**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **-----------------------------**
 
 **Form
        10-QSB**
 
 **QUARTERLY
        REPORT PURSUANT SECTION 13 OR 15(d)**
 **OF
        THE SECURITIES EXCHANGE ACT OF 1934**
 **-----------------------------**
 For
        the
        quarterly period ended September 30, 2005
 
 Commission
        File Number 0-303000
 
 
 **ZAP**
 **(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)**
 
 **501
        Fourth Street**
 **Santa
        Rosa, CA 95401**
 **(707)
        525-8658**
 (Address,
        including zip code, and telephone number, including area code, of
 registrant's
        principal executive offices)
 
 
 
 
 Check
        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
o
 
 Indicate
        by checkmark whether the registrant is a shell company (as defined in Rule
        12b-2
        of the Exchange Act) Yes o  No
x
 
 State
        the
        number of shares outstanding of each of the issuer's classes of common equity,
        as of the latest practicable date.
 
 ** ***32,187,186*** shares
        of
        common stock as of November 11, 2005.
 
 Transitional
        Small Business Disclosure Format  Yes o  No x
 
 
 
 
  **ZAP**
 
 **FORM
        10-QSB**
  **INDEX**
 
 **Page
                  No.****PART
                  I.**
              **Financial
                  Information**Item
                  1.
              Consolidated
                  Financial Statements (unaudited) :Condensed
                  Consolidated Balance Sheet as ofSeptember
                  30, 2005
              2Condensed
                  Consolidated Statements of Operations for the
                Three
                  and Nine Months Ended September 30, 2005 and 2004
              3Consolidated
                  Statements of Cash Flows for the Nine Months
                Ended
                  September 30, 2005 and 2004
              4Notes
                  to Condensed Consolidated FinancialStatements
              5Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition
                and
                  Results of Operations
              11Item
                  3.
              Controls
                  and Procedures
              19**PART
                  II.**
              **Other
                  Information**Item
                  1.
              Legal
                  Proceedings
              19Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              20Item
                  3.
              Defaults
                  Upon Senior Securities
              21Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              21Item
                  5.
              Other
                  Information
              21Item
                  6.
              Exhibits
              21SIGNATURES
              
              22
 
 
 1
  Part
        I.  FINANCIAL
        INFORMATION
 Item
        1.  Financial
        Statements
 **ZAP**
 **CONDENSED
        CONSOLIDATED BALANCE SHEET (UNAUDITED)**
 ***(In
        thousands)***
 September
                  30,
                2005**ASSETS****CURRENT
                  ASSETS******Cash
                  and cash equivalents
              
              $
              2,678Accounts
                  receivable, net of allowance for doubtful accounts of $472
              
              
              239Advances
                  on Smart Car inventory
              
              
              1,378Inventories
              
              
              1,679Prepaid
                  non-cash professional fees
              
              
              3,196Prepaid
                  expenses and other current assets
              
              
              142Total
                  current assets
              
              
              9,312**PROPERTY
                  AND EQUIPMENT,**net
                  of accumulated depreciation of $770
              
              
              5,105**OTHER
                  ASSETS**Smart
                  Automobile license, net
              
              
              9,080Prepaid
                  non-cash professional fees, less current portion
              
              
              1,958Notes
                  Receivable Smart Automobile
              
              
              1,000Patents
                  and trademarks, net
              
              
              80Goodwill
              
              
              476Deposits
                  and other
              
              
              492Total
                  assets
              
              $
              27,503**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY****CURRENT
                  LIABILITIES**Current
                  portion of long-term debt
              
              $
              104Accounts
                  payable
              
              
              299Accrued
                  liabilities
              
              
              1,259License
                  fee payable
              
              
              906Warrant
                  liability
              
              
              890Put
                  option liability
              
              
              720Deferred
                  revenue
              
              
              1,050Total
                  current liabilities
              
              
              5,228**LONG-TERM
                  LIABILITIES**Long-term
                  debt, less current portion
              
              
              1,938Total
                  liabilities
              
              
              7,166**SHAREHOLDERS’
                  EQUITY**Preferred
                  stock, authorized 50 million shares; no par value,7,500
                  shares issued and outstanding
              
              
              7,500Common
                  stock, authorized 100 million shares;no
                  par value; 32,061,978 shares issued and outstanding
              
              
              77,910Common
                  stock issued as loan collateral
              
              
              (3,529
              )Notes
                  receivable from shareholders, net
              
              
              (56
              )Accumulated
                  deficit
              
              
              (61,488
              )Total
                  shareholders’ equity
              
              
              20,337Total
                  liabilities and shareholders’ equity
              
              $
              27,503
  See
        accompanying notes to condensed consolidated financial statements
        (unaudited).
 
 2
 
 **ZAP**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**
 **(Thousands,
        except share amounts)**
 **Three
                    Months ended****September
                    30**
                
                **Nine
                    Months ended****September
                    30****2005**
                
                **2004**
                
                **2005**
                
                **2004****NET
                    SALES**
                
                $
                799
                
                $
                1,165
                
                $
                2,884
                
                $
                3,557**COST
                    OF GOODS SOLD**
                
                
                694
                
                
                917
                
                
                2,614
                
                
                2,734**GROSS
                    PROFIT**
                
                
                105
                
                
                248
                
                
                270
                
                
                823**OPERATING
                    EXPENSES**Sales
                    and marketing
                
                
                344
                
                
                219
                
                
                836
                
                
                627General
                    and administrative (non-cash of $5.9 millionand
                    $7.2 million and $2.9 million and $4.1 million forthe
                    three and nine monthsended
                    September 30, 2005 and 2004)
                
                
                6,468
                
                
                4,416
                
                
                11,130
                
                
                7,608Research
                    and development
                
                
                —
                
                
                —
                
                
                88
                
                
                —Loss
                    on disposals of fixed assets
                
                
                —
                
                
                271
                
                
                —
                
                
                3346,812
                
                
                4,906
                
                
                12,054
                
                
                8,569**LOSS
                    FROM OPERATIONS BEFORE****REORGANIZATION
                    ITEMS, OTHER****INCOME(EXPENSE)AND
                    INCOME TAXES**
                
                
                (6,707
                )
                
                (4,658
                )
                
                (11,784
                )
                
                (7,746
                )**OTHER
                    INCOME (EXPENSE)******Gain
                    on revaluation of warrant liability
                
                
                —
                
                
                —
                
                
                1,519
                
                
                —Interest
                    expense, net
                
                
                (24
                )
                
                (45
                )
                
                (22
                )
                
                (105
                )Other
                    income (expense)
                
                
                (66
                )
                
                16
                
                
                59
                
                
                409(90
                )
                
                (29
                )
                
                1,556
                
                
                304**LOSS
                    BEFORE REORGANIZATION ITEMS****AND
                    INCOME TAXES**
                
                
                (6,797
                )
                
                (4,687
                )
                
                (10,228
                )
                
                (7,442
                )**Reorganization
                    items:**Professional
                    fees
                
                
                —
                
                
                —
                
                
                —
                
                
                13**LOSS
                    BEFORE INCOME TAXES**
                
                
                (6,797
                )
                
                (4,687
                )
                
                (10,228
                )
                
                (7,455
                )**PROVISION
                    FOR INCOME TAXES**
                
                
                —
                
                
                5
                
                
                4
                
                
                5**NET
                    LOSS**
                
                **$**
                (6,797
                )
                $
                (4,692
                )
                $
                (10,232
                )
                $
                (7,460
                )**NET
                    LOSS PER COMMON SHARE****BASIC
                    AND DILUTED**
                
                $
                (0.21
                )
                $
                (0.25
                )
                $
                (0.33
                )
                $
                (0.49
                )**WEIGHTED
                    AVERAGE OF****COMMON
                    SHARES OUTSTANDING --****BASIC
                    AND DILUTED**
                
                
                31,954
                
                
                18,568
                
                
                31,240
                
                
                15,320
 
 See
        accompanying notes to condensed consolidated financial statements
        (unaudited).
 
 3
  **ZAP**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**
 ***(In
        thousands*** *)*
 **Nine
                  months ended September 30,**2005
              
              2004**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (10,232
              )
              $
              (7,460
              )Items
                  not requiring the use of cash:Amortization
                  of note discount
              
              
              10
              
              
              60Stock-based
                  compensation for consulting and other services
              
              
              11,271
              
              
              4,145Loss
                  on disposal of assets
              
              
              —
              
              
              334Stock-based
                  employee compensation
              
              
              (5,438
              )
              
              —Gain
                  on revaluation of warrant liability
              
              
              (1,519
              )
              
              —Loss
                  on revaluation of anti-dilution liability
              
              
              82
              
              
              —Depreciation
                  and amortization
              
              
              1,119
              
              
              491Allowance
                  for doubtful accounts
              
              
              (76
              )
              
              112Allowance
                  for notes receivable
              
              
              —
              
              
              111Changes
                  in other items affecting operations:Receivables
              
              
              31
              
              
              20Inventories
              
              
              585
              
              
              387Advances
                  on Smart cars
              
              
              188
              
              
              —Prepaid
                  expenses and other assets
              
              
              (95
              )
              
              (509
              )Accounts
                  payable
              
              
              149
              
              
              (439
              )Accrued
                  liabilities
              
              
              94
              
              
              (357
              )Warrant
                  liability
              
              
              890
              
              
              —Deferred
                  revenue
              
              
              75
              
              
              250Net
                  cash used in operating activities
              
              
              (2,866
              )
              
              (2,855
              )**CASH
                  FLOWS FROM INVESTING ACTIVITES**Acquisition
                  of distribution license
              
              
              
              
              
              (1,000
              )Purchase
                  of equipment and real property
              
              
              (446
              )
              
              (39
              )Net
                  cash used for investing activities
              
              
              (446
              )
              
              (1,039
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Repurchase
                  of common stock
              
              
              (500
              )
              
              —Payments
                  on note receivable to stockholder
              
              
              14
              
              
              —Issuance
                  of preferred stock
              
              
              —
              
              
              1,128Issuance
                  of common stock and warrants, net of offering costs
              
              
              2,228
              
              
              3,184Issuance
                  of note receivable to Smart Auto
              
              
              (1,000
              )
              
              —Proceeds
                  from issuance of long-term debt
              
              
              —
              
              
              1,000Repayments
                  of long-term debt
              
              
              (106
              )
              
              (10
              )Net
                  cash provided by financing activities
              
              
              636
              
              
              5,302**NET
                  INCREASE ( DECREASE) IN CASH AND CASH EQUIVALENTS**
              
              
              (2,676
              )
              
              1,408**CASH
                  AND CASH EQUIVALENTS,**beginning
                  of period
              
              
              5,354
              
              
              551**CASH
                  AND CASH EQUIVALENTS,**end
                  of period
              
              $
              2,678
              
              $
              1,959
 
 See
        accompanying notes to condensed consolidated financial statements
        (Unaudited)
 
 4
  **ZAP**
 NOTES
        TO
        THE INTERIM UNAUDITED FINANCIAL STATEMENTS
 
 **(1)**
              **BASIS
                  OF PRESENTATION**
 
 The
        financial statements included in this Form 10-QSB have been prepared by us,
        and
        have not been audited. Certain information and footnote disclosures normally
        included in financial statements prepared in accordance with accounting
        principles generally accepted in the United States of America have been
        condensed or omitted, 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, 2004.
 
