WWW.EXFILE.COM, INC. -- 888-775-4789 -- ZAP -- FORM 10-Q

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

ZAP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30, 2008 Unaudited			December 31, 2007 Audited
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	996		$	4,339
Accounts receivable, net of allowance for doubtful accounts of $49 and $172		538			373
Inventories, net		2,055			1,437
Prepaid non-cash professional fees		179			283
Other prepaid expenses and other current assets		1,195			747
Total current assets		4,963			7,179
Property, and equipment, net of accumulated depreciation		4,300			4,471

OTHER ASSETS
Patents and trademarks, net		2			10
Prepaid non-cash professional fees, less current portion		109			82
Deferred offering costs		—			20
Deposits and other assets		294			176
Total Other Assets		405			288

TOTAL ASSETS	$	9,668		$	11,938
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of secured convertible note	$	—		$	104
8% Senior convertible notes, net of discount of $136 in 2007		475			546
Accounts payable		244			128
Notes Payable Short Term		1,917			—
Accrued liabilities		1,466			2,259
Deferred revenue		626			752
Total Current Liabilities		4,728			3,789
LONG-TERM LIABILITIES
Secured convertible note, less current portion		—			1,724
Long term note payable		1,774			—
Total liabilities		6,502			5,513

SHAREHOLDERS’ EQUITY

Common stock, authorized 400 million shares; no par value; 60,688,927 and 57,478,158 shares and shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively		125,384			122,672
Common stock issued as loan collateral		—			(1,549	)
Accumulated deficit		(122,218	)		(114,698	)
Total shareholders’ equity		3,166			6,425
Total liabilities and shareholders’ equity	$	9,668		$	11,938

See accompanying notes to condensed consolidated financial statements (unaudited)

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ZAP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Thousands, except share amounts)

	Three Months ended September 30, 2008			Three Months ended September 30, 2007			Nine Months ended September 30, 2008			Nine Months ended September 30, 2007
NET SALES	$	3,062		$	2,019		$	6,041		$	4,561

COST OF GOODS SOLD		2,692			1,476			5,354			3,748
GROSS PROFIT		370			543			687			813

OPERATING EXPENSES
Sales and marketing		438			519			1,240			1,154

General and administrative (non-cash stock-based compensation of $1.5million and $2.8million and $4.1million and $17.3million for the three and nine months ended September 30, 2008 and 2007, respectively)		2,224			3,525			6,133			20,313

Research and development		138			23			456			412
		2,800			4,067			7,829			21,879
LOSS FROM OPERATIONS		(2,430	)		(3,524	)		(7,142	)		(21,066	)
OTHER INCOME (EXPENSE)
Interest expense, net		(54	)		(210	)		(284	)		(810	)
Other Income( expense)		1			(10	)		(42	)		(11	)
		(53	)		(220	)		(326	)		(821	)
LOSS BEFORE INCOME TAXES	$	(2,483	)	$	(3,744	)	$	(7,468	)	$	(21,887	)

PROVISION FOR INCOME TAXES		—			—			(4	)		(4	)
NET LOSS	$	(2,483	)	$	(3,744	)	$	(7,472	)	$	(21,891	)

NET LOSS PER COMMON SHARE
BASIC AND DILUTED	$	(0.04	)	$	(0.08	)	$	(0.13	)	$	(0.49	)

WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING --
BASIC AND DILUTED		59,372			46,957			58,665			44,683

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

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ZAP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	Nine months ended September 30,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(7,472	)	$	(21,891	)

Items not requiring the use of cash:
Amortization of note discount and deferred offering costs		156			332
Stock-based compensation for consulting and other services		2,679			3,019
Stock-based employee compensation		1,381			14,291
Stock based compensation for interest and registration penalties		—			314
Depreciation and amortization		199			251
Allowance for doubtful accounts		(123	)		6
Changes in other items affecting operations:
Receivables		(42	)		(719	)
Inventories		(618	)		466
Prepaid expenses and other assets		(450	)		(71	)
Other assets		(207	)		—
Accounts payable		116			(98	)
Accrued liabilities		(791	)		391
Deferred revenue		(126	)		(427	)
Net cash used for operating activities		(5,298	)		(4,136	)

CASH FLOWS FROM INVESTING ACTIVITES
Purchase of equipment		(236	)		(20	)
Proceeds from sale of equipment		176			—
Net cash provided by ( used for) investing activities		(60	)		(20	)


CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock and warrants, net of offering costs		—			1,640
Pay-off of Convertible debt		(431	)		—
Re-issuance of convertible debt		475			—
Proceeds from short-term debt		1,917			1,185
Repayments of long-term debt		54			(90	)
Net cash provided by (used for) financing activities		2,015			2,735

NET DECREASE IN CASH AND CASH EQUIVALENTS		(3,343	)		(1,421	)

CASH AND CASH EQUIVALENTS, beginning of period		4,339			2,160

CASH AND CASH EQUIVALENTS, end of period	$	996		$	739

See accompanying notes to condensed consolidated financial statements (unaudited)

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ZAP AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. All adjustments (all of which are of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2008 are not indicative of the results that may be expected for the year ending December 31, 2008 or for any other future period. These condensed consolidated financial statements and the notes thereto should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-KSB for the year ended December 31, 2007 filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2008 (our “2007 10-K”).

