**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 March 31, 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)





**Securities
registered under section 12(b) of the Exchange Act:**


None








**Securities
registered under section 12(g) of the Exchange Act:**


Common
Shares





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





State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date.





***31,489,000*** shares
of common stock as of May 13, 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 ofMarch
      31, 2005
    2Condensed
      Consolidated Statements of Operations for the Three Months Ended March
      31, 2005 and 2004
    3Consolidated
      Statements of Cash Flows for the Three Months Ended March 31, 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.
    Changes
      in 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
      and Reports on Form 8-K
    21SIGNATURES
    
    22














1





Part
I.  FINANCIAL
INFORMATION


Item
1.  Financial
Statements


**ZAP**


**CONDENSED
CONSOLIDATED BALANCE SHEET (UNAUDITED)**


***(In
thousands)***


**


****
    
    March
      31,2005**ASSETS****CURRENT
      ASSETS******Cash
      and cash equivalents
    
    $
    4,579Accounts
      receivable, net of allowance for doubtful accounts of $570
    
    
    431Advances
      on Smart Car inventory
    
    
    1,566Inventories
    
    
    1,883Prepaid
      non-cash professional fees
    
    
    9,079Prepaid
      expenses and other current assets
    
    
    156Total
      current assets
    
    
    17,694**PROPERTY
      AND EQUIPMENT,**net
      of accumulated depreciation of $722
    
    
    3,817**OTHER
      ASSETS**Smart
      Automobile license, net
    
    
    9,615Prepaid
      non-cash professional fees, less current portion
    
    
    3,043Notes
      Receivable Smart Automobile
    
    
    1,000Patents
      and trademarks, net
    
    
    97Goodwill
    
    
    476Deposits
      and other
    
    
    438Total
      assets
    
    $
    36,180**LIABILITIES
      AND SHAREHOLDERS’ EQUITY****CURRENT
      LIABILITIES**Current
      portion of long-term debt
    
    $
    339Accounts
      payable
    
    
    167Accrued
      liabilities
    
    
    1,419License
      fee payable
    
    
    906Deferred
      revenue
    
    
    975Total
      current liabilities
    
    
    3,806**LONG-TERM
      LIABILITIES**Long-term
      debt, less current portion
    
    
    1,908Total
      liabilities
    
    
    5,714**SHAREHOLDERS’
      EQUITY**Preferred
      stock, authorized 50 million shares; no par value,
      7,500
      shares issued and outstanding
    
    
    7,500****Common
      stock, authorized 100 million shares;no
      par value; 30,942,156 shares issued and outstanding
    
    
    79,356Common
      stock issued as loan collateral
    
    
    (3,529
    )Notes
      receivable from shareholders, net
    
    
    (56
    )Accumulated
      deficit
    
    
    (52,805
    )Total
      shareholders’ equity
    
    
    30,466Total
      liabilities and shareholders’ equity
    
    $
    36,180


****


**** See
accompanying notes to condensed consolidated financial statements
(Unaudited)








2





**ZAP**


**CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**


**(Thousands,
except share amounts)**





**Three
      Months ended March 31****2005**
    
    **2004****NET
      SALES**
    
    $
    1,162
    
    $
    1,320**COST
      OF GOODS SOLD**
    
    
    1,128
    
    
    984**GROSS
      PROFIT**
    
    
    34
    
    
    336**OPERATING
      EXPENSES**Sales
      and marketing
    
    
    193
    
    
    199General
      and administrative(non-cash
      of $1,180 and $731 for the threemonths
      ended March 31,2005 and 2004
    
    
    2,860
    
    
    1,556Research
      and development
    
    
    40
    
    
    —3,093
    
    
    1,755**LOSS
      FROM OPERATIONS**
    
    
    (3,059
    )
    
    (1,419
    )**OTHER
      INCOME (EXPENSE)**Gain
      on revaluation of warrant liability
    
    
    1,519
    
    
    —Interest
      income (expense)
    
    
    (7
    )
    
    (30
    )Other
      income (expense)
    
    
    —
    
    
    81,512
    
    
    (22
    )**LOSS
      BEFORE REORGANIZATION****FEES****AND****INCOME
      TAXES**
    
    
    (1,547
    )
    
    (1,441
    )**Reorganization
      items:**Professional
      fees
    
    
    —
    
    
    (8
    )**LOSS
      BEFORE INCOME TAXES**
    
    
    (1,547
    )
    
    (1,449
    )**PROVISION
      FOR INCOME TAXES**
    
    
    4
    
    
    2****
      **NET
      LOSS**
    
    **$**
    ****(1,551
    ****)
    $
    (1,451
    )**NET
      LOSS PER COMMON SHARE****BASIC
      AND DILUTED**
    
    $
    (0.05
    )
    $
    (0.11
    )**WEIGHTED
      AVERAGE OF****COMMON
      SHARES OUTSTANDING****BASIC
      AND DILUTED**
    
    
    30,590
    
    
    13,218




See
accompanying notes to condensed consolidated financial statements
(unaudited).








