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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
Form 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------------
For the fiscal year ended December 31, 1998
ZAP POWER SYSTEMS
(Name of small business issuer in its charter)
CALIFORNIA 94-3210624
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
117 Morris Street
Sebastopol, CA 95472
(707) 824-4150
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Securities registered under section 12(b) of the Exchange Act:
None
Securities registered under section 12(g) of the Exchange Act:
None
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if there is no disclosure of delinquent filers
in response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. Yes X No
State issuer's revenues for its most recent fiscal year. $3,518,600
The aggregate market value of the Company's voting common stock held by
non-affiliates as of March 30, 1999, based on the average Bid and Ask price on
that date was $12,123,380.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
3,494,924 shares of common stock as of March 30, 1999.
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<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 7. 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
<PAGE>
Part I
Item 1. Description of Business
The information on Form 10-KSB and the documents incorporated herein by
reference contain forward-looking statements based on current expectations,
estimates and projections about the Company's industry, management's beliefs and
certain assumptions made by management. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Forward Looking
Statements."
A. Business Development
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
electric transportation vehicles.
The Company objective is to leverage its proprietary technology and name
recognition to serve a number of high potential markets in the electric bicycle,
electric scooter, and in the electric transportation industry. On February 10,
1998, NASD cleared ZAP Power Systems' common stock for quotation on the OTC
Bulletin Board under the symbol "ZAPP". Since the Company's management believed
that the primary barrier to widespread use of electric vehicles was their high
cost, the Company's activity and revenue was initially derived from development
contracts from a foreign private entity and from domestic government agencies.
These contracts were set up to develop low cost Zero Air Pollution (or ZAP) type
electric vehicles. Now the Company is focusing on the manufacturing and
distribution of these electric vehicle products.
During the first quarter of 1998, the Company introduced a new line of
electric scooter known as the ZAPPY(TM). The product accounted for over 38% of
net sales for the year. Throughout 1998, ZAP continued to increase its emphasis
on the overseas market with approximately 21% of its sales being generated from
foreign entities.
The Company was issued its first United States Patent on February 13, 1996
on its electric motor power system for bicycles, tricycles, and scooters (Patent
#5,491,390). On September 30, 1997, the Company was issued its second United
States Patent on its electric motor system (Patent #5,671,821). On December 15,
1998, the Company was issued a third United States Patent for its ZAPPY(TM)
scooter (Patent #5,848,660). 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 system was designed to
assist the rider during more difficult riding situations, rather than as a
replacement for pedaling. The Company also installs the motor system on
specially designed bicycles that the Company has manufactured under contract.
The completed bicycles, with motor, are then sold to the customer. Additionally,
the Company produces the electric scooter, known as the ZAPPY(TM), which is
manufactured by the Company, using parts manufactured by various subcontractors.
The Company is an U.S. distributor of the Electricycle(TM) scooter that is
imported from China and is a distributor of an electric motorcycle.
The Company manufactures several electric motor kits that have up to 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 Company has a contractual relationship with
Smith & Wesson who provides the Company with Law Enforcement Bicycles. The
Company has agreed to purchase at least 250 bikes from Smith & Wesson in
exchange for specific exclusive distribution and pricing rights. The Company has
no other contractual agreements with any of its other vendors.
3
<PAGE>
The electric bicycle industry has four (4) major manufacturers and a large
group of small manufacturers. The major manufacturers are Honda, Suzuki, Sanyo
and Yamaha. They mainly sell products 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 global sales volumes is not
readily determinable, however the Company believes it currently holds leading
electric bicycle market position in the United States.
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 aggregate monthly lease payments total $6,614.40 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 Leases on both properties expire on June 1, 2001. Each has a
renewal option for one additional three-year period. The Company owns the basic
tools, machinery, and equipment necessary for the conduct of its production,
research and development, and vehicle prototyping activities.
As of December 31, 1998, the Company has 45 full-time and 11
part-time employees. Most of the employees work at the Company's Sebastopol,
California locations except for one employee who travels throughout California
seeking sales opportunities.