 The
        financial statements presented herein, for the three and nine months ended
        September 30, 2005 and 2004 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
        risks
        related to our business. The Company has a history of losses, and the Company
        might not achieve profitability. There can be no assurance that additional
        capital would be available, or if it is available, that it would be on
        acceptable terms. A substantial portion of the Company’s growth in the past four
        years has come through acquisitions and the Company may not be able to identify,
        complete and integrate future acquisitions.
 
 Other
        risks include, but are not limited to, the following:
 
 We
        face
        intense competition, which could cause us to lose market share. Changes in
        the
        market for electrical or fuel-efficient vehicles could cause our products
        to
        become obsolete or lose popularity. We cannot assure you that growth in the
        electric vehicle industry or fuel-efficient cars will continue and our business
        may suffer if growth in the electric vehicle industry or fuel-efficient market
        decreases or if we are unable to maintain the pace of industry demands. We
        may
        be unable to keep up with changes in electric vehicle or fuel-efficient
        technology and, as a result, may suffer a decline in our competitive position.
        The failure of certain key suppliers to provide us with components could
        have a
        severe and negative impact upon our business. Product liability or other
        claims
        could have a material adverse effect on our business. We may not be able
        to
        protect our Internet address. Our success is heavily dependent on protecting
        our
        intellectual property rights.
 
 The
        Company relies on Smart Automobile LLC to supply pre-Americanized Smart ®cars
        and other entities such as G&K Automotive to convert or Americanized Smart®
        cars for sale in certain states in the United States; and to provide services
        under warranties and all other maintenance and repair services. If Smart
        Automobile LLC is unable to supply or service Americanized Smart ® cars, and the
        Company is unable to obtain alternate sources of supply for these products
        and
        services, the Company might not be able to fill existing backorders and/or
        sell
        more Smart® cars. The Company also believes that certain competitors may have
        used un-business like tactics to harm the Company, and to slow the flow of
        Smart
        cars to ZAP. On October 28, 2005, the Company announced that it will be
        proceeding with legal action against Daimler Chrysler and affiliated companies
        and individuals, serving a complaint that seeks in excess of $500 million
        in
        redress for more than a year-long campaign of misconduct against ZAP by Daimler
        and Ulrich Walker, the then CEO of its subsidiary Smart gmbh. The complaint
        filed in Los Angeles Superior Court, alleges a series of anti-competitive
        tactics, aimed at defaming ZAP and disrupting its third-party business
        relationships. ZAP anticipates proceeding to trial in this matter before
        the
        close of 2006.
  **(2)**
              **SIGNIFICANT
                  ACCOUNTING POLICIES**
 
 **Accounting
        For Stock-Based Compensation**
 
 Statement
        of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
        Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
        Compensation - Transition and Disclosure, establishes a fair-value method
        of
        accounting for stock options and similar equity instruments. The fair-value
        method requires that compensation cost be measured using the value of the
        award
        at the grant date, and recognized over the service period. SFAS No.123 as
        amended allows companies to either account for stock-based compensation to
        employees under the provisions of SFAS No. 123 as amended or under the
        provisions of Accounting Principles Board (APB) Opinion No. 25 or its related
        interpretations. The company accounts for its stock-based compensation to
        employees in accordance with the provisions of APB opinion No. 25.
 
 The
        Company has recorded deferred compensation for the difference, if any, between
        the exercise price and the deemed fair market value of the common stock for
        financial reporting purposes of stock options granted to employees. The
        compensation expense related to such grants is amortized over the vesting
        period
        of the related stock options on a straight-line basis.
 
 The
        Company accounts for equity instruments issued to non-employees in accordance
        with the provisions of SFAS No. 123, as amended, and Emerging Issues Task
        Force
        (EITF) Issues No. 96-18 “Accounting
        for
        Equity Instruments that Are Issued to other than Employees for Acquiring,
        or in
        Conjunction with Selling, Goods or Services.”
 
 5
 Had
        the
        Company determined compensation cost based on the fair value at the grant
        date
        for its employee stock options and purchase rights under SFAS No. 123, the
        Company’s net loss would have been increased to the pro forma amounts indicated
        below for the three and nine month period.
 
 
 **In
                  thousands except per share amounts**
              
              **Three
                  months ended September 30**
              
              **Nine
                  months ended September 30****2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  Loss
              
              $
              (6,797
              )
              $
              (4,692
              )
              $
              (10,232
              )
              $
              (7,460
              )Add:
                  Employee stock-based compensation expense
                included
                  in reported net loss,net of related tax effects
              
              $
              (378
              )
              
              —
              
              $
              (5,378
              )
              
              —Deduct:
                  Employee stock-based compensation expense
                determined
                  under fair value
              
              
              (151
              )
              
              (31
              )
              
              (2,001
              )
              
              (73
              )Pro
                  forma
              
              $
              (7,326
              )
              $
              (4,723
              )
              $
              (17,611
              )
              $
              (7,533
              )Basic
                  and diluted per share:As
                  reported
              
              $
              (0.21
              )
              $
              (0.25
              )
              $
              (0.33
              )
              $
              (0.49
              )Pro
                  forma
              
              $
              (0.23
              )
              $
              (0.25
              )
              $
              (0.56
              )
              $
              (0.49
              )
 
  **NET
        LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS**
 Basic
        and
        diluted loss per common share is based on the weighted average number of
        common
        shares outstanding in each period. Potential dilutive securities associated
        with
        stock options, warrants and convertible preferred stock and debt have been
        excluded from the diluted per share amounts, since the effect of these
        securities would be anti-dilutive. At September 30, 2005, these potentially
        dilutive securities include options for 6,526,350 shares of common stock,
        warrants for 52,258,415 shares of common stock, debt convertible into 930,000
        shares of common stock and preferred shares that can be converted into 2.78
        million shares of common stock.
  **PRINCIPLES
        OF CONSOLIDATION-** The
        accounts of the Company and its consolidated subsidiaries are included in
        the
        condensed consolidated financial statements after elimination of significant
        inter-company accounts and transactions.
 
 **REVENUE
        RECOGNITION**
 The
        Company records revenues only upon the occurrence of all of the following
        conditions:
 
 -The
        Company has received a binding purchase order or similar commitment from
        the
        customer or distributor authorized by a representative empowered to commit
        the
        purchaser (evidence of a sale);
 
 -The
        purchase price has been fixed, based on the terms of the purchase
        order;
 
 -The
        Company has delivered the product from its distribution center to a common
        carrier acceptable to the purchaser. The Company's customary shipping terms
        are
        FOB shipping point; and
 
 -The
        Company deems the collection of the amount invoiced probable;
 
 The
        Company provides no price protection. Product sales are net of promotional
        discounts, rebates and return allowances.
 
 
 **DEFERRED
        REVENUE-** One
        of
        the Company’s subsidiaries, Voltage Vehicles, sold licenses to auto dealerships
        under the ZAP name. The license agreements call for the licensee to purchase
        a
        minimum number of vehicles from ZAP each year. The Company collected $1,050,000
        related to these agreements, which is classified as deferred revenue until
        such
        time as the Company begins delivering vehicles to these
        dealerships.
 
 **USE
        OF ESTIMATES -** The
        preparation of financial statements in accordance with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that affect the amounts reported in the Company’s
        financial statements and accompanying notes. Actual results could differ
        materially from those estimates. Significant estimates include;
 
 6
 **ACCOUNTS
        RECEIVABLE** -
        The
        Company performs ongoing credit evaluations of its customers' financial
        condition and generally requires no collateral from its customers. The Company
        maintains allowances for doubtful accounts for estimated losses resulting
        from
        the inability of its customers to make required payments. If the financial
        condition of the Company’s customers should deteriorate, resulting in an
        impairment of their ability to make payments, additional allowances may be
        required.
 
 **INVENTORY** -The
        Company maintains reserves for estimated excess, obsolete and damaged inventory
        based on projected future shipments using historical selling rates, and taking
        into account market conditions, inventory on-hand, purchase commitments,
        product
        development plans and life expectancy, and competitive factors. If markets
        for
        the Company's products and corresponding demand were to decline, then additional
        reserves may be deemed necessary.
 
 **LEGAL
        ACCOUNTS** -The
        Company estimates the amount of potential exposure it may have with respect
        to
        litigation claims and assessments.
 
 **RECOVERY
        OF LONG-LIVED ASSETS-** The
        Company evaluates the recovery of its long-lived assets at least annually
        by
        analyzing its operating results and considering significant events or changes
        in
        the business environment.
 
 **STOCK
        ISSUED AS COLLATERAL-** In
        December 2004, the Company issued 2.9 million common shares as collateral
        for a
        $1 million loan . The $3.529 million market value of these shares at the
        date of
        issuance was recorded in common stock with an offsetting contra equity account.
        These shares were previously issued to Mercatus Partners LLP in January 2003
        as
        collateral for a loan that never funded. The shares were reported as lost
        to the
        Company in December 2003. In December 2004, the shares were reissued to Mercatus
        Partners who then assigned the shares and their interests to Phi-Nest Fund,
        L.P.
        as collateral for the $1 million loan commitment.
  **WARRANTY
        -** The
        Company provides 30 to 90 day warranties on its personal electric products
        and
        records the estimated cost of the product warranties at the date of sale.
        The
        estimated cost of warranties has not been significant to date. Should actual
        failure rates and material usage differ from our estimates, revisions to
        the
        warranty obligation may be required.
  **RECENT
        ACCOUNTING PRONOUNCEMENTS:**
 
 In
        June 2005, the FASB’s Emerging Issues Task Force reached a consensus on
        Issue No. 05-6, “Determining the Amortization Period for Leasehold
        Improvements” (“EITF 05-6”). The guidance requires that leasehold improvements
        acquired in a business combination or purchased subsequent to the inception
        of a
        lease be amortized over the lesser of the useful life of the assets or a
        term
        that includes renewals that are reasonably assured at the date of the business
        combination or purchase. The guidance is effective for periods beginning
        after
        June 29, 2005. We do not believe that the adoption of EITF 05-6 will
        have a
        significant effect on our consolidated financial statements.
 
 In
        May 2005, the Financial Accounting Standards Board (FASB) issued Statement
        of Financial Accounting Standards No. 154, “Accounting Changes and Error
        Corrections—A Replacement of APB Opinion No. 20 and FASB Statement
        No. 3.” FAS 154 requires retrospective application to prior periods’
        financial statements for changes in accounting principle, unless it is
        impracticable to determine either the period-specific effects or the cumulative
        effect of the change. FAS 154 also requires that retrospective application
        of a
        change in accounting principle be limited to the direct effects of the change.
        Indirect effects of a change in accounting principle, such as a change in
        non-discretionary profit-sharing payments resulting from an accounting change,
        should be recognized in the period of the accounting change. FAS 154 also
        requires that a change in depreciation, amortization, or depletion method
        for
        long-lived non-financial assets be accounted for as a change in accounting
        estimate affected by a change in accounting principle. FAS 154 is effective
        for
        accounting changes and corrections of errors made in fiscal years beginning
        after December 15, 2005. Early adoption is permitted for accounting
        changes
        and corrections of errors made in fiscal years beginning after the date this
        Statement is issued. We are required to adopt the provision of FAS 154, as
        applicable, beginning in fiscal 2006.
 
