10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

Form 10-Q

______________________

(Mark One)

☒	QUARTERLY REPORT UNDER SECTION  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2016

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ________ to _________

Commission File Number    001-32534

ZAP
(Exact name of registrant as specified in its charter)
California	94-3210624
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
2 West 3rd Street Santa Rosa, California	95401
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code: (707) 525-8658

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filer required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.

Yes  ☒   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 Large accelerated filer  ☐ Accelerated filer  ☐ Non-accelerated filer  ☐ Smaller reporting company  ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐   No  ☒

As of August 10, 2016, there were 610,405,648 shares outstanding of the registrant’s common stock.  

1

INDEX

		Page No.
PART I. Financial Information
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2016 and 2015	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015	6
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	33
PART II. Other Information
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34
SIGNATURES		35

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ZAP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	June 30,		December 31,
ASSETS	2016		2015
Current assets:
Cash and cash equivalents	$	112	$	60
Restricted cash		10,806		8,988
Notes receivable		135		-
Accounts receivable, net		5,552		5,915
Inventories, net		7,173		7,743
Prepaid taxes		-		147
Prepaid expenses and other current assets		529		574
Total current assets		24,307		23,427
Property, plant and equipment, net		32,351		35,893
Land use rights, net		8,619		8,930
Other assets:
Distribution fees, net		6,239		6,959
Intangible assets, net		2,298		2,513
Goodwill		307		314
Due from related parties		1,334		1,614
Total other assets		10,178		11,400
Total assets	$	75,455	$	79,650

See accompanying notes to the unaudited condensed consolidated financial statements.

3

ZAP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	June 30,			December 31,
	2016			2015
LIABILITIES AND  DEFICIENCY
Current liabilities:
Short term loans	$	10,084		$	7,702
Accounts payable		21,284			21,486
Senior convertible debt		21,465			21,465
Accrued liabilities		4,115			4,000
Notes payable		13,049			14,366
Advances from customers		6,556			7,391
Taxes payable		1,314			1,638
Due to related parties		16,707			13,978
Other payables		2,161			2,256
Total current liabilities		96,735			94,282
Long term liabilities:
Accrued liabilities and others		149			152
Total long term liabilities		149			152
Total liabilities		96,884			94,434
Commitments and contingencies
Deficiency
Common stock, no par value; 800 million shares authorized;
578,465,159 and 578,465,159 shares issued and outstanding
at June 30, 2016 and December 31, 2015, respectively		251,725			251,689
Accumulated other comprehensive income		1,312			1,359
Accumulated deficit		(268,747	)		(264,144	)
Total ZAP shareholders' deficiency		(15,710	)		(11,096	)
Non-controlling interest		(5,719	)		(3,688	)
Total deficiency		(21,429	)		(14,784	)
Total liabilities and deficiency	$	75,455		$	79,650

See accompanying notes to the unaudited condensed consolidated financial statements.

4

ZAP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

 (In thousands; except share and per share data)

(Unaudited)

	For the Three Months Ended June 30						For the Six Months Ended June 30
	2016			2015			2016			2015
Net sales	$	2,971		$	5,356		$	6,353		$	13,718
Cost of goods sold		(3,695	)		(5,627	)		(7,011	)		(14,501	)
Gross loss		(724	)		(271	)		(658	)		(783	)
Operating expenses:
Sales and marketing		462			890			1,047			1,882
General and administrative		1,584			2,770			3,845			4,649
Research and development		49			1,070			168			1,683
Total operating expenses		2,095			4,730			5,060			8,214
Loss from operations		(2,819	)		(5,001	)		(5,718	)		(8,997	)
Other income (expense):
Interest expense, net		(669	)		(674	)		(1,223	)		(1,435	)
Other income		111			198			175			279
Total other expense		(558	)		(476	)		(1,048	)		(1,156	)
Loss before income taxes		(3,377	)		(5,477	)		(6,766	)		(10,153	)
Income tax expense		-			-			-			-
Net loss	$	(3,377	)	$	(5,477	)	$	(6,766	)	$	(10,153	)
Less: loss attributable to non-controlling interest		1,069			1,930			2,163			3,614
Net loss attributable to ZAP’s common shareholders	$	(2,308	)	$	(3,547	)	$	(4,603	)	$	(6,539	)
Net loss	$	(3,377	)	$	(5,477	)	$	(6,766	)	$	(10,153	)
Other comprehensive loss
Foreign currency translation adjustments		156			83			85			129
Total comprehensive loss		(3,221	)		(5,394	)		(6,681	)		(10,024	)
Less: Comprehensive loss attributable to non-controlling interest		891			1,930			2,031			3,511
Comprehensive loss attributable to ZAP's common shareholders	$	(2,330	)	$	(3,464	)	$	(4,650	)	$	(6,513	)
Net loss per share attributable to common shareholders:
Basic and diluted	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.02	)
Weighted average number of common shares outstanding:
Basic and diluted		578,465			460,213			578,465			460,448

See accompanying notes to the unaudited condensed consolidated financial statements.

5

ZAP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the Six months Ended June 30
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(6,766	)	$	(10,153	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Gain from disposal of equipment		-			(6	)
Stock-based employee compensation		36			37
Depreciation and amortization		3,157			4,198
Amortization of distribution agreement		720			-
Provision for doubtful accounts		418			533
Changes in inventory reserve		218			(89	)
Changes in assets and liabilities:
Accounts receivable		(186	)		428
Notes receivable		(138	)		78
Inventories		183			933
Prepaid expenses and other assets		181			(155	)
Due from related parties		248			(115	)
Accounts payable		244			(1,311	)
Accrued liabilities		184			267
Taxes payable		(291	)		82
Advances from customers		(676	)		1,880
Due to related parties		2,970			7,090
Other payables		(28	)		(535	)
Net cash provided by operating activities		474			3,162
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(131	)		(92	)
Proceeds from disposal of equipment		204			17
Net cash provided by (used in) investing activities		73			(75	)

See accompanying notes to the unaudited condensed consolidated financial statements.

6

ZAP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the Six months Ended June 30
	2016			2015
CASH FLOWS FROM FINANCING ACTIVITIES
Change in restricted cash	$	(2,059	)	$	(386	)
Proceeds from notes payable		13,264			14,631
Proceeds from short term loans		6,732			1,146
Repayment of convertible bond		-			(100	)
Repayments of notes payable		(14,268	)		(13,355	)
Repayments of short term loans		(4,161	)		(5,162	)
Net cash used in financing activities		(492	)		(3,226	)
Effect of exchange rate changes on cash and cash equivalents		(3	)		32
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		52			(107	)
CASH AND CASH EQUIVALENTS, beginning of period		60			238
CASH AND CASH EQUIVALENTS, end of period	$	112		$	131
Supplemental disclosure of cash flow information:
Cash paid during period for interest	$	542		$	602
Cash paid during period for income taxes	$	-		$	-
Non-cash transaction:
Cancellation of 1,182,558 shares of common stock issued to pay convertible bond	$	-		$	100

See accompanying notes to the unaudited condensed consolidated financial statements.

