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

Line of credit (Credit Exposure)

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 in March 2013.

In May 2012, we were approved up to an aggregate of $ 24.3 million of a credit line with the credit exposure of $7.3 million 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 $7.3 million. The annual interest rate is 6.6%, and the loans are due in November 2013. We have also drawn $4.9 million in the form of notes payable as of September 30, 2013. We deposited 100% cash as restricted cash as collateral for these notes payable. These notes are due in October and November 2013. The loans were repaid when due in October and November 2013. As of September 30, 2013, the total credit exposure of $7.3 million has been fully used. The credit exposure expires in November 2013. Till the Form 10-Q release date, we are in the process to finalize the documents on the extension of the credit line with the bank.

In December 2012, we were approved up to an aggregate of $4.0 million on a credit line with the credit exposure of $4.0 million from Taizhou Bank. This credit line was guaranteed by related parties. As of September 30, 2013, the total credit exposure of $4 million has been fully used. The annual interest rates are 8.46% to 8.89%. The loans are due in December 2013 and February 2014. A credit exposure of $ 2.0 million was used in the form of notes payable of $4.6 million with restricted cash of $2.6 million deposited with the bank.

In December 2012, we were approved up to an aggregate of $9.1 million of a credit line with the credit exposure of $4.5 million from Everbright Bank. As of September 30, 2013, $9.1 million was drawn down as notes payable with restricted cash of $4.5 million deposited with the bank. As of September 30, 2013, this credit exposure has been fully used. The credit exposure expires from December 2013 to March 2014.

We were also approved up to an aggregate of $4.8 million on a credit line from Industrial and Commercial Bank of China (ICBC). This credit line was secured by land and buildings on this land owned by Jonway and guaranteed by related parties. By September 30, 2013, the total outstanding loan under this credit line was $4.8 million which were drawdown in February, June and August 2013, with an annual interest rate of 6.9%. The loans are due in October 2013 through August 2014, and have been repaid when due.We have also drawn $176,000 in the form of notes payable as of September 30, 2013. We deposited 100% cash as restricted cash as collateral for these notes payable. These notes are due in March 2014. The credit line expires in December 2013.

Short term debt

Under the above mentioned credit line with credit exposure of $7.3 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 $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 $7.3 million from CITIC under the credit line. The annual interest rate is 6.60%, and expires in November 2013. It has been repaid when due. 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 with a total carrying amount of $5.8 million as of September 30, 2013 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 were due in February and June 2013, respectively. The loans are guaranteed by Jonway Group, shareholder Huaiyi Wang and his two families as well as restricted cash of $0.1 million In July 2013, the company repaid $0.8 million of short term loans to Taizhou Bank In July and August, the company obtained a total of $1.3 million short term loans at an interest rate of 8.46% and 8.89% from Taizhou Bank. The loans are guaranteed by a related party and will be due in January and February 2014.

In January and February 2013, Jonway borrowed $1.4 million and $3.4 million, respectively, from Industrial and Commercial Bank of China (ICBC). $1.4 million is due in January 2014 and $3.4 million is due at various dates from May 2013 through December 31, 2013. In May 2013, $1.1 million was renewed and is due in June 2014. The annual interest rate is 6.90%. In August 2013, $1.1 million was renewed and is due in August 2014. The annual interest rate is 6.9%. In August and September, Jonway entered into a short-term loan of $1.5 million with ICBC. The loan was fully secured by a deposit of $1.5 million at ICBC. The loan is due in February and March 2014 respectively and the annual interest rate is 5.6%. 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 $3.3 million.

The weighted average annual interest rate was 8.01% and 7.77% for the three months ended September 30, 2013 and 2012 respectively. The weighted average annual interest rate was 8.15%and 7.77% for the nine months ended September 30, 2013 and 2012, respectively.

	September 30, 2013		December 31, 2012
Loan from CITIC bank	$	7,324	$	7,333
Loan from ICBC		6,348		--
Loan from Taizhou Bank		2,116		1,585
Loan from Pay-Ins Prem		169		36
	$	15,957	$	8,754

Bank Acceptance Notes

As of September 30, 2013, the Company has bank acceptance notes payable in the amount of $18.7 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 September 30, 2013, the restricted cash for the notes was $12.2 million.

	September 30, 2013		December 31, 2012
a) Bank acceptance notes payable to China Everbright bank	$	9,110	$	6,334
b) Bank acceptance notes payable to Taizhou bank		4,557		4,627
c) Bank acceptance notes payable to CITIC bank		4,883		5,608
d) Bank acceptance notes payable to ICBC		176		--
e) Bank acceptance notes payable to Yinzuo bank		--		1,268
f) Bank acceptance notes payable to Shanghai Pudong development bank		--		676
	$	18,726	$	18,513

Notes payable to China Everbright bank have various maturity dates from December 2013 to March 2014. 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.