We face intense competition, which could cause us to lose market share. Changes in the market for electrical or fuel-efficient vehicles could cause our products to become obsolete or lose popularity. We cannot assure you that growth in the electric vehicle industry or fuel-efficient cars will continue and our business may suffer if growth in the electric vehicle industry or fuel-efficient market decreases or if we are unable to maintain the pace of industry demands. We may be unable to keep up with changes in electric vehicle or fuel-efficient technology and, as a result, may suffer a decline in our competitive position. The failure of certain key suppliers to provide us with components could have a severe and negative impact upon our business. Product liability or other claims could have a material adverse effect on our business. We may not be able to protect our Internet address. Our success is heavily dependent upon protecting our intellectual property rights.

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

Basic and diluted net income (loss) per common share is based on net income (loss) for the relevant period, divided by the weighted average number of common shares outstanding in each period. Diluted net income per share gives effect to all potentially dilutive common shares outstanding during the period such as options, warrants, convertible preferred stock, and contingently issuable shares. Potentially dilutive securities associated with stock options, warrants and convertible debt have been excluded from the diluted net loss per share amounts, since the effect of these securities would be anti-dilutive. At September 30, 2008, these potentially dilutive securities include options for 12.3 million shares of common stock, warrants for 47.8 million shares of common stock and debt of $475,000 convertible into shares of common stock on November 8, 2008, the maturity date at 90% of the closing market price on that day.

As on November 13, 2008, the Company is in discussion with the note holder to either convert the note to equity or extend the maturity date of the debt.

PRINCIPLES OF CONSOLIDATION - The accounts of the Company and its consolidated subsidiaries are included in the condensed consolidated financial statements after elimination of significant inter-company accounts and transactions.

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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 - One of the Company’s subsidiaries, Voltage Vehicles, sold licenses to auto dealerships under the ZAP name. The license agreements call for the licensee to purchase a minimum number of vehicles from ZAP each year. As the Company collects monies related to these agreements, it is classified as deferred revenue until the Company begins delivering a substantial number of vehicles to these dealerships on a regular basis over the terms of the agreement. The Company has recognized approximately $10,700 and $114,700 of license revenue and other adjustments for the three and nine month periods ended September 30, 2008, resulting in an ending balance of $626,000.

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

ACCOUNTS RECEIVABLE - The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral from its customers. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers should deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

INVENTORY - The Company maintains reserves for estimated excess, obsolete and damaged inventory based on projected future shipments using historical selling rates, and taking into account market conditions, inventory on-hand, purchase commitments, product development plans and life expectancy, and competitive factors. If markets for the Company’s products and corresponding demand were to decline, then additional reserves may be deemed necessary. Inventories consist primarily of vehicles, both gas and electric, parts and supplies, and finished goods and are carried at the lower of cost (first-in, first-out method) or market.

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

STOCK ISSUED AS COLLATERAL – The stock was returned to the Company in January, 2008 and cancelled.

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

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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® vehicles. At September 30, 2008, the Company has recorded a warranty liability for $144,000 for estimated repair costs, up from $94,000 at December 31, 2007.

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

NOTE 3 STOCK-BASED COMPENSATION

We have stock compensation plans for employees and directors, which are described in Note 8 to our consolidated financial statements in our 2007 Annual Report on Form 10-KSB as filed with the SEC on April 14, 2008. We recognize the stock-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. All of our stock-based compensation is accounted for as an equity instrument.

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.

Under the provisions of SFAS 123R, we recorded $ 536,000 of stock compensation, net of estimated forfeitures, in general and administrative expenses, in our unaudited condensed consolidated statement of operations for the three months ended September 30, 2008 . We utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted after the adoption of SFAS 123R, with the following range of assumptions.

	Three Months Ended September 30, 2008
Expected Dividend yield	0%
Expected volatility		109.68-153.98
Risk-free interest rate		2.64-3.31%
Expected life (in years) from grant date		2.5 to 6.00
Exercise price		$0.50 to$1.26

The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. Expected volatility is based upon historical volatility of our common stock over the period commensurate with the expected life of the options. The risk-free interest rate is derived from the average U.S. Treasury Constant Maturity Rate during the period, which approximates the rate in effect at the time of the grant. Our unvested options vest over the next three years. Our options generally have a 10-year term. The expected term is calculated using the simplified method prescribed by the SEC’s Staff Accounting Bulletin 107. Based on the above assumptions, the weighted-average fair values of the options granted under the stock option plans for the three and six months ended September 30, 2008 was $0.84 and $0.97, respectively. We estimate forfeitures of employee stock options and recognize compensation cost only for those awards expected to vest. Forfeiture rates are determined based on historical experience. Estimated forfeitures are adjusted to actual forfeiture experience as needed.

