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, 1997
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
incorporation or organization) Identification No.)
117 Morris Street, Sebastopol, California 95472
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (707) 824-4150
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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. $1,640,200
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The aggregate market value of the Company's voting common stock held by
non-affiliates as of March 27, 1998, based on the average Bid and Ask price on
that date was $8,839,423.
(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. 2,568,331 shares of common
stock as of March 27, 1998. --------------------------
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2
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for Common Equity and Related Stockholder
Matters
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 7. Consolidated Financial Statements
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
3
<PAGE>
Part I
Item 1. Description of Business
A. Business Development
ZAP Power Systems (the "Company" or "ZAP") was incorporated under the laws
of the state of California, on September 23, 1994. At its Sebastopol facilities,
the Company designs, assembles, manufactures and distributes electric bicycle
power kits, electric bicycles and tricycles, electric scooters, and other
low-power electric transportation vehicles.
The Company objective is to leverage its technology and name recognition to
serve a number of high potential markets in the electric bicycle and electric
scooter industry. ZAP desires to establish distribution systems for these and
other low powered electric vehicles. On February 10, 1998, NASD cleared ZAP
Power Systems common stock for quotation on the OTC Bulletin Board under the
symbol "ZAPP". Initially, the Company's revenue was primarily derived from
development contracts from a foreign private entity and from domestic government
agencies. Now the Company is focusing on the manufacturing and distribution of
commercialized products.
During the second half of 1995 the Company began to develop a marketing and
production strategy for the United States. It started selling electric bikes and
kits through bicycle dealers. In the first quarter of 1996 the Company developed
a Web Site on the World Wide Web (www.zapbikes.com) allowing customers to buy
the ZAP products 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 electric bicycles. In April of 1996 the Company
began selling electric bicycles and electric motor kits through mail order
catalogs. During 1997, ZAP increased its emphasis on the overseas market with
approximately 15% of its sales being generated from foreign entities. In March
of 1997, the Company entered into a contract agreement with a large bicycle
manufacturer in North America to distribute its bicycles and motor systems
through retail stores. That agreement was completed at the end of 1997. In
December 1997, the Company unveiled its electric vehicle outlet store concept.
The Company was issued its first United States Patent on February 13, 1996
on its electric motor power system for bicycles, tricycles, and scooters (Patent
#5,491,390). On September 30,1997, the Company was issued its second United
States Patent on its electric motor system (Patent #5,671,821). A third Patent,
for its ZAPPY(TM) Scooter is currently pending. A Trademark for the name "ZAP"
was issued to James McGreen on September 28, 1993 and assigned to the Company on
September 23, 1994.
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 that the Company designs and has manufactured under
contract. 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 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 ZAPPY scooter is manufactured by the Company, using parts manufactured by
various subcontractors.
4
<PAGE>
The electric motor kits, bicycles, and scooters sold by ZAP are shipped by
U.P.S. and Federal Express. Larger quantity orders to wholesale distributors are
shipped by common carrier. Overseas shipments are shipped by ocean carrier or
airfreight. The Company has developed long term purchase arrangements with its
key vendors. The Company has no contractual relationships with any of its
vendors.
The electric bicycle industry has three (3) major manufacturers and a large
group of small manufacturers. The major manufacturers are Honda, Suzuki, and
Yamaha. They mainly sell products into Japan and China. The other group of
manufacturers is much smaller in size and sales volume. These manufacturers have
products that sell into the U.S., European, and Asian markets. 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 facilities, consisting of
9,500 square feet, at 111 & 117 Morris Street, Sebastopol, CA. The Company's
property consists primarily of manufacturing equipment, and office computer
systems. The monthly lease payments total $6,114.40 per month. The landlords are
Daniel O. Davis and Robbin H. Davis. It is management's opinion that the
Company's insurance policies cover all insurance requirements of the landlord.
The lease expires June 1, 1998 with a renewal option for two additional
five-year periods. The Company owns the basic tools and equipment necessary for
the conduct of its production, research and development, and vehicle prototyping
activities.
As of December 31, 1997 the Company has 32 full-time and 6 part-time
employees. Most of the employees work at the Company's Sebastopol, California
locations except for one employee who oversees a Company seasonal factory outlet
store in Santa Rosa, CA.
Item 3. Legal Proceedings
There were no material proceedings pending in 1997 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 November 29, 1997. A
total of 1,590,911 shares (63.0%) 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 1,590,811 Against 100
Abstained 0
Ratify all actions previously taken by the Board of Directors. For
1,577,385 Against 100 Abstained 13,426
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
The number of shares issued of record as of December 31, 1997 is
2,542,700. 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 1996 the Company sold 328,300 shares of common stock in a private
placement at a price per share of $1.67. Net proceeds to the Company were
$504,600 after deducting expenses of $41,500. The Company also converted $55,000
of notes payable into 33,000 shares of Common Stock and issued 10,000 shares of
Common Stock at a fair value of $5.25 per share as its investment in a joint
venture. In addition the Company issued 57,400 shares for payment of current and
future services at an average price of $3.15 per share.