 In
        March 2005, the FASB issued Interpretation No. 47, “Accounting for
        Conditional Asset Retirement Obligations.” Interpretation No. 47 clarifies
        that an entity must record a liability for a “conditional” asset retirement
        obligation if the fair value of the obligation can be reasonably estimated.
        Interpretation No. 47 also clarifies when an entity would have sufficient
        information to reasonably estimate the fair value of an asset retirement
        obligation. Interpretation No. 47 is effective no later than the end
        of the
        fiscal year ending after December 15, 2005 (as of year-end
        December 31, 2005 for Zap). Retrospective application for interim
        financial
        information is permitted but not required. We do not expect adoption of FIN
        47
        to have a material effect on our results of operations or financial position.
 
 In
        December 2004, the FASB issued revised statement No. 123
        (FAS
        123R), which requires companies to expense the estimated fair value of employee
        stock options and similar awards. In April 2005, the SEC announced
        the
        adoption of a new rule that amended the compliance dates for FAS
        123R.  The accounting provisions of FAS 123R will now be effective
        for the
        first quarter of fiscal 2006. We will adopt the provisions of FAS 123R using
        a
        modified prospective application. Under modified prospective application,
        FAS
        123R, which provides certain changes to the method for valuing stock-based
        compensation among other changes, will apply to new awards and to awards
        that
        are outstanding on the effective date and are subsequently modified or
        cancelled. Further compensation expense for outstanding awards for which
        the
        requisite service had not been rendered as of the effective date will be
        recognized over the remaining service period using the compensation cost
        calculated for pro forma disclosure purposes under FAS 123. We are in the
        process of determining how the new method of valuing stock-based compensation
        as
        prescribed in FAS 123R will be applied to valuing stock-based awards granted
        after the effective date and the impact the recognition of compensation expense
        related to such awards will have on our consolidated financial statements.
  7
 In
        November 2004, the FASB issued FAS No. 151, Inventory Costs,
        an
        amendment of ARB No. 43, Chapter 4. This Statement is meant to eliminate
        any differences existing between the FASB standards and the standards issued
        by
        the International Accounting Standards Board by clarifying that any abnormal
        idle facility expense, freight, handling costs and spoilage be recognized
        as
        current-period charges. This Statement is required to be adopted by the Company
        in the first quarter of 2006; however, early application is permitted. We
        do not
        expect the adoption of this Statement to
        have a
        material effect on our results of operations or financial position.
  **(3)**
              **INVENTORIES-**The****Inventories
                  at September 30, 2005 are summarized as follows
                  (thousands):
 
 Vehicles
              
              $1,098Parts
                  and supplies
              
              315Finished
                  Goods
              
              4591,872Less-inventory
                  reserve
              
              (193)$
              1,679
  **(4)**
              **LICENSE
                  AND DISTRIBUTION FEE**
 
 On
        April
        19, 2004, ZAP entered into an Exclusive Purchase, License and Supply Agreement
        with Smart-Automobile LLC ("SA"), a California limited liability company,
        to
        distribute and manufacture Smart(R) cars. Smart is the brand name for a
        3-cyclinder gas turbo engine car manufactured by Daimler Chrysler AG. SA
        is not
        affiliated with Daimler Chrysler, but is a direct importer.
 
 Under
        the
        agreement, ZAP purchased the rights to be the exclusive distributor and licensee
        of the right to manufacture and distribute Smart(R) cars in the United States
        and the non-exclusive distributor and licensee outside of the United States
        for
        a period of ten years from SA. Subject to the terms of the agreement, ZAP
        will
        pay SA a license and distribution fee of $10,000,000: $1 million was paid
        in
        cash upon the execution of the agreement, $1 million will be payable
        in
        cash ratably commencing with the delivery of the first 1,000 smart cars,
        and $8
        million was paid in ZAP preferred stock.
 
 A
        more
        detailed agreement was signed and completed on October 25, 2004. Under this
        agreement SA exchanged their original Preferred Shares for new Preferred
        Shares
        with the designation of SA. These SA preferred shares convert to ZAP common
        shares under the following formula: For every 1,000 Smart(R) vehicles delivered
        to ZAP in the years 2004, 2005 and 2006 which are fully EPA compliant to
        sell in
        the United States as new cars, the holder may convert 500 shares of preferred
        stock SA to $500,000 of common stock, and the holder will receive
        505,000
        warrants with an exercise price of $2.50 per share exercisable through July
        7,
        2009, or when all the preferred have been converted. During 2004, ZAP allowed
        SA
        to convert 500 preferred shares to $500,000 of common stock prior to delivering
        any EPA compliant Smart Cars, and issued a warrant to purchase 505,000 common
        shares at $2.50 per share exercisable through July 7, 2009. As of November
        2005,
        SA has only delivered a few cars to ZAP.
 
 8
 The
        Company recorded the cost of the Smart Automobile license at $10.6 million,
        based on: 1) the $10 million the Company paid to Smart Automobile LLC as
        consideration for a Purchase, License and Supply Agreement dated April 19,
        2004;
        and 2) the fair value of five-year warrant issued under the Agreement for
        the
        purchase of 505,000 common shares at $2.50 per share and expiring on July
        7,
        2009. The warrant was valued at $1.16 per share using the Black Scholes option
        pricing model with the following assumptions: expected dividend yield of
        0.0%;
        risk free interest rate of 3.08%; contractual life of 4.5 years; and volatility
        of 229.43%.
 
 An
        independent valuation of the fair value of the Smart Automobile license exceeded
        the $10.6 million recorded cost of the license. The valuation of the license
        was
        based on the Company's discounted projected cash flows from projected sales
        of
        Smart Cars over the term of the license agreement. Should deliveries of Smart
        Cars be delayed, or less than anticipated, the Company may need to adjust
        the
        recorded cost of the license. The cost of the license is being amortized
        using
        the straight-line method over the ten year term of the agreement. However
        , as
        of November 11, 2005, only a few cars have been delivered to ZAP. At present
        ,
        ZAP is exploring all options to rectify this situation. Management does not
        believe the license is impaired at September 30, 2005. The Company plans
        to have
        an independent valuation of the license performed during December.
  On
          October 28, 2005, we filed a complaint against DaimlerChrysler Corporation
          in
          the Los Angeles Superior Court, under the title *ZAP
          v. DaimlerChrysler AG, et al* **.** The
          complaint includes claims for intentional and negligent interference with
          prospective economic relations; trade libel; defamation; breach of contract
          -
          agreement to negotiate in good faith; breach of implied covenant of good
          faith
          and fair dealing; and unfair competition. The complaint alleges that
          DaimlerChrysler has engaged in a series of anti-competitive tactics aimed
          at
          defaming ZAP and disrupting its third-party business relationships. As
          a result
          of the allegations, the complaint requests damages in excess of $500 million
          and
          such other relief as the court deems just and proper. DaimlerChrysler has
          not
          yet filed a response to our complaint.
  **(5)**
              **NOTES
                  RECEIVABLE SMART AUTOMOBILE
                  LLC**
 
 In
        January 2005, the Company paid $1,000,000 to Smart Automobile, LLC and Thomas
        Heidemann (President of Smart Automobile, LLC) in exchange for a note
        receivable. The note bears interest at 5% per annum and is payable in 24
        equal
        monthly installments beginning January 7, 2006. The loan was secured by an
        interest in certain equipment owned by Smart Automobile, LLC. The Company
        had
        also earlier prepaid $1.6 million to Smart Automobile, LLC as deposits on
        Smart
        cars.
  **(6)** **SHAREHOLDERS’
        EQUITY-** On
        July
        1, 2002 ZAP’s stock began trading on the National Association of Securities
        Dealers, Inc. Electronic Bulletin Board (the“ OTC Bulletin Board”) under the new
        stock symbol of ZAPZ. On July 1, 2005, the Company filed with the Commission
        a
        Current Report on Form 8-K to announce that the Company’s stock ticker symbol
        currently used on the Archipelago Exchange (ArcaEX) will change from “ZAPZ” to
“ZP” effective July 7, 2005. ZAP recently switched from trading on the Over the
        Counter Bulletin Board (OTCBB) to the Archipelago Exchange which is a facility
        of the Pacific Exchange and is the nation’s first totally open, all-electronic
        stock exchange.
 
 In
        September, 2005, the Company’s Board of Directors approved a new class of
        warrant with a strike price of $1.50 a share with an expiration date of August
        15, 2012.
  The
        Company’s shareholder equity activity for the three and nine months ended
        September 30, 2005 is summarized as follows:
  9
 **Common****Shares**
                
                **Amount****Balance
                    at December 31, 2004**
                
                
                **29,524,000**
                
                **$**
                **63,616,000****Issuances
                    of Common Stock for:**Automobile
                    inventory
                
                
                22,246
                
                
                48,689Furniture,
                    fixtures and equipment
                
                
                1,504
                
                
                3,973Exercise
                    of warrants for cash
                
                
                625,177
                
                
                705,366Repurchased
                    shares from Fusion Capital
                
                
                (200,000
                )
                
                (500,000
                )Legal
                    fees
                
                
                35,249
                
                
                98,100Repairs
                    and maintenance
                
                
                14,940
                
                
                41,235Rent
                
                
                29,781
                
                
                81,600Consulting
                
                
                137,775
                
                
                337,451Other
                    services
                
                
                13,675
                
                
                39,400Investment
                    in joint venture in China
                
                
                90,000
                
                
                247,500Private
                    placement of shares and warrants for cash, including shares toplacement
                    agents, net of issuance costs
                
                
                630,000
                
                
                1,250,125Employee
                    compensation
                
                
                429
                
                
                2,025**1,400,776**
                
                
                **2,355,464****Warrant
                    Transactions**Reclassification
                    of warrant liability
                
                
                
                
                
                6,711,250Fair
                    value of warrants issued for consulting and other services
                
                
                
                
                
                8,317,750Employee
                    warrants variableaccounting
                    adjustment accounting adjustment
                
                
                
                
                
                (1,644,500
                )—
                
                
                13,384,500**Balance
                    at March 31, 2005**
                
                
                30,924,776
                
                
                79,355,964**Issuances
                  of Common Stock for:**Purchase
                    of real estate
                
                
                455,442
                
                
                1,100,000Automobile
                    inventory
                
                
                3,349
                
                
                4,785Furniture,
                    fixtures and equipment
                
                
                42,235
                
                
                95,681Exercise
                    of warrants for cash
                
                
                250,333
                
                
                270,400Legal
                    fees
                
                
                56,859
                
                
                122,578Rent
                
                
                42,000
                
                
                63,000Consulting
                
                
                9,370
                
                
                24,920Other
                    services
                
                
                38,869
                
                
                57,764Employee
                    compensation
                
                
                21,977
                
                
                57,539920,434
                
                
                1,796,667
  10
  **Warrant
                    Transactions**Fair
                    value of warrants issuedfor
                    consulting and other services
                
