<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from_____to_____ Commission file number 333-88837
POP N GO, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C>
DELAWARE 95-4603172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
12429 EAST PUTNAM STREET
WHITTIER, CALIFORNIA 90602
(Address of principal executive offices) (Zip Code)
(562) 945-9351
Issuer's telephone number
Securities registered under Section 12(b) of the Exchange Act
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
NONE (Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the 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.
Yes [X] No. [ ]
Check 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 [X]
State issuer's revenues for its most recent fiscal year $537,714.
The number of shares outstanding of the issuer's Common Stock as of December 31,
2000, was 8,507,199 Shares. The aggregate market value of the Common Stock
(6,172,399 Shares) held by non-affiliates, based on the closing market price
($.31 ) of the Common Stock as of December 31, 2000 was $1,913,444.
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THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") MAY BE DEEMED TO CONTAIN
FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS IN THIS REPORT OR
HEREAFTER INCLUDED IN OTHER PUBLICLY AVAILABLE DOCUMENTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), REPORTS TO THE COMPANY'S
STOCKHOLDERS AND OTHER PUBLICLY AVAILABLE STATEMENTS ISSUED OR RELEASED BY THE
COMPANY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH
COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR OPERATING)
OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE (FINANCIAL OR
OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. SUCH FUTURE RESULTS ARE BASED UPON MANAGEMENT'S BEST ESTIMATES BASED
UPON CURRENT CONDITIONS AND THE MOST RECENT RESULTS OF OPERATIONS.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS OF THE COMPANY - GENERAL
A. GENERAL. The following should be read in conjunction with the Company's
Consolidated Financial Statements and the related Notes thereto, contained
elsewhere in this Report. This Report contains forward-looking statements, which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Unless the context otherwise requires, the term "Company" refers to Pop N Go,
Inc.
Pop N Go, Inc. is a Delaware corporation, organized in October of 1996, for the
purpose of conducting a business in the development, manufacturing, marketing
and distribution of a new line of specialty food service and food vending
machine equipment.
The Company began operations in October 1996 and began shipping its first
product, the Pop N Go Hot Air Popcorn Vending Machine during the 4th quarter of
1997.
The Company acquired all of the outstanding shares of Nuts to Go, Inc. in
February of 1998, and thereby technology under development for a hot nuts
vending machine, which management intends to be the Company's second vending
machine product. The Company has carried on development of this technology in
Pop N Go, Inc. Nuts to Go, Inc. is currently an inactive subsidiary without
assets or activities. The Company estimates, although it cannot assure, that it
may introduce this second product, the "Hot Nuts" vending machine, during the
second quarter of 2001.
In July 98 the Company amended its Articles of Incorporation to split its
outstanding stock on an 1850 for one basis (all share numbers set forth herein
are on the basis of post split shares).
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Revenue streams are anticipated to be generated in the future from (1) the sale
of the Pop N Go vending machines; and (2) the operation of Company owned revenue
share machines, which are owned by the Company, and are typically located in
retail stores with the store receiving a percentage of the revenue generated by
each machine. Company personnel provide maintenance and collection services for
revenue sharing machines. It is estimated that up to 25% of the Company's
machines will be operated on a revenue sharing program. There is of course no
assurance that the Company will be successful or will realize profits from its
activities.
B. PRODUCTS
Pop N Go is a unique hot air based popcorn vending machine which delivers a
fresh cup of popcorn on demand, with butter flavoring or plain. Pop N Go
contains the Company's proprietary microprocessor technology which provides a
closed-loop feedback popping process and generates an audit trail for each cup
vended. The attractive design is geared for the retail environment in an effort
to generate a higher volume of cups vended than a factory lunchroom environment.
The popcorn unit has a moving color LED display that instructs the customer on
how to use the vending machine, neon lights, and an open "see-through" cooking
system that allows the customer to watch and take in the aroma as the machine
pops the popcorn on demand. The neon lights and a moving color LED display
provide for maximum visibility and customer entertainment. The 46 ounce cup of
popcorn is popped with hot air during a two- minute vend cycle, and the customer
has a choice of oil-free or butter-flavored popcorn. The latter is sprayed with
butter-flavored oil during the pop cycle.
Pop N Go can be operated in automatic vend mode, manual mode or via remote
control in manual locations where the machine is not located in close proximity
to the cashier. It is available in counter top or floor models. Both models
feature a napkin and salt dispenser and a waste drawer. The vender features
fully programmable system parameters, including cook time, temperature and
butter dispenser. All subsystems can be easily removed for cleaning and
maintenance. The machine's computerized audit system allows for easy access to
vend history.
To install the machine, the operator need only remove the fully assembled unit
from its box, and plug it in at a location. Once the operator stocks the unit
with popcorn and flavoring and has verified the kernel and flavoring dispenser
level, he or she must only restock the machine every 100 vends.
The Company's focus on serving the general public in addition to the office and
factory workplace expands the market for fresh popped popcorn significantly.
In addition to the United States, where the Company has pilot programs in
Chevron, Food Lion and AMF Bowling Centers, the Company also has targeted the
international market for the sale of popcorn units. The Company currently has
distributors in Mexico, Canada, China, Cyprus, Korea and Singapore.
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Management plans to aggressively develop new niche markets for other vending
equipment. The next vending machine will be Go Nuts, a specialty hot nuts vender
incorporating many of the unique features of the Pop N Go popcorn vender.
C. THE MARKET
Vending is estimated to be a $30 billion industry according to the Trade
Publication 1998 Vending Times, and worldwide popcorn sales are in excess of 1
billion pounds annually according to the 1998 Popcorn Institute estimate.
Management believes the ability to deliver hot fresh popcorn popped right in
front of the customer with all of the smell and sound of fresh popping corn
presents a powerful attract mode to the consumer. The vend price of $1 for a 46
ounce cup of popcorn represents significant value to the consumer and allows the
owner/operator to net up to $.85 for each cup vended, before paying any location
commissions.
Pop N Go popcorn machines are currently located in convenience stores,
supermarkets, bowling alleys, car washes, military bases and a wide range of
other retail, industrial and office locations.
Management believes there is a trend toward eating healthy, which gives Pop N Go
a significant advantage over microwave and other kettle popped products, since
Pop N Go is the only popcorn that can be delivered totally oil-free. The
customer who enjoys butter flavoring can choose that option by making that
selection during the vend process. The total vend cycle takes approximately 2
minutes, which is shorter than the microwave or kettle popped process.
D. DISTRIBUTORS & MARKETING
The Company has entered into oral or written distribution agreements with
domestic and international distributors.
The Company's President is a minority shareholder in VTR Services, Inc., one of
the Company's distributors for the mid-Atlantic region. The terms by which the
Company does business with VTR are the same as with the Company's other
distributors.