5
<PAGE>
In November of 1996 the Company commenced a direct public offering of its
Common Stock, offering for sale 500,000 shares at $5.25 per share. During 1996,
the Company sold 3800 shares and received $19,900 in proceeds. In 1997, the
Company sold an additional 415,100 shares in connection with the direct public
offering and realized net proceeds of $1,990,900, net of offering related
expenses of $188,400. In total, the Company sold 84% of the shares offered for
sale and realized net proceeds of $2,010,600. The offering was completed in
November 1997. In addition, in 1997, the Company 1) realized $12,600 in proceeds
from the exercise of stock options and issued 21,600 shares, 2) converted
$77,800 in notes payable and accrued interest into 14,800 shares ($5.25 per
share), 3) issued 19,700 shares in payment for current and future services at an
average price per share of $4.81 and, 4) cancelled 5,000 of the shares
originally issued in connection with its investment in the joint venture in
settlement of that activity.
The Company has in process a second direct public offering of its Common
Stock offering for sale 500,000 shares at $6.00 per share. The company commenced
this offering in January 1998 and as of March 27, 1998 has sold 19,967 shares
and realized gross proceeds of $119,802. On March 11, 1998, the Company's Common
Stock commenced trading on the OTC Bulletin Board under the stock symbol "ZAPP".
As of December 31, 1997 the Company had 1,771 holders of the common stock.
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 55% kits and 45% electric bicycles. Dollar sales have been 50%
kits and 50% electric bicycles.
The Company sells its electric bicycles and kits to retail customers;
international distributors, law enforcement agencies, electric utility
companies, 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. Many of the 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. In addition, the
Company worked on the development of an electric police bicycle. The Company's
work to develop offshore manufacturing abilities for the domestic and foreign
markets involved private and public foundations in Thailand and other Asian
countries. Late in the fourth quarter of 1995 the Company began to sell bicycles
to retail and wholesale customers as its core business.
The Company's growth strategy is to increase net sales by increasing
distribution channels through retail organizations and wholesale distributors
both domestically and overseas as well as setting up Company and franchise
stores to assist in the retail sales arena. The Company will continue to
increase its production capability to meet the increasing demand for its
product. The Company will continue to develop the product so 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
Year Ended December 31, 1996 Compared to Year Ended December 31, 1997
Net sales for the year ended December 31, 1997 were $1,640,200 compared
to $1,170,900 in the prior year, an increase of $469,300 or 40%. The increase in
sales is attributed to an increased demand for complete electric bicycles,
electric motor kits, and scooters. Much of the increase was in dealer and
international sales. During the year ended December 31, 1997, $430,000 in sales
representing 26% of total net sales were with one customer. The company ceased
selling products to this customer in late 1997 and is not expected to have any
material sales to this customer in 1998. The loss of this one customer is not
expected to have a material adverse affect on the company's results of
operations in future periods. In 1996, no one customer accounted for 10% of more
of the company's net sales.
6
<PAGE>
Gross profit. Gross profit decreased as a percentage of net sales, from
26% to 22%. Early year liquidation of 1996 models and up-front costs incurred in
developing the new ZAPPY(TM) scooter resulted in a lower gross-margin
percentage. The total gross profit increased $57,300 or 19% due to the increase
in net sales from 1996 to 1997.
Selling. Selling expenses in 1997 were $633,000. This was an increase
of $156,200 or 33% from 1996 to 1997. As a percentage of sales, selling expenses
decreased from 41% of sales to 39% of sales. This was due to an increase in
sales dollars as well as a reduction in marketing efforts towards auto
dealerships and other dealer outlets. There was minimal change in sales and
marketing personnel.
General and administrative expense. General and administrative expenses
in 1997 were $820,400. This was an increase of $265,600 or 48% from 1996 to
1997. As a percentage of net sales, General and Administrative expenses
increased from 47% in 1996 to 50% in 1997. This result was due to added
employees in General and Administrative areas and administrative supplies.
Research and development expense. Research and development expenses in
1997 were $246,100, an increase of 145,700 or 145% from 1996 to 1997. As a
percentage of sales, research and development expenses increased from 9% to 15%
respectively. These increases were due to the heightened efforts in developing
the new ZAPPY(TM) Scooter, the single speed lower cost motor-system for
bicycles, and a low cost "Z-Bike" for overseas markets. Also, additional patents
were filed. In 1997, the increase in funds available for research resulting from
the Company's Direct Public Offering also contributed to the increase in
research and development expenses in 1997 over 1996 levels.