7

ZAP AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

ZAP was incorporated in California in September, 1994 (together with its subsidiaries, the “Company” or “ZAP Group”).  ZAP Group markets electric, alternative energy, and fuel efficient automobiles and commercial vehicles, motorcycles and scooters, and other forms of personal transportation. The Company’s business strategy is to develop, acquire, and commercialize electric vehicles and electric vehicle power systems which the Company believes have fundamental practical and environmental advantages over available internal combustion modes of transportation and that can be produced commercially on an economically competitive basis.

In pursuit of a manufacturing plant and a partner with an existing product line, a distribution and customer support network in China, and experience in vehicle manufacturing, ZAP acquired a majority of the outstanding equity in Zhejiang Jonway Automobile Co., Ltd. (“Jonway Auto”). The Company believes its 51% acquisition of Jonway Auto will enable it to access the rapidly-growing Chinese market for electric vehicles (“EV”) and to expand its EV business and distribution network around the world. The Company also believes Jonway Auto’s ISO 9001 certified manufacturing facility provides the competitive production capacity and resources to support production of ZAP Group’s new line of electric SUV, minivan, and Neighborhood EV (“NEV”).

Jonway Auto is a limited liability company incorporated in Sanmen County, Zhejiang Province of the People’s Republic of China (“the PRC”) on April 28, 2004 by Jonway Group Co., Ltd. (“Jonway Group”). Jonway Group is under the control of three individuals, Wang Huaiyi, Alex Wang (the son of Wang Huaiyi) and Wang Xiaoying (the daughter of Wang Huaiyi and all three individuals collectively referred to as the “Wang Family”).

ZAP has a wholly owned subsidiary, ZAP Hong Kong, a Hong Kong limited company. ZAP Hong Kong was established in 2011 as a wholly foreign owned enterprises (“WFOE”) and has no operation since incorporated. Jonway Auto established three wholly-owned subsidiaries, namely, Taizhou Selling Co., Ltd., focusing on vehicles marketing and distribution, Taizhou Fuxing Vehicle Sale Co., Ltd., focusing on minivan marketing and distribution in China, and Taizhou Vehicle Leasing Co., Ltd., focusing on the vehicle leasing business in Taizhou.

NOTE 2 – LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2016, the Company’s current liabilities exceeded the current assets by approximately $72.4 million and its equity deficiency was $15.7 million, which raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company has recurring net losses. Given the Company’s expected capital expenditure in the foreseeable future, the Company has comprehensively considered its available sources of funds as follows:

· Financial support and credit guarantee from related parties; and

· Other available sources of financing from domestic banks and other financial institutions given its credit history.

The Company does not currently have sufficient cash or commitments for financing to sustain its operations for the next twelve months. The Company plans to substantially increase its cash flows from operations and revenue derived from its products. If the Company’s revenues do not reach the level anticipated in its plan and the Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all, the Company may be unable to implement its current plans for expansion, repay its debt obligations or respond to competitive pressures, any of which would have a material adverse effect on its business, prospects, financial condition and results of operations. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

In assessing the Company’s liquidity, the Company monitors and analyzes its cash on-hand, and its operating and capital expenditure commitments.  The Company’s principal liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations.

8

              In June 2015, the Company was approved for up to an aggregate of $6.9 million of a credit line from China Everbright Bank with 50% restricted cash deposited and credit exposure of $3.5 million The Company renewed the agreement in June 2016. The renewed agreement approved for up to an aggregated of $6.0 million of a credit line with 50% restricted cash deposited and credit exposure of $3.0 million. The renewed credit line expires in June 2017.  The credit line is secured by a land use right and a building with a total carrying amount of $2.1 million. Three shareholders and the Chief Executive Officer (“CEO”) Alex Wang also personally guaranteed on this credit line.  As of June 30, 2016, $6 million was drawn down as notes payable from Everbright Bank.  The amount of restricted cash deposited with the bank was $3.0 million. As of June 30, 2016, the renewed credit line has been fully utilized.

In March 2014, the Company has obtained up to an aggregate of $15.1 million of credit line with the credit exposure of $5.6 million from CITIC Sanmen Branch through Jonway Auto.  The credit line was extended for one more year and expires on November 2016. The credit line is secured by land and building owned by Jonway Auto and guaranteed by the related party – Jonway Group.  The shareholder and CEO Alex Wang also personally guaranteed this credit line. As of June 30, 2016, the Company borrowed aggregated $5.6 million loans with various due dates in March 25, 2017 to April 26, 2017 from CITIC Sanmen Branch. The loans carried at annual interests of 6.0%.  The Company has also drawn down $7.0 million in the form of notes payable as of June 30, 2016.  The Company deposited $7.0 million restricted cash as collateral for these notes payable. These notes are due from July 2016 to September, 2016.  As of June 30, 2016, the line of credit has been fully utilized.

In March 2014, the Company was approved up to an aggregate of $5.0 million of a credit line from ICBC. This credit line was secured by land and buildings owned by Jonway Auto and guaranteed by related parties. The credit line expires on March 2017. As of June 30, 2016, the total outstanding loan under this credit line was $4.5 million. The annual interest rates are from 4.36% to 6.66%.  The loans are due in various dates from July 24, 2016 to June 22, 2017.  As of June 30, 2016, the unused line of credit was approximately $0.5 million.

Jonway Auto intends to utilize the above credit lines to expand its electric vehicle business as well as other future vehicle models.  This includes on-going working capital needs, electric vehicle production equipment requirements, testing, homologation and new EV product molds. Also the Company’s principal shareholder, Jonway Group, has agreed to provide the necessary support to meet the Company’s financial obligations through December 31, 2016 in the event that the Company requires additional liquidity. In addition, China Electric Vehicle Corporation (“CEVC”), a related party, has renewed the convertible note with an extension through December 31, 2016 (see Note 8).

The Company will require additional capital to expand its current operations.  In particular, the Company requires additional capital to continue development of its electric vehicle business, to continue strengthening its dealer network and after-sale service centers and expanding its market initiatives.  The Company also requires financing the investment for the continued roll-out of new products and to add qualified sales and professional staff to execute on its business plan and pursue its efforts in the research and development of advanced technology vehicles, such as the new ZAP Alias, the electric and other fuel efficient vehicles.

The Company intends to fund its long term liquidity needs related to operations through the incurrence of indebtedness, equity financing or a combination of both.  The Company’s ability to fund these needs will depend on its future performance, which will be subject in part to general economic, financial, regulatory and other factors beyond its control, including trends in its industry and technological developments.  

Jonway Group has continued to provide support in financing the capital requirements of Jonway Auto. For the year ended December 31, 2015, Alex Wang, the CEO and Jonway Group injected $5.4 million to the Company and plan to inject additional capital to support the critical on-going manufacturing operations to meet the delivery of the EV minivans and SUV orders in the pipeline.

