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 Third quarter of 2009 and through the date of this report are as follows:

1. We secured up to $25 million in new financing with Cathaya Capital, L.P. With offices in Silicon Valley, Cathaya, L.P. is backed by financier Jacques de Chateauvieux's Paris-based Jaccar Holdings and intends to manage the investment through its affiliate Better World International Ltd. Financing includes a private placement of twenty million shares of common stock for aggregate proceeds of $5 million and a secured loan facility of up to $10 million that will be advanced to ZAP provided

2. 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. 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.

3. We also received a follow-on order from the U.S. military for additional Zaptruck XL electric vehicles and charging stations for shipment to a second international base. The reorder was based on an initial trial order placed in June. The new order includes eleven Zaptruck XLs as well as five 220-volt fast charging stations.

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                 Nine months
                                   ended September 30          ended September 30
                                        2009     2008              2009         2008
Statements of Operations Data:
Net sales                                100 %       100 %          100 %        100 %
Cost of sales                          (67.8 )     (87.9 )        (83.5 )      (88.6 )
Operating expenses                    (255.5 )     (94.1 )       (244.4 )     (129.6 )
Loss from operations                  (223.1 )     (79.3 )       (227.9 )     (118.2 )
Net loss                              (233.5 )     (81.0 )       (241.7 )     (123.7 )

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

Net sales for the quarter ended September 30, 2009 were $1.2 million compared to $3.1 million for the period ended September 30, 2008.

Our third quarter sales of Advanced Technology vehicles such as the ZAP Truck, ZAP Van and Xebra, our three wheeled electric car and Zapino a full size electric road scooter decreased from $2.2 million in 2008 to $727,000 in 2009. The decrease of $1.5 million is primarily due to the phase out of our three wheeled Xebra vehicle with reduced selling prices. The introduction and sales of the four wheeled ZAP Truck and ZAP Van of $125,000 in the third quarter partially offset the Xebra decline of $1.7 million.

Our retail car lot experienced a decrease of $93,000 in sales for the third quarters from $528,000 in 2008 to $435,000 in 2009. The decrease was due to the mix of available vehicles for resale. During the third quarter the retail car lot had many SUV's and trucks that experienced less consumer demand. The business segment was also affected by US government rebates to new large new car dealers.

In our Consumer Product segment third quarter sales decreased from $364,000 in 2008 to $83,000 in 2009 for the third quarter ended September 30. The decrease is primarily due to less consumer demand for the ZAPPY 3 Pro together with the Company's shift in marketing efforts to become a major distributor of advanced technology vehicles.

The current U. S. economic recession has also caused an overall decrease in sales of all products.

Gross profit increased by $31,000 from a gross profit of $370,000 for the third quarter ended September 30, 2008 to a gross profit of $401,000 for the quarter ended September 30, 2009. As a percentage of sales the overall increase was from 12% to 32% primarily due to the advanced technology segment.

The Consumer Products segment experienced an increase in gross profits in the third quarter from a gross loss of $48,000 in 2008 to a gross profit of $7,000 in 2009. The increase was due less costs for quality control labor. In the third quarter of 2008, we experienced repairs for the ZAPPY 3 Pro model, since then we have changed manufacturers.

The gross profit in the third quarter for our car lot decreased from $156,000 in 2008 to $88,000. As a percentage of sales it is a decrease from 30% to 20%. 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.

Sales and marketing expenses decreased by $184,000 from $438,000 for the quarter ended September 30, 2008 to $254,000 in 2009. The decrease was due to the elimination of certain sales and marketing positions in the third quarter ended September 30, 2009. In addition, we decreased the use of outside consultants to assist our sales efforts.

General and administrative expenses increased by $404,000 from $2.2 million for the quarter ended September 30, 2008 to $2.6 million in 2009. The reason for the increase was greater expense for legal fees for the financing arrangement with Cathaya Capital LLC. See further discussion in the liquidity section of this report. In addition, we incurred higher costs for the expensing of new employee stock options that were granted in the third quarter of 2009.

Research and development expenses decreased by $57,000 from $138,000 in 2008 to $81,000 for the third quarter ended September 30, 2009. The decrease was due to less work on the development of the Alias prototype vehicle where in 2008, we used funds to develop various models of the vehicle.

Impairment of Assets represents the allowance for the phase out of our Latin American dealer and adjustments to certain of our building improvement projects.

Interest expense, net increased from an expense of $54,000 in third quarter 2008 to $134,000 in third quarter of 2009. The increase was due to the higher loan balance on the promissory note with Al Yousuf LLC see also note 5, short-term debt.

Other income net increased from of $1,000 for the third quarter of 2008 to other income of $5,000 in the third quarter of 2009. The increase was due to income from other minor customer fees.

Net loss for the third quarter ended September 30, 2009 was $2.9 million as compared to a loss of $2.5 million for the period ended September 30, 2008.

Nine months Ended September 30, 2009 Compared to Nine months Ended September 30, 2008

Net sales for the nine months ended September 30, 2009, were $3.1 million compared to $6 million for the nine months ended September 30 in the prior year.

