10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2012

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ________ to _________

Commission File Number    001-32534

ZAP
(Exact name of registrant as specified in its charter)
California	94-3210624
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
501 4th Street Santa Rosa, CA           95401
(Address of principal executive offices) (Zip Code)
(707) 525-8658
(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x   No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filer required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.

Yes  x   No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o Accelerated filer  o Non-accelerated filer  o Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o   No  x

As of May 21, 2012, there were299,241,038 shares outstanding of the registrant’s common stock.

INDEX

		Page No.
PART I. Financial Information
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011	1
	Condensed Consolidated Statements of Operations for the Three months ended March 31, 2012 and 2011	2
	Condensed Consolidated Statements of Cash Flows for the Three months ended March 31, 2012 and 2011	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	31
PART II. Other Information
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
SIGNATURES		34

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ZAP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	March 31,			December 31,
ASSETS	2012			2011
Current assets:
Cash and cash equivalents	$	1,922		$	5,859
Restricted Cash		5,838			6,128
Marketable Securities		1,356			1,830
Notes receivable from Jonway Auto dealers		723			1,457
Accounts receivable, net of allowance of $20 in 2012 and $9 in 2011		2,907			2,963
Inventories, net		11,340			11,118
Prepaid expenses and other current assets		2,754			1,984
Total current assets		26,840			31,339
Property, plant and equipment, net		46,343			46,953
Land use rights, net		9,915			10,075
Other assets:
Investment in joint ventures		1,168			1,290
Distribution fees for Jonway Products and
Better Worlds Products		12,900			13,439
Intangible assets, net		4,878			5,002
Goodwill		324			324
Due from related party		2,413			1,137
Advance payments to related party		11,616			11,616
Deposits and other assets		310			313
Total other assets		33,609			33,121
Total assets	$	116,707		$	121,488
LIABILITIES AND  EQUITY
Current liabilities:
Short term loans	$	5,134		$	5,485
Accounts payable		15,415			15,164
Accrued liabilities		5,366			8,030
Notes payable		11,158			10,528
Advances from customers		4,585			1,971
Taxes payable		636			885
Due to related party		171			2,122
Other payables		1,765			2,116
Total current liabilities		44,230			46,301
Long term liabilities:
Accrued liability		600			592
8% Senior convertible debt		20,679			19,000
Total long term liabilities		21,279			19,592
Total liabilities		65,509			65,893
Commitments and contingencies
ZAP Shareholders' Equity
Common stock, no par value; 800 million shares authorized;
298,672,792 and 297,746,376 shares issued and
outstanding at March 31, 2012 and December 31, 2011, respectively		226,154			225,378
Accumulated other comprehensive income		482			1,051
Accumulated deficit		(199,035	)		(195,596	)
Total ZAP shareholders’ equity		27,601			30,833
Non-controlling interest		23,597			24,762
Total equity		51,198			55,595
Total liabilities and equity	$	116,707		$	121,488

See accompanying notes to unaudited condensed consolidated financial statements

1

ZAP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS

 (In thousands, except per share data)

(Unaudited)

 

	For the Three Months ended March 31,
	2012			2011
				Restated
Net sales	$	12,181		$	11,708
Cost of goods sold		(11,479	)		(10,673	)
Gross profit		702			1,035
Operating expenses:
Sales and marketing (includes non-cash items
of $540 in 2012 and $629 in 2011, respectively)		2,112			1,872
General and administrative (includes non-cash items
of $1,079  in 2012 and $3,871  in 2011)		2,491			3,469
Research and development		279			762
Total operating expenses		4,882			6,103
Loss from operations		(4,180	)		(5,068	)
Other income (expense):
Interest expense, net		(486	)		(1,850	)
Loss from equity in Joint Venture		(119	)		(73	)
Loss on financial instruments		—			(358	)
Other income (expense), net		235			143
Total other income (expense)		(370	)		(2,138	)
Loss before income taxes		(4,550	)		(7,206	)
Income tax benefit		38			21
Net loss		(4,512	)		(7,185	)
Net loss attributable to non controlling interest		1,073			570
Net loss attributable to Zap	$	(3,439	)	$	(6,615	)
Net loss	$	(4,512	)	$	(7,185	)
Other Comprehensive income (loss)
Foreign currency translation gain (loss)		(187	)		314
Net unrealized (loss) on securities available for sale		(474	)		(286	)
Comprehensive loss		(5,173	)		(7,157	)
Comprehensive loss attributable to non controlling interest		1,165			416
Comprehensive loss attributable to Zap	$	(4,008	)	$	(6,741	)
Net loss per share attributable to common shareholders:
Basic and diluted	$	(0.01	)	$	(0.03	)
Weighted average number of common shares outstanding:
Basic and diluted		298,127			209,273

See accompanying notes to unaudited condensed consolidated financial statements

2

ZAP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

	For the Three Months ended March 31,
	2012			2011
				Restated
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(4,512	)	$	(7,185	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		671		506
Stock-based compensation for R&D activities		105		20
Depreciation and amortization		1,799		1,373
Provision for (recovery of) doubtful accounts		(3	)	28
Inventory Reserve		95		—
Loss from joint venture and other investments		119		73
Change in fair value of derivative liability		—		358
Convertible debt discount		—		1,850
Deferred tax benefit		(38	)	—
Changes in assets and liabilities: (net of acquisition )
Notes receivable		729			156
Accounts receivable		34			1,535
Inventories		(357	)		(1,442	)
Prepaid expenses and other current assets		(723	)		(2	)
Due from related parties		(1,284	)		—
Accounts payable		299			2,099
Accrued liabilities		(876	)		(893	)
Advances to customers		2,625			—
Taxes payable		(245	)		—
Other payables		(363	)		—
Net cash used in operating activities		(1,925	)		(1,524	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of 51% Interest in Zhejiang Jonway Automobile , net		—			(19,030	)
Acquisition of property and equipment		(597	)		(543	)
Proceeds from sale of equipment		—			10
Net cash flows used in investing activities:		(597	)		(19,563	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short term loans		522			—
Repayment of short term loans		(852	)		(2,126	)
Proceeds from issuance of common stock		—			244
Repayment to related parties		(2,001	)		—
Proceeds from issuance of convertible debt		—			19,000
Proceeds from stock subscription agreement		—			2,000
Proceeds from notes payable		670			—
Change in restricted cash		266			884
Net cash provided by (used in) financing activities		(1,395	)		20,002
Effect of exchange rate changes on cash and cash equivalents		(20	)		4
NET DECREASE IN CASH AND CASH EQUIVALENTS		(3,937	)		(1,081	)
CASH AND CASH EQUIVALENTS, beginning of period		5,859			2,496
CASH AND CASH EQUIVALENT, end of period	$	1,922		$	1,415
Supplemental disclosure of cash flow information:
Cash paid during period for interest	$	264		$	—
Cash paid during period for taxes	$	—		$	4

See accompanying notes to unaudited condensed consolidated financial statements

3

ZAP AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - ORGANIZATION AND OPERATIONS:

ZAP was incorporated in California in September 1994 (together with its subsidiaries, “the Company,” or “ZAP”). ZAP markets advanced transportation, including alternative energy and fuel efficient automobiles, motorcycles, bicycles, scooters, personal watercraft, hovercraft, neighborhood electric vehicles and commercial vehicles. The Company’s business strategy has been to develop, acquire and commercialize electric vehicles and electric vehicle power systems, which the Company believes have fundamental practical and environmental advantages over available internal combustion modes of transportation that can be produced commercially on an economically competitive basis. In pursuit of a manufacturing plant and a partner with an existing product line, a distribution and customer support network in China and experience in vehicle manufacturing, ZAP acquired a majority of the outstanding equity in Zhejiang Jonway Automobile Co., Ltd. (“Jonway”). 

On January 21, 2011, the Company completed the acquisition of 51% of the equity shares of Jonway for a total purchase price of $31.75 million consisting of approximately $29 million in cash and 8 million shares of ZAP common stock valued at $2.7 million.  The Company believes that the acquisition will allow it to expand its electric vehicle (“EV”) business and distribution network around the world, give it access to the rapidly growing Chinese market for electric vehicles and have competitive production capacity in an ISO 9000 certified manufacturing facility with the capacity and resources to support production of ZAP’s electric vehicles and new product line of mini vans and new SUVs.

              Jonway is a limited liability company incorporated in Sanmen County, Zhejiang Province of the People’s Republic of China (“the PRC”) on April 28, 2004 by Jonway Group Co., Ltd. (“Jonway Group”). Jonway Group is under the control of three individuals, Wang Huaiyi, Alex Wang (the son of Wang Huaiyi) and Wang Xiao Ying (the daughter of Wang Huaiyi and all three individuals collectively referred to as the “Wang Family”) 

Jonway’s approved scope of business operations includes the production and sale of vehicle spare parts, and the sale of UFO licensed SUV vehicles.  The principal activities of Jonway are the production and sale of automobile spare parts and the production and distribution of SUVs in China using the consigned UFO license from an affiliate of Jonway Group. 

With the completion of the acquisition of a majority interest in Jonway, the combined companies’ new product lines planned for the second half of 2012 include the A380 SUV EV and the minivan EV. Both products leverage the production moldings, the manufacturing engineering infrastructure and facilities currently in place for the gasoline models of these vehicles. Since the acquisition, the companies have been working on developing the joint product line, marketing and sales plans for the 2012 EV product lines.

Jonway is preparing for certification of the EV production line by the Chinese electric vehicle authorities, which we expect to occur in the second half of 2012, since we anticipate that the EV production facilities in Jonway will be ready for the certification process in the first half of 2012.  Meanwhile, the engineering teams from both companies are undertaking extensive testing of the A380 SUV EV at Jonway Auto and ZAP Hangzhou EV research and development center.

Our target is to deliver the EV A380 SUV and EV minivan in the second half of 2012, with the purpose of obtaining the Chinese central government electric vehicle incentives of up to RMB 60,000 or over $9,680 per vehicle.  ZAP intends to use the existing manufacturing plant from Jonway that is being upgraded for the production of the electric vehicles and utilizing the existing Jonway models to gain economy of scale and reduce molding investment costs. ZAP also intends to leverage Jonway’s distribution and customer support centers in China to support the sales and marketing of its new EV product line.

ZAP’s strategy outside of China is to open up markets ready to accept affordable, fully electric SUVs and vans for fleets.

4

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the financial statements of ZAP, and its subsidiaries: Jonway Automobile, Voltage Vehicles and ZAP Stores and are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”).  In these financial statements, “subsidiaries” are companies that are over 50% controlled, the financial statements of which are consolidated with those of the Company.  Significant inter-company transactions and balances are eliminated in consolidation; profits from inter-company sales, are also eliminated; non –controlling interests are included in equity.

The accompanying unaudited condensed consolidated 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 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, 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 months ended March 31, 2012 are not indicative of the results that may be expected for the year ending December 31, 2012 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-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission (the “SEC”) on April 16, 2012 (our “10-K”).

Liquidity and Capital Resources

In assessing our liquidity, we monitor and analyze our cash on-hand, liquidation value of our investment in securities, and our operating and capital expenditure commitments.  Our principal liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations. 

Our principal sources of liquidity consist of our existing cash on hand, bank facilities from China-based banks for Jonway Auto, our investment in securities with Samyang Optics, Ltd. and transactions with Luo Hua Liang, the brother-in-law of Alex Wang, the Co-CEO and a director of ZAP.  In 2011, we entered into private placement subscription agreements with Mr. Luo for the purchase of ZAP common stock for the aggregate purchase price of $7 million, of which we received $2 million as of the quarter ended March 31, 2011.  The private placement subscription agreements were then superseded and terminated by a stock purchase agreement with Mr. Luo in August 2011. Pursuant to the stock purchase agreement, Mr. Luo agreed to purchase ZAP common stock for an aggregate purchase price of $2 million in multiple closings. On September 8, 2011, we issued approximately 2.3 million shares of ZAP common stock in connection with the initial closing of $771,000. We received an additional $1.025 million in subsequent closings for which we have issued approximately 3.35 million shares of ZAP common stock. During 2011, we issued 7.7 million shares to Mr. Liang for cash of $3.8 million.

In 2011, we were approved up to an aggregate of $6.2 million of bank facility from the Taizhou Branch of China Merchants Bank (“CMB”) through our majority-owned subsidiary, Jonway. Although we have been approved for the credit line, there are no legal obligations or rights to the credit line until we execute agreements with the lender to borrow funds under the credit line. When drawn down, the credit line will be secured by lands owned by Jonway and guaranteed by Jonway Group.

Under the above mentioned credit line of $6.2 million granted by CMB on August 19, 2011, Jonway entered into a Credit Agreement with CMB for a revolving short term bank loan in the aggregate amount of approximately US$3.2 million which was drawn down in 2011.  The annual interest rate is 7.22% and is due on August 18, 2012. The loan is secured by a Maximum Amount Mortgage Contract by and between Jonway and CMB dated August 11, 2011 in which land use rights over two parcels of land owned by Jonway at Sanmen Factory have been pledged as security for this loan. The remaining $3.0 million of the credit line is available for future executions at the discretion of Jonway Auto.

In December 2011, Jonway established additional short term bank loans amounting to approximately $2.22 million from three small-size banks based in Taizhou City, which are subject to a Jonway Group guarantee, and $790,000 of such loans is also secured by bank notes received from Jonway dealers and wasrepaid on March 31, 2012.

On March 31, 2012, to support the monthly business performance target of CMB, Jonway entered into another credit agreement with this bank for a sum of short term bank loan in the aggregate amount of approximately $520,000 which was drawn down on March 31, 2012, and repaid on April 1, 2012. The annual interest rate is 6.89%. Such bank loan is secured by a sum of cash collateral amounting to $550,000.

As of March 31, 2012, Jonway had $5.1 million in short term bank loans, which are borrowed from the above stated China-based banks with interest rates ranging from 7.22% to 9.47% per annum due through August 18, 2012.

Jonway intends to utilize the credit lines to expand its electric vehicle business as well as other future vehicle models.  This includes on-going working capital needs, electric vehicle production equipment requirements, testing, homologation and new EV product molds. These credit lines will also be used to support the company’s expansion plans, with emphasis on its electric vehicle production line facilities in China. The credit will also help advance new electric vehicle initiatives, launch new strategic global sales and marketing operations, bolster infrastructure, and finance working capital.

In the event that we require additional liquidity, our principal shareholders, Cathaya and Jonway Group, have agreed to provide the necessary support to meet our financial obligations through May 21, 2013.

5

NOTE 2-RESTATEMENT OF MARCH 2011 UNAUDITED QUARTERLY FINANCIAL INFORMATION

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 the unaudited financial statements for the Quarter ended March 31, 2011 represented 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 for the year ended December 31, 2011 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 revaluation of the fair value at December 31, 2011, of the various assets acquired and liabilities assumed, resulted in restated financial information in this quarterly report. The table below illustrates the calculation of the adjustments.

Account	Provisional amount as of January 21, 2011			Adjustment based on final valuation report			Revised amount recorded as of January 21, 2011
Inventory	$	12,715		$	25		$	12,740
Property and Equipment		46,322			10,749			57,071
Other  liabilities assumed		(14,524	)		166			(14,358	)
Goodwill and Intangible Assets		23,794			(18,412	)		5,382
Purchase option		2,695			(310	)		2,385
Non controlling interest		(31,875	)		3,662			(28,213	)
	$	39,127		$	(4,120	)	$	35,007
	As reported at March 31, 2011			Adjustments to the three months ended March 31, 2011			As restated at March 31, 2011
Cost of goods sold	$	404		$	25		$	429
Amortization and Depreciation		2,914			(2,739	)		175
	$	3,318		$	(2,714	)	$	604

As a result, the Company restated its 2011 first quarter financial information to reflect the final measurement of the fair value of the assets acquired. The financial information in this quarterly report reflects the restated financial information.

	(unaudited)
Amounts in (‘000s)	March 31, 2011
Net assets  as reported	$	65,273
Adjustments		(4,342	)
Restated net assets	$	60,931
	Three Months Ended March 31, 2011
Net loss as reported	$	(9,899	)
Adjustments		2,714
Restated loss	$	(7,185	)

6

NOTE 3- SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES

Use of Estimates

 The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The more significant estimates relate to revenue recognition, contractual allowances and uncollectible accounts, intangible assets, accrued liabilities, derivative liabilities, income taxes, litigation and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for judgments about results and the carrying values of assets and liabilities. Actual results and values may differ significantly from these estimates.

Concentration of Credit Risk

The Company’s operations are all carried out in the PRC.  Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC’s economy.  The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe.  These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange.  The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 Financial instruments which subject the Company to potential credit risk consist of its cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with several high credit quality financial institutions. Deposits may exceed the amount of insurance provided; however, these deposits typically are redeemable upon demand and, therefore, the Company believes the financial risks associated with these financial instruments are minimal. The Company has not experienced any losses to date on its deposits.

 The Company performs ongoing credit evaluations of its customers, and generally does not require collateral on its accounts receivable. The Company estimates the need for allowances for potential credit losses based on historical collection activity and the facts and circumstances relevant to specific customers and records a provision for uncollectible accounts when collection is uncertain. The Company has not experienced significant credit related losses to date.

 The Company currently relies on various outside contract manufacturers in China to supply electric vehicles and products for its customers. Although management believes that other contract manufactures could provide similar services and intends to transition its manufacturing to Jonway’s facilities in Sanmen, China, but, if these Chinese companies are unable to supply electric vehicles and the Company is unable to transition manufacturing to Jonway’s facilities or find alternative sources for these product and services, the Company might not be able to fill existing backorders and/or sell more electric vehicles. Any significant manufacturing interruption could have a material adverse effect on the Company’s business, financial condition and results of operations.

Revenue Recognition

The Company records revenues for non-Jonway sales when all of the following criteria have been met:

● Persuasive evidence of an arrangement exists. The Company generally relies upon sales contracts or agreements, and customer purchase orders to determine the existence of an arrangement.

● Sales price is fixed or determinable. The Company assesses whether the sales price is fixed or determinable based on the payment terms and whether the sales price is subject to refund or adjustment.

● Delivery has occurred. The Company uses shipping terms and related documents, or written evidence of customer acceptance, when applicable, to verify delivery or performance. The Company’s customary shipping terms are FOB shipping point.

● Collectability is reasonably assured.  The Company assesses collectability based on creditworthiness of customers as determined by our credit checks and their payment histories. The Company records accounts receivable net of allowance for doubtful accounts and estimated customer returns.

The Company provides no price protection. Sales are recognized net of sale discounts, rebates and return allowances.

7

Stock-based Compensation

The Company accounts for stock-based compensation which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes-Merton option pricing model (the “Black-Scholes model”). The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. We estimate forfeitures at the time of grant and revise our estimate in subsequent periods if actual forfeitures differ from those estimates.

The Company accounts for stock-based compensation awards and warrants granted to non-employees by determining the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. To the extent a deferred tax asset cannot be recognized under the preceding criteria, allowances are established.

Foreign Currency Translation

The Company and its wholly owned subsidiary/investments maintain their accounting records in United States Dollars (“US$”) whereas Jonway Auto maintains its accounting records in the currency of Chinese Renminbi (“RMB”), being the primary currency of the economic environment in which their operations are conducted.

Jonway Auto’s principal country of operations is the PRC.  The financial position and results of these operations are determined using RMB, the local currency, as the functional currency.  The results of operations and the statement of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period.  Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date.  The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution.  Due to the fact that cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.  Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholder’s equity as “Accumulated Other Comprehensive Income.”

The value of RMB against US$ and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions, any significant revaluation of RMB may materially affect our financial condition in terms of US$ reporting.

Loss per Share

Basic and diluted net loss per share is computed by dividing consolidated net loss by the weighted-average number of common shares outstanding during the period. The Company’s potentially dilutive shares, which include outstanding stock options, convertible debt and warrants, have not been included in the computation of diluted net loss per share for all periods presented as the result would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share. Outstanding common stock options, warrants and debentures totaled 97.9 million shares and 103.4 million shares at March 31, 2012 and 2011, respectively. ZAP also had outstanding convertible debt, which is convertible into 91.1million shares of ZAP common stock at March 31, 2012.

8

Cash and Cash Equivalents

The Company invests its excess cash in short-term investments with various banks and financial institutions. Short-term investments are cash equivalents, as they are part of the cash management activities of the Company and are comprised of investments having maturities of three months or less when purchased.  The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents

Restricted Cash

The Company has cash restricted in connection with the issuance of bank acceptance notes to various suppliers of spare parts which were issued through Jonway’s banks.  To issue these bank acceptance notes to Jonway’s suppliers, the banks require a deposit of approximately 40-60% of the full amount of such notes which are payable within 6 months from issuance.  Upon the maturity date, restricted funds will be used to settle the bank acceptance notes. 

Marketable Securities

The Company has an investment that is comprised of marketable equity securities, which are classified as available-for-sale and recorded at fair value, the value of which fluctuates with the stock market value.   The securities are shares of Samyang Optics Co., Ltd., which shares are traded on the Korean stock exchange.  ZAP’s ownership is not material to Samyang Optics Co., Ltd. Net unrealized holding gains and losses, net of tax, are reported as a separate component of shareholders’ deficit, except where holding losses are determined to be “other-than-temporary”, whereby the losses are reported in gains and losses on investments in the consolidated statement of operations.  Gains and losses on disposals of marketable equity securities are determined using the specific identification method.

Accounts and Notes Receivable

Accounts receivable consist mainly of receivables from our established dealer network.  Notes receivable balances consist of bank acceptance notes received from various Jonway dealers to finance such dealer’s purchase of our vehicles products.  These bank acceptance notes can be endorsed to settle the payables to Jonway suppliers or discounted to fund cash flows. These notes are a means of financing working capital for orders that were placed by these dealers. A credit review is performed by the Company before the dealer is approved to purchase vehicles form the Company. The Company performs ongoing credit evaluations of its dealers, and generally does not require collateral on its accounts receivable. The Company estimates the need for allowances for potential credit losses based on historical collection activity and the facts and circumstances relevant to specific customers and records a provision for uncollectible accounts when collection is uncertain. The Company has not experienced significant credit related losses to date.   The allowance for doubtful accounts was $20,000 and $9,000 at March 31, 2012 and December 31, 2011, respectively.

The Company provides an allowance for doubtful accounts when management estimates collectability to be uncertain. Accounts receivable are continually reviewed to determine which, if any, accounts are doubtful of collection. In making the determination of the appropriate allowance amount, the Company considers current economic and industry conditions, relationships with each significant customer, overall customer credit-worthiness and historical experience. The allowance for doubtful accounts was approximately $20,123and $9,390 at March 31, 2012 and December 31, 2011, respectively.

Fair Value of Financial Instruments

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

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Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs other than quoted prices in active markets that are directly or indirectly observable;

Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions and methodologies that result in management’s best estimate of fair value.

The change in fair value of derivative liabilities is classified in other income (expense) in the Company’s statement of operations.  The fair value of the Company’s derivative liabilities related to stock purchase warrants was determined using the Black-Scholes option pricing model – a Level 3 input.

Derivative Financial Instruments

The Company generally does not use derivative financial instruments to hedge exposures to cash flow or market risks. However, certain other financial instruments, such as warrants, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.

The Company accounts for derivative instruments and debt instruments in accordance with the interpretative guidance of ASC 815 (“Derivatives and Hedging”).   It is necessary for the Company to make certain assumptions and estimates to value derivatives and debt instruments.

During the three months ended March 31, 2011 certain derivative liabilities were converted into 4.1 million shares of ZAP stock. At March 31, 2011 the remaining unexercised financial instruments were fair valued at $201,000 and included on our balance sheet. At March 31, 2012, the Company did not have any derivative liabilities.

The following table set forth a summary of changes in the fair value of Level 3 liabilities for the 3 months ended March 31, 2011 (in thousands):

	Balance		Exercise			Change in		Balance
	12/31/2010		of warrants			fair value		3/31/2011
Derivative Liabilities	$	5,539	$	(5,696	)	$	358	$	201

The following table summarizes those assets and liabilities measured at fair value on a recurring basis (in thousands)

March 31, 2012

Assets	Level 1		Level 2		Level 3		Fair Value Measurements
Marketable Securities (1)	$	1,356		—		—	$	1,356

December 31, 2011

Assets	Level 1		Level 2		Level 3		Fair Value Measurements
Marketable Securities (1)	$	1,830		—		—	$	1,830

(1) Marketable securities consist of common stock of a related party. The fair value of marketable securities is based upon market value quoted by Korean stock exchange

The Company’s other financial instruments at March 31, 2012 consist of cash and cash equivalents, accounts and notes receivable, accounts payable and debt. For the period ended March 31, 2012 the Company did not have any derivative financial instruments. The Company believes the reported carrying amounts of its accounts receivable and accounts payable approximate fair value, based upon the short-term nature of these accounts. The carrying value of the Company’s loan agreements approximate fair value as each of the loans bears interest at a floating rate.