Item 3. Legal Proceedings
The company has become aware that a company named Omni under the
leadership of an individual named Joseph Stevenson has been advertising and
selling an electric system for bicycles called EROS (electric regenerative
operating system). The Company's management, in consultation with patent
counsel, has determined after analysis that the EROS system infringes the
Company's patents and has filed suit against EROS. Although the Company believes
its claims are meritorious and the patents for the ZAP system are valid, it is
possible, as in any suit, that the Company may be unable to prove infringement
or that Mr. Stevenson may establish, either in litigation or in a re-examination
proceeding before the Patent Office that the Company's patents are not valid. If
the Company's patents are held to be invalid, the Company's ability to prevent
competitors from manufacturing or selling bicycles with the patented system will
be significantly reduced. The loss of the patents or a significant damage award
against the Company could have a material adverse effect upon the business and
financial condition and prospects of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders of the Company during
the fourth quarter of the Company's 1998 year.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
In January of 1998, the Company commenced its second direct public
offering of its Common Stock, offering for sale 500,000 shares at $6.00 per
share. On March 11, 1998, the Company's Common Stock commenced trading on the
OTC Bulletin Board under the stock symbol "ZAPP". During 1998, the Company sold
78,847 shares and received $381,986 in proceeds. The offering was closed in
January, 1999. Additionally in 1998, the Company 1) realized $15,000 in proceeds
from the exercise of stock options and issued 15,000 shares, 2) converted
$14,317 in notes payable and accrued interest into 2,727 shares ($5.25 per
share) and, 3) issued 25,136 shares in payment for current and future services
at an average price per share of $5.98.
4
<PAGE>
Prior to the completion of the second direct public offering in January
of 1999, the Company sold 400 shares and realized gross proceeds of $2,400.
Additionally in 1999, the Company 1) issued 268 shares in payment for current
and future services at a price of $6.00 per share, and 2) realized $18,000 in
proceeds from the exercise of stock options and issued 45,000 shares. On March
30, 1999, ZAP completed a private placement of 678,808 shares of its common
stock at a price of $3.02 per share and realized net proceeds of $1,852,500,
(See Note J to the Accompanying Financial Statements). In addition, the Company
converted $212,000 of its remaining debt into equity and issued 70,199 common
shares.
As of December 31, 1998 the Company had 1,930 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, electric scooters, and
other electric transportation vehicles. Historically, unit sales have been
approximately 50% kits, 30% electric bicycles, and 20% electric scooters. Dollar
sales have been 30% kits, 35% electric bicycles, and 35% electric scooters.
The Company sells its electric bicycles, kits and scooters to internet and
retail customers, international distributors, law enforcement agencies, electric
utility companies, bicycle dealerships, motorcycle dealers, and mail order
catalogs. The Company sells to the mail order catalogs and selected customers on
credit with net 30-day, 45-day, or 60-day terms. Some of these accounts are
factored with a local bank. Many of the smaller dealerships are sold cash on
delivery. The internet and retail sales are primarily paid for with a credit
card or personal check before shipment of the product.
The Company's growth strategy is to increase net sales by increasing
distribution channels through its website at zapbikes.com, retail organizations
and wholesale distributors both domestically and overseas as well as setting up
Company outlet and Franchise stores to assist in the retail sales arena. In
March, 1999, ZAP received payment for a franchise store in Hollywood, FL and a
deposit for a franchise store in Key West, FL. The Company intends to continue
to increase its production capability to meet the increasing demand for its
product. The Company also plans to continue to develop the products with the
goal of being the low cost leader in the industry. Product improvements, new
product introductions, and the expansion of the ZAP electric outlet franchise
network are continuing to enlarge ZAP's presence in the electric vehicle
industry.
Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1998
Net sales for the year ended December 31, 1998 were $3,518,600 compared
to $1,640,200 in the prior year, an increase of $1,878,400 or 115%. The increase
in sales was primarily due to the Company's introduction of the ZAPPY(TM)
scooter that accounted for $1,369,600 or 39% of total sales. Additionally,
international sales of bicycles and kits, including the new single speed low
cost motor system for 1998 increased $520,500 over 1997 levels as new dealers
acquired interest in selling ZAP products overseas. During the year ended
December 31, 1998, $617,000 in sales, representing 18% of total sales, was with
one customer. In 1997, a different single customer accounted for 26% of the
Company's net sales.