                
                
                
                
                409,000Employee
                    warrants variable accounting adjustment
                
                
                
                
                
                (3,415,500
                )—
                
                
                (3,006,500
                )**Balance
                    at June 30, 2005**
                
                
                **31,845,210**
                
                
                **78,146,131**Issuances
                  of Common Stock for:Exercise
                    of warrants for cash
                
                
                10,000
                
                
                2,500Legal
                    fees
                
                
                42,484
                
                
                46,592Rent
                
                
                11,429
                
                
                12,000Consulting
                
                
                73,232
                
                
                77,975Other
                    services
                
                
                63,234
                
                
                75,400Employee
                    compensation
                
                
                16,389
                
                
                25,000216,768
                
                
                239,467**Warrant
                    and Other Transactions**Put
                    option liability
                
                
                
                
                
                (637,659
                )Fair
                    value of warrants issuedfor
                    consulting and other services
                
                
                
                
                
                539,727Employee
                    warrants variable accounting adjustment
                
                
                
                
                
                **(**378,000
                )(475,932
                )**Balance
                    at September 30, 2005**
                
                
                32,061,978
                
                $
                77,909,666
 
 11
 The
        Company issued common stock and warrants to purchase common stock during
        the
        nine months ended September 30, 2005. The stock grants were issued as
        consideration under agreements for consulting and other services; for real
        property, furniture, fixtures and equipment, automobile inventory and for
        employee services. For inventory and other assets, the Company recorded the
        cost
        as the market value of the stock or as the fair value of the assets, whichever
        was more reliably measurable. For the stock issued for consulting and other
        services, and for employee compensation, the Company recorded the cost as
        the
        market value of the stock at the date of grant.
  The
        Company also issued warrants for consulting and other services. During the
        nine
        months ended September 30, 2005, the Company issued warrants to vendors and
        consultants to purchase 7 million shares of common stock at prices ranging
        from
        $1.20 per share to $4.75 per share, with a contractual life ranging from
        .5 to 7
        years. The warrants were nonforfeitable and fully vested at the date of issuance
        and were valued using the Black-Scholes option pricing model with the following
        range of assumptions:
  **Low**
              **High**Exercise
                  price per share
              $1.20
              $4.75Market
                  price
              $1.04
              $3.41Assumptions:Expected
                  dividend yield
              0.0%
              0.0%Risk
                  free rate of return
              2.87%
              3.90%Contractual
                  life
              .5
                  years
              7
                  yearsVolatility
              147.1%
              211%Fair
                  market value
              $0.61
              $2.06
 
 Under
        a
        purchase agreement dated February 16, 2005, the Company issued 600,000 shares
        of
        its common stock and 3 warrants for the purchase of 900,000 shares of its
        common
        stock to Lazarus Investment Partners LLP on February 17, 2005, for an aggregate
        purchase price of $1,260,000. Each of the 3 warrants is exercisable for 5
        years,
        and will be exercisable for 300,000 shares of common stock at the initial
        exercise prices of $2.50, $3.25, and $4.00 per share. The Company also issued
        30,000 shares and warrants to purchase 90,000 shares of stock to placement
        agents. The stock purchase agreement contains antidilution provisions under
        which the Company is obligated to issue additional common shares for no
        additional consideration if within 6 months the Company completes certain
        subsequent financing at less than $2.10 per share.
 
 On
        July
        22, 2004, the Company entered into a stock purchase agreement with Fusion
        Capital Fund II, LLC (Fusion Capital). The stock purchase agreement provided
        for
        the issuance of $24.5 million in common stock over a 40-month period. The
        agreement provided for the immediate issuance of 300,000 common shares as
        commitment and signing shares at no cost and the immediate issuance of 5-year
        warrants for the purchase of 2.5 million shares of common stock at prices
        ranging from $2.50 to $5.50 per share. The stock purchase agreement required
        the
        Company to file a registration statement by August 20, 2004 for the resale
        of
        shares issued or issuable under the stock purchase agreement and have the
        registration statement declared effective within 120 days. The stock purchase
        agreement provided for cash liquidated damages if the Company failed to meet
        the
        registration deadline. The Company did not file the required registration
        statement. Pursuant to EITF 00-19, the warrants issuable under the stock
        purchase agreement were valued using the Black Scholes option pricing model
        and
        recorded as a liability. The warrant liability was revalued at December 31,
        2004
        with the marked to market adjustment recorded in other expense. On February
        22,
        2005, the Company terminated its stock purchase agreement with Fusion Capital.
        The Company revalued the warrant liability on February 22, 2005 and recorded
        the
        marked to market adjustment of $1.5 million in other income. The remaining
        warrant liability of $6.7 million was transferred to equity since the Company
        was no longer required to file a registration statement for the warrant
        shares. **** Under
        the termination agreement, the Company repurchased 200,000 common shares
        from
        Fusion Capital for the original issuance price of $500,000. Fusion Capital
        retained certain commitment and signing common shares that were previously
        issued, and warrants to purchase up to 2.5 million shares of common
        stock.
 
 In
        late
        2004, the Company repriced B and B2 and C and C2 warrants, including warrants
        held by employees. As a result, the warrants held by current employees are
        being
        accounted for using the variable method of accounting under APB No. 25 and
        FIN
        44. Accordingly, the intrinsic value of the employee warrants at September
        30,
        2005 was used to calculate compensation expense for the quarter, and resulted
        in
        a reduction in compensation expense of $378,000.
  In
          the
          second quarter of 2005, ZAP issued 445,442 common shares in exchange for
          the
          purchase of real estate. ZAP recorded the common shares at the appraised
          value
          of the real estate. Under the terms of the purchase, ZAP is obligated to
          issue
          additional common shares for no additional consideration if at the end
          of 1 year
          the market price of ZAP’s common shares is less than the market price at their
          date of issuance.
 
 In
          the
          third quarter of 2005, ZAP calculated the fair value of the obligation
          to issue
          additional shares (“put option liability”) using a binomial pricing model to
          estimate future stock prices, using the following assumptions: historical
          stock
          price volatility of 139.6%, a risk free interest rate of 4.01%, and an
          expected
          dividend rate of 0.00%. ZAP calculated the fair value of the put option
          liability at the date of the common stock issuance at $637,659, and reclassified
          the obligation from common stock to a liability in the third quarter. The
          liability was revalued at September 30, 2005, with the change recorded
          in other
          income.
 
 On
          September 20, 2005, ZAP issued non-forfeitable, fully vested three year
          warrants
          to purchase 750,000 common shares at $1.50 per share. ZAP is required to
          deliver
          registered shares upon the exercise of the warrants. The fair value of
          the
          warrants of $890,000 was recorded as a warrant liability at September 30,
          2005
          pursuant to EITF 00-19, “Accounting for Derivative Financial Instruments
          Indexed to, and Potentially Settled in, a Company’s Own Stock.” The fair value
          of $890,000, or $1.19 per share, was calculated at the date of issuance
          using
          the Black-Scholes option pricing model using the following assumptions:
          risk
          free interest rate of 3.90%; expected dividend rate of 0.00%; volatility
          of
          211.5%; and expected term of 5.75 years.
 12
 
 **(7)** **LITIGATION-** Other
        than the following, we are not party to any pending material legal proceedings
        and are not aware of any threatened or contemplated proceedings by any
        government authority against us. See also subsequent event Note: 9
        below.
 
 A
        dormant
        complaint filed in 2002 against the RAP Group and Steve Schneider the CEO
        of
        ZAP, individually was reactivated by the plaintiff (Jim Arnold Trucking).
        The
        Compliant alleges Breach of Contract, Promissory Estoppel and Fraud and seeks
        contract damages in the amount $71,000 plus monthly storage fees and punitive
        damages of $750,000. The Company has cross-claimed against Plaintiffs seeking
        compensatory damages, attorneys' fees and equitable relief for breach of
        oral
        contract, common count for goods sold and delivered, conversion, liability
        of
        surety, violation of statue, and violation of the Unfair Practices Act. On
        February 17, 2005, the court referred the matter to non-binding arbitration.
        The
        non binding arbitration hearing was held on July 27, 2005 where the arbritrator
        awarded the plaintiff damages in the amount of $68,290 plus prejudgement
        interest of 7%. ZAP intends to assert its defenses vigorously and to litigate
        its cross-complaint aggressively. The Company requested a trial de novo in
        this
        matter on August 22, 2005. Management believes that the ultimate resolution
        of
        this claim will not have a material adverse effect on our financial position
        or
        on results of operations.
  **(8)  
        COMMITMENTS**
 
 On
        September 12, 2005, the Company signed a $425 million revolving financing
        facility with Surge Capital II, LLC that can be used to import Smart Cars
        Americanized by ZAP and other advanced transportation vehicles for its dealers.
        The financing agreement has a term of one year, but may be extended upon
        agreement by both parties. The financing is based on orders ZAP receives
        from
        dealers who must be approved in advance by Surge Capital II, LLC and is secured
        by a first lien on substantially all of ZAP’s assets. No funds have been drawn
        on the financing facility as of November 11, 2005. In
        connection with this financing, Zap is obligated to issue common shares and
        warrants to placement agents based on the following schedule: On every $5
        million drawdown, 25,000 additional warrants will be issued. The strike price
        will be 110% of the closing stock price at the time of the drawdown. These
        warrants will be issued on a pro-rata basis. On the first $10 million drawdown,
        $10,000 in additional common stock will be issued. The number of shares
        will be determined by the closing price on the date of the drawdown. For
        each
        additional $10 million drawdown, an additional $10,000 in common stock will
        be
        issued. Pro-rata shares will only be issued after the first $10 million has
        been
        drawn down.
 
