UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   Form 10-QSB


(Mark One)


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarterly period ended June 30, 1998


[ ]  TRANSITION  REPORT  PURSUANT TO 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934

               For the transition period from _______ to _________

                       Commission file number 333-05744-LA
                                             -----------------------------------


                                ZAP POWER SYSTEMS
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


          CALIFORNIA                                      94-3210624
-------------------------------------       ------------------------------------
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)


                 117 Morris Street, Sebastopol, California 95472
--------------------------------------------------------------------------------
                    (Address of principal executive offices)


    (707) 824-4150
---------------------------
(Issuer's telephone number)

     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


                     (APPLICABLE ONLY TO CORPORATE ISSUERS)

     State the number of shares  outstanding of each of the issuer's  classes of
common equity,  as of the latest  practicable  date.  2,626,887 shares of common
stock as of July 22, 1998                     


          Transitional Small Business Disclosure Format Yes [ ] No [x]

<PAGE>

Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         ZAP POWER SYSTEMS
         CONDENSED BALANCE SHEET
                                                                       June 30,
                                                                         1998
-------------------------------------------------------------------------------
                                     ASSETS

CURRENT ASSETS
     Cash                                                           $   273,000
     Receivables                                                        370,500
     Inventories                                                        393,700
     Prepaid expenses and other assets                                  134,300
                                                                    ------------
         Total current assets                                         1,171,500
                                                                    ------------

PROPERTY AND EQUIPMENT                                                  217,100
                                                                    ------------

OTHER ASSETS
     Intangibles, net of accumulated amortization of $4,900              36,800

     Deposits                                                            11,900
                                                                    ------------
         Total other assets                                              48,700
                                                                    ------------
         Total assets                                               $ 1,437,300
                                                                    ============
         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable                                               $   394,800
     Accrued liabilities and other expenses                              26,000
     Customer Deposits                                                   12,600
     Notes payable                                                       33,600
     Current maturities of long-term debt                                 2,500
     Current maturities of obligations under capital leases               8,400
                                                                    ------------
         Total current liabilities                                      477,900
                                                                    ------------
OTHER LIABILITIES
     Obligations under capital leases, less current maturities           10,900
     Long-Term Debt, less current maturities                             16,200
     Notes Payable, less current maturities                              60,000
                                                                    ------------
         Total other liabilities                                         87,100
                                                                    ------------
STOCKHOLDERS' EQUITY
     Common stock, no par value; 10,000,000 shares
         authorized, 2,619,617 shares issued and outstanding          3,648,700
     Accumulated deficit                                             (2,776,400)
                                                                    ------------
         Total stockholders' equity                                     872,300
                                                                    ------------
Total liabilities and stockholders' equity                          $ 1,437,300
                                                                    ============

The accompanying notes are an integral part of these financial statements

                                       2
<PAGE>

<TABLE>

ZAP POWER SYSTEMS
CONDENSED STATEMENTS OF OPERATIONS

<CAPTION>

                                               Quarter ended June 30,           Six Months ended June 30,
                                                1998           1997              1998              1997
------------------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>                <C>              <C>

NET SALES                                 $    863,700     $    568,200       $  1,324,900     $    826,100
                                                           
COST OF GOODS SOLD                             636,800          484,800            906,400          706,600
                                          ------------     ------------       ------------     ------------
                                                           
GROSS PROFIT                                   226,900           83,400            418,500          119,500
                                          ------------     ------------       ------------     ------------
                                                           
OPERATING EXPENSES                                         
     Selling                                   250,700          172,600            409,700          265,400
     General and administrative                219,900          188,000            382,400          364,200
     Research and development                   47,600           69,500             79,900          118,500
                                          ------------     ------------       ------------     ------------
                                               518,200          430,100            872,000          748,100
                                          ------------     ------------       ------------     ------------
                                                           
LOSS FROM OPERATIONS                          (291,300)        (346,700)          (453,500)        (628,600)
                                          ------------     ------------       ------------     ------------
                                                           
OTHER INCOME (EXPENSE)                                     
     Interest expense                           (3,600)          (7,000)            (6,300)         (15,900)
     Other                                      (4,100)           7,900                400            5,300
                                          ------------     ------------       ------------     ------------
                                                (7,700)             900             (5,900)         (10,600)
                                          ------------     ------------       ------------     ------------
                                                           
NET LOSS                                  $   (299,000)    $   (345,800)      $   (459,400)    $   (639,200)
                                          ============     ============       ============     ============
                                                           