The Company management estimates there may be over one million potential
locations for its popcorn machine in the U.S., including 100,000 convenience
stores, and thousands of other retail stores, schools, hospitals, offices and
military bases.
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E. COMPETITION
Consumers of popcorn outside of the home heretofore have had two options
available to them. First is the kettle popped popcorn which is typically
available in movie theaters and concession stands. The popcorn is cooked in oil
in large batches and is subject to waste, labor and cleanliness issues. Kettle
popped corn will grow stale quickly if not consumed. The second option typically
available in the lunchroom environment is microwave cooked popcorn. The consumer
purchases a bag of microwave popcorn from a snack vending machine and cooks it
in a microwave oven.
These traditional ways of serving popcorn are the major competition for Pop N
Go's popcorn machine. These methods do not allow for delivery of a fresh cup
popped on demand in an oil free manner.
Management believes there may be perhaps two competitors that produce hot air
popcorn vending machines. Neither have the features of Pop N Go that combine the
programmable cook process with the attract mode LED display. Management believes
it has significant market advantages over these competitors in that (1) it is
the only company with a programmable cooking process popcorn vending machine,
and (2) management believes the popcorn machine design allows for placement of
the machines in locations that would not accept competitive units.
F. FOREIGN OPERATIONS
The company expects foreign operations to play an increasing role in the future.
The Company currently sells its equipment to Canada, China, Mexico, Cyprus,
Korea and Singapore, and expects to commence sales in Malaysia, Australia and
England during fiscal year 2001. Management believes that foreign sales could
account for up to 30% of the Company's gross revenue in fiscal year 2001.
The Company will face significant risks as a result of its international
operations which may include regulatory delays or disapprovals, exchange rate
fluctuations which will make it more difficult for foreign buyers to buy the
Company's equipment if local currencies are devalued, expenses and delays due to
political instabilities, changes in local tariffs and foreign distributors
failing to fulfill purchase commitments.
G. INVENTORY.
The company subcontracts out the manufacture of its circuit boards and other
parts of the popcorn unit to outside manufacturers who produce parts to its
specifications. Parts inventories consist primarily of small parts and supplies
to be used in the manufacturing process of machines held for resale. Parts are
valued at the lower of cost or market. Cost is determined by the first-in,
first-out (FIFO) method.
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H. INTANGIBLE ASSETS
Intangible assets consist primarily of the costs incurred in development of
software integral to the operation of the machine. These costs will be amortized
over a 5 year period.
The patent and certain technology related to the popcorn machine was assigned by
Messrs. Wyman (through his professional corporation, Calblue, Inc.) and Brokke
(through his limited liability corporation, Gwendolyn Investments, LLC), to the
Company in October of 1996, in consideration for the issuance of 1,387,500
(equivalent post split) shares of the Company's common stock in connection with
the initial capitalization of the Company. The patent was originally granted on
April 20, 1993.
I. RESEARCH AND DEVELOPMENT
The Company has continued to refine, retrofit, and improve the popcorn unit, and
the unit's overall production and manufacturing processes. The Company has also
under development its Hot Nuts Machine. The Company is exploring the possible
development of other food service and vending machines in the future.
J. SEASONAL FACTORS
The consumption of popcorn is not subject to seasonality except in those
locations that are dependent on tourism for much of their business.
K. EMPLOYEES
Pop N Go has 12 full time employees and consultants and 1 part-time software
development consultant. None of its employees belong to a union.
L. GOVERNMENT REGULATIONS
Although the Company believes there are no "Government" regulations which apply
to the mechanical electrical safety aspects of Pop N Go machines, the Company
has obtained certification for the European Community (CE) and for Mexico,
Normas Officialese Mexicana (NOM). The Company has obtained listing with
Underwriters Laboratory (UL) for the United States and with Canadian
Underwriters Laboratory (CUL).
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ITEM 2. DESCRIPTION OF PROPERTY
The Company occupies 6,000 square feet in Whittier, California, where the
corporate office and manufacturing facility for the Company is located.
The Company rents its Whittier office and manufacturing facility from the father
of the Company's Director of Manufacturing, at a rent of $1500.00 per month,
pursuant to a Lease which expires on January 1, 2001. The Company believes it is
paying at or below market rates for the facility. Management believes that other
comparable space is available at similar rent and terms should the Company be
required to move to another location.
ITEM 3. LEGAL PROCEEDINGS
The Company has no pending litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
NET TANGIBLE BOOK VALUE PER SHARE
As of September 30, 2000, the net tangible book value of our common stock was
($829,883) or ($0.10) per share of common stock, based upon 8,172,699 shares
outstanding. "Net tangible book value" per share represents the amount of our
total tangible assets reduced by our total liabilities divided by the number of
shares of common stock outstanding.
MARKET PRICE OF THE COMMON STOCK
As of the date of this report, our common stock is traded in the
over-the-counter Bulletin Board market under the symbol "POPN", and has traded
publicly on the Bulletin Board since June 26, 2000. Prior to that time, from
April 26, 1999 through June 25, 2000, our stock was traded in the
over-the-counter "Pink Sheet" market.
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The following table presents the range of the high and low net sale prices and
estimated average daily volume information for our common stock for the periods
indicated, which information was provided by the NASDAQ Stock Market, Inc. The
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
Estimated
Average Daily
High Low Volume (Shares)
---- ---- ---------------
<S> <C> <C> <C>
Fourth Quarter of Fiscal Year 1.00 .50 3200
Ending 9/30/00
Third Quarter of Fiscal Year 1.50 .75 600
Ending 9/30/00
Second Quarter of Fiscal Year 1.75 1.50 300
Ending 9/30/00
First Quarter of Fiscal Year 2.00 1.25 200
Ending 9/30/00
Fourth Quarter of Fiscal Year 2.50 1.50 200
Ending 9/30/99
Third Quarter of Fiscal Year 2.50 1.50 400
Ending 9/30/99
Second Quarter of Fiscal Year -- -- --
Ending 9/30/99
</TABLE>
Records of our stock transfer agent indicate that as of September 30, 2000,
there were 281 record holders of our common stock.
DIVIDEND POLICY
We have not paid any cash dividends to date, and do not anticipate or
contemplate paying cash dividends in the foreseeable future.
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RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has sold the following securities
without registering the securities under the Securities Act of 1933.
