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.

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 and a 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.

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               Six months
                                     ended June 30             ended June 30
                                   2009         2008         2009         2008
Statements 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.

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 expenses decreased by $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 Assets represents disputes 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, net decreased 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, net decreased 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 Loss for 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.

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 expenses for 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 expenses decreased 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 Assets represents disputes 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, net increased 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) decreased from 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 Loss was $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.

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;

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.

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

. . .