UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (Fee Required)
For the fiscal year ended December 31, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (No Fee Required)
For the transition period from __________ to ____________
Commission file number _________________
ZAP POWER SYSTEMS
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(Name of small business issuer in its charter)
CALIFORNIA 94-3210624
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
117 Morris Street, Sebastopol, California 95472
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (707) 824-4150
---------------
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None
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- ------------------------------------ -----------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
None
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(Title of class)
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(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
<PAGE>
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 10KSB. .
State issuer's revenues for its most recent fiscal year. $1,170,900
-----------
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange
Act).
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
There is no public market for the Company's common stock.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes No .
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. 2,076,500 shares of common
stock as of December 31, 1996
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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
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
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Part I
Item 1. Description of Business
A. Business Development
The Company was incorporated under the laws of the state of California,
on September 23, 1994.
The Company designs, assembles, manufactures and distributes electric
bicycle power kits, electric bicycles and tricycles, and other low-power
electric transportation vehicles.
During 1994 the Company began to develop an electric bicycle system for
the consumer market. The Company entered into a contract with a High Technology
Development, a Singapore based company, to develop an electric bicycle for the
country of Thailand. The Company, in cooperation with Systronics a U.S. Company,
developed a product that would be built and sold in Thailand. The Company was
paid for a technology transfer and ongoing research and development work on the
product. The Thailand project was terminated in the middle of 1995.
On February 13, 1996, the Company was issued a United States Patent on
its electric bicycle motor system (Patent #5,491,390).
During the second half of 1995 the Company began to develop a marketing
and production strategy for the United States. It signed a sales agreement to
sell bicycles through Real Goods Trading Company's mail order catalog. In the
first quarter of 1996 the Company developed a Web Site on the World Wide Web
allowing customers to buy the bicycles through the internet. In the second
quarter of 1996 the Company entered into a contract with Power Biking Inc., an
entity formed to sell electric bicycles through auto dealerships, to enroll auto
dealers in North America to sell the Company's bicycles. In April the Company
began selling electric bicycles and electric motor kits through the Sharper
Image mail order catalog. The Company signed a joint marketing agreement with
Movity S.r.l. to sell their electric scooter in the North American market and
for Movity S.r.l. to sell the Company's products in Italy and Austria.
In January 1997 ZAP China, a subsidiary of which the Company owns 50% ,
signed an agreement with Forever Company to sell up to 5,000 motor units.
Forever Company will assemble these motors on their bicycles and then sell the
completed bicycle in China.
In March 1997 the Company signed a letter of intent to purchase the
assets of Movity S.r.L. for a combination of common stock and cash totaling
$500,000. Movity manufactures and sells an electric motor scooter into the
European market.
Although the Company is registered with the Securities and Exchange
Commission, there was no trading in the Company's stock through the end of 1996.
The Company initiated an Direct Public Offering of its public shares November
29, 1996 at a price of $5.25 per share. The Company is currently not traded on
an exchange.
B. Business of Issuer
The Company manufactures an electric motor system that is sold as a kit
to be installed by the customer on their own bicycle. The Company also installs
the motor system on bicycles which the Company buys. The Company then sells the
complete electric bicycle to the customer. The Company purchases complete
bicycles from various bicycle manufacturers for use with the Company's electric
motor system. The Company manufactures the electric motor kit which has
approximately 62 unique parts. 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
using one company for its motors, although there are other companies that could
be
4
<PAGE>
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 electric motor kits and electric bicycles sold by ZAP are usually
shipped by U.P.S. and Federal Express. Larger quantity orders to wholesale
distributors are shipped common carrier. Overseas shipments are shipped by Ocean
carrier or air freight. The Company has developed long term purchase
arrangements with its key vendors. The Company has no contractual relationships
with any of its vendors.
The Company's growth strategy is to increase net sales by augmenting
its marketing and sales force, and by increasing distribution channels through
retail organizations and wholesale distributors both domestically and overseas.
The Company will continue to increase its production capability to meet the
increasing demand for its product. The Company will continue to develop the
product so that it is the low cost leader in the industry. Product improvements
and new product introductions will continue to enlarge ZAP's presence in the
electric vehicle industry.
The electric bicycle industry has three major manufacturers (3) and a
large group of small manufacturers (30 plus). The major manufacturers are Honda,
Suzuki, and Yamaha. They mainly sell products into Japan and China. The other
group of manufacturers are much smaller in size and sales volume. These
manufacturers have products that sell into the U.S., European, and Asian
markets. The Company does not consider electric bicycle industry sales numbers
very accurate at this point in time. As such, the Company's position in terms of
sales volumes is impossible to determine.
Item 2. Description of Property
The Company leases its manufacturing and office facility at 117 Morris
Street, Sebastopol, Ca. The Company's property consists primarily of
manufacturing equipment and office computer systems. The monthly lease payment
is $4,400 per month. The landlords are Daniel O. Davis and Robbin H. Davis. It
is management's opinion that the Company's insurance policies covers all
insurance requirements of the landlord. The lease expires June 1, 1998 with a
renewal option for two additional five year periods.
As of December 31, 1996 the Company has 30 full-time and 5 part-time employees.
All these employees work at the Company's Sebastopol, California location.
Item 3. Legal Proceedings
There were no material proceedings pending in 1996 in which the
Registrant was named as a party.
Item 4. Submission of Matters to a Vote of Security Holders
The Company called a special shareholders meeting October 8, 1996. A
total of 1,754,490 shares (82.5%) were present or represented by proxy at the
meeting to vote on the following issues;
Election of James McGreen, Gary Starr, Nancy Cadigan, Lee Sannella and
Jessalyn Nash to the board of directors. For 1,754,490 Against 0
Abstained 0
Amend the Articles of Incorporation to increase authorized shares from
one million to ten million shares of common stock. For 1,745,490
Against 7,500 Abstained 1,500
Authorize a three for one stock split. For 1,754,490 Against 0
Abstained 0
Authorize the 1996 Stock Option Plan. For 1,676,490 Against 7,500
Abstained 70,500
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Approve the appointment of Moss Adam LLP as the independent auditors
for the Company for 1996. For 1,715,490 Against 7,500 Abstained 31,500
Waive the notice and meeting requirements set forth in the Bylaws prior
to the meeting of October 8, 1996. For 1,702,490 Against 8,010
Abstained 43,500
Ratify all actions previously taken by the Board of Directors. For
1,703,490 Against 7,500 Abstained 43,500
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
Although the Company is registered with the Securities and
Exchange Commission, there was no trading in the Company's stock
through the end of 1996. The Company initiated a Direct Public Offering
of its public shares November 29, 1996 at a price of $5.25 per share.
