UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549










Form
10-Q









(Mark
One)




x
              QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended June 30,
  2009






o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from ________ to
_________




Commission
File Number    001-32534




ZAP





(Exact
name of registrant as specified in its charter)




California
              94-3210624(State
      or other jurisdiction of incorporation or organization)
              (IRS
      Employer Identification No.)






501
4th
Street, Santa Rosa, CA      95401





(Address
of principal executive offices)  (Zip Code)






(707)
525-8658





(Registrant’s
telephone number)











(Former
name, former address and former fiscal year, if changed since last
report)








Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes x     
No o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting
company.




Large
      accelerated filer o
            Accelerated
      filer o
            Non-accelerated
      filer o
            Small
      reporting company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o     
No x












APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS




Check
whether the registrant filed all documents and reports required to be filed by
Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.     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.





102,676,399
shares of common stock as of August 12, 2009.







ZAP





FORM
10-Q




INDEX







Page
      No.PART
      I.
                          Financial
      InformationItem
      1.
                          Condensed
      Consolidated Financial Statements (unaudited) :Condensed
      Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008
      (unaudited).
                          1Condensed
      Consolidated Statements of Operations for the Three and Six Months Ended
      June 30, 2009 and 2008, unaudited.
                          2Condensed
      Consolidated Statements of Cash Flows for the Six Months Ended June 30,
      2009 and 2008, unaudited.
                          3Notes
      to Condensed Consolidated Financial Statements
                          4Item
      2.
                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          14Item
      4T.
                          Controls
      and Procedures
                          28PART
      II.
                          Other
      InformationItem
      1.
                          Legal
      Proceedings
                          29Item
      2.
                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                          30Item
      3.
                          Defaults
      Upon Senior Securities
                          30Item
      4.
                          Submission
      of Matters to a Vote of Security Holders
                          31Item
      5.
                          Other
      Information
                          31Item
      6.
                          Exhibits
                          31SIGNATURES
                          
                          35










Part I.
     FINANCIAL INFORMATION





Item
1.    Financial Statements





ZAP AND
SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited)


(In
thousands except per share data)






June
      30,
                          2009
                        
                        
                        December
      31,
                          2008ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                        
                        $
                        1,213
                        
                        
                        $
                        341Accounts
      receivable, net of allowance for doubtful accounts of $29 and
      $33
                        
                        
                        189
                        
                        
                        
                        377Inventories,
      net
                        
                        
                        2,749
                        
                        
                        
                        3,043Prepaid
      non-cash professional fees
                        
                        
                        325
                        
                        
                        
                        105Other
      prepaid expenses and other current assets
                        
                        
                        393
                        
                        
                        
                        765Total
      current assets
                        
                        
                        4,869
                        
                        
                        
                        4,631Property,
      and equipment, net of accumulated depreciation
                        
                        
                        3,983
                        
                        
                        
                        4,335OTHER
      ASSETSDeposits
      and other assets
                        
                        
                        270
                        
                        
                        
                        260TOTAL
      ASSETS
                        
                        $
                        9,122
                        
                        
                        $
                        9,226LIABILITIES
      AND SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIESCurrent
      portion of long-term debt and short-term notes
                        
                        $
                        5,951
                        
                        
                        $
                        2,976Accounts
      payable
                        
                        
                        219
                        
                        
                        
                        474Accrued
      liabilities
                        
                        
                        1,851
                        
                        
                        
                        1,575Deferred
      revenue
                        
                        
                        466
                        
                        
                        
                        587Total
      current liabilities
                        
                        
                        8,487
                        
                        
                        
                        5,612LONG-TERM
      LIABILITIESLong-term
      debt, less current portion
                        
                        
                        —
                        
                        
                        
                        1,772Total
      liabilities
                        
                        
                        8,487
                        
                        
                        
                        7,384SHAREHOLDERS’
      EQUITYCommon
      stock, authorized 400 million shares; no par value; and 82,676,399 shares
      and 64,630,608 shares issued and outstanding  at June 30,
      2009 and December 31 2008, respectively
                        
                        
                        130,707
                        
                        
                        
                        126,347Subscription
      receivable from shareholders
                        
                        
                        (1,000
                        )
                        
                        
                        —Accumulated
      deficit
                        
                        
                        (129,072
                        )
                        
                        
                        (124,505
                        )Total
      shareholders’ equity
                        
                        
                        635
                        
                        
                        
                        1,842Total
      liabilities and shareholders’ equity
                        
                        $
                        9,122
                        
                        
                        $
                        9,226









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




1


ZAP
AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


(Thousands,
except net loss per share amounts)






Three
      Months
                                ended
                                June
      30, 2009
                              
                              
                              Three
      Months
                                ended
                                June
      30, 2008
                              
                              
                              Six
      Months
                                ended
                                June
      30, 2009
                              
                              
                              Six
      Months
                                ended
                                June
      30, 2008NET
      SALES
                              
                              $
                              769
                              
                              
                              $
                              1,923
                              
                              
                              $
                              1,845
                              
                              
                              $
                              2,979COST
      OF GOODS SOLD
                              
                              
                              950
                              
                              
                              
                              1,700
                              
                              
                              
                              1,736
                              
                              
                              
                              2,662GROSS
      PROFIT (LOSS)
                              
                              
                              (181)
                              
                              
                              
                              223
                              
                              
                              
                              109
                              
                              
                              
                              317OPERATING
      EXPENSESSales
      and marketing
                              
                              
                              288
                              
                              
                              
                              412
                              
                              
                              
                              694
                              
                              
                              
                              802General
      and administrative (non-cash stock-based compensation of $1million and
      $1.1 million and $2.1 million and $1.6 million for the three and six
      months ended June 30, 2009 and 2008, respectively)
                              
                              
                              1,682
                              
                              
                              
                              1910
                              
                              
                              
                              3,142
                              
                              
                              
                              3,909Impairment
      of assets
                              
                              
                              196
                              
                              
                              
                              —
                              
                              
                              
                              456
                              
                              
                              
                              —Research
      and development
                              
                              
                              51
                              
                              
                              
                              303
                              
                              
                              
                              82
                              
                              
                              
                              3182,217
                              
                              
                              
                              2,625
                              
                              
                              
                              4,374
                              
                              
                              
                              5,029LOSS
      FROM OPERATIONS
                              
                              
                              (2,398
                              )
                              
                              
                              (2402)
                              
                              
                              
                              (4,265)
                              
                              
                              
                              (4,712)OTHER
      INCOME (EXPENSE)Interest
      expense, net
                              
                              
                              (160
                              )
                              
                              
                              (184)
                              
                              
                              
                              (297
                              )
                              
                              
                              (230)Other
      income (expense), net
                              
                              
                              3
                              
                              
                              
                              (44)
                              
                              
                              
                              3
                              
                              
                              
                              (43)(157
                              )
                              
                              
                              (228)
                              
                              
                              
                              (294
                              )
                              
                              
                              (273)LOSS
      BEFORE INCOME TAXES
                              
                              $
                              (2,555
                              )
                              
                              $
                              (2,630)
                              
                              
                              $
                              (4,559
                              )
                              
                              $
                              (4,985)PROVISION
      FOR INCOME TAXES
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (4
                              )
                              
                              
                              (4)NET
      LOSS
                              
                              $
                              (2,555
                              )
                              
                              $
                              (2,630)
                              
                              
                              $
                              (4,563
                              )
                              
                              $
                              (4,989)NET
      LOSS PER COMMON SHARE--- 
      BASIC AND DILUTED
                              
                              $
                              (0.04
                              )
                              
                              $
                              (0.05)
                              
                              
                              $
                              (0.06
                              )
                              
                              $
                              (0.09)WEIGHTED
      AVERAGE OF COMMON SHARES OUTSTANDING---
      BASIC AND DILUTED
                              
                              
                              73,002
                              
                              
                              
                              58,596
                              
                              
                              
                              70,040
                              
                              
                              
                              57,974








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




2


ZAP
AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


(In thousands)






For
      the Six Months Ended
                                                                  June
      30,2009
                                                                
                                                                
                                                                2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                                                                
                                                                $
                                                                (4,563
                                                                )
                                                                
                                                                $
                                                                (4,989
                                                                )Items
      not requiring the use of cash:Amortization
      of note discount and deferred offering costs
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                156Stock-based
      compensation for consulting and other services
                                                                
                                                                
                                                                593
                                                                
                                                                
                                                                
                                                                2,085Excess
      tax benefit from share based payment arrangements
                                                                
                                                                
                                                                541
                                                                
                                                                
                                                                
                                                                202Stock-based
      employee compensation
                                                                
                                                                
                                                                1,547
                                                                
                                                                
                                                                
                                                                576Depreciation
      and amortization
                                                                
                                                                
                                                                152
                                                                
                                                                
                                                                
                                                                131Allowance
      for doubtful accounts
                                                                
                                                                
                                                                (4
                                                                )
                                                                
                                                                
                                                                (41
                                                                )Changes
      in other items affecting operations:Receivables
                                                                
                                                                
                                                                192
                                                                
                                                                
                                                                
                                                                107Inventories
                                                                
                                                                
                                                                294
                                                                
                                                                
                                                                
                                                                92Prepaid
      expenses and other assets
                                                                
                                                                
                                                                362
                                                                
                                                                
                                                                
                                                                (900
                                                                )Accounts
      payable
                                                                
                                                                
                                                                (255
                                                                )
                                                                
                                                                
                                                                (78
                                                                )Accrued
      liabilities
                                                                
                                                                
                                                                272
                                                                
                                                                
                                                                
                                                                (323
                                                                )Deferred
      revenue
                                                                
                                                                
                                                                (121
                                                                )
                                                                
                                                                
                                                                (115
                                                                )Net
      cash used for operating activities
                                                                
                                                                
                                                                (990
                                                                )
                                                                
                                                                
                                                                (3,097
                                                                )CASH
      FLOWS FROM INVESTING ACTIVITESPurchase
      of equipment
                                                                
                                                                
                                                                (22
                                                                )Disposal  of equipment
                                                                
                                                                
                                                                222
                                                                
                                                                
                                                                
                                                                111Net
      cash provided by  investing activities
                                                                
                                                                
                                                                200
                                                                
                                                                
                                                                
                                                                111CASH
      FLOWS FROM FINANCING ACTIVITIESIssuance
      of common stock
                                                                
                                                                
                                                                1,000
                                                                
                                                                
                                                                
                                                                —Payoff
      of convertible debt
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                (431
                                                                )Re-issuance
      of convertible debt
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                475Proceeds
      from short-term debt
                                                                
                                                                
                                                                1,203
                                                                
                                                                
                                                                
                                                                —Repayments of
      long-term debt
                                                                
                                                                
                                                                —
                                                                
                                                                
                                                                
                                                                (49
                                                                )Excess
      tax benefit from share based payment arrangements
                                                                
                                                                
                                                                (541
                                                                )
                                                                
                                                                
                                                                (202
                                                                )Net
      cash provided by (used for) financing activities
                                                                
                                                                
                                                                1,662
                                                                
                                                                
                                                                
                                                                (207
                                                                )NET
      INCREASE ( DECREASE) IN CASH AND CASH EQUIVALENTS
                                                                
                                                                
                                                                872
                                                                
                                                                
                                                                
                                                                (3,193
                                                                )CASH AND CASH EQUIVALENTS,beginning of period
                                                                
                                                                
                                                                341
                                                                
                                                                
                                                                
                                                                4,339CASH AND CASH EQUIVALENTS,end of period
                                                                
                                                                $
                                                                1,213
                                                                
                                                                
                                                                $
                                                                1,146








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




3


ZAP
AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE
1    BASIS OF PRESENTATION




The
accompanying unaudited condensed financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (“GAAP”) for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by U.S. GAAP for complete financial statements. All
adjustments (all of which are of a normal recurring nature) considered necessary
for a fair presentation have been included. Operating results for the three and
six months ended June 30, 2009 are not indicative of the results that may be
expected for the year ending December 31, 2009 or for any other future period.
These condensed consolidated financial statements and the notes thereto should
be read in conjunction with the audited financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2008
filed with the Securities and Exchange Commission (the “SEC”)
on  March 31, 2009 (our “2008 10-K”).





Alleviation
of Going Concern as noted in our Form 10Q for March 31, 2009 filed on May 20,
2009 with respect to our dispute with a related party . This was in regard to
the timing of advance repayments on a loan with Al Yousuf LLC. The Secured
Promissory Note was arranged by Mr. Eqbal Al Yousuf our current Chairman of the
Board of Directors and also the President of Al Yousuf LLC.