Gross profit. Gross profit increased as a percentage of net sales, to
32% from 22%. The total gross profit increased $761,800 or 208%. The increase in
gross profit dollars can principally be attributed to the gross margins realized
on the sales of the new ZAPPY(TM)scooter. Total gross profit for the ZAPPY(TM)
scooter was $421,300. The increase in gross margin percentage was the result of
greater cost controls and improved efficiencies in the manufacturing process of
all products for the year ended December 31, 1998 as compared to the year ended
December 31, 1997. Direct materials were 58% of net sales for the year ended
December 31, 1998 as compared to 70% of net sales for the year ended December
31, 1997.
Selling. Selling expenses in 1998 were $967,700. This was an increase
of $334,700 or 53% from 1997 to 1998. As a percentage of sales, selling expenses
decreased from 39% of sales to 28% of sales. Costs increased as a result of
additional personnel being added to the sales force, increased promotion through
the internet, a print media campaign, and added marketing efforts overseas.
5
<PAGE>
General and administrative expenses for 1998 were $979,200. This is an
increase of $158,800 or 19% over 1997. As a percentage of sales, general and
administrative expense decreased from 50% to 28% of net sales. Expense increases
during 1998 as compared to 1997 occurred due to added personnel in the
administrative and accounting areas. Additionally, a consultant was enlisted to
assist with obtaining additional equity funding.
Research and development decreased $43,500 or 18% from 1997 to 1998. As
a percentage of net sales it decreased from 15% to 6% respectively. Extensive
efforts in developing the ZAPPY(TM) scooter and single speed low-cost motor
system resulted in higher research and development costs in 1997 that were not
duplicated in 1998.
Other income (expense). Interest expense increased to $100,300 in 1998,
an increase of $15,500 over 1997. This increase can primarily be attributed to
the amortization of the fair value of warrants issued to an investment banker
for securing equity financing for the company.
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.
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.
6
<PAGE>
Liquidity and Capital Resources
The Company used cash from operations of $1,307,400 and $1,263,000 during
the years ended December 31, 1998 and 1997 respectively. Cash used in operations
in 1998 was the result of the net loss incurred for the year of $1,109,400,
offset by net non-cash expenses of $255,300, and the net change in operating
assets and liabilities resulting in a further use of cash of $453,300. Cash used
in operations in 1997 was the result of the net loss incurred for the year of
$1,409,300, offset by 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.
Investing activities used cash of $161,900 and $143,500 during the years
ended December 31, 1998 and 1997 respectively. The uses of cash were for the
purchase of fixed assets and additional capitalized patent costs.
Financing activities provided cash of $1,254,100 and $1,935,400 during the
years ended December 31, 1998 and 1997 respectively. In both years, the cash
provided by financing activities resulted from the sales of common stock and
issuance of notes payable, $1,280,800 and $2,037,300 for the years ended
December 31, 1998 and 1997 respectively, offset by principal payments on
outstanding debt.
At December 31, 1998 the Company had cash and cash equivalents of $475,300
as compared to $690,500 at December 31, 1997. At December 31, 1998, the Company
had working capital of $128,600, as compared to working capital of $726,800 at
December 31, 1997. The decrease in cash and cash equivalents is primarily due to
losses from operations. The decrease in working capital is due to the short-term
liability on the outstanding notes payable. The Company, at present, does not
have a credit facility in place with a bank or other financial institution. The
Company has established an accounts receivable facility that is guaranteed by
the U.S. Exim Bank. The Company believes that the cash and cash equivalents on
hand at December 31, 1998, along with the equity financing received in March
1999 of $1,852,500 from the sale of 678,808 shares of common stock 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 internet shopping mall presence, increasing distribution
channels, establish company owned and franchised ZAP stores, introducing new
products, improving existing product lines and development of strong corporate
infrastructure.
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 has taken the appropriate steps
that it believes address the concerns of the Year 2000 Problem. 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.
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.