The Company is currently not traded on an exchange.
The number of shares issued of record as of December 31, 1996 is
2,076,500. No dividends of cash or stock have been paid by the Company
in the past. The payment of dividends will depend entirely upon the
Company's ability to generate sufficient earnings, its financial needs
and other unpredictable factors. It is not anticipated that common
dividends will be paid in the foreseeable future.
During 1995, a private placement was executed for 144,000 shares
of common stock for an average price of $0.94 per share.
During 1996 the Company sold 365,100 shares of common stock for an
average price of $1.59. In addition the Company issued 57,400 shares
for payment of current and future services at an average price of $3.15
per share.
In October of 1996 the Company started a Direct Public Offering of
500,000 shares of common stock at $5.25 per share.
In December of 1996 the Company issued 10,000 shares to a joint
venture (ZAP (China) LLC), of which the Company owns 50%.
As of December 31, 1996 the Company had 202 stockholders.
Item 6. Management's Discussion and Analysis of Plan of Financial Condition and
Results of Operations.
Overview
The Company designs, assembles, manufactures and distributes electric
bicycle power kits, electric bicycles and tricycles, and other low-power
electric transportation vehicles. Historically, unit sales have been
approximately 65% kits and 35% electric bicycles. Dollar sales have been 50%
kits and 50% electric bicycles.
The Company sells its electric bicycles and kits to retail customers,
auto dealerships, bicycle dealerships and mail order catalogs. Net revenue is
net of returns. The Company sells to the mail order catalogs and selected
customers on credit with net 30 day terms. The car dealerships and bicycle
dealerships are sold cash on delivery. The retail sales are primarily paid for
with a credit card or personal check before shipment of the product.
During 1994 and 1995 the Company was paid by governmental agencies and
private foundations to further develop the electric bicycle to fit into various
roles in the US and overseas markets. During this period the Company developed
electric motor systems for offshore sales and manufacturing. The Company's work
to develop
6
<PAGE>
offshore manufacturing abilities for the domestic and foreign markets involved
private and public foundations in Thailand and other Asian countries. In
addition, the Company worked on the development of an electric police bicycle.
Late in the fourth quarter of 1995 the Company began to sell bicycles to retail
and wholesale customers as its core business.
The Company manufactures an electric motor system that is sold as a kit
to be installed by the customer on their own bicycle. The Company also installs
the motor system on bicycles which the Company buys. The Company then sells the
complete electric bicycle to the customer. The Company purchases complete
bicycles from various bicycle manufacturers for use with the Company's electric
motor system. The Company manufactures the electric motor kit, which has
approximately 62 unique parts. The manufacturing of the electric motor kit and
the 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
using one Company for its motors, 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 electric motor kits and electric bicycles sold by ZAP are usually
shipped by U.P.S. and Federal Express. Larger quantity orders to wholesale
distributors are shipped common carrier. The Company has developed long term
purchase arrangements with its key vendors. The Company has no contractual
relationships with any of its vendors.
The Company's growth strategy is to increase net sales by augmenting
its marketing and sales force, and by increasing distribution channels through
retail organizations and wholesale distributors both domestically and overseas.
The Company will continue to increase its production capability to meet the
increasing demand for its product. The Company will continue to develop the
product so that it is the low cost leader in the industry. Product improvements
and new product introductions will continue to enlarge ZAP's presence in the
electric vehicle industry.
Results of Operations
The following table sets forth, as a percentage of net sales, certain
items included in the Company's Income Statements (see Financial Statements and
Notes thereto elsewhere in this Prospectus) for the periods indicated:
Years Ended December 31,
1994 1995 1996
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Statements of Income Data:
Net sales....................... 100.00% 100.00% 100.00%
Cost of sales................... 109.00 67.00 74.00
Gross profit (Loss)............. (9.00) 33.00 26.00
Operating expenses............. 110.00 69.00 96.00
Loss from operations............ (119.00) (36.00) (70.00)
Other income (expense)......... 0.00 34.00 0.00
Loss before income taxes........ (119.00) (2.00) (70.00)
Provision for income taxes...... 1.00 1.00 0.00
Net loss........................ (120.00) (2.00) (70.00)
Year Ended December 31, 1995 Compared to Year Ended December 31, 1996
Net sales for the year ended December 31, 1996, were $1,170,900
compared to $650,800 in the prior year, an increase of $520,100 or 80%. The
increase in sales is attributed to the Company's development of the retail sales
of its electric bicycles and kits through Auto dealers, Mail order catalogs,
Electric Utilities companies and bicycle retail outlets. The Company established
sales agreements with The Sharper Image Catalog, Power Biking Corporation, Merry
Sales, and the Beverly Hills Motorcycle Catalog in the USA. Through Power Biking
Corporation the Company signed up 8 Auto dealerships to sell the ZAP product
line. During 1996 the Company developed a program with forty Electric Utilities
to promote the use of electric bicycles. Through this program the Company has
sold approximately 160 electric bicycles, electric kits and electric police
bicycles in 1996. The
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Company established sales/distribution agreements with Harvey Moore Motoring in
Australia, and Movity S.R.L, in Italy. The Company expanded its internet
marketing and sales effort in 1996 by expanding the existing ZAP Web page. The
net sales increase resulted from increased bicycle and kit sales through
expanded distribution channels both domestically and off shore. The Company also
increased the sales price to distributors and retail customers an average of 25%
in the same period.