On May
14, 2009 we received a Notice of Delinquent Payments from Mr. Hossein Haghighi,
the Chief Financial Officer of Al Yousuf LLC, notifying us that an outstanding
principle for inventory advances of $2.8 million plus monthly interest payments
has not been paid as required by a $10 million Promissory Note. Mr. Haghighi
further indicated that AL Yousuf LLC intended to enforce the collection of the
total amounts due under the terms of the note against the Company. The
collateral for the note is our corporate headquarters building and land located
in Santa Rosa California.  The total due on the note is approximately
$4.7 million at June 30, 2009 with inventory advances totaling $2.9 million and
a building loan of $1.8 million plus interest.





In lieu
of modifying the note, we have signed a Settlement Agreement (Term Sheet) to
transfer real property to Al Yousuf LLC to satisfy the obligation outstanding.
The completion of the agreement is subject to an independent appraisal of the
property and building by an outside party.  Our discussions are
continuing, and we believe that we can resolve the matter with Al Yousuf LLC by
the end of September of 2009. As of June 30, 2009, the Company had borrowed $2.9
million for inventory and operational funding. The total amounts due Al Yousuf
per the settlement agreement including the building mortgage mentioned
above is $4.7 million.





We have
also experienced the following transactions that will strengthen our liquidity
and ability to carryout our current business plan:





1)
            On
      August 6, 2009, we completed a private placement with a new investor for a
      total of $5 million for 20 million shares of common stock. In conjunction
      with the transaction we also entered into a secured loan facility with the
      Investor pursuant to a Secured Convertible Promissory Note.  The
      Note provides for an aggregate principal amount of up to $10 million in
      advances to be made to the Company by the Investor prior to October 1,
      2012.





2)
            In
      June of 2009, we completed a private placement with one of our large
      shareholders (two of his controlled entities) for a total of $2 million
      for 8 million shares of common stock. One half or $1 million was received
      and the other $1 million is due throughout 2010 in accordance with the
      terms of the shareholder note receivable. In addition warrants were also
      issued to the investors which grant the holders the right to purchase up
      to 8,000,000 shares of the Registrant’s Common Stock at a price of $0.50
      per share.





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 upon protecting
our intellectual property rights.




4


NOTE
2    SIGNIFICANT ACCOUNTING POLICIES





NET
INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS





Basic and
diluted net income (loss) per common share is based on net income (loss) for the
relevant period, divided by the weighted average number of common shares
outstanding in each period. Diluted net income per share gives effect to all
potentially dilutive common shares outstanding during the period such as
options, warrants, convertible preferred stock, and contingently issuable
shares. Potentially dilutive securities associated with stock options, warrants
have been excluded from the diluted net loss per share amounts, since the effect
of these securities would be anti-dilutive. At June 30, 2009, these potentially
dilutive securities include options for 11million shares of common
stock, warrants for 48.7 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.




The
Company does not recognize sales taxes collected from customers as
revenue.





FAIR
VALUE OF FINANCIAL INSTRUMENTS


The
carrying amount reported in the balance sheet for cash and cash equivalents,
accounts payable and accrued expenses approximates fair value because of the
immediate or short-term maturity of these financial instruments.  The
carrying amount reported for notes payable approximates fair value because in
general, the interest on the underlying instruments fluctuates with market
rates.





COMMON
STOCK ISSUED FOR OTHER THAN CASH


Services
performed and other transactions settled in the company’s common stock are
recorded at the estimated fair value of the stock issued if that value is more
readily determinable, than the fair value of the consideration
received.








5


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.  As the Company
collects monies related to these agreements, it is classified as deferred
revenue until the Company begins delivering a substantial number of vehicles to
these dealerships on a regular basis over the terms of the agreement. The
Company has recognized approximately $53,000 and $121,000 of license revenue and
other adjustments for the three and six month period ended June 30, 2009,
resulting in an ending balance of $466,000.





USE OF ESTIMATES -The
preparation of financial statements in accordance with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the Company’s consolidated financial
statements and accompanying notes.  Estimates were made relating to
the useful lives of fixed assets, valuation allowances, impairment of assets and
valuation of stock-based compensation and contingencies. Actual results could
differ materially from those estimates.





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.  Inventories consist primarily of
vehicles, both gas and electric, parts and supplies, and finished goods and are
carried at the lower of cost (first-in, first-out method) or
market.





RECOVERY OF GOODWILL AND LONG-LIVED
ASSETS - The Company evaluates the recovery of its goodwill and
long-lived assets at least annually by analyzing its operating results and
considering significant events or changes in the business
environment.




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.





The
Company has provided a 6 month warranty for the Xebra®, ZAP Truck and ZAP
Shuttle Van vehicles and other varying warranties. At June 30, 2009, the Company
has recorded a warranty liability for $446,000 for estimated repair costs, up
from $253,000 at December 31, 2008. During the second quarter ended June 30,
2009, the Company established a liability for a safety recall on the Xebras
previously sold of approximately $240,000.





CASH AND CASH EQUIVALENTS -
The Company considers highly liquid investments with maturities from the date of
purchase of three months or less to be cash equivalents.












6


NOTE
3    STOCK-BASED COMPENSATION




We have
stock compensation plans for employees and directors, which are described in
Note 8 to our consolidated financial statements in our 2008Annual Report on Form
10-K as filed with the SEC on March 31, 2009. We recognize the stock-based
compensation expense over the requisite service period of the individual
grantees, which generally equals the vesting period. All of our stock-based
compensation is accounted for as an equity instrument.




Under the
provisions of SFAS 123R, we recorded $ 137,000 of stock compensation, net of
estimated forfeitures, in  general and administrative expenses, in our
unaudited condensed consolidated statement of operations for the three months
ended June 30, 2009 . We utilized the Black-Scholes valuation model for
estimating the fair value of the stock compensation granted after the adoption
of SFAS 123R, with the following range of assumptions.




Three
      Months Ended
                        June
      30, 2009Expected
      Dividend yield
                      
                      
                      0%Expected
      volatility
                      
                      
                      109.68-153.98Risk-free
      interest rate
                      
                      
                      2.64-3.31%Expected
      life (in years) from grant date
                      
                      
                      2.5
      to 6.00Exercise
      price
                      
                      
                      $0.50
      to $1.26







The
dividend yield of zero is based on the fact that we have never paid cash
dividends and have no present intention to pay cash dividends. Expected
volatility is based upon historical volatility of our common stock over the
period commensurate with the expected life of the options. The risk-free
interest rate is derived from the average U.S. Treasury Constant Maturity Rate
during the period, which approximates the rate in effect at the time of the
grant. Our unvested options vest over the next three years. Our options
generally have a 10-year term. The expected term is calculated using the
simplified method prescribed by the SEC’s Staff Accounting Bulletin 107. Based
on the above assumptions, the weighted-average fair values of the options
granted under the stock option plans for the three and six months ended June 30,
2009 was $0 and $0.40, respectively.  We estimate forfeitures of
employee stock options and recognize compensation cost only for those awards
expected to vest. Forfeiture rates are determined based on historical
experience.  Estimated forfeitures are adjusted to actual forfeiture
experience as needed.




A summary
of options under the Company’s stock option plans from December 31, 2008 through
June 30, 2009 is as follows:





Number
      of
                                              Shares
                                            
                                            Weighted
                                              Average
                                              Exercise
      Price
                                            
                                            Weighted
                                              Average
                                              Remaining
                                              Contractual
                                              Term
                                              (in
      years)
                                            
                                            Aggregate
                                              Intrinsic
                                              ValueOutstanding
      December 31, 2008
                                            11,666,000
                                            
                                            $
                                            .96
                                            
                                            8.0
                                            
                                            —Options
      granted under the plan
                                            —
                                            
                                            
                                            —
                                            
                                            —
                                            
                                            —Options
      exercised
                                            —
                                            
                                            
                                            —
                                            
                                            —
                                            
                                            —Options
      forfeited and expired
                                            —
                                            
                                            
                                            —
                                            
                                            —
                                            
                                            —Outstanding
      March 31, 2009
                                            11,666,000
                                            
                                            $
                                            1.03
                                            
                                            8.0
                                            
                                            —Options
      granted under the plan
                                            1,150,000
                                            
                                            
                                            0.40
                                            
                                            10.0
                                            
                                            —Options
      exercised
                                            —
                                            
                                            
                                            —
                                            
                                            —
                                            
                                            —Options
      forfeited and expired
                                            2,542,000
                                            
                                            
                                            —
                                            
                                            —
                                            
                                            —Outstanding
      June 30, 2009
                                            10,274,000
                                            
                                            $
                                            0.97
                                            
                                            8.9
                                            
                                            —





Aggregate
intrinsic value is the sum of the amounts by which the quoted market price of
our stock exceeded the exercise price of the options at June 30, 2009, for those
options for which the quoted market price was in excess of the exercise price
(“in-the-money-options”). There were no options in the money at June 30,
2009.





As of
June 30, 2009, total compensation cost of unvested employee stock options is
$531,000. This cost is expected to be recognized through September 2011. We
recorded no income tax benefits for stock-based compensation expense
arrangements for the three months ended June 30, 2009, as we have cumulative
operating losses, for which a valuation allowance has been
established.




7


NOTE 4    INVENTORIES, NET-Inventories are summarized as follows (thousands):





June
      30,
                        2009
                      
                      
                      December
      31,
                        2008Vehicles
      - conventional
                      
                      $
                      454
                      
                      
                      $
                      518Advanced
      transportation vehicles
                      
                      
                      1,937
                      
                      
                      
                      1,977Parts
      and supplies
                      
                      
                      757
                      
                      
                      
                      721Finished
      goods
                      
                      
                      318
                      
                      
                      
                      353$
                      3,466
                      
                      
                      $
                      3,569Less
      - inventory reserve
                      
                      $
                      (717
                      )
                      
                      $
                      (526
                      )$
                      2,749
                      
                      
                      $
                      3,043










NOTE
5    SHORT-TERM DEBT





PROMISSORY
NOTE




On July
30, 2008, ZAP (the “Company”) executed a Promissory Note for a $10 million
credit line (the “Note”) and a Deed of Trust, Assignment of Leases and Rents and
Security Agreement and Fixture Filing (the “Security Agreement”), both in favor
of Al Yousuf LLC (the “Lender”). The Al Yousuf Group is a Dubai-based
conglomerate and a major shareholder of ZAP. The President of Al Yousuf LLC is
Mr. Eqbal Al Yousuf who is also the Chairman of the Board of ZAP.




The
following description is a summary of the material terms and conditions of both
the Note and the Security Agreement.





The
maximum principal loan under the Note is $10,000,000. The initial outstanding
principal sum advanced to the Company is $1,760,000. This advance was used to
pay-off the existing secured note payable on the building which was held by an
outside party. The Note matures February 28, 2010. Interest only payments are
due under the Note monthly commencing August 30, 2008. Other advances shall be
for (i) the purposes of inventory from June 1, 2008 consistent with the
currently applicable budget of the Company, as approved by its board of
directors (an “Inventory Advance”) or (ii) general working capital to be used
consistently with the Company’s budget (a “Working Capital Advance”). The
interest rate shall accrue daily at a rate per annum equal to the greater of (i)
one month LIBOR plus 3% per annum and (ii) eight percent (8.00%) per annum,
commencing on the date of the Note.




The Note
matures February 28, 2010. Interest only payments are due under the Note monthly
commencing August 30, 2008. Repayment of an Inventory Advance is due four (4)
months after the date of such Advance. Repayment of a Working Capital Advance is
due six (6) months after the date of such Advance. The repayment term may be
extended upon written request of the Company and at the Lender’s sole
discretion. The Note is pre-payable in whole or in part without penalty and upon
30 days’ written notice to Lender. All principal and interest due under the Note
is secured by the corporate headquarters building in Santa Rosa, California.




8


The Note
contains customary Events of Default, including but not limited to the
following: (i) failure by the Company to make any scheduled payment of
principal, interest or other amounts due under the Note, (ii) failure to pay-off
the Note upon the Maturity Date, (iii) any representation or warranty made in
the Loan Documents by the Company being found false in any material respect,
(iv) consent by the Company to appoint a conservator or liquidator in a
bankruptcy proceeding relating to the Company or all or substantially all of its
assets and (v) failure of the Company to maintain insurance required pursuant to
the Loan Documents. Upon the occurrence of an Event of Default, the Note shall
become due and payable and the interest rate shall increase by 3.00% per annum.
All principal and interest due under the Note is secured by the Company’s
corporate headquarters building.





On May
14, 2009 we received a Notice of Delinquent Payments from Mr. Hossein Haghighi,
the Chief Financial Officer of Al Yousuf LLC, notifying us that an outstanding
principle for inventory advances of $2.8 million plus monthly interest payments
has not been paid as required by a $10 million Promissory Note. Mr. Haghighi
further indicated that AL Yousuf LLC intended to enforce the collection of the
total amounts due under the terms of the note against the Company. The
collateral for the note is our corporate headquarters building and land located
in Santa Rosa California.  The total due on the note is approximately
$4.7 million at June 30, 2009 with inventory advances totaling $2.9 million and
a building loan of $1.8 million plus interest.