9

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements include the financial statements of ZAP, and its subsidiaries, Jonway Auto and ZAP Hong Kong for the six months ended June 30, 2016 and the year ended December 31, 2015 and are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Management considers subsidiaries to be companies that are over 50% controlled. Significant intercompany transactions and balances are eliminated in consolidation; profits from intercompany sales, are also eliminated; non-controlling interests are included in equity.  The Company accounts for its 37.5% interest in the ZAP Hangzhou and its 50% interest in Shanghai Zapple using the equity method of accounting because it has significant influence but not control. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the financial statements have been included. Interim results are not necessarily indicative of results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction with information included in the 2015 annual report on Form 10-K filed on April 14, 2016.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The more significant estimates relate to revenue recognition, contractual allowances and uncollectible accounts, intangible assets, accrued liabilities, warranty costs, stock based compensation, income taxes, litigation and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for judgments about results and the carrying values of assets and liabilities. Actual results and values may differ significantly from these estimates.

Revenue Recognition

The Company records revenues for non-Jonway Auto sales when all of the following criteria have been met:

-  Persuasive evidence of an arrangement exists. The Company generally relies upon sales contracts or agreements, and customer purchase orders to determine the existence of an arrangement.

- Sales price is fixed or determinable. The Company assesses whether the sales price is fixed or determinable based on the payment terms and whether the sales price is subject to refund or adjustment. 

- Delivery has occurred. The Company uses shipping terms and related documents, or written evidence of customer acceptance, when applicable, to verify delivery or performance. The Company’s customary shipping terms are FOB shipping point.

- Collectability is reasonably assured.  The Company assesses collectability based on creditworthiness of customers as determined by the Company’s credit checks and their payment histories. The Company records accounts receivable net of allowance for doubtful accounts and estimated customer returns.

 The Company records revenues for Jonway Auto sales only upon the occurrence of all of the following conditions:

- The Company has received a binding purchase order from the customer or distributor authorized by a representative empowered to commit the purchaser (evidence of a sale);

- The purchase price has been fixed, based on the terms of the purchase order;

- The Company has delivered the product from its factory to a common carrier acceptable to the customer; and

- The Company deems the collection of the amount invoiced probable.

The Company provides no price protection. Sales are recognized net of sale discounts, rebates and return allowances.

10

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES - continued

Fair Value of Financial Instruments

Accounting Standards Update (“ASU”) 820, “Fair Value Measurements” and Accounting Standards Codification (“ASC”) 825, Financial Instruments, requires an entity to use observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions and methodologies that result in management’s best estimate of fair value.

The carrying value of accounts receivable, other current assets and prepaid expenses, short term loans, other payables and accrued expenses approximate their fair values because of the short-term nature of these instruments. The carrying value of the senior convertible debt (see Note 8), which approximates fair value, is influenced by interest rates and the Company’s stock price, and is determined by prices for the convertible debts observed in market trading, which are Level 2 inputs.

Foreign Currency Translation

The Company and its wholly owned subsidiary/investments, maintain their accounting records in United States Dollars (“US$”) whereas Jonway Auto maintains its accounting records in the currency of Renminbi (“RMB”), being the primary currency of the economic environment in which their operations are conducted.

Jonway Auto’s principal country of operations is the PRC. The financial position and results of the Company’s operations are determined using RMB, the local currency, as the functional currency.  The results of operations and the statement of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period.  Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date.  The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution.  Due to the fact that cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.  Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholder’s equity as “Accumulated Other Comprehensive Income.”

The value of RMB against US$ and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions, any significant revaluation of RMB may materially affect the Company’s financial condition in terms of US$ reporting.  The following table outlines the currency exchange rates that were used in creating the condensed consolidated financial statements in this report:

	June 30, 2016	June 30, 2015	December 31, 2015
Balance sheet items, except for share capital, additional    paid in capital and retained earnings	$ 1=RMB 6.6443	$ 1=RMB6.0888	$1=RMB6.4917
Amounts included in the statements of operations    and cash flows	$ 1=RMB 6.5364	$ 1=RMB 6.1088	$1=RMB 6.2288

11

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES – continued

Recent Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Changes to the current guidance include the accounting for equity investments, the presentation and disclosure requirements for financial instruments, and the assessment of valuation allowance on deferred tax assets related to available-for-sale securities. In addition, ASU 2016-01 establishes an incremental recognition and disclosure requirement related to the presentation of fair value changes of financial liabilities for which the fair value option has been elected. Under this guidance, an entity would be required to separately present in other comprehensive income the portion of the total fair value change attributable to instrument-specific credit risk as opposed to reflecting the entire amount in earnings. ASU 2016-01 is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adoption on its consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Codification (“ASC”) 842 (“ASC 842”), “Leases” which replaces the existing guidance in ASC 840, Leases.  ASC 842 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ASC 842 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (ROU) asset and a corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the ROU asset and for operating leases the lessee would recognize a straight-line total lease expense.  The Company is currently evaluating the impact of adoption on the consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments clarify what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. All entities have the option of adopting the new requirements early, including adoption in an interim period. If an entity early adopts the new requirements in an interim period, it must reflect any adjustments as of the beginning of the fiscal year that includes that interim period. The Company does not expect any material impact of this new standard on its consolidated financial statements.

In April 2016, the FASB released ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. While aimed at reducing the cost and complexity of the accounting for share-based payments, the amendments are expected to significantly impact net income, EPS, and the statement of cash flows. Implementation and administration may present challenges for companies with significant share-based payment activities. The ASU is effective for public companies in annual periods beginning after December 15, 2016, and interim periods within those years. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

In April 2016, FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

12

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES – continued

Recent Accounting Pronouncements - continued

               In May 2016, the FASB issued ASU No. 2016-11 Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815); Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, which is rescinding certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition, and Topic 932, Extractive Activities—Oil and Gas, effective upon adoption of Topic 606. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

               In May 2016, FASB issued ASU No. 2016-12 Revenue from Contracts with Customers (Topic 606); Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis.  The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

NOTE 4 – ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

	June 30, 2016			December 31, 2015
Accounts receivable – third parties	$	2,760		$	2,274
Accounts receivable – related parties		4,698			5,172
		7,458			7,446
Less – Allowance for doubtful accounts		(1,906	)		(1,531	)
Total account receivable, net	$	5,552		$	5,915

Changes in the Company’s allowance for doubtful accounts during the six months ended June 30, 2016 and the year ended December 31, 2015 are as follows:

	June 30, 2016		December 31, 2015
Balance, beginning of period	$	1,531	$	439
Write-off		-		(76	)
Current provision		375		1,168
Balance, end of period	$	1,906	$	1,531

13

NOTE 5 – INVENTORIES, NET

Inventories, net are summarized as follows:

