Edgar Filing: ZAP - Form 10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2008

[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________

Commission file number 0-303000

ZAP
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(Name of small business issuer in its charter)

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

501 Fourth Street, Santa Rosa California 95401
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(Address of principal executive offices) (Zip Code)

Issuer's telephone number (707) 525-8658

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

Common Stock, no par value OTC BB
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Title of Each Class Name Exchange on Which Registered

Securities registered under Section 12(g) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ] Accelerated filer [ ]

Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)

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

The aggregate market value of voting and non-voting common equity held by
non-affiliates of the Registrant computed by reference to the price at which the
common equity was sold or the average bid and asked prices as of March 27, 2009
was $3,240,000.

There were a total of 70,010,606 shares of the Registrant's Common Stock
outstanding as of March 27, 2009.
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TABLE OF CONTENTS

ITEM NO. PAGE
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS............................................. 4

ITEM 2. DESCRIPTION OF PROPERTY............................................. 14

ITEM 3. LEGAL PROCEEDINGS................................................... 14

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 16

PART II
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ITEM 5. MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES ................... 17

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........... 18

ITEM 8. FINANCIAL STATEMENTS................................................ 24

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.............................................. 45

ITEM 9A. CONTROLS AND PROCEDURES............................................. 45

ITEM 9B. OTHER INFORMATION................................................... 46

PART III
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT .............. 46

ITEM 11. EXECUTIVE COMPENSATION ............................................. 49

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS ...................................... 52

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................... 54

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.............................. 55

ITEM 15. EXHIBITS............................................................ 56

PART 1

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

THIS ANNUAL 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 ALTERNATE FUEL 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 IMPLEMENT OUR
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 FUEL-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.

In this annual report on Form 10-K 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. ZAP World Outlet, ZAP Rental Outlet and RAP Group are not
currently operating subsidiaries.

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 2006 ZAP
introduced pure plug-in cars and trucks, capable of running on electricity. 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 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.

PRODUCT SUMMARY

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

ZAP AUTOMOTIVE
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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 2008, ZAP Automotive introduced the ZAP truck XL and ZAPVAN Shuttle, two low
speed vehicles with MSRP of $14,500 and $14,700, respectively.

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

o The ZAP Alias, which has a target price of $35,000 to $45,000 per vehicle
and an estimated range of 100 miles per charge. This vehicle launch date
is for late 2009.

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 one of 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 $11,700 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.

Working with our Chinese manufacturing partner, we have designed two XEBRA
models: a sedan and a utility pick-up truck. The Chinese manufacturer's current
manufacturing capacity is approximately 1,000 vehicles per month. Initial market
demand has been strong, both from end consumers using the vehicle as a
"city-car" and from fleet managers of municipalities, states, green friendly
corporations, and universities who have a preference or mandate to purchase zero
emission vehicles.

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.

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. A combination of the lightweight
aluminum vehicle architecture, a new efficient drive and advanced battery
management systems is intended to enable a range of up to 350 miles between
charges. An auxiliary power unit is planned to support longer distance journeys.

We are also developing an all electric sport vehicle with a targeted 100 mile
range, the ZAP Alias (TM), which is expected late in 2009.

Future Automotive Offerings
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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 2008, we have identified the
following products as potential future offerings for the Company: (1) an
affordable 100% electric two-seater sports coupe; (2) a high performance highway
all electric vehicle and (3) electric trucks.

ZAP Power Systems
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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.

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

Segway'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 up to 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. 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 in 2008. 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.

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 launched a heavy duty ATV, the ZAP
Dude in the 3rd quarter 2008 with product features and styling comparable to
existing gas-models. 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 $9.8 million, $28 million, $11.9 million, for the
years ended December 31, 2008, 2007 and 2006 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 GM, Honda, Toyota, and Chrysler, who 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. 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 has been sporadic. As a result, growth in the electric vehicle industry
depends on many factors, including:

o continued development of product technology;

o the environmental consciousness of customers;

o the ability of electric vehicles to successfully compete with vehicles
powered by internal combustion engines;

o 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

o 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.

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.

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 founder, who is also head of our R&D efforts, 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. Although the Company had marketed its Smart Car product in the
United States, the car must be certified by the California Air Resources Board
before it can be sold in California, New York, and three other states. In
addition, the two models of our OBVIO products will need to satisfy all
regulatory requirements before they can be sold in the United States. The risks,
delays, and expenses incurred in connection with such compliance could 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.

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.

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.

SOURCES AND AVAILABILITY OF PARTS AND SUPPLIES

Materials, parts, supplies and services used in our business are generally
available from a variety of sources. However, interruptions in production or
delivery of these goods could have an adverse impact on our general operations,
or our manufacturer's operations and production of ZAP products. We strive to
have dual sources.

LICENSES, PATENTS AND TRADEMARKS

We have the following patents covering our electric vehicles:

------------------------ ------------- -----------------------------------------
United States Patent Date Subject
------------------------ ------------- -----------------------------------------
Patent No. 5,491,390 2/13/1996 Electric motor power system for bicycles,
tricycles, and scooters
------------------------ ------------- -----------------------------------------
Patent No. 5,671,821 9/30/1997 Electric motor system
------------------------ ------------- -----------------------------------------
Patent No. 5,848,660 12/15/1998 Portable Collapsible Scooter (ZAPPY)
------------------------ ------------- -----------------------------------------
Patent No. 5,634,423 6/3/1997 Personal Submersible Marine Vehicle
------------------------ ------------- -----------------------------------------
Patent No. 5,423,278 6/13/1995 Submersible Marine Vessel
------------------------ ------------- -----------------------------------------
Patent No. 5,303,666 4/19/1994 Submersible Marine Vessel
------------------------ ------------- -----------------------------------------
Patent No. 6,748,894 6/15/2004 Submersible Marine Vessel (sea scooter)
------------------------ ------------- -----------------------------------------
Patent No. 6,588,528 7/8/2003 Electric Vehicle Drive System
------------------------ ------------- -----------------------------------------
Patent No. 5,842,535 12/1/1998 Electric Drive Assembly for Bicycles
------------------------ ------------- -----------------------------------------
Patent No. 6,050,357 4/18/2000 Powered Skateboard
------------------------ ------------- -----------------------------------------
Patent No. 6,059,062 5/9/2000 Powered Roller Skates
------------------------ ------------- -----------------------------------------
Patent No. 5,735,361 4/7/1998 Dual-Pole Personal Towing Vehicle
------------------------ ------------- -----------------------------------------
Patent No. 5,913,373 6/22/1999 Dual-Pole Dual-Wheel Personal Towing
Vehicle
------------------------ ------------- -----------------------------------------
Patent No. DS40400 Pending Three-Wheeled Vehicle (ZAPPY 3 Scooter)
------------------------ ------------- -----------------------------------------
Patent No. D433,718 11/14/2000 Portable Collapsible Scooter (ZAPPY)
------------------------ ------------- -----------------------------------------
Patent No. D347,418 5/31/1994 Scuba Scooter
------------------------ ------------- -----------------------------------------
Patent No. D359,022 6/6/1995 Scuba Scooter
------------------------ ------------- -----------------------------------------

We have the following trademarks covering our electric vehicles:

------------------------ --------------------- ---------------------------------
United States Trademark Subject
------------------------ --------------------- ---------------------------------
Trademark No. 2759913 Cap'n Billy's Wiz-Bang and design
------------------------ --------------------- ---------------------------------
Trademark No. 2240270 Electricruizer
------------------------ --------------------- ---------------------------------
Trademark No. 2534197 ETC Express
------------------------ --------------------- ---------------------------------
Trademark No. 2878219 ETC Traveler
------------------------ --------------------- ---------------------------------
Trademark No. 2248753 Powerbike
------------------------ --------------------- ---------------------------------
Trademark No. 2224640 Powerski
------------------------ --------------------- ---------------------------------

------------------------ --------------------- ---------------------------------
Trademark No. 2329466 The Future is Electric
------------------------ --------------------- ---------------------------------
Trademark No. 1794866 ZAP
------------------------ --------------------- ---------------------------------
Trademark No. 2912329 ZAP Car
------------------------ --------------------- ---------------------------------
Trademark No. 2335090 ZAP Electric Vehicle Outlet
------------------------ --------------------- ---------------------------------
Trademark No. 2885816 ZAP Seascooter
------------------------ --------------------- ---------------------------------
Trademark No. 2330894 ZAPPY
------------------------ --------------------- ---------------------------------
Trademark No. 2371240 Zapworld.com
------------------------ --------------------- ---------------------------------
Trademark No. 2320346 Zero Air Pollution
------------------------ --------------------- ---------------------------------
Trademark No. 2689203 Swimmy
------------------------ --------------------- ---------------------------------

BACKLOG

As of March 27, 2009, the Company has over $2 million in backlog orders from
auto-dealer purchase contracts for Xebra(TM)Electric vehicles. We anticipate
shipping these units from on hand inventory and future shipments. ZAP has a
ready supply of Xebras from our China manufacturer. The backlog for our consumer
products on the same date was $18,000. We anticipate shipping the consumer
products throughout the year of 2009.

COMPETITIVE CONDITIONS

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

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

EMPLOYEES

As of March 30, 2009, the Company had a total of 48 employees. We have
employment agreements with the following: Mr. Schneider (Chief Executive Officer
and Director), Mr. Starr (Head of R&D), until 2013, Mr. Hartman (Chief Financial
Officer) until August 2009 with annual extensions and Mr. Kazzaz (Chief
Operating Officer) until 2010. We believe our employee relations are generally
good. Our employees are not represented by a collective bargaining unit.

ITEM 2. DESCRIPTION OF PROPERTY.

The chart below contains a summary of our principal facilities

Location Use Square Feet Rent
------------------------ ---------------------- ----------- -------

501 Fourth Street, SR Corporate Headquarters 20,000 $ - (1)
9 th Street,SR Warehousing 58,700 $ 14,109

3362 &3405 Fulton Road, SR Office, Automobile Lot 21,780 $ 7,000
44720 Main Street,Mendocino Retail Outlet 5,500 $ -

(1) The building debt is due to Al Yousuf LLC, whose president is the
Chairman of the Board of ZAP, with a scheduled maturity on February 28,
2010. The loan may be extended by mutual agreement between the parties.

The Company purchased the Fourth Street building in March 2003 to use as our
principal executive offices. The building was built originally in 1906 and is in
downtown Santa Rosa. Over the years it was updated and remodeled by previous
owners and the Company. The Company has renovated the building during its
ownership with new carpets, paint and remodeled to include a new showroom and
conference room. The building and contents are adequately insured in the opinion
of management. The Company occupies more than 90 percent of the building. The
property tax rate is set at 1 percent per year of the assessed value of $3.1
million. The building is being depreciated over a 30 year useful life. The
Company purchased the Mendocino California property in May 2005 which is
currently being used as a retail outlet. The net book value of our real estate
holdings at December 31, 2008 was approximately $3.7 million.

The rest of our facilities are rented or leased. The properties located at 3362
and 3405 Fulton Road are rented on a month-by-month basis from ZAP's Chief
Executive Officer. The Company plans to continue to rent properties based on the
Company's needs. The Company believes these properties are adequate for the
Company's foreseeable needs.

It is management's opinion that our insurance policies cover all insurance
requirements of the landlords. We own the basic tools, machinery and equipment
necessary for the conduct of our repairs, our minimal research and development,
and vehicle prototyping activities. We believe that the above facilities are
generally adequate for present operations. At present, the manufacturing for the
Company is being contracted out.

ITEM 3. 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 has estimated the amount of potential exposure, if any,
it may have with respect to litigation claims and assessments.

Robert Chauvin; Mary Chauvin; Rajun Cajun, Inc. dba ZAP of Carson City, dba ZAP
of Reno, dba ZAP of Sparks ("Robert Chauvin, et al.") v. Voltage Vehicles; ZAP;
ZAP Power Systems Inc.; ZAPWORLDCOM; Elliot Winfield; Steven Schneider; Phillip
Terrazzi; Max Scheder-Breschin; Renay Cude; [sic] and Does I-XX, Second Judicial
District Court State of Nevada, County of Washoe, Case No. CV06 02767. On
November 17, 2006, Robert Chauvin, et al. filed a complaint alleging 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 Security [sic] and Exchange
Act/federal securities law, and deceptive trade practices, 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 ("Rajun Cajun") and
Voltage Vehicles. The complaint seeks general damages in an amount in excess of

$10,000, special damages in an amount in excess of $10,000, punitive damages in
an amount in excess of $10,000, attorneys' fees and cost of suit, for judgment
in an amount equal to treble actual damages, and recession in the amounts of
$397,900 and $120,000. On January 19, 2007, defendants Voltage Vehicles and ZAP
filed a Motion to Dismiss on the grounds that the License Agreement entered into
between Rajun Cajun and Voltage contains a forum selection clause designating
Sonoma County, State of California as the only appropriate forum. The court
granted that Motion on April 13, 2007. In its order on that motion, the court
also found that all other motions pending in the Nevada court in this matter are
now moot. (As of that time, the following motions were still pending: (1)
Chauvin, et al.'s Notices of Intent to Take Default against two of the named
corporate defendants and against the individual defendants, except Renay Cude;
(2) a Motion to Quash Service of Process or Alternatively for Dismissal by each
of the individual defendants and both of the defunct corporate defendants; and
(3) Chauvin, et al.'s Motion for Publication of Summons against the named
individual defendants.)