In lieu
of modifying the note, we have signed a Settlement Agreement (Term Sheet) to
transfer real property to Al Yousuf LLC to satisfy the obligation outstanding.
The completion of the agreement is subject to an independent appraisal of the
property and building by an outside party.  Our discussions are
continuing, and we believe that we can resolve the matter with Al Yousuf LLC by
the end of September of 2009. As of June 30, 2009, the Company had borrowed $2.9
million for inventory and operational funding. The total amounts due Al
Yousuf per the settlement agreement including the building mortgage
mentioned above is $4.7 million.




In
addition the Company borrowed $760,000 from Portable Energy LLC , a private
equity company equally owned 50% by ZAP and Al Yousuf. These borrowings are due
on demand.






CONVERTIBLE
DEBT





8% Senior
Convertible Notes





On
December 5, 2006, when the market price of the Company’s common stock was $0.89
per share, the Company entered into a Securities Purchase Agreement with three
institutional and accredited investors or purchasers pursuant to which the
Company sold to the purchasers $1.5 million aggregate principal amount of 8%
senior convertible notes due December 5, 2008 (the “Notes due 2008”) and
warrants to purchase 450,000 shares of common stock of the Company (the “Initial
Warrants”) in a private placement. The Notes due 2008 were originally
convertible at $1.00 per share (the “Conversion Price”) into 1,500,000 shares of
the Company’s common stock, subject to anti-dilution and other adjustments. The
Initial Warrants, each immediately exercisable and expiring on December 5, 2011,
are exercisable at $1.10 per share, subject to anti-dilution and other
adjustments.





On
February 20, 2007, when the market price of the Company’s common stock was $1.08
per share, the Company entered into a Purchase and Amendment Agreement (the
“Amendment”), amending the Securities Purchase Agreement entered into by the
Company on December 5, 2006 (the “Original Agreement” and as amended by the
Amendment, the “Agreement”), with several institutional and accredited investors
or purchasers pursuant to which the Company sold to the purchasers $1.2 million
aggregate principal amount of 8% senior convertible notes due February 2009 (the
“Notes due 2009” and with the Notes due 2008, the “Notes”) and warrants to
purchase 360,000 shares of the common stock of the Company (the “Additional
Warrants” and with the Initial Warrants, the “Warrants”), in a private
placement. The transaction closed on February 22, 2007 (the “February 2007
financing”). The Notes due 2009 were originally convertible at $1.00 per share
into 1,200,000 shares of the Company’s common stock, subject to anti-dilution
and other adjustments.





9


On June
26, 2007, the Company entered into an Amendment Agreement (the “Second
Amendment”) with the purchasers to adjust certain provisions of the Notes and
Initial Warrants as a consequence of selling shares to a third party investor
for per share consideration less than the conversion price of the Notes and
exercise price of the Initial Warrants. As a result, the conversion price of the
Notes was reduced to $0.72 per share.





On May 7,
2008, the Company entered into a settlement with Gemini Master Fund ,LTD and
Gemini Strategies, LLC, the holders of the  8% Senior Convertible
Notes. The agreement reached requires the termination and cancellation of the
notes in exchange for $475,000 in cash and 100,000 common shares of ZAP common
stock. In connection with the aforementioned agreement ZAP has obtained the
funds necessary for the payment of $475,000 through a note payable to Al Yousuf
LLC. Eqbal Al Yousuf, who is the Chairman of the Board of ZAP, is also the
President of Al Yousuf LLC.





The note
bears interest at the greater of 6 month LIBOR plus 250 basis points or 6% per
annum and may be converted in whole or in part into securities of the Company
November of 2008 in accordance with the terms of the note.  The price
was agreed to be at 90% of the closing market price on the date selected for
conversion. On November 28, 2008, Al Yousuf converted the debt of $492,424 which
represented principal and interest into 2,140,974 shares of ZAP common
stock.








NOTE
7    INCOME TAXES




We
adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an Interpretation of FASB Statement No. 109,or FIN 48, on
January 1, 2007. Upon adoption of FIN 48, we commenced a review of our
tax position taken in our tax returns that remain subject to examination. Based
upon our review, we do not believe we have any unrecognized tax benefits or that
there is a material impact on our financial condition or results of operations
as a result of implementing FIN 48.




We file
income tax returns in the U.S. federal jurisdiction and various state and
foreign jurisdictions. We are subject to U.S. federal or state income tax
examinations by tax authorities for all years in which we reported net operating
losses that are being carried forward. We do not believe there will be any
material changes in our unrecognized tax positions over the next 12
months.




We
recognize interest and penalties accrued on any unrecognized tax benefits as a
component of income tax expense. As of the date of adoption of FIN 48, we did
not have any accrued interest or penalties associated with any unrecognized tax
benefits, nor were any interest expense recognized for the period ended June 30,
2009.








NOTE
8    SHAREHOLDERS’ EQUITY





ZAP’s
common stock is quoted on the OTC Bulletin Board under the symbol “ZAAP.
OB”








NOTE
9    RELATED PARTY TRANSACTIONS




Rental
agreements





The
Company rents office space, land and warehouse space from Mr. Steven Schneider,
its CEO and a major shareholder. These properties are used to operate the car
outlet and to store inventory. Rental expense was approximately $42,000 for both
the six months ended June 30, 2009 and 2008.





Notes Receivables
Shareholders





In June
of 2009, we completed a private placement for $2,000,000 in exchange
for 8,000,000 shares of Common Stock at $0.25 per share. The aggregate
proceeds from the placement of the Common Stock of $2,000,000 will be released
in stages through the 4th quarter
of 2010. The proceeds from the placement of the Common Stock will be used for
general and administrative operating expenses and to continue the Company’s
accelerated R&D on the new electric vehicles in the planning pipeline. The
transaction was done with one of our large existing shareholders and two of his
controlled entities.





In
addition warrants were also issued to the investors which grant the holders the
right to purchase up to 8,000,000 shares of the Registrant’s Common Stock at a
price of $0.50 per share.




10


Financing provided to
the Company by Al Yousuf LLC , Whose President is Our Chairman of  the
Board





The
company entered into various financing arrangements during the second and third
quarter 2008 with The Al Yousuf Group who is a Dubai-based conglomerate and
a major shareholder of ZAP. The President of Al Yousuf LLC is Mr. Eqbal Al
Yousuf, who is also the Chairman of the Board of ZAP who arranged for the note
terms and provisions.




On July
30, 2008 we received a $10 million financing arrangement from the Al Yousuf
Group, a Dubai-based conglomerate to provide future working capital to ZAP and
help meet the growing demand for ZAP electric vehicles. The financing
arrangement allows for advances by ZAP over the next few years commencing
on the date of the Note. The initial outstanding principal sum advanced to the
Company is $1,760,000. This advance was used to pay-off the existing secured
note payable on the building. The Note matures February 28, 2010. Interest only
payments are due under the Note monthly commencing August 30, 2008. All
principal and interest due under the Note is secured by the corporate
headquarters building in Santa Rosa, California.





On May
14, 2009 we received a Notice of Delinquent Payments from Mr. Hossein Haghighi,
the Chief Financial Officer of Al Yousuf LLC, notifying us that an outstanding
principle for inventory advances of $2.8 million plus monthly interest payments
has not been paid as required by a $10 million Promissory Note. Mr. Haghighi
further indicated that AL Yousuf LLC intended to enforce the collection of the
total amounts due under the terms of the note against the Company. The
collateral for the note is our corporate headquarters building and land located
in Santa Rosa California.  The total due on the note is approximately
$4.7 million at June 30, 2009 with inventory advances totaling $2.9 million and
a building loan of $1.8 million plus interest.





In lieu
of modifying the note, we have signed a Settlement Agreement (Term Sheet) to
transfer real property to Al Yousuf LLC to satisfy the obligation outstanding.
The completion of the agreement is subject to an independent appraisal of the
property and building by an outside party.  Our discussions are
continuing, and we believe that we can resolve the matter with Al Yousuf LLC by
the end of September of 2009. As of June 30, 2009, the Company had borrowed $2.9
million for inventory and operational funding. The total amounts due Al Yousuf
per the settlement agreement including the building mortgage mentioned
above is $4.7 million.





In
addition the Company borrowed $760,000 from Portable Energy LLC , a private
equity company equally owned 50% by ZAP and Al Yousuf. These borrowings are due
on demand








NOTE
10  SEGMENT REPORTING





In
accordance with the provisions of SFAS No. 131, the Company has
identified  three reportable segments consisting of sales and
marketing of electronic consumer products, the Zappy 3 scooters and
ATV’s,  operation of a retail car outlet and sales to and sales of
advanced technology vehicles for the Xebra (TM), ZAP Truck and ZAP Shuttle Van
electric vehicles.  These segments are strategic business units that
offer different services.  They are managed separately because each
business requires different resources and strategies.  The Company’s
chief operating decision making group, which is comprised of the Chief Executive
Officer and the senior executives of each of ZAP’s strategic segments, regularly
evaluate the financial information about these segments in deciding how to
allocate resources and in assessing performance.  The performance of
each segment is measured based on its profit or loss from operations before
income taxes.





11


Electric
Consumer products and corporate expenses represent sales of our ZAPPY 3 which is
a three wheeled electric scooter and the overall corporate expenses for the
company. Many of these expenses relate to the overall development of our core
business, Electric Consumer Products.





Car
outlet represents the activity of a retail outlet that sells pre-owned
conventional vehicles and advanced technology vehicles, now the Xebra, a
three-wheeled plug in electric vehicles, ZAP Truck and ZAP Shuttle Van, four
wheeled LSV plug in electric vehicles to retail customers.




Advanced
Technology Vehicles represents the sales activity of advanced technology
vehicles, now the Xebra, a three-wheeled plug in electric vehicle, ZAP Truck and
ZAP Shuttle Van, four wheeled LSV plug in electric vehicles to ZAP Dealers
through-out the U.S.





Segment
results are summarized as follow (in thousands):





Electronic
                                Consumer
                                Products
                                and
                                Corporate
                                Expenses
                              
                              
                              Car
                                Outlet
                              
                              
                              Advanced
                                Technology
                                Vehicles
                              
                              TotalsFor
      the 3 months ended of June 30, 2009Net
      Sales
                              
                              $
                              124
                              
                              
                              $
                              290
                              
                              
                              $
                              355
                              
                              $
                              769Gross
      profit (Loss)
                              
                              
                              (100
                              )
                              
                              
                              61
                              
                              
                              
                              (142
                              )
                              
                              (181
                              )–Net
      Income (Loss)
                              
                              
                              (1,976
                              )
                              
                              
                              (34
                              )
                              
                              
                              (545
                              )
                              
                              (2,555
                              )Total
      Assets
                              
                              
                              6,384
                              
                              
                              
                              561
                              
                              
                              
                              2,177
                              
                              
                              9,122For
      the 3 months ended of June 30, 2008:Net
      Sales
                              
                              $
                              118
                              
                              
                              $
                              430
                              
                              
                              $
                              1,375
                              
                              $
                              1,923Gross
      profit (Loss)
                              
                              
                              (16
                              )
                              
                              
                              (26
                              )
                              
                              
                              265
                              
                              
                              223–Net
      Income (Loss)
                              
                              
                              (2,406
                              )
                              
                              
                              (140
                              )
                              
                              
                              (84)
                              
                              
                              (2,360
                              )Total
      Assets
                              
                              
                              7,509
                              
                              
                              
                              514
                              
                              
                              
                              999
                              
                              
                              9,022For
      the 6 months ended of June 30, 2009:Net
      Sales
                              
                              $
                              282
                              
                              
                              $
                              872
                              
                              
                              $
                              691
                              
                              $
                              1,845Gross
      profit (Loss)
                              
                              
                              (41
                              )
                              
                              
                              200
                              
                              
                              
                              (50
                              )
                              
                              109–Net
      Income (Loss)
                              
                              
                              (3,676
                              )
                              
                              
                              1
                              
                              
                              
                              (888
                              )
                              
                              (4,563
                              )Total
      Assets
                              
                              
                              6,384
                              
                              
                              
                              561
                              
                              
                              
                              2,177
                              
                              
                              9,122For
      the 6 months ended of June 30, 2008:Net
      Sales
                              
                              $
                              248
                              
                              
                              $
                              722
                              
                              
                              $
                              2,009
                              
                              $
                              2,979Gross
      profit (Loss)
                              
                              
                              (78
                              )
                              
                              
                              26
                              
                              
                              
                              369
                              
                              
                              317–Net
      Income (Loss)
                              
                              
                              (4,740
                              )
                              
                              
                              (189)
                              
                              
                              
                              (60
                              )
                              
                              (4,989)Total
      Assets
                              
                              
                              7,509
                              
                              
                              
                              514
                              
                              
                              
                              999
                              
                              
                              9,022





12


NOTE
11  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:





Six
      Months Ended
                            June
      30,
                            (in
      thousands)2009
                          
                          
                          2008Cash
      paid during the period for interest
                          
                          $
                          76
                          
                          
                          $
                          —Cash
      paid during the period for income taxes
                          
                          $
                          4
                          
                          
                          $
                          4Non-cash
      investing and financing activities:Reclassification
      of long term debt to short term:Increase
      in short term debt
                          
                          
                          1,772
                          
                          
                          
                          —Decrease
      in long term debt
                          
                          
                          (1,772
                          )
                          
                          
                          —Stock
      and warrants issued for:Re-payment
      of 8% Senior debt
                          
                          $
                          —
                          
                          
                          $
                          431










NOTE
12  SUBSEQUENT EVENT




On August
6, 2009, the Company entered into a securities purchase agreement with Cathaya
Capital, L.P., a Cayman Islands exempted limited partnership . Pursuant to the
Agreement, the Investor purchased 20 million shares of the Company’s Common
Stock at a price of $0.25 per share  for an aggregate purchase price
of $5 million.