<TABLE>
<CAPTION>
Title & Nature & Underwriting
Amount of Principal Amount of Discounts & Exemption
Date Securities Underwriters Consideration Commissions Relied Upon
---- ---------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
March 1998 Convertible Notes(1) None $250,000 None Section 4(2)
Jan. `98 thru Convertible Notes(2) None $420,000 None Section 4(2)
June 98
Fiscal Year Convertible Notes(3) None $883,207 None Section 4(2)
Ended Sept. 2000
Feb. `98 423,652 Common None $235,040 $10,180 Section 4(2)
Shares
Fiscal Year 1,704,233 None $2,385,859 $233,956 Section 4(2); Reg D
Ended Sept. `99 Common Shares
Fiscal Year 308,070 None Finders' Fee Services None Section 4(2)
Ended Sept. `99 Common Shares $431,298
Fiscal Year 57,500 None Exercise of Options None Section 4(2)
Ended Sept. `99 Common Shares $2,875
Fiscal Year 686,500 None Consulting Services None Section 4(2)
Ended Sept. `99 Common Shares $519,600
Fiscal Year 508,750 None Conversion of Debt None Section 4(2)
Ended Sept. `99 Common Shares $250,000
Fiscal Year 64,166 None Settlement None Section 4(2)
Ended Sept. `99 Common Shares of Claim
Fiscal Year 325,428 None $329,999 $124,675 Section 4(2); Reg D
Ended Sept. `99 Common Shares and
313,999 Warrants
Fiscal Year 1,043,000 None For consulting services None Section 4(2)
Ended Sept. 2000 Common Shares rendered of $1,101,000
Fiscal Year 25,000 None Conversion of None Section 4(2)
Ended Sept. 2000 Debt Interest
Fiscal Year 114,500 None Exercise of Stock None Section 4(2)
Ended Sept. 2000 Common Shares Options $5,726
Fiscal Year 333,333(4) None $250,000 None Section 4(2)
Ended Sept. 2000 Warrants
</TABLE>
(4) Stock Purchase Warrants: During the year ended September 30,2000, the
Company sold a warrant to purchase 333,333 shares of its Common Stock
for $0.75 per share. The warrant was sold under a subscription agreement
for $250,000. As of September 30, 2000, the Company had collected
$100,000 against the receivable.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's consolidated
financial statements and accompanying notes.
YEAR ENDED SEPTEMBER 30, 2000 VERSUS YEAR ENDED SEPTEMBER 30, 1999
RESULTS OF OPERATIONS
The Company incurred a net loss of $3,211,483 for the year ended September 30,
2000 as compared to a net loss of $2,751,313 for the year ended September 30,
1999. This loss represents a loss from operations of $3,127,261 and $2,491,251
for the years ended September 30, 2000 and 1999, respectively. The net loss also
includes interest expense and other finance charges totaling $83,021 and
$259,147 for the years ended September 30, 2000 and 1999, respectively.
Total revenues for the year ended September 30, 2000 were $ 537,714 as compared
to $607,666 for the year ended September 30, 1999. This represents a decrease in
revenues of 11.5% over the same period in the prior year. This decrease was
primarily due to a reduction in popcorn machine sales during 2000.
Total cost of goods sold for the year September 30, 2000 was $536,000 as
compared to $531,336 for the year ended September 30, 1999. The gross profit on
the equipment sales went from 12.6% for the year ended September 30, 1999 to .3%
for the year ended September 30, 2000. This decrease in the gross profit percent
was primarily caused by higher costs associated with producing UL listed popcorn
machines.
Total operating expenses consist primarily of development expenses and general
and administrative expenses. For the year ended September 30, 2000, total
operating expenses were $3,128,975. For the year ended September 30, 1999, total
operating expenses were $2,567,581. This represents a 21.9% increase over the
same period in the prior year.
General and administrative expenses for the year ended September 30, 2000 were
$2,027,975 as compared to $2,047,981 for the year ended September 30, 1999. This
represents an increase of 52.8% over the same period in the prior year. This
increase was caused by higher professional fees due to the various filings and
money-raising activities done by the Company, and increases associated with the
expanded sales and marketing activities.
Interest expense and other finance charges went from $259,147 for the year ended
September 30, 1999 to $83,021 for year ended September 30, 2000.
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had cash and cash equivalents of $57,742
as compared to cash and cash equivalents of $140,264 as of September 30, 1999.
At September 30, 1999, the Company had a working capital (total current assets
in excess of total current liabilities) of $187,643 as compared to a working
capital deficiency (total current liabilities in excess of current assets) of
($904,604) as of September 30, 2000. Net cash used in operating activities was
$1,514,841 for year ended September 30, 2000 and $1,968,474 for the year ended
September 30, 1999. Net cash from financing activities was $1,444,255 for year
ended September 30, 2000, as compared to $2,119,757 for the year ended September
30, 1999. The principal use of cash for the year ended September 30, 2000 was to
fund the net loss from operations for the period. The Company raised a total of
$1,444,255 from the issuance of common stock, net of stock issuance costs, loan
from a private lender and the issuance of convertible debentures during the year
ended September 30, 2000, and this was used to fund the net loss from
operations.
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ITEM 7. FINANCIAL STATEMENTS
The audited Financial Statements and related Notes and Schedules of Pop N Go,
Inc., including the balance sheet as September 30, 2000, and the related
statements of operations, stockholders' deficit, and cash flows for each of the
years in the 2 year period ended September 30, 2000, included elsewhere in this
Report, have been so included in reliance on the part of Singer, Lewak,
Greenbaum & Goldstein, LLP, independent certified public accountants, given on
the authority of such firm as experts in auditing and accounting.
The financial statements required by this Item 7 are included elsewhere in this
Report and incorporated herein by this reference.
ITEM 8. CHANGES IN OR DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND DISCLOSURE
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(b) OF
THE EXCHANGE ACT
Directors and Executive Officers
The Directors and executive officers of Pop N Go, Inc. and their ages and
positions are set forth below:
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
Melvin Wyman 62 Chief Executive Officer, Secretary and a Director
Vernon Brokke 48 President and a Director
</TABLE>
MELVIN WYMAN is Chief Executive Officer and a Director. Dr. Wyman holds a BA and
Ph.D. from the University of California, Los Angeles. He has over 15 years of
experience in the design and marketing of specialty vending and video game
products. He has served as the CEO of Pop N Go since the Company's inception in
1996. Prior to his involvement with Pop N Go, Dr. Wyman was the Director of US
Operations for Sport Active, Inc. Sport Active is a Canadian based developer of
an interactive game system developed for the hospitality industry.
VERNON BROKKE is President and a Director. Mr. Brokke has a distinguished sales
career encompassing over 20 years with 8 President's Club Winner Awards. Prior
to his appointment as President of Pop N Go in 1996, Mr. Brokke was Area Sales
Manager for Stratacom, a telecommunications network company with sales in excess
of $500 million. Mr. Brokke is responsible for developing the Company's
worldwide marketing strategy.
ITEM 10. EXECUTIVE COMPENSATION
Director Compensation
Our Directors do not receive any compensation for their services as Directors.