Other income (expense). Interest expense increased to $84,800 in 1997,
an increase of $73,400 over 1996. The increase can be attributed to 1) the
amortization of the fair value of warrants issued in connection with previous
debt financings of $56,300 and, 2) the increase in interest expense on
outstanding loans in 1997 of approximately $17,000. Such increase results from
the loans being outstanding for a longer time period in 1997 as compared to
1996.
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 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 Company established sales/distribution agreements
with three foreign distributors. 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. 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.
7
<PAGE>
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 were 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.
Liquidity and Capital Resources
The Company used cash from operations of $1,263,000 and $618,600 during
the years ended December 31, 1997 and 1996 respectively. Cash used in operations
in 1997 was the result of the net loss incurred for the year of $1,409,300,
offset by net non cash expenses of $231,200, and the net change in operating
assets and liabilities resulting in a further use of cash of $84,900. Cash used
in operations in 1996 was the result of the net loss incurred for the year of
$817,300, offset by non cash expenses of $182,200, and the net change in
operating assets and liabilities resulting in a source of cash of $16,500.
Investing activities used cash of $143,500 and $80,500 during the years
ended December 31, 1997 and 1996 respectively. The uses of cash were for the
purchase of fixed assets and additional capitalized patent costs.
Financing activities provided cash of $1,935,400 and $838,900 during the
years ended December 31, 1997 and 1996 respectively. In both years, the cash
provided by financing activities resulted from the sales of common stock and
issuance of notes payable, $2,037,300 and $861,400 for the years ended December
31, 1997 and 1996 respectively, offset by principal payments on outstanding
debt.
At December 31, 1997 the Company had cash and cash equivalents of $690,500
as compared to $161,600 at December 31, 1996. At December 31, 1997, the Company
had working capital of $726,800, as compared to a working capital deficit of
$44,800 at December 31, 1996. The increases in both cash and cash equivalents
and working capital in 1997 over 1996 are primarily due to the proceeds received
from the Company's direct public offering which more than offset the Company's
net loss for the year. The Company, at present, does not have a credit facility
in place with a bank or other financial institution. The Company does have in
process a second direct public offering of its common stock with a maximum
potential gross proceeds of $3,000,000 before expenses. The Company believes
that the cash and cash equivalents on hand at December 31, 1997, along with the
expected proceeds from the Company's direct public offering, will be sufficient
to allow the Company to continue its expected level of operations for at least
12 months.
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.
Dates following December 31, 1999 and beyond (the "Year 2000 Problem")
Many existing computer systems and applications, and other devices, use
only two digits to identify a year in the date field, without considering the
impact of the upcoming change in the century. Such systems and applications
could fail or create erroneous results unless corrected. The Company relies on
its internal financial systems and external systems of business enterprises such
as customers, suppliers, creditors, and financial organizations both
domestically and globally, directly and indirectly for accurate exchange of
data. The Company has evaluated such systems and believes the cost of addressing
the Year 2000 Problem will not have a material adverse affect on the result of
operations or financial position of the Company. However, even though the
internal systems of the Company are not materially affected by the Year 2000
issue the Company could be affected through disruption in the operation of the
enterprises with which the Company interacts.
Seasonality and Quarterly Results
The Company's business is subject to seasonality influences. Sales volumes
in the bicycle industry typically slow 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.
8
<PAGE>
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.
9
<PAGE>
Item 7 FINANCIAL STATEMENTS
Page
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ...................... 3
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ...................... 4
FINANCIAL STATEMENTS
Consolidated Balance Sheet ......................................... 5
Consolidated Statements of Operations .............................. 6
Consolidated Statement of Stockholders' Equity ..................... 7
Consolidated Statements of Cash Flows .............................. 8
Notes to Consolidated Financial Statements ......................... 10
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
ZAP Power Systems and Subsidiary
We have audited the accompanying consolidated balance sheet of ZAP Power Systems
and Subsidiary as of December 31, 1997, and the related consolidated statement
of operations, stockholders' equity and cash flows for the year 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 audit 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 our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ZAP Power Systems
and Subsidiary as of December 31, 1997, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ GRANT THORNTON LLP
San Jose, California
March 27, 1998
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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 statements of operations,
stockholders' equity and cash flows of ZAP Power Systems and Subsidiary for the
year ended December 31, 1996. 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 audit.