On August
6, 2009, the Company also entered into a secured loan facility with the Investor
pursuant to a Secured Convertible Promissory Note.  The Note provides
for an aggregate principal amount of up to $10 million in advances to be made to
the Company by the Investor prior to October 1, 2012.  The aggregate
principal amount of the advances made under the Note accrues interest at a rate
per annum equal to the greater of (i) five percent (5%) and (ii) three percent
(3%) plus prime.  The aggregate principal amount of each advance made
under the Note plus interest becomes due and payable to the Investor on the
earlier of (i) the two year anniversary of the date such advance was made and
(ii) December 31, 2012.  The Note is convertible into shares of the
Company’s Common Stock at a conversion rate, subject to any adjustments called
for by the terms of the Note, of 2,000 shares of Common Stock for each $1,000
principal amount of the Note being converted. The Note is secured by the terms
and conditions of a security agreement covering all of the Company’s assets
other than those assets specifically excluded from the lien created by the
Security Agreement.























13


ITEM
2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.





THIS
QUARTERLY REPORT OF FORM 10-Q, 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:





o
            WHETHER
      THE ALTERNATIVE ENERGY AND GAS-EFFICIENT VEHICLE MARKET FOR OUR PRODUCTS
      CONTINUES TO GROW AND, IF IT DOES, THE PACE AT WHICH IT MAY
      GROW;




o
            OUR
      ABILITY TO ATTRACT AND RETAIN THE PERSONNEL QUALIFIED TO IMPLEMENTOUR
      GROWTH STRATEGIES,




o
            OUR
      ABILITY TO OBTAIN APPROVAL FROM GOVERNMENT AUTHORITIES FOR
      OURPRODUCTS;




o
            OUR
      ABILITY TO PROTECT THE PATENTS ON OUR PROPRIETARY
    TECHNOLOGY;




o
            OUR
      ABILITY TO FUND OUR SHORT-TERM AND LONG-TERM FINANCING
    NEEDS;




o
            OUR
      ABILITY TO COMPETE AGAINST LARGE COMPETITORS IN A RAPIDLY CHANGING MARKET
      FOR ELECTRIC AND GAS-EFFICIENT
VEHICLES;




o
            CHANGES
      IN OUR BUSINESS PLAN AND CORPORATE STRATEGIES;
  AND




o
            OTHER
      RISKS AND UNCERTAINTIES DISCUSSED IN GREATER DETAIL IN VARIOUS SECTIONS OF
      THIS REPORT, PARTICULARLY THE SECTION CAPTIONED “RISK
      FACTORS.”





SHOULD
ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR
PLANNED.





EACH
FORWARD-LOOKING STATEMENT SHOULD BE READ IN CONTEXT WITH, AND WITH AN
UNDERSTANDING OF, THE VARIOUS OTHER DISCLOSURES CONCERNING OUR COMPANY AND OUR
BUSINESS MADE IN OUR FILINGS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON ANY
FORWARD-LOOKING STATEMENT AS A PREDICTION OF ACTUAL RESULTS OR DEVELOPMENTS. WE
ARE NOT OBLIGATED TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT CONTAINED IN
THIS REPORT TO REFLECT NEW EVENTS OR CIRCUMSTANCES UNLESS AND TO THE EXTENT
REQUIRED BY APPLICABLE LAW.




14


In this
quarterly report on Form 10-Q the terms “ZAP,” “Company,” “we,” “us” and “our”
refer to ZAP and its subsidiaries.





Overview


GENERAL





ZAP
stands for Zero Air Pollution(R). With its new product offerings,
the Company is positioned to become a leading brand and distribution portal
of electric and other advanced technology vehicles. ZAP is committed to
running its business based on a strong philosophical foundation that
supports the environment, social responsibility and
profitability.





ZAP’s
strategy is to serve the growing and underrepresented consumer that
seeks electric and fuel efficient vehicles. With the recent increases in
the cost of oil and increasing concern about the environment and the
effects of global warming, we believe there is a large and untapped demand in
the areas of transportation and consumer products. During the energy crisis
of the 1970s, Japanese automobile manufacturers penetrated the United
States market when domestic automobile manufacturers failed to anticipate
changes. ZAP believes a similar opportunity is present today, enhanced by
heightened environmental awareness, climate changes and economic pressures.
ZAP has assembled a complete line of products to meet the growing demands
of the environmentally conscious consumer focused on two primary businesses: ZAP
Automotive and ZAP Power Systems.





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. Our website is www.zapworld.com.
Please refer to it for further information on ZAP.





SUBSIDIARIES





We have
the following wholly owned subsidiaries : 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”) ; Voltage Vehicles is engaged
primarily in the distribution and sale of advanced technology and
conventional automobiles; ZAP Stores is engaged primarily in consumer sales
of ZAP products at one location and ZAP Manufacturing is engaged primarily
in the distribution of ZAP products.





Recent
Developments





Some of
the noteworthy events for the Company that occurred during the Second quarter of
2009 and through the date of this report are as follows:





1.
            We
      raised additional capital of $7 million through two private placements and
      also entered into a $10 million financing facility for inventory
      purchases.




2.
            Advanced
      Battery Technologies through its wholly owned subsidiary Wuxi Zhongqiang
      Autocycle Co., Ltd, has signed a distribution agreement with us for
      advanced, large-format Polymer Lithium-Ion battery technology. Compared to
      lead acid batteries, these new batteries make electric vehicles lighter,
      faster and more responsive. These are some of the first larger-format
      lithium batteries that are in volume production. We will also be
      integrating large-format lithium batteries in its pickups and vans as well
      as vehicles under development like the Alias
  roadster.





3.
            To
      help automotive fleets reduce emissions and operating expenses we have
      begun distributing a five-passenger van anda new XL Truck both of
      which are 4-wheel, 100 percent, plug-in electric vehicles. The new Shuttle
      was designed for passenger transport or cargo. The seats are removable so
      it can convert into a cargo vehicle. While our new XL Truck was designed
      with a roomy cab for two and a sturdy bed platform capable of transporting
      800 lbs. for on-road use and up to 1,600 lbs. capacity for private roads
      and facilities.




15


Results
of Operations





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








Three
      months
                          ended
      June 30
                        
                        
                        Six
      months
                          ended
      June 302009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Statements of Operations
    Data:Net
      sales
                        
                        
                        100%
                        
                        
                        
                        100%
                        
                        
                        
                        100%
                        
                        
                        
                        100%Cost
      of sales
                        
                        
                        (123.5
                        )
                        
                        
                        (88.4
                        )
                        
                        
                        (94.1
                        )
                        
                        
                        (89.4
                        )Operating
      expenses
                        
                        
                        (288.3
                        )
                        
                        
                        (136.5
                        )
                        
                        
                        (237.1
                        )
                        
                        
                        (168.8
                        )Loss
      from operations
                        
                        
                        (311.8
                        )
                        
                        
                        (124.9
                        )
                        
                        
                        (231.2
                        )
                        
                        
                        (158.2
                        )Net
      loss
                        
                        
                        (332.2
                        )
                        
                        
                        (136.8
                        )
                        
                        
                        (247.3
                        )
                        
                        
                        (167.5
                        )





Quarter
Ended June 30, 2009 Compared to Quarter Ended June 30, 2008





Net sales for the quarter
ended June 30, 2009 were $769,000 compared to $1.9 million for the period ended
June 30, 2008.





Our
second quarter sales of Advanced Technology vehicles such as the Xebra, our
three wheeled electric car and Zapino a full size electric road scooter
decreased from $1.4 million in 2008 to $355,000 in 2009. The decrease is not
only due to the current recession but also to our transitioning from 3 wheel to
4 wheel electric vehicles.





We
experienced a decrease in retail sales by our car lot in the second quarter of
$140,000 from $430,000 in 2008 to $290,000 in 2009. This underperformance was
driven by the current economic recession.





In our
Consumer Product segment second quarter sales increased slightly from $118,000
in 2008 to $124,000 in 2009 for the second quarter ended June 30. The increase
was due to the introduction of our new ZAPPY 3 Pro Scooter in 2009.





Gross profit (loss) decreased
by $404,000 from a gross profit of $223,000 for the second quarter ended June
30, 2008 to a gross loss of $181,000 for the quarter ended June 30,
2008.





The
second quarter gross loss for our Advanced Technology vehicles decreased from a
$265,000 gross profit for the period ended June 30, 2008 to a gross loss of
$50,000 for the period ended June 30, 2009. The primary reason for the decrease
was the establishment of an allowance for the Xebra repairs. We received a
safety recall from the government to reduce the brakes stopping distance to
comply with current standards.


The
Consumer Products segment experienced an increase in gross loss in the second
quarter from $16,000 in 2008 to a gross loss of $100,000 in 2009. The increase
was due to an inventory allowance to reflect our phase out of certain inventory
held in our Latin America location. We anticipate that the market value is less
than our carrying value.





The gross
loss in the second quarter for our car lot increased from $26,000 in 2008 to
$61,000. The lower profits are due to the current recession and the mix of
vehicle models sold during the quarter. The decrease was primarily due to lower
sales volumes.





16


Sales and marketing expenses
decreased by $124,000 from $412,000 for the quarter ended June 30, 2008 to
$288,000 in 2008. The decrease was due to the elimination of certain sales and
marketing positions in the second quarter ended June 30, 2009.





General and
administrative expenses decreased by $228,000
from $1.9 million for the quarter ended June 30, 2008 to $1.7 million in 2009.
The reason for the decrease was due to less consulting and professional
fees.In
addition,various general
and administrative positions were either eliminated or work time cut-back in the
second quarter ended June 30, 2009.





Research and development
expensesdecreasedby $252,000 from
$303,000 in 2008 to $51,000 for the second quarter ended June 30, 2009. Last
year in the second quarter of 2008, we incurred start-up expenses for a new
venture that we postponed in the fourth quarter of 2008.





Impairment of Assetsrepresentsdisputes with foreign
outside contract manufacturers over products, mostly parts that we believe
belong to us and are being held by them. We are uncertain if these disputes can
be favorably resolved by us. We are however seeking full repayment for the
products.





Interest expense, netdecreased from an expense of $184,000 in second quarter 2008 to
$160,000 in second quarter of 2009. The decrease was due to lower interest
bearing balances on the 8% senior convertible debt held by third parties. In the
last quarter of 2008, the loan was repaid by an advance made by Al Yousuf to the
outside party.





Other expense, netdecreased
from an expense of $44,000 for the second quarter of 2008 to other income of
$3,000 in the second quarter of 2009. The decrease was due to less one time
charges for charitable contributions that were made in the second quarter of
2008.





Net Lossfor the both of the
second quarters ended June 30, 2009 and 2008 was approximately $2.6
million.





Six
Months Ended June 30, 2009 Compared to Six Months Ended June 30,
2008





Net sales for the six months
ended June 30, 2009, were $1.9 million compared to $2.9 million for the six
months ended June 30 in the prior year.





Sales in
the Advanced Technology segment decreased from $2 million in 2008 to $691,000 in
2009. The tight
U.S. credit and general economic conditions negatively impacted our dealer sales
in the first six months of 2009. In addition, we also decreased our production
of three wheel electric vehicles to transition to 4 wheel electric
vehicles.





We
experienced an increase of $34,000 in sales of consumer products from $248,000
in 2008 to $282,000 in 2009 due to the introduction of the new ZAPPY 3 Pro
Scooter in 2009.





Our
retail car lot experienced an increase in sales from $722,000 in 2008 to
$872,000 in 2009. The increase was due to strong sales in the first quarter of
2009. Due to the current recession many consumers chose lower priced pre- owned
vehicles that are distributed through our retail car outlet.





17


Gross profit (loss)was
$317,000  for the six months ended June 30, 2008 compared to $109,000
for the six months ended June 30, 2009 resulting in a decrease of
$208,000.