Voltage Vehicles v. Rajun Cajun, et al., Superior Court of California, County of
Sonoma, Case No. SCV 240179, filed February 9, 2007. (This suit is related to
the Nevada case of Robert Chauvin, et al. v. Voltage Vehicles, et al. discussed
immediately above.) 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
May 24, 2007, Rajun Cajun filed a Cross-Complaint in substantially the same form
as the Complaint filed in Nevada, alleging breach of contract, breach of the
covenant of the good faith, etc. The Cross-Complaint seeks 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 the amount equal to treble actual damages, and rescission
in the amounts of $397,900 and $120,000, plus interest. Cross-Defendants intend
to vigorously defend against the claims set forth in the Cross-Complaint and so,
on August 22, 2007, Cross-Defendants filed both a special demurrer for abatement
to prohibit Cross-Complainants from maintaining a cross-complaint and a demurrer
to the Cross-Complaint itself. On February 11, 2008 ZAP and Voltage Vehicles
filed a demurrer to Cross-complainants' third through fifteenth causes of
action. A hearing on that demurer is currently set for June 11, 2008. In its
tentative ruling, the Court ruled in ZAP and Voltage Vehicles' favor and granted
Rajun Cajun leave to file a Second Amended Cross-Complaint. The Second Amended
Cross-complaint seeks general damages in an amount in excess of $50,000, damages
for Cross-plaintiffs' lost earnings, both past and future, in a sum to be proven
at trial, a sum in excess of $50,000 for Cross-complainants' mental pain, a sum
in excess of $50,000 for willful and wanton misconduct, and such other and
further relief the court may deem just and equitable. On September 16, 2008 ZAP
and Voltage Vehicles filed a demurrer to the Second Amended Cross-complaint. The
hearing on Zap and Voltage Vehicle's demurrer to the Second Amended
Cross-complaint is set for November 19, 2008. A Settlement Conference is set for
March 25, 2009 and Trial Call is set for April 24, 2009. In the meantime,
discovery is ongoing.

equipment, and a writ of attachment, seeking attachment of $122,588.26 against
ZAP. The hearing on CIT's writ applications was held on June 3, 2008. At that
hearing, the Court denied CIT's application for writ of attachment, finding that
CIT had not proven, based on the record to date, that it was more likely than
not to prevail at trial on its breach of contract cause of action against ZAP.
The Court did, however, grant CIT's application for writ of possession, finding
no dispute between the parties regarding ZAP's willingness to give to CIT all
components of the at-issue telephone equipment still in ZAP's possession. Given
ZAP's multiple offers to date to cooperate in returning any such equipment, the
Court refused CIT's demand that ZAP be required to post a bond to support the
writ of possession. The writ of possession was issued on June 17, 2008, but, to
date, ZAP is unaware of any action by CIT to enforce that writ. On June 20,
2008, ZAP sent CIT an Offer to Compromise, offering to settle the matter with
ZAP's payment to CIT of $2,500, inclusive of attorneys' fees and costs to date.
CIT has rejected that offer. On February 11, 2009, ZAP filed a motion for
summary judgment or, in the alternative, summary adjudication. CIT's opposition
to that motion is due March 24, 2009, and the hearing on that motion is
scheduled for April 7, 2009. In the meantime, ZAP and CIT attended a telephonic
mediation on February 13, 2009, but the parties were unable to reach a
settlement. The parties then attended a mandatory settlement conference on March
16, 2009, but were again unable to reach a settlement. Trial in this matter is
scheduled for May 1, 2009. Discovery is ongoing. We intend to vigorously defend
ourselves against these claims and believe that we have adequately provided in
our financial statements for this matter.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The following matters were submitted to a vote of security holders during our
annual meeting of shareholders held on November 29, 2008.

--------------------------------------------------------------------------------
To elect Steven Schneider to serve until the next annual meeting and until their
successors are elected and qualified.
--------------------------------------------------------------------------------
FOR WITHHELD ABSTAIN
--------------------------------------------------------------------------------
33,162,994 848,818 -
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
To elect Gary Starr to serve until the next annual meeting and until their
successors are elected and qualified.
--------------------------------------------------------------------------------
FOR WITHHELD ABSTAIN
--------------------------------------------------------------------------------
33,150,669 861,143 -
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
To elect Eqbal Al Yousuf to serve until the next annual meeting and until their
successors are elected and qualified.
--------------------------------------------------------------------------------
FOR WITHHELD ABSTAIN
--------------------------------------------------------------------------------
35,526,778 485,034 -
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
To elect Peter Scholl to serve until the next annual meeting and until their
successors are elected and qualified.
--------------------------------------------------------------------------------
FOR WITHHELD ABSTAIN
--------------------------------------------------------------------------------
33,483,190 528,622 -
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
To elect Randall Waldman to serve until the next annual meeting and until their
successors are elected and qualified.
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
--------------------------------------------------------------------------------
33,299,422 712,390 -
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Approval of the Company's 2008 Employee Stock Option Plan
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
--------------------------------------------------------------------------------
13,617,054 1,059,800 143,261

--------------------------------------------------------------------------------
To ratify the appointment of Bagell,Josephs & Levine & Co. LLC as the Company's
independent accountant.
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
--------------------------------------------------------------------------------
33,545,927 255,460 210,425
--------------------------------------------------------------------------------

PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND SMALL BUSINESS
PURCHASES OF EQUITY SECURITIES.

MARKET INFORMATION

ZAP's common stock is quoted on the OTC Bulletin Board under the symbol
"ZAAP.OB".

BID PRICE
-------------------------
PERIOD HIGH LOW
------------------------------- ------ ------
FISCAL YEAR 2008:
DECEMBER 31, 2008 $ 0.27 $ 0.24
SEPTEMBER 30, 2008 0.60 0.51
JUNE 30, 2008 0.75 0.65
MARCH 31, 2008 0.47 0.42

FISCAL YEAR 2007:
DECEMBER 31, 2007 $ 0.81 $ 0.74
SEPTEMBER 30, 2007 1.04 1.02
JUNE 30, 2007 0.96 0.93
MARCH 31, 2007 1.15 1.05

HOLDERS

We have approximately 3,494 record holders of our common stock as of March 27,
2009, according to a shareholders' list provided by our transfer agent as of
that date. The number of registered shareholders does not include any estimate
by us of the number of beneficial owners of common shares held in street name.
The transfer agent and registrar for our common stock is Continental Trust &
Transfer Company.

DIVIDENDS

We have never declared nor paid any cash dividends on our common stock, and we
do not anticipate that we will pay any cash dividends on our common stock in the
foreseeable future. Any future determination to declaration and payment of cash
dividends will be at the discretion of our board of directors, and will be
dependent upon our financial condition, results of operations, capital
requirements and other factors as our board of directors may deem relevant at
that time. On November 9, 2006, ZAP's Board of Directors approved a 10% stock
dividend to be issued, effective February 28, 2007, to all shareholders of
record as of February 15, 2007.

RECENT SALES OF UNREGISTERED SECURITIES

The following lists sales of unregistered securities during the last fiscal year
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 October 30, 2008 the Company issued 12,945 shares for outside services valued
at $5,178.

On November 28, 2008 the Company issued 2,140,974 shares valued at $492,424 to
the Al Yousuf Group LLC . The stock was issued for the conversion into equity of
the convertible debt principle and interest.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

THIS ANNUAL REPORT, INCLUDING THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS, AND OTHER REPORTS FILED BY THE REGISTRANT FROM TIME TO TIME WITH THE
SECURITIES AND EXCHANGE COMMISSION (COLLECTIVELY THE "FILINGS") CONTAIN
FORWARD-LOOKING STATEMENTS WHICH ARE INTENDED TO CONVEY OUR EXPECTATIONS OR
PREDICTIONS REGARDING THE OCCURRENCE OF POSSIBLE FUTURE EVENTS OR THE EXISTENCE
OF TRENDS AND FACTORS THAT MAY IMPACT OUR FUTURE PLANS AND OPERATING RESULTS.
THESE FORWARD-LOOKING STATEMENTS ARE DERIVED, IN PART, FROM VARIOUS ASSUMPTIONS
AND ANALYSES WE HAVE MADE IN THE CONTEXT OF OUR CURRENT BUSINESS PLAN AND
INFORMATION CURRENTLY AVAILABLE TO US AND IN LIGHT OF OUR EXPERIENCE AND
PERCEPTIONS OF HISTORICAL TRENDS, CURRENT CONDITIONS AND EXPECTED FUTURE
DEVELOPMENTS AND OTHER FACTORS WE BELIEVE TO BE APPROPRIATE IN THE
CIRCUMSTANCES. YOU CAN GENERALLY IDENTIFY FORWARD-LOOKING STATEMENTS THROUGH
WORDS AND PHRASES SUCH AS "SEEK", "ANTICIPATE", "BELIEVE", "ESTIMATE", "EXPECT",
"INTEND", "PLAN", "BUDGET", "PROJECT", "MAY BE", "MAY CONTINUE", "MAY LIKELY
RESULT", AND SIMILAR EXPRESSIONS. WHEN READING ANY FORWARD-LOOKING STATEMENT YOU
SHOULD REMAIN MINDFUL THAT ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY
UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING
FUTURE EVENTS OR FUTURE PERFORMANCE OF OUR COMPANY, AND ARE SUBJECT TO RISKS,
UNCERTAINTIES, ASSUMPTIONS AND OTHER FACTORS RELATING TO OUR INDUSTRY AND
RESULTS OF OPERATIONS, INCLUDING BUT NOT LIMITED TO THE FOLLOWING FACTORS:

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 IMPLEMENT OUR
GROWTH STRATEGIES,
o OUR ABILITY TO OBTAIN APPROVAL FROM GOVERNMENT AUTHORITIES FOR OUR
PRODUCTS;
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."

SUMMARY OF KEY ACCOMPLISHMENTS DURING 2008
Recent Developments

Some of the significant events for the Company that occurred during the year of
2008 and through the date of this report are as follows:

1. We introduced a new four wheeled Electric Van and a Truck in December
2008. 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. 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.

2. In January of 2009 we also introduced the ZAP Alias which is a stylish,
100% electric, 2-seater capable of freeway speeds. ZAP indicated the
mass-production version of the Alias is targeted to be priced under
$35,000. In the fourth quarter of 2009, ZAP plans to produce a limited
number of hand-crafted, Signature Series Alias roadsters.

3. We are currently engaged in ongoing talks with Franklin-based ZAP Motor
Manufacturing Kentucky led by CEO Gary Dodd and his new management team
to build and assemble several of ZAP's best-selling electric vehicles.

4. 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 LLC, Mr. Eqbal Al-Yousuf is our Chairman of the
Board. The financing arrangement allows for advances by ZAP over the next
few years.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2008 COMPARED TO YEAR ENDED DECEMBER 31, 2007

NET SALES for the year ended December 31, 2008, were $7.5 million compared to
$5.7 million for the year ended December 31 in the prior year which is an
increase of $1.8 million or 31%. Some of the reasons for the increase in sales
are as follows:

Sales in the Advanced Technology segment increased from $2.8 million in 2007 to
$4.9 million in 2008 primarily due to greater demand. With the higher price of
gasoline in the U.S. during a major part of 2008 many consumers are seeking
alternatives such as electric vehicles both our Xebra electric vehicle and our
Zapino a full-size electric scooter.

We experienced a decrease of $39,000 in sales of consumer products from $742,000
in 2007 to $703,000 in 2008. Our main consumer product the ZAPPY3 electric
scooter was not available until late in 2008 since our previous manufacturer
experienced financial difficulties and discontinued production. We have located
a new supplier to a new contractor but did not receive new products until March
2009.