NET LOSS PER COMMON SHARE,                                 
BASIC AND DILUTED                         $      (0.12)    $      (0.15)      $      (0.18)    $      (0.29)
                                          ============     ============       ============     ============
                                                           
WEIGHTED AVERAGE OF COMMON                                 
     SHARES OUTSTANDING                      2,592,100        2,254,900          2,571,800        2,190,400
                                          ============     ============       ============     ============
                                                           
    


<FN>
The accompanying notes are an integral part of these financial statements
</FN>

</TABLE>
                                       3
<PAGE>

ZAP POWER SYSTEMS
CONDENSED STATEMENTS OF CASH FLOWS


                                                    Six months ended June 30,
                                                       1998         1997
--------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                           $(459,400)   $(639,200)
 Adjustments to reconcile net loss to net cash
   used by operating activities
    Depreciation and amortization                      44,600       27,000
    Allowance for doubtful accounts                                    400
    Issuance of common stock for services rendered     64,600       10,600
   Changes in:
    Receivables                                      (248,800)    (156,900)
    Inventories                                      (127,200)     (32,400)
    Prepaid expenses                                  (68,700)      14,000
    Deposits                                          (92,300)     105,500
    Accounts payable                                  231,800       69,400
    Accrued liabilities and other expenses            (52,300)     (38,000)
                                                    ---------    ---------
       Net cash used by operating activities         (707,700)    (639,600)
                                                    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
 Purchases of equipment                               (96,300)     (56,700)
 Investment in subsidiaries                                        (13,900)
 Patent Defense                                       (17,900)
                                                    ---------    ---------
       Net cash used by investing activities         (114,200)     (70,600)
                                                    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from notes payable                                        30,000
 Increase in loans payable                             18,700
 Decrease in restricted cash                                        10,000
 Sale of common stock, net of stock offering costs    411,300      838,700
 Principal repayments on long-term debt                (4,700)      (6,200)
 Payments on obligations under capital leases          (7,700)      (6,000)
 Principal repayments on note payable                 (13,200)    (122,000)
                                                    ---------    ---------
       Net cash provided by financing activities      404,400      744,500
                                                    ---------    ---------

NET INCREASE/(DECREASE) IN CASH                      (417,500)      34,300

CASH, beginning of period                             690,500      161,600
                                                    ---------    ---------

CASH, end of period                                 $ 273,000    $ 195,900
                                                    =========    =========


The accompanying notes are an integral part of these financial statements

                                        4
<PAGE>



ZAP POWER SYSTEMS
NOTES TO THE INTERIM UNAUDITED CONDENSED FINANCIAL STATEMENTS

(1)   Basis of Presentation

The financial  statements included in this Form 10-QSB have been prepared by the
Company,  without audit, pursuant to the rules and regulations of the Securities
and Exchange  Commission.  Certain information and footnote disclosures normally
included in financial  statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, pursuant to such rules and
regulations,  although  management believes the disclosures are adequate to make
the  information  presented not  misleading.  The results of operations  for any
interim period are not necessarily  indicative of results for a full year. These
statements  should be read in  conjunction  with the  financial  statements  and
related  notes  included in the  Company's  Annual Report on Form 10-KSB for the
year ended December 31, 1997.

The financial statements presented herein as of June 30, 1998, and for the three
months and six months  ended June 30,  1998 and June 30,  1997  reflect,  in the
opinion  of  management,  all  material  adjustments  consisting  only of normal
recurring  adjustments  necessary  for a  fair  presentation  of  the  financial
position, results of operations and cash flow for the interim periods.

The net loss per common share is based on the weighted  average number of common
shares  outstanding in each period.  Common stock  equivalents  associated  with
stock options have been excluded from the weighted  average  shares  outstanding
since the effect of these securities would be anti-dilutive.

(2) - RECEIVABLES

                                               June 30, 1998
                                               -------------
Trade accounts receivable                        $ 375,500
Less allowance for doubtful accounts                (5,000)
                                                 ---------

                                                 $ 370,500
                                                 =========

(3) - INVENTORIES

                                               June 30, 1998
                                               -------------
Raw materials                                    $ 261,500
Work-in-process                                     77,900
Finished goods                                      54,300
                                                 ---------