 On
        September 15, 2005,Voltage Vehicles ,a wholly owned subsidiary of the Company,
        signed an exclusive license of distribution with OBVIO ! Automotoveiculos
        S.P.E.
        Ltda, a special purpose company of Brazil to design and manufacture high
        efficiency, high performance urban cars.OBVIO! is in the process of setting
        up
        its manufacturing facility and ZAP and OBVIO! hope to unveil the prototypes
        by
        the end of 2005. Under the terms of the agreement ZAP will order 50,000 cars
        during the three year period following initial delivery of vehicles with
        all
        required approvals and permits required to sell cars in the United States
        and
        California. Initial plans are to roll out the vehicle in 2007.
  **(9)  
        SUBSEQUENT EVENT**
  On
          October 28, 2005, we filed a complaint against DaimlerChrysler Corporation
          in
          the Los Angeles Superior Court, under the title *ZAP
          v. DaimlerChrysler AG, et al* **.** The
          complaint includes claims for intentional and negligent interference with
          prospective economic relations; trade libel; defamation; breach of contract
          -
          agreement to negotiate in good faith; breach of implied covenant of good
          faith
          and fair dealing; and unfair competition. The complaint alleges that
          DaimlerChrysler has engaged in a series of anti-competitive tactics aimed
          at
          defaming ZAP and disrupting its third-party business relationships. As
          a result
          of the allegations, the complaint requests damages in excess of $500 million
          and
          such other relief as the court deems just and proper. DaimlerChrysler has
          not
          yet filed a response to our complaint.
  **(10)**
              **SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW
                  INFORMATION:**
 
 Nine
                  Months EndedSeptember
                  30,**2005**
              
              2004Cash
                  paid during the period for interest
              
              $
              20
              
              
              2Cash
                  paid during the period for income taxes
              
              $
              4
              
              
              5Non-cash
                  investing and financing activities:Stock
                  and warrants issued for:Stock
                  issued to acquire distribution license
              
              
              
              
              
              8,000Purchase
                  of real property and equipment
              
              $
              1,200
              
              
              111Inventory
                  purchases
              
              $
              54
              
              
              564Prepaid
                  expenses
              
              $
              —
              
              
              3,583Settlement
                  of warrant liability
              
              $
              6,711
              
              
              —Repayment
                  of Short-term debt
              
              
              
              
              
              1,000Other
                  assets
              
              $
              247
              
              
              60
 
 13
 Item
        2. MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS.
 
 THIS
        QUARTERLY REPORT, INCLUDING THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS,
        AND OTHER REPORTS FILED BY THE COMPANY FROM TIME TO TIME WITH THE SECURITIES
        AND
        EXCHANGE COMMISSION (COLLECTIVELY THE "FILINGS") CONTAIN FORWARD-LOOKING
        STATEMENTS WHICH ARE INTENDED TO CONVEY OUR EXPECTATIONS OR PREDICTIONS
        REGARDING THE OCCURRENCE OF POSSIBLE FUTURE EVENTS OR THE EXISTENCE OF TRENDS
        AND FACTORS THAT MAY IMPACT OUR FUTURE PLANS AND OPERATING RESULTS. THESE
        FORWARD-LOOKING STATEMENTS ARE DERIVED, IN PART, FROM VARIOUS ASSUMPTIONS
        AND
        ANALYSES WE HAVE MADE IN THE CONTEXT OF OUR CURRENT BUSINESS PLAN AND
        INFORMATION CURRENTLY AVAILABLE TO US AND IN LIGHT OF OUR EXPERIENCE AND
        PERCEPTIONS OF HISTORICAL TRENDS, CURRENT CONDITIONS AND EXPECTED FUTURE
        DEVELOPMENTS AND OTHER FACTORS WE BELIEVE TO BE APPROPRIATE IN THE
        CIRCUMSTANCES. YOU CAN GENERALLY IDENTIFY FORWARD-LOOKING STATEMENTS THROUGH
        WORDS AND PHRASES SUCH AS "SEEK,"ANTICIPATE", "BELIEVE", "ESTIMATE", "EXPECT",
        "INTEND", "PLAN", "BUDGET", "PROJECT", "MAY BE", "MAY CONTINUE", "MAY LIKELY
        RESULT", AND SIMILAR EXPRESSIONS. WHEN READING ANY FORWARD-LOOKING STATEMENT
        YOU
        SHOULD REMAIN MINDFUL THAT ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY
        UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING
        FUTURE EVENTS OR FUTURE PERFORMANCE OF OUR COMPANY, AND ARE SUBJECT TO RISKS,
        UNCERTAINTIES, ASSUMPTIONS AND OTHER FACTORS RELATING TO OUR INDUSTRY AND
        RESULTS OF OPERATIONS, INCLUDING BUT NOT LIMITED TO THE FOLLOWING
        FACTORS:
 
 -
        WHETHER
        THE ELECTRIC AND GAS-EFFICIENT VEHICLE MARKET FOR OUR PRODUCTS **** CONTINUES
        TO GROW AND, IF IT DOES, THE PACE AT WHICH IT MAY GROW;
 -
        OUR
        ABILITY TO ATTRACT AND RETAIN THE PERSONNEL QUALIFIED TO IMPLEMENT OUR GROWTH
        STRATEGIES;
 -
        OUR
        ABILITY TO OBTAIN APPROVAL FROM GOVERNMENT AUTHORITIES FOR OUR
        PRODUCTS;
 -
        OUR
        ABILITY TO PROTECT THE PATENTS ON OUR PROPRIETARY TECHNOLOGY;
 -
        OUR
        ABILITY TO FUND OUR SHORT-TERM AND LONG-TERM FINANCING NEEDS;
 -
        OUR
        ABILITY TO COMPETE AGAINST LARGE COMPETITORS IN A RAPIDLY CHANGING MARKET
        FOR
        ELECTRIC AND GAS-EFFICIENT VEHICLES;
 -
        CHANGES
        IN OUR BUSINESS PLAN AND CORPORATE STRATEGIES; AND
 -
        OTHER
        RISKS AND UNCERTAINTIES DISCUSSED IN GREATER DETAIL IN VARIOUS SECTIONS OF
        THIS
        REPORT.
  **Overview**
 
 ZAP
        stands for Zero Air Pollution®. ZAP was founded on September 23, 1994, during an
        era when government and industry were debating how to solve our growing
        transportation problems. ZAP forged ahead with a bold, grass-roots marketing
        campaign and innovative products like its zero-emission ZAP ® electric bicycles
        and ZAPPY ® folding electric scooters that were cost-effective and practical for
        world markets. Today ZAP is still moving forward with an aggressive campaign
        to
        stay at the forefront of fuel-efficient transportation with new technologies,
        including energy efficient gas systems, hydrogen, electric and other innovative
        power systems. ZAP is also investing in advanced energy solutions, utilizing
        advanced batteries and innovative fuel cell designs.
 
 In
        the
        process of building ZAP, we have pioneered a growing niche for alternative
        transportation. In 1995, ZAP began marketing electric transportation on the
        Internet through its website at www.zapworld.com .
        In
        1996-1998, ZAP continued to add to its product line; in 1999 ZAP added electric
        motorbikes; in 2001 it added electric dive scooters; in 2003 ZAP announced
        its
        first electric automobiles, including the first-ever production electric
        automobiles imported from its manufacturing partner in China; in 2004 ZAP
        introduced electric ATVs and the fuel-efficient Smart Car.
 
 Today,
        ZAP is a one-stop portal for a diverse lineup of quality, affordable advanced
        automotive technologies. ZAP has delivered more than 90,000 vehicles to
        customers in more than 75 different countries. Our goal is to become the
        largest
        and most complete distribution portal in the United States for advanced
        technology vehicles. We are focused on creating a distribution channel for
        our
        automobile and consumer products by establishing qualified automobile-dealers
        and developing relationships with mass-merchandisers throughout the United
        States. We currently market and sell our automobile products through qualified
        automotive dealers including our subsidiary, Voltage Vehicles. We currently
        market and sell our consumer products directly to consumers through our Internet
        Web Site, independent representatives, retail outlets and qualified automobile
        dealers. We continue to develop new
  14
 products
        independently and through development and acquisition agreements with companies
        and manufacturers, and by the purchase of products manufactured to our
        specifications but for which we do not have proprietary interest. We have
        grown
        from a single product line to a full line of electric vehicle and advanced
        transportation products. Most of our domestic manufacturing has been transferred
        to lower-cost overseas contract manufacturers.
 
 ZAP
        was
        incorporated under the laws of the State of California, on September 23,
        1994,
        as “ZAP Power Systems.” The name of the Company was changed to “ZAPWORLD.COM” on
        May 16, 1999 in order to increase our visibility in the world of electronic
        commerce. We subsequently changed our name to ZAP on June 18, 2001 in order
        to
        reflect our growth and entry into larger, more traditional markets. Our
        principal executive offices are located at 501 Fourth Street Santa Rosa,
        California, 95401. Our telephone number is (707) 525-8658.
 
 **Subsidiaries**
 
 We
        have
        several wholly-owned subsidiaries as follows: RAP Group, Inc., a California
        company (“RAP Group”), Voltage Vehicles, a Nevada company (“Voltage
        Vehicles”), ZAP Rental Outlet, a Nevada company (“ZAP Rentals”), ZAP
        Stores, Inc., a California company (“ZAP Stores”), ZAP Manufacturing, Inc., a
        Nevada company (“ZAP Manufacturing”) and ZAP World Outlet, Inc., a California
        company (“ZAP World”). RAP Group is engaged primarily in the sale and
        liquidation of conventional automobiles ***;*** Voltage
        Vehicles is engaged primarily in the distribution and sale of advanced
        technology and conventional automobiles; ZAP Rentals is engaged primarily
        in
        rental of ZAP products, ZAP Stores is engaged primarily in consumer sales
        of ZAP
        products; and ZAP Manufacturing is engaged primarily in the manufacture of
        ZAP
        products. ZAP World Outlet is not currently an operating subsidiary. RAP
        Group
        and Voltage Vehicles were acquired by the Company in a merger and acquisition
        transaction in July 2002. RAP Group has active operations and generated
        approximately 74% of our consolidated revenues for the nine months ended
        September 30, 2005.
  **Sources
        and Availability of Parts and Supplies**
 
 Materials,
        parts, supplies and services used in our business are generally available
        from a
        variety of sources. However, interruptions in production or delivery of these
        goods could have an adverse impact on our general operations, or our
        manufacturer's operations and production of ZAP products.
 
 
 Some
        of
        the significant events for the Company that occurred during the third quarter
        of
        2005 and through the date of this report are as follows:
 
  1.
              On
                  September 12, 2005,the Company signed a $425 million revolving
                  financing
                  facility with Surge Capital II, LLC that, subject to certain conditions,
                  can be used by ZAP to import Smart Cars Americanized by ZAP and
                  other
                  advanced transportation vehicles for ZAP’s dealers. The financing
                  agreement has a term of one year, but may be extended upon agreement
                  by
                  both parties. The financing is based on orders ZAP receives from
                  dealers
                  who must be approved in advance by Surge Capital II, LLC and is
                  secured by
                  a first lien on substantially all of ZAP’s
                  assets.
 
 
 2.
              On
                  September 15, 2005,Voltage Vehicles ,a wholly owned subsidiary
                  of the
                  Company, signed an exclusive license of distribution with OBVIO
                  !
                  Automotoveiculos S.P.E. Ltda, a special purpose company of Brazil
                  to
                  design and manufacture high efficiency, high performance urban
                  cars.OBVIO!
                  is in the process of setting up its manufacturing facility and
                  ZAP and
                  OBVIO! hope to unveil the prototypes by the end of 2005. Under
                  the terms
                  of the agreement ZAP will order 50,000 cars during the three year
                  period
                  following initial delivery of vehicles with all required approvals
                  and
                  permits required to sell cars in the United States and California.
                  Initial
                  plans are to roll out the vehicle in 2007.
  3.
              On
                  October 14, 2005, the Company announced the appointment of Max
                  Scheder-Bieschin as Executive Vice President. Mr. Scheder-Bieschin
                  has
                  over 18 years of experience in investment banking and corporate
                  finance,
                  including mergers and acquisitions, private placements, and debt
                  and
                  equity offerings.
  