Sales in our Portable Energy segment decreased from $875,000 in 2007 to $173,000
in 2008. The primary reason for the decrease was the transfer in June of 2008 of
this product line to a new company, Portable Energy LLC in exchange for a 50%
interest and a new product mix.

Our retail car lot experienced a slight increase in sales from $1.3 million in
2007 to $1.7 million in 2008. However, the overall U.S. market for retail cars
remains sluggish due to the tight economic conditions.

GROSS PROFIT was $799,000 for the year ended December 31, 2008 compared to
775,000 for the year ended December 31, 2008 resulting in a increase of $24,000.
The reasons for the increase were as follows:

In our Advanced Technology segment our gross profit increased from $247,000 in
2007 to $709,000 in 2008.
The increase was due to greater units sold from 287 vehicles in 2007 to 554 in
2008. The gross margins also increased from 9% to 14% due to less minor repairs
to the finished vehicles sent by the factory in China.

In our Consumer Products segment we experienced a decrease of $224,000 in gross
loss from $88,000 in 2007 to a gross loss of $312,000 in 2008. As per above,
we did not have product available in 2008 but still incurred fixed expenses for
labor, rents etc.

Gross profits in our retail car lot decreased from $331,000 or 25% of sales to
$298,000 or 14 % of sales in 2008. This reflects lower margins on car sales due
to the tight economy.

SALES AND MARKETING EXPENSES for the year of 2008 increased by $300,000 from
$1.5 million in 2007 to $1.8 million in 2008. The increase was due to higher
salaries with more personnel in the function and outside consultants used to
promote the sales efforts in the Advanced Technology Segment.

GENERAL AND ADMINISTRATIVE EXPENSES for the year ended December 31, 2008
decreased by $17.4 million from $25.3 million in 2007 to $7.8 million in 2008.
The primary reason for the decrease was due to the 2007 one-time non-cash
expense of $12 million to account for the modification and extension of certain
expiring warrants that were issued to shareholders pursuant to the plan of
reorganization in June of 2002 and also to current ZAP employees for
compensation purposes. The warrants were extended by five years until July 2012
with the exercise prices also adjusted.
We also experienced a decrease in professional fees of approximately $600,000 in
2008.

RESEARCH AND DEVELOPMENT EXPENSES DECREASED by $200,000 from $616,000 in 2007 to
$416,000 in 2008. The expenses in 2008 were due additional costs to build a full
scale model of our new vehicle, the ZAP-Alias. This vehicle will be a
production-ready all electric highway vehicle. In 2008 we also incurred expenses
to develop a heavy duty ATV for ZAP in the USA market and a four wheeled
electric truck. During 2007 we spent approximately $600,000 for a project with
Lotus Engineering for research and development for two concept electrical
vehicles.

INTEREST EXPENSE, NET decreased by $998,000 from an interest expense of $1.4
million for the year ended December 31, 2007 to interest expense of $395,000 for
the year ended December 31, 2008. The decrease was due to less interest and
penalties paid in connection with the senior convertible debt that was issued in
late 2006 and early 2007.

OTHER INCOME (EXPENSE) decreased from income of $199,000 for the year ended 2007
to an expense of $52,000 for 2007. In 2008 the expense includes our donation of
$25,000 to the Red Cross for China earthquake relief and expensing the remaining
balance of offering costs in connection with the convertible debt offering. In
2007 we recorded other

income due to the favorable valuation of stock that was issued in connection
with the property we purchased in Mendocino, California.

NET LOSS was $9.8 million for the year ended December 31, 2008 as compared to a
net loss of $28 million for period ended December 31, 2007. The additional
losses in 2007 were primarily due to the modification and extension of certain
expiring warrants that were issued by the Company to selected shareholders and
current ZAP employees.

In 2008 we also experienced a $1.8 million increase in sales of our Advanced
Technology electric vehicles. Many consumers are seeking sources of alternate
energy transportation.

LIQUIDITY AND CAPITAL RESOURCES

The Company used cash in operations of $ 6.9 million and $5.3 million during the
years ended December 31, 2008 and 2007, respectively. Cash used in operations in
2008 was the result of the net loss incurred for the year of $9.8 million,
offset by non-cash expenses of $2.8 million. In 2008, non-cash expenses included
$1.8 million for stock -based compensation for consulting and other services,
$2.7 million for stock-based compensation to employees. Cash used in operations
in 2007 was the result of the net loss incurred for the year of $28 million,
offset by non-cash expenses of $5.1 million. In 2007,non-cash included
$4.4million related to stock-based compensation for consulting and other
services, $17.3million for stock-based compensation to employees.

In 2008, the net change in operating assets and liabilities resulted in a cash
decrease of $2.1 million. The change was primarily due to increases for
inventory.

In 2007,The net change in operating assets and liabilities resulted in a cash
decrease of $739,000. The change was primarily due to decreases for inventory to
generate cash.

Investing activities used cash of $110,000 and $189,000 during the year ended
December 31, 2008 and 2007, respectively.

Financing activities provided cash of $3.1 million and $7.7 million during the
year ended December 31, 2008 and 2007, respectively. In 2008, the Company
borrowed funds on a $10 million financing facility established by Al Yousuf. In
2007, the Company received a $5 million investment by Al Yousuf.

The Company had cash and cash equivalents of $341,000 at December 31, 2008 as
compared to $4.3 million at December 31, 2007. The Company had a working capital
deficit of $981,000 at December 31, 2008 as compared to working capital of $3.4
million at December 31, 2007.

We do not have a bank operating line of credit, and there can be no assurance
that any required or desired financing will be available through bank
borrowings, debt or equity offerings, or otherwise, on acceptable terms. If
future financing requirements are satisfied through the issuance of equity
securities, investors may experience significant dilution in the net book value
per share of common stock, and there is no guarantee that a market will exist
for the sale of the Company's shares.

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.

Even though we received the $10 million financing arrangement noted above, we
are still seeking additional capital to expand our current product line. The
Company's primary capital needs are to continue building our dealer network

and expanding ZAP's market initiatives. ZAP also requires financing to purchase
consumer product inventory for the continued roll-out of new products, to add
qualified sales and professional staff to execute on ZAP's business plan, and to
expand ZAP's efforts in the research and development of advanced technology
vehicles, such as the new ZAP Alias and other fuel efficient vehicles.

STOCK ISSUED AS COLLATERAL

The stock was returned to the Company in January, 2008 and cancelled.

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.

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 by 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.

In order to finance our working capital requirements, we require additional
financing, but there can be no assurances that we will obtain this capital or
that it will be obtained on terms favorable to us. There can be no assurance
that any required or desired financing will be available through bank
borrowings, debt, or equity offerings, or otherwise, on acceptable terms. If
future financing requirements are satisfied through the issuance of equity
securities, investors may

experience significant dilution in the net book value per share of common stock
and there is no guarantee that a market will exist for the sale of the Company's
shares.

In addition to the above working capital needs, our other capital needs are to
fund our growth strategy, which includes increasing our shopping mall presence,
improving and increasing distribution channels, establishing Company owned and
franchised ZAP stores, expanding our electric vehicle dealerships, introducing
new products, improving existing product lines, and developing a strong
corporate infrastructure.

SEASONALITY AND QUARTERLY RESULTS

The Company's business is subject to seasonal influences. Sales volumes in this
industry typically slow down during the winter months, November to March in the
U.S. The Company intends to develop a wide auto distribution network to counter
any seasonality effects.

INFLATION

Our raw materials and finished products are sourced from stable,
cost-competitive industries. As such, we do not foresee any material
inflationary trends for our raw materials and finished goods sources.

USE OF ESTIMATES

The preparation of financial statements in conformity with U. S. generally
accepted accounting principles generally accepted in the United States of
America requires management of the Company to make estimates and assumptions
affecting the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as revenues and expenses during the reporting period. The amounts estimated
could differ from actual results.

ITEM 8. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
and Shareholders of ZAP

We have audited the accompanying consolidated balance sheets of ZAP as of
December 31, 2008 and 2007, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of internal control over financial
reporting Our audits include consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements audited by us present fairly, in all
material respects, the consolidated financial position of ZAP at December 31,
2008, and the consolidated results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 2008, in conformity with
U.S. generally accepted accounting principles.

/s/ Bagell, Joseph, Levine Company, LLC
-----------------------------------------
Marlton, New Jersey
March 30, 2009

ZAP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2008 and 2007
(In thousands, except share data)

ASSETS
------
12/31/08 12/31/07
---------- ----------

Current assets:
Cash and cash equivalents $ 341 $ 4,339
Accounts receivable, net of allowance of $33 in 2008
and $172 in 2007 377 373
Inventories 3,043 1,437
Prepaid non-cash professional fees 105 283
Other prepaid expenses and other current assets 765 747
---------- ----------
Total current assets 4,631 7,179

Property and equipment, net 4,335 4,471

Other assets:
Deposits and other 260 288
---------- ----------
$ 9,226 $ 11,938
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

Current liabilities:
Current portion of long-term debt and short term notes $ 2,976 $ 104
Accounts payable 474 128
Accrued liabilities 1,575 2,259
Deferred revenue 587 752
8% Senior convertible debt, net of discount of $136 -- 546

---------- ----------
Total current liabilities 5,612 3,789

Secured convertible note, less current portion 1,772 1,724
---------- ----------
Total Liabilities 7,384 5,513
---------- ----------
Commitments and contingencies

Shareholders' equity:

Common stock;400 million shares authorized; no par
value; 64,630,608 and 57,478,158 shares issued
and outstanding at December 31 2008 and 2007,respectively 126,347 122,672
Common Stock issued as loan collateral -- (1,549)
Accumulated deficit (124,505) (114,698)
---------- ----------
Total shareholders' equity 1,842 6,425
---------- ----------
$ 9,226 $ 11,938
========== ==========

See accompanying notes to consolidated financial statements.

ZAP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands; except per share data)

Year ended December 31
--------------------------
2008 2007
---------- ----------

Net sales $ 7,588 $ 5,712
Cost of goods sold 6,789 4,937
---------- ----------
Gross profit 799 775
---------- ----------
Operating expenses:
Sales and marketing 1,808 1,508
General and administrative (non-cash of
$4,326 2008 and $21,735 in 2007,respectively) 7,860 25,284
Research and development 416 616
Impairment loss on assets and goodwill 67 175
---------- ----------
Total operating expenses 10,151 27,583
---------- ----------
Loss from operations (9,352) (26,808)
---------- ----------
Other income (expense):
Interest expense, net (395) (1,393)

Other income (expense), net (56) 199

---------- ----------
(451) (1,194)
---------- ----------
Loss before income taxes (9,803) (28,002)

Provision for income taxes (4) (4)
---------- ----------
Net loss $ (9,807) $ (28,006)
========== ==========

Net loss per share attributable to common shareholders:
Basic and diluted $ (0.16) $ (0.59)

Weighted average number of common shares outstanding:
Basic and diluted 59,567 47,822

See accompanying notes to consolidated financial statements.

ZAP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2008 AND 2007
(In thousands)

Common
stock
Common stock issued
-------------------------- Accumulated as loan
Deficit collateral Total
---------- ---------- ---------- ---------- ----------

Balance at December 31, 2006 38,414 $ 91,227 (86,692) $ (1,549) $ 2,986
========== ========== ========== ========== ==========

Issuance of common stock for:
Inventory and other assets 242 237 237
Consulting and other services 3,448 3,415 3,415
Employee compensation 855 821 821
Cash 6,656 5,700 5,700
Exercise of warrants and options 955 719 719
Principle payments and conversion of convertible debt 2,931 2,166 2,166
Stock dividend 3,977 -- --

Fair value of warrants and options issued for:
Cash 200 200
Warrants issued to convertible debt holders 1,256 1,256
Consulting and other services 457 457
Employee compensation 16,474 16,474
Net loss (28,006) (28,006)

---------- ---------- ---------- ---------- ----------
Balance at December 31, 2007 57,478 $ 122,672 (114,698) $ (1,549) $ 6,425
========== ========== ========== ========== ==========

Issuance of common stock for:
Inventory and other assets 238 155 155
Cancellation of collateral (1,291) (1,549) (1,549)
Consulting and other services 3,607 1,639 1,639
Employee compensation 870 585 585
Settlement of obligations 1,012 764 764
Exercise of warrants and options 173 72 72
Principle payments and conversion of convertible debt 2,543 743 743

Fair value of warrants and options issued for:
Consulting and other services 200 200
Settlement of obligations 108 108
Employee compensation 958 958
Net loss (9,807) (9,807)

---------- ---------- ---------- ---------- ----------
Balance at December 31, 2008 64,630 $ 126,347 $ (124,505) $ -- $ 1,842
========== ========== ========== ========== ==========

See accompanying notes to consolidated financial statements.