                                                 $ 393,700
                                                 =========

(4) - PROPERTY AND EQUIPMENT

                                               June 30, 1998
                                               -------------
Demonstration items                              $ 109,700
Machinery and equipment                             72,900
Equipment under capital leases                      45,900
Office furniture and fixtures                       38,900
Computers                                           34,900
Leasehold improvements                              23,600
Vehicle                                             56,200
                                                 ---------
                                                   382,100
Less accumulated depreciation and amortization    (165,000)
                                                 ---------
                                                 $ 217,100
                                                 =========

                                      5
<PAGE>


(5) - NOTES PAYABLE

                                                                   June 30, 1998
                                                                   -------------

Notes to  stockholders,  with interest at 10%;  interest and
    principal  due when the notes  mature in December  1999.
    The note holders have been issued  warrants to purchase,
    in the aggregate, 21,800 shares of common stock at $5.25
    per share through October, 1999.                               $    93,600
                                                                   ===========



(6) - COMMON STOCK

In November of 1996 the Company commenced a direct public offering of its Common
Stock,  offering for sale 500,000 shares at $5.25. During 1996, the Company sold
3,800 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.

The Company has in process a second direct  public  offering of its Common stock
for sale 500,000 shares at $6.00 per share. The Company  commenced this offering
in January  1998 and as of July 22,  1998 has sold  72,759  shares and  realized
gross  proceeds of $436,554.  On February 27, 1998,  the Company's  Common stock
commenced trading on the OTC Bulletin Board under the stock symbol "ZAPP".

Item 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF PLAN OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS.

Special Note Regarding Forward-Looking Statements

     Certain  statements in this Form 10-QSB,  including  information  set forth
under this Item 2. "Management's  Discussion and Analysis of Financial Condition
and Results of Operations"  constitute  "forward-looking  statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "ACT"). ZAP
Power Systems (the  "Company")  desires to avail itself of certain "safe harbor"
provisions of the Act and is therefore including this special note to enable the
Company to do so.  Forward-looking  statements  included  in this Form 10-QSB or
hereafter  included  in  other  publicly  available  documents  filed  with  the
Securities and Exchange  Commission,  reports to the Company's  stockholders and
other publicly  available  statements  issued or released by the Company involve
known and unknown risks, uncertainties,  and other factors which could cause the
Company's actual results,  performance  (financial or operating) or achievements
to differ from the future  results,  performance  (financial  or  operating)  or
achievements  expressed  or implied by such  forward  looking  statements.  Such
future results are based upon  management's  best  estimates  based upon current
conditions and the most recent 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 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 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.


   
         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  buys.  The Company

                                       6
<PAGE>

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 from U.S. and Taiwan sources. The Company manufactures the
electric motor kit, which has  approximately 62 unique parts. The  manufacturing
of the  electric  motor kit and the  installation  of the motor  systems  to the
bicycles are 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 vendor 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 and
security  industries for power  interrupt  systems.  The electronic  system uses
standard electronic  components.  Additionally,  the Company produces a scooter,
known as the  ZAPPY(TM),  which is  manufactured  by the  Company,  using  parts
manufactured by various  subcontractors.  The Company is also a U.S. distributor
of the Electricycle(TM) scooter that is imported from China.
    

     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 Company as of June 30, 1998 had a $524,537 sales  backlog.  The company
expects to fill these orders within the next 60 days. Additionally,  the Company
received a contract to purchase one million dollars of ZAP products from Central
& Southwest Services,  Inc. Of the total order,  $150,000 has been fulfilled and
the remaining $850,000, which is not included in the backlog amount, is intended
to be fulfilled  over the next year.  The products to be shipped will vary based
upon the requests of the customer during each month.

     The Company's  growth  strategy is to increase net sales by augmenting  its
marketing  and sales force,  and by  increasing  distribution  channels  through
retail organizations and wholesale  distributors both domestically and overseas.
The  company is also  working on  setting up  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 that it is the low  cost  leader  in the
industry.  Product  improvements and new product  introductions will continue to
enlarge ZAP's presence in the electric vehicle industry.

Results of Operations
         The following table sets forth,  as a percentage of net sales,  certain
items included in the Company's Income Statements (see Financial  Statements and
Notes) for the periods indicated:

                            Quarter ended June 30,   Six months ended June 30,

                               1998       1997           1998      1997  
                              -------    ------         ------    ------
                                                       
                                                       
Statements of Income Data:                             
                                                       