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The following table reflects compensation paid or accrued during the indicated
fiscal years, which end on September 30 of the indicated year with respect to
compensation paid or accrued by Pop N Go, Inc.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------------------------
Awards Payouts
Annual Compensation -------------------------- -------------------
---------------------------------------------- All
Annual Restricted Securities Other
Name and Compen- Stock Underlying LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)
--------- ---- --------- -------- ------ ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Melvin Wyman, 2000 150,000 6,000 111,000
Chief Executive 1999 120,000 6,000 0 83,250 n/a n/a n/a
Officer, Secretary 1998 96,000 -- -- -- -- --
and a Director
Vernon Brokke, 2000 0 0 -- 111,000 -- -- --
President and 1999 0 6,000 0 83,250 n/a n/a n/a
a Director 1998 0 -- -- -- -- --
</TABLE>
(1) Does not include prerequisites and other personal benefits, securities or
property if the aggregate amount of such compensation for each of the persons
listed did not exceed the lesser of (i) $50,000 or (ii) ten percent of the
combined salary and bonus for such person during the applicable year.
No stock options were granted to officers and directors during the Company's
fiscal year ended September 30, 2000.
Employment Agreements
Under long term consulting agreements with each of the officers (through their
personal corporation or limited partnership), monthly compensation is currently
$12,500 per month for Melvin Wyman. Mr. Brokke receives 111,000 shares of PNG
stock and no cash as total annual compensation. In addition, they are each
entitled to an annual bonus equal to 1% of the Company's gross annual sales each
year.
Their consulting agreements terminate December 31, 2008.
In addition to direct remuneration, Pop N Go reimburses all employees and
consultants for business-related expenses, and provides medical insurance
benefits for certain consultants.
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Stock Option Plan
On August 31, 1998, the Board of Directors of Pop N Go, Inc. adopted a Stock
Option Plan (the "Plan"). This Plan provides for the grant of Incentive
Non-Qualified Stock Options to employees selected by the Board of Directors of
Pop N Go, Inc. To date, 394,000 options have been granted under the Plan,
including 100,000 to Dr. Wyman and 100,000 to Mr. Brokke, at an exercise price
of $0.05 per share. At September 30, 2000, 222,000 options were vested but
unexercised, and 172,000 options had been exercised. A total of 114,500 options
were exercised during the Company's fiscal year ended September 30, 2000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the common stock (including common stock acquirable within 60 days
pursuant to options, warrants, conversion privileges or other rights) of the
Company as of September 30, 2000 (i) by each of the Company's directors and
executive officers, (ii) all executive officers and directors as a group, and
(iii) all persons known by the Company to own beneficially more than 5% of the
common stock. All persons listed have sole voting and investment power over the
indicated shares unless otherwise indicated.
<TABLE>
<CAPTION>
Name Shares
---- ------------
<S> <C>
Melvin Wyman 912,800(1)
Vernon Brokke 1,200,000(2)
All Officers and Directors
as a Group 2,112,800
</TABLE>
The addresses for Messrs. Wyman and Brokke is c/o Pop N Go, Inc. 12429 East
Putnam Street, Whittier, California 90602.
(1) Includes 100,000 shares subject to options presently exercisable.
(2) Includes 100,000 shares subject to options presently exercisable.
(3) Held through a wholly-owned corporation, Calblue, Inc.
(4) Held personally and through his personal corporation, Gwendolyn
Investments, LLC.
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ITEM 11. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
1. During the year ended September 30, 1998, the Company privately issued
111,000 shares of its common stock to 2 consultants for services. These
consultants were related parties of the Company (including 55,500 shares
to Mel Wyman and 55,500 shares to Vernon Brokke. In connection with the
issuance, $85,470 was charged to operations as consulting fees.
2. The Company issued in December, 1998, to Pacific Acquisition Group, Inc.
("Pacific") in a private placement transaction exempt from registration
under the Securities Act of 1933, 308,070 restricted shares of the
Company's common stock, in consideration for services as a "Finder".
3. During the years ended September 30, 2000 and 1999, the Company paid
rent of $17,500 and $19,800, respectively, to a family member of a
Company employee for its primary place of operations.
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Included herein as Exhibits, and by this reference incorporated herein,
are the following Financial Statements
1. Balance Sheet of Pop N Go, Inc. as of September 30, 2000, and the
related Statements of Operations, Stockholders' Equity and Cash Flows
for each of the years in the two year period ended September 30, 2000.
2. Financial Statement Schedules
All other schedules have been omitted because they are not required, not
applicable, or the information is otherwise set forth in the financial
statements or notes thereto.
B. Reports on 8-K.
Not Applicable.
C. Other Exhibits
<TABLE>
<S> <C>
3.1 Articles of Incorporation and Amendments(1)
3.2 Bylaws(1)
10.1 Lease Agreement (Whittier, California)
10.12 Employment Agreement with Calblue, Inc.(1)
10.13 Employment Agreement with Gwendolyn Investments, LP(1)
23.1 Consent of Singer, Lewak, Greenbaum & Goldstein, LLP
27 Financial Data Schedules
</TABLE>
(1) Filed previously as part of the Company's Registration Statement on Form
SB-2, filed with the Commission on February 8, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
The Company is currently subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street, NW, Washington D.C. 20549; at its New York
Regional Office, Suite 1300, 7 World Trade Center, New York, New York 10048; and
its Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies of such materials can be obtained from the Public
Reference Section of the Commission at its principal office in Washington, D.C.,
17
<PAGE> 18
at prescribed rates. In addition, such materials may be accessed electronically
at the Commission's site on the World Wide Web, located at http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports containing
audited financial statements and such other periodic reports as the Company may
determine to be appropriate or as may be required by law.
Certain documents listed above, as exhibits to this Report on Form 10-KSB, are
incorporated by reference from other documents previously filed by the Company
with the Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
POP N GO, INC.
/s/ Mel Wyman
---------------------------------------
Date: January 12, 2001 By: Mel Wyman
Chief Executive Officer and a Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity in Which Signed Date
--------- ------------------------ ----
<S> <C> <C>
/s/ Mel Wyman Chief Executive Officer and a Director January 12, 2001
---------------------
Mel Wyman
/s/ Vernon Brokke President and a Director January 12, 2001
---------------------
Vernon Brokke
</TABLE>
18
<PAGE> 19
POP N GO, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
SEPTEMBER 30, 2000 AND 1999
Pop N Go Sep00 Aud #5854
released 1/12/01
<PAGE> 20
POP N GO, INC. AND SUBSIDIARY
CONTENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet 2 - 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity (Deficit) 5 - 6
Consolidated Statements of Cash Flows 7 - 8
Notes to Consolidated Financial Statements 9 - 20
</TABLE>
<PAGE> 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Pop N Go, Inc. and subsidiary
We have audited the accompanying consolidated balance sheet of Pop N Go, Inc.
