mr. Cronk managed international
manufacturing planning activities (1991-1994) for Delco Electronics Corporation,
a division of General Motors Corporation. He was responsible for a $350 million
automotive electronics product line, with facilities in Liverpool, England and
Singapore. His book, "Building the E-Motive Industry", is published by the
Society Of Automotive Engineers. Mr. Cronk has a B.S. in Electrical Engineering
from GMI Engineering & Management Institute (now "Kettering University") and an
M.B.A. from the City University of London, England.
Sanford Theodore has been the Controller of ZAPWORLD.COM since 1997. Mr.
Theodore has been involved in various financial and accounting positions for
over 11 years. Well versed with computerized accounting and auditing processes,
he has worked with Optical Coating Laboratory, Western Dairy Products, and Blue
Cross. Mr. Theodore received a bachelor's degree in Business Administration from
San Diego State University in 1985 and a certificate for Human Resource
Management from Sonoma State University in 1996.
Oonagh Duggan was appointed Corporate Secretary of ZAPWORLD.COM in November
1999. Ms. Duggan also works in the international marketing and governmental
affairs departments for ZAP. Previously she worked in communications at World
Stewardship Institute. She holds a BA in European Studies from University
College, Cork, Ireland, and an MA in International Studies from the University
of Limerick, Ireland.
17
<PAGE>
Compliance with Section 16(A) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers to file reports of ownership and changes in ownership
with respect to the securities of the Company and its affiliates with the
Securities and Exchange Commission and to furnish copies of these reports to the
Company. Based on a review of these reports and written representations from the
Company's directors and officers regarding the necessity of filing a report, the
Company believes that during fiscal 1999, all filing requirements were met on a
timely basis.
Indemnification of Directors and Officers
The Company's Articles of Incorporation provide that the liability of the
directors for monetary damages shall be limited to the fullest extent
permissible under California law. Insofar as indemnification for liabilities
arising under the federal securities laws may be permitted to directors,
officers and controlling persons of the Company pursuant to that provision, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in those laws and is, therefore, unenforceable.
Director Term of Office and Compensation
All directors' terms of office expire at the next annual meeting of
shareholders. The Company's directors do not receive any cash compensation for
their service on the Board of Directors, but directors may be reimbursed for
certain expenses in connection with their attendance at Board meetings.
The Company granted stock options to acquire 75,000 shares to two Directors. The
range in price of the options was from $3.25 to $6.25 per share. The vesting of
these options range from immediately to three years.
Item 10. Executive Compensation
<TABLE>
The following tables set forth all compensation earned by the Company's Chief
Executive Officer, former President, and the Company's four most highly
compensated executive officers serving as executive officers at the end of the
fiscal year. There are currently two executive officers.
<CAPTION>
Executive Compensation Table
(rounded to hundreds, except per share)
Long-Term Compensation
-----------------------------------------
Awards Payouts
-----------------------------------------
( a ) ( b ) ( c ) ( d ) ( e ) ( f ) ( g ) ( h )
Other Restricted Stock
Annual Stock Underlying LTIP
Salary Bonus Compensation Award Options/SARs Payouts
Position Year ( $ ) ( $ ) ( $ ) ( $ ) ( # ) ( $ )
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James McGreen 1997 38,000 2,250
Former President 1998 37,500
1999 34,000 200 35,000
Gary Starr 1997 35,000
Chief Executive Officer 1998 35,700
And President 1999 39,500 200 135,000
Andrew Hutchins 1999 39,400 1,200 9,800 30,000
Vice President-Operations
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Option/SAR Grant in Last Fiscal Year
Individual Grants
-----------------
Year Options Number of % of Total Exercise or Expiration
Granted Securities Optional/SARs Granted Base Price Date
Underlying to Employees in Fiscal $
Options/SARs Year
Name Granted
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
James McGreen 1999 35,000 5.1 7.00 07/19/02
Gary Starr 1999 35,000 7.00 07/19/02
1999 100,000 6.25 12/20/02
---- -------- --------------
135,000 19.8
Andrew Hutchins 1999 30,000 4.4 6.36 07/19/02
</TABLE>
Item 11. Security Ownership and Certain Beneficial Owners and Management
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of March 27,
2000 for each shareholder known by the Company to own beneficially 5% or more of
the outstanding shares of its Common Stock. The Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by them, have sole investment and voting power with respect to their
shares, subject to community property laws where applicable.