Net sales ...................  100.0%    100.0%         100.0%    100.0%
Cost of sales ...............   73.7      85.3           68.4      85.5
Gross profit (Loss) .........   26.3      14.7           31.6      14.5
Operating expenses ..........   60.0      75.7           65.8      90.6
Loss from operations ........  (33.7)    (61.0)         (34.2)    (76.1)
Other income (expense) ......   (0.9)      0.2           (0.4)     (1.2)
Loss before income taxes ....  (34.6)    (60.8)         (34.6)    (77.3)
Provision for income taxes ..    0.0       0.0            0.0       0.0
Net loss ....................  (34.6)    (60.8)         (34.6)    (77.3)
                                                          
Quarter Ended June 30, 1998 Compared to Quarter Ended June 30, 1997

     Net sales for the quarter ended June 30, 1998,  were  $863,700  compared to
$568,200 in the prior year,  an  increase  of $295,500 or 52%.  The  increase in
sales in 1998 over the same period in 1997 was largely due to the production and
demand  of the new  ZAPPY(TM)  scooter.  Sales  of the  ZAPPY(TM)  scooter  were
$302,700 or 35% of total sales for the quarter. This product was introduced into
the marketplace in the beginning of 1998.


                                       7
<PAGE>



     Gross profit  increased  as a percentage  of net sales to 26% from 15%. The
total gross profit increased  $143,500 or 172%. The increase in gross margin can
be  attributed  to 1)  margins  generated  from the  sales of the new  ZAPPY(TM)
scooter and 2) efficiency  increases in the  manufacturing  of other products in
the  current  quarter as compared to the  quarter  ended June 30,  1997.  Direct
Materials were 68% of net sales in the 2nd quarter of 1998 as compared to 75% of
net sales in the 2nd quarter of 1997. This is mainly due to improved  control of
material  costs in 1998.  Direct labor and overhead  were 6% of net sales in the
2nd  quarter of 1998 as  compared  to 10% in the 2nd  quarter  of 1997.  This is
mainly due to  increased  efficiencies  resulting  from  higher  utilization  of
production personnel and facilities in 1998 as compared to 1997.

     Selling  expenses  in the  quarter  ended June 30,  1998 were  $250,700  as
compared to $172,600 for the quarter  ended June 30, 1997.  This was an increase
of $78,100 or 45% from 1997 to 1998. As a percentage of sales,  selling expenses
decreased  from 30% of sales to 29% of sales.  The increase in selling  expenses
was a result of efforts to create ZAP franchise stores and increased promotional
activity to enhance customer demand. Additionally,  new marketing materials were
developed and printed to further market the products.

     General and  administrative  expenses  for the quarter  ended June 30, 1998
were $219,900. This was an increase of $31,900 or 17% from 1997. As a percentage
of sales,  general and  administrative  expense decreased to 25% from 33% of net
sales.  Expense  increases during the 2nd quarter of 1998 as compared to the 2nd
quarter of 1997 resulted from increased  personnel  costs and the additional use
of outside consultants.

     Research and development  decreased  $21,900 or 32% from the 2nd quarter of
1997 as  compared to the 2nd quarter of 1998.  As a  percentage  of net sales it
decreased  to 6% of sales in the 2nd quarter of 1998 as compared to 12% of sales
in the 2nd  quarter of 1997.  Extensive  efforts  in  developing  the  ZAPPY(TM)
scooter and single speed low-cost  motor system  resulted in higher costs in the
2nd quarter of 1997.

Six Months Ended June 30, 1998 Compared to Six Months Ending June 30, 1997

     Net sales for the six months ended June 30, 1998 were  $1,324,900  compared
with  $826,100 in the six months ended June 30, 1997, an increase of $498,800 or
60%. The increase in sales is attributed  to sales of the new ZAPPY(TM)  scooter
and a greater acceptance of the Company's products in the marketplace. ZAPPY(TM)
scooters accounted for $307,100 of sales in the first six months of 1998.

     Gross profit  increased as a percentage of net sales,  to 32% from 15%. The
total gross profit increased  $299,000 or 250%. The increase in gross margin can
be  attributed  to 1) Gross  margins  realized on the sales of the new ZAPPY(TM)
scooters and, 2) greater cost controls on  pre-existing  products in the current
six months as compared to the six months ended June 30, 1997.  Direct  materials
were 61% of net sales in the first six months of 1998 as  compared to 72% of net
sales in the first six months of 1997. This is mainly due to improved control of
material  costs in 1998.  Direct labor and overhead  were 7% of net sales in the
first six months of 1998 as compared to 14% of net sales in the first six months
of 1997.  This is mainly due to  increased  efficiencies  resulting  from higher
utilization of production personnel and facilities in 1998 as compared to 1997.