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Inventories

Inventories consist primarily of vehicles, both gas and electric, parts and supplies, and work in progress and are carried at the lower of cost (first-in, first-out basis for ZAP and moving average basis for Jonway) or market (net realizable value or replacement cost). 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. Any changes to the Company’s estimates of its reserves are reflected in cost of goods sold within the statement of operations during the period in which such changes are determined by management.

Property and Equipment

Property and equipment consists of land, building and improvements, machinery and equipment, office furniture and equipment, vehicles, and leasehold improvements. Property and equipment is stated at cost, net of accumulated depreciation and amortization, and is depreciated or amortized using straight-line method over the asset’s estimated useful life. Costs of maintenance and repairs are charged to expense as incurred; significant renewals and betterments are capitalized.  Leasehold improvements are amortized over 10 years using the straight-line method.

Land use Rights

Under PRC law, all land in the PRC is permanently owned by the government and cannot be sold to an individual or company but companies can purchase the land use rights for the specified period of time, as in our industry the industrial purpose has a useful life of 50 years.  The government grants individuals and companies the right to use parcels of land for specified periods of time.  These land use rights are sometimes referred to informally as “ownership”.  Land use rights are stated at cost less accumulated amortization.  Amortization is provided over the respective useful lives, using the straight –line method.  Estimated useful life is 50 years, and is determined in the connection with the term of the land use right.

Long-lived Assets

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

Intangible Assets-Finite

Intangible assets consist of patents, trademarks, land use rights, government approvals and customer relationships (including client contracts). For financial statement purposes, identifiable intangible assets with a defined life are being amortized using the straight-line method over the estimated useful lives of seven years for the EPA license and 2 years for the customer relationships. Costs incurred by the Company in connection with patent, trademark applications and approvals from governmental agencies such as the Environmental Protection Agency, including legal fees, patent and trademark fees and specific testing costs, are expensed as incurred. Purchased intangible costs of completed developments are capitalized and amortized over an estimated economic life of the asset, generally seven years, commencing on the acquisition date. Costs subsequent to the acquisition date are expensed as incurred.

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Goodwill and Intangible Assets – Indefinite

Goodwill and intangible assets determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually.  Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance applicable accounting principles.  The Company assesses annually whether there is an indication that goodwill is impaired, or more frequently if events and circumstances indicate that the asset might be impaired during the year.  The Company performs its annual impairment test in the fourth quarter of each year.   Calculating the fair value of the reporting units requires significant estimates and assumptions by management.  To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, there is an indication that the reporting unit goodwill may be impaired and a second step of the impairment test is performed to determine the amount of the impairment to be recognized, if any.

Non-Controlling Interests

The Financial Accounting Standards Board (“FASB”) issued a statement which established accounting and reporting standards that require non-controlling interests (previously referred to as minority interest) to be reported as a component of equity, changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and upon a loss of control, retained ownership interest will be re-measured at fair value, with any gain or loss recognized in earnings.

On January 21, the Company acquired 51% of Zhejiang Jonway Automobile Co. Ltd from Jonway Group, a related party, who holds a 49% of the remaining interest in Jonway Auto. (See Note 4)  Pursuant to the Jonway Acquisition Agreement, ZAP had the right to acquire the remaining 49% of Jonway at the same valuation, which expired on March 31, 2011.  To account for the expired option,we recorded a reduction of common stock.

Product warranty Costs

The Company provides 30 to 90 day warranties on its personal electric products, including the ZAPPY3 and the Zapino scooters, six month warranties for the Xebra®, the ZAPTRUCK XL, the ZAPVAN Shuttle vehicles, and a six month warranty for Xebra® vehicles repaired by ZAP pursuant to its product recall.  The Company records the estimated cost of the product warranties at the time of sale using the estimated costs of products warranties based on historical results. The estimated cost of warranties has not been significant to date. Should actual failure rates and material usage differ from our estimates, revisions to the warranty obligation may be required.

The Company provides a 2-year or 60,000 kilometer mileage warranty for its Jonway SUV products. The Company records the estimated cost of the product warranties at the time of sale using the estimated cost of product warranties based on historical results. The estimated cost of warranties has not been significant to date. Should actual failure rates and material usage differ from our estimates, revisions to the warranty obligation may be required 

Comprehensive loss

Comprehensive loss represents the net loss for the period plus the results of certain changes to shareholders’ equity that are not reflected in the consolidated statements of operations. The Company’s comprehensive loss consists of net losses, foreign currency translation adjustments and unrealized net losses on investments.  

NOTE 4 - 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.

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As required by ASC 805-20, Business Combinations—Identifiable Assets and Liabilities, and Any Non controlling 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. As part of the measurement process, a third party valuation firm was used to assist in estimating the fair value of the intangible assets received in the acquisition of the 51% equity of Jonway Automobile. The valuation was not completed until December 31, 2011, and therefore a provisional amount was recognized in the period ended March 31, 2011.

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		(166)
Other liabilities assumed		(14,192)
Net tangible assets acquired		52,196
Goodwill and intangible assets		5,382
Net assets acquired		57,578
Non controlling interest - fair value		(28,213)
Option to purchase remaining 49%		2,385
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 Acquisition Fair Value		Weighted Average Useful Life (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
Goodwill		308
	$	5,382

(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.

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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 $0 and $204,000 for the periods ended March 31, 2012 and 2011, respectively. The excess of the purchase price over the net tangible assets and intangible assets was recorded as goodwill.

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 the period presented (in thousands except per share amounts):

	For the Three Months ended March 31,2011
Net sales		19,549
Net loss		(9,591	)
Net loss per common share, basic and diluted		(0.05	)
Shares outstanding, basic and diluted		209,273

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.

Any 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.

NOTE 5 – INVENTORIES

Inventories at March 31, 2012 and December 31, 2011 are summarized as follows (in thousands):

	March 31, 2012			December 31, 2011
Advanced technology vehicles	$	709		$	713
Vehicles-conventional		4,714			4,630
WIP  Jonway SUV’s		2,327			2,234
Parts and supplies		5,063			4,879
Finished goods		198			240
		13,011			12,696
Less-inventory reserve		(1,671	)		(1,578	)
	$	11,340		$	11,118

NOTE 6 – FIXED ASSETS

 Property and equipment at March 31, 2012 and December 31, 2011 are summarized as follows (in thousands):

	March 31, 2012			December 31, 2011
Buildings and improvements	$	21,572		$	21,649
Machinery and equipment		39,918			39,566
Office furniture and equipment		433			415
Leasehold improvements		37			37
Vehicles		814			745
		62, 774			62, 412
Less - accumulated depreciation and amortization		(16,431	)		(15,459	)
	$	46,343		$	46,953

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Four pieces of land were acquired from the acquisition of Jonway auto in 2011, all land in the People’s Republic of China is government owned and cannot be sold to any individual or company. However, the government grants the user a “land use right” (the Right) to use the land. The Company has the right to use the land for 50 years and amortized the Right on a straight-line basis over the period of 50 years. As of March 31, 2012 and December 31, 2011, intangible assets consist of the following:

	March 31, 2012			December 31, 2012
Land use right	$	10,478		$	10,518
Software		97			92
		10,575			10,610
Less: accumulated amortization		(660	)		(535	)
	$	9,915		$	10,075

Depreciation and amortization expense was $1,135 and $632 for the three months ended March 31, 2012 and 2011, respectively.

NOTE 7 – GOODWILL & OTHER INTANGIBLES

The goodwill and other intangible assets at March 31, 2012 are summarized as follows:

	Useful Life (In Years)		Net Book Value 12/31/2011		Intangibles Acquired in 2012		Accumulated Amortization 3/31/2012			Net Book Value 3/31/2012
Patents and Trademarks		7	$	75		—	$	(6	)	$	69
Customer Relationships		8.5		692		—		(26	)		666
Developed Technology		7		1,879		—		(84	)		1,795
In Process Technology				183		—		(1	)		182
Trade name				2,173		—		(7	)		2,166
Intangibles				5,002				(124	)		4,878
Goodwill Assets				324		—		—			324
			$	5,326		—	$	(124	)	$	5,202

Amortization was $105 and $201 for the three months ended March 31, 2012 and 2011, respectively

NOTE 8 – DISTRIBUTION AGREEMENTS

Distribution agreements as of March 31, 2012 and December 31, 2011 are presented below (in thousands):

	March 31, 2012			December 31, 2011
Better World Products	$	2,160		$	2,160
Jonway Products		14,400			14,400
		16,560			16,560
Less amortization		(3,660	)		(3,121	)
	$	12,900		$	13,439

Amortization was $540 and $540 for the three months ended March 31, 2012 and 2011, respectively. 

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Distribution Agreement with Better World, Ltd

On January 15, 2010, ZAP entered into a Stock Purchase Agreement with Better World, Ltd., a British Virgin Islands company, whereby the Company issued 6 million shares of its common stock valued at $2.16 million in exchange for an agreement on terms relating to rights to the distribution of Better Worlds products for three years, such as charging stations for electric vehicles both in the U.S. and internationally.  Priscilla Lu, Chairman of the Board of Directors of ZAP, is also General Partner of Better World International, Ltd.

Distribution Agreement with Goldenstone Worldwide Limited for Jonway Products

On October 10, 2010, ZAP entered into a ten year  International Distribution Agreement with Goldenstone Worldwide Limited as the distributor of Jonway products such as gas SUV’s and gas and electric motor scooters, both in the U. S. and internationally. In connection with the distribution agreement the Company also issued 30 million shares of ZAP common stock valued at $14.4 million.  The Jonway Group had previously granted exclusive worldwide distribution of Jonway products to Goldenstone Worldwide Limited.   ZAP acquired a 51% equity interest in Jonway Auto but this equity interest did not include the world wide distribution rights for Jonway Products.  Therefore, it was necessary for ZAP to acquire distribution rights for Jonway Products.

Distribution Agreement with Samyang Optics

On January 27, 2010, ZAP entered into an International Distribution Agreement (the “Distribution Agreement”) with Samyang Optics Co. Ltd. (“Samyang”) pursuant to which ZAP appointed Samyang as the exclusive distributor of certain ZAP electric vehicles including the Jonway A380 5-door electric sports utility vehicle equipped with  ZAP’s electric power train, in the Republic of Korea.  In addition, the Distribution Agreement provides that ZAP and Samyang will negotiate to enter into additional agreements related to the manufacture and assembly of ZAP vehicles by Samyang in Korea.  The Distribution Agreement shall be in effect for one year and may be extended annually by Samyang provided that Samyang has satisfied sales quotas determined by ZAP and Samyang is otherwise in compliance with the Distribution Agreement.

 In addition, on January 27, 2010, ZAP and Samyang entered into an initial purchase order pursuant to the Distribution Agreement for the purchase of one hundred ZAP Jonway UFO electric sports utility vehicles.  Selling prices have yet to be determined and no purchases have been made as of March 31, 2012.

NOTE 9 – INVESTMENT IN JOINT VENTURES

On December 11, 2009, the Company entered into a Joint Venture Agreement to establish a new US-China company incorporated as ZAP Hangzhou to design and manufacture electric vehicle and infrastructure technology with Holley Group, the parent company of a global supplier of electric power meters and Better World.  Priscilla Lu, Ph.D., who is the current Chairman of the Board of ZAP is also a director and shareholder of Better World. In January of 2011, Holley Group’s interest in ZAP Hangzhou was purchased by Alex Wang, Co-CEO and director of ZAP. ZAP and Better World each own 37.5% of the equity shares of ZAP Hangzhou, and Alex Wang owns 25% of the equity shares of ZAP Hangzhou. The joint venture partners have also funded the initial capital requirements under the agreement for a total of $3 million, of which ZAP’s portion is $1.1 million.

In November 2011, Jonway and ZAP Hangzhou jointly set up Shanghai Zapple Electric Vehicle Technologies Co., Ltd. (Shanghai Zapple) with registered capital of RMB 20 million. Jonway and ZAP Hangzhou each own 50% of the equity share of Shanghai Zapple.  As of March 31, 2012, Jonway injected RMB 5 million into this joint venture and ZAP Hangzhou injected RMB 3 million. Shanghai Zapple’s approved scope of business includes: technical advice, technical development, technical services, technology transfer regarding electric vehicle technology, auto technology, energy technology, material science and technology, sale of commercial vehicle and vehicle for nine seats or more, auto parts, auto supplies, lubricant, mechanical equipment and accessories, business management consulting, industrial investment, exhibition services, business marketing planning, car rental (shall not be engaged in financial leasing), import and export of goods and technologies.

The carrying amount of the investment in ZAP Hangzhou was $503 and $554 at March 31, 2012 and December 31, 2011, respectively, and the carrying amount of the investment in Shanghai Zapple was $665 and $736 at March 31, 2012 and December 31, 2011, respectively.

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The carrying amount of the joint ventures is as follows:

	ZAP Hangzhou		Shanghai Zapple		Total
Balance as of December 31, 2011	$	554	$	736	$	1,290
Less: investment loss		51		71		122
Balance as of March 31, 2012	$	503	$	665	$	1,168

	March 31,
	2012			2011
Equity method investments losses	$	(119	)	$	(72	)

(1)   The Company recorded a loss of $51 and $72 in ZAP Hangzhou, and a loss of $68 and $0 in Shanghai Zapple for the periods ended March 31, 2012 and 2011 respectively. These losses relate to the investment in a non-consolidated joint ventures accounted for under the equity method of accounting. 

NOTE 10 - LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES

Line of credit

In 2011, we were approved to up to an aggregate of $6.2 million of bank facilities from the Taizhou Branch of China Merchants Bank through our majority-owned subsidiary, Jonway. Although we have been approved for the credit line, there are no legal obligations or rights to the credit line until we execute agreements with the lender to borrow funds under the credit line. When drawn down, the credit line will be secured by lands owned by Jonway and guaranteed by Jonway Group.

Short term debt

Under the above mentioned credit line of  $6.2 million granted by Taizhou Branch of China Merchants Bank , on August 19, 2011, Jonway entered into a Credit Agreement with this bank for a revolving short term bank loan in the aggregate amount of approximately $3.2 million which was drawn down by Jonway in 2011.  The annual interest rate is 7.22%. The bank loan under the Credit Agreement is secured by a Maximum Amount Mortgage Contract by and between Jonway and this bank dated August 11, 2011 in which land use rights over two parcels of land owned by Jonway at Sanmen Factory have been pledged as security for this loan. The remaining $3.0 million of the credit line is available for future executions at the discretion of Jonway Auto.

In December 2011, Jonway established additional short term bank loans amounting to over $2.22 million from three small-size banks based in Taizhou City, which are subject to Jonway Group guarantee, and $790 of such loans is secured by bank notes received from Jonway dealers and was repaid on March 31,2012.

On March 31, 2012, to support the monthly business performance target of Taizhou Branch of China Merchants Bank, Jonway entered into another credit agreement with this bank for a sum of short term bank loan in the aggregate amount of approximately $520 which was drawn down on March 31, 2012, and repaid on April 1, 2012. The annual interest rate is 6.89%. Such bank loan is secured by a sum of cash collateral amounting to $550.

As of March 31, 2012, Jonway had $5.1 million in short term bank loans, which are borrowed from the above stated China-based banks with interest rate range of 7.22% to 9.47% per annum due through August 18, 2012.

	March 31, 2012		December 31, 2011
Loan from China Merchant Bank	$	3,684	$	3,174
Loan from Taizhou Bank		632		1,428
Loan from Zhejiang Tailong Commercial Bank		791		794
Short term financing insurance premiums		27		89
Total	$	5,134	$	5,485

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On December 6, 2011, Jonway entered into a bank acceptance note Agreement with Taizhou Branch of China Everbright Bank for a revolving bank note facility in the aggregate amount of approximately US$4.7 million. Such bank note facility were issued to Jonway Auto’s suppliers  under the Credit Agreement and are secured by a Maximum Amount Mortgage Contract by and between Jonway and this bank dated December 6, 2011 in which land use right over one parcel of land owned by Jonway at Sanmen  Factory has been pledged as security for this facility. Except for the bank acceptance notes payable to China Everbright Bank, other bank acceptance notes payable to other banks were granted through the below mentioned cash deposit practice.

As of March 31, 2012, the Company has bank acceptance notes payable in the amount of $11.16 million. The notes are guaranteed to be paid by the banks and usually for a short-term period of six (6) months. The Company is required to maintain cash deposits at a minimum 40%-60% of the notes payable with these banks, in order to ensure future credit availability. As of March 31, 2012, the restricted cash for the notes was $5.29 million.

Bank acceptance notes- 6 month term for each note issued

	March 31, 2012		December 31, 2011
a)Bank acceptance notes payable to Taizhou Bank	$	2,055	$	2,451
b)Bank acceptance notes payable to China Merchant Bank		1,581		3,316
c)Bank acceptance notes payable to China Everbright Bank		4,743		4,761
d)Bank acceptance notes payable to Zhejiang Tailong Commercial Bank		838		—
e)Bank acceptance notes payable to Zhejiang Sanmen Yin Zuo Village Bank		1,265		—
f)Bank acceptance Notes payable to Shanghai Pudong Development Bank		676		—
	$	11,158	$	10,528

On December 11, 2011, Zhejiang Jonway Automobile Co., Ltd. (“Jonway”), a majority owned subsidiary of ZAP, entered into a Promissory Note with Jonway Group Co. Ltd. (“Jonway Group”) pursuant to which Jonway borrowed $3 million to be repaid on demand. The unpaid principal amount of the note bears interest at a rate per annum equal to 8%, calculated on the basis of a 365 day year and the actual number of days lapsed. All unpaid principal, together with any then unpaid and accrued interest, are due and payable within ten (10) calendar days following demand by Jonway Group. Payment shall be made in the form of cash. As of December 31, 2011, a total of $1.6 million had been advanced to Jonway Automobile under the Promissory note arrangement and such borrowing was repaid in January 2012.

NOTE 11 – LONG-TERM NOTES

8% SENIOR CONVERTIBLE NOTE - China Electric Vehicle Corporation (“CEVC”) Note

On January 12, 2011, the Company entered into a Senior Secured Convertible Note and Warrant Purchase Agreement (the “Agreement”) with China Electric Vehicle Corporation (“CEVC”), a British Virgin Island company whose sole shareholder is Cathaya Capital, L.P., a Cayman Islands exempted limited partnership (“Cathaya”).  Priscilla Lu is the chairman of the board of directors of ZAP, a managing partner of Cathaya and a director of CEVC.

Pursuant to the Agreement, (i) CEVC purchased from the Company a Senior Secured Convertible Note (the “Note”) in the principal amount of US$19 million, as amended, (ii) the Company issued to CEVC a warrant (the “Warrant”) exercisable for two years for the purchase up to 20 million shares of the Company’s Common Stock at $0.50 per share, as amended  (iii) the Company, certain investors and CEVC entered into an Amended and Restated Voting Agreement that amended and restated that certain Voting Agreement, dated as of August 6, 2009 that was previously granted to Cathaya Capital L.P., (iv) the Company, certain investors and CEVC entered into an Amended and Restated Registration Rights Agreement that amended and restated that certain Registration Rights Agreement, dated as of August 6, 2009, that was previously granted to Cathaya Capital L.P which grants certain registration rights relating to the Note and the Warrant, and (v) the Company and CEVC entered into a Security Agreement that secures the Note with all of the Company’s assets other than those assets specifically excluded from the lien created by the Security Agreement.

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The Note which initially was scheduled to mature on February 12, 2012 but was extended to August 12, 2012 according to the representation letter dated March 21, 2012 from CEVC. On March 31, 2012, ZAP entered into an amendment to the note which extended the maturity date of the note from August 12, 2012 to August 12, 2013. This amendment changed the terms of the note requiring adjustment of the conversion price of note for dilutive issuances by ZAP.  . In addition, the warrant issued in connection with the CEVC note was amended to change the terms of conversion and to extend the maturity date until February 12, 2014. The interest accrued through the original maturity date of February 12, 2012 in the amount of $1.7 million has been added to the existing principal. The total amount of the convertible note is approximately $20.7 million with a new maturity date of August 12, 2013. The note accrues interest at a rate per annum of 8% effective to February 12, 2012 and interest has been waived starting from February 13, 2012 through August 12, 2013 or when the note is converted. The note is convertible upon the option of CEVC at any time, into (a) shares of Jonway capital stock owned by ZAP at a conversion rate of 0.003743% of shares of Jonway capital stock owned by ZAP for each $1,000 principal amount of the Note being converted or (b) shares of ZAP common stock at a conversion rate of 4,435 shares of common stock for each $1,000 principal amount of the Note being converted.,

Since the value of the common stock into which the above-mentioned note is converted is greater than the proceeds for such issuance, a beneficial conversion feature totaling $19 million was recorded. During 2011, a total of $16.9 million in amortization was recorded and charged to interest expense and the remaining balance of $2.1 million of the discount was offset against the Company’s equity account due to the note extension to August 12, 2013.

In addition, the Company recorded $222 in interest expense through the quarter ended March 31, 2012 related to this note.

NOTE 12 - STOCK-BASED COMPENSATION

Services performed and other transactions settled in the company’s common stock are recorded at the estimated fair value of the stock issued if that value is more readily determinable, than the fair value of the consideration received.

We have stock compensation plans for employees and directors. 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.

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
Outstanding December 31, 2011		29,578	$	0.50		6.0
Options granted under the plan		—		—		—
Options exercised		—		—		—
Options forfeited and expired		—		—		—
Outstanding March 31, 2012		29,578	$	0.50		6.0

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 March 31, 2012 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 March 31, 2012.

As of March 31, 2012, total compensation cost of unvested employee stock options is $2.8 million. This cost is expected to be recognized through September 30, 2016. We recorded no income tax benefits for stock-based compensation expense arrangements for the three months ended March 31, 2012, as we have cumulative operating losses, for which a valuation allowance has been established.

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NOTE 13 – SEGMENT REPORTING

Operating Segments

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting (“ASC 280”), establishes standards for the way public business enterprises report information about operating segments. ASC 280 also establishes standards for related disclosures about products and services, geographic areas and major customers.

In accordance with ASC 280, the Company has identified four reportable segments consisting of Jonway Vehicles, Advanced Technology Vehicles, Consumer Product and Car Outlet.  The Jonway Vehicles segment represents sales of the gas fueled Jonway A380 three and five-door sports utility vehicles and spare parts principally through distributors in China. Jonway and ZAP are also jointly developing various electric vehicles anticipated to enter into the electric vehicle market during 2012.  The Advanced Technology Vehicles segment represents sales and marketing outside of China of the ZAPTRUCK XL, the ZAPVAN Shuttle and the Xebra® Sedan and will transition to selling mostly Jonway’s EV A380SUV and EV minivan in 2012. The Consumer Product segment represents rechargeable portable energy products, our Zapino scooter, and our ZAPPY3 personal transporters.  Our Car Outlet segment represents operation of a retail car outlet that sells pre-owned conventional vehicles and advanced technology 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 Co-Chief Executive Officers 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.

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

	Jonway			Electric						Advanced
	Conventional			Consumer						Technology
	Vehicles			Products			Car outlet			Vehicles			Total
For the three months ended March 31, 2012:
Net sales	$	11,989		$	114		$	73		$	5		$	12,181
Gross profit (loss)	$	723		$	28		$	7		$	(56	)	$	702
Depreciation, amortization and impairment	$	1,244		$	546		$	2		$	7		$	1,799
Net loss	$	(1,118	)	$	(2,119	)	$	(34	)	$	(168	)	$	(3,439	)
Total assets	$	89,745		$	26,265		$	447		$	250		$	116,707
For the three months ended March 31, 2011:
Restated
Net sales	$	10,947		$	200		$	365		$	196		$	11,708
Gross profit (loss)	$	910		$	48		$	58		$	19		$	1,035
Depreciation, amortization and impairment	$	856		$	509		$	2		$	6		$	1,373
Net loss	$	(1,183	)	$	(4,971	)	$	(54	)	$	(407	)	$	(6,615	)
Total assets	$	70,499		$	37,543		$	537		$	1,936		$	110,515

Operating segments do not sell products to each other, and accordingly, there is no inter-segment revenue to be reported.  Jonway Automobile results have been included since the acquisition date of January 21, 2011.

Customer information

Approximately 99 % or $11.9 million of our revenues for the three months ended March 31, 2012 are from sales in China. Jonway Auto distributes its products to an established network of over 100 factory level dealers in China with some contributing to more than 10% of our consolidated revenue

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NOTE 14 – RELATED PARTY

Due from (to) related parties

Amounts due from related parties are principally for advances for parts and supplies used in manufacturing.