	June 30, 2016			December 31, 2015
Work in Process	$	2,701		$	2,237
Parts and supplies		3,805			3,616
Finished goods		2,153			3,186
		8,659			9,039
Less - inventory reserve		(1,486	)		(1,296	)
Inventories, net	$	7,173		$	7,743

Changes in the Company’s inventory reserve during the six months ended June 30, 2016 and the year ended December 31, 2015 are as follows:

	June 30, 2016		December 31, 2015
Balance, beginning of period	$	1,296	$	1,380
Current recovery for Jonway Auto		-		(132	)
Current provision for inventory ZAP, net		190		48
Balance, end of period	$	1,486	$	1,296

 NOTE 6 - DISTRIBUTION AGREEMENTS

              Distribution agreements are presented below:

	June 30, 2016			December 31, 2015
Better World Products - related party	$	2,160		$	2,160
Jonway Products		14,400			14,400
		16,560			16,560
Less: amortization and impairment		(10,321	)		(9,601	)
	$	6,239		$	6,959

Amortization expenses related to these distribution agreements for the three and six months ended June 30, 2016 and 2015 was $360,000 and $360,000, $720,000 and $720,000, respectively. Amortization is based over the term of the agreements. No impairment loss was recorded for the three months ended June 30, 2016 and 2015, respectively. The estimated future amortization expense is as follows:

12 months ended June 30,
2017	$	1,440
2018		1,440
2019		1,440
2020		1,440
Thereafter		479
Total	$	6,239

14

NOTE 7 – LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES

Line of credit (Credit Exposure)

   In June 2015, the Company was approved for up to an aggregate of $6.9 million of a credit line from China Everbright Bank with 50% restricted cash deposited and credit exposure of $3.5 million. The Company renewed the agreement in June 2016. The renewed agreement approved for up to an aggregated of $6.0 million of a credit line with 50% restricted cash deposited and credit exposure of $3.0 million. The renewed credit line expires in June 2017.  The credit line is secured by a land use right and a building with a total carrying amount of $2.1 million. Three shareholders and the Chief Executive Officer (“CEO”) Alex Wang also personally guaranteed on this credit line.  As of June 30, 2016, $6.0 million was drawn down as notes payable from China Everbright Bank.  The amount of restricted cash deposited with the bank was $3.0 million. As of June 30, 2016, the renewed credit line has been fully utilized.

 In March 2014, the Company has obtained up to an aggregate of $15.1 million of credit line with the credit exposure of $5.6 million from CITIC Sanmen Branch through Jonway Auto.  The credit line was extended for one more year and expires on November 2016. The credit line is secured by land and building owned by Jonway Auto and guaranteed by the related party – Jonway Group.  The shareholder and CEO Alex Wang also personally guaranteed this credit line. As of June 30, 2016, the Company borrowed aggregated $5.6 million loans with various due dates in April 13, 2017 to April 26, 2017 from CITIC Sanmen Branch. The loans carried at annual interests of 6%.  The Company has also drawn down $7.0 million in the form of notes payable as of June 30, 2016.  The Company deposited $7.0 million restricted cash as collateral for these notes payable. These notes are due from July 2016 to December, 2016.  As of June 30, 2016, the line of credit has been fully utilized.

In March 2014, the Company was approved up to an aggregate of $5.0 million of a credit line from ICBC. This credit line was secured by land and buildings owned by Jonway Auto and guaranteed by related parties. The credit line expires on March 2017. As of June 30, 2016, the total outstanding loan under this credit line was $4.5 million. The annual interest rates are from 4.36% to 6.66%.  The loans are due in various dates from July 24, 2016 to June 22, 2017.  As of June 30, 2016, the unused line of credit was approximately $0.5 million. .

Short term loans as of June 30, 2016 and December 31, 2015 are presented below:

		June 30, 2016		December 31, 2015
Loan from CITIC bank	(a)	$	5,569	$	3,081
Loan from ICBC	(b)		4,515		4,621
		$	10,084	$	7,702

.

(a) In October 2015, Jonway Auto borrowed a half year short-term loan of $3.1 million at annual interest rate of 5.9%. The loan was repaid upon maturity in April 2016.  

On March 25, 2016, Jonway Auto borrowed a one year loan of $0.5 million at annual interest rate of 6.0%. The loan is due on March 25, 2017.  On April 13, 2016, Jonway Auto borrowed a one year loan of $1.5 million at annual interest rate of 6.0%. The loan is due on April 13, 2017. On April 14, 2016, Jonway Auto borrowed a one year loan of $1.4 million at annual interest rate of 6.0%. The loan is due on April 14, 2017. On April 26, 2016, Jonway Auto further borrowed a one year loan of $2.2 million at annual interest rate of 6.0%. The loan is due on April 26, 2017.

All loans are secured by a Maximum Amount Mortgage Contract between Jonway Auto and CITIC dated November 3, 2014, in which a land use right and a building with a total carrying amount of $5.0 million as of June 30, 2016 has been pledged as security for these loans. The shareholder and CEO Alex Wang also personally guaranteed these loans.

(b) In March 2015, the Company borrowed a one year short-term loan of $0.8 million from ICBC at an annual interest of 5.4% and fully repaid the loan upon maturity in March 2016.  In June 2015, the Company borrowed a one year short-term loan of $0.3 million from ICBC at an annual interest rate of 5.92% and fully repaid the loan upon maturity in June 2016.

In July 2015, the Company borrowed a one year short-term loan of $1.1 million from ICBC at an annual interest rate of 6.7%.   In October 2015, the Company borrowed a one year short-term loan of $1.4 million at an annual interest of 6.4%. In November 2015, the Company borrowed a one year short-term loan of $1.1 million at an annual interest rate of 6.1%.  On June 8, 2016, the Company borrowed a one year short-term loan of $0.3 million at an annual interest rate of 5.0%.  On June 22, 2016, the Company borrowed a one year short-term loan of $0.8 million at an annual interest rate of 4.4%.

15

NOTE 7 – LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES - continued

Line of credit (Credit Exposure) - continued

These loans were guaranteed by related parties including Jonway Group, the shareholder Wang Huaiyi and the shareholder and CEO Alex Wang. The Company also pledged buildings and a land use right with a carrying value of $1.4 million with ICBC.

The weighted average interest rates were 6.0% and 6.9% for the six months ended June 30, 2016 and 2015, respectively.

Bank acceptance notes

 As of June 30, 2016, the Company has bank acceptance notes payable in the amount of $13.0 million. The notes are guaranteed to be paid by the banks and are usually for a short-term period of nine months. The Company is required to maintain cash deposits of 50% or 100% of the notes payable with these bank, in order to ensure future credit availability. As of June 30, 2016, the restricted cash for the notes was $10.8 million. Bank acceptance notes are presented below:

		June 30, 2016		December 31, 2015
Bank acceptance notes payable to China Everbright Bank	(a)	$	6,020	$	7,086
Bank acceptance notes payable to CITIC Bank	(b)		7,029		6,428
Bank acceptance notes payable to Shanghai Pudong Development bank	(c)		-		852
		$	13,049	$	14,366

(a) Notes payable to China Everbright bank have various maturity dates in December 2016. The notes payable are guaranteed by a land use right and a building with a total carrying value of $2.0 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.

