NOTE 8 -LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES

Line of credit

In 2011, Jonway was approved for a line of credit up to an aggregate of $6.2 million 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.

In March 2012, Jonway was approved up to an aggregate of $0.8 million of credit line from a Sanmen local Bank. As of December 31, 2012, this credit line was fully used in the form of notes payable. The credit line expires in March 2013 and was renewed for 1 more year.

In May 2012, Jonway was approved up to an aggregate of $ 23.8 million of credit line from CITIC bank through 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 land and buildings on this land owned by Jonway and guaranteed by Jonway Group. During 2012, $7.1 million was drawn as short term bank loans and $5.6 million was drawn as notes payable. At December 31, 2012, $11.1 million of the credit has not been used. Such bank loans and notes payable under the Credit Agreements are used to support working capital and the credit line is secured by land use rights and a building at the carrying value of $5.9 million, bank deposits, guarantee from Jonway Group and guarantee from other individuals.

In December 2012, Jonway was approved up to an aggregate of $4.0 million of credit line from Taizhou Bank. This credit line was guaranteed by related parties. As of December 31, 2012, the credit line was fully used in the form of short term loans and notes payable. The credit line expires in December 2013.

In December2012, Jonway was approved up to an aggregate of $8.9 million of credit line from Everbright Bank. As of December 31, 2012, this credit line was fully used in the form of notes payable. The credit line expires in December 2013.

Short term debt

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 $3.2 million which was drawn down in 2011. The annual interest rate is 7.22% and was 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. As of September 30, 2012, the Company had repaid $3.2 million.

Under the above mentioned credit line of $23.8 million granted by CITIC, Jonway entered into a Credit Agreement with CITIC for a revolving short term bank loan in the aggregate amount of approximately US$ 1.6 million which was drawn down on May 25, 2012. The annual interest rate is 8.05% and was repaid in December, 2012. In November 2012, Jonway borrowed another one year short-term loans in the aggregate amount of approximately $7.1 million from CITIC under the credit line. The annual interest rate is 6.60%, and expires in November 2013. The loan is secured by a Maximum Amount Mortgage Contract by and between Jonway and CITIC dated May 25, 2012 in which land use right and a building at a total carrying amount of $5.9 million have been pledged as security for this loan.

In December 2011, Jonway established additional short term bank loans amounting to over $2.2 million from three small-size banks based in Taizhou City, which are subject to Jonway Group guarantee, of which $790 of such loans were secured by bank notes received from Jonway dealers. These loans were repaid on March 31, 2012.

In March 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 was repaid on April 1, 2012.

In June 2012, Jonway entered into additional short term loan agreements with both banks based in Taizhou city for the aggregating amount of approximately $1 million. Such bank loans are secured by Jonway Group, certain individuals and Jonway's property, plant and equipment. The annual interest rate was 9.00%. The $1 million was repaid in December 2012.

In December 2012, Jonway entered into two short-term loans with Taizhou Bank for the aggregating amount of $1.6 million. The annual interest rates are 8.06% and 8.46% respectively, and the loans are due in February and June 2013, respectively. The loans are guaranteed by Jonway Group, shareholder Huaiyi Wang and his two families. In February 2013, $0.8 million was renewed and expires in July 2013.

As of December 31, 2012, Jonway had $8.7 million in short term bank loans outstanding, which are borrowed CITIC bank with interest rates ranging from 6.60% to 8.46% per annum and are due within November 2013. The loan is guaranteed by land use right and buildings at a carrying value of $5.9 million as well as by CEO Alex Wang.

In 2012, Jonway in total borrowed$12.6 million and repaid $9.3 million. The weighted average annual interest rate was 6.51%.

In January and February 2013, Jonway borrowed $1.4 million and $3.3 million, respectively, from Industrial and Commercial Bank of China. $1.4 million expires in January 2014. $3.3 million expires at various dates during 2013. The annual interest rate is 6.90%. The loans are guaranteed by shareholders Alex Wang and Huaiyi Wang, as well as pledged by land use right and buildings at a carrying amount of approximately $3.7 million.

	2012		2011
Loan from CITIC bank	$	7,133	$	0
Loan from Taizhou Bank		1,585		1,428
Loan from Zhejiang Tailong Commercial Bank		-		794
Loan from China Merchants Bank		-		3,174
Loan from Pay-Ins Prem		36		89
Balance as of December 31,	$	8,754	$	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 $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 December 31, 2012, the Company has bank acceptance notes payable in the amount of $18.5 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 50% or 100% of the notes payable with these banks, in order to ensure future credit availability. As of December 31, 2012, the restricted cash for the notes was $11.8 million.

Bank acceptance notes- 3 to 6 month term for each note issued

	2012		2011
a) Bank acceptance notes payable to China Everbright bank	$	6,334	$	4,761
b) Bank acceptance notes payable to CITIC bank		5,608		0
c) Bank acceptance notes payable to Taizhou bank		4,627		2,451
d) Bank acceptance notes payable to Yinzuo bank		1,268		0
e) Bank acceptance notes payable to Shanghai Pudong development bank		676		0
f) Bank acceptance notes payable to China Merchants bank		0		3,316
	$	18,513	$	10,528

Notes payable to China Everbright bank include 65 bank acceptance notes expiring at various dates from January 2013 to June 2013. The notes payable are guaranteed by land use right and a building at a total carrying value of $1.5 million. The Company is also required to maintain cash deposits at 50% of the notes payable with the bank, in order to ensure future credit availability. During 2013, a total amount of 7.2 million was renewed.

Notes payable to CITIC bank include 7 bank acceptance notes expiring at various dates from March 2013 to May 2013. The Company is required to maintain cash deposits at 100% of the notes payable with the bank, in order to ensure future credit availability.

Notes payable to Taizhou bank include 47 bank acceptance notes expiring at various dates from February 2013 to June 2013. The Company is required to maintain cash deposits at 50% of the notes payable with the bank, in order to ensure future credit availability. In January and February 2013, a total of $2.5 million was renewed.

Notes payable to Yinzuo bank include 21 bank acceptance notes expiring in March 2013. The Company is required to maintain cash deposits at 50% of the notes payable with the bank, in order to ensure future credit availability.

On March 13, 2012 the Company and Shanghai Pudong Development Bank signed the bank acceptance note agreement for the amount of $ 676,811. This bank note facility was issued to Jonway Auto's suppliers and secured by a letter of credit, valued at $ 676,811, of which Jonway Auto is a beneficiary. The bank acceptance notes expire on March 13, 2013.

In January 2013, the Company received $12.1 million of notes payable from Industrial and Commercial Bank of China. The Company is required to maintain cash deposits at 100% of the notes payable with the bank, in order to ensure future credit availability.

SENIOR CONVERTIBLE DEBT - 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.

The Note which initially was scheduled to mature on February 12, 2012 but was extended to August 12, 2013 according to the representation letter dated March 21, 2012 from CEVC. On March 22, 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 adjusted the rate at which the note would convert into shares of ZAP Common Stock or shares of capital stock of Zheijiang Jonway Automobile, Co. Ltd. held 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. The note accrues interest at a rate per annum of 8% effective to February 12, 2012.

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 $1.2 million in interest expense through the year ended December 31, 2012 related to this note.