Amount due from related parties are as follows:
	March 31, 2012		December 31, 2011
Sanmen Branch of Zhejiang UFO Automobile Manufacturing Co., Ltd	$	2,413	$	978
Jonway Group for normal business		—		159
Total	$	2,413	$	1,137
Amount due to related parties are follows:
	March 31, 2012		December 31, 2011
Jonway Group	$	109	$	2,104
Zhejiang UFO Automobile		56		—
Jonway Motor Cycle		6		18
Total	$	171	$	2,122
Advance payment to Jonway Group	$	11,616	$	11,616

Issuance of stock to Jonway Group for the Development and Production of Vehicles

On December 11, 2011, ZAP entered into a Payment Agreement with Jonway Group pursuant to which ZAP paid Jonway Group for the already completed interior and exterior design, R&D activities, testing and trial production and molding equipments etc. of the mini-van product platform, and the Alias interior and exterior design and molding, which is underway. Pursuant to the Payment Agreement, ZAP agreed to grant Jonway Group 70 million shares of ZAP’s Common Stock valued at $15.4 million. All intellectual property rights related to the work performed by Jonway Group for the mini-van and Alias shall be owned jointly by ZAP and Jonway. As of March 31, 2012, $3.78 million of the payment of $15.4 million were recognized as R&D expense in ZAP, the remaining of $11.6 million was accounted for as advance payment to related parties for development and production activities.

Promissory notes and Down Payment on Convertible Note from Jonway Group

On December 11, 2011 Jonway entered into a Promissory Note with Jonway Group pursuant to which Jonway borrowed $3 million to be repaid on demand.  The unpaid principal amount of the note bears interest at a rate per annum equal to 8%, calculated on the basis of a 365 day year and the actual number of days lapsed.  All unpaid principal, together with any then unpaid and accrued interest, are due and payable within ten (10) calendar days following demand by Jonway Group. Payment shall be made in the form of cash.  As of March 31, 2012, $1.6 million has been advanced to Jonway Auto under the Promissory Note arrangement and was repaid in January 2012.

On December 11, 2011, ZAP entered into a Down Payment Convertible Note with Jonway Group pursuant to which ZAP may borrow $3 million for the production of seventy-five Alias electric vehicles to be delivered and sold in 2012.  The unpaid principal amount of the note bears interest at a rate per annum equal to 8%, calculated on the basis of a 365 day year and the actual number of days lapsed.  Upon the completion of selling seventy-five Alias vehicles, ZAP will repay the unpaid principal, together with any then unpaid and accrued interest, on or before December 31, 2012.  Repayment shall be made at the option of Jonway Group in the form of either cash or ZAP’s Common Stock priced as of the date the principal was deposited into Jonway’s bank account on behalf of ZAP. As of March 31, 2012, no advance has been made to ZAP from Jonway Group.

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Transactions with Jonway Group

Jonway Group is considered as a related party as the Wang Family, one of the shareholders of the Company, has controlling interests in Jonway Group. Jonway Group supplies some of the plastic spare parts to Jonway and gave guarantees on Jonway short term bank facilities from China-based banks. For the period ended March 31, 2012 Jonway made purchases from Jonway Group for a total of $337,000.

Sale of Stock to a Party Related to ZAP’s CO-CEO and Director

On January 14, 2011, we entered into private placement subscription agreements with Luo Hua Liang, the brother-in-law of Alex Wang, the Co-CEO and director of ZAP for the purchase of ZAP’s common stock for the aggregate purchase price of $7 million, of which we received $2 million. The private placement subscription agreement was superseded and terminated by a stock purchase agreement with Mr. Luo in August 2011. Pursuant to the stock purchase agreement, Mr. Luo will purchase ZAP’s common stock for an aggregate purchase price of $2.6 million in multiple closings. On September 8, 2011, we issued approximately 2.3 million shares of ZAP common stock in connection with the initial closing of $771.  We received an additional $1.025 million in subsequent closings for which we have issued approximately 3.35 million shares of ZAP common stock.

During 2011, the Company issued 7.7 million shares of common stock for cash of $3.8 million through private placement subscription agreements with Luo Hua Liang.

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 $29,200 for the period ended March 31, 2011. The company discontinued paying rent in August, 2011.

Management Agreement with Cathaya Capital, L.P.

                On August 6, 2009, Cathaya purchased 20 million shares of the Company’s Common Stock. On August 6, 2009, the Company entered into a Secured Convertible Promissory Note with Cathaya for aggregate principal advances of up to $10 million. In addition, the Company issued one warrant to Cathaya exercisable for shares of the Company’s Common Stock.

On July 9, 2010, Cathaya entered into a securities purchase agreement, pursuant to which, Cathaya purchased 44 million shares of the Company’s Common Stock at a price of $0.25 per share for an aggregate purchase price of $11 million.

Priscilla Lu, the chairman of the board of directors of ZAP, is also a general partner of Cathaya. On November 10, 2010, ZAP entered into a Management Agreement with Cathaya, for the payment of $2.5 million in exchange for Cathaya’s prior and ongoing transaction advisory, financial and management consulting services for the year ended December 31, 2010.  Pursuant to the agreement, principals of Cathaya will be available to serve on the Board and will devote such time and attention to the Company’s affairs as reasonably necessary to accomplish the purposes of the agreement.  The agreement is renewable yearly but fees paid in subsequent periods are subject to renegotiation based on the fair market values of services rendered, and the management fee was payable in cash or in common stock of ZAP at $0.50 per share.  Five million shares were issued to Cathaya Capital L.P. in payment of this fee for the year ended December 31, 2010.  As of March 31, 2012, ZAP has accrued $350,000 for management fees due to Cathaya Capital L.P. The fee for 2011 was an agreed upon amount between Cathaya and the Company. The management agreement was terminated effective December 31, 2011.

Jonway Agreement with Zhejiang UFO

Based on a contract by and among the Zhejiang UFO, Jonway Group and Jonway dated as of January 1, 2006, Zhejiang UFO has authorized Jonway to operate its Sanmen Branch to assemble and sell UFO branded SUVs for a period of 10 years starting from January 1, 2006.

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According to the contract, Jonway shall pay Zhejiang UFO a variable contractual fee which is calculated based on the number of SUVs that Jonway assembles in the Sanmen Branch every year, at the following rates:

The first 3,000 vehicles	$44 per vehicle
Vehicles from 3,001 to 5,000	$30 per vehicle
Vehicles over 5,000	$22 per vehicle

Zhejiang UFO is considered a related party because the Wang Family, who are shareholders of Jonway, has certain non-controlling equity interests in Zhejiang UFO.  In December 2012, Zhejiang UFO, Jonway Group and Jonway amended the above contract, and agreed that the accumulated payable to Zhejiang UFO for the above variable contractual fees as of December 31, 2011 will not be repaid. From 2012 onwards, Jonway still has obligation for payment for such fees based on 2012 and thereafter the number of SUVs with the deferred payment without interest indefinitely.

NOTE 15 – INCOME TAXES

The Company is subject to United States of America (“US”) and People’s Republic of China (“PRC”) profit tax.

US

The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company has no taxable income for the year. The Company has net operating loss carryforwards for federal tax purposes. No tax benefit has been realized since a full valuation allowance has been established to offset the deferred tax asset resulting from the net operating losses

PRC

Effective on January 1, 2008, the PRC Enterprise Income Tax Law, EIT Law, and Implementing Rules impose an unified enterprise income tax rate of 25% on all domestic-invested enterprises and foreign investment enterprises in PRC, unless they qualify under certain limited exceptions. As such, the Company’s subsidiary in PRC is subject to an enterprise income tax rate of 25%.

No provisions for income taxes have been made as the Company has no taxable income for the periods. A deferred tax benefit of $38 was recognized due to the change in the deferred tax assets.

Loss before income taxes consisted of:

	For the Three Months Ended March 31,
	2012			2011
				Restated
US	$	(2,321	)	$	(6,021	)
PRC		(2,229	)		(1,185	)
	$	(4,550	)	$	(7,206	)
Provision (Benefit) for income taxes consisted of:
	For the Three Months Ended March 31,
	2012			2011
Current provision:				Restated
US	$	—		$	1
PRC		—			—
Total current provision		—			1
Deferred provision (benefit):
US		—			—
PRC		(38	)		(22	)
Total Deferred provision (benefit)		(38	)		(22	)
Total provision / (benefit) for income taxes	$	(38	)	$	(21	)

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NOTE 16 – LITIGATION

In the normal course of business, the Company may become involved in various legal proceedings. Management knows of no pending or threatened legal proceeding to which they are or will be a party and which, if successful, might result in a material adverse change in our business, properties or financial condition. However, as with most businesses, the Company is occasionally a party to lawsuits incidental to its business, none of which are anticipated to have a material adverse impact on the Company’s 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.

NOTE 17 – COMMITMENTS AND CONTINGENCIES

Employment agreement

As of January 16, 2011, The Company entered into indefinite employment agreements with Benjamin Zhu, the Company’s CFO.  The agreements provide for an annual salary of $140,000 for each year for the term of the agreement with Mr. Zhu.

Guarantees

Jonway Auto guaranteed certain financial obligations of outside third parties including suppliers to support our business and economic growth. Guarantees will terminate on payment and/or cancellation of the obligation once it is repaid. A payment by us would be triggered by failure of the guaranteed party to fulfill its obligation covered by the guarantee. Maximum potential payments under guarantees total $952 at March 31, 2012. Our performance risk under these guarantees is reviewed regularly, and has resulted in no changes to our initial valuations.

NOTE 18 – SUBSEQUENT EVENTS

During April 2012,  the Jonway Group purchased 100% of the assets of Aptera.  Alex Wang, the Co-Chief Executive Officer of Zap is also the Chief Executive Officer of Aptera.   At present, this is not expected to impact Jonway Group’s ability to provide liquidity to Zap as required by their letter of support previously disclosed in its Form 10-K filing as of and for the Year Ended December 31, 2011.  Should this matter lead to liquidity issues in the future , Zap may be required to scale down its forecasted sales which may require Zap to write down certain of its intangible assets and it may be material to its financial position.

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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, or 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:

·   our ability to establish, maintain and strengthen our brand;

·   our ability to successfully integrate acquired subsidiaries, particularly Jonway, into our company and business;

·   our ability to maintain effective disclosure controls and procedures;

·   our limited operating history, particularly of ZAP and Jonway on a consolidated basis;

·   whether the alternative energy and gas-efficient vehicle market for our electric products continues to grow and, if it does, the pace at which it may grow;

·   our ability to attract and retain the personnel qualified to implement our growth strategies;

·   our ability to obtain approval from government authorities for our products;

·   our ability to protect the patents on our proprietary technology;

·   our ability to fund our short-term and long-term financing needs;

·   our ability to compete against large competitors in a rapidly changing market for electric and conventional fuel  vehicles;

·   changes in our business plan and corporate strategies; and

·   Other risks and uncertainties discussed in greater detail in various sections of this report, or set forth in part I, Item 1A of our Form 10K under the heading “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.

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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 term “ZAP” refers to ZAP, the term “Jonway” refers to Zhejiang Jonway Automobile Co. Ltd., of which ZAP owns 51% of the equity shares, “ZAP Jonway” refers to both ZAP and Jonway on a consolidated basis, and “we,” “us” and “our” refer to ZAP or ZAP Jonway, as the context indicates.

Recent Developments

Some of the noteworthy events for the Company that occurred through the first quarter of 2012 and through the date of this report are as follows:

In February 2012, ZAP Jonway completed the relocation of its sales and after-sales services centers to Hangzhou City, the capital of Zhejiang Province, China and a high technology hub. We believe this relocation will accomplish the following: strengthen ZAP Jonway presence in a vibrant automotive centre of China, further improve our marketing efforts, build awareness of ZAP Jonway brand and enjoy the further supports from the local government and Zhejiang Provincial government.

In February, another sales team for the van models has been set up with over 20 team members; their office is located in Taizhou City, in which Jonway Group is headquartered. Currently, this team is in preparations for establishing van distribution network across China and launching in June, 2012.

From March 9, 2012 through March 11, 2012, we held our 2012 Annual Dealership Conference at the Intercontinental Resort in One Thousand Island Lake, Hangzhou, China. Over 400 direct dealers, sub-dealers and customer support service center partners attended the three-day conference, and over 50 China-based medias attended the conference. We introduced 25 new dealers from a number of strategic provinces like Shandong, Henan and Yunan. In this conference, we unveiled our 2012 SUV gasoline models (A380 II and III) and 2013 Electric Concept Vehicles.  The new 2012 SUV gasoline models with its fully re-styled exterior and interior including LED headlights, plush seating, and many other amenities, were launched to the 450 plus attendees. ZAP Jonway also unveiled its future concept vehicle designed by Maggiora, a renowned Italian auto designer well known for its exquisite stylish design of Italian sports cars. This new model is planned for release at the end of 2013, available for purchase in 2014.

From April 23, 2012 through May 2, 2012, we showcased our traditional gas and all-electric vehicles at the 2012 Beijing International Automotive Exhibition which was held in Beijing, China. The Beijing International Automotive Exhibition is now one of the most influential in the auto industry as China is becoming one of the most important auto markets in the world. In this exhibition, we displayed all of our vehicle models, including the new 2012 SUV gasoline models and fully-electric models.

On March 31, 2012, we entered into an amendment to the note which extended the mature date of the  Convertible note due to China Electric Vehicle Corporation (“CEVC”) from August 12, 2012 to August 12, 2013. This amendment changed the terms of the note requiring adjustment of the conversion price of note for dilutive issuances by ZAP.  In addition, the warrant issued in connection with the CEVC note was amended to change the terms of conversion and to extend the maturity date until February 12, 2014. The interest accrued through the maturity date of February 12, 2012 in the amount of $1.7 million has been added to the existing principal. The total amount of the convertible note is approximately $20.7 million with a new maturity date of August 12, 2013. CEVC is a related party to ZAP wherein Priscilla Lu, the Chair of ZAP’s Board of Directorsis the general partner of Cathaya Capital L.P. which is the sole shareholder of CEVC.

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We operate our business in four reportable segments:  Jonway Conventional Vehicles, Advanced Technology, Consumer Product and Car Outlet. These segments are strategic business units that offer different services.  They are managed separately because each business requires different resources and strategies.   The Jonway Conventional Vehicle Segment represents the manufacture and sales of vehicles through distributors in China and abroad. The Advanced Technology segment represents the sales activity of advanced technology vehicles to ZAP dealers throughout the U.S.  The Consumer Product segment represents sales of our ZAPPY 3, a three wheeled electric scooter, and the overall corporate expenses of ZAP. Many of these expenses relate to the overall development of our core business, electric consumer products.  The Car Outlet segment represents the activity of a retail outlet that sells pre-owned conventional vehicles and advanced technology vehicles

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 March, 31 ended March 31,
	2012			2011 Restated
Statements of Operations Data:
Net sales		100.00	%		100.00	%
Cost of sales		(94.2)			(91.1)
Operating expenses		(40.0)			(52.1)
Loss before income taxes		(36.4)			(61.4)
Net loss attributable to ZAP		(27.9)			(56.5)

Quarter Ended March 31, 2012 Compared to Quarter Ended March 31, 2011

Net sales for the quarter ended March 31, 2012 were $12.2 million as compared to $11.7 million for the period ended March 31, 2011.

Jonway auto’s revenue for the first quarter ended March 31, 2012 increased by $1.1 million from $10.9 million for the quarter ended March 31, 2011 compared to $12.0 million in first quarter ended March 31, 2011. The increase was primarily due to an additional 20 days from January 1 to 20 included in the quarter ended March 31, 2012 compared to the quarter ended March 31, 2011 where the net sales excluded the 20 days prior to the acquisition of Jonway on January 21, 2011. On a comparable basis of a full quarter ended March 31, in 2012 compared to 2011, the sales volume decreased due to  the following factors: (i) :more SUV models were launched into market by China-based auto makers, which intensified the competition, (ii) Jonway ‘s upgraded A380 did not  launch into market in time to compete with these competitors (iii) increasing oil prices in China affected customer demand and (iv) China’s overall economic condition worsened during the quarter (the GDP increase rate for this first quarter compared to same quarter in 2011 was 8.1%, which is the lowest level in the past three years).

Our first quarter sales of Advanced Technology segment sales decreased by $191,000 from $196,000 for the period ended  March 31,  2011 to $5,000 for the period ended March 31, 2012, The decrease is primarily due to the tight United States credit market and general economic conditions negatively impacting our dealer sales in 2012. We also began the transition of moving our operations from the U.S. to China and switching suppliers for advanced technology vehicles from outside contract manufacturers to our auto manufacturing plant in China.

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Our retail car lot experienced a decrease of $ 292,000 in sales for the first quarters from $365,000 in 2011 to $73,000 in 2012. The car outlet was adversely affected by a supply limitation on the number of consigned vehicles for resale.

In our Consumer Product segment first quarter sales increased from $103,000 in 2011 to $114,000 in 2012.  The increase is primarily due to a bulk sale to a new customer of our ZAPPY 3 electric scooters.

Gross profit decreased by $333,000 from a gross profit of $1.035 million for the first quarter ended March 31, 2011 to a gross profit of $ 702,000 for the quarter ended March 31, 2012.

Jonway auto’s gross profit decreased by $188,000 from $910,000 in the first quarter of 2011 to $722,000 for the first quarter ended March 31, 2012. The decrease was primarily due to a new price reduction program. In order to deal with the increasing competition in SUV market in China, Jonway auto initiated its price reduction program to end users throughout the first quarter of 2012. This resulted in a decrease of the ex-factory price to dealers by RMB 6,000 or over $950.

Advanced Technology vehicles gross profit decreased $75,000 from a $19,000 gross profit for the period ended March 31, 2011 to a gross loss of $56,000 for the period ended March 31, 2012.  The decrease was primarily due to an increase in vehicle warranty reserves.

The Consumer Products segment experienced a decrease in gross profit in the first quarter from $48,000 in 2011 to a gross profit of $28,000 in 2012. The decrease was due to a decrease in sales volume.

Our retail car lot gross profits decreased by $51,000 from $58,000 for the quarter ended March 31, 2011 to $7,000 for the quarter ended March 31, 2012. The lower profits are due tighter margins on purchased resale versus those on consignment.

Sales and marketing expenses increased by $240,000 from $1.9 million for the quarter ended March 31, 2011 to $2.1 million in 2012. The overall increase was primarily due to the inclusion of an  additional 20 days in the first quarter of 2012. On a comparable basis of a full quarter ended March 31, in 2012 compared to 2011 sales and marketing expenses actually decreased due to a lower comparable quarterly sales volume which resulted in fewer transportation and warranty expenses for Jonway auto sales.

General and administrative expenses decreased by $ 978,000 from $3.5million for the quarter ended March 31, 2011 to $2.5 million in 2012. The decrease was primarily a result of reductions in ZAP US operations due to the following: (i) less salaries and wages due to transferring of various functions to Jonway China, (ii) fewer professional fees in 2012  in the prior year we experienced non –recurring professional fees in connection with the Jonway acquisition in January of 2011 and (iii) finally, the elimination of the management fee to Cathaya Capital L.P that was previously expensed in the first quarter of 2011.

Research and development expenses decreased by $483,000 from $762,000 for the first ended March 31, 2011 to $ 279,000 for the first quarter ended March 31, 2012. The decrease was primarily due to fewer projects scheduled for the first quarter of 2012. In the prior year’s quarter ended March 31, 2011, we incurred Research and Development fees relating to refinement of the automatic transmission for Jonway’s three and five door sport utility vehicles.

Interest expense decreased by $1.4 million from $1.9 million in first quarter 2011 to $486,000 in first quarter of 2012. In 2011, a non-recurring expense of approximately $1.1 million was recorded for the amortization of the discount on the 8% Senior Convertible debt. This decrease was off-set by higher interest expense of approximately $265,000 on the bank borrowings of Jonway auto.

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Other income increased by $92,000 from $143,000 for the period ended March 31, 2011 to $235,000 for the period ended March 3, 2012.  This amount mainly represents increase in the sales of metal scrap by Jonway in 2012.

Net loss attributable to ZAP for the first quarter ended March 31, 2012 was $3.4 million as compared to a loss of $6.6 million for the period ended March 31, 2011.

Liquidity and Capital Resources

In assessing our liquidity, we monitor and analyze our cash on-hand, liquidation value of our investment in related party securities, and our operating and capital expenditure commitments.  Our principal liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations.  At March 31, 2012, we believe that we will have sufficient liquidity required to conduct operations through March 31, 2013.

In January 2011, ZAP issued $19 million of convertible debt to China Electric Vehicle Corporation (“CEVC”) to make a partial payment in connection with the Jonway Acquisition.  On March 31, 2012, ZAP entered into an amendment to the note which extended the maturity date of the note from August 12, 2012 to August 12, 2013. This amendment  changed the terms of the note requiring adjustment of the conversion price of note for dilutive issuances by ZAP.  .. In addition, the warrant issued in connection with the CEVC note was amended to change the terms of conversion and to extend the maturity date until February 12, 2014. The interest accrued through the maturity date of February 12, 2012 in the amount of $1.7 million has been added to the existing principal. The total amount of the convertible note is approximately $20.7 million with a new maturity date of August 12, 2013.

At present, the Company will require additional capital to expand our current operations.  In particular, we require additional capital to expand our presence into Asia, to continue development of our methodology for converting gasoline vehicles to electric and to continue building our dealer network and expanding our market initiatives.  We also require financing to purchase consumer inventory for the continued roll-out of new products to add qualified sales and professional staff to execute our efforts in the research and development of advanced technology vehicles, such as the new ZAP alias and other fuel efficient vehicles.

We intend to fund our long term liquidity needs related to operations through the incurrence of indebtedness, equity financing or a combination of both.  Although we believe that these sources will provide sufficient liquidity for us to meet our future liquidity and capital obligations, our ability to fund these needs will depend on our future performance, which will be subject in part to general economic, financial, regulatory and other factors beyond our control, including trends in our industry and technological developments.  However, we may not be able to obtain this additional financing on terms acceptable to us or at all.

In the first three months of 2012, net cash used for operating activities was $1.9 million.  Cash used in the first three months of 2012 was comprised of the net loss incurred for the first three months of $4.4 million plus net non-cash expenses of $2.7 million and the net increase of $0.7 million in operating assets and liabilities. In the first three months of 2011, net cash used for operating activities was $1.5 million. Cash used in the first three months of 2011 was comprised of the net loss incurred for the first three months of $7.2 million plus net non-cash expenses of $4.2 million and the net increase of $1.5 million in operating assets and liabilities.

Investing activities used cash of $1.881 million and $19.6 million in the first three months ended March 31, 2012 and 2011, respectively. In 2011, $19 million was utilized for the 51% acquisition of Jonway Automobile. In addition, $597,000 and $543,000 was used for the purchase of equipment for the period ended March31, 2012 and 2011, respectively.

Financing activities for the first three months ended March 31, 2012 used cash of $1,395,000 compared with financing activities that provided cash of $20 million in 2011. During the first quarter of 2012, we used cash of $2.0 million to repay advances from Jonway Group, a related party, and repayment of short term bank loans. These repayments were offset by short term loan borrowings of $522,000. In the first quarter of 2011, we issued $19 million in convertible debt to China Electric Vehicle Corporation, a related party to ZAP. The proceeds were utilized to complete the acquisition of the 51% interest in Jonway. 

The Company had cash of $1.9 million at March 31, 2012 as compared to $5.8 million at December 31, 2011. The Company had working capital deficits of $17.3 million and $14.9 million for the periods ended March 31, 2012 and December 31, 2011 respectively.

In the event that we require additional liquidity, our principal shareholders, Cathaya and Jonway Group, have agreed to provide the necessary support to meet our financial obligations through May 21, 2013.

29

Critical Accounting Policies and Use of Estimates

Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with United States generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The more significant estimates relate to revenue recognition, contractual allowances and uncollectible accounts, intangible assets, accrued liabilities, derivative liabilities, income taxes, litigation and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for judgments about results and the carrying values of assets and liabilities. Actual results and values may differ significantly from these estimates

Stock Based Compensation

The Company accounts for stock-based compensation which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes-Merton option pricing model (the “Black-Scholes model”). The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. We estimate forfeitures at the time of grant and revise our estimate in subsequent periods if actual forfeitures differ from those estimates.

The Company accounts for stock-based compensation awards and warrants granted to non-employees by determining the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.

Derivative Financial Instruments

The Company generally does not use derivative financial instruments to hedge exposures to cash flow or market risks. However, certain other financial instruments, such as warrants, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.

The Company accounts for derivative instruments and debt instruments in accordance with the interpretative guidance of ASC 815 and associated pronouncements related to the classification and measurement of warrants and instruments with conversion features. It is necessary for the Company to make certain assumptions and estimates to value derivatives and debt instruments.

30

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts when management estimates collectability to be uncertain. Accounts receivable are continually reviewed to determine which, if any, accounts are doubtful of collection. In making the determination of the appropriate allowance amount, the Company considers current economic and industry conditions, relationships with each significant customer, overall customer credit-worthiness and historical experience. The allowance for doubtful accounts was $20,000 and $9,000 at March 31, 2012 and December 31, 2011 respectively.

Inventories

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 basis) or market (net realizable value or replacement cost). 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. Any changes to the Company's estimates of its reserves are reflected in cost of goods sold within the statement of operations during the period in which such changes are determined by management.

Off-Balance Sheet Arrangements

None.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

A smaller reporting company is not required to provide disclosure pursuant to this Item 3.