7
<PAGE>
Item 7 FINANCIAL STATEMENTS
C O N T E N T S
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.............................3
FINANCIAL STATEMENTS
Balance Sheet.............................................................4
Statements of Operations..................................................5
Statement of Stockholders' Equity.........................................6
Statements of Cash Flows..................................................7
Notes to Financial Statements.............................................9
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
ZAP Power Systems
We have audited the accompanying balance sheet of ZAP Power Systems as of
December 31, 1998, and the related statements of operations, stockholders'
equity and cash flows for each of the years in the two year period ended
December 31, 1998. 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 as of
December 31, 1998, and the results of its operations and its cash flows for each
of the years in the two year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
San Jose, California
February 26, 1999, except for
Note J, as to which the date is
March 30, 1999
3
<PAGE>
<TABLE>
ZAP Power Systems
BALANCE SHEET
December 31, 1998
ASSETS
<CAPTION>
<S> <C>
CURRENT ASSETS
Cash $ 475,300
Accounts receivable, net of allowance for doubtful accounts of $35,000 283,800
Inventories 633,900
Prepaid expenses and other assets 97,800
-------------
Total current assets 1,490,800
PROPERTY AND EQUIPMENT - NET 177,000
OTHER ASSETS
Intangibles, net of accumulated amortization of $7,800 80,000
Deposits 11,900
-------------
91,900
-------------
$ 1,759,700
Total assets =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 334,200
Accrued liabilities and customer deposits 150,700
Notes payable, net of unamortized discount of $30,900 867,000
Current maturities of obligations under capital leases 10,300
-------------
Total current liabilities 1,362,200
OTHER LIABILITIES
Long-term debt 11,200
Obligations under capital leases, less current maturities 600
-------------
11,800
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized, 2,664,700
shares issued and outstanding 3,731,800
(3,346,100)
Accumulated deficit -------------
385,700
-------------
$ 1,759,700
=============
Total liabilities and stockholders' equity
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
ZAP Power Systems
STATEMENTS OF OPERATIONS
Years ended December 31,
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
NET SALES $ 3,518,600 $ 1,640,200
COST OF GOODS SOLD 2,391,300 1,274,700
----------- -----------
GROSS PROFIT 1,127,300 365,500
OPERATING EXPENSES
Selling 967,700 633,000
General and administrative 979,200 820,400
Research and development 202,600 246,100
----------- -----------
2,149,500 1,699,500
----------- -----------
LOSS FROM OPERATIONS (1,022,200) (1,334,000)
OTHER INCOME (EXPENSE)
Interest expense (100,300) (84,800)
Miscellaneous 13,900 11,100
----------- -----------
(86,400) (73,700)
----------- -----------
LOSS BEFORE INCOME TAXES (1,108,600) (1,407,700)
PROVISION FOR INCOME TAXES 800 1,600
----------- -----------
NET LOSS $(1,109,400) $(1,409,300)
=========== ===========
NET LOSS PER COMMON SHARE
Basic and diluted $ (0.42) $ (0.62)
=========== ===========
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 2,614,563 2,289,165
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
ZAP Power Systems
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1998 and 1997
<CAPTION>
Common Stock Accumulated
Shares Amount Deficit Total
------ ------ ------- -----
<S> <C> <C> <C> <C>
Balance, January 1, 1997 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
Issuance of common stock in connection with direct public
offering at $6 per share, net of expenses of $91,000 78,800 383,300 -- 383,300
Fair value of stock options granted to non-employees -- -- 17,600 17,600
Exercise of stock options 15,000 15,000 -- 15,000
Conversion of notes payable and accrued interest
into common stock at $5.25 2,700 14,300 -- 14,300
Issuance of warrants in connection with debt placement -- -- 61,800 61,800
Stock issued for current and future services 25,500 150,300 -- 150,300
Net loss -- -- (1,109,400) (1,109,400)
----------- ----------- ----------- -----------
Balance, December 31, 1998 2,664,700 3,731,800 $(3,346,100) $ 385,700
=========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
ZAP Power Systems
STATEMENTS OF CASH FLOWS
Years ended December 31,
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,109,400) $(1,409,300)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 86,500 67,700
Allowance for doubtful accounts (30,000) (11,400)
Issuance of common stock for services rendered 150,300 92,400
Issuance of stock options for services rendered 17,600 --
Loss on abandonment of subsidiary -- 26,200
Amortization of fair value of warrants 30,900 56,300
Changes in:
Receivables (192,100) (49,400)
Inventories (366,600) (20,700)
Prepaid expenses and other (32,200) (4,100)
Deposits 1,600 2,000
Accounts payable 172,600 (139,600)
Accrued liabilities and customer deposits (36,600) 126,900
----------- -----------
Net cash used in operating activities (1,307,400) (1,263,000)
Cash flows from investing activities:
Purchases of equipment (97,800) (128,600)