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A summary of options under the Company’s stock option plans from December 31, 2007 through September 30, 2008 is as follows:

	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding December 31, 2007	11,276,000	$	1.03	8.32
Options granted under the plan	104,000	$	0.84	9.75	—
Options exercised	—		—	—	—
Options forfeited and expired	—		—	—	—
Outstanding March 31, 2008	11,380,000	$	1.03	8.33
Options granted under the plan	72,000	$	0.97	10.0	—
Options exercised	(38,100)	$	0.29
Options forfeited and expired	(33,000)		—	—	—
Outstanding June 30, 2008	11,380,900	$	1.03	8.39
Options granted under the plan	904,500	$	0.78	10.0
Options exercised	(137,400)	$	0.45
Options forfeited and expired	-		—	—	—
Outstanding September 30, 2008	12,148,000	$	1.00	8.41

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 September 30, 2008, for those options for which the quoted market price was in excess of the exercise price (“in-the-money-options”). There were no options in the money at September 30, 2008.

As of September 30, 2008, total compensation cost of unvested employee stock options is $1.1 million. This cost is expected to be recognized through September 2011. We recorded no income tax benefits for stock-based compensation expense arrangements for the nine months ended September 30, 2008, as we have cumulative operating losses, for which a valuation allowance has been established.

NOTE 4 INVENTORIES, NET- Inventories at September 30, 2008 are summarized as follows (thousands):

Vehicles - conventional	$	475
Advanced transportation vehicles		906
Parts and supplies		825
Finished goods		371
	$	2,577
Less - inventory reserve	$	(522)
	$	2,055

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NOTE 5 SHORT-TERM DEBT

As of September 30, 2008 the Company had borrowed $1.5 million on the note with maturity dates of December 2008 and January of 2009. The funds were used for inventory purchases. The Company is currently in discussions to extend the maturities until a later period In addition, the Company borrowed $410,000 from Portable Energy LLC which is due on demand. Thus, the total short-term notes payable at September 30, 2008 is $1,910,000. On November 10, 2008 the Company was advanced another $800,000 on the note which has a maturity date of March 11, 2009. The funds were also used to purchase inventory. 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 maybe extended upon written request of the Company and at the Lender’s sole discretion.

NOTE 6 LONG-TERM DEBT

PROMISSORY NOTE

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

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

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

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

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.

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LONG TERM LESS CURRENT PORTION SECURED CONVERTIBLE DEBT

On July 30, 2008 the Company was also advanced $1.7 million on the promissory note with Al Yousuf to pay-off the existing secured note on the Company’s corporate headquarters building which was previously held by an outside party. The long-term Note matures February 28, 2010. Interest only payments are due under the Note monthly commencing August 30, 2008. The note may be extended at the sole discretion of the lender. 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.

SHORT-TERM CONVERTIBLE DEBT

8% Senior Convertible Notes

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

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

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

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

The note bears interest at the greater of 6 month LIBOR plus 250 basis points or 6% per annum and may be converted in whole or in part into securities of the Company November of 2008 in accordance with the terms of the note. The price was agreed to be at 90% of the closing market price on the date selected for conversion. As on November 13, 2008, the Company is in discussion with the note holder to either convert the note to equity or extend the maturity date of the debt.

NOTE 7 INCOME TAXES

We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109, or FIN 48, on January 1, 2007. Upon adoption of FIN 48, we commenced a review of our tax position taken in our tax returns that remain subject to examination. Based

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upon our review, we do not believe we have any unrecognized tax benefits or that there is a material impact on our financial condition or results of operations as a result of implementing FIN 48.

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

We recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FIN 48, we did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized for the period ended September 30, 2008.

NOTE 8 SHAREHOLDERS’ EQUITY

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

NOTE 9 RELATED PARTY TRANSACTIONS

Rental agreements

The Company rents office space, land and warehouse space from Mr. Steven Schneider, its CEO and a major shareholder. These properties are used to operate the car outlet and to store inventory. Rental expense was approximately $63,000 for both the nine months ended September 30, 2008 and 2007.

Financing provided to the Company by Al-Yousuf LLC

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

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.

During the third quarter of 2008, the Company had borrowed another $1.5 million on the note with maturity dates of December 2008 and January of 2009. The funds were used for inventory purchases. The Company is currently in discussions to extend the maturities until a later period. On November 10, 2008 the Company was advanced $800,000 on the note which has a maturity date of March 11, 2009. The funds were also used to purchase inventory. The total advances on the note payable as of September 30, 2008 is $3.2 million. Thus as of November 13, 2008, the Company has drawn $4 million under the financing arrangement.

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. 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. As on November 13,

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2008, the Company is in discussion with the note holder to either convert the note to equity or extend the maturity date of the debt.

Sale of Portable Energy Product Line/Investment in Portable Energy LLC

We reported in our quarterly report as of March 31, 2008 filed on May 15, 2008, that we signed a draft agreement with Al-Yousuf LLC for the sale of our portable energy product line for $1,000,000 in exchange for a 50% ownership in a new company. However, no gain will be recognized on the transaction with Al-Yousuf LLC since no sale took place. There was a misunderstanding with Mr. Al-Yousuf our investor from Dubai and Chairman of our Board of Directors. When the funds were received in June of 2008, Mr. Al-Yousuf indicated that he was not buying 50 % of the portable energy product line from ZAP but rather purchasing a 50 % interest in the newly formed company called Portable Energy LLC. We transferred the assets of our Portable Energy Product Line at our historical cost of approximately $75,000 in June of 2008 to a newly formed company called Portable Energy LLC in exchange for a 50% ownership interest. The $1 million in funds received June 13, 2008 from Al-Yousuf were also transferred to the new company in exchange for a 50 % interest for Al Yousuf.