and subsidiary as of September 30, 2000, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for each of the
two years in the period ended September 30, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 that 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 Pop N
Go, Inc. and subsidiary as of September 30, 2000, and the consolidated results
of their operations and cash flows for each of the two years in the period ended
September 30, 2000 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. During the years ended
September 30, 2000 and 1999, the Company incurred net losses of $3,211,483 and
$2,751,313, respectively. In addition, the Company's net cash used in operating
activities was $1,514,841 and $1,968,474 for the years ended September 30, 2000
and 1999, respectively, and the Company's accumulated deficit was $7,688,191 as
of September 30, 2000. Recovery of the Company's assets is dependent upon future
events, the outcome of which is indeterminable. In addition, successful
completion of the Company's transition, ultimately, to the attainment of
profitable operations is dependent upon obtaining adequate financing to fulfill
its development activities and achieving a level of sales adequate to support
the Company's cost structure. These factors, among others, as discussed in Note
2 to the consolidated financial statements, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
December 20, 2000
<PAGE> 22
POP N GO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS
Cash $ 57,742
Accounts receivable, net of allowance for doubtful accounts
of $6,017 171,768
Inventories, net of an obsolescence reserve of $9,400 334,536
Prepaid expenses 10,000
Deposits 10,354
--------
Total current assets 584,400
FURNITURE AND EQUIPMENT, net of accumulated depreciation
of $24,068 42,599
NOTE RECEIVABLE - BRANAX LLC 35,000
--------
TOTAL ASSETS $661,999
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 23
POP N GO, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
<S> <C>
CURRENT LIABILITIES
Current portion of capital lease obligation $ 2,800
Notes payable 250,000
Convertible debt 883,207
Accounts payable 270,135
Accrued liabilities 63,595
Customer deposits 19,267
-----------
Total current liabilities 1,489,004
CAPITAL LEASE OBLIGATION, net of current portion 2,878
-----------
Total liabilities 1,491,882
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value
20,000,000 shares authorized
8,172,699 shares issued and outstanding 8,173
Common stock committed 521,500
Subscription receivable (150,000)
Additional paid-in capital 6,478,635
Accumulated deficit (7,688,191)
-----------
Total stockholders' deficit (829,883)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 661,999
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 24
POP N GO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
REVENUE $ 537,714 $ 607,666
COST OF GOODS SOLD 536,000 531,336
----------- -----------
GROSS PROFIT 1,714 76,330
----------- -----------
OPERATING EXPENSES
General and administrative expenses 2,027,975 2,047,981
Issuance of common stock for services 1,101,000 519,600
----------- -----------
Total operating expenses 3,128,975 2,567,581
----------- -----------
LOSS FROM OPERATIONS (3,127,261) (2,491,251)
----------- -----------
INTEREST EXPENSE
Interest expense (83,021) (32,647)
Other finance charges -- (226,500)
----------- -----------
Total interest expense (83,021) (259,147)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (3,210,282) (2,750,398)
PROVISION FOR INCOME TAXES 1,201 915
----------- -----------
NET LOSS $(3,211,483) $(2,751,313)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.50) $ (0.61)
=========== ===========
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 6,404,434 4,544,504
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 25
POP N GO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Common
------------------------------ Stock Subscription
Shares Amount Committed Receivable
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1998 3,335,552 $ 3,336 $ -- $ --
ISSUANCE OF COMMON STOCK FOR CASH 1,704,233 1,705
ISSUANCE OF COMMON STOCK FOR STOCK
ISSUANCE COSTS 308,070 308
STOCK ISSUANCE COSTS
CONVERSION OF CONVERTIBLE DEBENTURES 508,750 509
ISSUANCE OF PUT OPTION (150,000) (150)
EXERCISE OF STOCK OPTIONS 57,500 57
ISSUANCE OF COMMON STOCK FOR
CONSULTING SERVICES 686,500 686
ISSUANCE OF COMMON STOCK FOR SALES
RETURNS 64,166 64
NET LOSS
----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1999 6,514,771 6,515 -- --
ISSUANCE OF COMMON STOCK FOR CASH 325,428 325
ISSUANCE OF COMMON STOCK FOR
INTEREST 25,000 25
ISSUANCE OF WARRANT UNDER
SUBSCRIPTION RECEIVABLE (150,000)
STOCK ISSUANCE COSTS
SHARES TO BE ISSUED UNDER
CONSULTING AGREEMENTS 521,500
EXERCISE OF STOCK OPTIONS 114,500 115
ISSUANCE OF COMMON STOCK FOR
CONSULTING SERVICES 1,043,000 1,043
</TABLE>
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated
Capital Deficit Total
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1998 $ 1,620,544 $ (1,725,395) $ (101,515)
ISSUANCE OF COMMON STOCK FOR CASH 2,384,154 2,385,859
ISSUANCE OF COMMON STOCK FOR STOCK
ISSUANCE COSTS (308) --
STOCK ISSUANCE COSTS (233,956) (233,956)
CONVERSION OF CONVERTIBLE DEBENTURES 299,491 300,000
ISSUANCE OF PUT OPTION (88,350) (88,500)
EXERCISE OF STOCK OPTIONS 2,818 2,875
ISSUANCE OF COMMON STOCK FOR
CONSULTING SERVICES 518,914 519,600
ISSUANCE OF COMMON STOCK FOR SALES
RETURNS 64,936 65,000
NET LOSS (2,751,313) (2,751,313)
----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1999 4,568,243 (4,476,708) 98,050
ISSUANCE OF COMMON STOCK FOR CASH 329,674 329,999
ISSUANCE OF COMMON STOCK FOR
INTEREST 34,975 35,000
ISSUANCE OF WARRANT UNDER
SUBSCRIPTION RECEIVABLE 250,000 100,000
STOCK ISSUANCE COSTS (124,675) (124,675)
SHARES TO BE ISSUED UNDER
CONSULTING AGREEMENTS 521,500
EXERCISE OF STOCK OPTIONS 5,611 5,726
ISSUANCE OF COMMON STOCK FOR
CONSULTING SERVICES 1,099,957 1,101,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 26
POP N GO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Common
------------------------------ Stock Subscription
Shares Amount Committed Receivable
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
EXPIRATION OF PUT OPTION 150,000 $ 150 $ $
NET LOSS
----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 2000 8,172,699 $ 8,173 $ 521,500 $ (150,000)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated
Capital Deficit Total
----------- ----------- -----------
<S> <C> <C> <C>
EXPIRATION OF PUT OPTION $ 314,850 $ $ 315,000
NET LOSS (3,211,483) (3,211,483)
----------- ----------- -----------
BALANCE, SEPTEMBER 30, 2000 $ 6,478,635 $(7,688,191) $ (829,883)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 27
POP N GO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,211,483) $(2,751,313)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 128,578 159,371
Issuance of common stock for interest 35,000 50,000
Issuance of common stock for services 1,622,500 519,600
Issuance of common stock for sales returns -- 65,000
Reclassification of demonstration units 14,900 --
Other non-cash finance charges -- 226,500
(Increase) decrease in
Accounts receivable (112,713) (42,989)
Inventories (23,059) (172,777)
Other assets (45,904) --
Notes receivable 47,500 (47,500)
Increase (decrease) in
Accounts payable 75,356 25,289
Accrued liabilities 32,184 (8,535)
Accrued consulting fees (77,700) 77,700
Customer deposits -- (68,820)
----------- -----------
Net cash used in operating activities (1,514,841) (1,968,474)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (11,936) (28,257)
----------- -----------
Net cash used in investing activities (11,936) (28,257)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on loan payable - stockholder -- (35,000)
Proceeds from subscription receivable 100,000 --
Proceeds from sale of convertible debentures 883,207 --
Proceeds from issuance of common stock 205,322 2,385,838
Proceeds from exercise of stock options 5,726 2,875
Proceeds from notes payable 250,000 (233,956)
----------- -----------
Net cash provided by financing activities 1,444,255 2,119,757
----------- -----------
Net increase (decrease) in cash (82,522) 123,026
CASH, BEGINNING OF YEAR 140,264 17,238
----------- -----------
CASH, END OF YEAR $ 57,742 $ 140,264
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 28
POP N GO, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $10,513 $ 5,750
======= =======
INCOME TAXES PAID $ 1,201 $ 915
======= =======
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company entered into the following non-cash transactions during the years
ended September 30, 2000 and 1999:
- During the year ended September 30, 2000, the Company financed the purchase
of computer equipment valued at $5,678 under capital lease obligations.