Patent costs capitalized (64,100) (14,900)
----------- -----------
Net cash used in investing activities (161,900) (143,500)
Cash flows from financing activities:
Proceeds from issuance of notes payable 882,500 33,800
Sale of common stock, net of stock offering costs 398,300 2,003,500
Principal repayments on notes payable (10,700) (98,800)
Payments on obligations under capital leases (16,000) (13,100)
Cash restricted to payment of certain notes payable -- 10,000
----------- -----------
Net cash provided by financing activities 1,254,100 1,935,400
----------- -----------
NET INCREASE/(DECREASE) IN CASH (215,200) 528,900
Cash, beginning of year 690,500 161,600
----------- -----------
Cash, end of year $ 475,300 $ 690,500
=========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
ZAP Power Systems
STATEMENTS OF CASH FLOWS
Years ended December 31,
<CAPTION>
1998 1997
----- ----
<S> <C> <C>
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 69,400 $ 84,763
Income taxes
800 1,600
Non-cash investing and financing activities:
Conversion of notes payable and accrued interest into common stock
14,300 77,800
Stock issued for current and future services
150,300 94,700
Stock issued (cancelled) to joint venture
-- (26,300)
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
8
<PAGE>
ZAP Power Systems
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ZAP Power Systems, ("ZAP"), was incorporated in California in September,
1994. ZAP designs, manufactures, and distributes electric bicycle power
kits, electric bicycles and tricycles, and other low power electric
transportation vehicles. Company products are sold directly to end-users and
to distributors throughout the United States.
1. 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.
5. 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.
9
<PAGE>
ZAP Power Systems
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6. Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. The fair value of a
financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties. For certain
of the Company's financial instruments, including cash, accounts
receivable and accounts payable, the carrying amount approximates fair
value because of the short maturities. The carrying amount of the bank
note payable and current notes payable approximate fair value as current
interest rates available to the Company for similar debt are
approximately the same. The fair value of related party notes payable is
impracticable to determine.
7. Net Loss Per Common Share
Net loss per common share, basic and dilutive, has been computed using
weighted average common shares outstanding. The effect of outstanding
stock options and warrants has been excluded from the dilutive
computation as their inclusion would be anti-dilutive.
NOTE B - INVENTORIES
Inventories consist of the following at December 31, 1998:
Raw materials $ 442,100
Work-in-process 104,100
Finished goods 87,700
-----------
$ 633,900
===========
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998:
Machinery and equipment $ 81,600
Equipment under capital leases 45,900
Demonstration bicycles 89,600
Office furniture and equipment 76,000
Leasehold improvements 25,400
Vehicle 56,200
374,700
Less accumulated depreciation and amortization 197,700
-----------
$ 177,000
===========
10
<PAGE>
ZAP Power Systems
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
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. $ 32,800
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
Notes secured by inventory, with interest at 12%, due March,
1999. Notes are convertible into common stock at $3.02 per
share through March, 1999. 800,000
Less fair value of unamortized cost of warrants issued
in connection with the debt (30,900)
---------
769,100
Note to bank, with interest at 3.9%, principal and interest
due in monthly installments through January 2002. 16,300
---------
878,200
Less current portion 867,000
---------
Long-term debt $ 11,200
=========
NOTE E - CAPITAL LEASES
Minimum future lease payments under capital lease obligations for computer
and other equipment are as follows:
Year ending December 31,
1999 $ 10,900
2000 900
-----------
Total minimum lease payments 11,800
Less amounts representing interest 900
-----------
Present value of minimum lease payments 10,900
Less current maturities 10,300
-----------
$ 600
===========
11
<PAGE>
ZAP Power Systems
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE F - PROVISION FOR INCOME TAXES
1998 1997
----------- -----------
Current tax expense
Federal $ -- $ --
State 800 1,600
----------- -----------
$ 800 $ 1,600
=========== ===========
Deferred tax assets (liabilities)
Federal tax loss carryforward $ 1,037,100 $ 695,000
State tax loss carryforward 177,200 132,600
----------- -----------
1,214,300 827,600
Less valuation allowance (1,214,300) (827,600)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
The Company has available for carryforward approximately $3,050,300 and
$1,998,000 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.
12
<PAGE>
ZAP Power Systems
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE G - 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 832,117 shares
were vested under both plans at December 31, 1998.