Consulting Agreement

On September 1, 2007, the Company and Mr. Albert Lam, who became a director of the Company, in October 2007 entered into an Independent Consulting Agreement (“Consulting Agreement”). Pursuant to the Consulting Agreement, Mr. Lam was to consult and advise the Company in the areas of Chinese manufacturing, facilities, tooling, financing, and contract negotiations on an independent consultant basis. Mr. Lam’s compensation under the Consulting Agreement was: 200,000 shares of the Company’s common stock valued at $194,000, issued under the Company’s 2007 Consultant Stock Plan (the “Plan”); a warrant to purchase 200,000 shares of the Company’s common stock valued at $131,000, expiring five years after grant, with an exercise price of $1.00 per share, issued under the Plan; and a warrant to purchase 1,000,000 shares of the Company’s common stock valued at $654,000, expiring five years after grant, with an exercise price of $1.00 per share and a net exercise provision.

The Consulting Agreement expired on September 30, 2007, and expense totaling $979,000 related to the consulting agreement was recorded in the third quarter of 2007.

The Company also paid Mr. Lam $65,000 in the first quarter of 2008 for consulting services. In addition his travel expenses were also reimbursed.

In October of 2008, Mr. Lam resigned as a Director of ZAP, he had no disputes with the Company.

NOTE 10 SEGMENT REPORTING

In accordance with the provisions of SFAS No. 131, the Company has identified four 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 (™) 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.

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Portable Energy products represent the sales activity of “Recharge-it-all Batteries” which are battery packs used to power or charge a wide range of mobile electronics as cellar phones, digital cameras and laptop computers. This product line was transferred to a separate company in exchange for a 50% interest.

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.

SEGMENT REPORTING

	Electronic
	Consumer
	Products and						Advanced
	Corporate			Car			Technology
	Expenses			Outlet			Vehicles			Totals
For the 3 months ended of September 30, 2008:

Net Sales		364			528			2,170			3,062
Gross profit (Loss)		(48	)		156			262			370
											—
Net Income (Loss)		(2,589	)		42			64			(2,483	)
Total Assets		7,316			537			1,815			9,668

For the 3 months ended of September 30, 2007:

Net Sales		890			356			773			2,019
Gross profit (Loss)		193			77			273			543
											—
Net Income (Loss)		(3,897	)		(24	)		177			(3,744	)
Total Assets		7,428			460			1,382			9,270


For the 9 months ended of September 30, 2008:

Net Sales		611			1,250			4,180			6,041
Gross profit (Loss)		(126	)		181			632			687
											—
Net Income (Loss)		(7,279	)		(146	)		(43	)		(7,468	)
Total Assets		7,316			537			1,815			9,668

For the 9 months ended of September 30, 2007:

Net Sales		1,352			1,013			2,196			4,561
Gross profit (Loss)		265			195			353			813
											—
Net Income (Loss)		(21,725	)		(129	)		(33	)		(21,887	)
Total Assets		7,428			460			1,382			9,270

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NOTE 11 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

	Nine Months Ended September 30, (in thousands)
	2008		2007
Cash paid during the period for interest	$	—	$	16
Cash paid during the period for income taxes	$	4	$	4
Non-cash investing and financing activities:
Stock and warrants issued for:
Re-payment of 8% Senior debt	$	431	$	—

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

THIS QUARTERLY REPORT OF FORM 10-Q, INCLUDING THE FOLLOWING MANAGEMENT’S DISCUSSION AND ANALYSIS, AND OTHER REPORTS FILED BY THE REGISTRANT FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION (COLLECTIVELY THE “FILINGS”) CONTAIN FORWARD-LOOKING STATEMENTS WHICH ARE INTENDED TO CONVEY OUR EXPECTATIONS OR PREDICTIONS REGARDING THE OCCURRENCE OF POSSIBLE FUTURE EVENTS OR THE EXISTENCE OF TRENDS AND FACTORS THAT MAY IMPACT OUR FUTURE PLANS AND OPERATING RESULTS. THESE FORWARD-LOOKING STATEMENTS ARE DERIVED, IN PART, FROM VARIOUS ASSUMPTIONS AND ANALYSES WE HAVE MADE IN THE CONTEXT OF OUR CURRENT BUSINESS PLAN AND INFORMATION CURRENTLY AVAILABLE TO US AND IN LIGHT OF OUR EXPERIENCE AND PERCEPTIONS OF HISTORICAL TRENDS, CURRENT CONDITIONS AND EXPECTED FUTURE DEVELOPMENTS AND OTHER FACTORS WE BELIEVE TO BE APPROPRIATE IN THE CIRCUMSTANCES. YOU CAN GENERALLY IDENTIFY FORWARD-LOOKING STATEMENTS THROUGH WORDS AND PHRASES SUCH AS “SEEK”, “ANTICIPATE”, “BELIEVE”, “ESTIMATE”, “EXPECT”, “INTEND”, “PLAN”, “BUDGET”, “PROJECT”, “MAY BE”, “MAY CONTINUE”, “MAY LIKELY RESULT”, AND SIMILAR EXPRESSIONS. WHEN READING ANY FORWARD-LOOKING STATEMENT YOU SHOULD REMAIN MINDFUL THAT ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING FUTURE EVENTS OR FUTURE PERFORMANCE OF OUR COMPANY, AND ARE SUBJECT TO RISKS, UNCERTAINTIES, ASSUMPTIONS AND OTHER FACTORS RELATING TO OUR INDUSTRY AND RESULTS OF OPERATIONS, INCLUDING BUT NOT LIMITED TO THE FOLLOWING FACTORS:

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

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

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

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

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

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

o	CHANGES IN OUR BUSINESS PLAN AND CORPORATE STRATEGIES; AND

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

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

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

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

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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.

Recent Developments

Some of the noteworthy events for the Company that occurred during the third quarter of 2008 and through the date of this report are as follows:

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.

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2.	We experienced record Third Quarter Electric Vehicle Shipments. In the quarter ended September 30, 2008, we shipped 240 Xebra vehicles as compared to 80 in the quarter ended September 30, 2007, or an increase of 160 vehicles.

Work commenced at the site of an electric car factory in Franklin, Kentucky, according to officials for Integrity Automotive, to expand electric vehicle manufacturing in the USA for ZAP. The Kentucky Economic Development Finance Authority gave preliminary approval for $68 million in state incentives for a large-scale manufacturing initiative with Integrity.

4.	Zap’s South American arm, ZAP Latin America, began sales of Zap’s products in Uruguay and other South American and Latin American countries.

Results of Operations

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

	Three months ended September 30		Nine months ended September 30
	2008	2007	2008	2007
Statements of Operations Data:
Net sales	100%	100%	100%	100%
Cost of sales	(87.9)	(73.1)	(88.6)	(82.2)
Operating expenses	(91.4)	(201.4)	(129.6)	(479.7)
Loss from operations	(79.3)	(174.5)	(118.2)	(461.9)
Net loss	(81.0)	(185.4)	(123.7)	(480.0)

Quarter Ended September 30, 2008 Compared to Quarter Ended September 30, 2007

Net sales for the quarter ended September 30, 2008 were $3.1 million compared to $2 million for the period ended September 30, 2007.

Our third quarter sales of Advanced Technology vehicles such as the Xebra, our three wheeled electric car and Zapino, a full size electric road scooter increased from $773,000 in 2007 to $2.1 million in 2008. The primary reason is greater consumer demand due growing EV awareness and a larger number of dealers carrying our products.

We experienced an increase in retail sales by our car lot in the third quarter of $172,000 from $356,000 in 2007 to $528,000. Increase was due to a better mix of energy efficient cars and lower cost car models. In our Consumer Product segment third quarter sales increased from $156,000 in 2007 to $242,000 in 2008. The increase was due to sales of our new model of the ZAPPY PRO in 2008.

Gross profit decreased by $173,000 from $543,000 for the third quarter ended September 30, 2007 to $370,000 for the quarter ended September 30, 2008.

The third quarter gross profits for our Advanced Technology vehicles were approximately $262,000 for 2008 and $273,000 for 2007. The gross profit percentage decreased from 35% in third quarter of 2007 to 12% in 2008. The reason for the decrease was start up production issues for the new metal Xebra electric vehicles and upgrades to the Zapino which required additional labor post production.

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The Consumer Products segment experienced a decrease in gross profits in the third quarter from $195,000 in 2007 to a gross loss of $64,000 in 2008. The primary reason for the decrease was due to the deletion of portable sales with higher margins in third quarter of 2008 to a new company due to competition in the market place.

The gross profits in the third quarter for our car lot sales increased from $77,000 or 22% of sales in 2007 to $156,000 or 29% of sales in 2008. The higher profits are due to the mix of vehicle models sold during the quarter.

Sales and marketing expenses decreased by $81,000 from $519,000 for the quarter ended September 30, 2007 to $438,000 in 2008. As a percentage of sales it represents a decrease from 25% to 14%. The decrease was due less use of outside consultants used to promote the sales efforts and a decrease in trade show attendance.

General and administrative expenses decreased by $1.3 million from $3.5million for the quarter ended September 30, 2007 to $2.2 million in 2008. The reason for the decrease was due to less expenditures for consulting and professional fees. Also the expense for stock options was less in the 2008 quarter since 2007 expenses included some one time grants to key employees.

Research and development expenses increased by $112,000 from $23,000 in 2007 to $135,000. The primary reason for the increase was expenses incurred in the new ATV, ZAP Dude, in the final development of a four (4)wheel product line, a line of low cost wheel motors and to build a full scale model of our new vehicle, the ZAP-Alias. This vehicle will be a production-ready all electric highway vehicle.