ZAP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Year ended December 31
--------------------------
2008 2007
---------- ----------

Operating activities:
Net loss $ (9,807) $ (28,006)
Items not requiring the current use of cash:
Amortization of note discount and deferred offering
Costs 156 958
Stock-based employee compensation 1,852 17,295
Excess tax benefits from share-based payment arrangements 648
Stock-based compensation for consulting and other
services 2,753 4,368
Stock-based compensation for interest and other
penalities 17 314
Depreciation and amortization 215 318
Impairment of fixed assets and goodwill 67 175
Allowance for doubtful accounts (139) (7)
Changes in other items affecting operations:
Accounts receivable 135 (142)
Inventories (1,606) 1,004
Prepaid expenses (20) (295)
Other assets (150) (68)
Accounts payable 345 (121)
Accrued liabilities (677) (679)
Deferred revenue (165) (438)
---------- ----------
Cash used for operating activities (6,376) (5,324)
---------- ----------
Investing activities:
Acquisition of property and equipment (286) (189)

Proceeds from sale of equipment 176 --
---------- ----------
Cash used for investing activities (110) (189)
---------- ----------
Financing activities:
Issuance of common stock -- 5,900
Exercise of warrants and options 72 719
Pay-off of convertible debt (431) --
Re-issuance of convertible debt 475 --
Proceeds from debt, net of issuance costs 2,976 1,185
Borrowings (repayments) on long-term debt 44 (112)
Excess tax benefits from share-based payment arrangements (648)
---------- ----------
Cash provided by financing activities 2,488 7,692
---------- ----------

Increase (decrease) in cash and cash equivalents (3,998) 2,179

Cash and cash equivalents at beginning of year 4,339 2,160
---------- ----------

Cash and cash equivalents at end of year $ 341 $ 4,339
========== ==========

See accompanying notes to consolidated financial statements.

ZAP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND OPERATIONS:

ZAP ("The Company" or "ZAP"), was incorporated in California in September 1994.
ZAP markets many forms of advanced transportation, including alternative energy
and fuel efficient automobiles, motorcycles, bicycles, scooters, personal
watercraft, hovercraft, neighborhood electric vehicles, commercial vehicles and
more. Additionally, the Company produces an electric scooter, known as the
ZAPPY(R), using parts manufactured by various contractors. The Company's
business strategy has been to develop, acquire and commercialize electric
vehicles and electric vehicle power systems, which have fundamental practical
and environmental advantages over available internal combustion modes of
transportation that can be produced commercially on an economically competitive
basis. The Company intends to further expand its technological expertise through
an aggressive plan of acquisitions of companies with exciting new products in
the advanced transportation industry and strategic alliances with certain
manufacturers, distributors and sales organizations. The Company's business goal
is to become the largest and most complete distribution portal for advanced
transportation (fuel efficient) and electric vehicles. In 2008, the Company
continued to accelerate its market positioning in the electric vehicle industry.
The Company is now focused on creating a distribution channel for its vehicles,
with special emphasis on entrepreneurs in the power-sport and independent auto
industry.

A summary of significant accounting policies is as follows:

PRINCIPLES OF CONSOLIDATION
---------------------------

The accompanying consolidated financial statements include the accounts of ZAP,
Voltage Vehicles ("VV") and ZAP Stores for the years ended December 31, 2008 and
2007. All subsidiaries are 100% owned by ZAP. All significant inter-company
transactions and balances have been eliminated.

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.

DEFERRED REVENUE
----------------

Voltage Vehicles sells licenses to auto dealerships under the ZAP name. The term
of the license agreements range from four to five years and among other things,
call for the licensee to purchase a minimum number of vehicles from ZAP each
year. As of December 31, 2008, the Company has collected a total of $1,230,000
related to these agreements and has classified them as current deferred revenue.
The Company's policy is to begin recognizing revenue when they

begin delivering a substantial number of vehicles to these dealerships on a
regular basis. During the first quarter of 2007, the Company began recognizing
revenue on various license agreements on a straight-line basis over the term of
the agreements. The Company has recognized $165,000 and $478,000 of revenue and
changes to the license agreements for the year ended December 31, 2008 and 2007
resulting in an ending balance in deferred revenue of $587,000 and $752,000 at
December 31, 2008 and 2007.

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 December 31, 2008 and 2007. 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.

CASH AND CASH EQUIVALENTS
-------------------------

The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents. The Company maintains
the majority of its cash balances with one financial institution. At times the
balances may exceed federally insured limits. The Company has not experienced
any losses in such accounts and believes it is not exposed to any significant
credit risk on cash and cash equivalents.

INVENTORIES
-----------

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

PROPERTY AND EQUIPMENT
----------------------

Property and equipment consists of land, building and improvements, machinery
and equipment, office furniture and equipment, vehicles, and leasehold
improvements. Property and equipment is stated at cost and is depreciated or
amortized using straight-line and accelerated methods over the asset's estimated
useful life. Costs of maintenance and repairs are charged to expense as
incurred; significant renewals and betterments are capitalized. Estimated useful
lives are as follows:

Machinery and equipment 5 years
Computer equipment and software 3-5 years
Office furniture and equipment 5 years
Vehicles 5 years
Leasehold improvements 10 to 39.5 years or life of lease,
whichever is shorter
Building and improvements 39.5 years

PATENTS AND TRADEMARKS
----------------------

Patents and trademarks consist of costs expended to perfect certain patents and
trademarks acquired and are amortized over ten years. For each of the years
ended December 31, 2008 and 2007, amortization expense was approximately $35,000
and $21,000, respectively.

LONG-LIVED ASSETS
-----------------

Long-lived assets are comprised of property and equipment and intangible assets.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. An estimate of undiscounted future cash flows produced by the
asset, or by the appropriate grouping of assets, is compared to the carrying
value to determine whether impairment exists. If an asset is determined to be
impaired, the loss is measured based on quoted market prices in active markets,
if available. If quoted market prices are not available, the estimate of fair
value is based on various valuation techniques, including a discounted value of
estimated future cash flow and fundamental analysis. The Company reports an
asset to be disposed of at the lower of its carrying value or its estimated net
realizable value.

ADVERTISING
-----------

The cost of advertising is expensed as incurred. Advertising and marketing
expenses amounted to $218,000 and $199,000 for the years ended December 31, 2008
and 2007, respectively.

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(R) vehicles and
varying monthly warranties on other products. Changes in the Company's warranty
liability during the years ended December 31, 2008 and 2007 are as follows (in
thousands):

2008 2007
-------- --------
Balance as of January 1, $ 293 $ 279
Provision for warranties 113 126
Charges against warranties (153) (112)
-------- --------
Balance December 31, $ 253 $ 293
-------- --------

SHIPPING AND HANDLING COSTS
---------------------------

Shipping and handling costs have been included in cost of goods sold.

RESEARCH AND DEVELOPMENT
------------------------

Research and product development costs are expensed as incurred.

USE OF ESTIMATES
----------------

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions affecting the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as revenues and expenses during the reporting
period. The amounts estimated could differ from actual results.

RISKS AND UNCERTAINTIES
-----------------------

The Company relies on one manufacturer, Shandong Jindalu Vehicle Co., LTD of
China ("Shandong") to supply 100% of Xebra(TM) Electric Vehicles. If Shandong is
unable to supply electric vehicles and the Company is unable to obtain
alternative sources of supply for these products and services, the Company might
not be able to fill existing backorders and/or to sell more Xebra(TM) Electric
Vehicles. Our other electric vehicles and products are supplied by various
outside contract manufacturers.

FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------

The Company measures its financial assets and liabilities in accordance with
U.S. generally accepted accounting principles. The fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties. For certain of the Company's financial
instruments, including cash equivalents, accounts receivable, accounts payable
and accrued liabilities, the carrying amount approximates fair value because of
the short maturities. The fair value of debt is not determinable due to the
terms of the debt and the lack of a comparable market for such debt.

STOCK-BASED COMPENSATION
------------------------

We have stock compensation plans for employees and directors, which are
described in Note 7 to our consolidated financial statements.

Under the provisions of SFAS 123R, we recorded $957,000 and $16.9 million of
stock-based compensation, net of estimated forfeitures, in selling, general and
administrative expenses, in our consolidated statement of operations for the
years ended December 31, 2008 and 2007. As of December 31, 2008 the total
unrecognized stock-based compensation balance for unvested options was $863,900
which is expected to be amortized through the third quarter of 2011. We utilized
the Black-Scholes valuation model for estimating the fair value of the
stock-based compensation granted after the adoption of SFAS 123R, with the
following range of assumptions:

Twelve months
ended December 31,
------------------------
2008 2007
---- ----

Expected dividend yield 0% 0%
Expected volatility 103.14 to 109.91 114.3 to 126.2
Risk-free interest rate 2.82% to 3.31% 4.16% to 4.98%
Expected life (in years) from grant date 5 to 6 2.5 to 5.75
Exercise price $.58 to $.97 $.91 to $1.32

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 years ended December 31, 2008 and 2007 was $0.80 and $1.00,
respectively. As required by SFAS No. 123R, we now 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 now adjusted to actual forfeiture
experience as needed.

The estimates of share-based compensation expenses are significant to our
financial statements, but these expenses are based on option valuation models
and will never result in the payment of cash by us. For this reason, and because
we do not view share-based compensation as related to our operational
performance, we exclude estimated share-based compensation expense when
evaluating the business performance of our operations.

Theoretical valuation models and market-based methods are evolving and may
result in lower or higher fair value estimates for share-based compensation. The
timing, readiness, adoption, general acceptance, reliability and testing of
these methods is uncertain. Sophisticated mathematical models may require
voluminous historical information, modeling expertise, financial analyses,
correlation analyses, integrated software and databases, consulting fees,
customization and testing for adequacy of internal controls. Market-based
methods are emerging that, if employed by us, may dilute our earnings per share
and involve significant transaction fees and ongoing administrative expenses.
The uncertainties and costs of these extensive valuation efforts may outweigh
the benefits to investors.

On January 26, 2007, the Company extended the expiration date of 21.8 million
warrants previously issued to employees and officers by five years to July 1,
2012, with new exercise prices ranging from $1.00 to $1.20. As a result of the
modification of the warrants, the Company determined the fair value of the
warrants immediately prior to and after the modification. The incremental
difference in value resulted in the recognition of $11.7 million in non-cash
compensation expense during the first quarter of 2007. The Company valued the
modified warrants at $0.57 per share using a Black-Scholes option pricing model
with the following assumptions: risk free interest rate of 4.98%; dividend rate
of 0.00%; volatility of 123%, and expected term of 2.7 years.

NET LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS
------------------------------------------------------

Basic net loss per share is computed by dividing net loss attributable to common
shareholders by the weighted average number of shares of common stock
outstanding during the year. The computation of diluted earnings per common
share is similar to the computation of basic net loss per share attributable to
common shareholders, except that the denominator is increased for the assumed
conversion of convertible securities and the exercise of options and warrants to
the extent they are dilutive using the treasury stock method. The weighted
average shares used in computing basic and diluted net loss per share
attributable to common shareholders were the same for the two years ended
December 31, 2008 and 2007. Options, warrants and convertible debt for
59,140,633 shares and 68,172,008 shares were excluded from the computation of
loss per share at December 31, 2008 and 2007, respectively, as their effect is
anti-dilutive to.

NOTE 2 - INVENTORIES

Inventories at December 31, 2008 and 2007 are summarized as follows (thousands):

2008 2007
-------- --------

Advanced technology vehicles $ 1,977 $ 1,181
Vehicles-conventional 518 245
Parts and supplies 721 46
Finished goods 353 267
-------- --------
3,569 1,739
Less - inventory reserve (526) (302)
-------- --------
$ 3,043 $ 1,437
-------- --------

Inventory reserve policy

The Company records inventory at the lower of cost or market and establishes
reserves for slow moving or excess inventory, product obsolescence and valuation
impairment. In determining the adequacy of its reserves, at each reporting
period the Company analyzes the following, among other things:

o Current inventory quantities on hand;
o Product acceptance in the marketplace;
o Customer demand;
o Historical sales;
o Forecasted sales;
o Product obsolescence; and
o Technological innovations.