We conducted our audit 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 our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of ZAP Power
Systems and Subsidiary for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ MOSS ADAMS LLP
Santa Rosa, California
February 14, 1997
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<PAGE>
<TABLE>
ZAP Power Systems and Subsidiary
CONSOLIDATED BALANCE SHEET
December 31, 1997
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 690,500
Accounts receivable, net of allowance for doubtful accounts of $5,000 121,700
Inventories 267,300
Prepaid expenses and other assets 65,600
-----------
Total current assets 1,145,100
PROPERTY AND EQUIPMENT 163,200
OTHER ASSETS
Intangibles, net of accumulated amortization of $3,600 20,200
Deposits 13,500
-----------
33,700
-----------
Total assets $ 1,342,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 161,600
Accrued liabilities and customer deposits 189,100
Notes payable 51,600
Current maturities of obligations under capital leases 16,000
-----------
Total current liabilities 418,300
OTHER LIABILITIES
Long-term debt 60,000
Obligations under capital leases, less current maturities 10,900
-----------
70,900
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized, 2,542,700
shares issued and outstanding 3,168,900
Accumulated deficit (2,316,100)
-----------
852,800
-----------
Total liabilities and stockholders' equity $ 1,342,000
===========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<PAGE>
ZAP Power Systems and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
1997 1996
----------- -----------
NET SALES $ 1,640,200 $ 1,170,900
COST OF GOODS SOLD 1,274,700 862,700
----------- -----------
GROSS PROFIT 365,500 308,200
OPERATING EXPENSES
Selling 633,000 476,800
General and administrative 820,400 554,800
Research and development 246,100 100,400
----------- -----------
1,699,500 1,132,000
----------- -----------
LOSS FROM OPERATIONS (1,334,000) (823,800)
OTHER INCOME (EXPENSE)
Interest expense (84,800) (11,400)
Miscellaneous 11,100 19,500
----------- -----------
(73,700) 8,100
----------- -----------
LOSS BEFORE INCOME TAXES (1,407,700) (815,700)
PROVISION FOR INCOME TAXES
1,600 1,600
----------- -----------
NET LOSS $(1,409,300) $ (817,300)
=========== ===========
NET LOSS PER COMMON SHARE
Basic $ (0.62) $ (0.45)
=========== ===========
Diluted $ (0.62) $ (0.45)
=========== ===========
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 2,289,165 1,805,317
=========== ===========
The accompanying notes are an integral part of these statements.
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<PAGE>
<TABLE>
ZAP Power Systems and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997 and 1996
<CAPTION>
Common Stock Accumulated
---------------------------- ----------------------------
Shares Amount Deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 1,644,000 $ 149,900 $ (89,500) $ 60,400
Issuance of common stock through
private placement at $1.66 per share
net of expenses of $41,500 328,300 504,600 -- 504,600
Issuance of common stock in connection
with direct public offering at $5.25 per share 3,800 19,900 -- 19,900
Conversion of notes payable into common
stock at $1.66 per share 33,000 55,000 -- 55,000
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
Issuance of common stock in connection
with direct public offering at $5.25 per share,
net of expenses of $188,400 415,100 1,990,900 -- 1,990,900
Exercise of stock options 21,600 12,600 -- 12,600
Conversion of notes payable and accrued
interest into common stock at $5.25
per share 14,800 77,800 -- 77,800
Recission of shares issued to joint venture (5,000) (26,300) -- (26,300)
Stock issued for current and future services 19,700 94,700 -- 94,700
Net loss -- -- (1,409,300) (1,409,300)
----------- ----------- ----------- -----------
Balance, December 31, 1997 2,542,700 $ 3,168,900 $(2,316,100) $ 852,800
=========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
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<PAGE>
<TABLE>
ZAP Power Systems and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,409,300) $ (817,300)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 67,700 47,400
Allowance for doubtful accounts (11,400) 7,400
Issuance of common stock for services rendered 92,400 127,400
Loss on abandonment of subsidiary 26,200 --
Amortization of fair value of warrants 56,300 --
Changes in:
Receivables (49,400) (37,600)
Inventories (20,700) (188,200)
Prepaid expenses and other
(4,100) (6,400)
Deposits
2,000 (9,500)
Accounts payable (139,600) 207,000
Accrued liabilities and customer deposits 126,900 53,900
Income taxes payable
-- (2,700)
----------- -----------
Net cash used in operating activities (1,263,000) (618,600)
Cash flows from investing activities:
Purchases of equipment (128,600) (80,500)
Patent costs capitalized (14,900) --
----------- -----------
Net cash used in investing activities (143,500) (80,500)
Cash flows from financing activities:
Proceeds from issuance of notes payable 33,800 336,900
Sale of common stock, net of stock offering costs 2,003,500 524,500
Principal repayments on notes payable (98,800) (7,500)
Payments on obligations under capital leases (13,100) (5,000)
Cash restricted to payment of certain notes payable 10,000 (10,000)
----------- -----------
Net cash provided by financing activities 1,935,400 838,900
----------- -----------
NET INCREASE IN CASH 528,900 139,800
Cash, beginning of year 161,600 21,800
----------- -----------
Cash, end of year $ 690,500 $ 161,600
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
-8-
<PAGE>
ZAP Power Systems and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
1997 1996
-------- --------
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 84,763 $ 11,400
Income taxes
1,600 1,600
Non-cash investing and financing activities:
Conversion of notes payable and accrued interest
into common stock 77,800 55,000
Stock issued for future services 2,400 53,600
Stock issued (cancelled) to joint venture (26,300) 52,500
Warrants issued for financing fees -- 56,300
The accompanying notes are an integral part of these statements.