3





**ZAP**
 **CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**
 ***(In
thousands*** *)*


**Three
      months ended March 31,**2005
    
    2004**CASH
      FLOWS FROM OPERATING ACTIVITIES**Net
      loss
    
    $
    (1,551
    )
    $
    (1,451
    )Items
      not requiring the use of cash:Amortization
      of note discount
    
    
    10
    
    
    30Stock-based
      compensation for consulting and other services
    
    
    2,792
    
    
    630Stock-based
      employee compensation
    
    
    (1,645
    )
    
    —Gain
      on revaluation of warrant liability
    
    
    (1,519
    )
    
    —Depreciation
      and amortization
    
    
    371
    
    
    81Allowance
      for doubtful accounts
    
    
    22
    
    
    46Changes
      in other items affecting operationsReceivables
    
    
    (259
    )
    
    (72
    )Inventories
    
    
    376
    
    
    173Prepaid
      expenses and other assets
    
    
    (55
    )
    
    88Accounts
      payable
    
    
    17
    
    
    (128
    )Accrued
      liabilities
    
    
    342
    
    
    77Deferred
      revenue
    
    
    —
    
    
    40Net
      cash used in operating activities
    
    
    (1,099
    )
    
    (486
    )**CASH
      FLOWS FROM INVESTING ACTIVITES**Purchase
      of equipment
    
    
    (158
    )
    
    (10
    )Net
      cash used for investing activities
    
    
    (158
    )
    
    (10
    )**CASH
      FLOWS FROM FINANCING ACTIVITIES**Repurchase
      of common stock
    
    
    (500
    )
    
    —Payments
      on note receivable to stockholder
    
    
    14
    
    
    —Issuance
      of preferred stock
    
    
    —
    
    
    460Issuance
      of common stock and warrants, net of offering costs
    
    
    1,955
    
    
    —Issuance
      of note receivable to Smart Auto
    
    
    (1,000
    )
    
    —Repayments
      of long-term debt
    
    
    13
    
    
    (5
    )Net
      cash provided by financing activities
    
    
    482
    
    
    455**NET
      DECREASE IN CASH AND CASH EQUIVALENTS**
    
    
    (775
    )
    
    (41
    )**CASH
      AND CASH EQUIVALENTS,**beginning
      of period
    
    
    5,354
    
    
    551**CASH
      AND CASH EQUIVALENTS,**end
      of period
    
    $
    4,579
    
    $
    510


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,
without audit. 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 months ended March 31, 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
three 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 Americanize 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 Americanize or service 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.




**(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 on 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.





5


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.





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 month period.





**In
      thousands except per share amounts**
    
    **Three
      months ended March 31****2005**
    
    **2004**Net
      loss
    
    $
    (1,551
    )
    $
    (1,451
    )Add: Employee
      Stock-based compensation
      expense
      included in reported net loss, net
      of
      related tax effects
    
    
    (1,645
    )
    
    —Deduct:
      Employee stock-based compensation
      expense
      determined under fair value
    
    
    (417
    )
    
    (15
    )Pro
      forma
    
    $
    (3,613
    )
    $
    (1,466
    )Basic
      and diluted per share:As
      reported
    
    $
    (0.05
    )
    $
    (0.11
    )Pro
      forma
    
    $
    (0.12
    )
    $
    (0.11
    )





**NET
LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS**


Basic and
diluted earnings 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 March 31, 2005, these potentially dilutive
securities include options for 5,152,000 common shares, warrants for 53,754,000
shares of common stock, debt convertible into 930,000 shares of common stock and
preferred shares that can be converted into 2.78 million common shares.




**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





-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.





6





**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 $975,000
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;





**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 periodically 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
November 2004, the FASB issued SFAS No. 151, Inventory Costs, An Amendment of
ARB No. 43, Chapter 4 ("SFAS 151"). SFAS 151 amends ARB 43, Chapter 4, to
clarify that abnormal amounts of idle facility expense, freight, handling costs
and wasted materials (spoilage) be recognized as current period charges. It also
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. SFAS
151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The Company does not believe that the adoption of SFAS 151
will have a material impact on its results of operations or financial
position.





In
December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-based Payment,
("SFAS 123R"). SFAS 123R addresses the accounting for share-based payments to
employees, including grants of employee stock options. Under the new standard,
companies will no longer be able to account for share-based compensation
transactions using the intrinsic method in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees.





7





Instead,
companies will be required to account for such transactions using a fair-value
method and recognize the expense in the consolidated statement of operations. As
a small business issuer, SFAS 123R will become effective for the Company for
periods beginning after December 15, 2005. The Company has not yet determined
which fair-value method and transitional provision it will follow, however, it
expects that the adoption of SFAS 123R will have a significant impact on its
results of operations. The Company does not expect the adoption of SFAS 123R to
materially impact its overall financial position. See Stock-based Compensation
earlier in this Note 1 for the pro forma impact on net loss and net loss per
share from calculating stock-based compensation costs under the fair value
alternative of SFAS 123. The determination of compensation cost for share-based
payment transactions after the effective date of SFAS 123R may be different from
the determination of compensation cost under SFAS 123; however the Company has
not yet quantified such differences.