(b) Notes payable to CITIC bank will be due in July to September, 2016.  The Company is required to maintain cash deposits at 100% of the notes payable with the bank, in order to ensure future credit availability.

(c) Notes payable to Shanghai Pudong Development Bank was due in January and May, 2016. The Company was required to maintain cash deposits at 100% of the notes payable with the bank. The note payable was fully repaid upon due date.

16

NOTE 8 - CONVERTIBLE DEBT

Convertible debts are presented below:

	June 30, 2016		December 31, 2015
Senior convertible debt – CEVC (a)	$	20,679		$	20,679
Convertible debt – Mr. Luo Hua Liang (b)		786			786
	$	21,465		$	21,465

(a) Senior convertible debt - CEVC (related party)

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 current shareholder 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 Auto capital stock owned by ZAP at a conversion rate of 0.003743% of shares of Jonway Auto 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.

This convertible note was extended until December 31, 2016 with interest accrual at 8% per annum with original maturing date of February 12, 2012. According to Accounting Standard Codification (“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 bears a market interest rate at 8%. With the new extension, the principal of $20.7 million has the same conversion terms 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. Beginning August 12, 2013 within 10 calendar days following the end of each fiscal quarter, the Company is required to 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 the Additional Interest accrued during such fiscal quarter divided by 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. In addition, the warrants issued in connection with the CEVC note were amended for the change of the terms of conversion and for the extension of the maturity date until December 31, 2016.

Upon expiration date of the CEVC note, this convertible note will likely be repaid by ZAP in the form of Jonway Auto shares in order to reduce the liability of ZAP. If the CEVC note is repaid by Jonway Auto shares, ZAP’s ownership of Jonway Auto would be reduced to less than majority interest, resulting in need to reconsider eligibility for consolidation.  Due to the increasing accumulation of debt from Jonway Auto, largely because of the lack of working capital to fulfill orders, Jonway Auto may seek equity funding in order to meet its operational financial needs.  If this were to happen, then the additional equity investment into Jonway Auto would also reduce ZAP’s majority equity ownership in Jonway Auto. The qualification to meet consolidation for ZAP would have to be reassessed based on ZAP’s financial control, board and management control of Jonway Auto.

(b) Convertible debt – Mr. Luo Hua Liang

On September 3, 2015, the board approved issuance of a convertible note to Mr. Luo Hua Liang (Mr. Wang Alex’s brother in-law) for his investment of RMB 5 million immediately deposited within one week of signing of the agreement and another investment up to RMB 5 million within one month of signing of the agreement. Both notes have one year terms at the interest rate of 12% per annum. The investment was transferred to Jonway Auto as the loan from the Company to Jonway Auto. The convertible note shall either be repaid in cash from Jonway Auto or be paid in ZAP shares. The convertible note’s conversion price is $0.06 per share.  

17

NOTE 9 – SEGMENT REPORTING

Operating Segments

In accordance with ASC 280, the Company has identified three reportable segments consisting of Jonway Auto, ZAP (Consumer Product) and ZAP Hong Kong. The Jonway Auto segment represents sales of the gas fueled Jonway Auto A380 three and five-door sports utility vehicles, EV minivan and EV SUVs and spare parts principally through distributors in China. The ZAP Consumer Product segment represents rechargeable portable energy products, the Company’s Zapino scooter, and the Company’s ZAPPY3 personal transporters. These segments are strategic business units that offer different services. They are managed separately because each business requires different resources and strategies. The Company’s chief operating decision making group, which is comprised of the CEOs and the senior executives of each of ZAP’s strategic segments, regularly evaluate the financial information about these segments in deciding how to allocate resources and in assessing performance.

The performance of each segment is measured based on its profit or loss from operations before income taxes. Segment results are summarized as follows (in thousands):

	Jonway Auto			ZAP			ZAP Hong Kong		Total
For the three months ended June 30, 2016
Net sales	$	2,966		$	5		$	-	$	2,971
Gross profit (loss)	$	(725	)	$	1		$	-	$	(724	)
Depreciation and amortization	$	1,955		$	-		$	-	$	1,955
Net loss	$	(2,183	)	$	(1,194	)	$	-	$	(3,377	)
Total assets	$	62,105		$	13,350		$	-	$	75,455
For the three months ended June 30, 2015
Net sales	$	5,331		$	25		$	-	$	5,356
Gross profit (loss)	$	(278	)	$	7		$	-	$	(271	)
Depreciation and amortization	$	1,455		$	651		$	-	$	2,106
Net loss	$	(4,023	)	$	(1,454	)	$	-	$	(5,477	)
Total assets	$	67,925		$	18,273		$	9	$	86,207
For the six months ended June 30, 2016
Net sales	$	6,344		$	9		$	-	$	6,353
Gross profit (loss)	$	(660	)	$	2		$	-	$	(658	)
Depreciation and amortization	$	3,226		$	651		$	-	$	3,877
Net loss	$	(4,413	)	$	(2,353	)	$	-	$	(6,766	)
Total assets	$	62,105		$	13,350		$	-	$	75,455
For the six months ended June 30, 2015
Net sales	$	13,517		$	201		$	-	$	13,718
Gross profit (loss)	$	(865	)	$	82		$	-	$	(783	)
Depreciation and amortization	$	2,890		$	1,308		$	-	$	4,198
Net loss	$	(7,294	)	$	(2,859	)	$	-	$	(10,153	)
Total assets	$	67,925		$	18,273		$	9	$	86,207

18

NOTE 9 – SEGMENT REPORTING - continued

Customer information

Approximately 99.8% or $3.0 million of the Company’s revenues for the three months ended June 30, 2016 are from sales in China.  Jonway Auto distributes its products to an established network of over 70 factory level dealers in China with one customer contributing over 10% of the Company’s consolidated revenue during the three months ended June 30, 2016. Approximately 99.6% or $5.3 million of the Company’s revenues for the three months ended June 30, 2015 are from sales in China. Jonway Auto distributes its products to an established network of over 63 factory level dealers in China with no customer contributing to more than 10% of the Company’s consolidated revenue during the three months ended June 30, 2015.

Approximately 99.9% or $6.3 million of the Company’s revenue for the six months ended June 30, 2016 are from sales in China. Jonway Auto distributes its products to an established network of over 70 factory level dealers in China with one customer contributing over 10% of the Company’s consolidated revenue during the six months ended June 30, 2016. Approximately 98.5% or $13.5 million of the Company’s revenue for the six months ended June 30, 2015 are from sales in China. Jonway Auto distributed its product to an established network of over 65 factory level dealers in China with one customer contributing 10% of the Company’s consolidated revenue during the six months ended June 30, 2015.

