NOTE 14– RELATED PARTY

Due from (to) related parties

Amounts due from related parties are principally for advances in the normal course of business for parts and supplies used in manufacturing.

Amount due from related parties are as follows:

June 30, 2012

December 31, 2011

Sanmen Branch of Zhejiang UFO Automobile Manufacturing Co., Ltd

3,375

978

Jonway Group

159

Total

3,375

1,137

Amount due to related parties are follows:

June 30, 2012

December 31, 2011

Jonway Group

218

2,104

Sanmen Branch of Zhejiang UFO Automobile

Jonway Motor Cycle

Total

228

2,122

Advance payment to Jonway Group

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 by ZAP. During the year ended December 31, 2011, $3.78 million of the payment of $15.4 million was recognized as R&D expense in ZAP, with the remaining $11.6 million, which was recorded as an advance payment to Jonway Group, has been reclassified to machinery and equipment.

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 can borrow up to $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, $1.6 million had 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 June 30, 2012, no advance has been made to ZAP from Jonway Group.

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 June 30, 2012 Jonway made purchases from Jonway Group for a total of $766.

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 $2.0 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 rented office space, land and warehouse space from its former CEO and a major shareholder. Mr. Steven Schneider. These properties were used to operate a car outlet and to store inventory. Rental expense was approximately $46,200 for the period ended June 30, 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. No management fee payment was made for 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.