Item 4.    Controls and Procedures

Material weakness previously disclosed

As discussed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2011, we identified a lack of sufficient control in the area of technical competency in review and approval of financial reporting processes. This control weakness allowed for reconciliations, reports and other documents to be insufficiently reviewed prior to being approved by management and audit adjustments to be identified by our auditors as part of their year-end audit work. This material weakness resulted in errors in the recording of non-routine and complex accounting transactions in the preparation of our annual consolidated financial statements and disclosures. The Company is considering utilizing outside accounting experts to assist us in accounting for future complex transactions. During the first Quarter 2012 we have arranged with another independent accounting firm to assist us in accounting for non-recurring complex accounting transactions

 Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Co- Chief Executive Officers and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and Exchange Act of 1934 Rules 13a-15(f). Based on this evaluation, our Co-Chief Executive Officers and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.

Changes in internal control over financial reporting

There have been no changes in ZAP’s internal control over financial reporting during the three months ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting

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PART II – OTHER INFORMATION

Item 1.   Legal Proceedings

We are subject to various legal proceedings from time to time in the ordinary course of business, none of which are required to be disclosed under this Item 1.

Item 1A. Risk Factors

There have been no material changes to the Company’s risk factors which are included and described in the annual report on Form 10-K for the fiscal year ended December 31, 2011 filed with the SEC on April 16, 2012.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 1B. Unresolved Staff Comments

None

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

None

Item 3.   Defaults upon Senior Securities

None

Item 4.   Mine safety disclosure

Not Applicable

Item 5.   Other Information

On March 22, 2012, ZAP entered into a second amendment to that certain Senior Secured Convertible Promissory Note with China Electric Vehicle Corporation (“CEVC”), extending the maturity date to August 12, 2013. This amendment  changed the terms of the note requiring adjustment of the conversion price of note for dilutive issuances by ZAP.  In addition, ZAP issued an Amended and Restated Warrant to CEVC, changing the terms of exercise and extending the expiration date until February 12, 2014.

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Item 6.   Exhibits

(b) Exhibits.

Exhibit Number	Description
10.1	Amended and Restated Senior Secured Convertible Promissory Note Due 2013 by ZAP in favor of China Electric Vehicle Corporation dated March 22, 2012*
10.2	Amended and Restated Warrant to Purchase Shares of Common Stock of ZAP issued to China Electric Vehicle Corporation dated March 21, 2012*
31.1	Certification of Co-Principal Executive Officer pursuant to Rule 13a-14/15d-14 of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Co-Principal Executive  Officer pursuant to Rule 13a-14/15d-14 of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3	Certification of Principal Financial Officer pursuant to 13a-14/15d-14 of the Exchange Act as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Co-Principal Executive Officers and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*filed herewith

In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed.

Furnished herewith, XBLR (Extensive Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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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.

Dated:    May 21, 2012 By: /s/ Steven Schneider                              

Name: Steven Schneider

Title: Co-Chief Executive Officer

(Co-Principal Executive Officer)

Dated:    May 21, 2012 By: /s/ Alex Wang                                         

Name: Alex Wang

Title: Co-Chief Executive Officer

(Co-Principal Executive Officer)

Dated:    May 21, 2012 By: /s/ Benjamin Zhu                                    

Name: Benjamin Zhu

Title: Chief Financial Officer

(Principal Financial Officer)

 

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EX-10.1

EXHIBIT 10.1

THIS NOTE AND THE COMMON STOCK 1SSUABLE UPON ITS CONVERSION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED TO AN "ACCREDITED INVESTOR" (AS SUCH TERM IS DEFINED IN THE RULES AND REGULATIONS PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED) IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

ZAP

AMENDED AND RESTATED

SENIOR SECURED CONVERTIBLE PROMISSORY NOTE DUE 2013

No. _______

$20,679,069.00

This Amended and Restated Senior Secured Promissory Note Due 2013 (the "Note") of ZAP, a California corporation (the "Company") replaces and supersedes, inits entirety, that certain Senior Secured Convertible Promissory Note Due 2012 of the Company dated January 12, 2011, as amended December 29, 2011 and as may have been further amended at any time ("Original Note").

ZAP, a California corporation (the "Company"), for value received, hereby promises to pay to China Electric Vehicle Corporation, a British Virgin Island company, or its registered assigns (the "Holder"), the principal sum of NINETEEN MILLION DOLLARS ($19,000,000.00) (the "Original Principal Amount"), or if less, the aggregate outstanding principal amount of the Note, on August 12, 2013 (or if earlier the date the Note becomes automatically due and payable upon the occurrence of an Event of Default), (the "Maturity Date") and to pay interest equal to ONE MILLION SIX HUNDRED SEVENTY-NINE THOUSAND SIXTY-NINE DOLLARS ($1,679,069) (the "Accrued Interest"), which shall not be compounded and accrue additional interest irrespective of the occurrence of an Event of Default.

Upon the Company's or Holder's election, the Company shall repay the outstanding principal amount of the Note, together with unwaived accrued and unpaid interest thereon, on or prior to the Maturity Date. Payment of the principal of this Note shall be made upon the surrender of this Note to the Company, at its chief executive office (or such other office within the United States as shall be designated by the Company to the holder hereof) (the "Designated Office"), in such coin or currency of the United States of America as at the time of payment shall be legal tender

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for the payment of public and private debts. Payment of interest in cash and all other amounts payable in cash with respect to this Note shall be made by wire transfer to the Holder, provided that if the Holder shall not have furnished wire instructions in writing to the Company on or prior to the third Business Day immediately prior to the date on which the Company makes such payment, such payment may be made by U.S. dollar check mailed to the address of the Person entitled thereto as such address shall appear in the Company security register. Capitalized terms used and not otherwise defined herein, shall have the respective meanings given to those terms in Section 6 hereof.

1.Repayment in Jonway Stock, Upon Holder's election, before 5:00 p.m., California time, three Business Days prior to the Maturity Date, the Company shall repay any unpaid principal amount of the Note, together with unwaived accrued and unpaid interest in shares of the capital stock of Zhejiang Jonway Automobile Co., Ltd. ( "Jonway") owned by the Company pursuant to the Acquisition Transaction (the "Jonway Stock"). In exchange for the outstanding principal of this Note (or any portion of the principal outstanding amount hereof that is an integral multiple of $1,000) (the "Repayment Amount"), for each multiple of $1,000, Holder shall receive 0.003743% of the Jonway Stock, by surrender of this Note, duly endorsed or assigned to the Company or in blank to the Company at the Designated Office, accompanied by written notice to the Company that the Holder hereof elects to receive the Repayment Amount in Jonway Stock. In the event that the Note is repaid pursuant to this Section 1(b), all accrued and unpaid Interest or discount, if any, on this Note is waived.

2.      Conversion.

(a)

(1)The holder of this Note is entitled before 5:00 p.m., California time, three Business Days prior to the Maturity Date, to convert the outstanding Original Principal Amount of this Note (or any portion of the principal outstanding amount hereof that is an integral multiple of $1,000) (the "Conversion Amount"), into fully paid and nonassessable Common Stock (calculated as to each conversion to the nearest 1/100 of a share) of the Company at the rate (or at the then current adjusted rate if an adjustment has been made as provided below) of 4,435 shares of Common Stock for each $1,000 of the Conversion Amount (such number of shares of Common Stock issuable for each $1,000 principal amount of the Note, which shall initially be 4,435, the "Conversion Rate") and the Accrued Interest into fully paid and nonassessable Common Stock (calculated as to each conversion to the nearest 1/100 of a share) of the Company at the rate (or at the then current adjusted rate if an adjustment has been made as provided below) of 4,000 shares of Common Stock for each $1,000 of the Conversion Amount (such number of shares of Common Stock issuable for each $1,000 principal amount of the Note, which shall initially be 4,000. The term "Conversion Price" on any day shall equal $1,000 divided by the Conversion Rate in effect on such day.

(2)In the event that the conversion of this Note into shares of capital stock would require the Company and the Holder of this Note to file notification and report forms with the Federal Trade Commission and Antitrust Division of the Department of Justice (the "FTC") pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended

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(the "HSR Act"), then the Holder of this Note and the Company agree (i) to use their best efforts to complete all applicable filings and provide all necessary information as required pursuant to the HSR Act, and (ii) such conversion of this Note into shares of capital stock shall not occur until such time as the required filings are made pursuant to the HSR Act and the required waiting periods have passed or early termination notifications have been granted by the FTC.

(3)The Company shall, if the Holder so elects, deliver the capital stock issuable upon conversion of this Note to any third party designated by the Holder, subject to compliance with Sections 2(1) and 7(c) — (g) hereof.

(4)in the event that the Note is converted pursuant to this Section 2(a), all accrued and unpaid Interest or discount, if any, on this Note is waived.

(b) The Conversion Rate will be subject to adjustment from time to time as follows:

(1)If the Company shall pay or make a dividend or other distribution to all or substantially all holders of its outstanding shares of Common Stock of the Company payable in Common Stock, the Conversion Rate in effect at the opening of business on the day following the Determination Date for such dividend or other distribution shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date and the denominator shall be the sum of such number of shares of Common Stock and the total number of shares of Common Stock constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following such Determination Date.

(2)If the Company shall issue rights, options or warrants to all or substantially all holders of its Common Stock entitling them to subscribe for or purchase Common Stock (or securities convertible into shares of Common Stock) at a price per share (or having a conversion price per share) less than the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on the Determination Date for such distribution, the Conversion Rate in effect at the opening of business on the day following such Determination Date shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered (or into which the convertible securities so offered are convertible) for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock so offered (or into which the convertible securities so offered are convertible) for subscription or purchase, such increase to become effective immediately after the opening of business on the day following such Determination Date. The Company will not issue any rights, options or warrants in respect of Common Stock held in the treasury of the Company. Upon the expiration of any right, option or warrant to purchase Common Stock the issuance of which resulted in an adjustment to the Conversion Rate pursuant

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to this paragraph (2) of Section 2(b), if any such right, option or warrant shall expire and shall not have been exercised, the Conversion Rate shall immediately upon such expiration be recomputed to the Conversion Rate which would have been in effect had the adjustment of the Conversion Rate made upon the issuance of such right, option or warrant been made on the basis of offering for subscription or purchase only that number of shares of Common Stock actually purchased upon the exercise of such right, option and warrant actually exercised.

(3)If the outstanding Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and, conversely, in case outstanding Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced. Any such increase or reduction, as the case may be, shall become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective.

(4)If the Company shall, by dividend or otherwise, distribute to all or substantially all holders of its Common Stock evidences of its indebtedness, shares of any class of capital stock, or other property (including securities, but excluding (i) any rights, options or warrants referred to in paragraph (2) of this Section 2(b), (ii) any dividend or distribution paid exclusively in cash, (iii) any dividend or distribution referred to in paragraph (1) of this Section 2(b) and (iv) any merger or consolidation to which Section 2(h) applies (the "Distributed Prothe Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the Determination Date for such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less the then fair market value (as determined in good faith by the Board of Directors of the Company in accordance with the provisions of this paragraph (4) of Section 2(b)) on the Determination Date of the portion of the assets, shares or evidences of indebtedness so distributed applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding at the close of business on such Determination Date) and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following such Determination Date; provided, however, that if the Distributed Property consists of shares of capital stock of a Subsidiary, the Company may, at its option and in lieu of the foregoing adjustment to the Conversion Rate, elect to make adequate provision so that the Holder shall have the right to receive upon conversion the amount of such shares of capital stock that the Holder would have received if the Holder had converted such Note on the record date. if the Board of Directors determines the fair market value of any distribution for purposes of this paragraph (4) by reference to the actual or when issued trading market for any securities constituting such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share pursuant to paragraph (8) of this Section 2(b).

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If the Company should adopt a shareholder rights plan (a "Rights Plan"), upon conversion of this Note into Common Stock, the holder of this Note will receive, in addition to the Common Stock, the rights described therein (whether or not the rights have separated from the Common Stock at the time of conversion), subject to the limitations set forth in the Rights Plan. Any distribution of rights or warrants pursuant to the Rights Plan in compliance with the requirements set forth in the immediately preceding sentence of this paragraph shall not constitute a distribution of rights or warrants pursuant to this Section 2(b).

Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"): (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Section 2(b) (and no adjustment to the Conversion Rate under this Section 2(b) will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Conversion Rate shall be made under this Section 2(b). If any such right or warrant, including any such existing rights or warrants distributed prior to the original issue date of this Note, are subject to events, upon the occurrence of which such rights or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new rights or warrants with such rights (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Rate under this Section was made, (x) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Rate shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (y) in the case of such rights or warrants which shall have expired or been terminated without exercise by any holders thereof, the Conversion Rate shall be readjusted as if such rights and warrants had not been issued.

(5) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed as part of a distribution referred to in paragraph (4) of Section 2(b) or a merger or consolidation to which Section 2(h) applies), immediately after the close of business on such Determination Date, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (i) the numerator of which shall be equal to the current market price per share of the Common Stock on

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the Determination Date minus the amount of such cash dividend or distribution applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding at the close of business on the Determination Date) and (ii) the denominator of which shall be equal to the current market price per share of the Common Stock on the Determination Date.

(6)In case of a tender offer made by the Company or any Subsidiary of the Company for all or any portion of the Common Stock shall expire and such tender offer or exchange (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a board resolution), of the current market price per share of the Common Stock (determined as provided in paragraph (7) of this Section 2(b)) as of the last time tenders or exchanges could have been made pursuant to such tender or exchange offer (as it may be amended) then, and in each such case, immediately prior to the opening of business on the day after the date of the Last time (the "Expiration Time") tenders or exchanges could have been made pursuant to such tender or exchange offer (as it may be amended), the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate immediately prior to close of business on the date of the Expiration Time by a fraction (i) the numerator of which shall be equal to (A) the product of (I)the current market price per share of Common Stock on the date of the Expiration Time multiplied by (II) the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the date of the Expiration Time less (B) the combined tender and cash amount, and (ii) the denominator of which shall be equal to the product of (A) the current market price per share of the Common Stock as of the Expiration Time multiplied by (B) the number of shares of Common Stock outstanding (including any tendered or exchanged shares) as of the Expiration Time less the number of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted up to and any such maximum, being referred to as the "Purchased Shares").

(7)If and whenever on or after the date hereof, the Company issues or sells, or in accordance with this Section 2(b)(7) is deemed to have issued or sold, any shares of Common Stock, Options or Convertible Securities, except for an Excluded Security, for a consideration per share less than a price (the "Applicable Price") equal to either (i) in the case of the issuance or sale of shares of Common Stock, the lesser of $0.25 per share or the Conversion Price in effect immediately prior to such issue or sale or (ii) in the case of the issuance or sale of Options or other Convertible Securities, the Conversion Price in effect immediately prior to such issue or sale (the foregoing a "Dilutive Issuance"), then immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the Applicable Price and the Conversion Rate shall be increased to an amount equal to 51,000 divided by such new Conversion Price.

(8)For the purpose of any computation under paragraphs (2), (4),(5) or (6) of this Section 2(b), the current market price per share of Common Stock on any date shall be calculated by the Company and be deemed to be the average of the daily Closing Prices for the five (5) consecutive Trading Days commencing ten (10) Trading Days before the earlier of (i)

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the day in question and (ii) the day before the "ex" date with respect to the issuance or distribution requiring such computation. For purposes of this paragraph, the term "ex date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way in the applicable securities market or on the applicable securities exchange without the right to receive such issuance or distribution.

(9)No adjustment in the Conversion Rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (8)) would require an increase or decrease of at least one percent (1%) in such rate; provided, however, that any adjustments which by reason of this paragraph (8) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be.

(10)The Company may make such increases in the Conversion Rate, for the remaining term of the Note or any shorter term, in addition to those required by paragraphs (1), (2), (3), (4),(5) and (6) of this Section 2(b) as it considers to be advisable in order to avoid or diminish any income tax to any holders of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes.

(11)For purposes of this Section 2(b), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company shall not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company.

(c)Whenever the Conversion Rate is adjusted as provided in Section 2(b), the Company shall compute the adjusted Conversion Rate in accordance with Section 2(b) and shall prepare a certificate signed by the chief financial officer of the Company setting forth the adjusted Conversion Rate and showing in reasonable detail the facts upon which such adjustment is based, and shall promptly deliver such certificate to the Holder.

(d)In case:

(1)the Company shall declare a dividend or other distribution on its Common Stock that would require any adjustment pursuant to Section 2(b); or

(2)the Company shall authorize the granting to the holders of its Common Stock of rights, options or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or

(3)of any reclassification of the Common Stock of the Company, or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any shareholders of the Company is required, or of the conveyance, sale, transfer or lease of all or substantially all of the assets of the Company; or

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(4)of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or

(5)the Company or any Subsidiary shall commence a tender offer for all or a portion of the Company's outstanding Common Stock (or shall amend any such tender offer);

then the Company shall cause to be delivered to the Holder, at least twenty (20) days (or ten (10) days in any case specified in clause (1) or (2) above) prior to the applicable record, expiration or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options or warrants are to be determined, (y) the date on which the right to make tenders under such tender offer expires or (z) the date on which such reclassification, consolidation, merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in clauses (1) through (5) of this Section 2(d).

(e)The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of the Note, the full number of shares of Common Stock then issuable upon the conversion of this Note.

(f)Except as provided in the next sentence, the Company will pay any and all taxes and duties that may be payable in respect of the issue or delivery of Common Stock on conversion of the Note. The Company shall not, however, be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue and delivery of Common Stock in a name other than that of the holder of this Note, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid.

(g)The Company agrees that all Common Stock which may be delivered upon conversion of the Note, upon such delivery, will have been duly authorized and validly issued and will be fully paid and nonassessable (and shall be issued out of the Company's authorized but unissued Common Stock) and, except as provided in Section 201 the Company will pay all taxes, liens and charges with respect to the issue thereof.

(h)In case of any recapitalization or reclassification of the Common Stock or other change of the outstanding shares of Common Stock (other than a change in par value, or as a result of a subdivision or combination covered by paragraph (3) of this Section 2(b)), or any

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consolidation of the Company with any other Person, any merger of the Company into another Person or of another Person into the Company (other than a merger which does not result ina reclassification, conversion, exchange or cancellation of the outstanding Common Stock), or any conveyance, sale, transfer or lease of all or substantially all of the properties and assets of the Company (collectively, a "Capital Reorganization"), in each case as a result of which the holders of Common Stock are entitled to receive stock, other securities, other property, assets or cash (or any combination thereof) (collectively, "Reference Property") with respect to or in exchange for such Common Stock, then the Company or the Person formed by such Capital Reorganization, as the case may be, shall execute and deliver to the Holder of this Note a supplemental agreement providing that such Holder has the right thereafter, during the period this Note shall be convertible as specified in Section 2(a), to convert this Note only into the kind and amount of Reference Property receivable upon such Capital Reorganization by a holder of the number of shares of Common Stock of the Company into which this Note might have been converted immediately prior to such Capital Reorganization, assuming such holder of Common Stock of the Company (i) is not a Person with which the Company consolidated, into which the Company merged or which merged into the Company or to which any conveyance, sale, transfer or lease was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person and (ii) failed to exercise its rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such Capital Reorganization. In the event holders of Common Stock have the opportunity to elect the form of consideration to be received in a recapitalization, reclassification, change, consolidation, merger, combination, sale, lease, assignment, conveyance or other transfer, the Company will make adequate provision whereby the Holder shall have the opportunity, on a timely basis, to determine the form of Reference Property into which this Note shall be convertible. The Company shall not become party to any such recapitalization, reclassification, change, consolidation, merger combination, sale, lease, assignment, conveyance or other transfer unless the terms of such transaction are consistent with the foregoing. Such supplemental agreement shall provide for adjustments which, for events subsequent to the effective date of such supplemental agreement, shall be equivalent to the adjustments provided for in this Section 2. The above provisions of this Section 2(h) shall similarly apply to successive Capital Reorganizations. If this Section 2(h) applies to any event or occurrence, then the other provisions of Section 2(b) shall not apply.

(i)No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of this Note. If any fractional share of stock otherwise would be issuable upon the conversion of this Note, the Company may elect to make an adjustment therefore in cash based upon the Closing Price of the Common Stock on the last Trading Day prior to the date of conversion, or in lieu of making such cash payment, the Company may elect to round up to the next whole share the number of shares of Common Stock to be issued to the Holder upon conversion.

(j)The Company (i) will effect all registrations with, and obtain all approvals by, all governmental authorities that may be necessary under any United States Federal or state law (including the Securities Act, the Exchange Act and state securities and Blue Sky laws) for the Common Stock issuable upon conversion of this Note to be lawfully issued and delivered as provided herein, and thereafter publicly traded (if permissible under the Securities Act) and qualified or listed as contemplated by clause (ii) (it being understood that the Company shall not

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be required to register the offer, sale or resale of Common Stock issuable on conversion hereof under the Securities Act except pursuant to the Registration Rights Agreement); and (ii) if required, will list the Common Stock required to be issued and delivered upon conversion of the Note, prior to such issuance or delivery, on each national securities exchange on which outstanding Common Stock is listed or quoted at the time of such delivery, or if the Common Stock is not then listed on any securities exchange, to qualify the Common Stock for quotation on the Nasdaq Stock Market or such other inter-dealer quotation system (including, without limitation, the OTC Bulletin Board), if any, on which the Common Stock is then quoted.

3.       Right to Require Repurchase.

(a)In the event that a Change in Control shall occur, then the Holder of this Note shall have the right, at such Holder's option, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, this Note, or any portion of the principal amount hereof that is equal to $1,000 or any integral multiple thereof, on the date (the "Repurchase Date") such Change of Control occurs, at a purchase price equal to the Repurchase Price (as hereinafter defined). The Company agrees to give the Holder, in the manner provided in Section 7(b), of any Change in Control, promptly and in any event within ten (10) Trading Days prior to the occurrence thereof

(b)To exercise a repurchase right, the Holder shall deliver to the Company on or before the 2nd day prior to the Repurchase Date, together with this Note, written notice of the Holder's exercise of such right, which notice shall set forth the name of the Holder, the principal amount of this Note to be repurchased (and, if this Note is to be repurchased in part, the portion of the principal amount thereof to be repurchased) and a statement that an election to exercise the repurchase right is being made thereby. Such written notice shall be irrevocable, except that the right of the Holder to convert this Note (or the portion hereof with respect to which the repurchase right is being exercised) shall continue until the close of business on the Trading Day prior to the Repurchase Date.

(c)In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the Holder the Repurchase Price in cash on the Repurchase Date in the manner set forth in the introductory paragraph to this Note.

(d)If this Note is to be repurchased only in part, it shall be surrendered to the Company at the Designated Office (with, if the Company so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company duly executed by, the Holder hereof or his attorney duly authorized in writing), and the Company shall execute and make available for delivery to the Holder without service charge, a new Note or Notes, containing identical terms and conditions, each in an authorized denomination in aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Note so surrendered.

(e)For purposes of this Section 3:

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(1) The term "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the Securities and Exchange Commission pursuant to the Exchange Act.

(2) A "Change in Control" shall be deemed to have occurred at the time, after the original issuance of this Note, of:

(i)the acquisition by any Person or group (within the meaning of the Exchange Act and the rules of the Commission thereunder as in effect on the date hereof) of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such Person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in the elections of directors (any shares of voting stock of which such Person is the beneficial owner that are not then outstanding being deemed outstanding for purposes of calculating such percentage) other than any such acquisition by the Company or any employee benefit plan of the Company; or

(ii)any consolidation or merger of the Company with or into, any other Person, any merger of another Person with or into the Company, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of the assets of the Company to another Person (other than (a) any such transaction pursuant to which holders of Common Stock immediately prior to such transaction have the entitlement to exercise, directly or indirectly, 50% or more of the total voting power of all shares of capital stock entitled to vote generally in the election of directors of the continuing or surviving Person immediately after such transaction and (b) any merger (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding Common Stock or (y) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding Common Stock into solely shares of common stock); or

(iii)the occupation of a majority of the seats (other than vacant seats) on the board of directors of the Company by Persons who were neither (i) nominated by the board of directors of the Company nor (ii) appointed by directors so nominated.

(3) The "current market price" of a share of Common Stock shall be the Closing Price of the Common Stock on the Trading Day immediately preceding the Repurchase Date.

(4) Repurchase Price" means the sum of (a) 100% of the principal amount of this Note to be repurchased pursuant to this Section 3 and (b) accrued and unpaid interest on this Note to the date of payment.

4.Certain Covenants. This Note is entitled to the benefits of the covenants set forth in the Securities Purchase Agreement.

5.Events of Default.