Notes payable to Taizhou bank have various maturity dates from October 2013 to March 2014. The Company is required to maintain cash deposits of 50% or 100% of the notes payable with the bank, in order to ensure future credit availability. Notes payable were repaid when due.

Notes payable to CITIC bank have various maturity dates from October 2013 to November 2013. The Company is required to maintain cash deposits of 100% of the notes payable with the bank, in order to ensure future credit availability. Notes payable were repaid when due.

Notes payable to ICBC will be due in March 2014. The Company is required to maintain cash deposits of 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 a 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.

From October 2013 to November 2013, approximately $6.2 million of notes payable matured and approximately $4.1 million of notes payable were issued. The new notes payable will be due in April and May 2014. 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 and accrues no interest with this new extension. 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 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. This convertible note has been extended until August 12, 2014 with interest accrual as determined by the auditors, at 8% per annum. According to ASC 470-10, the market interest should be imputed for the non-interest bearing loan between the related parties, therefore in the extended agreement the Convertible Note will bear a market interest rate at 8%. With the new extensionthe principal of $20.7 million will have the same conversion features to cash, and will also be convertible in part or in whole to shares of ZAP or Jonway Auto at maturity date or at any time with a 90 day notice. The interest as from August 12, 2013 within 10 calendar days following the end of each fiscal quarter, the Company shall pay Holder the Additional Interest accrued during such fiscal quarter by issuing the Holder or a party designated by the Holder, the number of shares of the Company's Common Stock equal to (i) the Additional Interest accrued during such fiscal quarter divided by (ii) the average of the Closing Prices for each trading day during such fiscal quarter ending on (and including) the last Trading Day of such fiscal quarter. The Additional Interest Rate may be amended from time to time with the written consent of the Holder and the Company .

CONVERTIBLE BOND

On June 12th, 2013, the Company signed a convertible bond agreement, in which a Convertible Bond will be put in place to fund the formation of JAZ (Jonway And ZAP) from the ZAP Hangzhou Joint Venture that was formed in 2010 in China, Hangzhou. The Convertible Bond was to be funded at US$2 million with the option to convert to JAZ shares upon listing on the AIM market at a discount of 30% of the IPO price, and if no AIM listing will be achieved within the duration of Bond period then the Convertible Bond can be converted into ZAP shares at 30% below market price based on the average trading prices of the previous 120 days after notification by bond holder for shares conversion in whole or in part of the bond sum. The Convertible Bond bears an interest of 12% per annum payable in arrears in full. As at September 30, 2013 the Company received $1.7 million ($1.50 million net of interest) of the $2 million, leaving $300,00 yet to be received. A total of $0.13 million in amortization was recorded with the remaining balance of $0.73 million of the discount was offset against the Company's equity account. The Bond has not been fully funded and the remaining $300,000 may not be forthcoming and its settlement date is uncertain. Therefore, the final amount of the Bond will not be determined until the $300,000 either settled or the principal amount of the Bond is reduced to $1.7 million. At this time, only the $1.7 million that has been funded is accounted for in the financial statements.Ratification by the Company's board of directors of the final amount of the Bond is pending the definitive payment or nonpayment of the remaining$300,000.

ZAP Hangzhou Joint Venture (ZHJV) was formed to develop electric power trains using local supply parts, and also develop new technology to comply with the China EV type approval requirements. ZHJV has since provided the electric power train and technology for the compliance of China type approval for the Jonway Auto SUV EV, and is developing the power train for the minivan for both the lead acid and the lithium battery version. Over the last few months, ZHJV has been working on getting the formation of an offshore entity of JAZ (Cayman Island Incorporated) in place to support the additional funding requirements to support further development of EV technology and EV product development. This new entity JAZ will seek funding for EV development, and will be singularly focused on EV platforms and technologies. Funding from this will be directed to supporting the licensing of distribution rights from ZAP and also future development, sales and marketing of EV products. The licensing of distribution rights from ZAP will help finance the on-going expenses of ZAP and help bridge over the financial needs and liabilities in paying the on-going operational cost of running ZAP USA, while ZAP continues to develop the USA market for both consumer EV products and low speed vehicle EVs.

JAZ is working on doing a UK AIM listing next year, and is working with professionals organizations in the UK to achieve this listing. JAZ will be the vehicle for ZAP to focus on EV sales and marketing and further technology development, and will provide access to capital and funds for the on-going development of EV product line and markets