Gross profit (loss). Gross profit decreased as a percentage of net
sales, from 33% to 26%. The transition from research and development projects to
electric bicycle and electric kit sales resulted in a lower total gross profit
percentage. The total gross profit increased $92,800 or 43% because of the
increase in net sales from 1995 to 1996.
Selling expenses in 1996 were $476,800. This was an increase of
$386,500 or 428% from 1995 to 1996. As a percentage of sales, selling expenses
increased from 14% of sales to 41% of sales. This was due to an increase in
marketing to auto dealerships and other dealer outlets for the 1996 period as
compared to the 1995 period as well as a realignment of sales and marketing
efforts towards the sale of electric bicycles and kits versus research and
development work.
General and administrative expenses for 1996 were $554,800. This is an
increase of $272,600 or 97% from 1995. As a percentage of sales, general and
administrative expense increased from 43% to 47% of net sales. Expenses during
1996 included the cost of developing computer systems and implementation,
accounting and administration to support the Company's public offering and to
support increases in sales volume.
Research and development increased $25,700 or 34% from 1995 to 1996. As
a percentage of net sales it decreased from 12% to 9% respectively. This expense
decreased as a percentage of net sales due to the Company's manufacturing of the
products it had developed in the prior years. The expense in 1996 was primarily
on the scooter products that will be introduced in 1997.
Other income (expense) decreased $201,200 or 96% from 1995 to 1996.
This decrease was due to the Company directing its resources to manufacturing
and sales of electric bicycles and electric kits and away from royalty, research
and development type revenue.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1995
Net sales. The Company was formed September 23, 1994. Sales during the
three months to the end of 1994 were for electric bicycles and kits developed by
the Company. The sales were to retail customers, wholesale customers and
distributors. Net sales increased $589,500 or 962% from 1994 to 1995 due to a
full year of activity in 1995 as compared to only 3 months of activity in 1994.
During 1995, in addition to sales of electric bicycles and kits, the Company
entered into contracts to perform research and product development for two U.S.
agencies and one foreign company. High Technology Holdings Group, a Singapore
Company, paid the Company $300,000 to develop an electric bicycle for the
Singapore, Malaysian and Thailand markets and to assist in the set up of an
manufacturing facility in Thailand for electric bicycles. This contract also
included a technology licensing agreement and payment (see "Other income
(expense)" below). The contract with High Technology Holdings Group was
terminated in October 1995. The Company also performed research for The Electric
Power Research Institute and the California Energy Commission totaling $75,000.
Both of these contracts were completed in 1995.
Gross profit (loss). Gross profit increased as a percentage of net
sales, from (9%) to 33%. The increase in bicycle and kit sales volume resulted
in reducing manufacturing cost on a per unit basis. The contract work the
Company performed in 1995 relied on data developed by James McGreen, the current
president of the Company, in 1994 and the years prior to the formation of the
Company.
Selling. Selling expense increased from 8% of sales to 14% of sales. In
1995 the Company increased its marketing and sales expenditures to launch its
new products into the marketplace.
General and administrative expense. General and administrative expenses
decreased as a percentage of net sales from 69.0% in 1994 to 43% in 1995. This
result was due to allocating fixed salary and rent expenses over more sales
dollars than in the prior start-up year.
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Research and development expense. Research and development expense
decreased as a percentage of net sales from 32% in 1994 to 11% in 1995. The
Company expenditures for development of their products was significant in 1994
and the first half of 1995. As sales volume increased in the second half of 1995
research and development expenditures did not increase at the same rate.
Other income (expense). Other income (expense) increased significantly
in 1995, 34% of net sales, as a result of the technology licensing agreement
with High Technology Holdings Group, (see Net sales above). The licensing
agreement allowed High Technology Holdings Group to use the Company's technology
in Singapore, Malaysia and Thailand. High Technology Holdings Group paid
$210,000 for this license. The Company received a $20,000 grant from the
Environmental Protection Agency for work it performed in 1995.
Liquidity and Capital Resources
During 1995 and 1996 the Company operated with modest cash resources.
In 1996 the Company had a cash deficit of $618,000 from operations as compared
to a cash deficit of $14,000 in 1995. In order to meet all of the Company's
operating expenses the Company relied on the sales of common stock and issuing
notes payable.
In 1996 the Company raised a total of $841,300 from common stock sales,
issuances of notes payable and long-term debt. In 1995 the Company raised
$111,500 from stock sales and issuance of notes payable. The Company was cleared
by the SEC to sell public shares on November 29, 1996. These funds were utilized
to pay down accounts payable and to fund the Company's increases in inventory,
accounts receivable, operating costs and research and development expenditures.
The Company also issued $52,500 of common stock to ZAP (China) LLC, of which 50%
is owned by the Company.
At December 31, 1995 and 1996, the Company had a working capital
deficit of ($20,100) and ($44,800) respectively. As of December 31, 1996, the
Company had total current assets of $584,600, including cash of $161,600,
accounts receivable of $60,900, inventories of $246,600, and prepaid expenses of
$115,500. The Company's current liabilities as of December 31,1996 were
$629,400, including accounts payable and accrued expenses of $367,700, notes
payable of $236,400 and current maturity of long-term debt and leases. Notes
payable issued in November and December of 1996 in the amount of $189,000 had
preferential repayment rights of the public stock offering proceeds. The notes
are due in November and December of 1997. These note holders were also granted a
total of 37,800 warrants. The proceeds from this placement went to fund
increased inventory levels, accounts receivables, capital expenditures and the
Company's public stock offering expenses. The balance of notes payable $47,400,
were unsecured notes with an interest rate of 10%. These notes are due in
January, February, March and December of 1997.
The Company had net cash provided by financing activities of $92,200
for the year ended December 31, 1995, and $838,900 for the year ended December
31, 1996. Net cash provided by financing activities for the year ended December
31, 1996 was from notes payable $271,900, a bank loan $25,000, and sale of
common stock $544,400. Net cash used in financing activities for the year ended
December 31,1996 was $12,400 for repayments of bank debt and lease obligations.