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(a) "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

(1)(A) default in the payment of any principal on this Note when due or (B) default in the payment of any interest upon this Note when it becomes due and payable, and continuance of such default for a period of 3 days; or

(2)default by the Company in the performance of its obligations in respect of any conversion of this Note (or any portion hereof) in accordance with Section 2 for a period of 5 days; or

(3)failure by the Company to give any notice of a Change of Control required to be delivered in accordance with Section 5(a); or

(4)(A) default in the performance, or breach of the representations or covenants of the Securities Purchase Agreement or (B) default in the performance, or breach, of any other covenant of the Company under any Transaction Document (other than a covenant, a default in the performance or breach of which is specifically dealt with elsewhere in this Section 5(a)) and continuance of such default or breach for a period of 10 days; or

(5)any breach or default by or of the Company occurs under any document, instrument or agreement to which it is a party or by which it or any of its properties is bound, relating to any Indebtedness having a principal amount (individually or in the aggregate) in excess of $100,000, if the maturity of or any payment with respect to such Indebtedness is or may be accelerated or demanded due to such breach; or

(6)the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 30 consecutive days; or

(7)the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency

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case or proceeding against either the Company, or the filing by either the Company of a petition or answer or consent seeking reorganization or similar relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of the property of the Company, or the making by either the Company of an assignment for the benefit of creditors, or the admission by either the Company in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or

(8)any representation, warranty or other written statement of the Company made in connection with any Transaction Document or the transactions contemplated thereby is incorrect or misleading in any material respect when made, or deemed made, or given; Or

(9)at any time after the execution and delivery thereof, (A) this Note or any Transaction Document ceases to be in full force and effect (other than upon satisfaction of the Company's obligations thereunder) or shall be declared null and void or the Holder shall not have or shall cease to have a valid and perfected lien in any collateral purported to be covered by the Transaction Documents with the priority required by such Transaction Document or (B) the Company shall contest the validity or enforceability of any Transaction Document in writing or deny in writing that it has any further liability under any Transaction Document.

(b)If an Event of Default occurs and is continuing for a period of thirty (30) days, the Original Principal Amount shall accrue interest at the Interest Rate until the Event of Default is cured. If an Event of Default (other than an Event of Default specified in Section 5(a)(6) or 5(a)(7)) occurs and is continuing for a period of thirty (30) days, then in every such case the Holder of this Note may declare the principal hereof (or, if there is at such time more than one holder, holders of least twenty-five percent (25%) of the outstanding principal amount of all then outstanding securities of the same series as this Note) may declare the principal amount of this Note and all other such securities then outstanding to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration such principal and all accrued interest thereon shall become immediately due and payable. For purposes of the immediately preceding sentence, "securities of the same series" shall mean collectively this Note and any notes issued upon a Transfer of a portion of this Note. If an Event of Default specified in Section 5(a)(6) or 5(a)(7) occurs and is continuing with respect to the Company, the principal of, and accrued interest on, this Note shall ipso facto become immediately due and payable without any declaration or other act of the holders.

(c)The Company will give the Holder of this Note notice, promptly and in any event within three days of the occurrence thereof, of any Event of Default or Default. Such notice shall be given in the manner provided in Section 7(b).

6.      Definitions. Capitalized terms used in this Note and not otherwise defined have the meanings given to them in the Securities Purchase Agreement. Unless otherwise defined in this

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Note, the following capitalized terms shall have the following respective meanings when used herein:

"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

"Approved Stock Plan" means the Company's 2008 Equity Compensation Plan, 2007 Equity Compensation Plan, 2006 Incentive Stock Plan, 2002 Incentive Stock Plan, 1999 Incentive Stock Plan, as may be amended from time to time, or any employee benefit plan, stock grant, stock option or purchase plan, or stock option exchange plan or other employee stock incentive or similar agreement approved by the Board of Directors of the Company and the Holder in writing pursuant to which the Company's securities may be issued to any officers, directors, or employees of, or consultants to, the Company for services provided thereto.

"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which the banking institutions in California are authorized or obligated by law or executive order to close or be closed.

"Closing Price" means, with respect to the Common Stock of the Company, for any day, the reported last sale price per share on the Nasdaq Stock Market, or, if the Common Stock is not admitted to trading on the Nasdaq Stock Market, on the principal national securities exchange or inter-dealer quotation system (including, without limitation, the OTC Bulletin Board) on which the Common Stock is listed or admitted to trading, or if not admitted to trading on the Nasdaq Stock Market, or listed or admitted to trading on any national securities exchange or inter-dealer quotation system, the closing bid price per share in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose.

"Commission" means the United States Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose.

"Common Stock" means the Common Stock, no par value per share, of the Company authorized at the date of this instrument as originally executed. Subject to the provisions of Section 2, shares issuable on conversion of this Note shall include only Common Stock or shares of any class or classes of common stock resulting from any reclassification or reclassifications thereof; provided, however, that if at any time there shall be more than one such resulting class, the shares so issuable on conversion of this Note shall include shares of all such classes, and the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications.

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"Conversion Price" has the meaning given to such term in Section 2(a). "Conversion Rate" has the meaning given to such term in Section 2(a).

"Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for Common Stock.

"Default" means any event that with the giving of notice or the passage of time, or both, would become an Event of Default.

"Determination Date" means, in the case of a dividend or other distribution, including the issuance of rights, options or warrants, to shareholders, the date fixed for the determination of shareholders entitled to receive such dividend or other distribution and, in the case of a tender offer, the last time that tenders could have been made pursuant to such tender offer.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Excluded Security" means: (i) any Common Stock issued or issuable in connection with any Approved Stock Plan or to vendors or service providers that have a relationship with the Company as of the date hereof, provided that the aggregate number of shares issued or issuable in connection with any Approved Stock Plan and issued or issuable to such vendors and service providers shall not exceed 30 million shares; (ii) any Common Stock issued or issuable to Steven Schneider in accordance with Section 4.25 of the Securities Purchase Agreement; (iii) any Common Stock issued or issuable upon conversion of the Note or the exercise of the warrants issued to Holder pursuant to the Purchase Agreement; (iv) any Common Stock issued or issuable upon conversion of any Options or Convertible Securities (other than any Options issued pursuant to an Approved Stock Plan) which are outstanding on the day immediately preceding the date hereof, provided that the terms of such Options or Convertible Securities are not amended, modified or changed on or after the date of issuance of this Warrant; (v) any Common Stock issued or issuable in connection with any reorganization, recapitalization, merger, consolidation, acquisition, joint venture or strategic relationship, or any other non-capital raising transaction; (vi) up to 40,000,000 shares of Common Stock or Convertible Securities or Options convertible into up to 40,000,000 shares of Common Stock to any single third party (or affiliated or related entity) within any given twelve (12) month period; or (vii) any Common Stock issued or issuable in other transactions so long as the aggregate consideration payable in all such transactions does not exceed $8,000,000 during any twelve (12) month period.

"Holder" means the holder of this Note. "Interest Rate" means a rate per annum of 8%.

"Options" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.

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"Person" shall mean an individual, a partnership, a corporation (including a business trust), a joint stock company, a limited liability company, an unincorporated association, a joint venture or other entity or a governmental authority.

"Repurchase Date" has the meaning given to such term in Section 2(a) hereof "Securities Act" means the Securities Act of 1933, as amended.

"Securities Purchase Agreement" means the Senior Secured Convertible Note and Warrant Purchase Agreement, dated as of the date hereof, between the Company and Holder, as amended, restated, modified or otherwise supplemented from time to time.

"Stock Price" means the average of the Closing Prices for the twenty Trading Day period ending on (and including) the Trading Day ending immediately prior to the Interest Payment Date.

"Subsidiary" shall mean (a) any corporation of which more than 50% of the issued and outstanding equity securities having ordinary voting power to elect a majority of the board of directors of such corporation is at the time directly or indirectly owned or controlled by the Company, (b) any partnership, joint venture, limited liability company or other association of which more than 50% of the equity interests having the power to vote, direct or control the management of such partnership, joint venture, limited liability company or other association is at the time directly or indirectly owned and controlled by the Company, and (c) any other entity included in the financial statements of the Company on a consolidated basis.

"Trading Day" means (i) if the Common Stock is admitted to trading on the Nasdaq Stock Market or any other system of automated dissemination of quotations of securities prices, a day on which trades may be effected through such system; (ii) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or any other national securities exchange, a day on which such exchange is open for business; or (iii) if the Common Stock is not admitted to trading on the Nasdaq Stock Market or listed or admitted for trading on any national securities exchange or any other system of automated dissemination of quotation of securities prices, a day on which the Common Stock is traded regular way in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available.

7.       Other.

(a)No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest, if any, on this Note at the times, places and rate, and in the coin or currency, herein prescribed or to convert this Note as herein provided.

(b)The Company will give prompt written notice to the Holder of any change in the location of the Designated Office. Any notice to the Company or to the Holder shall be given in the manner set forth in the Securities Purchase Agreement, provided that the Holder, if not a party to the Agreement, may specify alternative notice instructions to the Company.

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(e) The transfer of this Note is registrable on the register maintained by the Company upon surrender of this Note for registration of transfer at the Designated Office, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by, the Holder hereof or such Holder's attorney duly authorized in writing, and thereupon one or more new notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. Such notes are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. No service charge shall be made for any such registration of transfer, but the Company may require payment of a sum sufficient to recover any tax or other governmental charge payable in connection therewith. Prior to due presentation of this Note for registration of transfer, the Company and any agent of the Company may treat the Person in whose name this Note is registered as the owner thereof for all purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

(d)This Note and the Common Stock issuable upon conversion of this Note have not been registered under the Securities Act, or the securities laws of any state or other jurisdiction. Neither this Note nor the Common Stock issuable upon conversion of this Note nor any interest or participation herein may be reoffered, sold, assigned, transferred, pledged, encumbered or otherwise disposed of (a "Transfer") in the absence of such registration or unless such transaction is exempt from, or not subject to, registration. The Holder by its acceptance of this Note or the Common Stock issuable upon conversion of this Note agrees that it shall not offer, sell, assign, transfer, pledge, encumber or otherwise dispose of this Note or any portion thereof or interest therein (other than with respect to a Transfer pursuant to a registration statement that is effective at the time of such Transfer) only (a) to the Company, or (b) pursuant to an available exemption from registration, and in the case of (b) above in which the transferor furnishes the Company with such certifications, legal opinions or other information as the Company may reasonably request to confirm that such transfer is being made pursuant to an exemption from, in a transaction not subject to, the registration requirements of the Securities Act. Notwithstanding the foregoing, Holder shall have the right, in its sole discretion, to assign or transfer this Note to an affiliated company of Holder within sixty (60) days of the date hereof.

(e)Upon presentation of this Note for registration of transfer at the office of the Company specified herein accompanied by (i) certification by the transferor that such transfer is in compliance with the terms hereof and (ii) by a written instrument of transfer in a form approved by the Company executed by the registered holder, in person or by such holder's attorney thereunto duly authorized in writing, and including the name, address and telephone and fax numbers of the transferee and name of the contact person of the transferee, such Note shall be transferred on the Note register, and a new Note of like tenor and bearing the same legends shall be issued in the name of the transferee and sent to the transferee at the address and c/o the contact person so indicated.

(f) Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and in the case of loss, theft or destruction, receipt of indemnity or security reasonably satisfactory to the Company, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender

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and cancellation of such Note, if mutilated, the Company will deliver a new Note of like tenor and dated as of such cancellation, in lieu of such Note.

(g)Such Holder makes the representations and warranties set forth in Section III of the Securities Purchase Agreement.

(h)Neither this Note nor any term hereof may be amended or waived except by a writing signed by the Holder and the Company.

(i)Notwithstanding anything herein to the contrary, if at any time the Interest Rate applicable to the Note, together with all fees, charges and other amounts that are treated as interest the Note under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") that may be contracted for, charged, taken, received or reserved by the Holder in accordance with applicable law, the rate of interest payable in respect of the Note hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of the Note, but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to the Holder in respect of other Notes shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon [at the rate of 6.25% per annum to the date of repayment], shall have been received by the Holder.

(j)All payments made by the Company under this Note shall be made by the Company free and clear of and without deduction for any and all present and future taxes, levies, charges, deductions and withholdings. In addition, the Holder shall pay upon demand any stamp or other taxes, levies or charges of any jurisdiction with respect to the execution, delivery, registration, performance and enforcement of this Note. Upon request by the Holder, the Company shall furnish evidence satisfactory to the Holder that all requisite authorizations and approvals by, and notices to and filings with, governmental authorities and regulatory bodies have been obtained and made and that all requisite taxes, levies and charges have been paid.

(k)The provisions of this Note shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of Holder.

(1) This Note shall be governed by and construed in accordance with the internal laws of the State of California.

(signature page follows)

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed.

Dated: March 22, 2012

ZAP,		ZAP
a California corporation
By:	/s/ Steven Schneider	By:	/s/ Alex Wang
	Name:  Steven Schneider		Name: Alex Wang
	Title: Chief Executive Officer		Title: Chief Executive Officer

ACCEPTED AND AGREED:

CHINA ELECTRIC VEHICLE CORPORATION,

a British Virgin Island Company

By: Cathaya Capital G.P., Its General Partner

By: Cathaya Capital Co. Ltd., Its General Partner

By:  /s/ Priscilla Lu                        

Name:  Priscilla Lu

Title:  Director

Page 19 of 21

ELECTION OF HOLDER TO REQUIRE REPURCHASE

1.Pursuant to Section 3(a) of this Note, the undersigned hereby elects to have all or a portion of this Note repurchased by the Company.

2.The undersigned hereby directs the Company to pay [choose one] (a) it or (b) Name:_____________;   address: ____________; Social Security or Other Taxpayer Identification Number, if any: , an amount in cash equal to the Repurchase Price, as provided herein.

Dated: ____________________

China Electric Vehicle Corporation

         A British Virgin Island Company

By:  _____________________                                                     

Name:

Title:

[Number of shares of Common Stock

owned by the holder and its affiliates:  _______________________   

Principal amount to be repurchased

(an integral multiple of $1,000):         _________________________ 

Remaining principal amount following

such repurchase (not less than $1,000):     ____________________ 

NOTICE: The signature to the foregoing Election must correspond to the name as written upon the face of this Note in every particular, without alteration or any change whatsoever.

Page 20 of 21

CONVERSION NOTICE

The undersigned holder of this Note hereby irrevocably exercises the option to convert this Note, or any portion of the principal amount hereof (which is an integral multiple of $1,000) below designated, into Common Stock in accordance with the terms of this Note, and directs that such shares, together with a check in payment for any fractional share and any Note representing any unconverted principal amount hereof, be delivered to and be registered in the name of the undersigned unless a different name has been indicated below. If Common Stock or Notes are to be registered in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto.

Dated: _______________________

China Electric Vehicle Corporation

   A British Virgin Island Company

By:   __________________________ 

Name:

Title:

If shares or Notes are to be registered in the name of a Person other than the holder, please print such Person's name and address:

______________________________

Name

______________________________

Address

______________________________

Social Security or other Taxpayer Identification Number, if any

If only a portion of the Notes is to be converted, please indicate:

1.Principal amount to be converted: $                                                               

2.Principal amount and denomination of Note representing unconverted principal amount to be issued:

Amount: $ _________                       

Denominations: $(any integral multiple of $1,000)

Page 21 of 21

EX-10.2

EXHIBIT 10.2

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE_ THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MUST BE SURRENDERED TO THE COMPANY OR AS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.

AMENDED AND RESTATED

WARRANT TO PURCHASE SHARES OF COMMON STOCK

of

ZAP

Dated as of March 21, 2012

Void after the date specified in Section 8

Warrant to Purchase

20,000,000 Shares of

Common Stock

THIS CERTIFIES THAT, for value received, China Electric Vehicle Corporation, a British Virgin Island company, or its registered assigns (the "Holder"), is entitled, subject to the provisions and upon the terms and conditions set forth herein, to purchase from ZAP, a California corporation (the "Company"), shares of the Company's Common Stock (the "Shares"), in the amounts, at such times and at the price per share set forth in Section I.

This Amended and Restated Warrant to Purchase Shares of Common Stock of ZAP ("Warrant") amends, restates and supersedes in its entirety that certain Warrant to Purchase Shares of Common Stock of Zap Dated January 12, 2011, as amended pursuant to Amendment No. 1 to Warrant, effective March 31, 2011. The term "Warrant" as used herein shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein. This Warrant is issued in connection with the transactions described in the Securities Purchase Agreement, dated as of the date hereof, by and among the Company and the Holder (the "Purchase Agreement"). This is the wan-ant defined in the Purchase Agreement as the "Warrant."

The following is a statement of the rights of the Holder and the conditions to which this Warrant is subject, and to which Holder, by acceptance of this Warrant, agrees:

Page 1

1.            Number and Price of Shares; Exercise Period.

(a)Number of Shares. Subject to any previous exercise of the Warrant, the Holder shall have the right to purchase the number of Shares that equals the quotient obtained by dividing (x) the Warrant Coverage Amount (as defined below) by (y) the Exercise Price (as defined below), prior to (or in connection with) the expiration of this Warrant as provided in Section 8.

(b)Warrant Coverage Amount. The "Warrant Coverage Amount" shall be equal to ten million dollars ($10,000,000.00).

(c)Exercise Price. The exercise price per Share shall initially be equal to $0.50, subject to adjustment pursuant hereto (the "Exercise Price").

(d)Exercise Period. This Warrant shall be exercisable, in whole or in part, at any time prior to (or in connection with) the expiration of this Warrant as set forth in Section 8.

2.              Exercise of the Warrant.

(a) Exercise. The purchase rights represented by this Warrant may be exercised at the election of the Holder, in whole or in part, in accordance with Section 1, by:

(i)the tender to the Company at its principal office (or such other office or agency as the Company may designate) of a notice of exercise in the form of Exhibit A (the "Notice of Exercise"), duly completed and executed by or on behalf of the Holder, together with the surrender of this Warrant; and

(ii)the payment to the Company of an amount equal to (x) the Exercise Price multiplied by (y) the number of Shares being purchased, by (a) wire transfer or certified, cashier's or other check acceptable to the Company and payable to the order of the Company; (b) surrender and cancellation of promissory notes or other instruments representing indebtedness of the Company to the Holder; or (c) a combination of (a) and (b).

(b) Stock Certificates. The rights under this Warrant shall be deemed to have been exercised and the Shares issuable upon such exercise shall be deemed to have been issued immediately prior to the close of business on the date this Warrant is exercised in accordance with its terms, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the holder of record of such Shares as of the close of business on such date. As promptly as reasonably practicable on or after such date, and in any event within thirty (30) days thereafter, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for that number of shares issuable upon such exercise. In the event that the rights under this Warrant are exercised in part and have not expired, the Company shall execute and deliver a new Warrant reflecting the number of Shares that remain subject to this Warrant.

Page 2

(c) No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the rights under this Warrant. In lieu of such fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction.

(d)Conditional Exercise. The Holder may exercise this Warrant conditioned upon (and effective immediately prior to) consummation of any transaction that would cause the expiration of this Warrant pursuant to Section 8 by so indicating in the notice of exercise.

(e)Forced Exercise. If (i) a registration is demanded by Holder pursuant to that certain Registration Rights Agreement dated as of the date hereof by and among the Holder and the Company, (ii) the volume weighted average sales price per share of the Common Stock (as reported, absent manifest error, on the OTCBB or any other internationally recognized exchange or market upon which the Common Stock is then listed) for the thirty (30) Trading Days prior to the effective date of such registration statement is equal to or greater than $1.00 per share and (iii) the Company delivers a written notice to Holder stating its intent to force the Holder to exercise this Warrant under this Section 2(e) within ten (10) business days of Holder demanding a registration, then, contingent upon such registration statement being declared effective, Holder shall exercise this Warrant for at least that number of shares of Common Stock equal to twenty-five percent (25%) of the Warrant Coverage Amount divided by the Exercise Price; provided, however, that the Company shall be able to force the Holder to exercise this Warrant under this Section 2(e) one (1) time only.

(f) Reservation of Stock. The Company agrees during the term the rights under this Warrant are exercisable to reserve and keep available from its authorized and unissued shares of common stock solely for the purpose of effecting the exercise of this Wan-ant such number of shares as shall from time to time be sufficient to effect the exercise of the rights under this Warrant; and if at any time the number of authorized but unissued shares of common stock shall not be sufficient for purposes of the exercise of this Warrant in accordance with its terms, without limitation of such other remedies as may be available to the Holder, the Company will use its best efforts to take such corporate action as may be necessary to increase its authorized and unissued shares of its common stock to a number of shares as shall be sufficient for such purposes. The Company represents and warrants that all shares that may be issued upon the exercise of this Warrant will, when issued in accordance with the terms hereof, be validly issued, fully paid and nonassessable.

3.              Replacement of the Warrant. Subject to the receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at the expense of the Holder shall execute and deliver, in lieu of this Warrant, a new wan-ant of like tenor and amount.

Page 3

4.              Transfer of the Warrant.

(a)Warrant Register. The Company shall maintain a register (the "Warrant Register") containing the name and address of the Holder or Holders. Until this Warrant is transferred on the Warrant Register in accordance herewith, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. Any Holder of this Warrant (or of any portion of this Warrant) may change its address as shown on the Wan-ant Register by written notice to the Company requesting a change.

(b)Warrant Agent. The Company may appoint an agent for the purpose of maintaining the Warrant Register referred to in Section 4(a), issuing the Shares or other securities then issuable upon the exercise of the rights under this Warrant, exchanging this Warrant, replacing this Warrant or conducting related activities.

(c)Transferability of the Warrant. Subject to the provisions of this Warrant with respect to compliance with the Securities Act of 1933, as amended (the "Securities Act") and limitations on assignments and transfers, including without limitation compliance with the restrictions on transfer set forth in Section 5, title to this Warrant may be transferred by endorsement (by the transferor and the transferee executing the assignment form attached as Exhibit B (the "Assignment Form")) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.

(d)Exchange of the Warrant upon a Transfer. On surrender of this Warrant (and a properly endorsed Assignment Form) for exchange, subject to the provisions of this Wan-ant with respect to compliance with the Securities Act and limitations on assignments and transfers, the Company shall issue to or on the order of the Holder a new warrant or wan-ants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof, and the Company shall register any such transfer upon the Warrant Register. This Warrant (and the securities issuable upon exercise of the rights under this Warrant) must be surrendered to the Company or its warrant or transfer agent, as applicable, as a condition precedent to the sale, pledge, hypothecation or other transfer of any interest in any of the securities represented hereby.

(e)Taxes. In no event shall the Company be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder, and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid or is not payable.

5.              Restrictions on Transfer of the Warrant and Shares; Compliance with Securities Laws. By acceptance of this Warrant, the Holder agrees to comply with the following:

Page 4

(a) Restrictions on Transfers. Subject to Section 5(b), this Warrant may not be transferred or assigned in whole or in part without the Company's prior written consent (which shall not be unreasonably withheld), and any attempt by Holder to transfer or assign any rights, duties or obligations that arise under this Warrant without such permission shall be void. Any transfer of this Warrant or the Shares (the "Securities") must be in compliance with all applicable federal and state securities laws. The Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Securities, or any beneficial interest therein, unless and until the transferee thereof has agreed in writing for the benefit of the Company to take and hold such Securities subject to, and to be bound by, the terms and conditions set forth in this Warrant to the same extent as if the transferee were the original Holder hereunder, and

(i)there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, or

(ii)(A) the Holder shall have given prior written notice to the Company of the Holder's intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition and, with respect to any transfer of this Warrant, except for those dispositions set forth in Section 5(b) below, the Company shall have provided the Holder with prior written approval of such disposition (which approval shall not be unreasonably withheld, conditioned or delayed) and (B) if requested by the Company, other than as set forth in Section 5(b) below, the Holder shall have furnished the Company, at the Holder's expense, with evidence reasonably satisfactory to the Company (including, if requested by the Company, an opinion of counsel to the Holder) that such disposition will not require registration of such Securities under the Securities Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 under the Securities Act, except in unusual circumstances.

(b) Permitted Transfers. Permitted transfers include (i) a transfer not involving a change in beneficial ownership, or (ii) transactions involving the distribution without consideration of Securities by any Holder to (x) a parent, subsidiary or other affiliate of a Holder that is a corporation, (y) any of the Holder's partners, members or other equity owners, or retired partners or members, or to the estate of any of its partners, members or other equity owners or retired partners or members, or (z) a venture capital fund that is controlled by or under common control with one or more general partners or managing members of or shares the same management company with, the Holder; provided, in each case, that the Holder shall give written notice to the Company of the Holder's intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition.

(c) Securities Law Legend. The Securities shall (unless otherwise permitted by the provisions of this Warrant) be stamped or imprinted with a legend substantially similar to the following (in addition to any legend required by state securities laws):

Page 5

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS LN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS CERTIFICATE MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.

(d)Instructions Regarding Transfer Restrictions. The Holder consents to the Company making a notation on its records and giving instructions to any transfer agent in order to implement the restrictions on transfer established in this Section 5.

(e)Removal of Legend. The legend referring to federal and state securities laws identified in Section 5(c) stamped on a certificate evidencing the Shares and the stock transfer instructions and record notations with respect to such securities shall be removed and the Company shall issue a certificate without such legend to the holder of such securities if (i) such securities are registered under the Securities Act, or (ii) such holder provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a sale or transfer of such securities may be made without registration or qualification.