- During the year ended September 30, 2000, the Company issued 1,043,000
shares of common stock in exchange for consulting services valued at
$1,101,000.
- During the year ended September 30, 2000, the Company committed to issue
372,500 shares of common stock in exchange for consulting services valued at
$521,500.
- During the year ended September 30, 2000, the Company issued 25,000 shares
of common stock for interest charges in the amount of $35,000.
- During the year ended September 30, 1999, the Company issued 308,070 shares
of common stock for stock issuance costs related to a private placement of
common stock.
- During the year ended September 30, 1999, debenture holders exercised their
right to convert $250,000 of debentures and $50,000 of related interest to
508,750 shares of common stock. In addition, the Company issued a put option
to these debenture holders for 150,000 shares of common stock, whereby the
Company recognized $266,500 of interest expense.
- During the year ended September 30, 1999, the Company issued 686,500 shares
of common stock in exchange for consulting services valued at $519,600.
- During the year ended September 30, 1999, the Company issued 64,166 shares
of common stock as settlement for sales returns valued at $65,000.
8
<PAGE> 29
POP N GO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Pop N Go, Inc., incorporated in the State of Delaware on October 21,
1996, and its subsidiary, Nuts to Go, Inc., (collectively, the
"Company") manufacture and develop coin-operated popcorn machines which
they sell to distributors and retail establishments. The Company also
intends to own and operate these machines for its own account on a
revenue-sharing basis. In addition, the Company has developed prototype
coin-operated machines for outside customers on a contract basis.
Effective October 1998, Nuts To Go, Inc. became a dormant corporation.
NOTE 2 - GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown
in the financial statements, during the years ended September 30, 2000
and 1999, the Company incurred losses of $3,211,483 and $2,751,313,
respectively. In addition, the Company's cash flow requirements have
been met by the generation of capital through private placements of the
Company's common stock. No assurance can be given that this source of
financing will continue to be available to the Company and demand for
the Company's equity instruments will be sufficient to meet its capital
needs. If the Company is unable to generate profits and unable to
continue to obtain financing for its working capital requirements, it
may have to curtail its business sharply or cease business altogether.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability
to generate sufficient cash flow to meet its obligations on a timely
basis, to retain its current financing, to obtain additional financing,
and ultimately to attain profitability.
To meet these objectives, the Company has instituted the following plan:
- The Company has increased marketing activities to help generate
sales sufficient to meet its cash flow obligations.
- The Company plans to raise additional capital through the offering
of private placements during the year ended September 30, 2001.
- The Company plans to obtain a private equity line of common stock
in the amount of $10,000,000.
- The Company plans to acquire Branax, LLC to help generate sales
sufficient to meet its cash flow obligations (see Note 8).
9
<PAGE> 30
POP N GO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Pop N Go,
Inc. and its wholly owned subsidiary, Nuts to Go, Inc. All significant
intercompany transactions and balances have been eliminated in
consolidation.
Basis of Presentation
As described in Note 2, the accompanying financial statements have been
prepared in conformity with generally accepted accounting principles
which contemplate the continuation of the Company as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts
and classification of liabilities that might be necessary should the
Company be unable to continue in existence.
Accounts Receivable
Accounts receivable consist primarily of short- and long-term amounts
due from customers and franchisees. The Company wrote off accounts in
the amount of $9,983 during the year ended September 30, 2000 and has
provided for an allowance in the aggregate of $6,017 for accounts it
considers uncollectible. Management believes this to be sufficient to
account for all uncollectible accounts.
Inventories
Inventories consist of small parts and supplies to be used in the
manufacturing process of machines held for resale, work in process, and
finished goods. Inventories are valued at the lower of cost or market.
Cost is determined by the first-in, first-out method.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed
using the straight-line method over an estimated useful life of five
years. Depreciation expense was $14,138 and $6,783 for the years ended
September 30, 2000 and 1999, respectively. Included in furniture and
equipment is equipment with a book value of $5,678, which was financed
under capital leases.
Proprietary Software
Proprietary software represents expenditures for development of software
related to ongoing efforts to refine, enrich, and improve the prototype
and pre-production units. These amounts have been capitalized and were
amortized over a 24-month period using the straight-line method.
Amortization expense for the years ended September 30, 2000 and 1999 was
$114,440 and $152,587, respectively. Proprietary software was fully
amortized at September 30, 2000.
10
<PAGE> 31
POP N GO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Customer Deposits
As of September 30, 2000, customers had paid deposits totaling $10,348
to the Company for machines which had not been delivered as of that
date. Revenue on the sale of these machines will be recognized when the
equipment is shipped.
Income Taxes
The Company utilizes Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred income
taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end based on enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Net Loss per Share
The Company adopted SFAS No. 128, "Earnings per Share." Basic loss per
share is computed by dividing loss available to common stockholders by
the weighted-average number of common shares available. Diluted loss per
share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common
shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive. Since
the Company incurred net losses for the periods presented, basic and
diluted loss per share are the same.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosures of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash, accounts receivable,
accounts payable, and accrued liabilities, the carrying amounts
approximate fair value due to their short maturities. The amount shown
for notes payable also approximates fair value because current interest
rates offered to the Company for debt of similar maturities are
substantially the same.