The bank loan with Wells Fargo Bank is for $25,000 amortized over 2
years at an interest rate of 15%. The equipment lease is with AT&T Credit
Corporation and is for $43,076 with monthly payments of $1,186 for three years.
The Company's primary capital needs are to fund its growth strategy,
which includes increasing its net sales, increasing distribution channels,
introducing new products, improving existing product lines and development of
strong corporate infrastructure.
Recent Accounting Pronouncements
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
which established a fair value-based method of accounting for stock-based
compensation plans. The Company is currently following the requirements of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."
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Seasonality and Quarterly Results
The Company's business is subject to seasonality influences. Sales
volumes in the bicycle industry typically slows down during the winter months,
November to March in the U.S. The Company is selling worldwide and is not
impacted 100% by the U.S. seasonality in the bicycle industry.
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.
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Item 7. - Consolidated Financial Statements
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ZAP POWER SYSTEMS
AND SUBSIDIARY
INDEPENDENT AUDITOR'S REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
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11
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CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT.................................................1
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheets..........................................................2
Statements of operations................................................4
Statements of stockholders' equity......................................5
Statements of cash flows................................................6
Notes to consolidated financial statements..............................8
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<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
ZAP Power Systems and Subsidiary
We have audited the accompanying consolidated balance sheets of ZAP Power
Systems and Subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ZAP Power Systems and
Subsidiary as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Moss Adams LLP
Santa Rosa, California
February 14, 1997 except for Note 2, which is as of March 21, 1997
Page 1
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ZAP POWER SYSTEMS AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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December 31, 1996 1995
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $161,600 $ 21,800
Receivables 60,900 30,700
Inventories 246,600 58,400
Prepaid expenses and other assets 115,500 --
-------- --------
Total current assets 584,600 110,900
-------- --------
PROPERTY AND EQUIPMENT 100,300 66,300
-------- --------
OTHER ASSETS
Investment in joint venture 52,500 --
Cash restricted to payment of long-term debt 10,000 --
Intangibles, net of accumulated amortization
of $1,600 and $700, respectively 7,300 8,200
Deposits 15,500 6,000
-------- --------
85,300 14,200
-------- --------
Total assets $770,200 $191,400
======== ========
The accompanying notes are an integral part of these financial statements.
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Page 2
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<TABLE>
ZAP POWER SYSTEMS AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
<CAPTION>
- --------------------------------------------------------------------------------------------
December 31, 1996 1995
- --------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 301,200 $ 94,200
Accrued liabilities and other expenses 66,500 12,600
Income taxes payable -- 2,700
Notes payable 236,400 21,500
Current maturities of long-term debt 12,800 --
Current maturities of obligations under capital leases 12,500 --
----------- -----------
Total current liabilities 629,400 131,000
----------- -----------
OTHER LIABILITIES
Long-term debt, less current maturities 4,700 --
Obligations under capital leases, less current maturities 23,700 --
----------- -----------
28,400 --
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000
shares authorized, 2,076,500 and 1,644,000
shares issued and outstanding, respectively 1,019,200 149,900
Accumulated deficit (906,800) (89,500)
----------- -----------
112,400 60,400
----------- -----------
Total liabilities and stockholders' equity $ 770,200 $ 191,400
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
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Page 3
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ZAP POWER SYSTEMS AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Years Ended December 31, 1996 1995
- --------------------------------------------------------------------------------
NET SALES $ 1,170,900 $ 650,800
COST OF GOODS SOLD 862,700 435,400
----------- -----------
GROSS PROFIT 308,200 215,400
----------- -----------
OPERATING EXPENSES
Selling 476,800 90,300
General and administrative 554,800 282,200
Research and development 100,400 74,700
----------- -----------
1,132,000 447,200
----------- -----------
LOSS FROM OPERATIONS (823,800) (231,800)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (11,400) (2,700)
Miscellaneous 19,500 (8,000)
Grant income -- 20,000
Royalty income -- 210,000
----------- -----------
8,100 219,300
----------- -----------
LOSS BEFORE INCOME TAXES (815,700) (12,500)
PROVISION FOR INCOME TAXES 1,600 3,500
----------- -----------
NET LOSS $ (817,300) $ (16,000)
=========== ===========
NET LOSS PER COMMON SHARE $ (0.45) $ (0.01)
=========== ===========
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 1,805,317 1,582,656
=========== ===========
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page 4
<PAGE>
<TABLE>
ZAP POWER SYSTEMS AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996 and 1995
- -------------------------------------------------------------------------------------
<CAPTION>
Common Stock
---------------------- Accumulated
Shares Amount Deficit Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 1,500,000 $ 15,000 $ (73,500) $ (58,500)
Sale of common stock 97,500 94,900 -- 94,900
Conversion of notes payable 46,500 40,000 -- 40,000
Net loss -- -- (16,000) (16,000)
---------- ---------- ---------- ----------
Balance, December 31, 1995 1,644,000 149,900 (89,500) 60,400
Sale of common stock 362,100 574,500 -- 574,500
Conversion of notes payable 3,000 5,000 -- 5,000
Stock issued for current and
future services 57,400 181,000 -- 181,000
Stock issued to joint venture 10,000 52,500 -- 52,500
Warrants issued for finance fees -- 56,300 -- 56,300
Net loss -- -- (817,300) (817,300)
---------- ---------- ---------- ----------
Balance, December 31, 1996 2,076,500 $1,019,200 $ (906,800) $ 112,400
========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
Page 5
<PAGE>
<TABLE>
ZAP POWER SYSTEMS AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
- --------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(817,300) $ (16,000)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 47,400 11,100
Allowance for doubtful accounts 7,400 1,000
Issuance of common stock for services rendered 127,400 24,900
