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

Line of credit

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. The credit line was repaid and expired on March 31, 2013.

In May 2012, we were approved up to an aggregate of $ 23.8 million of credit line from the Sanmen Branch of CITIC Bank ("CITIC") through Jonway. When drawn down, the credit line will be secured by land and buildings on this land owned by Jonway and guaranteed by Jonway Group. Under the above credit line in November 2012, Jonway borrowed one year short-term loans in the aggregate amount of approximately $7.2 million. The annual interest rate is 6.60%, and the loans are due in November 2013. We have also drawn $5.7 million in the form of notes payable by March 31, 2013. We deposited 100% cash as restricted cash as collateral for these notes payable. These notes are due in May 2013. As of March 31, 2013, the unused credit line of $10.9 million has not been used. The credit line expires in May 2013.

In December 2012, Jonway was approved up to an aggregate of $4.0 million on a credit line from Taizhou Bank. This credit line was guaranteed by related parties. At March 31, 2013, this credit line was fully used in form of short term bank loans $1.6 million and notes payable of $5.1 million (Jonway deposited $2.7 million as restricted cash as collateral against the notes payable in order for the bank to release $5.1 million of notes payable) . The credit line expires in December 2013.

In December 2012, Jonway was approved up to an aggregate of $8.9 million of credit line from Everbright Bank. As of March 31, 2013, $9.4 million was drawn as notes payable (Jonway deposited $4.7 million as restricted cash as collateral against the notes payable in order for the bank to release the additional amounts above the $8.9 million of credit line. The credit line expires in December 2013.

Short term debt

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 loan in the aggregate amount of approximately $7.2 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 has been pledged as security for this loan.

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.

During 2012, Jonway in total borrowed $12.6 million and repaid $9.3 million. The weighted average annual interest rate was 6.51%. In the first quarter of 2013, Jonway borrowed $5.6 million and repaid $0.8 million. The weighted average annual interest rate was 6.90%.

In January and February, 2013, Jonway borrowed $1.4 million and $3.3 million, respectively, from Industrial and Commercial Bank of China (ICBC). $1.4 million expires in January 2014 and $3.4 million expires at various dates during 2013 from May 2013 through December 31, 2013. The annual interest rate is 6.90%. The loans are guaranteed by shareholders Alex Wang and Huaiyi Wang, with collateral pledged by land use right and buildings at a carrying amount of approximately $3.7 million.

In May 2013, approximately $1.1 million of short term debt to ICBC was repaid.

	March 31, 2012		December 31, 2012
Loan from CITIC bank	$	7,181		7,133
Loan from ICBC		4,787		--
Loan from Taizhou Bank		1,588		1,585
Loan from Pay-Ins Prem		14		36
		13,570		8,754

As of March 31, 2013, the Company has bank acceptance notes payable in the amount of $22.7 million. The notes are guaranteed to be paid by the banks and are usually for a short-term period of six (6) months. The Company is required to maintain cash deposits of 50% or 100% of the notes payable with these banks, in order to ensure future credit availability. As of March 31, 2013, the restricted cash for the notes was $16.1 million.

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

	March 31, 2013		December 31, 2012
a) Bank acceptance notes payable to China Everbright bank	$	9,415		6,334
b) Bank acceptance notes payable to Taizhou bank		5,189		4,627
c) Bank acceptance notes payable to CITIC bank		5,708		5,608
d) Bank acceptance notes payable to ICBC		2,378		--
e) Bank acceptance notes payable to Yinzuo bank		--		1,268
f) Bank acceptance notes payable to Shanghai Pudong development bank		--		677
		22,690		18,513

Notes payable to China Everbright bank have various maturity dates from June, 2013 to September 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 Taizhou bank have various maturity dates from April 2013 to August, 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 2013, a total of $2.5 million was renewed.

Notes payable to CITIC bank have various maturity dates from May, 2013 to September, 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 ICBC will be due in July 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 Yinzuo bank include 21 bank acceptance notes which expired in March 2013. The Company was 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 bank acceptance note agreement for $ 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 was a beneficiary. The bank acceptance notes expired on March 13, 2013.

In April and May, 2013, approximately $7.1 million of notes payable matured. In April 2013, approximately $4.4 million of notes payable were issued and are due in October 2013. The Company is required to maintain cash deposits at 50% or 100% of the notes payable with the bank.

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 from 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.