Any modifications to the Company's estimates of its reserves are reflected in
cost of goods sold within the statement of operations during the period in which
such modifications are determined by management. Changes in the Company's
inventory reserve during the year ended December 31, 2007 are as follows (in
thousands):

2008 2007
-------- --------
Balance as of January 1, $ 302 $ 518
Provision for slow moving inventory 307 155
Write-off of slow moving inventory (83) (371)
-------- --------
Balance as of December 31, $ 526 $ 302
======== ========

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2008 and 2007 are summarized as follows
(thousands):
2008 2007
-------- --------

Land $ 1,078 $ 1,078
Buildings and improvements 3,184 3,184
Machinery and equipment 126 120
Computer equipment and software 258 229
Office furniture and equipment 73 64
Leasehold improvements 53 47
Vehicles 630 609
-------- --------
5,402 5,331
Less - accumulated depreciation
and amortization (1,067) (860)

-------- --------
$ 4,335 $ 4,471
======== ========

The land and building and certain equipment, with a net book value of
$2.7million at December 31, 2008 and 2007 respectively, are pledged as security
for certain indebtedness (see Note 5). Depreciation and amortization expense for
the years ended December 31, 2008 and 2007 was approximately $215,000 and
$318,000, respectively.

NOTE 4 - OTHER ACCRUED LIABILITIES

Accrued liabilities at December 31, 2008 and 2007 consisted of the following (in
thousands):

2008 2007
-------- --------
Accrued professional fees $ 443 $ 984
Accrued payables 128 129
Customer deposits 292 282
Warrant liabilities 253 292
Other accrued expenses 459 572
-------- --------
$ 1,575 $ 2,259
======== ========

NOTE 5 FINANCING ARRANGEMENT

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. 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 for
operations funding based upon 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.

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.

The Majority of the Company's Short-term and Long Term debt is due on the
Promissory note due to Al Yousuf.

SHORT-TERM DEBT

During the second half of 2008, the Company had borrowed $2.3 million on the
financing facility with Al Yousuf for inventory purposes and funding of
operations. In addition, the Company borrowed $660,000 from Portable Energy LLC,
a private company equally owned 50% by ZAP and Al Yousuf. These borrowings are
due on demand.

LONG TERM DEBT

On July 30, 2008 the Company was also advanced $1.7 million on the promissory
note to pay-off the existing secured note on the Company's corporate
headquarters building which was previously held by an outside party. The loan is
due on February 28, 2010.

CONVERTIBLE DEBT

8% Senior Convertible Notes

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 6 - INCOME TAXES

The provision for income taxes for all periods presented in the consolidated
statements of operations represents minimum California franchise taxes. Income
tax expense differed from the amounts computed by applying the U.S. federal
income tax rate of 34% to pretax losses as a result of the following:

2008 2007
-------- --------

Computed expected tax expense $ (3,334) $ (9,370)
Losses and credits for which no benefits
have been recognized 3,000 8,419
Stock grants and warrants not deductible
for income tax purposes 324 952
Meals and entertainment expenses, and
officers life insurance not deductible
for income tax purposes 11 8
R&D credit (8) (8)
State tax expense, net of federal income
tax benefit 3 3
-------- --------
$ 4 $ 4
======== ========

The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets at December 31, 2008 and 2007 is presented below:

2008 2007
-------- --------
Deferred tax assets:
Net operating loss carryovers $ 32,641 $ 28,560
Fixed assets, due to differences
in depreciation 288 346
Inventory 179 96
Accrued liabilities 453 500
Stock based compensation 4,595 5,790
Notes receivable reserves 340 428
Intangible assets due to impairment 150 201
Tax credits 147 --
Other 853 694
-------- --------

Total gross deferred tax assets 39,646 36,615
Valuation allowance (39,646 (36,615)
-------- --------

Net deferred tax assets $ -- $ --
======== ========

The net change in the valuation allowance for the year ended December 2008 was
an increase of $3 million. Because there is uncertainty regarding the Company's
ability to realize its deferred tax assets, a 100% valuation allowance has been
established.

As of December 31, 2008, the Company had federal tax net operating loss
carry-forwards of approximately $75.4 million, which will expire in the years
2012 through 2027. The Company also has federal research and development credit
carry forwards as of December 31, 2007 of approximately $147,000 which will
expire in the years 2012 through 2026. State tax net operating loss carry
forwards were approximately $67 million as of December 31, 2007. The state net
operating loss carry forwards will expire in the years 2012 through 2018.

The Company's ability to utilize its net operating loss and research and
development tax credit carry forwards may be limited in the future if it is
determined that the Company experienced an ownership change, as defined in
Section 382 of the Internal Revenue Code. Federal and State tax laws impose
substantial restrictions on the utilization of net operating loss and credit
carry forwards in the event of an "ownership charge" for tax purposes as defined
in the Internal Revenue Code Section 382.

The Company accounts for income taxes using an asset and liability method for
financial accounting and reporting purposes. Deferred income tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities, operating loss and tax credit
carry-forwards and are measured using the currently enacted tax rates and laws.
The Company has made no provision for income taxes except for the minimum state
tax due in any period presented in the accompanying consolidated financial
statements because it incurred operating losses in each of these periods.

The Company analyzes its deferred tax assets with regard to potential
realization. The Company has established a valuation allowance on its deferred
tax assets to the extent that management has determined that it is more likely
than not that some portion or all of the deferred tax asset will not be realized
based upon the uncertainty of their realization. The Company has considered
estimated future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the amount of the valuation allowance.

NOTE 7 - STOCK OPTIONS

The Company has five Equity Compensation Plans: The 2008 Equity Compensation
Plan, the 2007 Equity Compensation Plan, the 2006 Incentive Stock Plan, the 2002
Incentive Stock Plan and the 1999 Incentive Stock Plan. There has been no
activity in the 1999 Plan during 2008 or 2007. These Plans provide for the grant
of incentive stock options and nonstatutory options to employees, directors and
consultants to the Company. The Company granted incentive stock options and
nonstatutory options at exercise price per share equal to the fair market value
per of the common stock on the date of grant. The vesting generally, three
years, and exercise provisions were determined by the Board of Directors , with
a maximum life of ten years. The 2008 Equity Compensation Plan was approved by
the Board of Directors and the shareholders in November of 2008. No options were
issued under the plan as of December 31, 2008.

Option activity under the 2007, 2006 and 2002 plans is as follows
(thousands):

2007 Plan 2006 Plan 2002 Plan
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
--------------------- --------------------- ---------------------

Outstanding at January 1, 2007 -- -- 4,781 $ 1.04 5,473 $ 1.20
Granted 1,000 1.03 612 0.57 208 1.11
Exercised -- -- (619) 0.34 -- --
Canceled -- -- (400) 1.07 -- --
------- ------- -------
Outstanding at December 31, 2007 1,000 1.03 4,374 $ 0.99 5,681 $ 1.15
Granted -- -- 904 -- -- --
Exercised -- -- -- -- (137) 0.41
Canceled -- -- -- -- (156) --
------- ------- -------
Outstanding at December 31, 2008 1,000 1.03 5,278 $ 0.93 5,388 $ 0.97
======= ======= =======

The weighted average fair value of options granted during the years ended
December 31, 2008 and 2007 was $0.80 and $1.07, respectively.

The fair value of each option and warrant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:

2008 2007
--------------- ----------------
Dividends None None
Expected volatility 109.68 - 106.38 114.00-152.00
Risk free interest rate 1.99 - 3.31% 3.20 -4.98%
Expected life 2.5 -6 years 2.50-05.75 years

At December 31, 2008, the Company has outstanding stock options for employees to
purchase 11.4 million shares at exercise prices ranging from $0.25 to $1.20.

NOTE 8 - MAJOR CUSTOMERS

During 2008, Voltage Vehicles has established relationships with 61dealers
nationwide. Where seven of our dealers have purchased over $200,000 of Xebras or
30 % of its total sales.

NOTE 9 - COMMITMENT
Distribution Agreement
----------------------

In May of 2007, ZAP signed a distribution agreement with PML FlightLink Limited
("PML") for the purchase of an advanced propriety wheel motor and control
system. ZAP received the exclusive rights to use this system in its current and
future product line. In conjunction with the agreement with PML, ZAP has
committed to an initial order of approximately $10 million in PML wheel motors,
subject to terms and conditions agreed on by the parties. PML has not presented
us with a working commercial product through March 29, 2009 and we have not had
any contact with them. As an alternate to PML, we have made an agreement with a
Chinese company to develop a similar product.

China Joint Venture
-------------------

On September 17, 2007, ZAP entered into a shareholders' agreement to form a
joint venture with Youngman Automobile Co., Ltd. ("Youngman") also known as
Youngman Automotive Group, a leading maker of luxury motor coaches and
high-quality commercial trucks in China. ZAP and Youngman have agreed to pursue
the joint venture under EV Holdings Limited, a newly formed corporation based in
Hong Kong ("EV Holdings"). The name of the company was changed to " Detroit
Electric" which is an historic manufacturer of electric vehicles.

Under the agreement, ZAP and Youngman will jointly pursue the manufacture,
marketing and distribution of electric and hybrid vehicles for the worldwide
passenger car, truck and bus markets. The joint venture, EV Holdings, will also
focus on the development and manufacturing of electric charging infrastructure.
The joint venture partners have agreed to invest a total of $100 million into
the new joint venture by December 31, 2008 (Zap to invest $49 million and
Youngman to invest $51 million). In 2008, the parties informally agreed to a
revised initial capital contribution of $2.5 million by each party subject to
outside raising of funds. The agreement also provides that Youngman shall have
rights to control the manufacturing of products licensed by EV Holdings, and
that EV Holdings will sell its products to ZAP and Youngman for resale within
exclusive territories worldwide.

There has been no activity under the joint venture in 2008, both of the parties
were seeking outside financing to fund the project, however given the tight
economy, the efforts have not been successful. We also hired an outside
investment firm to find acceptable funding sources with no success

NOTE-10 SHAREHOLDERS' EQUITY

STOCK DIVIDEND
--------------

On November 9, 2006, ZAP's Board of Directors approved a 10% stock dividend
which issued, effective February 28, 2007, to all shareholders of record as of
February 15, 2007.

COMMON STOCK
------------

During our annual meeting of shareholders held in July of 2007, an amendment to
the Company's Amended and Restated Articles of Incorporation was approved to
increase the authorized common stock from 200 million to 400 million shares.

2008 ISSUANCES

STOCK ISSUED FOR ASSETS

In 2008, the Company issued stock for inventory and assets and recorded the cost
at the intrinsic value of the stock or the fair value of the assets, whichever
is more reliably measurable. During 2008, there were 238,000 shares were issued
for purchase of inventory and certain assets

STOCK ISSUED FOR SERVICES. In 2008, the Company issued shares of its common
stock for consulting and other services and employee compensation. The stock
grants were recorded at the intrinsic value of the stock on the date of grant.
During 2008, the Company issued grants for 2.5 million shares as consideration
under agreements for consulting and related services, and 744,000 shares were
issued for employee compensation.

STOCK ISSUED FOR CASH. During 2008, the Company raised $72,000 in cash due to
the conversions of 113,000 of options and warrants.

STOCK ISSUED FOR CONVERSION OF SENIOR CONVERTIBLE DEBT. During 2008 the Company
issued 2.5 million shares due to the conversion of the 8% Senior Convertible
Debt into shares of common stock.

WARRANTS ISSUED FOR SETTLEMENT OF OBLIGATIONS. The company issued warrants that
may be converted into common stock of ZAP. They were valued at $200,000
utilizing the Black Scholes method.

2007 ISSUANCES

STOCK ISSUED FOR ASSETS

In 2007, the Company issued stock for inventory and assets and recorded the cost
at the intrinsic value of the stock or the fair value of the assets, whichever
is more reliably measurable. During 2007, 242,000 shares were issued for
purchase of inventory and certain assets

STOCK ISSUED FOR SERVICES. In 2007, the Company issued shares of its common
stock for consulting and other services and employee compensation. The stock
grants were recorded at the intrinsic value of the stock on the date of grant.
During 2007, the Company issued grants for 3,448,000 shares as consideration
under agreements for consulting and related services, and 855,000 shares were
issued for employee compensation.

STOCK ISSUED FOR CASH. During 2007, the Company raised $5.7 million in cash
through the issuance of 6,656,000 shares of common stock. Another 955,000 shares
were issued due to the conversions of options and warrants and resulted in cash
of $719,000.

STOCK ISSUED FOR CONVERSION OF SENIOR CONVERTIBLE DEBT. During 2007 the Company
issued 2,931,000 shares due to the conversion of the 8% Senior Convertible Debt
into shares of common stock.

STOCK DIVIDEND. In February of 2007, the Company issued 3,977,000 shares common
stock for the 10% stock dividend.

