================================================================================
                                  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.

================================================================================

<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