 4.
              On
                    October 28, 2005, we filed a complaint against DaimlerChrysler
                    Corporation
                    in the Los Angeles Superior Court, under the title*ZAP
                    v. DaimlerChrysler AG, et al***.**The complaint includes claims for intentional and negligent interference
                    with prospective economic relations; trade libel; defamation;
                    breach of
                    contract - agreement to negotiate in good faith; breach of implied
                    covenant of good faith and fair dealing; and unfair competition.
                    The
                    complaint alleges that DaimlerChrysler has engaged in a series
                    of
                    anti-competitive tactics aimed at defaming ZAP and disrupting
                    its
                    third-party business relationships. As a result of the allegations,
                    the
                    complaint requests damages in excess of $500 million and such
                    other relief
                    as the court deems just and proper. DaimlerChrysler has not yet
                    filed a
                    response to our complaint.
 
 5.
              On
                  October 31, 2005 the Company opened a retail outlet in Mendocino,
                  California called Mendo Wheels. At this new location, which was
                  acquired
                  earlier this year, residents and visitors will be able to rent
                  and
                  purchase the latest from ZAP’s line of ecologically-friendly electric
                  transportation.
 
 15
  **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:
  **Three
                    months ended September 30**
                
                **Nine
                    months ended September 30****2005**
                
                **2004**
                
                **2005**
                
                **2004****Statements
                    of Operations Data:**Net
                    sales
                
                
                100
                %
                
                100
                %
                
                100
                %
                
                100
                %Cost
                    of sales
                
                
                (86.9
                )
                
                (78.7
                )
                
                (90.6
                )
                
                (76.7
                )Gross
                    profit
                
                
                13.1
                
                
                21.3
                
                
                9.4
                
                
                23.1Operating
                    expenses
                
                
                852.6
                
                
                421.1
                
                
                418.0
                
                
                240.9Loss
                    from operations before other income and expense
                
                
                (839.5
                )
                
                (399.8
                )
                
                (408.6
                )
                
                (217.8
                )Other
                    income(expenses)
                
                
                (11.3
                )
                
                (2.5
                )
                
                54.0
                
                
                8.5Net
                    loss
                
                
                (850.8
                )
                
                (402.7
                )
                
                (354.8
                )
                
                (209.7
                )
 
 **Quarter
        Ended September 30, 2005 Compared to Quarter Ended September 30,
        2004**
 
 **Net
        sales** for the
        quarter ended September 30, 2005 were $799,000 compared to $1.1 million in
        2004.
        RAP’s net sales for the period accounted were $481,000 versus $906,000 in 2004.
        The net sales for ZAP were $316,000 versus $258,000 in 2004. The sales for
        RAP
        for gas automobiles were less than last year while ZAP experienced a increase
        of
        $58,000 primarily due to the sales of various models of electric
        automobiles.
 
 **Gross
        profit** was
        $105,000 for the third quarter ended September 30, 2005 compared to $248,000
        for
        the quarter ended September 30, 2004. The RAP Group accounted for $69,000
        of the
        gross profit for the quarter ended September 30, 2005 versus $191,000 in
        2004.
        ZAP’s gross profit excluding the RAP Group, decreased from $57,000 gross profit
        in 2004 to $37,000 in 2005. The decrease in gross profit was due to product
        mix.
 
 **Sales**  **and
        marketing expenses** in the
        third quarter of 2005 were $344,000 as compared to $219,000 in 2004. RAP’s
        expenses were $37,000 in 2005 and $33,000 in 2004 and ZAP’s expenses were
        $307,000 versus $186,000 in 2004. As a percentage of sales, total selling
        expenses increased from 20% of sales to 43% of sales. The higher expenses
        were primarily for the promotion of advanced technology cars.
 
 **General
        and administrative** **expenses**
        for 2005 were $6.5 million for the quarter ended September 30,2005 as compared
        to $4.4 million in 2004. RAP’s portion of the expenses was $58,000 versus
        $267,000 in 2004. For ZAP the expenses increased from $4.1million to $6.4
        million . As a percentage of sales, general and administration expenses
        increased from 379% of sales to 811 % of sales. RAP’s decrease of $209,000 was
        primarily due to lower bad debt expenses . ZAP’s net increase of $2.3 million in
        general and administration expenses was due to higher consulting and
        professional fees in the quarter.
 
 **Interest**  **expense,
        net of interest income** decreased by $21,000 in the third quarter of 2005, is due to higher interest
        income from money market investments which reduces the interest expense as
        reported for the quarter ended September 30, 2005.
 
 **Other
        expense, net of income** increased
        by $82,000 from income of $16,000 in 2004 to an expense of $66,000. The primary
        reason for the additional expense was an increase in the estimate liability
        for
        certain equity transactions where a fixed value was assigned to common stock
        issued for services.
  **Net
        Loss -** The
        net
        loss was $6.8 million for the quarter ended September 30, 2005 as compared
        to a
        net loss of $4.7 million for period ended September 30, 2004. The increase
        was
        primarily due to higher consulting and professional fees.
 
 16
  **Nine
        Months Ended September 30, 2005 Compared to Nine Months Ended September 30,
        2004**
 
 **Net
        sales** for the
        nine months ended September 30, 2005, were $2.9 million compared to $3.6
        million
        for the nine months ended September 30 in the prior year. RAP accounted for
        $2.1
        million of overall net sales for the nine months ended September 30, 2005
        versus
        $2.6 million for the nine months ended September 30, 2004. The net sales
        for ZAP
        excluding the RAP Group were $743,000 and $957,000 for the nine months ended
        September 30, 2005 and 2004,respectively. ZAP experienced a decline
        in the
        sales of consumer products. ZAP has introduced new products that need more
        time
        to gain consumer demand. The RAP Group sales were less due to a slow market
        for
        used automobiles since many major car manufactures are offering large incentives
        to buy new cars.
 
 **Gross
        profit** was
        $270,000 for the nine months ended September 30, 2005 compared to $823,000
        for
        the nine months ended September 30, 2004. The RAP Group accounted for $227,000
        of the gross profit for the nine months ended September 30, 2005 versus $573,000
        for the nine months ended September 30, 2004. ZAP’s gross profit excluding the
        RAP Group, decreased from $249,000 in 2004 to $43,000 in 2005. The decrease
        in
        RAP’s profits reflect lower margins on pre-owned cars due to a difficult
        consumer market with many car manufacturers offering rebates on new cars.
        ZAP’s
        decrease in gross profits was due to lower sales.
 
 **Sales
        and marketing expenses** in the
        first nine months of 2005 were $836,000 as compared to $627,000 in 2004.
        RAP’s
        expenses were $102,000 in 2005 versus $101,000 for the nine months ended
        September 30, 2004. As a percentage of sales of the Company, sales and marketing
        expenses increased from 18% to 29% for the nine months ended September 30,
        2005.
        ZAP’s portion of selling expenses was $734,000 in 2005 compared to $526,000 in
        2004. This was an increase of $208,000 or 40.1% from 2004 to 2005. The higher
        expenses were primarily for the promotion of the advanced technology
        vehicles.
 
 **General
        and administrative** **expenses**
        for the nine months ended September 30, 2005 were $11.1 million as compared
        to
        $7.6 million in the nine months ended September 30, 2004. As a percentage
        of
        sales of the Company general and administration expenses increased from 214%
        to
        386%. RAP’s portion of the expenses was $622,000 in 2005 versus $653,000 in 2004
        . General and administration expenses for ZAP excluding the RAP Group increased
        from $7 million to $10.5 million, this is an increase of $3.5 million or
        50%
        from 2004. The $3.6 million increase in general and administration expenses
        was
        net of a reduction in warrant expenses for previous employment compensation
        of
        $5.4 million. These warrants held by current employees are accounted for
        under
        variable accounting. The major reason for the increase was higher non-cash
        consulting and professional fees resulting from the issuance of stock and
        warrants for services.
 
 **Research
        and development expenses** represents
        expenditures for the further development of hybrid fuel cell technology for
        automobiles and for the OBVIO Brazilian car prototypes
 
 **Gain
        on revaluation of warrant liability** of
        $1.5
        million represents the difference between the fair market value of the warrant
        liability at December 31, 2004 and the fair market value on February 22,
        2005
        which was the date the warrant liability was settled and transferred to
        equity.
 
 **Interest
        expense net of income**  decreased by $83,000 for the first nine months of 2005 as compared to interest
        expense of $105,000 for the first nine months of 2004. This was due to higher
        interest income from money market investments which reduced the
        interest reported for the nine months ended September 30, 2005.
 
 **Other
        income decreased**  from
        $409,000 of income in the first nine months of 2004 to $59,000 in 2005 due
        to favorable adjustments of legal reserves in the first nine
        months of
        2004.
 
 **Net
        Loss-** The
        Net
        Loss was $10.2 million for the nine months ended September 30, 2005 as compared
        to a loss of $7.5 million for the nine months ended September 30, 2004. The
        operating expenses were approximately $3.5 million higher in 2005 but were
        offset by a favorable adjustment of $1.5 million in 2005 for a gain on
        revaluation of warrant liability. The increase was primarily due to higher
        consulting and professional fees.
 
 17
 
 **Liquidity
        and Capital Resources**
 In
        the
        first nine months of 2005 net cash used by the Company for operating activities
        was $2.9 million. In the first nine months of 2004, the Company used cash
        for
        operations of $2.9 million. Cash used in the first nine months of 2005 was
        comprised of the net loss incurred for the first nine months of $10.2 million
        plus net non-cash expenses of $5.4 million plus the net change in operating
        assets and liabilities of $1.9 million. Cash used in operations in the first
        nine months of 2004 was comprised of the net loss incurred for the quarter
        of
        $7.5 million plus net non-cash expenses of $5.3 million, and the net change
        in
        operating assets and liabilities resulting in a further use of cash of
        $648,000.
 
 Investing
        activities used cash of $446,000 in the first nine months ended September30,
        2005 and used $1,039,000 during the first nine months ended September 30,
        2004.
        In 2005, the majority of the cash was used to acquire equipment and leasehold
        improvements. While in 2004, the cash was primarily used for a distribution
        license for the Smart Cars.
 
 Financing
        activities provided cash of $0.6 million and $5.3 million during the first
        nine
        months ended September 30, 2005 and 2004, respectively.
 
 In
        September 2005, the Company signed a $425 million revolving financing facility
        with Surge Capital II, LLC that, subject to certain conditions can be used
        by
        ZAP to import Smart Cars Americanized by ZAP and other advanced transportation
        vehicles for ZAP dealers. The financing agreement has a term of one year,
        but
        may be extended upon agreement by both parties. The financing is based on
        orders
        ZAP receives from dealers who must be approved in advance by Surge Capital
        II,
        LLC and is secured by a first lien on substantially all of ZAP’s assets. No
        funds have been drawn on the financing facility as of November 11,
        2005.
 
 At
        September 30, 2005 the Company had cash of $2.7 million compared to $1.9
        million
        at September 30, 2004. At September 30, 2005, the Company had working capital
        of
        $4.1 million, as compared to working capital of $6.9 million at September
        30,
        2004. The Company, at present, does not have a credit facility for working
        capital in place with a bank or other financial institution.
 