WARRANTS
--------

The Board of Directors of ZAP has established various series of restricted and
unrestricted warrants as outlined below. They also have the right to (i)
decrease the exercise price of the warrants, (ii) increase the life of the
warrants in which event the exercise price may be increased, or (iii) make such
other changes as the Board of Directors of ZAP deems necessary and appropriate
under the circumstances provided the changes contemplated do not violate any
statutory or common law.

Shares acquired through exercises of warrants for all Series other than Series
B, C, D and K are restricted as to sale. However, the warrants may be assigned,
sold, or transferred by the holder without restriction.

Series B, C, and D warrants not exercised may be redeemed by ZAP for a price of
$0.01 per warrant upon thirty (30) days' written notice to the holders thereof;
provided, however, that if not all unexercised warrants in a particular series
are redeemed, then the redemption shall be pro-rated equally among the holders
of unexercised warrants in the series.

Total warrants outstanding at December 31, 2008 are summarized as follows (in
thousands):

Number of Exercise Expiration
Warrants Price Dates
-------- ----- -----
Series B-Unrestricted 3,127 1.09 7-1-12
Series B-2-Restricted 2,053 1.09 7-1-12
Series C-Unrestricted 6,045 1.09 7-1-12
Series C-2-Restricted 1,294 1.09 7-1-12
Series D-Unrestricted 6,649 1.09 7-1-12
Series D-2-Restricted 1,294 1.09 7-1-12
Series K-Unrestricted 4,356 0.91 7-1-12
Series K-2-Restricted 5,823 0.91 7-1-12
$0.70 Warrants-Unrestricted 100 0.70 6-2-13
$1.00 Warrants-Restricted 3,043 1.00 7-1-12
$1.10 Warrants Unrestricted 794 1.10 6-26-12
$1.20 Warrants-Restricted 5,673 1.20 various
$1.32 Warrants -Unrestricted 432 1.32 2-20-12
$1.50 Warrants Restricted 2,049 1.36 1-2-12
$2.00 Warrants Restricted 385 1.82 various
$2.50 Warrants Restricted 2,684 2.27 various
$3.25 Warrants Restricted 330 3.25 various
$3.50 Warrants Restricted 550 3.18 7-20-09
$4.50 Warrants Restricted 550 4.50 7-20-09
$5.50 Warrants Restricted 550 5.50 7-20-09
--------
47,781
========

MODIFIED WARRANTS
-----------------

On January 25, 2007, the Board of Directors extended by five years through July
1, 2012, the expiration date of certain of the Company's warrants, Series B
through K. These warrants were issued for executive compensation and by the plan
of reorganization. The exercise prices of the warrants were also revised from
prices ranging from $1.00 to $8.00 to prices ranging from $0.91 to $1.20. As a
result of the modification of the warrants, the Company determined the fair

value of the warrants immediately prior to and after the modification. The
incremental difference in value resulted in the recognition of $11.7 million in
non-cash compensation expense during the first quarter of 2007.

NOTE 11 RELATED PARTY

Rental arrangements
-------------------

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 $84,000
for both years ended December 31, 2008 and 2007.

Financing provided to the Company by Al-Yousuf LLC
--------------------------------------------------

The company entered into various financing arrangements during the second
quarter ended September 30, 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.

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 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 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 draw on the financing facility
with Al Yousuf LLC.

NOTE 12 - LITIGATION

the good faith, etc. The Cross-Complaint seeks 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 the amount equal to treble actual damages, and rescission in the
amounts of $397,900 and $120,000, plus interest. Cross-Defendants intend to
vigorously defend against the claims set forth in the Cross-Complaint and so, on
August 22, 2007, Cross-Defendants filed both a special demurrer for abatement to
prohibit Cross-Complainants from maintaining a cross-complaint and a demurrer to
the Cross-Complaint itself. On February 11, 2008 ZAP and Voltage Vehicles filed
a demurrer to Cross-complainants' third through fifteenth causes of action. A
hearing on that demurer is currently set for June 11, 2008. In its tentative
ruling, the Court ruled in ZAP and Voltage Vehicles' favor and granted Rajun
Cajun leave to file a Second Amended Cross-Complaint. The Second Amended
Cross-complaint seeks general damages in an amount in excess of $50,000, damages
for Cross-plaintiffs' lost earnings, both past and future, in a sum to be proven
at trial, a sum in excess of $50,000 for Cross-complainants' mental pain, a sum
in excess of $50,000 for willful and wanton misconduct, and such other and
further relief the court may deem just and equitable. On September 16, 2008 ZAP
and Voltage Vehicles filed a demurrer to the Second Amended Cross-complaint. The
hearing on Zap and Voltage Vehicle's demurrer to the Second Amended
Cross-complaint is set for November 19, 2008. A Settlement Conference is set for
March 25, 2009 and Trial Call is set for April 24, 2009. In the meantime,
discovery is ongoing.

CIT Communications Finance Corporation v. ZAP, formerly known as ZapWorld.com
and as Zap Power Systems, and DOES 1-20, complaint filed on February 26, 2008,
Case No. 242445, in the Superior Court of California, County of Sonoma. CIT
Communications Finance Corporation ("CIT") has served ZAP with a complaint, an
application for writ of possession, and an application for writ of attachment.
CIT's complaint and its applications for the two writs are based on three
telephone equipment leases CIT alleges it has with ZAP, through predecessors in
interest. The Complaint includes five causes of action: (1) breach of written
lease agreements; (2) recovery of personal property; (3) conversion; (4) quantum
valebant; and (5) quantum meruit or unjust enrichment. For each of those claims,
CIT alleges that ZAP entered into the leases, never returned the equipment, and,
in or about June 2002, ceased payment of amounts owed under the leases. CIT is
now seeking both return of the equipment and a monetary award covering amounts
owed under the leases. More particularly, for its breach of contract claim, CIT
is seeking recovery of $108,967.26 allegedly owed on the leases. On its recovery
of personal property claim, CIT is seeking either return of all the leased
equipment or a monetary damages to cover the value of the leased equipment. On
the conversion claim, CIT is seeking general damages for ZAP's continued
possession and use of the equipment, as well as punitive damages based on a
claim that ZAP's actions were malicious, willful, and oppressive. On its quantum
valebant and quantum meruit claims, CIT is seeking general damages for the value
of ZAP's continued use and possession of the equipment since June 24, 2002. CIT
is also seeking reimbursement of all of its attorneys' fees and costs of suit,
as well as any additional legal and equitable relief that the court may deem
proper. ZAP's Answer to the Complaint was filed on April 24, 2008. CIT has also
applied for both a writ of possession, seeking return of all of the leased
equipment, and a writ of attachment, seeking attachment of $122,588.26 against
ZAP. The hearing on CIT's writ applications was held on June 3, 2008. At that
hearing, the Court denied CIT's application for writ of attachment, finding that
CIT had not proven, based on the record to date, that it was more likely than
not to prevail at trial on its breach of contract cause of action against ZAP.
The Court did, however, grant CIT's application for writ of possession, finding
no dispute between the parties regarding ZAP's willingness to give to CIT all
components of the at-issue telephone equipment still in ZAP's possession. Given
ZAP's multiple offers to date to cooperate in returning any such equipment, the
Court refused CIT's demand that ZAP be required to post a bond to support the
writ of possession. The writ of possession was issued on June 17, 2008, but, to
date, ZAP is unaware of any action by CIT to enforce that writ. On June 20,
2008, ZAP sent CIT an Offer to Compromise, offering to settle the matter with
ZAP's payment to CIT of $2,500, inclusive of attorneys' fees and costs to date.
CIT has rejected that offer. On February 11, 2009, ZAP filed a motion for
summary judgment or, in the alternative, summary adjudication. CIT's opposition
to that motion is due March 24, 2009, and the hearing on that motion is
scheduled for April 7, 2009. In the meantime, ZAP and CIT attended a telephonic
mediation on February 13, 2009, but the parties were unable to reach a
settlement. The parties then attended a mandatory settlement conference on March
16, 2009, but were again unable to reach a settlement. Trial in this matter is
scheduled for May 1, 2009. Discovery is ongoing. We intend to vigorously defend
ourselves against these claims and believe that we have adequately provided in
our financial statements for this matter.

NOTE 13 - 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, Rechargeable portable energy
products, operation of a retail car outlet and sales to and sales of advanced
technology vehicles for the Xebra ((TM)) 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.

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. The Portable energy Segment was sold
in June of 2008.

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 vehicle to retail customers.

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

The performance of each segment is measured based on its profit or loss from
operations before income taxes. Segment results are summarized as follows (in
thousands):

Electric Advanced
Consumer Portable Car Technology
products Energy outlet Vehicles Total
---------- ---------- ---------- ---------- ----------

Year ended December 31, 2008:
Net sales $ 703 $ 173 $ 1,727 $ 4,985 $ 7,588
Gross profit(loss) (312) 94 299 718 799
Depreciation, amortization
and impairment 211 -- 22 46 279
Net (loss) income (9,390) 73 (132) (358) (9,807)
Total assets 5,953 -- 571 2,702 9,226

Year ended December 31, 2007:
Net sales $ 742 $ 875 $ 1,304 $ 2,791 $ 5,712
Gross profit(loss) (88) 287 330 246 775
Depreciation, amortization
and impairment 202 -- 27 94 323
Net (loss) income (27,628) 194 (98) (474) (28,006)
Total assets 10,102 70 488 1,278 11,938

NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION

A summary of non-cash investing and financing information is as follows (in
thousands):

Year ended December 31
----------------------
2008 2007
-------- --------
Cash paid during the year for:
Income taxes $ 4 $ 4

Common stock and warrants and debt issuances for:

Inventory 155 237

Prepaid professional fees 1,639 3,415
Property and Equipment -- 3
Debt converted to common stock 743 2,166

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None

ITEM 9A. CONTROLS AND PROCEDURES.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934 ("Exchange Act") is recorded, processed, summarized and
reported within the specified time periods. Our Chief Executive Officer and its
Chief Financial Officer (collectively, the "Certifying Officers") are
responsible for maintaining our disclosure controls and procedures. The controls
and procedures established by us are designed to provide reasonable assurance
that information required to be disclosed by the issuer in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Commission's rules and forms.

As of the end of the period covered by this report, the Certifying Officers
evaluated the effectiveness of our disclosure controls and procedures. Based on
the evaluation, the Certifying Officers concluded that our disclosure controls
and procedures were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the applicable rules and forms, and that it is accumulated
and communicated to our management, including the Certifying Officers, as
appropriate to allow timely decisions regarding required disclosure.

The Certifying Officers have also concluded, based on their evaluation of our
controls and procedures that as of December 31, 2008, our internal controls over
financial reporting are effective and provide a reasonable assurance of
achieving their objective.

The Certifying Officers have also concluded that there was no change in our
internal controls over financial reporting identified in connection with the
evaluation that occurred during our fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

(b) Changes in Internal Control Over Financial Reporting

(b) Changes in Internal Control Over Financial Reporting. There were no changes
our internal control over financial reporting that occurred during the year
ended December 31, 2008 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

The Company was not required to disclose information on Form 8-K that it did not
report on a Form 8-K during the fourth quarter of the year covered by this Form
10-KSB.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

The Company's directors and executive officers and their ages as of March 28,
2009 are as follows:

Name Age Position
--------------------- ---- -------------------------------------------

Steven M. Schneider 48 Chief Executive Officer and Director
William Hartman 61 Chief Financial Officer
Amos Kazzaz 53 Chief Operating Officer
Peter H. Scholl 61 Director
Eqbal Al Yousuf 49 Chairman of the Board of Directors Director

Steven M. Schneider. Mr. Schneider has been director and Chief Executive Officer
of ZAP since October 26, 2002. Schneider has a 30-year career in the automotive
industry and a long-time interest in fun, fuel-efficient cars. He has served as
ZAP's CEO since 2002, when the company acquired Auto Distributors, Inc. and
Voltage Vehicles, businesses he founded which specialized in the distribution of
electric and alternative fuel vehicles including automobiles, motorcycles and
bicycles. Schneider also founded the RAP Group, an automotive liquidator and
reseller, which ZAP also acquired. He serves on the board of directors of Apollo
Energy Systems, a developer of fuel cells and advanced batteries. He also serves
as a director of Rotoblock Corporation, a public company focused on the
continued development of the oscillating piston engine. He is an active member
with various industry groups, including the Electric Drive Transportation
Association in Washington, DC. , and is a member of the Bay Area Alliance of
CEOs. He lectures frequently on industry topics at universities and other
organizations.