Supplier information

For the three months ended June 30, 2016 and 2015, approximately 100% or $3.7 million and 100% or $5.6 million of the consolidated cost of goods sold were purchased in China. For the three months ended June 30, 2016, no vendors contributed to over 10% of the Company’s purchase.  For the three months ended June 30, 2015, one vender accounted for 11% of the total purchase. For the six months ended June 30, 2016 and 2015, approximately 100% or $7.0 million and 100% or $14.5 million of the consolidated cost of goods sold were purchased in China. For the six months ended June 30, 2016, one vendor accounted for 14% of the total purchase. For the six months ended June 30, 2015, no vendor contributed to over 10% of the Company’s purchase.

19

NOTE 10 – RELATED PARTY TRANSACTIONS

Due from (to) related parties

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

Amounts due from related parties are as follows (in thousands):

	June 30, 2016		December 31, 2015
Sanmen Branch of Zhejiang UFO Automobile Manufacturing Co., Ltd	$	994	$	998
Zhejiang Jonway Motorcycle		96		-
Taizhou Jonway		120		-
Shanghai Zapple		124
Jonway Economy and Trade Co., Ltd.		-		616
	$	1,334	$	1,614

In addition, accounts receivable included in accounts receivable due from related parties as follows (in thousands):

	June 30, 2016		December 31, 2015
Jonway EV selling Ltd.	$	4,249	$	4,659
Sanmen Branch of Zhejiang UFO Automobile Manufacturing Co., Ltd		155		212
Jonway Motorcycle		294		301
	$	4,698	$	5,172

Amounts due to related parties are follows (in thousands):

	June 30, 2016		December 31, 2015
Jonway Group	$	14,721	$	12,606
Jonway Motor Cycle		64		64
Taizhou Huadu		1,310		846
Shanghai Zapple		-		35
Mr. Alex Wang		7		74
Mr. Huaiyi Wang		14		-
Betterworld		149		149
Zhejiang Jonway Painting Co., Ltd.		-		11
Cathaya Operations Management Ltd.		442		193
	$	16,707	$	13,978

20

NOTE 10 – RELATED PARTY TRANSACTIONS - continued

Transactions with Jonway Group

Jonway Group is considered as a related party as the Wang Family, one of the principal shareholders of the Company, has controlling interests in Jonway Group. Jonway Group supplies some of plastics spare parts to Jonway Auto and gave guarantees on Jonway Auto short term bank facilities from China-based banks. Jonway Auto made such purchase from Jonway Group for a total of $627,000 and $1,299,000 for the six months ended June 30, 2016 and 2015, respectively. Jonway Auto made such purchase from Jonway Group for a total of $138,000 and $544,000 for the three months ended June 30, 2016 and 2015, respectively.

Jonway Auto Agreement with Zhejiang UFO

Based on a contract by and among the Zhejiang UFO, Jonway Group and Jonway Auto dated as of January 1, 2006, Zhejiang UFO has authorized Jonway Auto 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 Auto shall pay Zhejiang UFO a variable contractual fee which is calculated based on the number of SUVs that Jonway Auto assembles in the Sanmen Branch every year, at the following rates (historical exchange rate):

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 Auto, has certain non-controlling equity interests in Zhejiang UFO.  For the six months ended June 30, 2016 and 2015, $0.1 million and $Nil were recorded as assembling fees, respectively.  For the three months ended June 30, 2016 and 2015, $0.1 million and $Nil were recorded as assembling fees, respectively.

  Other Related Party Transactions

For the six months ended June 30, 2016, Jonway Auto purchased parts in amount of $301,000 and $98,000 from Taizhou Huadu and Jonway Group, respectively. For the six months ended June 30, 2015, Jonway Auto purchased $Nil and $1,299,000 spare parts from Taizhou Huadu and Jonway Group, respectively.

21

NOTE 11 - SHAREHOLDERS’ EQUITY

Common stock

2015 ISSUANCES

On February 11, 2015, the cancellation of 1,182,558 shares of common stock was processed to pay back the proceeds from convertible notes, and a partial repayment representing a principal reduction of $100,000 and $8,433 of interest was paid on the Company’s outstanding convertible bond held by Yung. For the year ended December 31, 2015, the Company repurchased 4,811,633 shares of common stock at cost of $406,872 from Yung and cancelled those shares. The balance of the outstanding note issued to Korea Yung was $133,116 after the payment and cancellation of these shares. Yung is allowed to engage in open market sales of the shares through December 31, 2015. In the event the gross proceeds realized from the sale of the shares by Yung is greater than the principal and interest due on the bond as of the maturity date, Yung will be entitled to retain all proceeds. If the proceeds from the sale of shares are less than the principal and interest due on the bond as of the maturity date, ZAP will pay the shortfall to Yung in cash within five business days of written notice from Yung.

In September 2015, the Company issued 89,194,715 shares to Mr. Alex Wang, the Chief Executive Officer of the Company for his investment of $5,351,683 in the Company (approximately $4.5 million investment was loan by the Company to its subsidiary Jonway Auto).

In September 2015, the amount of $814,863 investment from Cathaya Management Co Ltd and $350,000 due to Cathaya Management Co Ltd have been converted into 13,581,051 and 5,833,333 shares of common stock at price of $0.06, respectively.

In September 2015, China Electric Vehicle Corporation (CEVC) has elected to convert the interest of $1,237,345 due on the $20.7 million convertible note to 14,454,743 shares of common stock at the average price of $0.086.

Stock-based Compensation

The Company has stock compensation plans for employees and directors. The Company recognizes the stock-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. All of the stock-based compensation is accounted for as an equity instrument.

In June 2015, the Company granted 200,000 restricted shares to Michael Ringstad in lieu of salary compensation and also for his acceptance for the position of Interim CFO. The stock was set at average of last 30 trading days, and the vesting period is for a period of 3 years from the date of grant. Michael Ringstad cannot sell the shares within six months from the date of grant and the Company retains the right to buy back the shares at any time at the market price. $658 was charged to general and administrative expense for three and six months ended June 30, 2015.

For the three and six months ended June 30, 2016, $18,000 and $36,000 was recorded as stock-based compensation expenses, respectively. For the three and six months ended June 30, 2015, $18,000 and $37,000 was recorded as stock-based compensation expenses, respectively.