-9-
<PAGE>
ZAP Power Systems and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
The Company consolidates the accounts of its wholly-owned subsidiary,
Electricycle Corporation ("Electricycle"). All material intercompany
balances and transactions are eliminated.
1. 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.
2. Property and Equipment
Property and equipment are stated at cost and depreciated using
straight-line and accelerated methods over the assets' estimated useful
lives. Costs of maintenance and repairs are charged to expense as
incurred; significant renewals and betterments are capitalized. Estimated
useful lives are as follows:
Machinery and equipment 7 years
Equipment under capital leases 5 years
Demonstration bicycles 2 years
Office furniture and equipment 7 years
Vehicle 5 years
Leasehold improvements 15 years or life of lease,
whichever is shorter
3. Intangibles
Intangibles consist of costs expended to perfect certain patents and are
amortized over an estimated useful life of ten years.
4. Income Taxes
The Company accounts for income taxes using an asset and liability
approach for financial accounting and reporting purposes.
-10-
<PAGE>
ZAP Power Systems and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
5. Recent Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, Reporting Comprehensive Income, which requires that an entity
report, by major components and as a single total, the change in its net
assets from non-shareholder sources during the period; and SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information,
which establishes annual and interim reporting standards for an entity's
business segments and related disclosures about its products, services,
geographic areas and major customers. Adoption of these statements will
not impact the Company's financial position, results of operations or
cash flows. Both statements are effective for fiscal years beginning
after December 15, 1997, with earlier application permitted.
6. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions affecting the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, as well as revenues and expenses during
the reporting period. The amounts estimated could differ from actual
results.
7. Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. The fair value of a
financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties. For certain
of the Company's financial instruments, including cash, accounts
receivable and accounts payable, the carrying amount approximates fair
value because of the short maturities. The carrying amount of the bank
note payable approximates fair value as current interest rates available
to the Company for similar debt are approximately the same. The fair
value of related party debt is impracticable to determine.
8. Net Loss Per Common Share
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings Per Share. The Company has adopted SFAS 128 for all
periods presented. The adoption of SFAS 128 did not impact previously
reported loss per share for the year ended December 31, 1996. SFAS 128
replaces current earnings per share ("EPS") reporting requirements and
requires a dual presentation of basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income (loss) attributable to
common stockholders by the weighted average of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock. In 1997 and 1996, outstanding
stock options to purchase 875,000 and 1,179,000 shares, respectively,
with weighted average exercise prices per share of $1.12 and $.74,
respectively, plus warrants to purchase 13,900 and 37,800 shares in 1997,
and 1996, respectively, at $5.25 per share, have been omitted from the
diluted computation as their inclusion would be anti-dilutive.