11
<PAGE> 32
POP N GO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Risk Concentrations
Substantially all of the Company's revenues are generated from the sale
of one product. The loss of, or an economic event related to this
product, most likely would have a substantial impact on the Company's
revenues. As of September 30, 2000, accounts receivable from one
significant customer were 77% of the Company's total accounts
receivable. Sales to this customer amounted to $150,000, which
represented 28% of total sales. In addition, sales to one customer were
12% of the Company's total sales at September 30, 2000.
The Company maintains cash balances at a financial institution in
California. Accounts at this institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. The Company did not
maintain any uninsured balances at September 30, 2000.
Comprehensive Income
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting comprehensive income
and its components in a financial statement. Comprehensive income as
defined includes all changes in equity (net assets) during a period from
non-owner sources. Examples of items to be included in comprehensive
income, which are excluded from net income, include foreign currency
translation adjustments and unrealized gains and losses on
available-for-sale securities. Comprehensive income is not presented in
the Company's financial statements since the Company did not have any of
the items of comprehensive income in any period presented.
Recently Issued Accounting Pronouncements
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," to
provide guidance on the recognition, presentation, and disclosure of
revenue in financial statements. Changes in accounting to apply the
guidance in SAB No. 101 may be accounted for as a change in accounting
principle effective January 1, 2000. Management has not yet determined
the complete impact of SAB No. 101 on the Company; however, management
does not expect that application of SAB No. 101 will have a material
effect on the Company's revenue recognition and results of operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation," (an Interpretation of Accounting
Principles Bulletin Opinion No. 25 ("APB 25")) ("FIN 44"). FIN 44
provides guidance on the application of APB 25, particularly as it
relates to options. The effective date of FIN 44 is July 1, 2000, and
the Company has adopted FIN 44 as of that date.
12
<PAGE> 33
POP N GO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements (Continued)
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Instruments and Certain Hedging Activities." This statement is not
applicable to the Company.
In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB
Statement No. 53 and Amendments to Statements No. 63, 89, and 121." This
statement is not applicable to the Company.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, a replacement of FASB Statement No. 125." This statement is
not applicable to the Company.
NOTE 4 - INVENTORIES
Inventories at September 30, 2000 consisted of the following:
<TABLE>
<S> <C>
Raw materials $266,836
Finished goods 77,100
--------
343,936
Reserve for obsolescence 9,400
--------
TOTAL $334,536
========
</TABLE>
NOTE 5 - RELATED PARTY TRANSACTIONS
During the years ended September 30, 2000 and 1999, the Company paid
rent of $17,500 and $19,800, respectively, to a family member of a
Company employee for its primary place of operations.
NOTE 6 - CONVERTIBLE DEBT
The Company raised capital through the placement of convertible
promissory notes, bearing interest at a rate of 15% and initially
maturing on October 1, 2000. The notes were immediately convertible into
883,207 shares of common stock. The initial maturity date was extended
to October 1, 2001 for $559,994 of the notes. Convertible debt of
$343,213 is currently in default.
13
<PAGE> 34
POP N GO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
NOTE 6 - CONVERTIBLE DEBT (CONTINUED)
In accordance with generally accepted accounting principles, the Company
evaluated its convertible debt and determined that conversion rates were
above the current market rates for the Company's common stock at the
date of issuance.
On June 1, 1999, debenture holders converted notes and accrued interest
of $50,000. In order to induce the conversion, the Company issued a put
option to the debenture holders (see Note 7).
The terms associated with these debentures and the related amounts
raised and converted during the year ended September 30, 2000 were as
follows:
<TABLE>
<CAPTION>
Outstanding Outstanding
as of Raised Converted as of
September 30, During During September 30,
1999 2000 2000 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
15% notes $ -- $883,207 $ -- $883,207
======== ======== ======== ========
</TABLE>
NOTE 7 - PUT OPTION
On June 1, 1999, holders of the convertible debentures were offered a
put in order to induce their conversion. The put allowed for the holder
to sell 150,000 shares of the Company's common stock to the Company at
$2.10 per share for the term December 15, 1999 through December 31, 1999
if the Company's share price did not reach $2.10 at December 15, 1999,
or at any time thereafter up to and including the close of business at
December 31, 1999. Related to the put option and the related conversion
of debt, the Company recorded a contingency of $315,000 and finance
charges of $266,500. The put option was then extended to March 31, 2000.
On March 31, 2000, the put option expired without being exercised, and
the entire amount was credited to common stock and additional paid-in
capital.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its facilities from a related party. The lease is
cancelable at the Company's option. Rent expense was $17,500 and $19,800
for the years ended September 30, 2000 and 1999, respectively.
14
<PAGE> 35
POP N GO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Capital Leases
The Company entered into two capital leases for computer equipment
during the year ended September 30, 2000, which expire on September 30,
2002. Future minimum payments as of September 30, 2000 were as follows:
<TABLE>
<CAPTION>
Year Ending
September 30,
<S> <C>
2001 $3,000
2002 3,000
------
6,000
Less amount representing interest 322
------
TOTAL $5,678
======
</TABLE>
Letter of Agreement
On March 21, 2000, the Company entered into a binding letter of
agreement to purchase Branax, LLC for a purchase price of $350,000 in
cash and 800,000 shares of the Company's common stock. The Company
currently holds a $35,000 investment in Branax, LLC, which is included
in other assets on the accompanying balance sheet.
On January 1, 1998, the Company entered into a three-year agreement with
two officers for consulting services. The agreement calls for aggregate
payments of $192,000 during the first year, $240,000 during the second
year, and $300,000 during the final year. In addition, the Company is
required to issue 55,500 shares of its common stock per quarter until
the agreement expires. (See Note 9 under the caption Committed Stock.)
Litigation
The Company may become involved in various litigation arising in the
normal course of business. Management believes the outcome of such
litigation would not have a material effect on the Company.
NOTE 9 - STOCKHOLDERS' DEFICIT
Common Stock
During the year ended September 30, 1999, the Company initiated a
private placement of its common stock in which it placed 1,704,233
shares of its common stock for $2,385,859. In connection with the
private placement, $233,956 was charged to additional paid-in capital
for issuance costs.
15
<PAGE> 36
POP N GO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
NOTE 9 - STOCKHOLDERS' DEFICIT (CONTINUED)
Common Stock (Continued)
During the year ended September 30, 1999, the Company issued 308,070
shares of common stock as stock issuance costs related to a private
placement of common stock.
During the year ended September 30, 1999, 57,500 stock options were
exercised for cash of $2,875.
During the year ended September 30, 1999, the Company issued 166,500
shares of its common stock to related party consultants for services. In
connection with the issuance, $233,100 was charged to operations as
consulting fees.
During the year ended September 30, 1999, the Company issued 520,000
shares of common stock in exchange for services rendered valued at
$286,500.
During the year ended September 30, 1999, debenture holders exercised
their right to convert $250,000 of debentures and $50,000 of related
interest to 508,750 shares of common stock. 150,000 of the shares are
reported as a put option.