In
December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an
Amendment of APB Opinion No. 29 ("SFAS 153"). The guidance in APB Opinion No.
29, Accounting for Nonmonetary Transactions, is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in APB Opinion No. 29, however, included
certain exceptions to that principle. SFAS 153 amends APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is effective for nonmonetary
asset exchanges in fiscal periods beginning after June 15, 2005. The Company
does not believe that the adoption of SFAS 153 will have a material impact on
its results of operations or financial position.





**(3) INVENTORIES-** The **** Inventories
at March 31, 2005 are summarized as follows (thousands):





Vehicles
    
    $
    1,066Parts
      and supplies
    
    
    335Finished
      Goods
    
    
    6762,077Less-inventory
      reserve
    
    
    (194
    )$
    1,883





**(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, which can
achieve estimated fuel economy of up to 60 miles per gallon. SA is not
affiliated with Daimler Chrysler, but is a direct importer.





Under the
agreement ZAP will 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.





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.





**(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 Smart Cars owned by Smart Automobile, LLC.





**(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.





The
Company’s shareholder equity activity for the three months ended March 31, 2005
is summarized as follows:




**Common**
    ****
    ****
    ****
    ********
    ****
    ****
    ****
    ****
    ****
    **Shares**
    ****
    ****
    **Amount****Balance
      at December 31, 2004**
    
    
    
    
    
    **29,524,000**
    
    **$**
    **63,616,000****Issuances
      of Common Stock for:**Automobile
      inventory
    
    
    
    
    
    39,626
    
    
    48,689Furniture,
      fixtures and
    
    
    
    
    
    1,504
    
    
    3,973equipmentExercise
      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
    
    
    
    
    
    90,000
    
    
    247,500venture
      in ChinaPrivate
      placement of sharesand
      warrants for cash,including
      shares toplacement
      agents, net ofissuance
      costs
    
    
    
    
    
    630,000
    
    
    1,250,125Employee
      compensation
    
    
    
    
    
    429
    
    
    2,025**1,418,156**
    
    
    **2,355,464****Warrant
      Transactions**Reclassification
      of warrant
    
    
    
    
    
    
    
    
    6,711,250liabilityFair
      value of warrants issuedfor
      consulting and other services
    
    
    
    
    
    
    
    
    8,317,750Employee
      warrants variableaccounting
      adjustment
    
    
    
    
    
    
    
    
    (1,644,500
    )****
    
    
    **13,384,500****Balance
      at March 31, 2005**
    
    **30,942,156**
    
    **$**
    **79,355,964**





The
Company issued common shares and warrants to purchase common shares during the
three months ended March 31, 2005. The stock grants were issued as consideration
under agreements for consulting and other services; for furniture, fixtures and
equipment, automobile inventory and for employee services. For inventory and
other assets, the Company recorded the cost as the intrinsic 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 intrinsic value of the stock
at the date of grant.





9


The
Company also issued warrants for consulting and other services. During the three
months ended March 31, 2005, the Company issued warrants to vendors and
consultants to purchase 5.1 million common shares at prices ranging from $3.05
per share to $4.75 per share, with a contractual life ranging from .5 to 2.5
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
    $3.05
    $4.75Market
      price
    $2.74
    $3.41Assumptions:Expected dividend
      yield
    0.0%
    0.0%Risk free rate of
      return
    2.87%
    3.34%Contractual life
    .5
      years
    2.5
      yearsVolatility
    147.1%
    168%Fair market value
    $1.30
    $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 March 31, 2005
was used to calculate compensation expense for the quarter, and resulted in a
reduction in compensation expense of $1.645 million.










10





**(** **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.





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
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
arbitration award is due no later than June 17, 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** **)** **SUPPLEMENTAL** **DISCLOSURE
OF CASH FLOW INFORMATION:**





Three
      Months EndedMarch
      31,**2005**
    
    2004Cash
      paid during the period for interest
    
    $
    —
    
    
    —Cash
      paid during the period for income taxes
    
    $
    —
    
    
    —Non-cash
      investing and financing activities:Stock
      and warrants issued for:Purchase
      of equipment
    
    $
    4
    
    
    28Inventory
      purchases
    
    $
    49
    
    
    230Prepaid
      expenses
    
    $
    —
    
    
    198Settlement
      of warrant liability
    
    $
    6,711
    
    
    —Other
      assets
    
    $
    247
    
    
    —





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 REGISTRANT 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 RAPIDLYCHANGINGMARKET 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.





11





**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, the Company has 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 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 ouir
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 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”). We wholly own each of our subsidiaries. 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 86% of the Company’s consolidated revenues in 2005.





**Business
Development**





Our
business strategy has been to develop, acquire and commercialize advanced
transportation vehicles and technology, including electric vehicles and electric
vehicle power systems, low emissions vehicles, fuel cell powered vehicles, and
fuel-efficient vehicles which have fundamental, practical, environmental
advantages over conventional internal combustion modes of transportation that
can be produced commercially on an economically competitive basis.