-11-
<PAGE>
ZAP Power Systems and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE B - INVENTORIES
Inventories consist of the following at December 31, 1997:
Raw materials $144,100
Work-in-process 70,200
Finished goods 53,000
--------
$267,300
========
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1997:
Machinery and equipment $ 54,300
Equipment under capital leases 45,900
Demonstration bicycles 77,500
Office furniture and equipment 57,900
Leasehold improvements 14,900
Vehicle 34,400
--------
284,900
Less accumulated depreciation and amortization 121,700
--------
$163,200
========
NOTE D - NOTES PAYABLE
Unsecured notes to stockholders, with interest
at 12%; due on demand. The noteholders have
been issued warrants to purchase, in the
aggregate, 2,500 shares of common stock at
$5.25 per share through October, 1999. $ 46,900
Note to bank, with interest at 15%; principal
and interest due in monthly installments and
maturing in March, 1998; collateralized by an
interest in other checking or savings accounts
in the bank and held by the Company. 4,700
---------
$ 51,600
=========
-12-
<PAGE>
ZAP Power Systems and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE E - LONG-TERM DEBT
Unsecured note to a stockholder, with interest
at 10%; principal and interest is due when the
notes mature in December 1999. The noteholder
has been issued warrants to purchase 11,400
shares of common stock at $5.25 per share
through December 1999. $ 60,000
=========
NOTE F - CAPITAL LEASES
Minimum future lease payments under capital lease obligations for computer
and other equipment are as follows:
Year ending December 31,
------------------------
1998 $ 19,900
1999 10,900
2000 900
-----------
Total minimum lease payments 31,700
Less amounts representing interest 4,800
-----------
Present value of minimum lease payments 26,900
Less current maturities 16,000
-----------
$ 10,900
===========
NOTE G - PROVISION FOR INCOME TAXES
1997 1996
--------- ---------
Current tax liability
Federal $ -- $ --
State 1,600 1,600
--------- ---------
$ 1,600 $ 1,600
========= =========
Deferred tax assets (liabilities)
Federal tax loss carryforward $ 695,000 $ 297,000
State tax loss carryforward 132,600 79,000
Other, net -- (19,600)
--------- ---------
827,600 356,400
Less valuation allowance (827,600) (356,400)
--------- ---------
Net deferred tax asset $ -- $ --
========= =========
-13-
<PAGE>
ZAP Power Systems and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE G - PROVISION FOR INCOME TAXES (continued)
The Company has available for carryforward approximately $2,176,000 and
$1,500,000 of federal and state net operating losses, respectively, expiring
through 2012. The Tax Reform Act of 1986 and the California Conformity Act
of 1987 impose restrictions on the utilization of net operating losses in
the event of an "ownership change" as defined by Section 382 of the Internal
Revenue Code. There has been no determination whether an ownership change,
as defined, has taken place. Therefore, the extent of any limitation has not
been ascertained.
A valuation allowance is required for those deferred tax assets that are not
likely to be realized. Realization is dependent upon future earnings during
the period that temporary differences and carryforwards are expected to be
available. Because of the uncertain nature of their ultimate utilization, a
full valuation allowance is recorded against these deferred tax assets.
NOTE H - COMMON STOCK
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
January 1, 1996 increased from 548,000 to 1,644,000 shares. All share and
per share data, including stock options, have been adjusted retroactively to
reflect the three-for-one stock split. The number of shares the Company is
authorized to issue was also increased from 1 million to 10 million shares.
NOTE I - STOCK OPTIONS AND WARRANTS
Options to purchase common stock are granted by the Board of Directors under
two Stock Option Plans, referred to as the 1996 and 1995 plans. Options
granted may be incentive stock options (as defined under Section 422 of the
Internal Revenue Code) or nonstatutory stock options. The number of shares
available for grant under the 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 over a two year period, and
expire ten years after the date of grant. Options totaling 769,285 shares
were vested under both plans at December 31, 1997.
-14-
<PAGE>
ZAP Power Systems and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE I - STOCK OPTIONS AND WARRANTS (continued)
<TABLE>
Options activity under the two plans is as follows:
<CAPTION>
1996 Plan 1995 Plan
----------------------- -----------------------
Number of Weighted Number of Weighted
Exercise Average Exercise Average
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995 501,000 $ 1.00 360,000 $ 0.40
Granted -- -- 318,000 $ 0.73
Exercised -- -- -- --
Canceled -- -- -- --
------- -------
Outstanding at December 31, 1996 501,000 $ 1.00 678,000 $ 0.55
Granted 110,500 $ 4.39 -- $ 0.40
Exercised (7,300) $ 1.00 (15,000) $ 0.40
Canceled (174,700) $ 1.13 (216,700) $ 0.55
------- -------
Outstanding at December 31, 1997 429,500 $ 1.70 446,300 $ 0.56
======= =======
</TABLE>
The weighted average fair value of options granted during the years ending
December 31, 1997 and 1996 was $3.23 and $.42, respectively.
<TABLE>
The following information applies to options outstanding at December 31,
1997:
<CAPTION>
<S> <C> <C>
Range of exercise prices $.40 - $1.00 $3.68 - $5.25
------------ -------------
Options outstanding 787,800 88,000
Weighted average exercise price $.75 $4.42
Weighted average remaining contractual life (years) 8 9
Options exercisable 748,527 20,758
Weighted average exercise price $.74 $3.98
</TABLE>
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 1997 and 1996. 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:
-15-
<PAGE>
ZAP Power Systems and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE I - STOCK OPTIONS AND WARRANTS (continued)
1997 1996
-------------- ------------
Net loss - as reported $ (1,409,300) $ (817,300)
Net loss - pro forma (1,696,300) (981,000)
Loss per share - as reported (.62) (.45)
Loss per share - pro forma (.73) (.54)
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:
1997 1996
---- ----
Dividends None None
Expected volatility 30% 30%
Risk free interest rate 6.38% 6.28%
Expected life 10 years 10 years
Warrants to acquire stock were issued to certain stockholders as additional
consideration for providing financial assistance, in the form of notes, to
the Company. The fair value of the warrants at time of issuance $56,300,
have been amortized to operations during 1997.