In our
Advanced Technology segment our gross profit decreased from a gross profit of
$369,000  to a gross loss of $50,000. The decrease was primarily due
to lower sales volumes and the establishment of an allowance to repair Xebras
for the safety recall.





In our
Consumer Products segment we experienced a decrease of $37,000 in gross loss
from $78,000 in 2008 to a gross loss of $41,000 in 2009. The gross loss was less
due to higher sales volumes and better margins on the new ZAPPY 3 Pro
Scooter.





Gross
profits in our retail car lot increased $174,000 from $26,000 for the six months
ended June 30, 2008 to $200,000 for the six months ended June 30, 2009. The
increase in gross profits was due to higher sales volumes and better mix of
vehicle models with higher margins.





Sales and marketing expenses
in the first six months of 2009 decreased by $108,000 from $802,000 in 2008 to
$694,000 in 2009. The decrease was due to less expenses for outside consultants
and elimination of certain sales and marketing positions.





General and administrative
expensesfor the six
months ended June 30, 2009 decreased by $767,000 from $3.9 million in 2008 to
$3.1 million in 2009.  The decrease was due to less legal and
professional fees. In addition, various general and administrative positions
were either eliminated or work time cut-back.





Research and development
expensesdecreased by $236,000 from $318,000 in 2008 to $82,000 in
2009. The
decrease was the result of less one time charges as in 2008 for the development
of an R&D venture for various products to be developed in
China.





Impairment of Assetsrepresentsdisputes with foreign
outside contract manufacturers over products, mostly parts, that we believe
belong to us and are being held by them. In addition, we made certain payments
for vehicle production that we believe were not shipped as promised. We are
uncertain if these disputes can be favorably resolved by us. We are however
seeking full repayment for the products.





Interest expense, netincreased by $67,000 from an interest expense of  $230,000 for
the first six months of 2008 to interest expense of $297,000 in the six months
ended June 30, 2009. The increase was due to borrowings on the Financing
arrangement with Al Yousuf that was established on June 30, 2008.





Other Income (expense)decreasedfrom  an expense
of $43,000 for the six months ended June 30, 2008 to other income of $3,000 in
the first six months of 2009. The decrease was due less one time charges for
charitable contributions that were done in 2008.





Net Losswas $4.6 million for
the six months ended June 30, 2009 as compared to a net loss of $4.9 million for
period ended June 30, 2008.





Liquidity
and Capital Resources





In the
first six months of 2009 net cash used for operating activities was
$990,000. Cash used in the first six months of 2009 was comprised of the net
loss incurred for the first six months of $4.6 million plus net non-cash
expenses of $2.83 million and the net increase of $744,000 in operating assets
and liabilities. In the first six months of 2008, the Company used cash for
operations of $3.0 million was comprised of the net loss of $4.9 million plus
net non-cash expenses of $3.2 million, and the net decrease in operating assets
and liabilities of $1.3 million.





Investing
activities provided cash of $200,000 and $111,000 in the first six months ended
June 30, 2009 and 2008,
respectively. The disposal of equipment resulted in increases to
cash.





18


Financing
activities for the first six months ended June 30, 2009 provided cash of $1.662
million compared with financing activities that used cash of $207,000 in 2008.
In 2009, we received $1 million from a private placement and another $1.2
million through short term borrowings.





The
Company had cash of $1,213 million at June 30, 2009 as compared to $1,146 at
June 30, 2008. The Company had working capital deficit of $3.6 million and
working capital of $1.2 million for the periods ended June 30, 2009 and 2008
respectively.





On July
30, 2008 we received a $10 million financing arrangement from the Al Yousuf
Group, a Dubai-based conglomerate to provide future working capital to ZAP and
help meet the growing demand for ZAP electric vehicles. The Al-Yousuf group is a
major investor of ours and the President of Al-Yousuf, Mr. Eqbal Al-Yousuf is
our Chairman of the Board. The financing arrangement allows for advances by ZAP
over the next few years commencing on the date of the Note.





On May
14, 2009 we received a Notice of Delinquent Payments from Mr. Hossein Haghighi,
the Chief Financial Officer of Al Yousuf LLC, notifying us that an outstanding
principle for inventory advances of $2.8 million plus monthly interest payments
has not been paid as required by a $10 million Promissory Note. Mr. Haghighi
further indicated that AL Yousuf LLC intended to enforce the collection of the
total amounts due under the terms of the note against the Company. The
collateral for the note is our corporate headquarters building and land located
in Santa Rosa California.  The total due on the note is approximately
$4.7 million at June 30, 2009 with inventory advances totaling $2.9 million and
a building loan of $1.8 million plus interest.





In lieu
of modifying the note, we have signed a Settlement Agreement (Term Sheet) to
transfer real property to Al Yousuf LLC to satisfy the obligation outstanding.
The completion of the agreement is subject to an independent appraisal of the
property and building by an outside party.  Our discussions are
continuing, and we believe that we can resolve the matter with Al Yousuf LLC by
the end of September of 2009. As of June 30, 2009, the Company had borrowed $2.9
million for inventory and operational funding. The total amounts due Al Yousuf
including the building mortgage mentioned above are $4.7
million.





We have
experienced the following transactions that strengthen our
liquidity:





1) 
On August 6, 2009, we completed a private placement with a new investor for a
total of $5 million for 20 million shares of common stock. In conjunction with
the transaction we also entered into a secured loan facility with the Investor
pursuant to a Secured Convertible Promissory Note.  The Note provides
for an aggregate principal amount of up to $10 million in advances to be made to
the Company by the Investor prior to October 1, 2012.





2) 
In June of 2009, we completed a private placement with one of our large
shareholders (two of his controlled entities) for a total of $2 million for 8
million shares of common stock. One half or $1 million was received and the
other $1 million is due throughout 2010 in accordance with the terms of the
shareholder note receivable. In addition warrants were also issued to the
investors which grant the holders the right to purchase up to 8,000,000 shares
of the Registrant’s Common Stock at a price of $0.50 per share.







CRITICAL
ACCOUNTING POLICIES





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;





19


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.





The
Company does not recognize sales taxes collected from customers as
revenue.





Allowance for Doubtful
Accounts





The
Company performs ongoing credit evaluations of its customers’ financial
condition and, generally, requires no collateral from its customers. The Company
records an allowance for doubtful accounts receivable for credit losses at the
end of each period based on an analysis of individual aged accounts receivable
balances. As a result of this analysis, the Company believes that its allowance
for doubtful accounts is adequate at June 30, 2009 and 2008, respectively. 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
Valuation





We adjust
the value of our inventory for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventory and the estimated market
value based upon assumptions about future demand and market conditions and
development of new products by our competitors.  Inventories consist
primarily of vehicles, both gas and electric, parts and supplies, and finished
goods, and are carried at the lower of cost (first-in, first-out method) or
market.





Deferred Tax Asset
Realization





We record
a full valuation allowance to reduce our deferred tax assets to the amount that
is more likely than not to be realized.  While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event we were to
determine that we would be able to realize our deferred tax assets in the future
in excess of its net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made.





BUSINESS
DEVELOPMENT





Founded
in 1994, ZAP has invented, designed, manufactured, and marketed
numerous innovative products since the Company’s inception. In 1995, ZAP
began marketing electric transportation on the Internet through our
website, www.zapworld.com. ZAP
has been a pioneer in developing and marketing electric vehicles such as
a zero-emission ZAP(R) electric bicycle, ZAP Power System, which adapts to
most bicycles, and the ZAPPY(R) folding electric scooter. From 1996 through
1998, we continued to add to our 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 automobile imported from its manufacturing partner in
China; in 2004 ZAP introduced electric all-terrain vehicles and the
fuel-efficient Smart Car; and in 2005 ZAP introduced multi-fuel vehicles,
capable of running on ethanol and/or gasoline. To date, we have delivered
more than 100,000 electric vehicles and consumer products to customers in
more than 75 countries, which we believe establishes us as one of the
leaders in the alternative transportation marketplace.





Today,
ZAP is continuing its focus as one of the pioneers of
advanced transportation technologies and leveraging its place in the market
as a magnet for new technologies. The Company believes there is a growing
and underrepresented market for fuel efficient transportation vehicles and
we are capitalizing on the opportunities enhanced by heightened
environmental awareness, climate changes and economic pressures. The
technology is available to deliver transportation solutions that are
practical and affordable. With our products such as the XEBRA, ZAP Truck,
ZAP Shuttle Van and ZAPPY 3, ZAP is already delivering such solutions to
the market. Our goal is to become one of the largest and most complete
brand and distribution portals in the United States for advanced technology
vehicles and 100% plug-in electrics.





To
distribute our practical, affordable and advanced
transportation technologies, we have established and are growing both our
portal of qualified automotive dealers and our relationships with specialty
dealers/distributors for our power system products. Through these distribution
channels, coupled with the continued establishment of partnerships with
select manufacturers, we intend to expand our market recognition by
building awareness of the evolving technologies available for automotive
transportation and in reducing our nation’s dependency on foreign
oil.





20


PRODUCT
SUMMARY





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





ZAP
AUTOMOTIVE





ZAP
believes it is positioned to become one of the leading distributors of
fuel efficient alternative energy vehicles in the United States. We believe
that we are one of only a few companies distributing a 100% production
electric vehicle capable of speeds up to 40 mph. Within the next twelve to
thirty-six months, we hope to have distribution agreements in place with
vehicle manufacturers whose products fit ZAP’s mission. To distribute
our product to end consumers and fleets, we have established more than 50
licensed automotive dealers and intend to grow this base significantly over
the next several years.





In 2006,
ZAP Automotive introduced the following automobile products:





o
            the
      100% electric XEBRA sedan with an MSRP of
      approximately$11,000;





o
            the
      100% electric XEBRA utility vehicle truck with an MSRP of approximately
      $12,000; and





In 2007,
ZAP Automotive introduced a new electric scooter, the ZAPINO, with an advanced
3,000 watt brushless DC hub motor, perfect for city commuting and able to
reach speeds of 30 MPH with an MSRP of $3,500.





In 2009,
we introduced the ZAP Truck XL, which is a low speed 4 wheel utility truck and
having a MSRP of approximately $14,900. The ZAP Shuttle Van was also introduced,
which is  designed for passenger transport or cargo. The seats are
removable so it can convert into a cargo vehicle





Our
future offerings that are currently in the developmental stage
include:





o
            The
      ZAP Alias, which has a target price of $32,500 per vehicle and an
      estimated range of 100 miles per charge. This vehicle launch date is for
      2010.





We are
also in discussions with other foreign manufacturers and hope to establish
additional relationships within the next twelve to thirty-six months for
other vehicle platforms.





XEBRA





We
believe that XEBRA is the only series production electric vehicle in
the United States that can legally travel faster than 25 mph. The car’s
suggested retail price of $11,000 is significantly less expensive than most
of its competitors, some of which cost more than $100,000 and are not yet
widely available today. XEBRA has three wheels and is being imported as a
motor-driven cycle, yet, unlike most other motor-driven cycles, the XEBRA
is enclosed with windows and a roof, affording it protection from inclement
weather.








21


XEBRA
Sedan (ZAPCAR (R))





ZAP
launched the sedan version of its XEBRA ZAPCAR on July 11, 2006. The
sedan has a seating capacity for four and is being targeted for
city/commuter use. Based on initial feedback, ZAP will be marketing the
XEBRA sedan to government and corporate fleets as well as to families with
two or more cars, but with plenty of occasion to use their vehicles for
short, city drives.





XEBRA PK
(ZAPTRUCK(R))





ZAP
launched its utility pick-up truck version of the XEBRA, the XEBRA
ZAPTRUCK, on August 24, 2006. This electric vehicle seats two with a
multi-purpose platform behind the passenger compartment that serves as a
hauler, dump truck or flatbed. The XEBRA ZAPTRUCK is targeted to
municipalities, maintenance facilities, universities, ranches and
warehouses. Since its launch, we have received overwhelming inquiries for
test drives. To date, we have focused on our west coast market and sales
have exceeded our initial distribution and sales plans.





ZAP XL
TRUCK




ZAP's new
XL Truck was designed with a roomy cab for two and a sturdy bed platform capable
of transporting 800 lbs. for on-road use and up to 1,600 lbs. capacity for
private roads and facilities. This 100 percent electric workhorse has
convertible, drop-side bed construction to convert to a flatbed. ZAP's XL Truck
can be ordered with options like air conditioning, enclosed weatherproof cargo
box, solar charger, above-bed utility rack and rapid charging system. MSRP is
$14,500.




ZAP
SHUTTLE VAN




ZAP's new
Shuttle was designed for passenger transport or cargo. The seats are removable
so it can convert into a cargo vehicle with 108 cubic feet and a 900 lb. total
carrying capacity. Large slider doors on both sides and a rear lift hatch
provide convenient access to the rear compartment, which is weatherproof and
secure. At 138 inches, its length is just shy of most mini-vans and at 6 ft 2
inches it has plenty of headroom. The ZAP Shuttle was designed for
transportation around large campuses, to and from parking lots, and, because it
produces zero emissions, through factories, warehouses and other indoor uses.
Air conditioning, solar panels and a rapid charger are available options. MSRP:
$14,700.