     Selling  expenses for the six months  ended June 30, 1998 were  $409,700 as
compared  to  $265,400  for the six  months  ended  June 30,  1997.  This was an
increase of $144,300 or 54% from 1997 to 1998. As a percentage of sales, selling
expenses  decreased from 32% of sales to 31% of sales. The increase was a result
of heightened  efforts to promote the concept of franchise stores throughout the
country and increased promotion activity including  attendance in specific trade
show tied to new designated markets.

     General and administrative  expenses for the six months ended June 30, 1998
were  $382,400.  This is an increase of $18,200 or 5% from 1997. As a percentage
of sales,  general and  administrative  expense decreased to 29% from 44% of net
sales.  Expense increases during the first six months of 1998 as compared to the
first six months of 1997 occurred due to additional  use of outside  consultants
for business purposes.

                                       8
<PAGE>


     Research and development decreased $38,600 or 33% from the first six months
of 1997 as  compared  to the first six months of 1998.  As a  percentage  of net
sales, research and development decreased to 6% of sales in the first six months
of 1998 as compared  to 14% of sales in the first six months of 1997.  Extensive
efforts in developing  the  ZAPPY(TM)  scooter and single speed  low-cost  motor
system resulted in higher costs in the first six months of 1997.


Liquidity and Capital Resources
     The Company used cash from  operations of $707,700 and $639,600  during the
six months ended June 30, 1998 and 1997 respectively. Cash used in operations in
the first six  months of 1998 was the  result of the net loss  incurred  for the
period of $459,400,  offset by net non cash  expenses of  $109,200,  and the net
change in operating assets and liabilities resulting in a further use of cash of
$357,500.  Cash used in  operations  for the  first  six  months of 1997 was the
result of the net loss incurred for the first six months of $639,200,  offset by
net non cash  expenses of $38,000,  and the net change in  operating  assets and
liabilities resulting in further use of cash of $38,400.

     Investing activities used cash of $114,200 and $70,600 during the first six
months ended June 30, 1998 and 1997 respectively.  The uses of cash were for the
purchase of fixed assets and defense of the company's patents.

     Financing  activities  provided  cash of $404,400 and  $744,500  during the
first six months ended June 30, 1998 and 1997  respectively.  In both years, the
cash provided by financing  activities  resulted from the sales of common stock,
$411,300  and  $838,700  for the first six months  ended June 30,  1998 and 1997
respectively, offset by principal payments on outstanding debt

     At June 30, 1998, the Company had cash and cash  equivalents of $273,000 as
compared to $196,000 at June 30, 1997. At June 30, 1998, the Company had working
capital of $693,600 as compared to working capital of $126,500 at June 30, 1997.
The increase in both cash and cash  equivalents and working capital in the first
six  months of 1998 over the first six months of 1997 are  primarily  due to the
proceeds  received from the Company's  direct  public  offering  which more than
offset the Company's net losses during the same period. 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
for the six  months  ended  June  30,  1998 of its  common  stock  with  maximum
potential gross proceeds of $3,000,000  before  expenses.  The Company  believes
that the  cash and cash  equivalents  on hand at June 30,  1998  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 the
remainder of the year.

         The Company's  primary  capital needs are to fund its growth  strategy,
which  includes  increasing  its net sales,  increasing  distribution  channels,
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 seasonal 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.

                                       9
<PAGE>

Inflation

     The  Company's  raw  materials  are sourced  from  stable cost  competitive
industries.  As such,  the Company  does not foresee any  material  inflationary
trends for its raw material sources.


PART II - OTHER INFORMATION

Item 1.  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  Omni for  such  infringement.
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. If the
Company does not prevail,  it is also possible that ZAP could be held liable for
the alleged infringer's damages, including loss of profits and interference with
business  relations.  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 2.  Changes in Securities

      There were no changes in rights of securities holders.

Item 3.  Defaults Upon Senior Securities

      There were no defaults upon senior securities.

Item 4.  Submission of Matters to a Vote of Security Holders

      There were no matters submitted to the vote of security holders.

Item 5.  Other Information

      There were no major contracts signed during the period.

Item 6.  Exhibits and Reports on Form 8-K

      No reports on Form 8-K were filed during the quarter.




                                       10
<PAGE>



                                   SIGNATURES

         In accordance with the requirements 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)


         Date                             
              ---------------             --------------------------------------
                                          James McGreen - President and Director
                                                                                
         Date                                                                   
              ---------------             --------------------------------------
                                             Gary Starr - Managing Director     
                                          









                                       11