-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T6kk+n2JXyuogRsyu//ugl4N3HiQxDthvQhNatEAXWBnXA7wW+QnTvQRZV+tdYcA 6gHig/IuyACvwbSmBhbLVA== 0000950005-98-000360.txt : 19980413 0000950005-98-000360.hdr.sgml : 19980413 ACCESSION NUMBER: 0000950005-98-000360 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980410 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZAP POWER SYSTEMS INC CENTRAL INDEX KEY: 0001024628 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600] IRS NUMBER: 943210624 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 333-05744-LA FILM NUMBER: 98591740 BUSINESS ADDRESS: STREET 1: 117 MORRIS ST CITY: SEBASTOBOL STATE: CA ZIP: 95472 BUSINESS PHONE: 7078244150 MAIL ADDRESS: STREET 1: 117 MORRIS ST CITY: STBASTOPOL STATE: CA ZIP: 95472 10KSB 1 FORM 10KSB 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 - -------------------------------------------------------------------------------- (Name of small business issuer in its charter) CALIFORNIA 94-3210624 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 117 Morris Street, Sebastopol, California 95472 - ----------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Issuer's telephone number (707) 824-4150 --------------- Securities registered under Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered None - ------------------------------- ------------------------------- - ------------------------------- ------------------------------- Securities registered under Section 12(g) of the Exchange Act: None - -------------------------------------------------------------------------------- (Title of class) - -------------------------------------------------------------------------------- (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10KSB. ___. State issuer's revenues for its most recent fiscal year. $1,640,200 ---------- 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. -------------------------- - --------------------------- 2 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 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 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 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 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 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 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 Item 7 FINANCIAL STATEMENTS Page ---- 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 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 -3- 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 -4- ZAP Power Systems and Subsidiary CONSOLIDATED BALANCE SHEET December 31, 1997
ASSETS 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 =========== The accompanying notes are an integral part of this statement.
-5- 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. -6- ZAP Power Systems and Subsidiary CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Years ended December 31, 1997 and 1996
Common Stock Accumulated ---------------------------- ---------------------------- Shares Amount Deficit Total ----------- ----------- ----------- ----------- 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 =========== =========== =========== =========== The accompanying notes are an integral part of this statement.
-7- ZAP Power Systems and Subsidiary CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31,
1997 1996 ----------- ----------- 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 =========== =========== The accompanying notes are an integral part of these statements.
-8- 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- 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- 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- 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- 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- 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- ZAP Power Systems and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 and 1996 NOTE I - STOCK OPTIONS AND WARRANTS (continued) Options activity under the two plans is as follows:
1996 Plan 1995 Plan ----------------------- ----------------------- Number of Weighted Number of Weighted Exercise Average Exercise Average Shares Price Shares Price ------ ----- ------ ----- 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 ======= =======
The weighted average fair value of options granted during the years ending December 31, 1997 and 1996 was $3.23 and $.42, respectively. The following information applies to options outstanding at December 31, 1997:
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
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- 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- 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- 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 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 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 Item 10. EXECUTIVE COMPENSATION Summary Compensation Table
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 ($) ($) ($) ($) SARs (#) ($) ($) - -------------------------------------------------------------------------------------------------------------- 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 $2,250
Option/SAR Grants in Last Fiscal Year Individual Grants - -------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) Number of % of Total securities Options/SARs Underlying Granted to Exercise Options/SARs Employees or Base Name Granted (#) in Fiscal Year Price ($/sh) Expiration Date - ---- ----------- -------------- ------------ --------------- None
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 EX-27 2 FINANCIAL DATA SCHEDULE
5 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. 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 690,500 0 126,700 (5,000) 267,300 1,145,100 284,900 121,700 1,342,000 418,300 70,900 0 0 3,168,900 (2,316,100) 1,342,000 1,640,200 1,640,200 1,274,700 1,274,700 1,699,500 5,000 84,800 (1,407,700) 1,600 (1,409,300) 0 0 0 (1,409,300) (0.62) (0.62)
EX-99 3 ADDITIONAL EXHIBITS 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 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 -----END PRIVACY-ENHANCED MESSAGE-----