Acquisition

6 Months Ended

Jun. 30, 2011

Acquisition

Acquisition

NOTE 5-ACQUISITION

On January 21, 2011(the "Closing Date"), the Company completed the acquisition of 51% of the equity shares of Zhejiang Jonway Automobile Co., Ltd. ("Jonway").  The transaction was accounted for in accordance with the provisions of ASC 805-10, Business Combinations. The Company retained independent appraisers to advise management in the preliminary determination of the fair value of the various assets acquired and liabilities assumed. The values assigned in these financial statements are preliminary and represent management's best estimate of fair values as of the Closing Date.

As required by ASC 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Noncontrolling Interest, management conducted a review to reassess whether they identified all the assets acquired and all the liabilities assumed, and followed ASC 805-20's measurement procedures for Closing Date recognition of the fair value of net assets acquired.

The following are the preliminary estimated fair value of assets acquired and liabilities assumed as of the Closing Date (in thousands):  

Cash and cash equivalents	$	993
Restricted cash		3,088
Inventories, net		12,715
Property & equipment		46,322
Other tangible assets		14,167
Accounts payable		(14,549	)
Notes payable		(4,261	)
Deferred tax liability		(166	)
Other liabilities assumed		(14,358	)
Net tangible assets acquired		43,951
Goodwill and intangible assets		23,794
Net assets acquired		67,745
Non controlling interest		(31,875	)
Purchase price	$	35,870

The fair value of the major components of the intangible assets acquired and their estimated useful lives is as follows (dollars in thousands):

	Preliminary Fair Value		Weighted Average Useful Life (in Years)
Customer relationships	$	3,300		8
Developed technology		4,228		7
Tradename		9,326	(a)
In-process research and development costs		547	(b)
Total	$	17,401

(a)  The Jonway tradename has been determined to have an indefinite life.

(b)  In-process research and development is accounted for as an indefinite life intangible asset until the completion or abandonment of the associated research and development efforts.

Under ASC 805-10, acquisition-related costs (i.e., advisory, legal, valuation and other professional fees) are not included as a component of consideration transferred, but are accounted for as expenses in the periods in which the costs are incurred. Acquisition-related costs were $204,000 and $410,000 in the three and six months ended June 30, 2011.

The following unaudited pro forma condensed financial information presents the combined results of operations of ZAP and Jonway as if the acquisition had occurred as of the beginning of each period presented (in thousands except per share amounts): 

	Pro Forma Combined				Pro Forma Combined
	Six Months Ended June 30,				Three Months ended June 30,
	2011		2010		2011		2010
Net sales	$	35,815	$	38,916	$	16,311		19,317
Net( loss) Income		(20,535)		(4,182)		(9,321)		(1,658)
Net loss per common share, basic and diluted	$	(0.09)	$	(0.04)	$	(0.04)	$	(0.02)
Shares outstanding, basic and diluted		214,316		105,951		211,806		105,441

The unaudited pro forma condensed financial information is not intended to represent or be indicative of the consolidated results of operations of the Company that would have been reported had the acquisition been completed as of the beginning of the period presented, and should not be taken as being representative of the future consolidated results of operations of the Company.

The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The pro forma results of operations do not include the potential post-acquisition effects of any restructuring, impairment or integration costs related to the combined operations nor of any revenue opportunities, operating synergies or cost savings anticipated as eventual benefits of the acquisition.