Shares Percentage of Common
Beneficially at March 27, 2000
5% Shareholders: Owned (5,204,034 shares)
-----------------------------------------------------------------------
Ridgewood ZAP, LLP 1,250,237 24%
James McGreen 537,600 10%
Gary Starr 520,117 10%
All directors and executive 2,410,160 47%
officers as a group
Includes: 100,000 shares of Common Stock for Ridgewood ZAP, LLP, 100,000 shares
of Common Stock for James McGreen and 135,000 shares of Common Stock for Gary
Starr issuable upon exercise of currently exercisable incentive stock options.
Item 12. Certain Relationships and Related Transactions
19
2
<PAGE>
Employee Stock Purchase Plan and Option/Warrant Plans description.
The Company has three (1995, 1996 and 1999 Plans) stock option/warrant pools for
the benefit of employees and in the case of the 1996 and 1999 Plans,
non-employee. These plans have been established to reward meritous contribution
and create additional incentive to outstanding employees in the Company. These
awards vest at various times that are directed at the discretion of the Board of
Directors. The company also offers a 1999 Common Stock purchase plan for
employees. Participation in the plan is voluntary for all employees of the
Company that have completed one or more years of continuous employment.
Contributions are applied to the purchase of Common shares at 85% of fair market
value and issued quarterly to participants.
Item 13. Exhibits and Reports on Form 8-K
On July 12, 1999, a Form 8-K was filed amending the name of the Corporation to
ZAPWORLD.COM from ZAP Power Systems.
Exhibit 1. Additional Information
In April 2000 the Company reached an Agreement in Principle with a
private investment source for the Company to receive from that source
up to $7.5 million in equity capital.
20
<PAGE>
Item 15. Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ZAPWORLD.COM
By: __________________________________________________
Gary Starr - Chief Executive Officer and President
Date __________________________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934,
the following persons on behalf of the registrant and in the capacities
and on the dates indicated have signed this report below:
By __________________________________________________
Bob Swanson - Chairman and Director
Date __________________________________________________
By __________________________________________________
Doug Wilson - Director
Date __________________________________________________
By __________________________________________________
William D. Evers - Director
Date __________________________________________________
By __________________________________________________
Lee Sannella - Director
Date __________________________________________________
By _________________________________________________
Oonagh Duggan - Corporate Secretary
Date ________________________________________________
By ________________________________________________
Sanford Theodore - Principal Accounting
Officer and Controller
Date ________________________________________________
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ZAPWORLD.COM FOR THE YEAR ENDED DECEMBER 31, 1999, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,183,900
<SECURITIES> 0
<RECEIVABLES> 387,700
<ALLOWANCES> (35,000)
<INVENTORY> 1,725,100
<CURRENT-ASSETS> 5,584,700
<PP&E> 714,200
<DEPRECIATION> 363,900
<TOTAL-ASSETS> 7,726,600
<CURRENT-LIABILITIES> 1,134,400
<BONDS> 37,700
0
0
<COMMON> 12,053,200
<OTHER-SE> (5,213,900)
<TOTAL-LIABILITY-AND-EQUITY> 7,726,600
<SALES> 6,437,200
<TOTAL-REVENUES> 6,437,200
<CGS> 4,446,400
<TOTAL-COSTS> 3,496,300
<OTHER-EXPENSES> 2,149,500
<LOSS-PROVISION> 35,000
<INTEREST-EXPENSE> 186,300
<INCOME-PRETAX> (1,691,800)
<INCOME-TAX> 800
<INCOME-CONTINUING> (1,692,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,692,600)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