William Hartman. Mr. Hartman was appointed Chief Financial Officer in March
2001. He was engaged with the Company as a financial consultant starting in
January 2001. Prior to his engagement at ZAP, Mr. Hartman provided financial and
accounting consulting services to various Internet start up companies in the San
Francisco Bay Area from 1999 to 2001. Mr. Hartman is a Certified Public
Accountant in the State of California with a Masters in Accounting Degree from
the State University of New York. He also had previous public accounting
experience as an audit manager with Price Waterhouse Coopers in San Francisco.

Mr. Amos Kazzaz. Mr. Kazzaz was appointed Chief Operating Officer on March 26,
2007. Prior to joining ZAP, Mr. Kazzaz served as Vice President of Cost
Management at United Airlines, Inc. where he oversaw United Airline's
operations, process improvement, and cost management. From 2003 to 2006, Mr.
Kazzaz served as United Airline's Vice President of Financial Planning and
Analysis during which time he accounted for United Airline's planning and
analysis function and capital budget. From 2002 to 2004, Mr. Kazzaz served as
United Airline's Vice President of the Business Transformation Office, the
company's first enterprise project management office, during which time he was
responsible for identifying areas of revenue and cost improvements;
concurrently, Mr. Kazzaz served as the Chief Operating Officer at Avolar, a
subsidiary of United Airlines. He currently sits on the Boards of Directors of
Alliant

Credit Union. Mr. Kazzaz holds a bachelors degree in International Affairs from
the University of Colorado and a Masters in Business Administration from the
University of Denver.

Mr. Al Yousuf is the President of Dubai's Al-Yousuf Group and Al Yousuf LLC. He
has held this position since 2005. Prior to this Mr. Al Yousuf has held the
senior management positions of Vice Chairman and CEO of Dubai's Al-Yousuf Group
and Al Yousuf LLC from 2001 to 2005.

Peter H. Scholl. Mr. Scholl is currently an independent engineering consultant.
From 2003 to 2005, Mr. Scholl served as President of Rotoblock Inc. in Canada
and Rotoblock Corporation, a Nevada corporation, in the development of
Oscillating Piston Engine technology. He served as President of Unimont Inc., a
real estate development firm, in Penticton, Canada from 2001 to 2003. From 1996
to 2000, Mr. Scholl worked on the development of water purification systems in
Arizona. Mr. Scholl has a Bachelor's of Science degree in Mechanical Engineering
from the Institute of Technology in Biel, Switzerland.
Family Relationships

There are no family relationships among any of our officers or directors.

Board of Directors

Corporate Governance Principles and Board Matters

ZAP is committed to having sound corporate governance principles and practices.
ZAP's primary corporate governance documents, including our Code of Ethics and
Committee Charters, are available to the public on our website at
http://www.zapworld.com. The following is a discussion of our current governance
principles and practices.

Board Meetings

During 2008, our Board met or conferred by telephone 6 times. During 2008, all
directors attended at least 75% of the aggregate of (i) the total number of
meetings of the Board during 2008 and (ii) the total number of meetings held by
all committees of the Board on which such director served in 2008. The Company
does not have a policy with regard to attendance of directors at annual
meetings, but encourages them to be present.

Committees of the Board

Audit Committee

The Board's Audit Committee is comprised of Peter Scholl. During 2008, the Audit
Committee met 4 times. Our current Audit Committee is financially literate and
are able to read and understand fundamental financial statements, including a
balance sheet, income statement and cash flow statement. The Board has
determined that Mr. Scholl qualifies as an audit committee financial expert as
defined within Item 401 of Regulation S-B.

The Audit Committee assists the Board of Directors in its oversight of the
quality and integrity of the accounting, auditing, and reporting practices of
the Company. The Audit Committee's role includes overseeing the work of the
Company's internal accounting and financial reporting and internal auditing
processes and discussing with management the Company's processes to manage
business and financial risk, and for compliance with significant applicable
legal, ethical, and regulatory requirements. The Audit Committee is responsible
for the appointment, compensation, retention, and oversight of the independent
auditor engaged to prepare or issue audit reports on the financial statements
and internal control over financial reporting of the Company. The Audit
Committee relies on the expertise and knowledge of management and the
independent auditor in carrying out its oversight responsibilities. The
Committee's specific responsibilities are delineated in the Audit Committee
Charter. The Audit Committee Charter is available on the ZAP website at
http://www.zapworld.com.

Compensation Committee

The Board's Compensation Committee is comprised of Peter Scholl. During 2008,
the Compensation Committee meets in conjunction with the Board of Directors
meetings. A copy of the Compensation Committee Charter is available on the ZAP
website at http://www.zapworld.com. The Compensation Committee, among other
things, advises the Board on all matters pertaining to compensation programs and
policies, approves the compensation payable to each of the officers of the
Company, reviews proposed compensation of executives as provided in the
Company's executive compensation plan and administers the Company's stock option
plans.

Corporate Governance and Nominating Committee

The Board's Corporate Governance and Nominating Committee (the "Governance
Committee") is comprised of Peter Scholl During 2006, the Governance Committee
meets in conjunction with the Board of Directors meetings. The Governance
Committee has adopted a charter, which has been ratified and approved by the
Board. A copy of the committee's charter is available on the ZAP website at
http://www.zapworld.com.

The Governance Committee, among other things, identifies, evaluates and
recommends individuals qualified to be directors of the Company. Members of the
Board of Directors should have the highest professional and personal ethics and
values. They should have broad experience at the policy-making level in
business, government, education, technology or public interest. They should be
able to provide insights and practical wisdom based on their experience and
expertise. They should be committed to enhancing shareholder value and should
have sufficient time to effectively carry out their duties. Their service on
other Boards of public companies should be limited to a reasonable number.

The Governance Committee annually reviews the appropriate skills and
characteristics required of Board members in the context of the current
composition of the Board, the operating requirements of the Company and the
long-term interests of the shareholders. In conducting this assessment, the
committee considers diversity, age, skills, and such other factors as it deems
appropriate given the current needs of the Board and the Company, to maintain a
balance of knowledge, experience and capability.

Code of Ethics

The Board has adopted a Code of Ethics to provide guidance on maintaining the
Company's commitment to being honest and ethical in its business endeavors. The
Code of Ethics covers a wide range of business practices, procedures and basic
principles regarding corporate and personal conduct and applies to all
directors, executives, officers and employees. A copy of the Code of Ethics is
available on the ZAP website http://www.zapworld.com or may be obtained by
written request submitted to the Corporate Secretary at ZAP, 501 Fourth Street,
Santa Rosa, CA 95401. The Company intends to satisfy any disclosure requirements
regarding amendments to, or waivers from, any provision of the Code of Ethics by
disclosing on the Company's website, by press release and/or on a current report
on Form 8-K.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons beneficially owning more than 10% of the
outstanding common stock of the Company to file reports of beneficial ownership
and changes in beneficial ownership with the Securities and Exchange Commission
("SEC"). Officers, directors, and greater than 10% beneficial owners of common
stock are required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file. The Company believes that during the fiscal year
ended December 31, 2008, all officers and directors timely filed the initial
statement of beneficial ownership of securities on Form 3. The Company also
believes that during the fiscal year ended December 31, 2008, all officers and
directors timely reported certain transactions on Form 4s.

ITEM 11. EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

The following executive compensation disclosure reflects all compensation
awarded to, earned by or paid to the executive officers below for the fiscal
year ended December 31, 2008. The following table summarizes all compensation
for fiscal year 2008 received by our Chief Executive Officer, and the Company's
other most highly compensated executive officers who earned more than $100,000
in fiscal year 2008.

SUMMARY COMPENSATION TABLE

Non-Equity
Incentive Nonqualified
Stock Option Plan Deferred
Name and principal Awards Awards Compensation Compensation All Other
position Year Salary($) Bonus($) ($)(1) ($)(2) ($) Earnings($) Compensation($) Total($)

Steven Schneider, CEO 2008 131,865 - 30,835 - - - - 162,700

Gary Starr, Cofounder 2008 125,965 - 30,835 - - - - 156,800

William Hartman,CFO 2008 121,500 - - 300,500 - - - 422,000

Amos Kazzaz, COO 2008 115,900 10,500 25,500 - - - - 151,900

(1) Stock awards are based on the stock price on the date of issue.
(2) Represents 500,000 Stock Options at an exercise price of $0.78. The Option
award value was determined using the Black Scholes Valuation Method. The
options are fully vested and have a ten year life.

Employment Agreements

We currently have employment agreements with four of our Named Executive
Officers as described below.

Steve Schneider, Chief Executive Officer

We entered into an employment agreement with Steve Schneider on October 1, 2003.
The agreement provides that Mr. Schneider will serve as our Chief Executive
Officer through October 1, 2008 and receive a salary, benefits and options equal
to the highest paid employee of ZAP, but in no event less than $75,000 per year.
Mr. Schneider's current salary is

set at $120,000. In addition, the agreement provides that should ZAP become
profitable, Mr. Schneider's salary will automatically be increased by 10% for
every $100,000 in profits calculated on a quarterly basis. Mr. Schneider
annually receives a grant of stock options or warrants equal to 1% of the
outstanding common stock of ZAP at an exercise price equal to 110% of the market
price on the date of grant. Mr. Schneider also receives all other benefits as
are afforded to our employees and a Company car, or a car allowance of $5,000
per year in lieu of a Company car. In the event ZAP terminates his employment
without cause, Mr. Schneider is entitled to his full salary for the remainder of
the term of the agreement. Should ZAP elect to terminate Mr. Schneider's
employment in the case of a merger or reclassify Mr. Schneider without cause
prior to the expiration of the employment agreement, the Company must retain Mr.
Schneider as an employee or consultant for a period of five years for an
aggregate salary of $500,000, payable bi-monthly, or make a lump sum payment of
$300,000. The agreement automatically renews for successive five year periods
unless terminated by either party upon proper notice. On March 30, 2007, The
Board of Directors of ZAP did approve the extension of the employment agreement
with Mr. Schneider through October 1, 2013.

Gary Starr Cofounder

We entered into an employment agreement with Gary Starr on October 1, 2003. The
agreement provides that Mr. Starr will receive a salary, benefits and options
equal to the highest paid employee of ZAP, but in no event less than $75,000 per
year. Mr. Starr's current salary is set at $125,000. In addition, the agreement
provides that should ZAP become profitable, Mr. Starr's salary will
automatically be increased by 10% for every $100,000 in profits, calculated on a
quarterly basis. Mr. Starr annually receives a grant of stock options or
warrants equal to 1% of the outstanding common stock of ZAP at an exercise price
equal to 110% of the market price on the date of grant. Mr. Starr also receives
all other benefits as are afforded to our employees and a Company car, or a car
allowance of $5,000 per year in lieu of a Company car. In the event ZAP
terminates his employment without cause, Mr. Starr is entitled to his full
salary for the remainder of the term of the agreement. Should ZAP elect to
terminate Mr. Starr's employment in the case of a merger or reclassify Mr. Starr
without cause prior to the expiration of the employment agreement, the Company
must retain Mr. Starr as an employee or consultant for a period of five years
for an aggregate salary of $500,000, payable bi-monthly, or make a lump sum
payment of $300,000. The agreement automatically renews for successive five year
periods unless terminated by either party upon proper notice. On March 30,
2007,The Board of Directors of ZAP did approve the extension of the employment
agreement with Mr. Starr through October 1, 2013.

William Hartman, Chief Financial Officer

We entered into an employment agreement with Bill Hartman on August 1, 2007. The
agreement provides that Mr. Hartman will serve as Chief Financial Officer of ZAP
through August 1, 2008, with a yearly renewal clause and receive a salary at
$120,000 Mr. Hartman also receives all other benefits as are afforded to our
employees and a Company car, or a car allowance of $5,000 per year in lieu of a
Company car. In the event ZAP terminates his employment without cause,
Mr.Hartman is entitled to his full salary for the remainder of the term of the
agreement.

Amos Kazzaz, Chief Operating Officer

We entered into an employment agreement with Amos Kazzaz on August 28, 2007. The
agreement provides that Mr. Kazzaz will serve as Chief Operating Officer of ZAP
through August 28, 2010, and receive a salary at $120,000, with annual reviews.
Mr. Kazzaz also receives all other benefits as are afforded to our employees and
a Company car, or a car allowance of $5,000 per year in lieu of a Company car.
In the event ZAP terminates his employment without cause, Mr.Kazzaz is entitled
to his full salary for the remainder of the term of the agreement.

The following table sets forth certain information concerning stock option
awards granted to our named executive officers.