22

NOTE 12 – LITIGATION

ZAP is in arrears with the settlement payment to Hogan & Lovells. The current negotiated balance due is $779,500.  Hogan & Lovells agreed to reduce the total amount owed by $453,827, as long as the Company does not default on its payment agreement. If Hogan & Lovells does seek a judgment, the total balance due immediately would be $1,233,327. Currently ZAP is seeking additional funding, and is working with prospective investors or lenders so ZAP can resume the installment payments to Hogan & Lovells. As of June 30, 2016 and December 31, 2015, the Company accrued approximately $0.7 million for this litigation.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

Guarantees

Jonway Auto guaranteed certain financial obligations of outside third parties including suppliers and customers to support the Company’s business and economic growth. Guarantees will terminate on payment and/or cancellation of the obligation once it is repaid. A payment by the Company would be triggered by failure of the guaranteed party to fulfill its obligation covered by the guarantee. Maximum potential payments under guarantees total $2.2 million at June 30, 2016 (December 31, 2015 - $2.3 million). The guarantee expires at variance dates from March 31, 2016 to December 2019. The Company’s performance risk under these guarantees is reviewed regularly, and has resulted in no changes to its initial valuations.

Jonway Auto pledged a land use right and a building to Shanghai Pu Dong Development Bank to secure a bank loan of $1.0 million offered to a related company, Taizhou Jonway Jing Mao Trading Ltd., which is a subsidiary of Jonway Group. The period of guarantee is five years from 2014 to 2019. The net value of the land use right and the building pledged as at June 30, 2016 and December 31, 2015 were $0.4 million and $0.5 million, respectively.

NOTE 14 – SUBSEQUENT EVENTS

In July 2016, the Company issued an aggregated of 37,465,956 shares of the Company’s common stock with the approval of the Board to settle certain existing debts of approximately $2.5 million.

23

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

  This quarterly report including the following management’s discussion and analysis, and other reports filed by the registrant from time to time with the securities and exchange commission (collectively the “filings”) contain forward-looking statements which are intended to convey our expectations or predictions regarding the occurrence of possible future events or the existence of trends and factors that may impact our future plans and operating results. These forward-looking statements are derived, in part, from various assumptions and analyses we have made in the context of our current business plan and information currently available to us and in light of our experience and perceptions of historical trends, current conditions and expected future developments and other factors we believe to be appropriate in the circumstances. you can generally identify forward-looking statements through words and phrases such as “seek”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, “budget”, “project”, “may be”, “may continue”, “may likely result”, and similar expressions. When reading any forward-looking statement you should remain mindful that all forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of our company, and are subject to risks, uncertainties, assumptions and other factors relating to our industry and results of operations, including but not limited to the following factors:

· our ability to establish, maintain and strengthen our brand;

· our ability to successfully integrate acquired subsidiaries, particularly Jonway Auto, into our company and business;

· our ability to maintain effective disclosure controls and procedures;

· our limited operating history, particularly of ZAP and Jonway Auto on a consolidated basis;

· whether the alternative energy and gas-efficient vehicle market for our electric products continues to grow and, if it does, the pace at which it may grow;

· our ability to attract and retain the personnel qualified to implement our growth strategies;

· our ability to obtain approval from government authorities for our products;

· our ability to protect the patents on our proprietary technology;

· our ability to fund our short-term and long-term financing needs;

· our ability to compete against large competitors in a rapidly changing market for electric and conventional fuel  vehicles;

· changes in our business plan and corporate strategies; and

· Other risks and uncertainties discussed in greater detail in various sections of this report, or set forth in part I, Item 1A of our Annual Report on Form 10-K under the heading “Risk Factors”.

 Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

Each forward-looking statement should be read in context with, and with an understanding of, the various other disclosures concerning our company and our business made in our filings. You should not place undue reliance on any forward-looking statement as a prediction of actual results or developments. We are not obligated to update or revise any forward-looking statement contained in this report to reflect new events or circumstances unless and to the extent required by applicable law.

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In this quarterly report on Form 10-Q the term “ZAP” refers to ZAP and its subsidiaries, the term “Jonway Auto” refers to Zhejiang Jonway Automobile Co. Ltd., of which ZAP owns 51% of the equity shares, “ZAP Jonway” refers to both ZAP and Jonway Auto on a consolidated basis, and “we,” “us” and “our” refer to ZAP or ZAP Jonway, as the context indicates.

Recent Developments

Effective on May 17, 2016, the Company accepted the resignations of Tian Ming and Bai Jianxiong, respectively, as directors.  Ms. Ming and Mr. Bai each resigned for personal reasons and not as a result of any disagreement with the Company on any matter relating to the Company’s operations, accounting policies or practices.

On April 10, 2015, ZAP received notification from  the United States Postal Service (“USPS”) that ZAP has been selected as one of the pre-qualified companies to participate in the USPS Federal Business Opportunity (“FBO”) RFP.  In January 2015, USPS had issued a new request for response to its FBO for its Next Generation Delivery Vehicle (NGDV) Program.  ZAP submitted a new proposal based on new guidelines for a complete new USPS delivery truck designed to use clean energy and environmentally friendly technologies. ZAP’s proposal submitted for this new USPS NGDV Program has been accepted for consideration.  As one of the pre-qualified companies, ZAP will proceed with detailed response to the RFP, and undergo trial for the product proposed.  This trial is anticipated to last for more than one year.

The principal activities of Jonway Auto until recently were the production and sales of gasoline models of the SUVs and minivans in China using the consigned UFO license from an affiliate of Jonway Group.  Over the past several years, Jonway Auto continued the production and sales of its gasoline model SUV and minivan, while developing and ramping production of its EV product line. Jonway Auto received type approval of its EV SUV and EV certification of its manufacturing facility from the Chinese government.  It also developed two different full electric EV models for its minivan, one with lithium batteries, which has longer range and more power, and the other with lead acid batteries, intended for lower speed and shorter range.  Jonway Auto began production on a new NEV, the “Urbee”, in 2014 and 2015.  The primary market for the Urbee is the growing aging and young adult population in China that generally do not hold a driver’s license.

ZAP Group believes the China government’s incentives, combined with the elimination of sales tax, consumer tax, and license plate registration fees on full electric vehicles (which can total more than US$20,000 for gas vehicles in some cities like Shanghai), are creating a strong economic incentive for the purchase of electric vehicles and a substantial market opportunity for Jonway Auto’s new EV SUV and EV minivan product line. Jonway Auto’s EV SUV and EV minivan have been reconfigured with smaller engines to support lower power consumption. The EV SUV has a 20kwatt (40kwatt peak) engine. The EV minivan which is a much lighter vehicle has a 13.5kwatt engine. These newly reconfigured EVs adapted to maximize range at optimal speeds are available for mass production.

ZAP and Jonway Auto are focused on the EV fleet markets in China. With the recent reinforced subsidies and requirements for government entities to purchase full electric vehicles, the Company believes Jonway Auto’s new EV SUV is particularly suited for use by government officials and personnel.  Jonway Auto’s SUV currently has an advantage in China because most auto companies to date have focused primarily on producing small electric sedans, some with only two seats that are not very practicable for use by government officials on a daily basis. Jonway Auto’s SUV is a larger 5-person vehicle with comfortable seating and legroom.