Sales in the Advanced Technology segment decreased from $4.1 million in 2008 to $1.4 million in 2009. The tight U.S. credit and general economic conditions negatively impacted our dealer sales in the first nine months of 2009. In addition, we also decreased our production of our three wheel electric vehicle the Xebra to transition to 4 wheel electric vehicles, the ZAP Truck and the ZAP Van.

We experienced an decrease of $246,000 in sales of consumer products from $611,000 in 2008 to $365,000 in 2009 due to fewer ZAPPY 3 scooters available for resale as we searched for a new outside contractor manufacturer in 2009. We also experienced less consumer demand as we focused our marketing efforts on becoming a major distributor of advanced technology vehicles.

Gross profit decreased by $177,000 from $687,000 for the nine months ended September 30, 2008 compared to $510,000 for the nine months ended September 30, 2009 . However the gross profit as a percentage of net sales increased from 10% to 17%. Overall the decrease in gross profits was due to $3 million less sales for the nine month period ended September 30, 2009 versus 2008.

In our Advanced Technology segment our gross profit decreased by $376,000 from a gross profit of $632,000 for the nine months ended September 30, 2009 The decrease was primarily due to lower sales volumes and the establishment of an allowance of $248,000 to repair Xebras for the safety recall.

In our Consumer Products segment we experienced a decrease of $92,000 in gross loss from $126,000 in 2008 to a gross loss of $34,000 in 2009. The gross loss was less due to a sales decrease of $246,000 for the first nine months of 2009 compared to 2008.

Gross profits in our retail car lot increased by $107,000 from $181,000 for the nine months ended September 30, 2008 to $288,000 for the nine months ended September 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 nine months of 2009 decreased by $292,000 from $1.2 million in 2008 to $948,000 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 nine months ended September 30, 2009 decreased by $363,000 from $6.1 million in 2008 to $5.8 million in 2009. The decrease was due to less legal and professional fees for the first nine months. In addition, various general and administrative positions were either eliminated or work time cut-back.

Research and development expenses decreased by $293,000 from $456,000 in 2008 to $163,000 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 and we are seeking full repayment for the products. In addition, we established an allowance to phase out our Latin American dealer.

Interest expense, net increased by $147,000 from an interest expense of $284,000 for the first nine months of 2008 to interest expense of $431,000 in the nine months ended September 30, 2009. The increase was due to higher borrowings on the Financing arrangement with Al Yousuf .

Other Income (expense) decreased from an expense of $42,000 for the nine months ended September 30, 2008 to other income of $8,000 in the first nine months of 2009. The decrease was due less one time charges for charitable contributions that were done in 2008.

Net loss for the both of the nine months ended September 30, 2009 and 2008 was approximately $7.5 million.

Liquidity and Capital Resources

In the first nine months of 2009 net cash used for operating activities was $1.6 million. Cash used in the first nine months of 2009 was comprised of the net loss incurred for the first nine months of $7.5 million plus net non-cash expenses of $4.7 million and the net increase of $1.1million in operating assets and liabilities. In the first nine months of 2008, the Company used cash for operations of $4.8 million was comprised of the net loss of $7.5 million plus net non-cash expenses of $4.7 million, and the net decrease in operating assets and liabilities of $2 million.

Financing activities for the first nine months ended September 30, 2009 provided cash of $6.3 million compared with $1.5 million in 2008. In 2009, we received cash from private placements of $6.1 million from four investors.

The Company had cash of $5.3 million at September 30, 2009 as compared to $996,000 at September 30, 2008. The Company had working capital of $48,000 and working capital of $235,00 for the periods ended September 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 $3.4 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 $5.6 million at September 30, 2009 with inventory advances totaling $3.8 million and a building loan of $1.8 million plus interest.

On September 25, 2009, a complaint captioned Al Yousuf LLC v ZAP (Case No. SW 245950) was filed in the Superior Court for the County of Sonoma. The complaint alleges causes of action for judicial foreclosure and deficiency judgment in connection with a loan agreement with Al Yousuf LLC. The President of Al Yousuf LLC, Eqbal Al Yousuf, is a member of ZAP's board of directors. In its Complaint, Al Yousuf LLC claims that ZAP has failed to make scheduled payments required under the loan agreement which is secured by real property that serves as ZAP's principal executive offices. Plaintiff seeks to foreclose on the property that secures the loan agreement and recover attorney's fees of approximately $125,000, and obtain such other and further relief as the Count may deem just and proper. ZAP has yet responded to the Complaint. The parties are engaged in settlement discussions.

We have experienced the following transaction that strengthen our liquidity:

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. In addition warrants were also issued to the investors which grant the holders the right to purchase up to 10,000,000 shares of the Registrant's Common Stock at a price of $0.50 per share. The warrants expire on August 16, 2014.

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. Additional warrants were also issued to the holder which grants the right to purchase up to six million shares of the Registrant's Common Stock at a price of $0.50 per share. The warrants expire on August 16, 2014.

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. The warrants expire on June 14, 2014.

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.

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 September 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.