NOTE 5-ACQUISITION

In December 2009, ZAP issued 4 million shares of ZAP common stock to Jonway Group's designee, Alex Wang, which was attributed towards $1 million of the purchase price under the amendment to the Jonway Acquisition Agreement. In June 2010, ZAP issued 40 million shares of stock to Cathaya Capital, L.P., or Cathaya, in order to pay $10 million of the purchase price under the Jonway Acquisition Agreement.

On January 21, 2011(the "Closing Date"), the Company completed the acquisition of 51% of the equity shares of 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 determination of the fair value of the various assets acquired and liabilities assumed. The values assigned in these financial statements 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 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		12,740
Property & equipment		57,071
Other tangible assets		11,472
Accounts payable		(14,549	)
Notes payable		(4,261	)
Deferred tax liability		(1,689	)
Other liabilities assumed		(12,669	)
Net tangible assets acquired		52,196
Goodwill and intangible assets		5,382
Net assets acquired		57,578

Non controlling interest - fair value		(28,213	)
Less: Option to purchase remaining 49%		2,385
		(25,828	)

Purchase price	$	31,750

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


		Date of	Weighted Average
		Acquisition	Useful Life
		Fair Value	(in Years)
Customer relationships	$	745	8
Developed technology		2,076	7
Tradename		2,078	(a)
In-process research and development costs		175	(b)
Total	$	5,074

(a) The Jonway trade name 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.

The revenue and net income (loss) of the acquired company (Jonway Auto) included in 2011's operation results are as below:


Revenue	54,299
Net loss	(9,090	)

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 $249,679 and $595,958 for the years ended December 31, 2011 and 2010. respectively.

The excess of the purchase price over the net tangible assets and intangible assets was recorded as goodwill. The allocation of the purchase price was based upon a valuation for which the estimates and assumptions are subject to change within the measurement period (up to one year from the acquisition date).

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):


		2011			2010
Net sales	$	64,078		$	77,958
Net loss attributable	$
to ZAP		(46,190	)	$	(31,898	)
Net loss per
common share,
basic and diluted	$	(0.22	)	$	(0.27	)

Shares outstanding,
basic and diluted		213,935			119,075

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.