Changes in:
Receivables (37,600) (21,800)
Inventories (188,200) (41,400)
Prepaids expenses (6,400) --
Deposits (9,500) (6,000)
Accounts payable 207,000 71,000
Accrued liabilities and other expenses 53,900 (39,500)
Income taxes payable (2,700) 2,700
--------- ---------
Net cash used by operating activities (618,600) (14,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (80,500) (61,700)
Purchase of patent and trademark -- (8,900)
--------- ---------
Net cash used by investing activities (80,500) (70,600)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 271,900 41,500
Proceeds from long-term debt 25,000 --
Sale of common stock, net of stock offering costs 544,400 70,000
Principal repayments on long-term debt (7,500) --
Payments on obligations under capital leases (4,900) --
Cash restricted to payment of certain notes payable 10,000 --
Principal repayments on note payable -- (19,300)
--------- ---------
Net cash provided by financing activities 838,900 92,200
--------- ---------
NET INCREASE IN CASH 139,800 7,600
CASH, beginning of year 21,800 14,200
--------- ---------
CASH, end of year $ 161,600 $ 21,800
========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
Page 6
<PAGE>
ZAP POWER SYSTEMS AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- --------------------------------------------------------------------------------
Years Ended December 31, 1996 1995
- --------------------------------------------------------------------------------
SUPPLEMENTAL CASH-FLOW INFORMATION:
Cash paid during the year for:
Interest $ 11,400 $ 100
Income taxes $ 1,600 $ 800
Non-cash investing and financing activities:
Conversion of notes payable to common stock $ 5,000 $ 40,000
Stock issued for future services $ 53,600 $ --
Stock issued to joint venture $ 52,500 $ --
Stock issued for current services $127,400 $ --
Warrants issued for financing fees $ 56,300 $ --
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Page 7
<PAGE>
ZAP POWER SYSTEMS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of operations - ZAP Power Systems, (ZAP), was incorporated in
California in September, 1994. ZAP and its wholly-owned subsidiary, Electricycle
Corporation, designs, manufactures, and distributes electric bicycle power kits,
electric bicycles and tricycles, and other low power electric transportation
vehicles. Company products are sold directly to end-users and to distributors
throughout the United States.
Principles of consolidation - Electricycle Corporation (Electricycle) was
incorporated in June 1995, with the sole stockholder also a founding stockholder
of ZAP Power Systems (ZAP). The activities of Electricycle were fully
incorporated within the activities of ZAP, including common management, location
and employees. In December 1995, the outstanding shares of stock in Electricycle
were acquired at no cost by ZAP. Because of the common ownership and the
interrelated activities of Electricycle and ZAP, the accounts of both companies
in 1995 were consolidated from Electricycles' incorporation date rather than
from the date of acquisition by ZAP. All material intercompany balances and
transactions were eliminated. There was no activity within Electricycle during
1996.
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.
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 betterment's 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
Intangibles - Intangibles consist of costs expended to perfect certain patents
and are amortized over an estimated useful life of ten years.
Income taxes - ZAP and Electricycle file separate tax returns. Income taxes are
recognized using enacted tax rates, and are composed of taxes on financial
accounting income that is adjusted for requirements of current tax law and
deferred taxes. Deferred taxes are the expected future tax consequences of
temporary differences between the financial statement carrying amounts and tax
basis of existing assets and liabilities. A valuation allowance is recognized to
offset a deferred tax asset if the eventual realization of all or a portion of
the asset is uncertain.
- --------------------------------------------------------------------------------
Page 8
<PAGE>
ZAP POWER SYSTEMS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Research and development - Research and development costs are expensed as
incurred.
Concentrations of risk - Financial instruments potentially subjecting the
Company to concentrations of credit risk consist primarily of trade receivables.
This credit risk is limited due to the large number of customers comprising the
Company's customer base.
Advertising - Advertising costs are expensed as incurred and totaled $38,300 and
$8,600 for the years ended December 31, 1996 and 1995, respectively.
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company make estimates and
assumptions affecting the reported amounts of assets, liabilities, revenues, and
expenses, and disclosure of contingent assets and liabilities. The amounts
estimated could differ from actual results.
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 notes payable approximates fair value
because current interest rates available to the Company for similar debt are
approximately the same.
Net loss per common share - The net loss per common share is based on the
weighted average number of common shares outstanding in each period. Common
stock equivalents associated with stock options have been excluded from the
weighted average shares outstanding since the effect of these potentially
dilutive securities would be antidilutive.
Stock-based compensation - The Financial Accounting Standards Board recently
issued Statement of Financial Accounting Standards No. 123 (SFAS 123),
Accounting for Stock-Based Compensation. This standard became effective for the
year ended December 31, 1996. Under SFAS 123, a fair value method is used to
determine compensation cost for stock options or similar equity instruments.
Compensation is measured at the grant date and is recognized over the service or
vesting period. Under the current accounting standard, compensation cost is the
excess, if any, of the quoted market price of the stock at a measurement date
over the amount that must be paid to acquire the stock.
The standard allows the Company to continue to account for stock-based
compensation under the current standard, with disclosure of the effect of the
standard, or adopt a fair value based method of accounting. The company will
continue to apply current accounting rules.
Common stock - All share and per share data, including stock options, have been
adjusted retroactively to reflect a three-for-one stock split.
- --------------------------------------------------------------------------------
Page 9
<PAGE>
ZAP POWER SYSTEMS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 2 - MANAGEMENT PLANS
The Company's loss from operations is attributable to costs associated with
augmenting its marketing and sales force; implementing a new computer system;
and increasing its administrative and accounting staff to support the planned
increases in sales volume.
Management believes the Company will generate sufficient cash flows from
operations, and from equity infusions related to its direct public offering, to
meet its expected cash requirements. Through March 21, 1997, more than $600,000
has been generated through the public offering.