In 2004,
we continued to enhance and broaden our electric vehicle product line and we
contracted for the exclusive right in the United States and the nonexclusive
right world-wide to distribute the Smart Cars Americanized by ZAP, gas-efficient
automobile. We acquired those rights in our agreement with Smart Automobile,
LLC, a California limited liability company (“Smart Automobile”). Smart
Automobile is importing the cars, assembled by Mercedez Benz in Europe, and then
making them compliant for sale in the United States with all applicable Federal
and state regulations concerning automobiles. In an effort to become the largest
distributor of advanced technology vehicles in the United States, we are
actively developing a network of automobile dealers that will be qualified to
sell our automobile and consumer products. In connection with establishing such
dealers, we have arranged for a secured inventory floor line of credit for the
first 150 such dealers through our agreement with Clean Air Motor, LLC (CAMCO”).
We have already established dealers in California, Oklahoma, Pennsylvania, New
York, Colorado, Florida, and Michigan.





In
addition, we have introduced a new consumer product, the ZAP Portable Energy
(PE), which is a portable power source and battery charger for consumer
electronic devices.





We also
announced in 2004, Voltage Vehicles' agreement with Apollo Energy Systems, Inc.
("Apollo") for the exclusive distribution rights in the United States of
Apollo's automobile fuel-cells, and we announced our exclusive distribution
agreement with Anuvu of Sacramento, California for its patented Power-X(TM)
hydrogen fuel cell engine systems for on road applications in the United States.
We continuously seek to develop new vehicle designs, products and technology to
expand and compliment our current product offerings.




12





**Product
Summary**





We market
many forms of advanced transportation vehicles, including electric automobiles,
fuel-efficient vehicles, motorcycles, bicycles, scooters, neighborhood electric
vehicles and all terrain vehicles. We market products designed solely by us, as
well as products we design together with other companies. Most of our products
are manufactured in China. Our automobiles are assembled outside of the United
States, but made to comply with United States laws inside the United States. The
Smart Car Americanized by ZAP is manufactured and made compliant for sale in the
United States by Smart Automobile, and we make the ZAP WORLD CAR compliant for
the United States market. Our automobile products require registration with
state vehicle registration departments and must be sold through licensed
dealers, while our consumer vehicles can be sold directly to consumers without
registration.





Our
automobile vehicles are subject to environmental and safety compliance with
various Federal and State governmental regulations, including regulations
promulgated by the EPA, NHTSA and Air Resource Board of the State of California
(CARB). The costs of these compliance activities can be substantial .





Our
existing product line, which includes completed, market ready products and
planned introductions, is as follows:





Automotive
Line





The
Company possesses exclusive licenses, know-how, and technology that enable the
Company to import various foreign made vehicles.





SMART CAR
AMERICANIZED BY ZAP. The Smart Car Americanized by ZAP, which is assembled by
Mercedes Benz, is imported by Smart Automobile LLC through a registered importer
and made compliant for sale in the United States by Smart Automobile LLC and G
& K Automotive. As of this date and to our knowledge, Smart Automobile
LLC is the only company, through its proprietary recalibration technology and
its compliance contractor G & K Automotive, with clearance from the DOT and
a letter of conformity from the EPA, that allows a model of the Smart Car, as
modified, to be sold in the U.S. ZAP is the exclusive distributor of these cars.
Additional clearances will be needed to sell this vehicle in volumes and to sell
other models of the Smart Car. The California Air Resources Board must certify
the car before it could be sold in California and four other states. ZAP will
need to set up large contractors to handle the demand for this vehicle. ZAP
anticipates that the current EPA and DOT clearance will afford ZAP the
opportunity to be the first to market and distribute Smart Cars as Americanized
by ZAP in the U.S. Neither ZAP nor Smart Automobile is affiliated with, or
authorized by, smart gmbh, the manufacturer of SMART automobiles, or the
smartUSA division of Mercedes-Benz LLC, the exclusive authorized U.S. importer
and distributor of those vehicles. ZAP purchases its vehicles from Smart
Automobile LLC.





This
vehicle has a gas turbo engine. This car is a two-passenger coupe that is eight
feet in length that provides ample room for two adult passengers. Other "smart"
features and options of the Smart Car Americanized by ZAP include a 61-hp,
3-cyclinder turbocharged engine, equipped with an advanced electronic
stabilization program, or ESP, an anti-skid design that throttles the engine
torque along with an anti-lock braking system. The unique 6-speed automatic gear
transmission with kick down function allows the user to switch between
"automatic" and "manual" gear shifting via a control program that changes `gears
in response to varying driving characteristics. These cars will be sold
through Voltage Vehicles to qualified ZAP dealers.





ZAP
WORLDCAR(TM). This electric vehicle is the first of its kind to utilize an
advanced drive train powered by an asynchronous AC motor system delivering up to
four times the horsepower of other models in its class. We signed an exclusive
agreement to import this nearly completed vehicle into the United States. This
vehicle is assembled in China and we make it compliant with NHTSA, EPA, and
various state regulatory standards. This vehicle is a "Neighborhood Electric
Vehicle" or classified as a "Low Speed Vehicle." This new category of automobile
was created for use in intra-city transportation, planned communities,
commercial zones and tourist areas where the distances traveled are short and
the need for large capacity is limited. The smaller, low-speed electric cars are
a new transportation alternative for communities concerned with air and noise
pollution, high fuel prices, traffic congestion or parking shortages. The ZAP
Worldcar has speeds up to 25 mph, room for two and can be plugged into any
normal household electric outlet to recharge its battery. This vehicle was
certified by the Air Resources Board of the State of California as being a Zero
Emission Vehicle in September 2004. This vehicle is subject to state vehicle
registration laws and must be sold through an automobile dealer.