6.              Adjustments. Subject to the expiration of this Warrant pursuant to Section 8, the number and kind of shares purchasable hereunder and the Exercise Price therefor are subject to adjustment from time to time, as follows:

(a) Merger or Reorganization. If at any time there shall be any reorganization, recapitalization, merger or consolidation (a "Reorganization") involving the Company (other than as otherwise provided for herein or as would cause the expiration of this Warrant under Section 8) in which shares of the Company's stock are converted into or exchanged for securities, cash or other property, then, as a part of, such Reorganization, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, the kind and amount of securities, cash or other property of the successor corporation resulting from such Reorganization, equivalent in value to that which a holder of the Shares deliverable upon exercise of this Warrant would have been entitled in such Reorganization if the right to purchase the Shares hereunder had been exercised immediately prior to such Reorganization. In any snob case, appropriate adjustment (as determined in good faith by the Board of Directors of the successor corporation) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after such Reorganization to the end that the provisions of this Warrant shall be applicable after the event,

Page 6

as near as reasonably may be, in relation to any shares or other securities deliverable after that event upon the exercise of this Warrant.

(b) Reclassification of Shares. If the securities issuable upon exercise of this Warrant are changed into the same or a different number of securities of any other class or classes by reclassification, capital reorganization or otherwise (other than as otherwise provided for herein) (a "Reclassification"), then, in any such event, in lieu of the number of Shares which the Holder would otherwise have been entitled to receive, the Holder shall have the right thereafter to exercise this Warrant for a number of shares of such other class or classes of stock that a holder of the number of securities deliverable upon exercise of this Warrant immediately before that change would have been entitled to receive in such Reclassification, all subject to further adjustment as provided herein with respect to such other shares.

(c) Subdivisions and Combinations. In the event that the outstanding shares of common stock are subdivided (by stock split, by payment of a stock dividend or otherwise) into a greater number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the outstanding shares of common stock are combined (by reclassification or otherwise) into a lesser number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately decreased, and the Exercise Price shall be proportionately increased.

(d) Dilutive Issuances. If and whenever on or after the date of issuance of this Warrant, the Company issues or sells, or in accordance with this Section 6(d) is deemed to have issued or sold, any shares of Common Stock, Options or Convertible Securities, except for an Excluded Security, for a per share consideration less than a price (the "Applicable Price") equal to either (i) in the case of the issuance or sale of shares of Common Stock, the lesser of $0.25 per share or the Exercise Price in effect immediately prior to such issue or sale or (ii) in the case of the issuance or sale of Options or other Convertible Securities, the Exercise Price in effect immediately prior to such issue or sale (the foregoing a "Dilutive Issuance"), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the Applicable Price.

(e) Notice of Adjustments. Upon any adjustment in accordance with this Section 6, the Company shall give notice thereof to the Holder, which notice shall state the event giving rise to the adjustment, the Exercise Price as adjusted and the number of securities or other property purchasable upon the exercise of the rights under this Warrant, setting forth in reasonable detail the method of calculation of each. The Company shall, upon the written request of any Holder, furnish or cause to be furnished to such Holder a certificate setting forth (i) such adjustments, (ii) the Exercise Price at the time in effect and (iii) the number of securities and the amount, if any, of other property that at the time would be received upon exercise of this Warrant

7.               Notification of Certain Events. Prior to the expiration of this Warrant pursuant to Section 8, in the event that the Company shall authorize:

Page 7

(a) the issuance of any dividend or other distribution on the capital stock of the Company (other than (i) dividends or distributions otherwise provided for in Section. 6, (ii) repurchases of common stock issued to or held by employees, officers, directors or consultants of the Company or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase; (iii) repurchases of common stock issued to or held by employees, officers, directors or consultants of the Company or its subsidiaries pursuant to rights of first refusal or first offer contained in agreements providing for such rights; or (iv) repurchases of capital stock of the Company in connection with the settlement of disputes with any stockholder), whether in cash, property, stock or other securities; or

(b) the voluntary liquidation, dissolution or winding up of the Company.

The Company shall send to the Holder of this Warrant at least ten (10) days prior written notice of the date on which a record shall be taken for any such dividend or distribution specified in clause (a) or the expected effective date of any such other event specified in clause (b). The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the consent of the Holder of this Warrant.

8.               Expiration of the Warrant. This Wan-ant shallexpire and shall no longer be exercisable as of 5:00 p.m., Pacific time, on February 12, 2014.

9.               No Rights as a Stockholder. Nothing contained herein shall entitle the Holder to any rights as a stockholder of the Company or to be deemed theholder of any securities that may at any time be issuable on the exercise of the rights hereunder for any purpose nor shall anything contained herein be construed to confer upon the Holder, as such, any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or any other rights of a stockholder of the Company until the rights under the Warrant shall have been exercised and the Shares purchasable upon exercise of the rights hereunder shall have become deliverable as provided herein.

10.            Definitions. Capitalized terms used in this Warrant and not otherwise defined have the meanings given to them in the Purchase Agreement. Unless otherwise defined in this Warrant, the following capitalized terms shall have the following respective meanings when used herein:

"Approved Stock Plan" means the Company's 2008 Equity Compensation Plan, 2007 Equity Compensation Plan, 2006 Incentive Stock Plan, 2002 Incentive Stock Plan, 1999 Incentive Stock Plan, each as may be amended from time to time, or any employee benefit plan, stock grant, stock option or purchase plan, or stock option exchange plan orother employee stock incentive or similar agreement approved by the Board of Directors of the Company and the Holder in writing pursuant to which the Company's securities may be issued to any officers, directors, or employees of, or consultants to, the Company for services provided thereto.

Page 8

"Common Stock" means the Common Stock, no par value per share, of the Company authorized at the date of this Warrant as originally executed.

"Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for Common Stock.

"Excluded Securities" means: (i) any Common Stock issued or issuable in connection with any Approved Stock Plan or to vendors or service providers that have a relationship with the Company as of the date hereof, provided that the aggregate number of shares issued or issuable in connection with any Approved Stock Plan and issued or issuable to such vendors and service providers shall not exceed 30 million shares; (ii) any Common Stock issued or issuable to Steven Schneider in accordance with Section 4.25 of the Securities Purchase Agreement; (iii) any Common Stock issued or issuable upon conversion of the Note or the exercise of the warrants issued to Holder pursuant to the Purchase Agreement; (iv) any Common Stock issued or issuable upon conversion of: any Options or Convertible Securities (other than any Options issued pursuant to an Approved Stock Plan) which are outstanding on the day immediately preceding the date hereof, provided that the terms of such Options or Convertible Securities are not amended, modified or changed on or after the date of issuance of this Warrant; (v) any Common Stock issued or issuable in connection with any reorganization, recapitalization, merger, consolidation, acquisition, joint venture or strategic relationship, or any other non-capital raising transaction; (vi) up to 40,000,000 shares of Common Stock or Convertible Securities or Options convertible into up to 40,000,000 shares of Common Stock to any single third party (or affiliated or related entity) within any given twelve (12) month period; or (vii) any Common Stock issued or issuable in other transactions so long as the aggregate consideration payable in all such transactions does not exceed $8,000,000 during any twelve (12) month period.

"Options" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.

"Trading Day" means (i) if the Common Stock is admitted to trading on the Nasdaq Stock Market or any other system of automated dissemination of quotations of securities prices, a day on which trades may be effected through such system; (ii) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or any other national securities exchange, a day on which such exchange is open for business; or (iii) if the Common Stock is not admitted to trading on the Nasdaq Stock Market or listed or admitted for trading on any national securities exchange or any other system of automated dissemination of quotation of securities prices, a day on which the Common Stock is traded regular way in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available.

11.            Miscellaneous.

(a)Amendments. Except as expressly provided herein, neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than bya written instrument referencing this Warrant and signed by the Company and the Holder.

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(b) Waivers. No waiver of any single breach or default shall be deemed a waiver of any other breach or default theretofore or thereafter occurring.

(c) Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail (if to the. Holder) or otherwise delivered by hand, messenger or courier service addressed:

(i) if to the Holder, to the Holder at the Holder's address, facsimile number or electronic mail address as shown in the Company's records, as may be updated in accordance with the provisions hereof, or until any such Holder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address, facsimile number or electronic mail address of the last holder of this Warrant for which the Company has contact information in its records; or

(ii) if to the Company, to the attention of the Chief Financial Officer of the Company at 501 4th Street, Santa Rosa, California 95401, or at such other address as the Company shall have furnished to the Holder.

Each such notice or other communication shall for all purposes of this Warrant be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered, or (ii) if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address. In the event of any conflict between the Company's books and records and this Warrant or any notice delivered hereunder, the Company's books and records will control absent fraud or error.

(d) Governing Law. This Warrant and all actions arising out of or in connection with this Warrant shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of law provisions of the State of California, or of any other state.

(e) Titles and Subtitles. The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. All references in this Warrant to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.

(f) Severability. If any provision of this Warrant becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Warrant, and such illegal, unenforceable or void provision shall be replaced with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, unenforceable or void provision, The balance of this Warrant shall be enforceable in accordance with its terms.

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(g) Saturdays, Sundays and Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or U.S. federal holiday, then such action may be taken or such right may be exercised on the next succeeding day that is not a Saturday, Sunday or U.S. federal holiday.

(h) Entire Agreement Except as expressly set forth herein, this Warrant (including the exhibits attached hereto) along with the other Transaction Documents (as defined in the Purchase Agreement) constitute the entire agreement and understanding of the Company and the Holder with respect to the subject matter hereof and supersede all prior agreements and understandings relating to the subject matter hereof.

The Company signs this Warrant as of the date stated on the first page.

ZAP		ZAP
		a California corporation
By:	/s/ Alex Wang	By:	/s/ Steven Schneider
	Name: Alex Wang		Name:  Steven Schneider
	Title: Chief Executive Officer		Title: Chief Executive Officer

ACCEPTED AND AGREED:

CHINA ELECTRIC VEHICLE CORPORATION,

a British Virgin Island Company

By: Cathaya Capital G.P., Its General Partner

By: Cathaya General Partner

By:  /s/ Priscilla Lu                        

Name:  Priscilla Lu

Title:  Director

Page 11

EXHIBIT A

NOTICE OF EXERCISE

To: ZAP (the "Company")

Attention: Chief Executive Officer

Holder: __________________

Date:  ___________________

(1) Exercise. The undersigned elects to purchase the following pursuant to the terms of the attached warrant:

Number of shares: _____________________________

Type of security: ______________________________

   (2)  Method of Exercise. The undersigned elects to exercise the attached warrant pursuant to:

A cash payment or cancellation of indebtedness, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any.

   (3)Conditional Exercise. Is this a conditional exercise pursuant to Section 2(d):

Yes                                     No

If "Yes," indicate the applicable condition:

   _______________________________________________________

   (4)  Stock Certificate.  Please issue a certificate or certificates representing the shares in the name of:

        The undersigned

    Other

Name: _________________________

Address:_______________________

Page 12

  (5)  Unexercised Portion of the Warrant. Please issue a new warrant for the unexercised portion of the attached warrant in the name of:

        The undersigned

    Other

Name: _________________________

Address:_______________________

                         Not applicable

HOLDER

(Print name of the warrant holder)

(Signature)

(Name and title of signatory, if applicable)

(Date)

(Fax number)

(Email address)

Page 13

EXHIBIT B

ASSIGNMENT FORM

ASSIGNOR:     ___________________________

COMPANY:     ZAP (THE "COMPANY')

WARRANT:   THE AMENDED AND RESTATED WARRANT TO PURCHASE SHARES OF COMMON STOCK ISSUED ON MARCH 21, 2012 (THE WARRANT')

DATE:  ________________________________

(1)   Assignment. The undersigned registered holder of the Warrant ("Assignor") assigns and transfers to the assignee named below ("Assignee") all of the rights of Assignor under the Warrant, with respect to the number of shares set forth below:

Name of Assignee:    __________________________________                                     

Address of Assignee:    _______________________________

Number of Shares Assigned: ___________________________

and does irrevocably constitute and appoint _____________ as attorney to make such transfer on the books of the Company, maintained for the purpose, with full power of substitution in the premises.

(2)   Obligations of Assignee. Assignee agrees to take and hold the Warrant and any shares of stock to be issued upon exercise of the rights thereunder (the "Securities") subject to, and to be bound by, the terms and conditions set forth in the Warrant to the same extent as if Assignee were the original holder thereof

(signature page follows)

Page 14

Assignor and Assignee are signing this Assignment Form on the date first set forth above.

ASSIGNOR                                           ASSIGNEE

(Print name of Assignor)                      (Print name of Assignee)

(Signature of Assignor)                        (Signature of Assignee)

(Print name of signatory, if applicable)                           (Print name of signatory, if applicable)

(Print title of signatory, if applicable)                        (Print title pfsignatory, if applicable)

Address:                                  Address:

Page 15

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Steven Schneider, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ZAP;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

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 registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’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

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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 registrant’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 registrant’s internal control over financial reporting.

Dated:  May 21, 2012	By:	/s/ Steven Schneider
		Steven Schneider
		Co-Chief Executive Officer (Co-Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Alex Wang, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ZAP;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

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 registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’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

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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 registrant’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 registrant’s internal control over financial reporting.

Dated:  May 21, 2012	By:	/s/ Alex Wang
		Alex Wang
		Co-Chief Executive Officer (Co-Principal Executive Officer)

EX-31.3

EXHIBIT 31.3

CERTIFICATION

I, Benjamin Zhu, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ZAP;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

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 registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’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

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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 registrant’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 registrant’s internal control over financial reporting.

Dated:  May 21, 2012	By:	/s/ Benjamin Zhu
		Benjamin Zhu
		Chief Financial Officer (Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of ZAP (the "Company") on Form 10-Q for the period ending March 31, 2012 as filed with the U.S. Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Dated:  May 21, 2012                                                           By: /s/ Steven Schneider                             

     Steven Schneider

     Co-Chief Executive Officer

     (Co-Principal Executive Officer)

Dated:  May 21, 2012                                                           By: /s/ Alex Wang                                        

     Alex Wang

     Co-Chief Executive Officer

     (Co-Principal Executive Officer)

Dated:  May 21, 2012                                                           By: /s/ Benjamin Zhu                                    

     Benjamin Zhu

     Chief Financial Officer

     (Principal Financial Officer)

XML

Significant Accounting Policies And Use Of Estimates

3 Months Ended

Mar. 31, 2012

Significant Accounting Policies And Use Of Estimates [Abstract]

Significant Accounting Policies And Use Of Estimates

NOTE 3- SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES

Use of Estimates

     The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The more significant estimates relate to revenue recognition, contractual allowances and uncollectible accounts, intangible assets, accrued liabilities, derivative liabilities, income taxes, litigation and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for judgments about results and the carrying values of assets and liabilities. Actual results and values may differ significantly from these estimates.

Concentration of Credit Risk

     The Company's operations are all carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

     Financial instruments which subject the Company to potential credit risk consist of its cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with several high credit quality financial institutions. Deposits may exceed the amount of insurance provided; however, these deposits typically are redeemable upon demand and, therefore, the Company believes the financial risks associated with these financial instruments are minimal. The Company has not experienced any losses to date on its deposits.

     The Company performs ongoing credit evaluations of its customers, and generally does not require collateral on its accounts receivable. The Company estimates the need for allowances for potential credit losses based on historical collection activity and the facts and circumstances relevant to specific customers and records a provision for uncollectible accounts when collection is uncertain. The Company has not experienced significant credit related losses to date.

     The Company currently relies on various outside contract manufacturers in China to supply electric vehicles and products for its customers. Although management believes that other contract manufactures could provide similar services and intends to transition its manufacturing to Jonway's facilities in Sanmen, China, but, if these Chinese companies are unable to supply electric vehicles and the Company is unable to transition manufacturing to Jonway's facilities or find alternative sources for these product and services, the Company might not be able to fill existing backorders and/or sell more electric vehicles. Any significant manufacturing interruption could have a material adverse effect on the Company's business, financial condition and results of operations.

Revenue Recognition

The Company records revenues for non-Jonway sales when all of the following criteria have been met:

• Persuasive evidence of an arrangement exists. The Company generally relies upon sales contracts or agreements, and customer purchase orders to determine the existence of an arrangement.
• Sales price is fixed or determinable. The Company assesses whether the sales price is fixed or determinable based on the payment terms and whether the sales price is subject to refund or adjustment.
• Delivery has occurred. The Company uses shipping terms and related documents, or written evidence of customer acceptance, when applicable, to verify delivery or performance. The Company's customary shipping terms are FOB shipping point.
• Collectability is reasonably assured. The Company assesses collectability based on creditworthiness of customers as determined by our credit checks and their payment histories. The Company records accounts receivable net of allowance for doubtful accounts and estimated customer returns.

The Company provides no price protection. Sales are recognized net of sale discounts, rebates and return allowances.

Stock-based Compensation

     The Company accounts for stock-based compensation which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes-Merton option pricing model (the "Black-Scholes model"). The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. We estimate forfeitures at the time of grant and revise our estimate in subsequent periods if actual forfeitures differ from those estimates.

     The Company accounts for stock-based compensation awards and warrants granted to non-employees by determining the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete.

Income Taxes

     The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. To the extent a deferred tax asset cannot be recognized under the preceding criteria, allowances are established.

Foreign Currency Translation

     The Company and its wholly owned subsidiary/investments maintain their accounting records in United States Dollars ("US$") whereas Jonway Auto maintains its accounting records in the currency of Chinese Renminbi ("RMB"), being the primary currency of the economic environment in which their operations are conducted.

     Jonway Auto's principal country of operations is the PRC. The financial position and results of these operations are determined using RMB, the local currency, as the functional currency. The results of operations and the statement of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. Due to the fact that cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholder's equity as "Accumulated Other Comprehensive Income." The value of RMB against US$ and other currencies may fluctuate and is affected by, among other things, changes in China's political and economic conditions, any significant revaluation of RMB may materially affect our financial condition in terms of US$ reporting.

Loss per Share

     Basic and diluted net loss per share is computed by dividing consolidated net loss by the weighted-average number of common shares outstanding during the period. The Company's potentially dilutive shares, which include outstanding stock options, convertible debt and warrants, have not been included in the computation of diluted net loss per share for all periods presented as the result would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share. Outstanding common stock options, warrants and debentures totaled 97.9 million shares and 103.4 million shares at March 31, 2012 and 2011, respectively. ZAP also had outstanding convertible debt, which is convertible into 91.1million shares of ZAP common stock at March 31, 2012.

Cash and Cash Equivalents

     The Company invests its excess cash in short-term investments with various banks and financial institutions. Short-term investments are cash equivalents, as they are part of the cash management activities of the Company and are comprised of investments having maturities of three months or less when purchased. The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents

Restricted Cash

     The Company has cash restricted in connection with the issuance of bank acceptance notes to various suppliers of spare parts which were issued through Jonway's banks. To issue these bank acceptance notes to Jonway's suppliers, the banks require a deposit of approximately 40-60% of the full amount of such notes which are payable within 6 months from issuance. Upon the maturity date, restricted funds will be used to settle the bank acceptance notes.

Marketable Securities

     The Company has an investment that is comprised of marketable equity securities, which are classified as available-for-sale and recorded at fair value, the value of which fluctuates with the stock market value. The securities are shares of Samyang Optics Co., Ltd., which shares are traded on the Korean stock exchange. ZAP's ownership is not material to Samyang Optics Co., Ltd. Net unrealized holding gains and losses, net of tax, are reported as a separate component of shareholders' deficit, except where holding losses are determined to be "other-than-temporary", whereby the losses are reported in gains and losses on investments in the consolidated statement of operations. Gains and losses on disposals of marketable equity securities are determined using the specific identification method.

Accounts and Notes Receivable

     Accounts receivable consist mainly of receivables from our established dealer network. Notes receivable balances consist of bank acceptance notes received from various Jonway dealers to finance such dealer's purchase of our vehicles products. These bank acceptance notes can be endorsed to settle the payables to Jonway suppliers or discounted to fund cash flows. These notes are a means of financing working capital for orders that were placed by these dealers. A credit review is performed by the Company before the dealer is approved to purchase vehicles form the Company. The Company performs ongoing credit evaluations of its dealers, and generally does not require collateral on its accounts receivable. The Company estimates the need for allowances for potential credit losses based on historical collection activity and the facts and circumstances relevant to specific customers and records a provision for uncollectible accounts when collection is uncertain. The Company has not experienced significant credit related losses to date. The allowance for doubtful accounts was $20,000 and $9,000 at March 31, 2012 and December 31, 2011, respectively.

     The Company provides an allowance for doubtful accounts when management estimates collectability to be uncertain. Accounts receivable are continually reviewed to determine which, if any, accounts are doubtful of collection. In making the determination of the appropriate allowance amount, the Company considers current economic and industry conditions, relationships with each significant customer, overall customer credit-worthiness and historical experience. The allowance for doubtful accounts was approximately $20,123 and $9,390 at March 31, 2012 and December 31, 2011, respectively.

Fair Value of Financial Instruments

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

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs other than quoted prices in active markets that are directly or indirectly observable;

Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions and methodologies that result in management's best estimate of fair value.

     The change in fair value of derivative liabilities is classified in other income (expense) in the Company's statement of operations. The fair value of the Company's derivative liabilities related to stock purchase warrants was determined using the Black-Scholes option pricing model – a Level 3 input.

     The following table set forth a summary of changes in the fair value of Level 3 liabilities for the 3 months ended March 31, 2011 (in thousands):

		Balance		Exercise			Change in		Balance
		12/31/2010		of warrants			fair value		3/31/2011
Derivative Liabilities	$	5,539	$	(5,696	)	$		358	$	201

     The following table summarizes those assets and liabilities measured at fair value on a recurring basis (in thousands)

			March 31, 2012
						Fair Value
Assets		Level 1	Level 2	Level 3		Measurements
Marketable Securities (1)	$	1,356	-	-	$	1,356

		December 31, 2011
						Fair Value
Assets		Level 1	Level 2	Level 3		Measurements
Marketable Securities (1)	$	1,830	-	-	$	1,830

(1) Marketable securities consist of common stock of a related party. The fair value of marketable securities is based upon market value quoted by Korean stock exchange

     The Company's other financial instruments at March 31, 2012 consist of cash and cash equivalents, accounts and notes receivable, accounts payable and debt. For the period ended March 31, 2012 the Company did not have any derivative financial instruments. The Company believes the reported carrying amounts of its accounts receivable and accounts payable approximate fair value, based upon the short-term nature of these accounts. The carrying value of the Company's loan agreements approximate fair value as each of the loans bears interest at a floating rate.

Derivative Financial Instruments

     The Company generally does not use derivative financial instruments to hedge exposures to cash flow or market risks. However, certain other financial instruments, such as warrants, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.

     The Company accounts for derivative instruments and debt instruments in accordance with the interpretative guidance of ASC 815 ("Derivatives and Hedging"). It is necessary for the Company to make certain assumptions and estimates to value derivatives and debt instruments.

     During the three months ended March 31, 2011 certain derivative liabilities were converted into 4.1 million shares of ZAP stock. At March 31, 2011 the remaining unexercised financial instruments were fair valued at $201,000 and included on our balance sheet. At March 31, 2012, the Company did not have any derivative liabilities.

Inventories

     Inventories consist primarily of vehicles, both gas and electric, parts and supplies, and work in progress and are carried at the lower of cost (first-in, first-out basis for ZAP and moving average basis for Jonway) or market (net realizable value or replacement cost). 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. Any changes to the Company's estimates of its reserves are reflected in cost of goods sold within the statement of operations during the period in which such changes are determined by management.

Property and Equipment

     Property and equipment consists of land, building and improvements, machinery and equipment, office furniture and equipment, vehicles, and leasehold improvements. Property and equipment is stated at cost, net of accumulated depreciation and amortization, and is depreciated or amortized using straight-line method over the asset's estimated useful life. Costs of maintenance and repairs are charged to expense as incurred; significant renewals and betterments are capitalized. Leasehold improvements are amortized over 10 years using the straight-line method.

Land use Rights

     Under PRC law, all land in the PRC is permanently owned by the government and cannot be sold to an individual or company but companies can purchase the land use rights for the specified period of time, as in our industry the industrial purpose has a useful life of 50 years. The government grants individuals and companies the right to use parcels of land for specified periods of time. These land use rights are sometimes referred to informally as "ownership". Land use rights are stated at cost less accumulated amortization. Amortization is provided over the respective useful lives, using the straight –line method. Estimated useful life of land use rights is 50 years.

Long-lived Assets

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

Intangible Assets-Finite

     Intangible assets consist of patents, trademarks, land use rights, government approvals and customer relationships (including client contracts). For financial statement purposes, identifiable intangible assets with a finite life are being amortized using the straight-line method over the estimated useful lives of seven years for the EPA license and 2 years for the customer relationships. Costs incurred by the Company in connection with patent, trademark applications and approvals from governmental agencies such as the Environmental Protection Agency, including legal fees, patent and trademark fees and specific testing costs, are expensed as incurred. Purchased intangible costs of completed developments are capitalized and amortized over an estimated economic life of the asset, generally seven years, commencing on the acquisition date. Costs subsequent to the acquisition date are expensed as incurred.