LOTUS





In 2007,
we announced and entered into a development and feasibility contract with
Lotus Engineering to develop an electric all-wheel drive crossover high
performance vehicle for the U.S. market.





We are
also developing a $32,000 all electric vehicle with a targeted 100
mile range, the ZAP Alias (TM), which is expected second quarter
2010.





Future Automotive
Offerings





Over the
next 36 months, we hope to establish relationships with additional manufacturers
who can supply automobiles and related vehicles that meet our mission of
affordable, advanced transportation technologies that are socially
responsible and environmentally sustainable. In 2009, we have identified
the following products as potential future offerings for the Company: (1)
an affordable 100% electric two-seater sports coupe and a high performance
highway all electric vehicle.





ZAP Power
Systems




We
launched the Company in 1994 with the invention of the ZAPPY electric
scooter and quickly established a presence as one of the market leaders in
the electric “personal” transportation product segment. Since inception,
the Company has been able to maintain a steady business and committed
buyers in this segment. In keeping with our initial product offerings, at
the beginning of 2006, we revitalized our consumer products line (recently
renamed “Power Systems”), including an updated version of the electric
scooter. As part of the segment’s revitalization, we reduced the number of
suppliers and placed more emphasis on upgrading existing models with newer
component technology and more robust features in order to provide a higher
quality consumer experience and product.





22


Our
current product offerings include:





o
            Three-wheeled
      personal transporters (ZAPPY3, ZAPPY3 Pro,
  ZAPPY3 EZ);




o
            Off-road
      vehicles (electric quads and motorcycles);
and







The ZAPPY
3 Personal Transporters





Seaway’s
highly publicized “human transporter to change the world” unearthed
a growing need for a “scooter for adults,” better known as personal
electric transportation. The Company responded to this demand by designing
the ZAPPY3. Unlike the Segway, the ZAPPY3’s 3-wheeled vehicle design
provides stability and maneuverability allowing just about anyone to ride
this vehicle without training. It has a top speed of 15 mph, and the Pro
has the farthest range of any personal transporter available today at 25
miles range per charge.





The
Company initially thought that the ZAPPY3 would be great for the
consumer market. Over the past year, the Company has revisited its sales
strategy and come to recognize that the largest market opportunities are in
the industrial and commercial applications. The Company’s primary sales
channels are now more clearly defined as security, sporting goods and
material handling.





With the
increased emphasis on homeland security, there are several
product competitors in the security and police market segment. Segway, the
most well known, can be found in select police departments and airports and
sells for about $5,500. American Chariot, which is a chariot-like transporter,
has entered the market selling between $1,500 to $2,500. Newest to the
security transporter business is T3Motion, which is built like a small tank
and priced at up to $8,000. The ZAPPY3 meets the need of a majority of the
security transportation needs and with a selling price range of $530 to
$900, depending on the model purchased, which we believe is the most
economical of all offerings.





The
ZAPPY3 retail focus has continued strong in 2009. As the product line
has gained momentum and market acceptance, we plan to grow distribution in
the retail channel through larger regional and specialized chain
stores.





The
material handling, warehousing, fabrication, and construction industries
are the ideal markets for the ZAPPY3 Pro. We are not currently aware of any
major competitors in this market. The traditional solution for short
distance transportation has been bicycles. The ZAPPY Pro offers the perfect
utility vehicle for shuttling, picking and packing and getting into small
areas like elevators. While the Company’s entrance into this market is
still in the early stages, the product response has been very favorable,
demonstrated by our newly established relationship with Indoff, the largest
distributor of material handling equipment in the United
States.





The
Zapino is an electric scooter that is a great link between ZAP’s
personal transporters and electric cars. Not only economical and
eco-friendly, the Zapino is powerful with an advanced 3000-watt brushless
DC hub motor, perfect for city commuting. Able to reach speeds of 30 MPH,
the Zapino is able to keep up with city traffic without contributing to
city pollution. The rear wheel hub motor on the Zapino creates more room on
board for additional batteries and performance. This innovative drive
system eliminates the need for belts or chains with lower overall maintenance.
It also delivers a more enjoyable ride because it is nearly silent,
accelerates smoothly with no shifting, has no engine vibration, no tailpipe
or heat exhaust -- just good, clean fun.








23


Off-Road
Vehicles





All
terrain vehicle (“ATV”) manufacturers recognized in excess of $5.0
billion in revenues in 2006 with the market for ATVs. In the United States
alone, approximately 800,000 units were sold in 2006. To date, all of the
ATV’s on the market are gas-powered. We believe electric ATV’s have
practical environmental benefits over their gas-powered counterparts: they
are silent and generate no emissions. Moreover, there are now over 8,000
organic farms in the United States which are committed to reducing
pollutants that may put organic certification at risk. The electric ATVs
can provide the ruggedness of the traditional ATV in areas never before
accessible, while being more versatile than golf carts.





We
entered the electric ATV market in 2006 with our ZAP Buzz mini ATV. The Buzz has
a 450 watt geared-motor and a top speed of 15 mph with a range
of approximately 20 miles. In the 1st quarter of 2007, we introduced the
800 watt “mid size” ATV for sale in the United States and some of our
existing ZAP dealers already have placed preorders. We hope to launch a
heavy duty ATV in the 3rd quarter 2008 with product features and styling
comparable to existing gas-models. We believe our position as an innovator
in the electric vehicle market, coupled with first-mover advantage in the
electric ATV market, will allow us to capitalize on this market segment. If
we are able to capture 1% of the all terrain vehicle market share, it could
equate to over $40 million in revenues per year. However, there can be no
assurances that we will be able to achieve such market share.





Risk
factors




We have a
history of losses and our future profitability on a quarterly or annual basis is
uncertain, which could have a harmful effect on our business and the value of
ZAP’s common stock.





We
incurred net losses of $4.6 million, $9.8 million, $28 million, for the six
months  ended June 30, 2009 and the years ended December 31, 2008,
2007 respectively.  We can give no assurance that we will be able to
operate profitably in the future.





We
face intense competition which could cause us to lose market
share.





In the
advanced technology vehicle market in the United States, we compete with large
manufacturers, including Honda, Toyota, and Nissan, have more significant
financial resources, established market positions, long-standing relationships
with customers and dealers, and who have more significant name recognition,
technical, marketing, sales, manufacturing, distribution, financial 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 marketplace exceed the resources currently
available to us.  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 Portable Energy
line.  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.





Changes in the market for electric
vehicles could cause our products to become obsolete or lose
popularity.





The
electric vehicle industry is in its infancy and has experienced substantial
change in the last few years.  To-date, demand for and interest in
electric vehicles have been sporadic.  As a result, growth in the
electric vehicle industry depends on many factors, including:




·
            continued
      development of product technology;·
            the
      environmental consciousness of
customers;


·
            the
      ability of electric vehicles to successfully compete with vehicles powered
      by internal combustion engines;·
            widespread
      electricity shortages and the resultant increase in electricity prices,
      especially in our primary market, California, which could derail our past
      and present efforts to promote electric vehicles as a practical solution
      to vehicles which require gasoline;
and


·
            whether
      future regulation and legislation requiring increased use of nonpolluting
      vehicles is enacted.




We cannot
assure you that growth in the electric vehicle industry will
continue.  Our business may suffer if the electric vehicle industry
does not grow or grows more slowly than it has in recent years or if we are
unable to maintain the pace of industry demands.


24


We
may be unable to keep up with changes in electric vehicle technology and, as a
result, may suffer a decline in our competitive
position.





Our
current products are designed for use with, and are dependent upon, existing
electric vehicle technology.  As technologies change, we plan to
upgrade or adapt our products in order to continue to provide products with the
latest technology.  However, our products may become obsolete or our
research and development efforts may not be sufficient to adapt to changes in or
create necessary technology.  As a result, our potential inability to
adapt and develop the necessary technology may harm our competitive
position.





The
failure of certain key suppliers to provide us with components could have a
severe and negative impact upon our business.





We rely
on a small group of suppliers to provide us with components for our products,
some of whom are located outside of the United States.  If these
suppliers become unwilling or unable to provide components, there are a limited
number of alternative suppliers who could provide them.  Changes in
business conditions, wars, governmental changes, and other factors beyond our
control or which we do not presently anticipate could affect our ability to
receive components from our suppliers.  Further, it could be difficult
to find replacement components if our current suppliers fail to provide the
parts needed for these products.  A failure by our major suppliers to
provide these components could severely restrict our ability to manufacture our
products and prevent us from fulfilling customer orders in a timely
fashion.





Product
liability or other claims could have a material adverse effect on our
business.





The risk
of product liability claims, product recalls, and associated adverse publicity
is inherent in the manufacturing, marketing, and sale of electrical
vehicles.  Although we have product liability insurance for our
consumer products for risks of up to an aggregate of $5,000,000, that insurance
may be inadequate to cover all potential product claims.  We also
carry liability insurance on our automobile products.  Any product
recall or lawsuit seeking significant monetary damages either in excess of our
coverage, or outside of our coverage, may have a material adverse effect on our
business and financial condition.  We may not be able to secure
additional product liability insurance coverage on acceptable terms or at
reasonable costs when needed.  A successful product liability claim
against us could require us to pay a substantial monetary
award.  Moreover, a product recall could generate substantial negative
publicity about our products and business and inhibit or prevent
commercialization of other future product candidates.  We cannot
assure you that such claims and/or recalls will not be made in the
future.





We
must devote substantial resources to implementing a product distribution
network.





Our
dealers are often hesitant to provide their own financing to contribute to our
product distribution network.  As a result, we anticipate that we may
have to provide financing or other consignment sale arrangements for dealers who
would like to participate as our regional distribution
centers.





The
further expansion of our product distribution network will require a significant
capital investment and will require extensive amounts of time from our
management.  A capital investment such as this presents many risks,
foremost among them being that we may not realize a significant return on our
investment if the network is not profitable.  Our inability to collect
receivables from our dealers could cause us to suffer losses.  Lastly,
the amount of time that our management will need to devote to this project may
divert them from performing other functions necessary to assure the success of
our business.







25


Failure to manage our growth
effectively could adversely affect our business.





We plan
to increase sales and expand our operations substantially during the next
several years through internally-generated growth and the acquisition of
businesses and products.





To manage
our growth, we believe we must continue to implement and improve our
operational, manufacturing, and research and development
departments.  We may not have adequately evaluated the costs and risks
associated with this expansion, and our systems, procedures, and controls may
not be adequate to support our operations.  In addition, our
management may not be able to achieve the rapid execution necessary to
successfully offer our products and services and implement our business plan on
a profitable basis.  The success of our future operating activities
will also depend upon our ability to expand our support system to meet the
demands of our growing business.  Any failure by our management to
effectively anticipate, implement, and manage changes required to sustain our
growth would have a material adverse effect on our business, financial
condition, and results of operations.  We cannot assure you that we
will be able to successfully operate acquired businesses, become profitable in
the future, or effectively manage any other change.  An inability to
successfully operate recently acquired businesses and manage existing business
would harm our operations.




The loss of certain key personnel
could significantly harm our business.





The
Company’s performance is substantially dependent upon the services of its
executive officers and other key employees, as well as on its ability to
recruit, retain, and motivate other officers and key employees. Competition for
qualified personnel is intense and there are a limited number of people with
knowledge of and experience in the advanced technology vehicle industry. The
loss of services of any of our officers or key employees, or our inability to
hire and retain a sufficient number of qualified employees, will harm our
business. Specifically, the loss of Mr. Schneider, our Chief Executive Officer
or Mr. Starr, our co-founder, whose specialized knowledge of the electric
vehicle industry is essential to our business, would be detrimental. We have
employment agreements with Mr. Schneider and Mr. Starr that provide for their
continued service to the Company until October 1, 2013.





Regulatory
requirements may have a negative impact upon our business.





While our
products are subject to substantial regulation under federal, state, and local
laws, we believe that the products we have sold are materially in compliance
with all applicable laws.  However, to the extent the laws change, or
if we introduce new products in the future, some or all of our products may not
comply with applicable federal, state, or local laws.  Further,
certain federal, state, and local laws and industrial standards currently
regulate electrical and electronics equipment.  Although standards for
electric vehicles are not yet generally available or accepted as industry
standards, our products may become subject to federal, state, and local
regulation in the future.  Compliance with this regulation could be
burdensome, time consuming, and expensive.





Our
automobile products are subject to environmental and safety compliance with
various federal and state regulations, including regulations promulgated by the
EPA, NHTSA, and Air Resource Board of the State of California, and compliance
certification is required for each new model year.  The cost of these
compliance activities and the delays and risks associated with obtaining
approval can be substantial





Manufacturing
overseas may cause problems for us.