ZAP LIGHT
UTILITY VEHICLE (LUV). This vehicle is also a Neighborhood Electric Vehicle
(NEV). A new category of automobile was created for the many car trips people
take for inter-city transportation, planned communities, commercial zones and
tourist areas. The LUV sports a European design. The vehicle has speeds up to 25
mph, has room for two and plugs into any normal household electric outlet. The
LUV was selected as a finalist for Tech-TV's Best of the Consumer Electronic
Show held in Las Vegas in January 2003.





13


Personal
Transportation





ZAPPY(R).
This electric scooter is a stand-up, portable, lightweight scooter featuring a
12-volt battery with a built-in charger and a collapsible frame. The design
includes a unique folding mechanism and proprietary circuitry, which increases
the efficiency and range of the vehicle. In the fourth quarter of 2003, we
introduced a new ZAPPY(R) Scooter which offered significant upgrades over the
previous design with respect to performance, construction and appearance. In the
fourth quarter last year, we introduced a new ZAPPY(R) Express Scooter which
offered significant upgrades over the previous design, including a seat and
carrying case. We exclusively own the design of this product. This product is
not subject to state vehicle registration laws and may be sold directly to
consumers.





ZAPPY 3.
The ZAPPY 3 is a three-wheeled scooter that uses a wheel-motor drive technology
built into the hub of the front wheel to enable increased stability while
enhancing maneuverability. The riding platform has two smaller wheels on either
side with the larger wheel motor in front, so a person can ride in standing
position with both feet placed side-by-side, rather than skateboard-style
standing sideways which was the design of the original ZAPPY(R). We exclusively
own the design of this vehicle. This vehicle is not subject to state vehicle
registration laws, and may be sold directly to consumers.





ZAP(R)
SEASCOOTER(R). The ZAP SeaScooter (TM) is a revolutionary affordable underwater
propulsion device designed to pull swimmers and snorkelers through the water. It
can run at speeds up to 2 mph at a depth of 60 feet and has built in buoyancy
regulation for maximum comfort.





POWERBIKE(R).
The Powerbike resembles a mountain bicycle with an electric motor attached. It
was designed to appeal to the low cost mass merchant. This vehicle is not
subject to state vehicle registration laws and may


be sold
directly to consumers.





OTHER
ELECTRIC AND FUEL-EFFICIENT VEHICLES. Under various distribution agreements, we
have the right to distribute a wide spectrum of personal and industrial electric
vehicles. In 2004, we announced the introduction of our electric all-terrain
vehicles, which we began selling at the end of 2004.





Energy
Products





ZAP
PORTABLE ENERGY(TM). This is a portable lithium energy power source and battery
charger for low-voltage consumer electronic products. This device uses a "smart"
microprocessor control system to power multiple hand-held electronic devices or
to charge batteries. The ZAP PE can be used to power a variety of mobile
consumer electronic devices, such as PDAs, digital cameras, cellular telephones,
MP3 players, laptops and equivalent low-voltage devices. We manufacture the ZAP
PE in China for distribution and sale in the United States under our name. We
are marketing and planning to sell this product through independent
representatives for resale and distribution to retail stores, as well as
directly to consumers over our Internet sales portal.





MICROPROCESSOR
DRIVE CONTROLLERS. We are working to develop, independently and in collaboration
with other companies, a series of low cost proprietary controller
microprocessors for all of our products. These devices will increase efficiency
and lower costs of operation by providing more efficient use of power to charge
our products.





FUEL CELL
TECHNOLOGIES. In August 2004, Voltage Vehicles entered into an exclusive
distribution agreement with Apollo to acquire certain exclusive rights to
purchase, market and sell up to $100 million of Apollo products including
Alkaline Fuel Cell products, Tri-Polar Lead-Cobalt battery technology, and
certain propulsion systems, together with related advanced technology products
owned by Apollo. We believe this agreement compliments our existing product line
of environmentally friendly transportation and power products. Our Chief
Executive Officer, Mr. Steven Schneider is a member of the Advisory Board of
Directors of Apollo. The Company expects to demonstrate its first hybrid fuel
cell vehicle in 2005. In December 2004, we entered into an exclusive purchase
and distribution agreement with Anuvu for their patented fuel cell for on road
applications.





14


**Distribution
and Market Outlets**





We employ
the following methods to distribute our products:





ELECTRIC
VEHICLE DEALER PROGRAM. The Company began establishing ZAP qualified electric
vehicle dealers in various locations in the United States in the fourth quarter
of 2003. Each dealer pays the Company a fee and in return that dealer may apply
within their state to become a licensed new car electric vehicle dealer. We also
receive a commitment from each qualified dealer to purchase a minimum number of
electric automobiles annually. In 2004, we expanded this network to include the
gas-efficient Smart Car Americanized by ZAP. Currently, we have qualified
dealers in New York, Michigan, Oklahoma, Colorado, Pennsylvania, Florida and
California. We intend to use these ZAP qualified dealers to sell the ZAP
Worldcar and the Smart Car Americanized by ZAP. Some ZAP


qualified
dealers will also sell our consumer and other vehicle products, such as scooters
and bikes, depending on demand.