Goodwill and Intangible Assets – Indefinite

     Goodwill and intangible assets determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually. The Company assesses annually whether there is an indication that goodwill is impaired, or more frequently if events and circumstances indicate that the asset might be impaired during the year. The Company performs its annual impairment test in the fourth quarter of each year. Calculating the fair value of the reporting units requires significant estimates and assumptions by management. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, there is an indication that the reporting unit goodwill may be impaired and a second step of the impairment test is performed to determine the amount of the impairment to be recognized, if any.

Non-Controlling Interests

     Non-controlling interests (previously referred to as minority interest) are reported as a component of equity, with changes in a parent's ownership interest while the parent retains its controlling interest accounted for as equity transactions, and upon a loss of control, retained ownership interest will be re-measured at fair value, with any gain or loss recognized in earnings.

     On January 21, the Company acquired 51% of Zhejiang Jonway Automobile Co. Ltd from Jonway Group, a related party, who holds a 49% of the remaining interest in Jonway Auto. (See Note 4) Pursuant to the Jonway Acquisition Agreement, ZAP had the right to acquire the remaining 49% of Jonway at the same valuation, which expired on March 31, 2011. To account for the expired option, the Company recorded a reduction of common stock.

Product warranty Costs

     The Company provides 30 to 90 day warranties on its personal electric products, including the ZAPPY3 and the Zapino scooters, six month warranties for the Xebra®, the ZAPTRUCK XL, the ZAPVAN Shuttle vehicles, and a six month warranty for Xebra® vehicles repaired by ZAP pursuant to its product recall. The Company records the estimated cost of the product warranties at the time of sale using the estimated costs of products warranties based on historical results. The estimated cost of warranties has not been significant to date. Should actual failure rates and material usage differ from our estimates, revisions to the warranty obligation may be required.

     The Company provides a 2-year or 60,000 kilometer mileage warranty for its Jonway SUV products. The Company records the estimated cost of the product warranties at the time of sale using the estimated cost of product warranties based on historical results. The estimated cost of warranties has not been significant to date. Should actual failure rates and material usage differ from our estimates, revisions to the warranty obligation may be required

Comprehensive loss

     Comprehensive loss represents the net loss for the period plus the results of certain changes to shareholders' equity that are not reflected in the consolidated statements of operations. The Company's comprehensive loss consists of net losses, foreign currency translation adjustments and unrealized net losses on marketable securities.

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Restatement Of March 2011 Unaudited Quarterly Financial Information

3 Months Ended

Mar. 31, 2012

Restatement Of March 2011 Unaudited Quarterly Financial Information [Abstract]

Restatement Of March 2011 Unaudited Quarterly Financial Information

NOTE 2-RESTATEMENT OF MARCH 2011 UNAUDITED QUARTERLY FINANCIAL INFORMATION

     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 the unaudited financial statements for the Quarter ended March 31, 2011 represented 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 for the year ended December 31, 2011 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 revaluation of the fair value at December 31, 2011, of the various assets acquired and liabilities assumed, resulted in restated financial information in this quarterly report. The table below illustrates the calculation of the adjustments.

		Provisional			Adjustment based			Revised amount
Account		amount as of			on final valuation			recorded as of
		January 21, 2011			report			January 21, 2011
Inventory	$	12,715		$	25		$	12,740
Property and Equipment		46,322			10,749			57,071
Other liabilities assumed		(14,524	)		166			(14,358	)
Goodwill and Intangible Assets		23,794			(18,412	)		5,382
Purchase option		2,695			(310	)		2,385
Non controlling interest		(31,875	)		3,662			(28,213	)
	$	39,127		$	(4,120	)	$	35,007

				Adjustments to the
		As reported at		three months			As restated at
		March 31, 2011		ended March 31,			March 31, 2011
				2011
Cost of goods sold	$	404	$	25		$	429
Amortization and Depreciation		2,914		(2,739	)		175
	$	3,318	$	(2,714	)	$	604

As a result, the Company restated its 2011 first quarter financial information to reflect the final measurement of the fair value of the assets acquired. The financial information in this quarterly report reflects the restated financial information.

		(unaudited)
Amounts in ('000s)		March 31, 2011
Net assets as reported	$	65,273
Adjustments		(4,342	)
Restated net assets	$	60,931

		Three Months Ended
		March 31, 2011
Net loss as reported	$	(9,899	)
Adjustments		2,714
Restated loss	$	(7,185	)

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 1,922	$ 5,859
Restricted Cash	5,838	6,128
Marketable Securities	1,356	1,830
Notes receivable from Jonway Auto dealers	723	1,457
Accounts receivable, net of allowance of $20 in 2012 and $9 in 2011	2,907	2,963
Inventories, net	11,340	11,118
Prepaid expenses and other current assets	2,754	1,984
Total current assets	26,840	31,339
Property, plant and equipment, net	46,343	46,953
Land use rights, net	9,915	10,075
Other assets:
Investment in joint ventures	1,168	1,290
Distribution fees for Jonway Products and Better Worlds Products	12,900	13,439
Intangible assets, net	4,878	5,002
Goodwill	324	324
Due from related party	2,413	1,137
Advance payments to related party	11,616	11,616
Deposits and other assets	310	313
Total other assets	33,609	33,121
Total assets	116,707	121,488
Current liabilities:
Short term loans	5,134	5,485
Accounts payable	15,415	15,164
Accrued liabilities	5,366	8,030
Notes payable	11,158	10,528
Advances from customers	4,585	1,971
Taxes payable	636	885
Due to related party	171	2,122
Other payables	1,765	2,116
Total current liabilities	44,230	46,301
Long term liabilities:
Accrued liability	600	592
8% Senior convertible debt	20,679	19,000
Total long term liabilities	21,279	19,592
Total liabilities	65,509	65,893
Commitments and contingencies
Equity
Common stock, no par value; 800 million shares authorized; 298,672,792 and 297,746,376 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively	226,154	225,378
Accumulated other comprehensive income	482	1,051
Accumulated deficit	(199,035)	(195,596)
Total ZAP shareholders' equity	27,601	30,833
Non-controlling interest	23,597	24,762
Total equity	51,198	55,595
Total liabilities and equity	$ 116,707	$ 121,488

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Condensed Consolidated Statement Of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (4,512)	$ (7,185)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	671	506
Stock-based compensation for R&D activities	105	20
Depreciation and amortization	1,799	1,373
Provision for (recovery of) doubtful accounts	(3)	28
Inventory Reserve	95
Loss from joint venture and other investments	119	73
Change in fair value of derivative liability		358
Convertible debt discount		1,850
Deferred tax benefit	(38)
Changes in assets and liabilities: (net of acquisition )
Notes receivable	729	156
Accounts receivable	34	1,535
Inventories	(357)	(1,442)
Prepaid expenses and other current assets	(723)	(2)
Due from related parties	(1,284)
Accounts payable	299	2,099
Accrued liabilities	(876)	(893)
Advances to customers	2,625
Taxes payable	(245)
Other payables	(363)
Net cash used in operating activities	(1,925)	(1,524)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of 51% Interest in Zhejiang Jonway Automobile, net		(19,030)
Acquisition of property and equipment	(597)	(543)
Proceeds from sale of equipment		10
Net cash flows used in investing activities:	(597)	(19,563)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short term loans	522
Repayment of short term loans	(852)	(2,126)
Proceeds from issuance of common stock		244
Repayment to related parties	(2,001)
Proceeds from issuance of convertible debt		19,000
Proceeds from stock subscription agreement		2,000
Proceeds from notes payable	670
Change in restricted cash	266	884
Net cash provided by (used in) financing activities	(1,395)	20,002
Effect of exchange rate changes on cash and cash equivalents	(20)	4
NET DECREASE IN CASH AND CASH EQUIVALENTS	(3,937)	(1,081)
CASH AND CASH EQUIVALENTS, beginning of period	5,859	2,496
CASH AND CASH EQUIVALENT, end of period	1,922	1,415
Supplemental disclosure of cash flow information:
Cash paid during period for interest	264
Cash paid during period for taxes		$ 4

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Litigation

3 Months Ended

Mar. 31, 2012

Litigation [Abstract]

Litigation

NOTE 16– LITIGATION

     In the normal course of business, the Company may become involved in various legal proceedings. Management knows of no pending or threatened legal proceeding to which they are or will be a party and which, if successful, might result in a material adverse change in our business, properties or financial condition. However, as with most businesses, the Company is occasionally a party to lawsuits incidental to its business, none of which are anticipated to have a material adverse impact on the Company's 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.

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Subsequent Events

3 Months Ended

Mar. 31, 2012

Subsequent Events [Abstract]

Subsequent Events

NOTE 18 – SUBSEQUENT EVENTS

During April 2012,  the Jonway Group purchased 100% of the assets of Aptera. Alex Wang, the Co-Chief Executive Officer of Zap is also the Chief Executive Officer of Aptera.  At present, this is not expected to impact Jonway Group's ability to provide liquidity to Zap as required by their letter of support previously disclosed in its Form 10-K filing as of and for the Year Ended December 31, 2011.  Should this matter lead to liquidity issues in the future , Zap may be required to scale down its forecasted sales which may require Zap to write down certain of its intangible assets and it may be material to its financial position.

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Organization And Operations

3 Months Ended

Mar. 31, 2012

Organization And Operations [Abstract]

Organization And Operations

NOTE 1 - ORGANIZATION AND OPERATIONS:

     ZAP was incorporated in California in September 1994 (together with its subsidiaries, "the Company," or "ZAP"). ZAP markets advanced transportation, including alternative energy and fuel efficient automobiles, motorcycles, bicycles, scooters, personal watercraft, hovercraft, neighborhood electric vehicles and commercial vehicles. The Company's business strategy has been to develop, acquire and commercialize electric vehicles and electric vehicle power systems, which the Company believes have fundamental practical and environmental advantages over available internal combustion modes of transportation that can be produced commercially on an economically competitive basis. In pursuit of a manufacturing plant and a partner with an existing product line, a distribution and customer support network in China and experience in vehicle manufacturing, ZAP acquired a majority of the outstanding equity in Zhejiang Jonway Automobile Co., Ltd. ("Jonway").

     On January 21, 2011, the Company completed the acquisition of 51% of the equity shares of Jonway for a total purchase price of $31.75 million consisting of approximately $29 million in cash and 8 million shares of ZAP common stock valued at $2.7 million. The Company believes that the acquisition will allow it to expand its electric vehicle ("EV") business and distribution network around the world, give it access to the rapidly growing Chinese market for electric vehicles and have competitive production capacity in an ISO 9000 certified manufacturing facility with the capacity and resources to support production of ZAP's electric vehicles and new product line of mini vans and new SUVs.

     Jonway is a limited liability company incorporated in Sanmen County, Zhejiang Province of the People's Republic of China ("the PRC") on April 28, 2004 by Jonway Group Co., Ltd. ("Jonway Group"). Jonway Group is under the control of three individuals, Wang Huaiyi, Alex Wang (the son of Wang Huaiyi) and Wang Xiao Ying (the daughter of Wang Huaiyi and all three individuals collectively referred to as the "Wang Family") Jonway's approved scope of business operations includes the production and sale of vehicle spare parts, and the sale of UFO licensed SUV vehicles. The principal activities of Jonway are the production and sale of automobile spare parts and the production and distribution of SUVs in China using the consigned UFO license from an affiliate of Jonway Group.

     With the completion of the acquisition of a majority interest in Jonway, the combined companies' new product lines planned for the second half of 2012 include the A380 SUV EV and the minivan EV. Both products leverage the production moldings, the manufacturing engineering infrastructure and facilities currently in place for the gasoline models of these vehicles. Since the acquisition, the companies have been working on developing the joint product line, marketing and sales plans for the 2012 EV product lines.

     Jonway is preparing for certification of the EV production line by the Chinese electric vehicle authorities, which we expect to occur in the second half of 2012, since we anticipate that the EV production facilities in Jonway will be ready for the certification process in the first half of 2012. Meanwhile, the engineering teams from both companies are undertaking extensive testing of the A380 SUV EV at Jonway Auto and ZAP Hangzhou EV research and development center.

     The Company's target is to deliver the EV A380 SUV and EV minivan in the second half of 2012, with the purpose of obtaining the Chinese central government electric vehicle incentives of up to RMB 60,000 or over $9,680 per vehicle. ZAP intends to use the existing manufacturing plant from Jonway that is being upgraded for the production of the electric vehicles and utilizing the existing Jonway models to gain economy of scale and reduce

molding investment costs. ZAP also intends to leverage Jonway's distribution and customer support centers in China to support the sales and marketing of its new EV product line.

     ZAP's strategy outside of China is to open up markets ready to accept affordable, fully electric SUVs and vans for fleets.

BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements include the financial statements of ZAP, and its subsidiaries: Jonway Automobile, Voltage Vehicles and ZAP Stores and are prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP"). In these financial statements, "subsidiaries" are companies that are over 50% controlled, the financial statements of which are consolidated with those of the Company. Significant inter-company transactions and balances are eliminated in consolidation; profits from inter-company sales, are also eliminated; non –controlling interests are included in equity.

     The accompanying unaudited condensed consolidated 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 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, 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 months ended March 31, 2012 are not indicative of the results that may be expected for the year ending December 31, 2012 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-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission (the "SEC") on April 16, 2012 (the "10-K").

Liquidity and Capital Resources

     In assessing the Company's liquidity, management monitors and analyzes the Company's cash on-hand, liquidation value of its investment in securities, and its operating and capital expenditure commitments.

     The Company's principal liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations.

     The Company's principal sources of liquidity consist of its existing cash on hand, bank facilities from China-based banks for Jonway Auto, its investment in securities with Samyang Optics, Ltd. and transactions with Luo Hua Liang, the brother-in-law of Alex Wang, the Co-CEO and a director of ZAP. In 2011, the Company entered into private placement subscription agreements with Mr. Luo for the purchase of ZAP common stock for the aggregate purchase price of $7 million, of which it received $2 million as of the quarter ended March 31, 2011. The private placement subscription agreements were then superseded and terminated by a stock purchase agreement with Mr. Luo in August 2011. Pursuant to the stock purchase agreement, Mr. Luo agreed to purchase ZAP common stock for an aggregate purchase price of $2 million in multiple closings. On September 8, 2011, the Company issued approximately 2.3 million shares of ZAP common stock in connection with the initial closing of $771,000. The Company received an additional $1.025 million in subsequent closings for which it issued approximately 3.35 million shares of ZAP common stock. During 2011, the Company issued 7.7 million shares to Mr. Liang for cash of $3.8 million.

     In 2011, the Company was approved up to an aggregate of $6.2 million of bank facility from the Taizhou Branch of China Merchants Bank ("CMB") through its majority-owned subsidiary, Jonway. Although it has been approved for the credit line, there are no legal obligations or rights to the credit line until it executes agreements with the lender to borrow funds under the credit line. When drawn down, the credit line will be secured by lands owned by Jonway and guaranteed by Jonway Group.

     Under the above mentioned credit line of $6.2 million granted by CMB on August 19, 2011, Jonway entered into a Credit Agreement with CMB for a revolving short term bank loan in the aggregate amount of approximately US$3.2 million which was drawn down in 2011. The annual interest rate is 7.22% and is due on August 18, 2012. The loan is secured by a Maximum Amount Mortgage Contract by and between Jonway and CMB

dated August 11, 2011 in which land use rights over two parcels of land owned by Jonway at Sanmen Factory have been pledged as security for this loan. The remaining $3.0 million of the credit line is available for future executions at the discretion of Jonway Auto.

     In December 2011, Jonway established additional short term bank loans amounting to approximately $2.22 million from three small-size banks based in Taizhou City, which are subject to a Jonway Group guarantee, and $790,000 of such loans is also secured by bank notes received from Jonway dealers and was repaid on March 31, 2012.

     On March 31, 2012, to support the monthly business performance target of CMB, Jonway entered into another credit agreement with this bank for a sum of short term bank loan in the aggregate amount of approximately $520,000 which was drawn down on March 31, 2012, and repaid on April 1, 2012. The annual interest rate is 6.89%. Such bank loan is secured by a sum of cash collateral amounting to $550,000.

     As of March 31, 2012, Jonway had $5.1 million in short term bank loans, which are borrowed from the above stated China-based banks with interest rates ranging from 7.22% to 9.47% per annum due through August 18, 2012.

     Jonway intends to utilize the credit lines to expand its electric vehicle business as well as other future vehicle models. This includes on-going working capital needs, electric vehicle production equipment requirements, testing, homologation and new EV product molds. These credit lines will also be used to support the company's expansion plans, with emphasis on its electric vehicle production line facilities in China. The credit will also help advance new electric vehicle initiatives, launch new strategic global sales and marketing operations, bolster infrastructure, and finance working capital.

     In the event that we require additional liquidity, our principal shareholders, Cathaya and Jonway Group, have agreed to provide the necessary support to meet our financial obligations through May 21, 2013.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Condensed Consolidated Balance Sheets [Abstract]
Accounts receivable, allowance	$ 20	$ 9
Common stock, shares authorized	800,000,000	800,000,000
Common stock, no par value
Common stock, shares issued	298,672,792	297,746,376
Common stock, shares outstanding	298,672,792	297,746,376

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Long-Term Notes

3 Months Ended

Mar. 31, 2012

Long-Term Notes [Abstract]

Long-Term Notes

NOTE 11 – LONG-TERM NOTES

8% SENIOR CONVERTIBLE NOTE - China Electric Vehicle Corporation ("CEVC") Note

     On January 12, 2011, the Company entered into a Senior Secured Convertible Note and Warrant Purchase Agreement (the "Agreement") with China Electric Vehicle Corporation ("CEVC"), a British Virgin Island company whose sole shareholder is Cathaya Capital, L.P., a Cayman Islands exempted limited partnership ("Cathaya"). Priscilla Lu is the chairman of the board of directors of ZAP, a managing partner of Cathaya and a director of CEVC.

     Pursuant to the Agreement, (i) CEVC purchased from the Company a Senior Secured Convertible Note (the "Note") in the principal amount of US$19 million, as amended, (ii) the Company issued to CEVC a warrant (the "Warrant") exercisable for two years for the purchase up to 20 million shares of the Company's Common Stock at $0.50 per share, as amended (iii) the Company, certain investors and CEVC entered into an Amended and Restated Voting Agreement that amended and restated that certain Voting Agreement, dated as of August 6, 2009 that was previously granted to Cathaya Capital L.P., (iv) the Company, certain investors and CEVC entered into an Amended and Restated Registration Rights Agreement that amended and restated that certain Registration Rights Agreement, dated as of August 6, 2009, that was previously granted to Cathaya Capital L.P which grants certain registration rights relating to the Note and the Warrant, and (v) the Company and CEVC entered into a Security Agreement that secures the Note with all of the Company's assets other than those assets specifically excluded from the lien created by the Security Agreement.

     On March 31, 2012, ZAP entered into an amendment to the note which extended the maturity date of the note from August 12, 2012 to August 12, 2013. This amendment changed the terms of the note requiring adjustment of the conversion price of note for dilutive issuances by ZAP. . In addition, the warrant issued in connection with the CEVC note was amended to change the terms of conversion and to extend the maturity date until February 12, 2014. The interest accrued through the original maturity date of February 12, 2012 in the amount of $1.7 million has been added to the existing principal. The total amount of the convertible note is approximately $20.7 million with a new maturity date of August 12, 2013. The note accrues interest at a rate per annum of 8% effective to February 12, 2012 and interest has been waived starting from February 13, 2012 through August 12, 2013 or when the note is converted. The note is convertible upon the option of CEVC at any time, into (a) shares of Jonway capital stock owned by ZAP at a conversion rate of 0.003743% of shares of Jonway capital stock owned by ZAP for each $1,000 principal amount of the Note being converted or (b) shares of ZAP common stock at a conversion rate of 4,435 shares of common stock for each $1,000 principal amount of the Note being converted.,

     Since the value of the common stock into which the above-mentioned note is converted is greater than the proceeds for such issuance, a beneficial conversion feature totaling $19 million was recorded. During 2011, a total of $16.9 million in amortization was recorded and charged to interest expense and the remaining balance of $2.1 million of the discount was offset against the Company's equity account due to the note extension to August 12, 2013.

     In addition, the Company recorded $222 in interest expense through the quarter ended March 31, 2012 related to this note.

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Document And Entity Information	3 Months Ended
	Mar. 31, 2012	May 21, 2012
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2012
Entity Registrant Name	ZAP
Entity Central Index Key	0001024628
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		299,241,038

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2012

Stock-Based Compensation [Abstract]

Stock-Based Compensation

NOTE 12-STOCK-BASED COMPENSATION

     Services performed and other transactions settled in the company's common stock are recorded at the estimated fair value of the stock issued if that value is more readily determinable, than the fair value of the consideration received.

     The Company has stock compensation plans for employees and directors. The Company recognizes the stock-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. All stock-based compensation is accounted for as an equity instrument.

				Weighted
	Number		Weighted	Average
	of		Average	Remaining
	Shares		Exercise	Contractual
			Price	Term
				(in years)
Outstanding December 31, 2011	29,578	$	0.50	6.0
Options granted under the plan	-		-	-
Options exercised	-		-	-
Options forfeited and expired	-		-	-
Outstanding March 31, 2012	29,578	$	0.50	6.0

     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 March 31, 2012 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 March 31, 2012.

     As of March 31, 2012, total compensation cost of unvested employee stock options is $2.8 million. This cost is expected to be recognized through September 30, 2016. We recorded no income tax benefits for stock-based compensation expense arrangements for the three months ended March 31, 2012, as we have cumulative operating losses, for which a valuation allowance has been established

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Condensed Consolidated Statement Of Operations And Comprehensive Loss (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Condensed Consolidated Statement Of Operations And Comprehensive Loss [Abstract]
Net sales	$ 12,181	$ 11,708
Cost of goods sold	(11,479)	(10,673)
Gross profit	702	1,035
Operating expenses:
Sales and marketing (includes non-cash items of $540 in 2012 and $629 in 2011, respectively)	2,112	1,872
General and administrative (includes non-cash items of $1,079 in 2012 and $3,871 in 2011)	2,491	3,469
Research and development	279	762
Total operating expenses	4,882	6,103
Loss from operations	(4,180)	(5,068)
Other income (expense):
Interest expense, net	(486)	(1,850)
Loss from equity in Joint Venture	(119)	(73)
Loss on financial instruments		(358)
Other income (expense), net	235	143
Total other income (expense)	(370)	(2,138)
Loss before income taxes	(4,550)	(7,206)
Income tax benefit	38	21
Net loss	(4,512)	(7,185)
Net loss attributable to non controlling interest	1,073	570
Net loss attributable to Zap	(3,439)	(6,615)
Other Comprehensive income (loss)
Foreign currency translation gain (loss)	(187)	314
Net unrealized (loss) on securities available for sale	(474)	(286)
Comprehensive loss	(5,173)	(7,157)
Comprehensive loss attributable to non controlling interest	1,165	416
Comprehensive loss attributable to Zap	$ (4,008)	$ (6,741)
Net loss per share attributable to common shareholders:
Basic and diluted	$ (0.01)	$ (0.03)
Weighted average number of common shares outstanding:
Basic and diluted	298,127	209,273

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Property, Plant And Equipment

3 Months Ended

Mar. 31, 2012

Property, Plant And Equipment [Abstract]

Property, Plant And Equipment

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at March 31, 2012 and December 31, 2011 are summarized as follows (in thousands):

		March 31, 2012			December 31, 2011
Buildings and improvements	$	21,572		$	21,649
Machinery and equipment		39,918			39,566
Office furniture and equipment		433			415
Leasehold improvements		37			37
Vehicles		814			745
		62, 774			62, 412
Less - accumulated depreciation
and amortization		(16,431	)		(15,459	)
	$	46,343		$	46,953

     Four pieces of land were acquired from the acquisition of Jonway auto in 2011, all land in the People's Republic of China is government owned and cannot be sold to any individual or company. However, the government grants the user a "land use right" (the Right) to use the land. The Company has the right to use the land for 50 years and amortized the Right on a straight-line basis over the period of 50 years. As of March 31, 2012 and December 31, 2011, intangible assets consist of the following:

		March 31, 2012			December 31, 2012
Land use right	$	10,478		$	10,518
Software		97			92
		10,575			10,610
Less: accumulated amortization		(660	)		(535	)
	$	9,915		$	10,075

     Depreciation and amortization expense was $1,135 and $632 for the three months ended March 31, 2012 and 2011, respectively.