We have
been shifting our manufacturing overseas. There are many risks associated with
international business.  These risks include, but are not limited to,
language barriers, fluctuations in currency exchange rates, political and
economic instability, regulatory compliance difficulties, problems enforcing
agreements, and greater exposure of our intellectual property to markets where a
high probability of unlawful appropriation may occur.  A failure to
successfully mitigate any of these potential risks could damage our
business.






26


We
may not be able to protect our internet address.





We
currently hold the internet address, http://www.zapworld.com, a portal through
which we sell our products.  We may not be able to prevent third
parties from acquiring internet addresses that are confusingly similar to our
address, which could adversely affect our business.  Governmental
agencies and their designees generally regulate the acquisition and maintenance
of internet addresses.  However, the regulation of internet addresses
in the United States and in foreign countries is subject to
change.  As a result, we may not be able to acquire or maintain
relevant internet addresses in all countries where we conduct
business.





Our
success is heavily dependent on protecting our intellectual property
rights.





We rely
on a combination of patent, copyright, trademark, and trade secret protections
to protect our proprietary technology.  Our success will, in part,
depend on our ability to obtain trademarks and patents.  We hold
several patents registered with the United States Patent and Trademark
Office.  These registrations include both design patents and utility
patents.  In addition, we have recently submitted provisional patents
which may or may not be afforded the limited protection associated with
provisional patents.  We have also registered numerous trademarks with
the United States Patent and Trademark Office, and have several pending at this
time.  We cannot assure you that the trademarks and patents issued to
us will not be challenged, invalidated, or circumvented, or that the rights
granted under those registrations will provide competitive advantages to
us.





We also
rely on trade secrets and new technologies to maintain our competitive
position.  Although we have entered into confidentiality agreements
with our employees and consultants, we cannot be certain that others will not
gain access to these trade secrets.  Others may independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets.





We
may be exposed to liability for infringing intellectual property rights of other
companies.





Our
success will, in part, depend on our ability to operate without infringing on
the proprietary rights of others.  Although we have conducted searches
and are not aware of any patents and trademarks which our products or their use
might infringe, we cannot be certain that infringement has not or will not
occur.  We could incur substantial costs, in addition to the great
amount of time lost, in defending any patent or trademark infringement suits or
in asserting any patent or trademark rights, in a suit with another
party.





Risk
of Unregistered Securities Offering.





In the
past, we have had numerous sales of our securities which were not registered
under federal or state securities laws.  We have strived to comply
with all applicable Federal and state securities laws in connection with our
issuances of unregistered securities.  However, to the extent we have
not complied, there may be liability for the purchase price of the securities
sold together with interest and the potential of regulatory
sanctions.





Our
stock price and trading volume may be volatile, which could result in
substantial losses for our stockholders.





The
equity trading markets may experience periods of volatility, which could result
in highly variable and unpredictable pricing of equity
securities.  The market price of our common stock could change in ways
that may or may not be related to our business, our industry or our operating
performance and financial condition.  In addition, the trading volume
in our common stock may fluctuate and cause significant price variations to
occur.  We have experienced significant volatility in the price of our
stock over the past few years.  We cannot assure you that the market
price of our common stock will not fluctuate or decline significantly in the
future. In addition, the stock markets in general can experience considerable
price and volume fluctuations.





We have
not paid cash dividends on our common stock and do not anticipate paying any
cash dividends on our common stock in the foreseeable future.





We have
not achieved profitable operations and if we do realize a profit in the future,
we anticipate that we will retain all future earnings and other cash resources
for the future operation and development of our
business.  Accordingly, we do not intend to declare or pay any cash
dividends on our common stock in the foreseeable future.  Payment of
any future dividends will be at the direction of our board of directors after
taking into account many factors, including our operating results, financial
conditions, current and anticipated cash needs and plans for
expansion.








27


Seasonality
and Quarterly Results


The
Company’s business is subject to seasonal influences for consumer products.
Sales volumes in this industry typically slow down during the winter months,
November to March in the U.S. The Company’s auto distribution network is
affected by the availability of cars ready to sell to dealers.





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
4T.      Controls and Procedures





Disclosure
Controls and Procedures




Our
management, under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the
effectiveness of our disclosure controls and procedures (as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) as of the end of the period covered by this
report. Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, our
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by us in the reports filed, furnished or submitted under the Exchange
Act. Our Chief Executive Officer and Chief Financial Officer also concluded that
our disclosure controls and procedures are effective to ensure that information
required to be disclosed in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosures.




Changes
in Internal Control Over Financial Reporting





There
were no changes in our internal control over financial reporting (as defined in
Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by
this report that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.




















28


PART
II - OTHER INFORMATION





ITEM
1.        LEGAL
PROCEEDINGS.





In the
normal course of business, we may become involved in various legal proceedings.
Except as stated below, we know of no pending or threatened legal proceeding to
which we are or will be a party which, if successful, might result in a material
adverse change in our business, properties or financial condition. However, as
with most businesses, we are occasionally parties to lawsuits incidental to our
business, none of which are anticipated to have a material adverse impact on our
financial position, results of operations, liquidity or cash flows. The Company
estimates the amount of potential exposure it may have with respect to
litigation claims and assessments.





Voltage
Vehicles v. Rajun Cajun, et al., Superior Court of California, County of Sonoma,
Case No. SCV 240179, filed February 9, 2007. In its Complaint, Voltage Vehicles
requests Declaratory Relief against Rajun Cajun, asking the Court to declare
that the License Agreement between those two parties does not grant Rajun Cajun
an exclusive dealership in northern Nevada to distribute Voltage Vehicle
products and that Voltage Vehicles has performed its obligations under the
License Agreement.  On April 19, 2007, Rajun Cajun filed a Motion to
Quash and/or for Dismissal or Stay.  On May 7, 2007 Rajun Cajun
voluntarily withdrew its Motion to Quash and/or for Dismissal or
Stay.  On May 24, 2007 Rajun Cajun filed both an Answer to Voltage
Vehicles’ Complaint and a Cross-Complaint against Voltage Vehicles adding ZAP,
Elliot Winfield, Steven Schneider, Phillip Terrazzi, Max Scheder-Breschin, and
Renay Cudie [sic] as cross-defendants, and adding Robert and Mary Chauvin as
cross-complainants.  The Cross-Complaint alleged breach of contract,
breach of the covenant of good faith and fair dealing, breach of warranties,
fraud/misrepresentation, negligent misrepresentation, quantum merit or unjust
enrichment, civil conspiracy, violation of Securities and Exchange Act/federal
securities law, deceptive trade practices, and declaratory relief pursuant to a
License Agreement (for a distribution license) entered into between Rajun Cajun,
Inc. (dba ZAP of Carson City, dba ZAP of Reno, dba ZAP of Sparks) and Voltage
Vehicles. The Cross-Complaint sought general damages in an amount in excess of
$25,000, special damages in an amount in excess of $25,000, punitive damages in
an amount in excess of $25,000, attorneys' fees and cost of suit, for judgment
in an amount equal to treble actual damages, and rescission in the amounts of
$397,900 and $120,000, plus interest.  Cross-Complainants thereafter
filed a First Amended Cross-complaint and Third Party Complaint (“First Amended
Cross-complaint”).  On February 11, 2008 ZAP and Voltage Vehicles
filed a demurrer to Cross-complainants’ third through fifteenth causes of
action.  In its tentative ruling on that demurrer, the Court ruled in
ZAP and Voltage Vehicles’ favor and granted Rajun Cajun leave to file a Second
Amended Cross-Complaint.  Rajun Cajun did not contest the ruling,
which then became the order of the Court.  In the interim, the
individual third party defendants were served with the First Amended
Cross-Complaint.  On July 16, 2008 the individual cross-defendants
(Steven Schneider, Renay Cudie [sic], Elliott Winfield, Phillip Terrazzi, and
Max Scheder-Breschin) were dismissed from the action in its
entirety.  On August 7, 2008 Rajun Cajun filed a Second Amended
Cross-complaint and Third Party Complaint  (“Second Amended
Cross-complaint”) against ZAP and Voltage Vehicles.  On September 16,
2008 ZAP and Voltage Vehicles filed a demurrer to the Second Amended
Cross-complaint.  On January 8, 2009 the parties engaged in mediation,
but were ultimately unsuccessful in reaching settlement.  The court
issued its order on the demurrer to the Second Amended Cross-Complaint on
February 10, 2009, denying the demurrer as to the twelfth cause of action for
negligent misrepresentation and sustaining the demurrers to the remaining causes
of action with leave to amend.  On March 6, 2009 Rajun Cajun served an
Amended Cross-complaint, erroneously entitled Fourth Amended Cross-Complaint and
Third Party Complaint (“Third Amended Cross-complaint”).  A Mandatory
Settlement Conference was held on March 25, 2009, but the parties were
ultimately unsuccessful in reaching settlement.  On April 3, 2009 ZAP
and Voltage Vehicles filed a demurrer to the Third Amended Cross-complaint, and
on April 22, 2009 the court sustained the demurrer and gave Cross-complainants
leave to amend with an order to file and serve the amended cross-compliant by
April 29, 2009.  The court also postponed the trial, which had been
set for April 24, 2009.  The trial date has not yet been
reset.  On April 29, 2009 Rajun Cajun served its Fourth Amended
Cross-complaint and Third Party Complaint (“Fourth Amended
Cross-complaint”).  The Fourth Amended Cross complaint contains six
causes of action, specifically: fraudulent misrepresentation; breach of written
contracts–asset purchase agreements; negligence; negligent misrepresentation;
securities fraud; and contract rescission for fraud in the
inducement.  The Fourth Amended Cross-complaint seeks general damages
in an amount in excess of $500,000, damages for Cross-complainants’ lost
earnings, both past and future, in a sum to be proven at trial, a sum in excess
of $500,000 for Cross-complainants’ mental pain, a sum in excess of $500,000 for
willful and wanton misconduct, rescission of the license agreement and
consideration paid to Cross-complainants, with interest, costs and attorneys’
fees, and such other and further relief the court may deem just and
equitable.  ZAP and Voltage Vehicles have both responded to the Fourth
Amended Cross-complaint and filed a motion for summary judgment, or in the
alternative summary adjudication.  The hearing on the summary judgment
motion is scheduled for August 17, 2009.  The trial date has been
reset for October 2009.






29


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





The
following lists sales of unregistered securities during the quarter ended June
30, 2009 that were not previously included in a Quarterly Report on Form 10-Q or
a Current Report on Form 8-K.   We relied on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended
(the “Securities Act”) for the issuance of these securities.  Except
as stated below, no underwriting discounts or commissions were payable with
respect to any of the following transactions. The offer and sale of the
following securities was exempt from the registration requirements of the
Securities Act under Rule 506 insofar as (1) except as stated below, each of the
investors was accredited within the meaning of Rule 501(a); (2) the transfer of
the securities were restricted by the company in accordance with Rule 502(d);
(3) there were no more than 35 non-accredited investors in any transaction
within the meaning of Rule 506(b), after taking into consideration all prior
investors under Section 4(2) of the Securities Act within the twelve months
preceding the transaction; and (4) none of the offers and sales were effected
through any general solicitation or general advertising within the meaning of
Rule 502(c).





On June
9, 2009, the Company issued 4,000,000 shares of common stock for a private
placement valued at $2 million. On the same date the Company also issued 72,067
shares valued at $21,620 in exchange for leasehold improvements.





On June
19, 2009, the Company issued 223,810 shares valued at $94,000 for a public
relations retainer and services.







Item
3.         Defaults upon Senior
Securities





Related
Party Dispute





Please
note the indebtness is due to a related party—Al Yousuf LLC whose President Mr.
Eqbal Al Yousuf is also a Director of ZAP and our current Chairman of the
Board of ZAP.  We have signed a Settlement agreement (Term Sheet) to
resolve the matter.





On July
30, 2008 we received a $10 million financing arrangement from the Al Yousuf
Group, a Dubai-based conglomerate to provide future working capital to ZAP and
help meet the growing demand for ZAP electric vehicles. The financing
arrangement allows for advances by ZAP over the next few years commencing
on the date of the Note. The initial outstanding principal sum advanced to the
Company is $1,760,000. This advance was used to pay-off the existing secured
note payable on the building. The Note matures February 28, 2010. Interest only
payments are due under the Note monthly commencing August 30, 2008. All
principal and interest due under the Note is secured by the corporate
headquarters building in Santa Rosa, California





On May
14, 2009 we received a Notice of Delinquent Payments from Mr. Hossein Haghighi,
the Chief Financial Officer of Al Yousuf LLC, notifying us that an outstanding
principle for inventory advances of $2.8 million plus monthly interest payments
has not been paid as required by a $10 million Promissory Note. Mr. Haghighi
further indicated that AL Yousuf LLC intended to enforce the collection of the
total amounts due under the terms of the note against the Company. The
collateral for the note is our corporate headquarters building and land located
in Santa Rosa California.  The total due on the note is approximately
$4.7 million at June 30, 2009 with inventory advances totaling $2.9 million and
a building loan of $1.8 million plus interest.