RAP
GROUP, INC. The Company distributes its conventional cars through RAP, a wholly
owned subsidiary, located in Fulton, California.





MASS
MERCHANDISE AND RETAIL OUTLETS. The Company markets its consumer products to
independent representatives, mass merchandisers and retail outlets, as well as
undertaking direct marketing activities with these entities.





ELECTRIC
VEHICLE RENTAL PROGRAM. The Company established ZAP Rental Outlets in 2002 to
rent neighborhood electric vehicles in tourist locations. In September 2003, we
acquired a fleet of approximately 100 neighborhood electric vehicles. Some of
these have been sold and others are being rented from time to time in various
locations.





INTERNET
SALES. The Company markets and sells its consumer products directly to consumers
on its Web site.





**Acquisition
of New Businesses and Assets**





The
Company has acquired from Smart Automobile LLC the exclusive distribution,
marketing, and technology rights throughout the United States to make the Smart
Cars US compliant, through registered importer G & K Automotive, for a
period of ten years. These rights also included the proprietary computer
technology and process for making vehicles DOT and EPA compliant. These rights
were acquired through the payment of $1 million in cash upon execution of the
agreements, $1 million in cash upon delivery of the first 1,000 Smart Cars, and
$8 million in preferred stock. A more detailed conversion agreement was
completed and signed on October 25, 2004. Under this agreement Smart Automobile,
LLC (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 vehicles delivered to ZAP in
the years 2004, 2005, and 2006 that are fully EPA compliant to sell in the
United States allow the holder of 500 preferred stock SA to convert to $500,000
of common stock and allow the holder to receive 505,000 warrants with an
exercise price of $2.50 per share exercisable until July 7, 2009, or when all
the preferred shares have been converted. Upon EPA compliance, and the legal
right to sell the first 98 vehicles currently in inventory, the holder can
convert 500 preferred shares to $500,000 common stock immediately, and received
505,000 warrants. This was issued in 2004. The Company has
scheduled the delivery of the first U.S. Compliant Smart Car Americanized
by ZAP for May 17, 2005.  Smart Automobile is not affiliated with Mercedes
Benz. ZAP has not agreed to accept all orders for the Smart Cars Americanized by
ZAP at this time. ZAP will need the support of a major manufacturer to be able
to deliver this volume of cars. The Company is actively seeking this support.
The delivery schedule has not yet been determined.








15





**Environmental
Initiatives and Legislation**





In 1992,
Federal legislation (United States Energy Policy Act of 1992) was enacted to
promote the use of alternative fuel vehicles, including electric vehicles.
Acquisition of a qualified electric vehicle entitles the owner to a Federal tax
credit equal to 10% of the cost of the vehicle. Several states have also adopted
legislation that sets mandates for the introduction of electric vehicles. Many
foreign countries have also initiated either mandates or incentives for electric
vehicles or are planning such programs in the future. As we commercialize new
transportation technology, we have been required to expend our resources in
educating legislators of the benefits of these vehicles. In November 2002,
President Bush signed into law legislation, which transfers regulation of
electric bicycles from the National Highway Traffic Safety Administration to the
Consumer Product Safety Commission. This effectively changes the regulating
standards for electric vehicles from motor vehicles standards to consumer
standards such as those governing bicycles, relieving the need for regulatory
compliance in connection with the sale of our bicycle products.





Although
many government agencies are concerned about rising global air pollution, it is
expected that we will need to continue to expend considerable resources in the
future in the governmental process to continue the current favorable
governmental climate for the zero emission vehicles.





**Research
and Product Development; Product Distribution**





We are
primarily a marketer and distributor of ZAP products and products manufactured
for ZAP, such as the ZAP Worldcar and the Smart Car Americanized by ZAP. Thus,
we do not currently require large expenditures for internal research and
development costs. In order to maintain our competitive advantage, we search
globally for the latest technological advances in advanced technology vehicles
and then assess the feasibility of including the new item into our product
lines. We have determined to rely less exclusively on internal research and
development for the generation of new products and product enhancements, and
instead look to acquire new technologies through development agreements,
licenses and distribution agreements. We are primarily focused on developing ZAP
qualified dealers throughout the United States that will sell our automobile and
consumer products, in creating relationships with independent representatives
and mass merchandisers for the distribution and sale of our products to
consumers, and in direct sales to consumers through our Internet sales
portal.





**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.





**Backlog**





As of May
13, 2005, the Company had $35,000 in backlog orders for our consumer products
and $825 million in backlog orders from auto-dealer purchase contracts for the
Smart Cars Americanized by ZAP. The Company expects to fill its backlog of
consumer products within the current fiscal year. At present, we have not
accepted all the received orders from auto dealers and have not determined a
current schedule to fill our current backlog orders for the Smart Cars
Americanized by ZAP. The Company will need assistance from a major manufacturer
and the full approval of all necessary governmental agencies to complete the
existing volume of Smart Car orders. The Company is actively seeking this
support.