<TABLE>
Option activity under the two plans is as follows:
<CAPTION>
1996 Plan 1995 Plan
---------------------- ----------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
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
Granted 102,800 $4.65 -- --
Exercised (15,000) $1.00 -- --
Canceled (26,500) $1.48 (27,400) $ 0.40
-------- --------
Outstanding at December 31, 1998 490,800 $2.35 418,900 $ 0.56
======== ========
</TABLE>
The weighted average fair value of options granted during the years ending
December 31, 1998 and 1997 was $3.66 and $3.23, respectively.
<TABLE>
The following information applies to options outstanding at December 31,
1998:
<CAPTION>
<S> <C> <C>
Range of exercise prices $.40 - 1.00 $3.68 - 5.25
----------- ------------
Options outstanding 722,900 186,800
Weighted average exercise price $.75 $4.55
Weighted average remaining contractual life (years) 7 8
Options exercisable 722,900 109,175
Weighted average exercise price $.75 $4.64
</TABLE>
13
<PAGE>
ZAP Power Systems
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE G - 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 1998 and 1997. 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:
1998 1997
------------- -------------
Net loss - as reported $ (1,109,400) $ (1,409,300)
Net loss - pro forma (1,254,600) (1,696,300)
Loss per share - as reported (.42) (.62)
Loss per share - pro forma (.48) (.73)
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:
1998 1997
---------- -----------
Dividends None None
Expected volatility 100% 30%
Risk free interest rate 6.00% 6.38%
Expected life 10 years 10 years
In connection with the issuance of $800,000 of notes payable in 1998, the
Company issued 20,000 warrants at $4.00 per share, to purchase the Company's
common stock, to an entity that assisted the Company in arranging the
financing. The warrants are immediately exercisable and expire September,
2001. The fair value of warrants at the time of issuance was $61,800 and is
being amortized as additional interest expense over the term of the debt.
During 1998, $30,900 was amortized to operations.
NOTE H - CONCENTRATIONS
During 1998, one customer accounted for $617,000 or 17.5% of the Company's
net sales. 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.
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 did not
have any material sales to this customer in 1998.
14
<PAGE>
ZAP Power Systems
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE I - COMMITMENT
The Company leases warehouse and office space under two operating leases
that expire in June, 2001. The aggregate monthly rent is $6,600 and is
adjusted annually to reflect the average percentage increase in the
Consumer Price Index. An option exists to extend each lease for an
additional three year period. Rent expense under these leases were $79,400
and $52,800 in 1998 and 1997, respectively.
Future minimum lease payments on the lease are as follows:
Year ending December 31,
------------------------
1999 $ 79,000
2000 79,000
2001 65,400
--------
Total $224,200
NOTE J - SUBSEQUENT EVENTS
On March 30, 1999, the Company completed a private placement of its common
stock with Ridgewood ZAP, LLC ("Ridgewood"), a Deleware limited liability
company managed by Ridgewood Power Corporation. The Company sold to
Ridgewood 678,808 shares of common stock at a price of $3.02 per share. Net
cash proceeds to the Company were $1,852,500, net of underwriting fees and
expenses paid of $197,500. In addition to the underwriting fees paid, the
Company issued, in aggregate, 35,596 shares of common stock to two entities
who assisted in the private placement.
In addition, the Company has granted Ridgewood an option to acquire an
additional $2,000,000 of common stock at any time up through December 31,
1999. The price per share upon exercise would be 85% of the average closing
price of the stock for the 20-day period prior to the exercise date,
subject to minimum and maximum per share prices of $3.50 and $4.50,
respectively. If, during the option period, the Company meets certain
financial milestones, as defined in the agreement, the Company can require
Ridgewood to exercise the option to purchase the full $2,000,000 of common
stock using the per share formula described above.
As of March 30, 1999, the Company has converted $212,000 of its remaining
debt into 70,199 shares of common stock.
15
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
MANAGEMENT
Name Age Position
---- --- --------
Gary Starr 43 Managing Director
James McGreen 45 President and Director
Andrew Hutchins 38 General Manager
Sanford Theodore 35 Controller
Jessalyn Nash 39 Director
Lee S. Sannella, M.D. 83 Director
Nancy K. Cadigan 40 Director and Secretary
Richard Balzhiser 66 Member, Advisory Board
Hal Larson 74 Member, Advisory Board
Jack Guy 66 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 20,000 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 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 been awarded three patents, 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.