NOTE J - JOINT VENTURE
In December 1996, the Company joined with MW McWong International, Inc.
("McWong"), to form ZAP (China), a limited liability corporation registered
in California. The Company issued 10,000 shares of its common stock at $5.25
per share to McWong as its investment in the joint venture. The Company
became a 50% owner of ZAP (China) LLC.
During 1997, by mutual agreement between the parties, the joint venture was
dissolved prior to the commencement of any business activity. In settlement,
the Company cancelled 5,000 of the original 10,000 shares issued to McWong
and wrote off the balance of the investment, $26,250.
NOTE K - MAJOR CUSTOMER
During 1997, one customer accounted for $430,000 or 26% of the Company's net
sales. The Company ceased selling to this customer in late 1997 and is not
expected to have any material sales to this customer in 1998. The loss of
this customer is not expected to have a material impact on the Company's
financial position and results of operations for the coming year. No one
customer accounted for 10% or more of the Company's net sales for 1996.
-16-
<PAGE>
ZAP Power Systems and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE L - COMMITMENT
The Company rents warehouse and office space under an operating lease that
expires in June 1998. The monthly rent of $6,114.40 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 $22,000 in 1998. Rent expense under this lease
was $63,300 and $52,800 in 1997 and 1996, respectively.
NOTE M - SUBSEQUENT EVENTS
In January 1998, the Company commenced its second direct public offering of
its common stock. The Company has offered 500,000 shares at $6.00 per share.
The offering is being conducted on a best efforts basis directly by the
Company. The proceeds from the offering will be used to increase
manufacturing capacity, expand marketing efforts and for general working
capital.
On March 11, 1998, the Company's common stock commenced trading on the OTC
Bulletin Board under the stock symbol ZAPP.
-17-
<PAGE>
Item 8. - Changes in and Disagreements with Accountants and Financial
Disclosure.
On January 26, 1998, the Company engaged Grant Thornton LLP as the
principal accountants to audit the Company's financial statements. Prior to the
engagement of Grant Thornton, the Company did not consult with Grant Thornton
regarding the application of accounting principals to a specific completed or
contemplated transaction, or the type of audit opinion that might be rendered.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
MANAGEMENT
Name Age Position
---- --- --------
Gary Starr 42 Managing Director
James McGreen 44 President and Director
Andrew Hutchins 37 General Manager
Sanford Theodore 34 Controller
Jessalyn Nash 38 Director
Lee S. Sannella, M.D. 81 Director
Nancy K. Cadigan 39 Director and Secretary
Richard Balzhiser 65 Member, Advisory Board
Hal Larson 73 Member, Advisory Board
Jack Guy 65 Member, Advisory Board
Gary Starr is Managing Director of the Company. He has been building
and driving electric cars for more than 20 years. In addition to overseeing the
marketing of more than 9,000 electric bicycles and vehicles, Mr. Starr has
invented several solar electric products and conservation devices. Mr. Starr
founded U.S. Electricar's electric vehicle operation in 1983. That Company
recently signed a licensing agreement with Hyundai.
In 1993, Mr. Starr earned a Private Industry Council Recognition Award
for creating job opportunities in the EV industry and was named as one of the
ten most influential electric car authorities by Automotive News. 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
9
<PAGE>
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 sailboats. 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, (2 granted, 1 pending, 2 expired), in the resource
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.
Andrew Hutchins, General Manager has been involved in the retail
bicycle industry since he was 11 years old, when he worked for his family's
retail bicycle shop. He successfully started, managed, and operated a retail
bicycle store for 11 years prior to selling it for several times his initial
investment. He has also worked in the insurance industry for three years and
served on the Transportation advisory board for the city of Rohnert Park. Mr.
Hutchins received a degree in Business Economics and Communication Studies from
the University of California at Santa Barbara in 1982.
Sanford Theodore, Controller has been involved in various financial and
accounting positions for over 10 years. Well versed with computerized accounting
and auditing processes, he has worked with Optical Coating Laboratory, Western
Dairy Products, and Blue Cross. Mr. Theodore received a bachelor's degree in
Business Administration from San Diego State University in 1985 and a
certificate for Human Resource Management from Sonoma State University in 1996.