------------------------------------------------------------------------------------------------------------------------------------
OPTION AWARDS STOCK AWARDS

Equity
incentive
Equity plan
incentive awards:
plan Market or
awards: payout
Equity number of value of
Incentive unearned unearned
Plan Awards: Market shares, shares,
Number of Number of Number of Number of value of units or units or
securities securities Securities shares or shares or other other
underlying underlying underlying units of units of rights rights
unexercised unexercised unexercised Option Option stock that stock that that have that have
options (#) options (#) unearned exercise expiration have not have not not vested not vested
Name Exercisable Unexercisable options (#) price ($) date vested (#) vested ($) (#) ($)

Steve Schneider (3) 220,000 - - 0.23 7/5/12

Steve Schneider (3) 550,000 - 1.15 6/23/14

Steve Schneider (2) 566,117 - 1.20 11/16/14

Steve Schneider (2) 348,588 - 0.85 6/7/15

Steve Schneider (2) 572,686 0.94 11/9/17

Steve Schneider (4) 1,063,480 1.08 7/1/12

Steve Schneider (4) 2,690,000 1.08 7/1/12

Steve Schneider (4) 3,190,000 1.08 7/1/12

Steve Schneider (4) 3,025,000 0.91 7/1/12

Steve Schneider (4) 1,690,786 0.91 7/1/12

Steve Schneider (1) 572,686 1.00 7/1/12

Steve Schneider (3) 390,966 0.83 8/11/16

Gary Starr (4) 1,155,930 1.08 7/1/12

Gary Starr (4) 1,144,930 1.08 7/1/12

Gary Starr (4) 734,630 1.08 7/1/12

Gary Starr (2) 128,334 - - 1.09 12/19/11

Gary Starr (2) 100,000 - - 0.23 7/5/12

Gary Starr (2) 550,000 - 1.15 6/23/14

Gary Starr (2) 566,117 - 1.20 11/16/14

Gary Starr (2) 348,588 - 0.85 6/7/15

Gary Starr (2) 390,966 - - 0.83 8/11/16

Gary Starr (2) 572,686 - - 0.94 11/9/17

Gary Starr (1) 572,686 - - 1.00 7/2/12

Gary Starr (4) 1,470,671 0.91 7/1/12

Gary Starr (4) 935,000 0.91 7/1/12

William Hartman (4) 807,369 - - 0.91 7/1/12

William Hartman (4) 22,000 1.08 7/1/2012

William Hartman (3) 55,000 - 1.20 11/16/14

William Hartman (3) 27,500 - - 1.09 12/19/11

William Hartman (3) 82,500 - 1.15 6/23/14

William Hartman (3) 110,000 - 0.94 9/18/16

William Hartman (3) 119,869 - - 1.15 03/30/17

William Hartman (5) 500,000 - - 1.07 07/30/17

William Hartman (6) 500,000 0.78 08/28/18

Amos Kazzaz (3) 439,737 1.15 03/30/17

Amos Kazzaz (5) 500,000 1.08 08/28/17

Note: All options and warrants issued before February 28, 2007 were adjusted for
the 10% stock dividend authorized by the Board of Directors effective on this
date.

(1) The award represents warrants which are exercisable at the time of issuance
per employment agreement
(2) The award vest at the date of grant. The option has a ten year life. Issued
per the employment agreements
(3) The award vests equally over 36 months from date of grant. The option has a
ten year life.
(4) The award is warrants to purchase ZAP Common stock, these five year warrants
were initially issued on June 1, 2002. In January,2007 they were extended
another five years until June 1, 2012 with their original exercise prices
also adjusted.
(5) The award vests equally over 36 months from date of grant. The option has a
ten year life. Issued per the employment agreement.
(6) The award vested at the date of grant. The option has a ten year life.
Issued per the employment agreement

DIRECTOR COMPENSATION

The following director compensation disclosure reflects all compensation awarded
to, earned by or paid to the outside directors below for the fiscal year ended
December 31, 2008.

Compensation of Directors

The outside directors receive $500 and a grant of $500 of common stock for
attendance at each Board meeting and each committee meeting. Directors are also
reimbursed for out-of-pocket travel and other expenses incurred in attending
Board and/or committee meetings. Only Peter Scholl received funds of $11,250 for
the year ended December 31, 2008.

Both Gary Starr and Randall Waldman resigned as Directors in early 2009.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

The following table sets forth certain information, as of March 27, 2009, with
respect to the holdings of (1) each person who is the beneficial owner of more
than five percent of our common stock, (2) each of our directors, (3) the CEO
and each Named Executive Officer, and (4) all of our directors and executive
officers as a group.

Beneficial ownership of the common stock is determined in accordance with the
rules of the Securities and Exchange Commission and includes any shares of
common stock over which a person exercises sole or shared voting or investment
powers, or of which a person has a right to acquire ownership at any time within
60 days of March 21, 2009. Except as otherwise indicated, and subject to
applicable community property laws, the persons named in this table have sole
voting and investment power with respect to all shares of common stock held by
them. Applicable percentage ownership in the following table is based on
70,010,606 shares of common stock outstanding as of March 27, 2009, plus, for
each individual, any securities that individual has the right to acquire within
60 days of March 27, 2009.

Unless otherwise indicated below, the address of each of the principal
shareholders is c/o ZAP, 501 Fourth Street, Santa Rosa, California 95401.

Shares
Beneficially Percentage
Name and Address Owned of Class
--------------------------------------------------------------------------------

Beneficial Owners of More than 5%:
Jeffrey G. Banks (1),the Banks Group 4,136,297 5.91%

Current Directors, Nominees and Named
Executive Officers:

Steven Schneider (2) 17,952,487 25.64%

Gary Starr (3) 9,679,287 13.83%

Eqbal Al Yousuf (4) 9,303,428 13.29%

William Hartman (5) 2,625,639 3.75%

Amos Kazzaz (6) 1,123,819 1.61%

Peter Scholl *

All Directors and Executive Officers
as a group (6) persons) 40,684,660 58.12%
--------------------------------------------------------------------------------
---------------
* Less than 1%.

(1) Includes 2,505,000 warrants to purchase common stock.
(2) Includes 12,231,952 shares of common stock issuable upon the exercise of
various warrants and 2,648,357 shares of stock issuable upon the exercise of
stock options.
(3) Includes 6,013,846 shares of common stock issuable upon the exercise of
various warrants and 2,656,691 shares of stock issuable upon the exercise of
stock options.
(4) Shares were issued to Al-Yousuf LLC of which Mr Al-Yousuf is the President
(5) Includes 829,369 shares of common stock issuable upon the exercise of
various warrants and 1,394,869 shares of stock issuable upon the exercise of
stock options.
(6) Includes 939,721 shares of stock issuable upon the exercise of stock
options.

Equity Compensation Plan Information

We have adopted stock incentive plans to provide incentives to attract and
retain officers, directors, key employees and consultants. We currently have
reserved a total of 30,000,000 shares of our common stock for granting awards,
including 1,500,000 shares under our 1999 Incentive Stock Option Plan,
10,000,000 shares under our 2002 Incentive Stock Option Plan, and 4,000,000
shares under our 2006 Incentive Stock Option Plan and 14,500,000 under our 2007
Stock Incentive Plan. All plans were approved by our shareholders. As of
December 31, 2008, 643,870 shares of common stock had been issued pursuant to
options exercised out of the 2002 plan.

A summary of options under the Company's stock option plans from December 31,
2007 through December 31, 2008 is as follows: (the number of shares is in
thousands)

Weighted
Average
Remaining
Weighted Contractual
Number of Average Term
Shares Exercise Price (in years)
--------------------------------------------------------------------------------
Outstanding December 31, 2007 11,276 $ 1.03 8.32
Options granted under the plan 104 $ 0.84 9.75
Options exercised -- -- --
Options forfeited and expired -- -- --
------------ ------------ ------------
Outstanding March 31, 2008 11,380 $ 1.03 8.33
Options granted under the plan 72 $ 0.97 10.0
Options exercised (38) $ 0.29
Options forfeited and expired (33) -- --
------------ ------------ ------------
Outstanding June 30, 2008 11,380 $ 1.03 8.39
Options granted under the plan 904 $ 0.78 10.0
Options exercised (137) $ 0.45
Options forfeited and expired -- -- --
------------ ------------ ------------
Outstanding September 30, 2008 12,148 $ 1.00 8.41
------------ ------------ ------------
Options granted under the plan -- $ --
------------ ------------ ------------
Options exercised -- -- --
------------ ------------ ------------
Options forfeited and expired (156) -- --
------------ ------------ ------------
Outstanding December 31, 2008 11,992 $ 1.04 8.39
------------ ------------ ------------

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 December 31,
2008, for those options for which the quoted market price was in excess of the
exercise price ("in-the-money-options"). There were 852,500 options were in the
money at $0.01 or $8,525 as of December 31, 2008.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE

RELATED PARTY TRANSACTIONS

Rental arrangements
-------------------

Financing provided to the Company by Al-Yousuf LLC
--------------------------------------------------

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 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 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.

DIRECTOR INDEPENDENCE

The following director is an independent director as that term is defined under
NASDAQ Rule 4200(a)(15):

Peter Scholl

ITEM 14. PRINCIPAL ACCOUTANT FEES AND SERVICES.

Audit and Non-Audit Fees

The following table presents fees for professional audit services rendered
by Bagell Josephs,Levine & Co. LLP for the audit of the Company's annual
financial statements for the year ended December 31,2008 and 2007

2008 2007
------------ ------------
Audit fees:(1) $ 140,000 $ 133,000

Audit-related fees: (2) -- --

Tax fees:(3) -- --

All other fees:(4) -- --
------------ ------------
Total $ 140,000 $ 133,000
============ ============

(1) Audit fees include fees invoiced for the audit of the Company's annual
financial statements and the quarterly reviews of these statements, as
well as fees for consultation regarding accounting issues and their
impact on or presentation in the Company's financial statements.
(2) This category includes fees billed for assurance and related services
that are reasonably related to the performance of the audits or reviews
of the financial statements and are not reported under "Audit Fees," and
generally consist of fees for due diligence in connection with
acquisitions, registration statements, accounting consultation and
audits of employee benefit plans.
(3) This category includes fees billed for professional services rendered by
the independent auditors for tax compliance, tax planning and tax
advice. (4) The Company generally does not engage Bagell, Joseph, Levine
Company, LLC for "other" services.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Public Accounting Firm

The Audit Committee's policy is to pre-approve all audit and permissible
non-audit services provided by the independent auditors. These services may
include audit services, audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services and is generally
subject to a specific budget. The independent auditors and management are
required to periodically report to the Audit Committee regarding the extent of
services provided by the independent auditors in accordance with this
pre-approval, and the fees for the services performed to date. The Audit
Committee may also pre-approve particular services on a case-by-case basis.

ITEM 15. EXHIBITS.

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)

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 Note
(incorporated by reference from our Current Report on Form 8-K filed on
February 26, 2007)

10.45 Form or Warrant (incorporated by reference from our Current Report on
Form 8-K filed on February 26, 2007) 10.46 Purchase order from the
Electric Vehicle Company, LLC ("EVC") for 10,000 of its Xebra 2007
model year electric vehicles(incorporated by reference from our Current
Report on Form 8-K filed on April 26, 2007)

10.47 Distribution agreement this week with PML FlightLink Limited (PML) for
the purchase of an advanced wheel motor and control system(incorporated
by reference from our Current Report on Form 8-K filed on May 3, 2007)

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 markets (incorporated by
reference from our Current Report on Form 8-K filed on September 17,
2007)

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)

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. (14)

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. (14)

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. (14)

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. (14)

(1) Previously Filed as an exhibit to the Registrants'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 June 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 Yearly Report on Form
10KSB for the period ended December 31, 2004 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 July 20, 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 September 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 November 6, 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 December 11, 2006
and incorporated herein by reference.
(22) Previously filed as an exhibit to the Registrant's Current Report on Form
8K filed with the Securities and Exchange Commission on February 26, 2007
and incorporated herein by reference.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

ZAP

By: /s/ Steven M. Schneider
-------------------------------------
Steven M. Schneider
Chief Executive Officer
(Principal Executive Officer)

Date: March 27, 2009

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

Name Position Date
---- -------- ----

By: /S/ STEVEN M. SCHNEIDER Director and Chief Executive March 27, 2009
-------------------------- Officer
Steven M. Schneider (principal executive officer)

By: /S/ WILLIAM HARTMAN Chief Financial Officer March 27, 2009
-------------------------- (principal financial and
William Hartman accounting officer)

By: /S/ Amos Kazzaz Chief Operating Officer March 27, 2009
--------------------------
Amos Kazzaz

By: /S/ Eqbal Al Yousuf Director March 27, 2009
--------------------------
Raymond Byrne

By: /S/ Peter Scholl Director March 27, 2009
--------------------------
Peter Scholl