NOTE 3 - RECEIVABLES
1996 1995
----------------- -----------------
Trade accounts receivable $ 77,300 $ 39,700
Less allowance for doubtful accounts 16,400 9,000
----------------- -----------------
$ 60,900 $ 30,700
================= =================
NOTE 4 - INVENTORIES
1996 1995
----------------- -----------------
Raw materials $ 99,900 $ 25,900
Work-in-process 95,500 24,900
Finished goods 51,200 7,600
----------------- -----------------
$ 246,600 $ 58,400
================= =================
- --------------------------------------------------------------------------------
Page 10
<PAGE>
ZAP POWER SYSTEMS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 5 - PROPERTY AND EQUIPMENT
1996 1995
-------- --------
Machinery and equipment $ 41,600 $ 35,600
Equipment under capital leases 42,100 --
Demonstration bicycles 33,500 15,400
Office furniture and equipment 30,000 20,000
Leasehold improvements 6,600 6,600
Vehicle 4,300 --
-------- --------
158,100 77,600
Less accumulated depreciation and amortization 57,800 11,300
-------- --------
$100,300 $ 66,300
======== ========
NOTE 6 - NOTES PAYABLE
1996 1995
-------- --------
Notesto stockholders, with interest at 12%; interest and principal due when the
notes mature in November and December, 1997; the Company is allocating 50%
of the proceeds received from the Company's Direct Public Offering towards
repayment of the loans until fully repaid; the noteholders have been issued
warrants to purchase, in the aggregate, 37,800 shares of common
stock at $5.25 per share through October, 1999 $189,000 $ --
Notes to a stockholder, with interest at 10%; principal
and interest is due when the notes mature in March
and December, 1997; unsecured 35,400 16,500
Notes, with interest at 10%; principal and interest is due when the notes mature
in January and February, 1997;
unsecured 12,000 --
Note, with interest at 10%; the note was converted
to 3,000 shares of common stock in 1996 -- 5,000
-------- --------
$236,400 $ 21,500
======== ========
- --------------------------------------------------------------------------------
Page 11
<PAGE>
ZAP POWER SYSTEMS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 7 - LONG-TERM DEBT
1996 1995
------- ------
Note to bank, with interest at 15%; principal and interest
due in monthly installments and maturing in March, 1998;
secured by an interest in other checking or savings
accounts in the bank and held by the Company $17,500 $ --
Less current maturities 12,800 --
------- ------
$ 4,700 $ --
======= ======
NOTE 8 - CAPITAL LEASES
Minimum future lease payments under capital lease obligations for computer
equipment are as follows:
Year Ending December 31,
------------------------
1997 $17,900
1998 17,900
1999 9,200
---------
Total minimum lease payments 45,000
Less amounts representing interest 8,800
---------
Present value of minimum lease payments 36,200
Less current maturities 12,500
---------
$23,700
=========
- --------------------------------------------------------------------------------
Page 12
<PAGE>
ZAP POWER SYSTEMS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 9 - PROVISION FOR INCOME TAXES
1996 1995
--------- ---------
Current tax liability
Federal $ -- $ 1,700
State 1,600 1,800
--------- ---------
$ 1,600 $ 3,500
========= =========
Deferred tax assets (liabilities)
Federal tax loss carryforward $ 297,000 $ 25,900
State tax loss carryforward 79,000 4,700
Other, net (19,600) (500)
--------- ---------
356,400 30,100
Less valuation allowance 356,400 30,100
--------- ---------
$ -- $ --
========= =========
ZAP Power Systems has available for carryforward approximately $876,000 and
$850,000 of federal and state net operating losses, respectively, expiring
through 2011. The Tax Reform Act of 1986 and the California Conformity Act of
1987 impose restrictions on the utilization of net operating losses in the event
of an "ownership change" as defined by Section 382 of the Internal Revenue Code.
There has been no determination whether an ownership change, as defined, has
taken place. Therefore, the extent of any limitation has not been ascertained.
A valuation allowance is required for those deferred tax assets that are not
likely to be realized. Realization is dependent upon future earnings during the
period that temporary differences and carryforwards are expected to be
available. Because of the uncertain nature of their ultimate utilizations, based
upon the Company's past performance, a full valuation allowance is recorded
against these deferred tax assets.
NOTE 10 - COMMON STOCK
In April, the Company, through a private placement memorandum, offered for sale
300,000 shares of common stock at $1.67 per share.
In November 1996, the Company began offering for sale, directly to the public,
500,000 shares of common stock at $5.25 per share. The net proceeds from the
sale are to be used to retire certain debt, increase manufacturing capacity, and
provide working capital for new product development and general purposes.
Stock issuance costs through December 31, 1996, of $41,500 have been offset
against $616,000 of sale proceeds from both the direct public offering and the
private placement memorandum.
- --------------------------------------------------------------------------------
Page 13
<PAGE>
ZAP POWER SYSTEMS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 10 - COMMON STOCK (Continued)
In September, 1996, the Board of Directors authorized a three-for-one stock
split. After giving effect to the split, the number of shares outstanding at
December 31, 1995 increased from 548,000 to 1,644,000 shares. The number of
shares the Company is authorized to issue was also increased from 1 million to
10 million shares.
NOTE 11 - STOCK OPTIONS AND WARRANTS
Options to purchase common stock are granted by the Board of Directors under two
Stock Option 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 that may be optioned and sold under the 1996 and 1995 Plans
are 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, and expire
from five to ten years after the grant. Options totaling 365,000 shares were
vested under both Plans at December 31, 1996. <TABLE>
Options activity under the two plans is as follows:
<CAPTION>
1996 Plan 1995 Plan
---------------------------------- ---------------------------------
Number Exercise Price Number Exercise Price
of Shares Per Share of Shares Per Share
--------- --------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding at
December 31, 1994 -- $ -- -- $ --
Granted -- $ -- 237,000 $ 0.40
Canceled -- $ -- -- $ --
------- -------
Outstanding at
December 31, 1995 -- $ -- 237,000 $ 0.40
Granted 501,000 $ 1.00 318,000 $ 0.40
Canceled -- $ -- -- $ --
------- -------
Outstanding at
December 31, 1996 501,000 $ 1.00 555,000 $ 0.40
======= =======
</TABLE>
Warrants to acquire stock were issued to certain stockholders as additional
consideration for providing financial assistance, in the form of notes, to the
Company (see Note 6). The fair value of the warrants at time of issuance
$56,300, are reported as financing fees to be amortized over the life of the
related debt.