Interest expense, net decreased from an expense of $210,000 in third quarter 2007 to $55,000 in third quarter of 2008. The decrease was due to lower interest bearing balances on the 8% senior convertible debt.

Other income (expense), net increased from an expense of $10,000 for the third quarter of 2007 to other income of $2,000 in the third quarter of 2008.

Net Loss for the quarter ended September 30, 2008 was $2.5 million compared to a net loss of $3.7 million for period ended September 30, 2007.

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

Net sales for the nine months ended September 30, 2008, were $6 million compared to $4.5 million for the nine months ended September 30 in the prior year. Sales in the Advanced Technology segment increased from $2.2 million in 2007 to $4.2 million in 2008 primarily due to greater demand. With the high price of gasoline in the U.S. 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 $243,000 in sales of consumer products from $543,000 in 2007 to $300,000 in 2008. Our main consumer product the ZAPPY3 electric scooter was not available in 2008 since our previous manufacturer experienced financial difficulties in early 2008 and we switched to a new contractor but did not receive new products until June 2008.

Sales in our Portable Energy segment decreased from $800,000 in 2007 to $173,000 in 2008. The primary reason for the decrease was the transfer in June of 2008of 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 $1,012,000 in 2007 to $1,250,000 in 2008. However, the overall U.S. market for retail cars remains sluggish due to the tight economy.

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Gross profit was $687,000 for the nine months ended September 30, 2008 compared to 813,000 for the nine months ended September 30, 2007 resulting in a decrease of $207,000.

In our Advanced Technology segment our gross profit increased from $353,000 in 2007 to $632,000 in 2008 or 16% of sales for both years. The increase was due to greater units sold from 60 vehicles in 2007 to 160 in 2008.

In our Consumer Products segment we experienced a decrease of $416,000 in gross profit from $265,000 in 2007 to a gross loss of $126,000 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 $195,000 or 19% of sales to $181,000 or 14 % of sales in 2008. This reflects lower margins on car sales due to the tight economy.

Sales and marketing expenses in the first nine months of 2008 increased by $86,000 from $1.1 million in 2007 to $1.2 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.

General and administrative expenses for the nine months ended September 30, 2008 decreased by $14.2 million from $20.3 million in 2007 to $6.1 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.

Research and development expenses increased by $44,000 from $412,000 in 2007 to $456,000 in 2008.

The higher expenses 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. We also incurred expenses to develop a heavy duty ATV for ZAP in the USA market and a four wheeled electric truck.

Interest expense, net decreased by $526,000 from an interest expense of $810,000 for the first nine months of 2007 to interest expense of $284,000 in the nine months ended September 30, 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 expense increased from $11,000 for the nine months ended September 30, 2007 to $42,000 in the first nine months of 2008. The main reason for the increase was our donation of $25,000 to the Red Cross for China earthquake relief.

Net Loss was $7.5 million for the nine months ended September 30, 2008 as compared to a net loss of $21.9 million for period ended September 30, 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, as well as stock-based compensation expense due to the adoption of SFAS 123R.

Liquidity and Capital Resources

In the first nine months of 2008 net cash used for operating activities was $5.3 million. Cash used in the first nine months of 2008 was comprised of the net loss incurred for the first nine months of $7.3 million plus net non-cash expenses of $4.2 million and the net decrease of $2.1 million in operating assets and liabilities. In the first nine months of 2007, the Company used cash for operations of $4.1 million was comprised of the net loss of $22.9 million plus net non-cash expenses of $18.2 million, and the net change in operating assets and liabilities of $458,000.

Investing activities used cash of $60,000 in the first nine months ended September 30, 2008 compared with a use of cash of $20,000 in 2007.

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Financing activities for the first nine months ended September 30, 2008 provided cash of $2 million compared with investing activities providing cash of $2.7 million in 2007. In 2007, we issued senior convertible debt and stock and warrants to generate cash. In 2008 we borrowed $2.9 million in advances from the credit facility and from another related Company.

The Company had cash of $996,000 million at September 30, 2008 as compared to $ 739,000 at September 30, 2007. The Company had working capital of $235,000 and a working capital deficit of $1.5 million for the periods ended September 30, 2008 and 2007 respectively.

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

CRITICAL ACCOUNTING POLICIES

Revenue Recognition

The Company records revenues only upon the occurrence of all of the following conditions:

The Company has received a binding purchase order or similar commitment from the customer or distributor authorized by a representative empowered to commit the purchaser (evidence of a sale);

The purchase price has been fixed, based on the terms of the purchase order;

The Company has delivered the product from its distribution center to a common carrier acceptable to the purchaser. The Company’s customary shipping terms are FOB shipping point; and

The Company deems the collection of the amount invoiced probable.

The Company provides no price protection. Product sales are net of promotional discounts, rebates and return allowances.