16


**Competitive
Conditions**





The
competition to develop and market advanced technology vehicles has been intense
and is expected to continue to increase. Our principal competitive advantages
over our competitors are our ownership of fundamental technology, our trade name
and brand recognition, our ability to be a low cost manufacturer through
domestic and international contract manufacturing arrangements and our growing
distribution network. We benefit from our high name recognition in the advanced
transportation vehicle industry coupled with a rapidly developing consumer sales
business on our website. In order to reduce costs, our production activities
have been transferred to lower cost contract manufacturers outside the United
States, which enables us to offer our products at competitive prices. This also
enables us to concentrate on our marketing and sales efforts and the growth of
our distribution network. We offer one of the broadest lines of personal
electric vehicles currently available, which we believe reinforces our name
recognition in the market place.





In the
advanced technology vehicle market in the United States, we compete with large
manufacturers, including Honda, Toyota, and Daimler-Chrysler, who have more
significant financial resources, established market positions, longstanding
relationships with customers and dealers, and who have more significant name
recognition, technical, marketing, sales, manufacturing, distribution and other
resources than we do. Each of these companies is currently working to develop,
market and sell advanced technology vehicles in the United States market. The
resources available to our competitors to develop new products and introduce
them into the market place exceed the resources currently available to our
Company. We also face competition from smaller companies with respect to our
consumer products, such as our electric bicycle and scooter. We expect to face
competition from the makers of consumer batteries and small electronics with
respect to the ZAP PE. This intense competitive environment may require us to
make changes in our products, pricing, licensing, services, distribution or
marketing to develop, maintain and extend our current technology and market
position.





Some of
the significant events for the Company that occurred during the first quarter of
2005 and through the date of this report are as follows:




1.
    ZAP
      began taking purchase orders in 2004 for the Smart-Car Americanized by
      ZAP. In April 2005, we announced that purchase orders for the Smart Car
      Americanized by ZAP have exceeded $775 million. The current backlog orders
      at May 13, 2005 are is approximately $825 million. ZAP has not agreed to
      accept all orders for the Smart Cars Americanized by ZAP at this time. ZAP
      will need the support of a major manufacturer to be able to deliver this
      volume of cars. The Company is actively seeking this support. The delivery
      schedule has not yet been determined. The Company has scheduled the
      delivery of the first U.S. Compliant Smart Car Americanized by ZAP for May
      17, 2005.





2.
    In
      February, 2005 the Company received $1.2 million from Lazarus Investment
      Partners LLP in exchange for common stock and various
      warrants.





3.
    In
      January, 2005, the first hybrid fuel cell vehicle was offered for sale by
      ZAP. The Company’s fuel cell-technology partner, ANUVU Incorporated,
      developed a hybrid fuel cell system which is powered by hydrogen and
      electricity.





4.
    ZAP
      expanded its presence in China by establishment of a joint venture
      company, ZAP (China) Ltd., to leverage China's emerging manufacturing
      capabilities. The immediate objective is to complete a manufacturing and
      assembly facility in China.





**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 March 31****2005**
    
    **2004****Statements
      of Operations Data:**Net
      sales
    
    
    100
    %
    
    100
    %Cost
      of sales
    
    
    (97.1
    )
    
    (74.6
    )Gross
      profit
    
    
    2.9
    
    
    25.4Operating
      expenses
    
    
    266.2
    
    
    133.0Loss
      from operations
    
    
    (263.3
    )
    
    (107.5
    )Reorganization
      items-professional fees
    
    
    —
    
    
    (0.6
    )Net
      loss
    
    
    (133.5
    )
    
    (109.9
    )








17





**Quarter
Ended March 31, 2005 Compared to Quarter Ended March 31,
2004**





**Net
sales** for the
quarter ended March 31, 2005 were $1.2 million compared to $1.3 million in 2004.
RAP’s net sales for the period accounted were $1 million versus $909,000 in
2004. The net sales for ZAP were $159,000 versus $411,000 in 2004. The sales for
RAP for gas automobiles improved over last year while ZAP experienced a decline
in the sales of consumer products. ZAP has introduced new products that need
more time to gain consumer demand.





**Gross
profit** was
$34,000 for the first quarter ended March 31, 2005 compared to $336,000 for the
quarter ended March 31, 2004. The RAP Group accounted for $53,000 of the gross
profit for the quarter ended March 31, 2005 versus $248,000 in 2004. ZAP’s gross
loss excluding the RAP Group, decreased from $88,000 gross profit in 2004 to a
gross loss of $19,000 in 2005. The decrease in gross profit was due to product
mix and lower sales for ZAP.





**Sales**  **and
marketing expenses** in the
first quarter of 2005 were $193,000 as compared to $199,000 in 2004. RAP’s
expenses were $27,000 in 2005 and in 2004 and ZAP’s expenses were $166,000
versus $172,000 in 2004. As a percentage of sales, total selling expenses
increased from 15% of sales to 17% of sales.