 We
        do not
        have a bank operating line of credit and there can be no assurance that any
        required or desired financing will be available through bank borrowings,
        debt,
        or equity offerings, or otherwise, on acceptable terms. If future financing
        requirements are satisfied through the issuance of equity securities, investors
        may experience significant dilution in the net book value per share of common
        stock and there is no guarantee that a market will exist for the sale of
        the
        Company’s shares.
  The
        Company’s primary capital needs are to fund its growth strategy, which includes
        creating an auto distribution network for the distribution of the SMART® Car and
        electrical vehicles, increasing its internet shopping mall presence, increasing
        distribution channels, establishing Company owned and franchised ZAP stores,
        introducing new products, improving existing product lines and developing
        a
        strong corporate infrastructure.
  **Seasonality
        and Quarterly Results**
 The
        Company’s business is subject to seasonal influences. Sales volumes in this
        industry typically slow down during the winter months, November to March
        in the
        U.S. The Company intends to develop a wide auto distribution network to counter
        any seasonality effects.
 
 **Inflation**
 Our
        raw
        materials and finished products and automobiles are sourced from stable,
        cost-competitive industries. As such, we do not foresee any material
        inflationary trends for our product sources.
 
 **Item
        3. Controls and Procedures**
 
 The
        Company maintains a system of controls and procedures designed to provide
        reasonable assurance as to the reliability of the financial statements and
        other
        disclosures included in this report, as well as to safeguard assets from
        unauthorized use or disposition. Within 90 days prior to the date of this
        Form
        10-QSB, the Company carried out an evaluation, under the supervision and
        with
        the participation of the Company's management, including the Company's President
        and Chief Executive Officer along with the Company's Chief Financial Officer,
        of
        the effectiveness of the design and operation of the Company's disclosure
        controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon
        that
        evaluation, the Company's President and Chief Executive Officer along with
        the
        Company's Chief Financial Officer concluded that the Company's disclosure
        controls and procedures are effective in timely alerting them to material
        information relating to the Company required to be included in this Form
        10-QSB.
 
 There
        have been no significant changes in the Company's internal controls or in
        other
        factors, which could significantly affect the internal controls subsequent
        to
        the date the Company carried out its evaluation.
 
 18
 
 **PART
        II - OTHER INFORMATION**
  Item
        1. Legal
        Proceedings
 Other
        than the following, we are not party to any pending material legal proceedings
        and are not aware of any threatened or contemplated proceedings by any
        government authority against us.
  On
          October 28, 2005, we filed a complaint against DaimlerChrysler Corporation
          in
          the Los Angeles Superior Court, under the title *ZAP
          v. DaimlerChrysler AG, et al* **.** The
          complaint includes claims for intentional and negligent interference with
          prospective economic relations; trade libel; defamation; breach of contract
          -
          agreement to negotiate in good faith; breach of implied covenant of good
          faith
          and fair dealing; and unfair competition. The complaint alleges that
          DaimlerChrysler has engaged in a series of anti-competitive tactics aimed
          at
          defaming ZAP and disrupting its third-party business relationships. As
          a result
          of the allegations, the complaint requests damages in excess of $500 million
          and
          such other relief as the court deems just and proper. DaimlerChrysler has
          not
          yet filed a response to our complaint.
  A
        dormant
        complaint filed in 2002 against the RAP Group and Steve Schneider (CEO of
        ZAP)
        individually was reactivated by the plaintiff (Jim Arnold Trucking). The
        complaint alleges Breach of Contract, Promissory Estoppel and Fraud and seeks
        contract damages in the amount $71,000 plus monthly storage fees and punitive
        damages of $750,000. The Company has cross-claimed against Plantiffs seeking
        compensatory damages, attorneys' fees and equitable relief for breach of
        oral
        contract, common count for goods sold and delivered, conversion, liability
        of
        surety, violation of statue, and violation of the Unfair Practices Act. On
        February 17, 2005, the court referred the matter to non-binding arbitration.
        The
        non binding arbitration hearing was held on July 27, 2005 where the arbritrator
        awarded the plaintiff damages in the amount of $68,290 plus prejudgement
        interest of 7%. ZAP intends to assert its defenses vigorously and to litigate
        its cross-complaint aggressively. The Company requested a trial de novo in
        this
        matter on August 22, 2005. Management believes that the ultimate resolution
        of
        this claim will not have a material adverse effect on our financial position
        or
        on results of operations.
  Item
        2. Unregistered
        Sales of Equity Securities and Use of Proceeds
 
 During
        the third quarter ended September 30, 2005 the Company issued unregistered
        common stock and various series of warrants as outlined below.
  Common
        Stock issued for the third quarter ended September 30, 2005 were as follows
        :
 
 On
        July
        8, 2005, we issued 43,361 shares of common stock to Professional Contractors
        in
        payment for professional services valued at $52,900.
 On
        July
        19, 2005, we issued 28,720 shares of common stock to Lawyers in settlement
        of
        indebtedness arising from the provision of legal services rendered to the
        Company valued at $31,592.
 On
        August
        5, 2005, we issued 9,259 shares of common stock to Lawyers in settlement
        of
        indebtedness arising from the provision of legal services rendered to the
        Company valued at $10,000.
 On
        August
        5, 2005, we issued 1,389 shares of common stock to Employees for employment
        compensation valued at $1,500.
 On
        August
        17, 2005, we issued 6,637 shares of common stock to Professional Contractors
        in
        payment for professional services valued at $7,500.
 On
        August
        19, 2005, we issued 18,018 shares of common stock to Consultants in payment
        for
        professional services valued at $20,000.
 On
        August
        19, 2005, we issued 4,505 shares of common stock to Lawyers in settlement
        of
        indebtedness arising from the provision of legal services rendered to the
        Company valued at $5,000.
 On
        August
        23, 2005, we settled an obligation with Lessors, for $12,000, which was paid
        with 11,429 shares of common stock.
 On
        August
        30, 2005, we issued 4,464 shares of common stock to Professional Contractors
        in
        payment for professional services valued at $5,000.
 On
        September 9, 2005, we issued 10,000 shares of common stock to Employees,
        in
        connection with its exercise of 10,000 employee stock options.
 On
        September 14, 2005, we issued 15,000 shares of common stock to Employees
        for
        employment compensation valued at $15,600.
 On
        September 15, 2005, we issued 20,214 shares of common stock to Consultant
        in
        payment for professional services valued at $21,225.
 On
        September 15, 2005, we issued 35,000 shares of common stock to Consultant
        in
        payment for professional services valued at $36,750.
 On
        September 27, 2005, we issued 8,772 shares of common stock to Professional
        Contractors in payment for professional services valued at $10,000.
 
 19
 
 B2
        Warrants Issued for the third quarter ended September 30, 2005 were as
        follows
 
 On
        September 14, 2005, we issued 500,000 shares of B2 warrants to Consultant
        in
        connection with professional services.
 On
        September 14, 2005, we issued 250,000 shares of B2 warrants to Employees
        for
        employment contracts and bonuses.
 On
        September 15, 2005, we issued 250,000 shares of B2 warrants to Consultant
        in
        connection with professional services.
 
 $1.50
        Warrants Issued
 
 On
        September 20, 2005, we issued 750,000 shares of $1.50 warrants to Lawyers
        in
        connection with legal fees.
  ZAP
        ESOP
        Options Issued for the third quarter ended September 30, 2005 were as
        follows
 
 On
        September 14, 2005, we issued 250,000 ESOP options with $1.04 exercise price
        to
        ZAP Employees for employment compensation.
  During
        the second quarter ended June 30, 2005 the Company issued unregistered common
        stock and various series of warrants as outlined below.
 Common
        Stock issued for the second quarter ended June 30, 2005 were as
        follows
 
 On
        April
        6, 2005, we issued 100,000 shares of common stock to B Warrant Holders, in
        connection with its exercise of warrants.
 On
        April
        6, 2005, we issued 29,754 shares of common stock to Lawyers in settlement
        of
        indebtedness arising from the provision of legal services rendered to the
        Company valued at $85,986.
 On
        April
        7, 2005, we issued 41,095 shares of common stock to Contractors in payment
        for
        professional services valued at $92,681.
 On
        April
        14, 2005, we issued 16,716 shares of common stock to Employees for commission
        bonuses valued at $47,141.
 On
        April
        14, 2005, we issued 3,546 shares of common stock to Contractors in payment
        for
        professional services valued at $10,000.
 On
        April
        27, 2005, we issued 4,000 shares of common stock to Employees for commission
        bonuses valued at $11,802.
 On
        April
        29, 2005, we issued 177 shares of common stock to Contractors in payment
        for
        professional services valued at $500.
 On
        April
        29, 2005, we issued 333 shares of common stock to B Warrant Holders, in
        connection with its exercise of warrants.
 On
        May 3,
        2005, we purchased real estate with value of $1,045,000 from Property Owners
        with 355,442 shares of common stock.
 On
        May 9,
        2005, we purchased assets with value of $3,000 from Suppliers with 1140 shares
        of common stock.
 On
        May 9,
        2005, we issued 1,826 shares of common stock to Employees for commission
        bonuses
        valued at $4,802.
 On
        May
        18, 2005, we purchased assets with value of $1,000 from Suppliers with 377
        shares of common stock.
 On
        May
        19, 2005, we issued 150,000 shares of common stock to K Warrant Holders,
        in
        connection with its exercise of warrants.
 On
        May
        25, 2005, we issued 3,093 shares of common stock to Employees for commission
        bonuses valued at $6,000.
 On
        May
        25, 2005, we issued 258 shares of common stock to Consultants in payment
        for
        professional services valued at $500.
 On
        June
        1, 2005, we issued 19,108 shares of common stock to Contractors in payment
        for
        professional services valued at $30,000.
 On
        June
        7, 2005, we issued 3,571 shares of common stock to Contractors in payment
        for
        professional services valued at $3,321.
 On
        June
        7, 2005, we issued 1,000 shares of common stock to Employees for bonuses
        valued
        at $930.
 On
        June
        7, 2005, we issued 100,000 shares of common stock related to the May
        3,  2005
        real
        estate purchase.
 On
        June
        7, 2005, we purchased inventory with value of $1,639 from Suppliers with
        844
        shares of common stock.
 On
        June
        14, 2005, we purchased inventory with value of $3,000 from Suppliers with
        2,128
        shares of common stock.
 On
        June
        17, 2005, we settled an obligation with Lessors, for $63,000, which was paid
        with 42,000 shares of common stock.
 On
        June
        17, 2005, we issued 13,333 shares of common stock to Contractors in payment
        for
        professional services valued at $20,000.
 On
        June
        27, 2005, we settled an obligation with Contractors, for $1,784, which was
        paid
        with 1,166 shares of common stock.
 On
        June
        30, 2005, we issued 27,105 shares of common stock to Lawyers in settlement
        of
        indebtedness arising from the provision of legal services rendered to the
        Company valued at $36,592.
 On
        June
        30, 2005, we issued 941 shares of common stock to Contractors in payment
        for
        professional services valued at $1,270.
 On
        June
        30, 2005, we issued 1,481 shares of common stock to Contractors in payment
        for
        professional services valued at $2,000.
 