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

Allowance for Doubtful Accounts

The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers. The Company records an allowance for doubtful accounts receivable for credit losses at the end of each period based on an analysis of individual aged accounts receivable balances. As a result of this analysis, the Company believes that its allowance for doubtful accounts is adequate at September 30, 2008 and 2007, respectively. If the financial condition of the Company’s customers should deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventory Valuation

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

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Deferred Tax Asset Realization

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

BUSINESS DEVELOPMENT

Founded in 1994, ZAP has invented, designed, manufactured, and marketed numerous innovative products since the Company’s inception. In 1995, ZAP began marketing electric transportation on the Internet through our website, www.zapworld.com. ZAP has been a pioneer in developing and marketing electric vehicles such as a zero-emission ZAP(R) electric bicycle, ZAP Power System, which adapts to most bicycles, and the ZAPPY(R) folding electric scooter. From 1996 through 1998, we continued to add to our product line; in 1999, ZAP added electric motorbikes; in 2001, it added electric dive scooters; in 2003, ZAP announced its first electric automobiles, including the first-ever production electric automobile imported from its manufacturing partner in China; in 2004 ZAP introduced electric all-terrain vehicles and the fuel-efficient Smart Car; and in 2005 ZAP introduced multi-fuel vehicles, capable of running on ethanol and/or gasoline. To date, we have delivered more than 100,000 electric vehicles and consumer products to customers in more than 75 countries, which we believe establishes us as one of the leaders in the alternative transportation marketplace.

Today, ZAP is continuing its focus as one of the pioneers of advanced transportation technologies and leveraging its place in the market as a magnet for new technologies. The Company believes there is a growing and underrepresented market for fuel efficient transportation vehicles and we are capitalizing on the opportunities enhanced by heightened environmental awareness, climate changes and economic pressures. The technology is available to deliver transportation solutions that are practical and affordable. With our products such as the XEBRA 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

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;

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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.

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

o	The ZAP Alias, which has a target price of $32,500 per vehicle and an estimated range of 100 miles per charge. This vehicle launch date is for 2009.

o	The ZAP Truck XL, which is a low speed 4 wheel utility truck and having a MSRP of approximately $14,900, scheduled for launch in the 4th quarter, 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 the only series production electric vehicle in the United States that can legally travel faster than 25 mph. The car’s suggested retail price of $11,000 is significantly less expensive than most of its competitors, some of which cost more than $100,000 and are not yet widely available today. XEBRA has three wheels and is being imported as a motor-driven cycle, yet, unlike most other motor-driven cycles, the XEBRA is enclosed with windows and a roof, affording it protection from inclement weather.

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. Subject in large part to the level of financing secured, our current target is to distribute approximately 200 vehicles per month over the next 12 months. 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.

We are working closely with our manufacturing partner to continually upgrade the XEBRA, adding features while balancing the goal of maintaining an affordable price level. We are in the process of looking into incorporating options to enhance the consumer’s experience, including providing lithium battery packs for additional (up to 100 mile) range. Solar options were introduced in the current quarter for true Zero Air Pollution.

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.

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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.

The ZAP-X is proposed to be powered by revolutionary in-hub electric motors, delivering 644 horsepower in all wheel drive mode, theoretically capable of powering the ZAP-X to a potential top speed of 155mph. A new, strong, lightweight and highly efficient structure based on the Lotus technology is projected to give the car a very attractive power-to-weight ratio. We are in the midst of the development plan for the ZAP-X and seeking a manufacturing partner.

We are also developing a $32,000 all electric vehicle with a targeted 100 mile range, the ZAP Alias (TM), which is expected fourth quarter 2009.

Future Automotive Offerings

Over the next 36 months, we hope to establish relationships with additional manufacturers who can supply automobiles and related vehicles that meet our mission of affordable, advanced transportation technologies that are socially responsible and environmentally sustainable. In 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

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

o	Portable energy (universal recharge-it-all batteries and auxiliary batteries).

The ZAPPY 3 Personal Transporters

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

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

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

The ZAPPY3 retail focus has continued strong in 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 hope to launch a heavy duty ATV in the 3rd quarter 2008 with product features and styling comparable to existing gas-models. We believe our position as an innovator in the electric vehicle market, coupled with first-mover advantage in the electric ATV market, will allow us to capitalize on this market segment. If we are able to capture 1% of the all terrain vehicle market share, it could equate to over $40 million in revenues per year. However, there can be no assurances that we will be able to achieve such market share.

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Portable Energy - Recharge-It -All Batteries

We believe we were one of the first and now one of the leading producers of rechargeable battery sources using lithium-ion and lithium polymer technology. Through our Recharge-It-All line, we sell battery packs to power or charge a wide range of mobile electronics such as cellular phones, digital cameras and laptops, providing significantly more charge time than currently available technologies. Our Portable Energy devices fall under two product lines: universal chargers and made-for iPOD models. The universal chargers are rechargeable battery packs that extend the use of most small and medium-sized electronic devices up to 2 to 5 times their normal battery life. The made-for iPOD models are a series of portable energy devices designed to work specifically with all the major iPOD products, including the iPOD, iPOD nano, iPOD shuffle and the iPOD with video.

We launched our Portable Energy products at the end of 2006 with marketing targeted to large electronic retailers. Market statistics indicate that there will be over two billion users of mobile electronic devices by the end of 2007.