**General
and administrative** expenses
for 2005 were $2.9 million as compared to $1.5 million in 2004. RAP’s portion of
the expenses was $181,000 versus $231,000 in 2004. For ZAP the expenses
increased from $1.3 million to $2.6 million As a percentage of sales, general
and administration expenses increased from 118% of sales to 246% of sales. RAP’s
decrease of $50,000 was primarily due to lower professional fees. ZAP’s net
increase of $1.3 million was due to higher consulting and professional fees. The
$1.3 million increase in general and administration expenses was net of a
reduction in warrant expenses for employment compensation of another $1.6
million. These warrants held by current employees are accounted for under
variable accounting.





**Research
and development expenses** represents
expenditures for the further development of hybrid fuel cell technology for
automobiles.





**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 interest income** decreased by $23,000 in the first quarter of 2005, is due to higher interest
income from money market investments which reduces the interest as reported for
the quarter ended March 31, 2005.





**Other
income decreased** by
$8,000 in the first quarter of 2005 due to less miscellaneous fees received from
sales to automobile customers.





**Reorganization
items** reflect
the quarterly trustee fee in the prior year.





**Net
Loss -** The net
loss was $1.6 million for the period ended March 31, 2005 as compared to a net
loss of $1.5 million for period ended March 31, 2004. The increase was primarily
due to higher general and administration expenses for consulting, stock
promotion and professional fees. The overall general and administration expenses
were reduced by the variable pricing of warrants held by current employees.





**Liquidity
and Capital Resources**


In the
first quarter of 2005 net cash used by the Company for operating activities was
$1.1 million. In the first quarter of 2004, the Company used cash for operations
of $486,000. Cash used in the first quarter of 2005 was comprised of the net
loss incurred for the quarter of $1.6 million plus net non-cash expenses of
$31,000 plus the net change in operating assets and liabilities of $421,000.
Cash used in operations in the first quarter of 2004 was comprised of the net
loss before reorganization items incurred for the quarter of $1.4 million plus
net non-cash expenses of $787,000, and the net change in operating assets and
liabilities resulting in a further use of cash of $178,000.





Investing
activities used cash of $158,000 in the first quarter of 2005 and used $10,000
during the first quarter ended March 31, 2004. In 2005 and 2004 the cash was
used to purchase equipment.





Financing
activities provided cash of $482,000 and $455,000 during the first quarters
ended March 31, 2005 and 2004, respectively.





At March
31, 2005 the Company had cash of $4.6 million compared to $510,000 at March 31,
2004. At March 31, 2005, the Company had working capital of $13.9 million, as
compared to working capital of $852,000 at March 31, 2004. The Company, at
present, does not have a credit facility in place with a bank or other financial
institution.





18





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, establish company owned and franchised ZAP stores,
introducing new products, improving existing product lines and development of 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**





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. The Company has recently
engaged an outside accountant to assist in analyzing complex transactions which
addresses a previous weakness noted by our auditors.





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.





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
arbitration award is due no later than June 17, 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.




19





Item
2.  Unregistered
Sales of Equity Securities and Use of Proceeds





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.





20


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





There
were no defaults upon senior securities.





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





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





Item 5.  Other
Information





There is
no other information to report





Item
6.  Exhibits
and Reports on Form 8-K





**A.
Exhibits**





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.





**B.
Reports on Form 8-K**





On
February 22, 2005 the Company filed with the Commission a Current Report on Form
8-K to report the sales of unregistered securities, in connection with the
following transactions: (1) On February 17, 2005, the Company issued 600,000
shares of common stock and three warrants to purchase up to an aggregate of
900,000 shares of Common Stock, to Lazarus Investment Partners LLP for an
aggregate purchase price of $1,260,000. Each of the warrants is exercisable for
a period of five years, and will be exercisable for 300,000 shares of Common
Stock at the initial per share exercise prices of $2.50, $3.25, and $4.00,
respectively. (2) On December 20, 2004, the Company issued 476,194 shares of
Common Stock and a warrant to purchase up to an aggregate of 476,164 shares of
Common Stock, to Platinum Partners Value Arbitrage Fund LP for an aggregate
purchase price of $1,000,000. The warrant is exercisable for a period of three
years at the per share exercise price of $5.00. (3) On December 10, 2004, the
Company issued 240,279 shares of Common Stock and warrants to purchase up to an
aggregate of 240,279 shares of Common Stock, to a group of accredited investors
for an aggregate purchase price of $432,500. The warrants are exercisable for a
period of three years at the per share exercise price of $5.00.





On
February 25, 2005 the Company filed with the Commission a Current Report on Form
8-K to report the mutual termination of the existing $24 million common stock
agreement that was entered into on July 22, 2004 between the Company and Fusion
Capital Fund II, LLC. In connection with the termination agreement ZAP
repurchased the $500,000 of common stock originally purchased by Fusion Capital
Fund II, LLC. In addition, Fusion Capital Fund II, LLC will retain the warrants
that were previously issued by ZAP.





21





**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 May 13, 2005
    By:
    /s/ Steven SchneiderName:Steven
      SchneiderTitle: Chief Executive Officer (Principal
      Executive Officer)


****Dated May 13, 2005
    By:
    /s/ William
  HartmanName:William
      HartmanTitle:Chief
      Financial Officer (Principal Accounting
Officer)
















22