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Inventories

3 Months Ended

Mar. 31, 2012

Inventories [Abstract]

Inventories

NOTE 5– INVENTORIES

Inventories at March 31, 2012 and December 31, 2011 are summarized as follows (in thousands):

	March 31, 2012			December 31, 2011
Advanced technology vehicles	$	709		$	713
Vehicles-conventional		4,714			4,630
WIP Jonway SUV's		2,327			2,234
Parts and supplies		5,063			4,879
Finished goods		198			240
		13,011			12,696
Less-inventory reserve		(1,671	)		(1,578	)
	$	11,340		$	11,118

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Commitments And Contingencies

3 Months Ended

Mar. 31, 2012

Commitments And Contingencies [Abstract]

Commitments And Contingencies

NOTE 17 – COMMITMENTS AND CONTINGENCIES

Employment agreement

     As of January 16, 2011, The Company entered into indefinite employment agreements with Benjamin Zhu, the Company's CFO. The agreements provide for an annual salary of $140,000 for each year for the term of the agreement with Mr. Zhu.

Guarantees

     Jonway Auto guaranteed certain financial obligations of outside third parties including suppliers to support our business and economic growth. Guarantees will terminate on payment and/or cancellation of the obligation once it is repaid. A payment by us would be triggered by failure of the guaranteed party to fulfill its obligation covered by the guarantee. Maximum potential payments under guarantees total $952 at March 31, 2012. Our performance risk under these guarantees is reviewed regularly, and has resulted in no changes to our initial valuations.

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Segment Reporting

3 Months Ended

Mar. 31, 2012

Segment Reporting [Abstract]

Segment Reporting

NOTE 13 – SEGMENT REPORTING

Operating Segments

     In accordance with Accounting Standards Codification ("ASC") Topic 280, Segment Reporting, the Company has identified four reportable segments consisting of Jonway Vehicles, Advanced Technology Vehicles, Consumer Product and Car Outlet. The Jonway Vehicles segment represents sales of the gas fueled Jonway A380 three and five-door sports utility vehicles and spare parts principally through distributors in China. Jonway and ZAP are also jointly developing various electric vehicles anticipated to enter into the electric vehicle market during 2012. The Advanced Technology Vehicles segment represents sales and marketing outside of China of the ZAPTRUCK XL, the ZAPVAN Shuttle and the Xebra® Sedan and will transition to selling mostly Jonway's EV A380SUV and EV minivan in 2012. The Consumer Product segment represents rechargeable portable energy products, our Zapino scooter, and our ZAPPY3 personal transporters. Our Car Outlet segment represents operation of a retail car outlet that sells pre-owned conventional vehicles and advanced technology 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 Co-Chief Executive Officers 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.

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

		Jonway			Electric						Advanced
		Conventional			Consumer						Technology
		Vehicles			Products			Car outlet			Vehicles			Total
For the three months ended March 31,
2012:
Net sales	$	11,989		$	114		$	73		$	5		$	12,181
Gross profit (loss)	$	723		$	28		$	7		$	(56	)	$	702
Depreciation, amortization and	$	1,244		$	546		$	2		$	7		$	1,799
Net loss	$	(1,118	)	$	(2,119	)	$	(34	)	$	(168	)	$	(3,439	)
Total assets	$	89,745		$	26,265		$	447		$	250		$	116,707
For the three months ended March 31,
2011:
Restated
Net sales	$	10,947		$	200		$	365		$	196		$	11,708
Gross profit (loss)	$	910		$	48		$	58		$	19		$	1,035
Depreciation, amortization and	$	856		$	509		$	2		$	6		$	1,373
Net loss	$	(1,183	)	$	(4,971	)	$	(54	)	$	(407	)	$	(6,615	)
Total assets	$	70,499		$	37,543		$	537		$	1,936		$	110,515

     Operating segments do not sell products to each other, and accordingly, there is no inter-segment revenue to be reported. Jonway Automobile results have been included since the acquisition date of January 21, 2011.

Customer information

     Approximately 99 % or $11.9 million of our revenues for the three months ended March 31, 2012 are from sales in China. Jonway Auto distributes its products to an established network of over 100 factory level dealers in China with some contributing to more than 10% of our consolidated revenue

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Investment In Joint Ventures

3 Months Ended

Mar. 31, 2012

Investment In Joint Ventures [Abstract]

Investment In Joint Ventures

NOTE 9 – INVESTMENT IN JOINT VENTURES

     On December 11, 2009, the Company entered into a Joint Venture Agreement to establish a new US-China company incorporated as ZAP Hangzhou to design and manufacture electric vehicle and infrastructure technology with Holley Group, the parent company of a global supplier of electric power meters and Better World. Priscilla Lu, Ph.D., who is the current Chairman of the Board of ZAP is also a director and shareholder of Better World. In January of 2011, Holley Group's interest in ZAP Hangzhou was purchased by Alex Wang, Co-CEO and director of ZAP. ZAP and Better World each own 37.5% of the equity shares of ZAP Hangzhou, and Alex Wang owns 25% of the equity shares of ZAP Hangzhou. The joint venture partners have also funded the initial capital requirements under the agreement for a total of $3 million, of which ZAP's portion is $1.1 million.

     In November 2011, Jonway and ZAP Hangzhou jointly set up Shanghai Zapple Electric Vehicle Technologies Co., Ltd. (Shanghai Zapple) with registered capital of RMB 20 million. Jonway and ZAP Hangzhou each own 50% of the equity share of Shanghai Zapple. As of March 31, 2012, Jonway injected RMB 5 million into this joint venture and ZAP Hangzhou injected RMB 3 million. Shanghai Zapple's approved scope of business includes: technical advice, technical development, technical services, technology transfer regarding electric vehicle technology, auto technology, energy technology, material science and technology, sale of commercial vehicle and vehicle for nine seats or more, auto parts, auto supplies, lubricant, mechanical equipment and accessories, business management consulting, industrial investment, exhibition services, business marketing planning, car rental (shall not be engaged in financial leasing), import and export of goods and technologies.

     The carrying amount of the investment in ZAP Hangzhou was $503 and $554 at March 31, 2012 and December 31, 2011, respectively, and the carrying amount of the investment in Shanghai Zapple was $665 and $736 at March 31, 2012 and December 31, 2011, respectively.

The carrying amount of the joint ventures is as follows:

		ZAP Hangzhou		Shanghai Zapple		Total
Balance as of December 31, 2011	$	554	$	736	$	1,290
Less: investment loss		51		71		122
Balance as of March 31, 2012	$	503	$	665	$	1,168

March 31,		2012			2011
Equity method investments losses	$	(119	)	$	(72	)

     The Company recorded a loss of $51 and $72 in ZAP Hangzhou, and a loss of $68 and $0 in Shanghai Zapple for the periods ended March 31, 2012 and 2011 respectively.  These losses relate to the investment in a non-consolidated joint ventures accounted for under the equity method of accounting.

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Goodwill & Other Intangibles

3 Months Ended

Mar. 31, 2012

Goodwill & Other Intangibles [Abstract]

Goodwill & Other Intangibles

NOTE 7 – GOODWILL & OTHER INTANGIBLES

The goodwill and other intangible assets at March 31, 2012 are summarized as follows:

			Net Book	Intangibles		Accumulated			Net Book
	Useful Life		Value	Acquired in		Amortization			Value
	(In Years)		12/31/2011	2012		3/31/2012			3/31/2012
Patents and Trademarks	7	$	75	-	$	(6	)	$	69
Customer Relationships	8.5		692	-		(26	)		666
Developed Technology	7		1,879	-		(84	)		1,795
In Process Technology			183	-		(1	)		182
Trade name			2,173	-		(7	)		2,166
Intangibles			5,002			(124	)		4,878
Goodwill Assets			324	-		-			324
		$	5,326	-	$	(124	)	$	5,202

     As of March 31, 2011, estimated future amortization expense for intangibles assets, subject to amortization, is as follows (in thousands):

			Amortization
	Year		Expense
	2012	$	311
	2013		416
	2014		416
	2015		391
	2016		391
Thereafter			605
		$	2,530

Amortization was $105 and $201 for the three months ended March 31, 2012 and 2011, respectively

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Distribution Agreements

3 Months Ended

Mar. 31, 2012

Distribution Agreements [Abstract]

Distribution Agreements

NOTE 8 – DISTRIBUTION AGREEMENTS

Distribution agreements as of March 31, 2012 and December 31, 2011 are presented below (in thousands):

	March 31, 2012			December 31, 2011
Better World Products	$	2,160		$	2,160
Jonway Products		14,400			14,400
		16,560			16,560
Less amortization		(3,660	)		(3,121	)
	$	12,900		$	13,439

Amortization was $540 and $540 for the three months ended March 31, 2012 and 2011, respectively.

Distribution Agreement with Better World, Ltd

     On January 15, 2010, ZAP entered into a Stock Purchase Agreement with Better World, Ltd., a British Virgin Islands company, whereby the Company issued 6 million shares of its common stock valued at $2.16 million in exchange for an agreement on terms relating to rights to the distribution of Better Worlds products for three years, such as charging stations for electric vehicles both in the U.S. and internationally. Priscilla Lu, Chairman of the Board of Directors of ZAP, is also General Partner of Better World International, Ltd.

Distribution Agreement with Goldenstone Worldwide Limited for Jonway Products

     On October 10, 2010, ZAP entered into a ten year International Distribution Agreement with Goldenstone Worldwide Limited as the distributor of Jonway products such as gas SUV's and gas and electric motor scooters, both in the U. S. and internationally. In connection with the distribution agreement the Company also issued 30 million shares of ZAP common stock valued at $14.4 million. The Jonway Group had previously granted exclusive worldwide distribution of Jonway products to Goldenstone Worldwide Limited. ZAP acquired a 51% equity interest in Jonway Auto but this equity interest did not include the world wide distribution rights for Jonway Products. Therefore, it was necessary for ZAP to acquire distribution rights for Jonway Products.

Distribution Agreement with Samyang Optics

     On January 27, 2010, ZAP entered into an International Distribution Agreement (the "Distribution Agreement") with Samyang Optics Co. Ltd. ("Samyang") pursuant to which ZAP appointed Samyang as the exclusive distributor of certain ZAP electric vehicles including the Jonway A380 5-door electric sports utility vehicle equipped with ZAP's electric power train, in the Republic of Korea. In addition, the Distribution Agreement provides that ZAP and Samyang will negotiate to enter into additional agreements related to the manufacture and assembly of ZAP vehicles by Samyang in Korea. The Distribution Agreement shall be in effect for one year and may be extended annually by Samyang provided that Samyang has satisfied sales quotas determined by ZAP and Samyang is otherwise in compliance with the Distribution Agreement.

     In addition, on January 27, 2010, ZAP and Samyang entered into an initial purchase order pursuant to the Distribution Agreement for the purchase of one hundred ZAP Jonway UFO electric sports utility vehicles. Selling prices have yet to be determined and no purchases have been made as of March 31, 2012.

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Line Of Credit, Short Term Debt And Bank Acceptance Notes

3 Months Ended

Mar. 31, 2012

Line Of Credit, Short Term Debt And Bank Acceptance Notes [Abstract]

Line Of Credit, Short Term Debt And Bank Acceptance Notes

NOTE 10 - LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES

Line of credit

     In 2011, we were approved to up to an aggregate of $6.2 million of bank facilities from the Taizhou Branch of China Merchants Bank through our majority-owned subsidiary, Jonway. Although we have been approved for the credit line, there are no legal obligations or rights to the credit line until we execute agreements with the lender to borrow funds under the credit line. When drawn down, the credit line will be secured by lands owned by Jonway and guaranteed by Jonway Group.

Short term debt

     Under the above mentioned credit line of $6.2 million granted by Taizhou Branch of China Merchants Bank , on August 19, 2011, Jonway entered into a Credit Agreement with this bank for a revolving short term bank loan in the aggregate amount of approximately $3.2 million which was drawn down by Jonway in 2011. The annual interest rate is 7.22%. The bank loan under the Credit Agreement is secured by a Maximum Amount Mortgage Contract by and between Jonway and this bank dated August 11, 2011 in which land use rights over two parcels of land owned by Jonway at Sanmen Factory have been pledged as security for this loan. The remaining $3.0 million of the credit line is available for future executions at the discretion of Jonway Auto.

     In December 2011, Jonway established additional short term bank loans amounting to over $2.22 million from three small-size banks based in Taizhou City, which are subject to Jonway Group guarantee, and $790 of such loans is secured by bank notes received from Jonway dealers and was repaid on March 31,2012.

     On March 31, 2012, to support the monthly business performance target of Taizhou Branch of China Merchants Bank, Jonway entered into another credit agreement with this bank for a sum of short term bank loan in the aggregate amount of approximately $520 which was drawn down on March 31, 2012, and repaid on April 1, 2012. The annual interest rate is 6.89%. Such bank loan is secured by a sum of cash collateral amounting to $550.

      As of March 31, 2012, Jonway had $5.1 million in short term bank loans, which are borrowed from the above stated China-based banks with interest rate range of 7.22% to 9.47% per annum due through August 18, 2012.

	March 31, 2012		December 31, 2011
Loan from China Merchant Bank	$	3,684	$	3,174
Loan from Taizhou Bank		632		1,428
Loan from Zhejiang Tailong Commercial Bank		791		794
Short term financing insurance premiums		27		89
Total	$	5,134	$	5,485

     On December 6, 2011, Jonway entered into a bank acceptance note Agreement with Taizhou Branch of China Everbright Bank for a revolving bank note facility in the aggregate amount of approximately US$4.7 million. Such bank note facility were issued to Jonway Auto's suppliers under the Credit Agreement and are secured by a Maximum Amount Mortgage Contract by and between Jonway and this bank dated December 6, 2011 in which land use right over one parcel of land owned by Jonway at Sanmen Factory has been pledged as security for this facility. Except for the bank acceptance notes payable to China Everbright Bank, other bank acceptance notes payable to other banks were granted through the below mentioned cash deposit practice.

     As of March 31, 2012, the Company has bank acceptance notes payable in the amount of $11.16 million. The notes are guaranteed to be paid by the banks and usually for a short-term period of six (6) months. The Company is required to maintain cash deposits at a minimum 40%-60% of the notes payable with these banks, in order to ensure future credit availability. As of March 31, 2012, the restricted cash for the notes was $5.29 million.

Bank acceptance notes- 6 month term for each note issued

	March 31, 2012		December 31, 2011
a)Bank acceptance notes payable to Taizhou Bank	$	2,055	$	2,451
b)Bank acceptance notes payable to China Merchant Bank		1,581		3,316
c)Bank acceptance notes payable to China Everbright Bank		4,743		4,761
d)Bank acceptance notes payable to Zhejiang Tailong Commercial Bank		838		-
e)Bank acceptance notes payable to Zhejiang Sanmen Yin Zuo Village Bank		1,265		-
f)Bank acceptance Notes payable to Shanghai Pudong Development Bank		676		-
	$	11,158	$	10,528

     On December 11, 2011, Zhejiang Jonway Automobile Co., Ltd. ("Jonway"), a majority owned subsidiary of ZAP, entered into a Promissory Note with Jonway Group Co. Ltd. ("Jonway Group") pursuant to which Jonway borrowed $3 million to be repaid on demand. The unpaid principal amount of the note bears interest at a rate per annum equal to 8%, calculated on the basis of a 365 day year and the actual number of days lapsed. All unpaid principal, together with any then unpaid and accrued interest, are due and payable within ten (10) calendar days following demand by Jonway Group. Payment shall be made in the form of cash. As of December 31, 2011, a total of $1.6 million had been advanced to Jonway Automobile under the Promissory note arrangement and such borrowing was repaid in January 2012.

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Income Taxes

3 Months Ended

Mar. 31, 2012

Income Taxes [Abstract]

Income Taxes

NOTE 15-INCOME TAXES

The Company is subject to United States of America ("US") income tax and People's Republic of China ("PRC") profit tax.

US

     The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company has no taxable income for the year. The Company has net operating loss carryforwards for federal tax purposes. No tax benefit has been realized since a full valuation allowance has been established to offset the deferred tax asset resulting from the net operating losses

PRC

     Effective on January 1, 2008, the PRC Enterprise Income Tax Law, EIT Law, and Implementing Rules impose an unified enterprise income tax rate of 25% on all domestic-invested enterprises and foreign investment enterprises in PRC, unless they qualify under certain limited exceptions. As such, the Company's subsidiary in PRC is subject to an enterprise income tax rate of 25%.

No provisions for income taxes have been made as the Company has no taxable income for the periods. A deferred tax benefit of $38 was recognized due to the change in the deferred tax assets.

Loss before income taxes consisted of:

		For the Three Months Ended March 31,
		2012			2011
					Restated
US	$	(2,321	)	$	(6,021	)
PRC		(2,229	)		(1,185	)
	$	(4,550	)	$	(7,206	)

Provision (Benefit) for income taxes consisted of:

		For the Three Months Ended March 31,
		2012				2011
Current provision:						Restated
US	$		-		$	1
PRC			-			-
Total current provision			-			1
Deferred provision (benefit):
US			-			-
PRC			(38	)		(22	)
Total Deferred provision (benefit)			(38	)		(22	)
Total provision / (benefit) for income taxes	$		(38	)	$	(21	)

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Condensed Consolidated Statement Of Operations And Comprehensive Loss (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Condensed Consolidated Statement Of Operations And Comprehensive Loss [Abstract]
Sales and marketing, non cash items	$ 540	$ 629
General and administrative, non-cash items	$ 1,079	$ 3,871

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Acquisition

3 Months Ended

Mar. 31, 2012

Acquisition [Abstract]

Acquisition

NOTE 4-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 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 Non controlling 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. As part of the measurement process, a third party valuation firm was used to assist in estimating the fair value of the intangible assets received in the acquisition of the 51% equity of Jonway Automobile. The valuation was not completed until December 31, 2011, and therefore a provisional amount was recognized in the period ended March 31, 2011.

     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		(166	)
Other liabilities assumed		(14,192	)
Net tangible assets acquired		52,196
Goodwill and intangible assets		5,382
Net assets acquired		57,578
Non controlling interest - fair value		(28,213	)
Option to purchase remaining 49%		2,385
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
Goodwill		308
	$	5,382

(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.

     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 $0 and $204,000 for the periods ended March 31, 2012 and 2011, respectively. The excess of the purchase price over the net tangible assets and intangible assets was recorded as goodwill.

     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 the period presented (in thousands except per share amounts):

	For the Three Months
	ended March 31,2011
Net sales	19,549
Net loss	(9,591	)
Net loss per	(0.05	)
Shares	209,273

     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.

     Any 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.

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Related Party

3 Months Ended

Mar. 31, 2012

Related Party [Abstract]

Related Party

NOTE 14– RELATED PARTY

Due from (to) related parties

Amounts due from related parties are principally for advances for parts and supplies used in manufacturing.

Amount due from related parties are as follows:

		March 31, 2012		December 31, 2011
Sanmen Branch of Zhejiang UFO Automobile	$	2,413	$	978
Jonway Group for normal business		-		159
Total	$	2,413	$	1,137

Amount due to related parties are follows:

		March 31, 2012		December 31, 2011
Jonway Group	$	109	$	2,104
Zhejiang UFO Automobile		56		-
Jonway Motor Cycle		6		18
Total	$	171	$	2,122
Advance payment to Jonway Group	$	11,616	$	11,616

Issuance of stock to Jonway Group for the Development and Production of Vehicles

     On December 11, 2011, ZAP entered into a Payment Agreement with Jonway Group pursuant to which ZAP paid Jonway Group for the already completed interior and exterior design, R&D activities, testing and trial production and molding equipments of the mini-van product platform, and the Alias interior and exterior design and molding, which is underway. Pursuant to the Payment Agreement, ZAP agreed to grant Jonway Group 70 million shares of ZAP's Common Stock valued at $15.4 million. All intellectual property rights related to the work performed by Jonway Group for the mini-van and Alias shall be owned jointly by ZAP and Jonway. As of March 31, 2012, $3.78 million of the payment of $15.4 million were recognized as R&D expense in ZAP, the remaining of $11.6 million was accounted for as advance payment to related parties for development and production activities.

Promissory notes and Down Payment on Convertible Note from Jonway Group

     On December 11, 2011 Jonway entered into a Promissory Note with Jonway Group pursuant to which Jonway borrowed $3 million to be repaid on demand. The unpaid principal amount of the note bears interest at a rate per annum equal to 8%, calculated on the basis of a 365 day year and the actual number of days lapsed. All unpaid principal, together with any then unpaid and accrued interest, are due and payable within ten (10) calendar days following demand by Jonway Group. Payment shall be made in the form of cash. As of March 31, 2012, $1.6 million has been advanced to Jonway Auto under the Promissory Note arrangement and was repaid in January 2012.

     On December 11, 2011, ZAP entered into a Down Payment Convertible Note with Jonway Group pursuant to which ZAP may borrow $3 million for the production of seventy-five Alias electric vehicles to be delivered and sold in 2012. The unpaid principal amount of the note bears interest at a rate per annum equal to 8%, calculated on the basis of a 365 day year and the actual number of days lapsed. Upon the completion of selling seventy-five Alias vehicles, ZAP will repay the unpaid principal, together with any then unpaid and accrued interest, on or before December 31, 2012. Repayment shall be made at the option of Jonway Group in the form of either cash or ZAP's Common Stock priced as of the date the principal was deposited into Jonway's bank account on behalf of ZAP. As of March 31, 2012, no advance has been made to ZAP from Jonway Group.

Transactions with Jonway Group

     Jonway Group is considered a related party as the Wang Family, one of the shareholders of the Company, has controlling interests in Jonway Group. Jonway Group supplies some of the plastic spare parts to Jonway and gave guarantees on Jonway short term bank facilities from China-based banks. For the period ended March 31, 2012 Jonway made purchases from Jonway Group for a total of $337.

Sale of Stock to a Party Related to ZAP's CO-CEO and Director

     On January 14, 2011, we entered into private placement subscription agreements with Luo Hua Liang, the brother-in-law of Alex Wang, the Co-CEO and director of ZAP for the purchase of ZAP's common stock for the aggregate purchase price of $7 million, of which we received $2 million. The private placement subscription agreement was superseded and terminated by a stock purchase agreement with Mr. Luo in August 2011. Pursuant to the stock purchase agreement, Mr. Luo will purchase ZAP's common stock for an aggregate purchase price of $2.6 million in multiple closings. On September 8, 2011, we issued approximately 2.3 million shares of ZAP common stock in connection with the initial closing of $771. We received an additional $1.025 million in subsequent closings for which we have issued approximately 3.35 million shares of ZAP common stock.

     During 2011, the Company issued 7.7 million shares of common stock for cash of $3.8 million through private placement subscription agreements with Luo Hua Liang.

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 $29,200 for the period ended March 31, 2011. The company discontinued paying rent in August, 2011.

Management Agreement with Cathaya Capital, L.P.

     On August 6, 2009, Cathaya purchased 20 million shares of the Company's Common Stock. On August 6, 2009, the Company entered into a Secured Convertible Promissory Note with Cathaya for aggregate principal advances of up to $10 million. In addition, the Company issued one warrant to Cathaya exercisable for shares of the Company's Common Stock.

     On July 9, 2010, Cathaya entered into a securities purchase agreement, pursuant to which, Cathaya purchased 44 million shares of the Company's Common Stock at a price of $0.25 per share for an aggregate purchase price of $11 million.

     Priscilla Lu, the chairman of the board of directors of ZAP, is also a general partner of Cathaya. On November 10, 2010, ZAP entered into a Management Agreement with Cathaya, for the payment of $2.5 million in exchange for Cathaya's prior and ongoing transaction advisory, financial and management consulting services for the year ended December 31, 2010. Pursuant to the agreement, principals of Cathaya will be available to serve on the Board and will devote such time and attention to the Company's affairs as reasonably necessary to accomplish the purposes of the agreement. The agreement is renewable yearly but fees paid in subsequent periods are subject to renegotiation based on the fair market values of services rendered, and the management fee was payable in cash or in common stock of ZAP at $0.50 per share. Five million shares were issued to Cathaya Capital L.P. in payment of this fee for the year ended December 31, 2010. As of March 31, 2012, ZAP has accrued $350,000 for management fees due to Cathaya Capital L.P. The fee for 2011 was an agreed upon amount between Cathaya and the Company. The management agreement was terminated effective December 31, 2011.

Jonway Agreement with Zhejiang UFO

     Based on a contract by and among the Zhejiang UFO, Jonway Group and Jonway dated as of January 1, 2006, Zhejiang UFO has authorized Jonway to operate its Sanmen Branch to assemble and sell UFO branded SUVs for a period of 10 years starting from January 1, 2006.

     According to the contract, Jonway shall pay Zhejiang UFO a variable contractual fee which is calculated based on the number of SUVs that Jonway assembles in the Sanmen Branch every year, at the following rates:

The first 3,000 vehicles	$44 per vehicle
Vehicles from 3,001 to 5,000	$30 per vehicle
Vehicles over 5,000	$22 per vehicle

     Zhejiang UFO is considered a related party because the Wang Family, who are shareholders of Jonway, has certain non-controlling equity interests in Zhejiang UFO. In December 2012, Zhejiang UFO, Jonway Group and Jonway amended the above contract, and agreed that the accumulated payable to Zhejiang UFO for the above variable contractual fees as of December 31, 2011 will not be repaid. From 2012 onwards, Jonway still has obligation for payment for such fees based on 2012 and thereafter the number of SUVs with the deferred payment without interest indefinitely.