NOTE 10 - CONVERTIBLE DEBT

Convertible debt consists of the following:

	December 31, 2016		December 31, 2015
Senior convertible debt – CEVC (a)	$	20,679	$	20,679
Convertible debt – Mr. Luo Hua Liang (b)		-		786
	$	20,679	$	21,465

(a)

Senior convertible debt - CEVC

On January 12, 2011, the Company entered into a Senior Secured Convertible Note and Warrant Purchase Agreement (the “Agreement”) with CEVC, a British Virgin Island company whose sole shareholder is Cathaya Capital, L.P., and a Cayman Islands exempted limited partnership (“Cathaya”). Priscilla Lu was the former chairwoman 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 $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 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.

As of December 31, 2016, the Company has an outstanding unpaid principal balance of $20,679,069 due to CEVC in regards to the Company’s Amended and Restated Promissory Note dated March 22, 2012 (“Amended Note”). Pursuant to the terms of the Amended Note, CEVC has right to convert the unpaid principal balance of the Amended Note into shares of common stock of the Company’s Chinese subsidiary -Jonway Auto (“Conversion”). Upon Conversion, the Company’s indebtedness to CEVC under the Note shall be satisfied in full and CEVC, or its designee, shall hold approximately 39.479% of the equity of Jonway Auto and the Company’s equity position in Jonway Auto shall be reduced from 51% to approximately 11.52%. Accordingly, the Company shall be forced to deconsolidate Jonway Auto. On December 23, 2016, the Company received the Conversion Notice from CEVC. Effective on April 3, 2017, the CEVC and the Board of the Company have mutually agreed to put the conversion temporarily on hold as the Board of the Company approved the initiation of due diligence with respect to the possible merger of the Company with Jonway Group’s motorcycle business with the intention of developing its “light electric vehicle” business. It is expected that the assessment of the merger and the related due diligence would be completed in the second quarter of 2017 and with a decision on the overall structure of the merger to be made by the end of the second quarter of 2017. CEVC may elect to accept the shares of the Jonway Auto or accept the shares of the Company in satisfaction of the Note based on the outcome of the due diligence and the assessment result of the merger. During this period, the Note will remain the same interest as indicated in the Agreement.

Interest expense related to CEVC convertible note for the years ended December 31, 2016 was $1,658,858 and $1,242,929, respectively. Accrued interest related to CEVC convertible note was $1,246,410 and $833,961 as of December 31, 2016 and December 31, 2015, respectively.

(b)

Convertible debt – Mr. Luo Hua Liang

This obligation was fully repaid in 2016.