In lieu
of modifying the note, we have signed a Settlement Agreement (Term Sheet) to
transfer real property to Al Yousuf LLC to satisfy the obligation outstanding.
The completion of the agreement is subject to an independent appraisal of the
property and building by an outside party.  Our discussions are
continuing, and we believe that we can resolve the matter with Al Yousuf LLC by
the end of September of 2009. As of June 30, 2009, the Company had borrowed $2.9
million for inventory and operational funding. The total amounts due Al
Yousuf per the settlement agreement including the building mortgage
mentioned above is $4.7 million.





We have
experienced the following transactions that strengthen our
liquidity:





1) 
On August 6, 2009, we completed a private placement with a new investor for a
total of $5 million for 20 million shares of common stock. In conjunction with
the transaction we also entered into a secured loan facility with the Investor
pursuant to a Secured Convertible Promissory Note.  The Note provides
for an aggregate principal amount of up to $10 million in advances to be made to
the Company by the Investor prior to October 1, 2012.





2) 
In June of 2009, we completed a private placement with one of our large
shareholders (two of his controlled entities) for a total of $2 million for 8
million shares of common stock. One half or $1 million was received and the
other $1 million is due throughout 2010 in accordance with the terms of the
shareholder note receivable. In addition warrants were also issued to the
investors which grant the holders the right to purchase up to 8,000,000 shares
of the Registrant’s Common Stock at a price of $0.50 per share.


30


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





Not
Applicable







Item
5.         Other
Information





Not
Applicable







Item
6.         Exhibits





2.1       Approved
Second Amended Plan of Reorganization, dated as June 20, 2002. (5)





3.1       Amended
and Restated Articles of Incorporation. (4)





3.2       Certificate
of Determination of Series SA Convertible Preferred Stock. (14)





4.1       Form
of common share purchase warrant of the Company held by Fusion Capital Fund II,
L.P. (6)





4.2       Form
of Series B common stock purchase warrant of the Company. (14)





4.3       Form
of Series K common stock purchase warrant of the Company. (14)





10.1     Settlement
Agreement between ZAPWORLD.COM, Ridgewood ZAP, LLC, and the
Shareholders dated June 27, 2001. (3)





10.3     2004
Consultant Stock Plan. (7)





10.4     Convertible
Promissory Note, dated April 26, 2004, issued to Banks Living Trust.
(1)





10.5     Purchase
and Sale Agreement dated March 7, 2003 between ATOCHA Land LLC and ZAP.
(3)




10.6     Promissory
Note $2,000,000 - Atocha Land LLC and ZAP. (3)





10.7     Warrant
Agreement dated April 26, 2004, issued to Banks Living
Trust.  (1)





10.8     Common
Stock Purchase Agreement between ZAP and Fusion Capital Fund II, LLC.
(6)





10.9     Registration
Rights Agreement between ZAP and Fusion Capital Fund II, LLC. (6)





10.10   Form
of Common Stock Purchase Warrant between ZAP and Fusion Capital Fund II, LLC
(6)





10.11   Agreement
for Consulting Services with Evan Rapoport dated January 8, 2004.
(1)





10.12   Asset
Purchase Agreement dated April 12, 2004 with Jeffrey Banks for purchase of
various autos (1)





10.13   Agreement
for Private Placement Investment received dated April 14, 2004 with Phi-Nest
Fund  LLP (1)





10.14   Consulting
Agreement dated April 21, 2004 with Elexis International (1)




10.15   Consulting
Agreement dated April 21, 2004 with Sunshine 511 Holdings (1)




10.16   Definitive
Stock Agreement dated October 25, 2004 with Smart-Automobile, LLC
(2)





31


10.17   Master
Distribution Agreement between Apollo Energy Systems, Inc. and Voltage Vehicles
Corporation, a subsidiary of ZAP. (8)





10.18   ZAP
Floor Line and Dealer Development Agreement with Clean Air Motors, LLC for a $45
Million Floor Plan Line of Credit for Qualified ZAP Dealers (9)





10.19   Exclusive
Purchase, License and Supply Agreement between Smart Automobile, LLC and ZAP.
(10)





10.20   Amendment
dated November 15, 2004 to previous consulting agreement with Sunshine Holdings
511 (14)





10.21   Secured
Promissory Note Payable dated December 30, 2004 with Phi-Nest Fund, LLP.
(14)





10.22   ZAP
assignment of 2.9 million shares of Restricted Common Stock to Phi-Nest Fund,
LLP as collateral on note payable (14)





10.23   Promissory
note receivable dated January 6, 2005 for $1 million loan  due from
Smart Automobile, LLC and Thomas Heidemann (President Smart Automobile, LLC)
(14)





10.24   Security
Agreement dated January 6, 2005 from Smart Automobile, LLC and Thomas Heidemann
(President Smart Automobile, LLC) to secure loan above. (14)





10.25   Common
Stock Purchase Agreement between ZAP and Platinum Partners Value Arbitrage Fund
LP (14)





10.26   Form
of Common Stock Purchase Warrant between ZAP and Platinum Partners Value
Arbitrage Fund LP (14)





10.27   Common
Stock Purchase Agreement between ZAP and Lazarus Investment Partners LLP
(14)





10.28   Form
of Common Stock Purchase Warrant between ZAP and Lazarus Investment Partners LLP
(14)





10.29   Termination
of Common Stock Purchase Agreement between ZAP and Fusion Capital Fund
II,       LLC (11)





10.30   Financing
Agreement between ZAP and Surge Capital II, LLC (12)





10.31   Exclusive
Purchase, License, and Supply Agreement between ZAP and Obvio! Automotoveiculos
S.P.E. Ltda (13)





10.36   Agreement
dated July 14, 2006 between ZAP, Thomas Heidemann and Smart Automobile
(15)





10.37   Amendment
Agreement Dated August 30, 2006 between ZAP and Smart Automobile LLC
(16)





10.38   Exclusive
Distribution Agreement dated May 1, 2005, as supplemented by a letter dated June
9, 2006 (17)





10.39   ZAP
Guarantee (18)





10.40   Shandong
Jindalu Vehicle Co., Ltd. Guarantee (19)





10.41   Joint
Venture Negotiations dated September 21, 2006 (20)





10.42   Security
Purchase Agreement between ZAP and Certain Institutional Investors
(21)





10.43   Purchase
and Amendment Agreement between ZAP and Certain Institutional Investors
(22)





10.44   Form
of Convertible





10.45   Form
of Warrant





10.46   Purchase
order from the Electric Vehicle Company, LLC (“EVC”) for 10,000 of its Xebra
2007 model year electric vehicles





32


10.47   Distribution
agreement this week with PML FlightLink Limited (PML) for the purchase of an
advanced wheel motor and control system
 
 10.48   Joint
Venture Agreement with Youngman Automobile Co., Ltd to manufacture, market and
distribute electric a and hybrid vehicles for the worldwide passenger car, truck
and bus
 
 10.49   Form
SB-2 Registration of Common Stock incorporated by reference to SEC filing on
September 24, 2007 effective on October 2, 2007.
 
 10.50   Settlement
and Mutual Release Agreement with Gemini Master Fund,LTD and Gemini
Strategies,LLC dated May 7, 2008.(22)


10.51   Note
Purchase Agreement with Al Yousuf dated May 8, 2008. (22)





10.52   Promissory
Note in favor of AlYousuf LLC,dated July 30, 2008 and Deed of Trust, Assignment
of Leases, Rents and Security Agreement and Fixture Filing by ZAP in favor of Al
Yousuf LLC, dated July 30, 2008.(23)





10.53  
Subscription Agreement dated June 9, 2009 from The Banks Group,
LLC. (24)




10.54  
Subscription Agreement dated June 9, 2009 from The Banks Development
Trust. (24)




10.55  
Warrant to Purchase Common Stock dated June 9, 2009 issued to The Banks
Group,LLC. (24)




10.56   Warrant
to Purchase Common Stock dated June 9, 2009 issued to The
Banks  Development  Trust (24)




10.57   Employment
Agreement with Gary Dodd President of ZAP (25)





10.58 Securities
Purchase Agreement dated August 6, 2009 with Cathaya Capital L.P
(26)





10.59 Secured
Convertible Promissory Noted dated August 6, 2009 with Cathaya Capital L.P
(26)





10.60 Security  Agreement
dated August 6, 2009 with Cathaya Capital L.P (26)





10.61 Warrant
(First) to Purchase  Common Stock dated August 6, 2009 with Cathaya
Capital L.P (26)





10.62 Warrant
(Second) to Purchase Common  Stock dated August 6, 2009 with Cathaya
Capital L.P (26)





10.63 Registration
Rights Agreement dated August 6, 2009 with Cathaya Capital L.P
(26)





10.64 Voting
Agreement dated August 6, 2009 with Cathaya Capital L.P (26)





10.65 Indemnification
Agreement dated August 6, 2009 with Priscilla Lu (26)





10.66 Amendment
to Prior Employment  Agreements dated August 6, 2009 with Steven
Schneider (26)




21.1 
   List of subsidiaries. (3)





31.1     Certification
of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the
Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.(22)





31.2     Certification
of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the
Exchange Act, as Adopted Pursuant to  Section 302 of the
Sarbanes-Oxley Act of 2002. (22)





32.1     Certification
of Principal Executive Officer Pursuant to 18 U.S.C.  Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(22)





32.2     Certification
of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(22)





33


(1)  
  Previously filed as an exhibit to the Registrant’s Form 8-K for the
quarter ended March 31, 2004 and incorporated by reference.


(2) 
   Previously filed as an exhibit to the Registrant’s Form 8-K of
November 6, 2004 and incorporated by reference.


(3)  
  Previously filed as an exhibit to the Registrant’s Annual Report on
Form 10-KSB for the year ended December 31, 2003 and incorporated by
reference.


(4)  
  Previously filed with Pre-effective Amendment Number 3 to Form SB-2
registration statement filed with the Securities and Exchange Commission on
October 3, 2001.


(5) 
   Previously filed as an exhibit to the Registrant’s Form 8-K of
October 20, 2002 and incorporated by reference.


(6) 
   Previously filed as an exhibit to the Registrant’s Current
Report on Form 8-K dated July 22, 2004 and incorporated by
reference.


(7)  
  Previously filed as an exhibit to the Registrant’s Registration
Statement on Form S-8 (File No. 333-117560) on July 22, 2004.


(8)   
 Previously filed as an exhibit to the Registrant’s Current Report on Form
8K filed with the Securities and Exchange Commission on October 6, 2004 and
incorporated herein by reference.


(9) 
   Previously filed as an exhibit to the Registrant’s Quarterly
Report on Form 10QSB for the period ended September 30, 2004 and incorporated
herein by reference.


(10)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on April 21, 2004 and incorporated herein by
reference.


(11)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on February 25, 2005 and incorporated herein
by reference.


(12)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on September 16, 2005 and incorporated herein
by reference.


(13)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on September 21, 2005 and incorporated herein
by reference.


(14) 
 Previously filed as an exhibit to the Registrant’s Current Report on Form
8K filed with the Securities and Exchange Commission on July 20, 2006 and
incorporated herein by reference.


(15)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on September 6, 2006 and incorporated herein
by reference.


(16)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on November 6, 2006 and incorporated herein
by reference.


(17)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on November 6, 2006 and incorporated herein
by reference.


(18)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on November 6, 2006 and incorporated herein
by reference.


(19)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on November 6, 2006 and incorporated herein
by reference.


(20)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on December 11, 2006 and incorporated herein
by reference.


(21)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on February 26, 2007and incorporated herein
by reference.


(22)  
Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10Q
for the period ended June 30, 2008 and incorporated herein by
reference.


(23)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on August 5, 2008and incorporated herein by
reference.


(24)
  Previously filed as an exhibit to the Registrant’s Current Report on
Form 8K filed with the Securities and Exchange Commission on June 11, 2009 and
incorporated herein by reference.


(25)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on June 18, 2009 and incorporated herein by
reference.


(26)   Previously
filed as an exhibit to the Registrant’s Current Report on Form 8K filed with the
Securities and Exchange Commission on  August 10, 2009 and
incorporated herein by reference.




















34


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.









ZAPDated: 
       August 13, 2009
                  By:
                  /s/ Steven
      SchneiderName:  
      Steven SchneiderTitle:    
      Chief Executive Officer
                    (Principal Executive
Officer)




Dated: 
       August 13, 2009
              By:
              /s/ William
      HartmanName:  
      William HartmanTitle:    
      Chief Financial Officer
                (Principal Financial and Accounting
Officer)























































35