 20
 
 The
        $3.25
        Warrants issued for the second quarter ended June 30, 2005 were as
        follows:
 
 On
        April
        1, 2005 the Company issued 300,000 shares of $3.25 warrants to Consultants
        for
        serving on the Advisory Board.
 On
        April
        14, 2005, we issued 100,000 shares of $3.25 warrants to Consultant in connection
        with professional services.
 On
        April
        19, 2005, we issued 500,000 shares of $3.25 warrants to the seller of real
        estate acquired by the Company.
  The
        K2
        Warrants issued for the second quarter ended June 30, 2005 were as
        follows:
 
 On
        June
        7, 2005, we issued 1,450,694 K-2 warrants to Employees for employment contracts
        and bonuses.
  ZAP
        ESOP
        Options Issued during the second quarter ended June 30, 2005 were as
        follows
 
 On
        June
        7, 2005, we issued 1,248,194 ESOP options with $0.93 exercise price to ZAP
        Employees for employment compensation.
  During
        the first quarter ended March 31, 2005 the Company issued unregistered common
        stock and various series of warrants as outlined below.
 
 Common
        Stock issued for the first quarter ended March 31, 2005 were as
        follows:
 
 On
        January 1, 2005, we issued 116,099 shares of common stock to B Warrant Holders,
        in connection with its exercise of warrants.
 On
        January 1, 2005, we issued 288 shares of common stock to C Warrant Holders,
        in
        connection with its exercise of warrants.
 On
        January 5, 2005, we purchased assets with value of $15,989 from Suppliers
        with
        5,420 shares of common stock.
 On
        January 13, 2005, we issued 30,000 shares of common stock to Lawyers in
        settlement of indebtedness arising from the provision of legal services rendered
        to the Company valued at $83,100.
 On
        January 14, 2005, we issued 51,376 shares of common stock to B Warrant Holders,
        in connection with its exercise of warrants.
 On
        January 14, 2005, we issued 42 shares of common stock to C Warrant Holders,
        in
        connection with its exercise of warrants.
 On
        January 14, 2005, we purchased an interest in a China Joint Venture with
        value
        of $247,500 with 90,000 shares of common stock.
 On
        January 20, 2005, we issued 100,000 shares of common stock to Consultant
        in
        payment for professional services valued at $235,000.
 On
        January 20, 2005, we settled an obligation with a professional organization,
        for
        $13,600, which was paid with 5,787 shares of common stock.
 On
        January 24, 2005, we issued 12,832 shares of common stock to B and B2 Warrant
        Holders, in connection with its exercise of warrants.
 On
        January 28, 2005, we issued 382 shares of common stock to Professional
        Organization in payment for professional services valued at $1000.
 On
        January 28, 2005, we issued 11,699 shares of common stock to Employees for
        employment bonuses valued at $30,651.
 On
        January 28, 2005, we purchased assets with value of $3,500 from Suppliers
        with
        1,336 shares of common stock.
 On
        January 28, 2005, we issued 3,817 shares of common stock to Professional
        Contractors in payment for professional services valued at $10,000.
 On
        January 28, 2005, we issued 84,527 shares of common stock to B Warrant Holders,
        in connection with its exercise of warrants.
 On
        February 2, 2005, we issued 70,000 shares of common stock to B Warrant Holders,
        in connection with its exercise of warrants.
 On
        February 2, 2005, we purchased assets with value of $72.75 from Suppliers
        with
        25 shares of common stock.
 On
        February 8, 2005, we issued 2,631 shares of common stock to B Warrant Holders,
        in connection with its exercise of warrants.
 On
        February 8, 2005, we issued 1,678 shares of common stock to Lawyers in
        settlement of indebtedness arising from the provision of legal services rendered
        to the Company valued at $5,000.
 On
        February 15, 2005 the Company issued 600,000 shares of common stock to Lazarus
        Investment Partners LLLP for $1,260,000.
 On
        February 15, 2005, we settled an obligation with lessors, for $81,600, which
        was
        paid with 29,781 shares of common stock.
 On
        February 15, 2005, we issued 32,920 shares of common stock to various
        Consultants in payment for professional services valued at $90,200.
 On
        February 23, 2005, we issued 727 shares of common stock to B Warrant Holders,
        in
        connection with its exercise of warrants.
 On
        February 23, 2005, we settled an obligation with a Dealer, for $10,000, which
        was paid with 12,000 shares of common stock.
 On
        March
        1, 2005, we issued 955 shares of common stock to B Warrant Holders, in
        connection with its exercise of warrants.
 On
        March
        2, 2005, we purchased inventory with value of $7,250 from Suppliers with
        3,593
        shares of common stock.
 On
        March
        8, 2005, we settled an obligation with Professional Organization, for $10,000,
        which was paid with 2,932 shares of common stock.
 On
        March
        9, 2005, we issued 150,000 shares of common stock to B Warrant Holders, in
        connection with its exercise of warrants.
 On
        March
        11, 2005, we issued 100,000 shares of common stock to B Warrant Holders,
        in
        connection with its exercise of warrants.
 On
        March
        14, 2005, we issued 5,000 shares of common stock to B Warrant Holders, in
        connection with its exercise of warrants.
 On
        March
        14, 2005, we issued 3,571 shares of common stock to Lawyers in settlement
        of
        indebtedness arising from the provision of legal services rendered to the
        Company valued at $10,000.
 On
        March
        14, 2005, we purchased assets with value of $25,850 from Suppliers with 13,376
        shares of common stock.
 On
        March
        14, 2005, we issued 929 shares of common stock to Employees for employment
        bonuses valued at $2,600.
 On
        March
        17, 2005 the Company cancelled 200,000 shares of common stock to Fusion Capital
        Fund 11,LLC in connection with cancellation of a financing deal. Money was
        returned to the institutional investor.
 On
        March
        23, 2005, we issued 700 shares of common stock to B Warrant Holders, in
        connection with its exercise of warrants.
 On
        March
        23, 2005, we issued 19,940 shares of common stock to Professional Contractors
        in
        payment for professional services valued at $55,035.
 On
        March
        28, 2005, we issued 30,000 shares of common stock to B2 Warrant Holders,
        in
        connection with its exercise of warrants.
 On
        March
        28, 2005, we issued 1,544 shares of common stock to Employees for employment
        bonuses valued at $4,600.
 On
        March
        28, 2005, we issued 5,369 shares of common stock to Consultant in payment
        for
        professional services valued at $16,000.
 
 $2.50
        Warrants issued for the first quarter ended March 31, 2005 were as
        follows:
 
 On
        February 15, 2005 the Company issued 300,000 shares of $2.50 warrants to
        accredited investors in connection with an investment.
 On
        February 15, 2005, we issued 30,000 shares of $2.50 warrants to Consultant
        in
        payment for professional services.
 
 $3.05
        Warrants issued for the first quarter ended March 31, 2005 were as
        follows:
 
 On
        February 15, 2005, we issued 1,125,000 shares of $3.05 warrants to Consultants
        in connection to a consulting agreement.
 
 The
        $3.25
        Warrants issued for the first quarter ended March 31, 2005 were as
        follows:
 
 On
        January 20, 2005, we issued 200,000 shares of $3.25 warrants to Consultants
        in
        connection to a consulting agreement.
 On
        February 7, 2005, we issued 1,000,000 shares of $3.25 warrants to Consultants
        in
        connection to a consulting agreement.
 On
        February 15, 2005 the Company issued 300,000 shares of $3.25 warrants to
        accredited investors in connection with an investment.
 On
        February 15, 2005, we issued 30,000 shares of $3.25 warrants to Consultant
        in
        payment for professional services.
 On
        March
        3, 2005, we issued 1,000,000 shares of $3.25 warrants to Lawyers in settlement
        of indebtedness arising from the provision of legal services rendered to
        the
        Company.
 On
        March
        8, 2005, we issued 600,000 shares of $3.25 warrants to Consultants in payment
        for professional services.
 
 The
        $4.00
        Warrants issued for the first quarter ended March 31, 2005 were as
        follows:
 
 On
        February 15, 2005 the Company issued 300,000 shares of $4.00 warrants to
        accredited investors in connection with an investment.
 On
        February 15, 2005, we issued 30,000 shares of $4.00 warrants to Consultant
        in
        payment for professional services.
 
 21
  The
        $4.05
        Warrants issued for the first quarter ended March 31, 2005 were as
        follows:
 
 On
        February 15, 2005, we issued 562,500 shares of $4.05 warrants to Consultants
        in
        connection to a consulting agreement.
 
 The
        $4.75
        Warrants issued for the first quarter ended March 31, 2005 were as
        follows:
 
 On
        February 15, 2005, we issued 562,500 shares of $4.75 warrants to Consultants
        in
        connection to a consulting agreement.
 
 On
        January 2, 2005, the Company modified its series C warrants to increase the
        $3.25 exercise price per warrant to $5.00 per warrant the expiration date
        of
        June 30, 2007.
 
 Item
        3. Defaults
        Upon Senior Securities
 
 Not
        Applicable
  Item
        4. Submission
        of Matters to a Vote of Security Holders
 
 Not
        Applicable
  Item
        5. Other
        Information
 
 Not
        Applicable
  Item
        6. Exhibits
 
 **A.**
              **Exhibits**
  10.25
              (1)
                  Master Financing Agreement dated September 12, 2005 between ZAP
                  and Surge
                  Capital II,LLC (and related
                  agreements).
 
 10.26
              (2)
                  Exclusive Purchase, License and Supply Agreement with OBVIO!
                  Automotoveiculos S.P.E. Ltda datedSeptember
                  15, 2005.
 31.1
                Certification
                    of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                    Act.
 31.2
                Certification
                    of Principal Financial and Accounting Officer Pursuant to Section
                    302 of
                    the Sarbanes-Oxley Act.
 32.1
                  Certification
                      of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
                      Act.
 32.2
                    Certification
                        of Principal Financial and Accounting Officer Pursuant to
                        Section 906 of
                        the Sarbanes-Oxley Act.
   (1)
              Document
                  previously filed with the U.S. Securities and Exchange Commission
                  with the
                  Registrant’s Current Report on Form 8-K filed September 16, 2005 and
                  incorporated herein by reference.
   (2)
              Document
                  previously filed with the U.S. Securities and Exchange Commission
                  with the
                  Registrant’s Current Report on Form 8-K filed September 21, 2005 and
                  incorporated herein by reference.
 
 22
  **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**Dated
                  November 11, 2005
              By:
              /s/ Steven
                  SchneiderName:Steven
                  SchneiderTitle:
                  Chief Executive Officer (Principal Executive
                  Officer)
 
 
 Dated
                  November 11, 2005
              By:
              /s/ William
                  HartmanName:William
                  HartmanTitle:
                  Chief Financial Officer (Principal Financial and Accounting
                  Officer)
   
 
 
 
 23