Our goal with Portable Energy is to provide a solution that helps solve the energy management challenge for electronic and mobile internet users. Today, there are only a few companies that have begun to address the mobile device backup power/charge market. The currently available products include Energizer’s “Energi to Go”, Charge 2 Go, Cell Boost, and Medis Power Pack. We believe that no manufacturer offers rechargeable devices that offer the ability to re-charge a myriad of electronic devices from the same device as effectively as ZAP’s Portable Energy.

In June of 2008 we transferred the assets of the portable energy product line to a new Company called Portable Energy LLC in return for a 50% interest.

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 $7.5 million, $28 million, $11.9 million, for the nine months ended September 30, 2008 and the years ended December 31, 2007, 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 Honda, Toyota, and Daimler-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. We expect to face competition from the makers of consumer batteries and small electronics with respect to the ZAP Portable Energy line. This intense competitive environment may require us to make changes in our products, pricing, licensing, services, distribution, or marketing to develop, maintain, and extend our current technology and market position.

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

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

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·	continued development of product technology;

·	the environmental consciousness of customers;

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

·	widespread electricity shortages and the resultant increase in electricity prices, especially in our primary market, California, which could derail our past and present efforts to promote electric vehicles as a practical solution to vehicles which require gasoline; and

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

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

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.

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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 Director and 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

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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

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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.

Item 4T. Controls and Procedures

Disclosure Controls and Procedures

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

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Changes in Internal Control Over Financial Reporting

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

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

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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 not responded to that offer. A Case Management Conference was held on September 25, 2008, at which time the Court set a trial date for May 1, 2009, and also ordered the parties to mediation. ZAP and CIT are presently attempting to schedule that mediation. In the meantime, CIT has served written discovery on ZAP, and ZAP’s responses to that discovery is due November 12, 2008. ZAP is in the process of preparing written discovery requests and will be serving same on CIT shortly. The next Case Management Conference is schedule for December 4, 2008. We intend to vigorously defend ourselves against these claims and believe that we have adequately provided in our financial statements for this matter.

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

The following lists sales of unregistered securities during the quarter ended September 30, 2008 that were not previously included in a Quarterly Report on Form 10-QSB 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

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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 August 14, 2008, the Company issued 3,750 shares of common stock for professional services valued at $2,925 and 32,051 shares for R&D purposes valued at $25,000.

On September 10, 2008, the Company issued 12,246 shares for an asset purchase valued at $7,960.

On September 11, 2008 the Company issued 127,119 shares valued at $75,000 for asset purchases and 55,909 shares valued at $30,750 to settle an obligation of the Company.

Item 3. Defaults upon Senior Securities

Not Applicable

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

Not Applicable

Item 5. Other Information

Not Applicable

Item 6. Exhibits

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

3.1	Amended and Restated Articles of Incorporation. (4)

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

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

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

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

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

10.3	2004 Consultant Stock Plan. (7)

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

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

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

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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)

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10.29

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

10.30

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

10.31

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

10.36

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

10.37

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

10.38

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

10.39

ZAP Guarantee (18)

10.40

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

10.41

Joint Venture Negotiations dated September 21, 2006 (20)

10.42

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

10.43

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

10.44

Form of Convertible

10.45

Form of Warrant

10.46

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

10.47

Distribution agreement this week with PML FlightLink Limited (PML) for the purchase of an advanced wheel motor and control system

10.48

Joint Venture Agreement with Youngman Automobile Co., Ltd to manufacture, market and distribute electric a and hybrid vehicles for the worldwide passenger car, truck and bus

10.49

Form SB-2 Registration of Common Stock incorporated by reference to SEC filing on September 24, 2007 effective on October 2, 2007.

10.50

Settlement and Mutual Release Agreement with Gemini Master Fund, LTD and Gemini Strategies, LLC dated May 7, 2008.(22)

10.51

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

10.52

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

21.1	List of subsidiaries. (3)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(22)	Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10Q for the period ended March 31, 2008 and incorporated herein by reference.

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

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ZAP

Dated: November 13, 2008	By:	/s/ Steven Schneider
		Name: Steven Schneider
		Title: Chief Executive Officer (Principal Executive Officer)


	ZAP

Dated: November 13, 2008	By:	/s/ William Hartman
		Name: William Hartman
		Title: Chief Financial Officer (Principal Financial and Accounting Officer)

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

			Page No.
PART I.	Financial Information

	Item 1.	Condensed Consolidated Financial Statements (unaudited) :

		Condensed Consolidated Balance Sheets as of September 30, 2008 unaudited and December 31, 2007 (audited).	1

		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007, unaudited.	2

		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007, unaudited.	3

		Notes to Condensed Consolidated Financial Statements	4

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

	Item 4T.	Controls and Procedures	28

PART II.	Other Information

	Item 1.	Legal Proceedings	29

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

	Item 3.	Defaults Upon Senior Securities	31

	Item 4.	Submission of Matters to a Vote of Security Holders	31

	Item 5.	Other Information	31

	Item 6.	Exhibits	31

SIGNATURES			35

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)	Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)	Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or its reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

(1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.