- --------------------------------------------------------------------------------
Page 14
<PAGE>
ZAP POWER SYSTEMS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 11 - STOCK OPTIONS AND WARRANTS (Continued)
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 1996 and 1995. 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:
1996 1995
------------------ --------------------
Net loss - as reported $ (817,300) $ (16,000)
Net loss - pro forma $ (981,000) $ (36,600)
Loss per share - as reported $ (0.45) $ (0.01)
Loss per share - pro forma $ (0.54) $ (0.02)
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:
1996 1995
-------- --------
Dividends None None
Expected volatility 30% 30%
Risk free interest rate 6.28% 5.43%
Expected life 10 years 10 years
Volatility is a measure of the amount by which a price is expected to fluctuate
during a period. The higher the volatility the more the returns on the stock can
be expected to vary. Factors in estimating volatility include the length of time
stock has been publicly traded. The volatility used is an estimate since the
Company is currently offering stock to the public and it does not yet have a
history of volatility.
The effects of applying SFAS 123 in this proforma disclosure are not indicative
of the effect on income in future years because options vest over several years
and additional awards are expected to be authorized.
NOTE 12 - JOINT VENTURE
In December 1996, the Company joined with MW McWong International, Inc., to form
ZAP (China), a limited liability corporation registered in California. The
Company is a 50% owner of ZAP (China) LLC.
ZAP (China) LLC entered into a joint venture with a Shanghai Forever Company
Ltd., a bicycle manufacturing company in China. The joint venture is registered
and incorporated in Shanghai as ZAP Forever Electric Vehicles Company, Ltd., and
is 50% owned by ZAP (China). There were no material transactions with this joint
venture at December 31, 1996. In 1997, the Company intends to account for its
investment in the joint venture by the equity method.
- --------------------------------------------------------------------------------
Page 15
<PAGE>
ZAP POWER SYSTEMS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 13 - COMMITMENTS
The Company rents warehouse and office space under an operating lease that
expires in June 1998. The monthly rent of $4,400 is adjusted annually to reflect
the average percentage increase in the Consumer Price Index. An option exists to
extend the lease for two periods of five years each. Future minimum lease
payments are $52,800 in 1997 and $22,000 in 1998. Rent expense under this lease
was $52,800 and $24,000 in 1996 and 1995, respectively.
A marketing agreement with a Broker requires the Company pay, commencing March
1, 1997, a 3% fee on all Company sales in the United States and Canada that are
not generated by the Broker. This contingent brokerage fee is subject to the
Broker meeting certain sales targets.
- --------------------------------------------------------------------------------
Page 16
<PAGE>
Item 8. - Changes in and Disagreements with Accountants and Financial
Disclosure.
The Company has retained Moss Adams LLP as the Company's Accountants
for the years 1994, 1995 and 1996.
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
MANAGEMENT
Name Age Position
---------------------- ----- -------------------------
Gary Starr 41 Managing Director
James McGreen 43 President and Director
Dave Workman 43 Vice President, Operations
Jessalyn Nash 37 Director
Lee S. Sannella, M.D. 80 Director
Nancy K. Cadigan 38 Director and Secretary
Gary Starr is Managing Director of the Company. He founded the Company
with James McGreen in September 24, 1994. He has been building and driving
electric cars for more than 20 years. In addition to overseeing the marketing of
more than 3,000 electric bicycles and vehicles, Mr. Starr has invented several
solar electric products and conservation devices. Mr. Starr founded U.S.
Electricar's electric vehicle operations in 1983. That Company grew from 3 to
more than 300 employees and raised more than $40 million.
Mr. Starr also serves as an advisor to Zebra Motors, Inc., a designer
of an electric sports car, and has been a technical advisor to UCLA's Lewis
Center for Regional Policy Studies. He's been a member of the California
Environmental Technology Advisory Council and has been a guest lecturer at
Stanford University Graduate School of Business.
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. More recently,
he was honored by the American Lung Association of San Francisco with a Clean
Air Award in Technology and was recognized by U.S. Senator Barbara Boxer for his
contribution towards clean air.
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.
James McGreen, President, has over 25 years experience in design,
development, engineering, manufacturing and marketing. He has brought over 100
successful consumer products from conception to the mass market. He has been a
pioneer in the ultralight aircraft, personal watercraft, and motorcycle racing
fields. He is the founder and/or former president of Protopipe Exhaust Systems,
Inc., McGreen Metalworking, Kanemoto Racing and McGreen Development. His
commitment to electric transportation began in 1991 with successful competition
in Electrathon racing. He holds several records and winning times for this
lightweight electric vehicle class. He has been a racer of motorcycles and has
built motor parts, frames, chassis and other specialty parts for both
manufacturers and other racers. Mr. McGreen has also designed and built
composite racing sail boats. A skilled machinist, welder, and tool and die
maker, he has designed and built nearly every kind of lightweight motorized
vehicle. A prolific inventor McGreen has filed five patents, (1 granted, 2
pending, 2 expired), in the resource
12
<PAGE>
conservation and transportation fields. He also managed the World Championship
team that won the World Solar Bicycle Races, in Akita, Japan in 1995. In 1996,
McGreen was selected as an honored member of the Who's Who of American Inventors
for his positive impact on society.
David Workman, M.B.A., is Vice President of Operations of the Company.
He has been involved with start-up and rapid growth companies for the last
twenty years. From 1980 to 1991, he worked for California Energy Company, Inc.
an alternative energy company, that had 12 employees and five-hundred thousand
dollars sales when he started and now is listed on the New York Stock Exchange
with a market capitalization of over $1 billion. He held the position of
Corporate Controller when he left the company in 1991. In the past five years,
he has worked for Precision Wood Manufacturing, Inc. (8/92-6/93 and 8/95-12/95),
U.S. Electricar (7/93-4/95) and as a consultant (6/91-8/92 and 1/96-4/96). Mr.