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).
Advisory Board.
Dr. Richard E. Balzhiser, President Emeritus of the Electric Power
Research Institute (EPRI) served as President and CEO of EPRI from 1988-1996. He
joined EPRI in 1973 at the time of its founding after serving as Deputy Director
for Energy and Environment in the White House Office of Science and Technology.
Dr. Balzhiser currently serves on the Houston Industries and Electrosource
Boards as well as Advisory boards to Mobil, MIT, University of Michigan and the
University of Wisconsin. He is chairing committees for the World Bank and World
Energy Council. Dr. Balzhiser earned his Ph.D. from the University of Wisconsin.
10
<PAGE>
Hal Larson was the Executive Creative Director for the advertising
agency Tatham, Laird & Kudner. He has been responsible for the advertising for
Kraft Cheese, Sears, Quaker, 7-UP, and Oscar Meyer. He also served as Creative
Director of J. Walter Thompson and West Coast Creative Director of Cunningham &
Walsh. Mr. Larson has directed advertising for the Republican National Committee
and has written several books and lectured at several Universities. Mr. Larson
earned his B.S. degree from the University of Oregon and his M.S. degree from
Boston University.
Jack Guy has been employed by the Electric Power Research Institute
(EPRI) since 1974. He is responsible for commercializing EPRI's new products and
technologies in Electric Transportation. From 1956 to 1974, Mr. Guy was a
manager for General Electric Co. Mr. Guy has also served as a special agent for
the U.S. Army Counterintelligence Corps.
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.
11
<PAGE>
Item 10. EXECUTIVE COMPENSATION
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
----------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Other Res- Secur-
Name Annual tricted 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
1997 $35,000 $2,250
James McGreen 1994 $ 0
President 1995 $33,000 72,000
1996 $33,000 $3,750 60,000
1997 $38,000 $2,250
</TABLE>
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
- --------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees or Base
Name Granted (#) in Fiscal Year Price ($/sh) Expiration Date
- ---- ----------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
None
</TABLE>
Item 11. Security Ownership and Certain Beneficial Owners and Management
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of March 27,
1998 for each shareholder known by the Company to own beneficially 5% or more of
the outstanding shares of its Common Stock. The Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by them, have sole investment and voting power with respect to their
shares, subject to community property laws where applicable.
Shares Percentage of Common Shares
Beneficially at March 27, 1998
5% Shareholders: Owned (2,568,331 shares)
- --------------------------------------------------------------------------------
James McGreen 703,850* 28%
Gary Starr 522,028* 20%
All directors and executive 1,225,878 48%
officers as a group
Includes 114,500 shares of Common Stock issuable upon exercise of currently
exercisable incentive stock options but excludes 17,500 shares of Common Stock
issuable under options but not currently exercisable.
12
<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,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 690,500
<SECURITIES> 0
<RECEIVABLES> 126,700
<ALLOWANCES> (5,000)
<INVENTORY> 267,300
<CURRENT-ASSETS> 1,145,100
<PP&E> 284,900
<DEPRECIATION> 121,700
<TOTAL-ASSETS> 1,342,000
<CURRENT-LIABILITIES> 418,300
<BONDS> 70,900
0
0
<COMMON> 3,168,900
<OTHER-SE> (2,316,100)
<TOTAL-LIABILITY-AND-EQUITY> 1,342,000
<SALES> 1,640,200
<TOTAL-REVENUES> 1,640,200
<CGS> 1,274,700
<TOTAL-COSTS> 1,274,700
<OTHER-EXPENSES> 1,699,500
<LOSS-PROVISION> 5,000
<INTEREST-EXPENSE> 84,800
<INCOME-PRETAX> (1,407,700)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (1,409,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,409,300)
<EPS-PRIMARY> (0.62)
<EPS-DILUTED> (0.62)
</TABLE>
99. Additional Exhibits - Subsequent events
In March 1998, the Company signed a contract with
Central & Southwest Utility Co. for the sale of one million dollars in
product for the duration of one year. The customer will have exclusive
distribution rights to sell ZAP products in eight Midwestern States for
certain channels of distribution.
13
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the
Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ZAP POWER SYSTEMS
--------------------------------------
(Registrant)
By
--------------------------------------
Gary Starr - Managing Director & Chief
Financial Officer
Date
-------------------------------------
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By
-----------------------------------------
James McGreen - President and Director
Date
-----------------------------------------
By
-----------------------------------------
Nancy K. Cadigan - Secretary and Director
Date
-----------------------------------------
By
-----------------------------------------
Sanford Theodore - Principal
Accounting Officer and Controller
Date
-----------------------------------------
14