During the year ended September 30, 1999, the Company issued 64,166
shares of its common stock as settlement for 20 returned machines
originally priced at $65,000.
During the year ended September 30, 2000, the Company initiated a
private placement of its common stock in which it placed 325,428 shares
of common stock for $329,999. In connection with the private placement,
$124,675 was charged to additional paid-in capital for issuance costs.
In addition, the Company issued 313,999 warrants in connection with
certain private placements (see Note 10.)
During the year ended September 30, 2000, the Company issued 1,043,000
shares of common stock in exchange for consulting services valued at
$1,101,000.
During the year ended September 30, 2000, the Company issued 25,000
shares of common stock for $35,000 in interest charges related to a
$250,000 note payable.
During the year ended September 30, 2000, 114,500 stock options were
exercised for cash of $5,726.
Committed Stock
Under the terms of a consulting agreement, the Company committed to
issue 200,000 shares of common stock for services. The agreement called
for 50,000 shares to be issued on March 1, 2000, 75,000 on May 1, 2000,
and 75,000 on July 1, 2000. As of September 30, 2000, 95,000 shares
remain unissued. Total expense associated with the agreement was
$280,000, which has been charged to operations. As of September 30,
2000, the Company recorded $133,000 in committed stock for the unissued
shares.
16
<PAGE> 37
POP N GO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
NOTE 9 - STOCKHOLDERS' DEFICIT (CONTINUED)
Committed Stock (Continued)
Under the terms of two consulting agreements, the Company committed to
issue 277,500 shares of common stock for services. These shares remain
unissued at September 30, 2000. The total expense associated with the
agreement was $388,500, which has been charged to operations.
NOTE 10 - STOCK OPTIONS AND WARRANTS
Stock Option Plan
The Company adopted the 1998 Non-Qualified Stock Option Plan (the "1998
Plan") on August 31, 1998. The purpose of the 1998 Plan is to promote
the growth and profitability of the Company by enabling the Company to
attract and retain the best available personnel for positions of
substantial responsibility, to provide employees with an opportunity for
investment in the Company, and to give employees an additional incentive
to increase their efforts on behalf of the Company. Each employee or
consultant as determined by the Board of Directors of the Company is
eligible to be considered for the grant of awards under the 1998 Plan.
The maximum number of shares of common stock that may be issued pursuant
to awards granted under the 1998 Plan is 500,000. Any shares of common
stock subject to an award, which for any reason expires or terminates
unexercised, are again available for issuance under the 1998 Plan. Under
the 1998 Plan, no incentive stock option will be less than the per share
par or stated value of the shares on the date the stock option is
granted, subject to certain provisions.
During the years ended September 30, 2000 and 1999, the Company did not
grant any stock options to employees or consultants. These options
expire upon certain events.
The following summarizes the Company's stock option transactions:
<TABLE>
<CAPTION>
Weighted-
1998 Stock Average
Option Plan Exercise
and Other Price
-------- --------
<S> <C> <C>
Options outstanding, September 30, 1998 394,000 $ 0.05
Exercised (57,500) $ 0.05
--------
Options outstanding, September 30, 1999 336,500 $ 0.05
Exercised (114,500) $ 0.05
--------
OPTIONS OUTSTANDING, SEPTEMBER 30, 2000 222,000 $ 0.05
========
OPTIONS EXERCISABLE, SEPTEMBER 30, 2000 222,000 $ 0.05
========
</TABLE>
17
<PAGE> 38
POP N GO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
NOTE 10 - STOCK OPTIONS AND WARRANTS (CONTINUED)
Stock Option Plan (Continued)
At September 30, 2000 and 1999, the Company's options outstanding had a
weighted-average contractual life of two years.
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting
Principles Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its plans
and does not recognize compensation expense for its stock-based
compensation plans. As the Company did not issue any stock options to
employees during the years ended September 30, 2000 and 1999, no pro
forma financial information is presented.
Stock Purchase Warrants
During the year ended September 30, 2000, the Company sold a warrant to
purchase 333,333 shares of its common stock for $0.75 per share. The
warrant was sold under a subscription agreement for $250,000. As of
September 30, 2000, the Company had collected $100,000 against the
receivable. The remaining balance of $150,000 is reflected as a
reduction in stockholders' equity.
In connection with certain private placements of the Company's common
stock, the Company issued warrants to purchase 313,999 shares of its
common stock. The warrants were immediately exercisable at $1 per share
and expire one year from the date of issuance.
The following table summarizes information about the warrants
outstanding at September 30, 2000:
<TABLE>
<CAPTION>
Weighted-
Average
Warrants Warrants Remaining
Exercise Price Outstanding Exercisable Contractual Life
-------------- ----------- ----------- ----------------
<S> <C> <C> <C>
$ 0.75 333,333 333,333 1 year
$ 1.00 313,999 313,999 1 year
</TABLE>
18
<PAGE> 39
NOTE 11 - INCOME TAXES
Significant components of the provision for income taxes for the years
ended September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Current
Federal $ -- $ 65
State 1,201 850
------ ------
1,201 915
------ ------
Deferred
Federal -- --
State -- --
------ ------
-- --
------ ------
PROVISION FOR INCOME TAXES $1,201 $ 915
====== ======
</TABLE>
A reconciliation of the provision for (benefit from) income tax expense
with the expected income tax computed by applying the federal statutory
income tax rate to income before provision for income taxes for the
years ended September 30, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Income tax provision computed at federal statutory
tax rate 34.0% 34.0%
State taxes, net of federal benefit 6.0 6.0
Interest charges related to convertible debentures
and related put option -- (2.0)
Change in deferred income tax valuation reserve
and other (40.0) (38.0)
------ ------
TOTAL --% --%
====== ======
</TABLE>
As of September 30, 2000, the Company had federal net operating loss
carryforwards of approximately $6,000,000, which expire through 2015.
Significant components of the Company's deferred tax assets and
liabilities for federal and state income taxes as of September 30, 2000
consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset
Net operating loss carryforwards $ 2,400,000
Valuation allowance (2,400,000)
-----------
NET DEFERRED TAX ASSET $ --
===========
</TABLE>
19
<PAGE> 40
POP N GO, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES (CONTINUED)
During the year ended September 30, 2000, the Company did not utilize
its federal net operating loss carryforwards.
NOTE 12 - YEAR 2000 ISSUE
The Company has completed a comprehensive review of its computer systems
to identify the systems that could be affected by ongoing Year 2000
problems. Upgrades to systems judged critical to business operations
have been successfully installed. To date, no significant costs have
been incurred in the Company's systems related to the Year 2000.
Based on the review of the computer systems, management believes all
action necessary to prevent significant additional problems has been
taken. While the Company has taken steps to communicate with outside
suppliers, it cannot guarantee that the suppliers have all taken the
necessary steps to prevent any service interruption that may affect the
Company.