Workman's experience in the electric vehicle industry came from his work at U.S.
Electricar where he held various management positions.
Jessalyn Nash, Masters in Business, is an environmental and business
consultant to rapid growth entrepreneurial companies. She has specialized in
marketing, distributor relations and sales programs. Ms. Nash previously held
positions with NeXT, Inc. and in National Sales and Marketing with Apple
Computer, Inc. Ms. Nash has been an environmental advocate for over 20 years.
She has operated her consulting business since 1989.
Lee Sannella, M.D. 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.
Nancy K. Cadigan assisted Jim McGreen in managing McGreen Development,
the research organization that developed the original ZAP Power System. She has
broad experience in sales, trade show events, and office management. With an
educational background in Recreation and Leisure, Ms. Cadigan has worked in
public and commercial recreation for more than twenty years. She has also worked
on women's health issues and has counseled women in crisis situations. She has
conducted public education classes on recycling, reuse and composting practices.
Currently, Ms. Cadigan is involved in organic farming. In all of her work, she
looks for environmentally sound solutions to ordinary problems and has been a
strong advocate of the ZAP mission since its inception. In the past five years
she has worked for the Oakland Parks and Recreation Department (1990-92),
Alameda Waste Management Authority (1992-93), Urban Ore (1993-94), McGreen
Development (1994), ZAP Power Systems (1994-present), and Women's Health
Specialists (1995-present).
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.
13
<PAGE>
<TABLE>
Item 10. EXECUTIVE COMPENSATION
<CAPTION>
Summary Compensation Table
Long Term Compensation
-----------------------------------------
Annual Compensation Awards Payouts
------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Other Rest- Secur-
Name Annual ricted ities All other
and Compen- Stock Underlying LTIP Compensa-
Principal Salary Bonus sation Award(s) Options/ Payouts tion
Position Year ($) ($) ($) ($) SARs (#) ($) ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gary Starr 1994 $ 0
Managing 1995 $21,000 72,000
Director 1996 $31,000 $3,750 60,000
James McGreen 1994 $ 0
President 1995 $33,000 72,000
1996 $33,000 $3,750 60,000
</TABLE>
Option/SAR Grants in Last Fiscal Year
Individual Grants
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees or Base
Name Granted (#) in Fiscal Year Price ($/sh) Expiration Date
- ---- ----------- -------------- ------------ ---------------
Gary
Starr 60,000 13% $1.00 7/31/2006
James
McGreen 60,000 13% $1.00 7/31/2006
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 February
28, 1997 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.
14
<PAGE>
Shares Percentage of Common Shares
Beneficially at February 28, 1997
5% Shareholders: Owned (2,546,220 shares)
- ------------------------------------------------------------------------------
James McGreen 674,702* 27%
Gary Starr 519,752** 20%
David Workman 197,905*** 8%
All directors and executive 1,490,137 59%
officers as a group
* Includes 74,252 shares of Common Stock issuable upon exercise of currently
exercisable incentive stock options but excludes 57,748 shares of Common Stock
issuable under options but not currently exercisable.
** Includes 74,252 shares of Common Stock issuable upon exercise of currently
exercisable incentive stock options but excludes 57,748 shares of Common Stock
issuable under options but not currently exercisable.
*** Includes 47,424 shares of Common Stock issuable upon exercise of currently
exercisable incentive stock options but excludes 84,576 shares of Common Stock
issuable under options but not currently exercisable.
CERTAIN TRANSACTIONS
On September 23, 1994, the date the Company commenced business, James
R. McGreen, the Company's President, transferred various assets, subject to
certain liabilities, to the Company, receiving in exchange 900,000 shares (post
split) of the Company's common stock. The net amount recorded on the Company's
accounting records was $9,000. Mr. McGreen's net cost of those assets, less
prior amortization of cost for tax purposes, was $10,691. On the same date, Gary
Starr paid $6,000 for 600,000 shares (post split) of the Company's common stock.
There have been no other transactions, nor are any transactions
proposed, in which the Company was or is to be a party, in which any member of
its management or director had any direct or indirect material interest.
Item 13. Exhibits and Reports on Form 8-k
Exhibit 11. Statement regarding computation of per share loss
Loss per share was calculated based on the weighted average
common shares outstanding during 1996. The Company had a Loss
for the year so common stock options were not used to
calculate fully dilutive earnings per share.
Exhibit 21. Subsidiaries of the Company
Electricycle Incorporated
ZAP (China) LLC
Exhibit 27. Financial Data Schedule
15
<PAGE>
99. Additional Exhibits - Subsequent events
January 1997 ZAP China signed an agreement with Forever Company to sell
up to 5,000 motor units. Forever Company will assemble these motors on
their bicycles to be sold in China.
March 1997 the Company signed a letter of intent to purchase the assets
of Movity S.r.L. for a combination of common stock and cash totaling
$500,000. Movity manufactures and sells an electric motor scooter into
the European market.
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ZAP POWER SYSTEMS FOR THE YEAR ENDED DECEMBER
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 161,600
<SECURITIES> 0
<RECEIVABLES> 77,300
<ALLOWANCES> (16,400)
<INVENTORY> 246,600
<CURRENT-ASSETS> 528,300
<PP&E> 158,100
<DEPRECIATION> 57,800
<TOTAL-ASSETS> 713,200
<CURRENT-LIABILITIES> 629,400
<BONDS> 28,400
<COMMON> 1,019,200
0
0
<OTHER-SE> (906,800)
<TOTAL-LIABILITY-AND-EQUITY> 112,400
<SALES> 1,170,900
<TOTAL-REVENUES> 1,170,900
<CGS> 862,700
<TOTAL-COSTS> 862,700
<OTHER-EXPENSES> 1,092,382
<LOSS-PROVISION> 20,118
<INTEREST-EXPENSE> 11,400
<INCOME-PRETAX> (815,700)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (817,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (817,300)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> 0.00
</TABLE>