8
<PAGE>
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 11 years. Well versed with computerized accounting
and auditing processes, he has worked with Optical Coating Laboratory, Western
Dairy Products, and Blue Cross. Mr. Theodore received a bachelor's degree in
Business Administration from San Diego State University in 1985 and a
certificate for Human Resource Management from Sonoma State University in 1996.
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.
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.
9
<PAGE>
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.
<TABLE>
Item 10. EXECUTIVE COMPENSATION
Summary Compensation Table
<CAPTION>
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
1997 $35,000 $2,250
1998 $35,700
James McGreen 1994 $ 0
President 1995 $33,000 72,000
1996 $33,000 $3,750 60,000
1997 $38,000 $2,250
1998 $37,500
</TABLE>
<TABLE>
Option/SAR Grants in Last Fiscal Year
Individual Grants
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees or Base
Name Granted (#) in Fiscal Year Price ($/sh) Expiration Date
- ---- ----------- -------------- ------------ ---------------
<S> <C>
None
</TABLE>
10
<PAGE>
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 30,
1999 for each shareholder known by the Company to own beneficially 5% or more of
the outstanding shares of its Common Stock, and all directors and executive
officers as a group. 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
Beneficially Percentage of Common Shares
5% Shareholders: Owned at March 30, 1999
---------------------------------------------------------------------------
James McGreen 584,950(1) 16.6%
Gary Starr 432,078(1) 12.4%
Ridgewood ZAP, LLC 1,202,368(2) 29.9%
All directors and executive
officers as a group (3 & 4) 1,177,611 30.3%
(1) Includes 132,000 shares of Common Stock issuable upon exercise of currently
exercisable incentive stock options.
(2) Includes 523,560 shares of issuable upon exercise of a currently
exercisable option to purchase $2,000,000 of common stock at $3.82 per
share.
(3) Includes 264,000 shares of Common Stock issuable upon exercise of currently
exercisable incentive stock options.
(4) Includes 10,000 shares of Common Stock issuable upon exercise of currently
exercisable incentive stock options.
11
<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 ________________________________________
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, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 475,300
<SECURITIES> 0
<RECEIVABLES> 318,800
<ALLOWANCES> (35,000)
<INVENTORY> 633,900
<CURRENT-ASSETS> 1,490,800
<PP&E> 374,700
<DEPRECIATION> 197,700
<TOTAL-ASSETS> 1,759,700
<CURRENT-LIABILITIES> 1,362,200
<BONDS> 11,800
0
0
<COMMON> 3,731,800
<OTHER-SE> (3,346,100)
<TOTAL-LIABILITY-AND-EQUITY> 1,759,700
<SALES> 3,518,600
<TOTAL-REVENUES> 3,518,600
<CGS> 2,391,300
<TOTAL-COSTS> 2,391,300
<OTHER-EXPENSES> 2,149,500
<LOSS-PROVISION> 100,300
<INTEREST-EXPENSE> 100,300
<INCOME-PRETAX> (1,108,600)
<INCOME-TAX> 800
<INCOME-CONTINUING> (1,109,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,109,400)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
99. Additional Exhibits - Subsequent events
On March 30, 1999, the Company completed a private placement of its common
stock with Ridgewood ZAP, LLC ("Ridgewood"), a Delaware limited liability
company managed by Ridgewood Power Corporation. The Company sold to Ridgewood
678,808 shares of common stock at a price of $3.02 per share. Net cash proceeds
to the Company were $1,852,500, net of underwriting fees and expenses paid of
$197,500. In addition to the underwriting fees paid, the Company issued, in
aggregate, 35,596 shares of common stock to two entities who assisted in the
private placement.
In addition, the Company has granted Ridgewood an option to acquire an
additional $2,000,000 of common stock at any time up through December 31, 1999.
The price per share upon exercise would be 85% of the average closing price of
the stock for the 20-day period prior to the exercise date, subject to minimum
and maximum per share prices of $3.50 and $4.50, respectively. If, during the
option period, the Company meets certain financial milestones, as defined in the
agreement, the Company can require Ridgewood to exercise the option to purchase
the full $2,000,000 of common stock using the per share pricing formula
described above.
As of March 30, 1999, the company has converted $212,000 of its remaining
debt into 70,199 shares of common stock.