Jonway Auto’s EV minivan is well-positioned for government city utility and maintenance transportation and service. The minivan was designed with removable rear seats so that it may also serve as a delivery van for use in the projected rapid growth market of EVs used for the transport of goods and packages in China. This EV minivan comes in both lithium battery configuration which is eligible for government subsidies as well as lead acid version which is much cheaper but is not eligible for subsidy. Currently, the Jonway Auto has received certain orders from major customers for Jonway Auto’s type approved EV minivan.  This capacity requires working capital that is currently beyond the Company’s ability to produce and deliver and the Company is seeking alternative financing to support the working capital requirements for these orders.  Additional to these orders, Jonway Auto’s existing dealership networks also have requested delivery of the EV minivan and EV SUVs but due to strain on working capital, Jonway Auto has not accepted any additional orders of either product at this point. Jonway Auto began to focus its business on EV over the last year and its manufacturing plant has been modified to support mass production of several full electric vehicle models this year.  With the urgent priority to provide multiple manufacturing EV production lines to support multiple models of EVs, Jonway Auto reduced its resource investment in the traditional gasoline vehicle products and cut back on funding the sales and marketing of its gasoline SUV and gasoline minivans. This resulted in turnover of many of the dealership networks that are currently not focusing on selling EVs.  The overall dealership network has shrunk over the last year and the plan is to re-establish new dealership networks in regions with EV subsidies and EV market demands.

Jonway Auto has reorganized to support the ramp up of electric vehicle production and realigned its resources to support sales and marketing to fleet markets and large clients, including to leasing companies and government organizations in the major cities.

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The combined companies’ new EV product lines now include the A380 SUV EV, minivan EV, and the Urbee. Both the EV SUV and EV minivan products leverage the production moldings and the manufacturing engineering infrastructure and facilities currently in place for the gasoline models of these vehicles. The new Urbee started its first production delivery in 2014.  The first production deliveries of the EV SUV and Minivans occurred in 2015.

ZAP and Jonway Auto has increased its factory production capacity and running its operations at seven days per week, single shift, with production of around 50 EV minivans per day in order to meet pressing backlog orders from Dong Feng Motor Corporation.  Jonway Auto is on target to produce 800 EV minivans for October, 2016, and will be ramping up to meet the 3,000 EV minivans. A second shift with additional factory equipment may have to be added to reliably meet volumes of 2,000 or more per month. The target is to reach sales of no less than 20,000 of Jonway’s EV minivans in 2016 and aggregating to sales of 100,000 of ZAP and Jonway’s EV minivans as projected by Dong Feng over the next three years. The partnership with Dong Feng Motor facilitated by Shi Kong from Hangzhou enables Jonway Auto to offload the cost of lithium battery and the electric motor cost to Dong Feng and Shi Kong. This represents more than half of the cost of materials for the EV minivans.

ZAP and Jonway is seeking funding and partnerships to manage the sales and production demands of the EV fleet market in China.  Ultimately, the objective is to be able to build its own financial strength in order to sell and produce the whole EV minivan so that direct sales to major customers, partners or dealers can be achieved to further improve gross margins.  Due to the high demand for some of the critical supplier parts, ZAP and Jonway Auto is currently in discussions regarding potential partnerships with companies producing lithium batteries and EV motors in order to help mitigate the risk of availability of parts and to finance working capital of these high cost items.

Jonway Auto recently launched the E-3D SUV, an attractively designed 3 door SUV that comfortably accommodates 4 passengers.  The model’s chassis and body had previously undergone and passed European crash tests, and ZAP is currently exploring dealership partners to complete the EV type approval for the European overseas market.  Potentially in the future, this E-3D SUV competitively priced would also be suitable for the US market after type approval and certification in the US. The E-3D SUV comes in lithium battery version with range of over 200km or 125 miles, and achieves a top speed of 140km per hour or over 85 miles per hour.  The lead acid version of the E-3D SUV has a lower top speed of 55 mph and shorter range of 80 miles but with a range extender option, it can go for more than 150 miles.

The near term objective is to produce enough volume of the Urbees in order to cover the overhead cost of Jonway’s factory, despite the lower gross margins of the Urbees. Our target is to be able to produce and sell around 1500 to 2000 per month which will cover part of the overhead cost of the factory. However, the Urbees are limited by the constraint that LSV is not an approved category for automobiles in China, although in many provinces local governments have allow these vehicles to be operating in small towns and country roads. There are many LSV companies lobbying with the government to approve this as a legal category so that LSVs can receive automobile license plates and operate legally in all of the cities. Jonway’s strategy currently is to address the EV city market by offering the SUV and minivan with the shorter range and smaller engines targeting city drivers and short distance delivery van markets because both the SUV and the minivan are approved categories under the Chinese automobile license that Jonway has.

Our strategy in the longer term is to serve the growing fleet EV market with the EV minivan and EV SUV, with emphasis initially on the EV minivan for delivery market. While many electric vehicle companies are focused on passenger cars and sedans for mainstream consumers, ZAP Jonway believes government and corporate fleets can more quickly and more successfully deploy electric vehicles because they are more likely to have adequate charging infrastructure, service and support and the vehicles may travel along predictable routes and have a central point of operation. Fleet markets or delivery vehicles are more sensitive to the economics of fuel cost and when electric vehicles can be offered at comparable prices to gasoline vehicles, given the support of subsidies, the proposition to use EVs can be compelling for these markets.

The high cost of lithium battery EV power train has created working capital challenges for Jonway. As a result, Jonway signed partnership agreements with companies that has access to capital and has orders from larger distribution channels. Since Jonway is not directly selling into the distribution channels or end customers, and will be selling the EV minivans through the partnerships, the margins are slimmer, and the EV power train will be configured according to the partnerships’ specification. This partnership arrangement mitigates the strain for working capital  and  cost  of  sales,  but  this  also  significantly  reduces  the margins.  This is in the near term one of the ways to address the market without adequate working capital.

As Chinese government continues to offer excellent incentives for EVs, moving away from the amount of lithium batteries to incentivizing longer range of the EV models, the market is now more readily adopting EVs for utility markets where recharging is less of an issue due to the use of central depot for charge stations. The smaller EV products of both SPARKEE and URBEE are focused on addressing urban commuter markets. The plan going forward is to adapt these models to support EMS vehicles for deliveries and service industries.

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With the demand for high working capital, outstanding liability that Jonway Auto has accrued and the lack of bank financing because of Chinese bank credit crunch, ZAP Jonway is looking at several options to address the financial needs and outstanding liabilities.  Jonway may in the future be looking for equity financing in China which may reduce ZAP’s majority ownership of Jonway Auto.  Therefore, ZAP is considering reorganizing the company to reduce the financial burdens of the bank loans and supplier payables that were carried over from the gasoline vehicle business under Jonway Automobile and separating this from the business associated with the sales and marketing of EVs produced by Jonway and potentially with other partner companies’ electric vehicles, such as the recent agreement signed with Dong Feng Automobile for the EV minivans. Currently the sales and marketing organization of Jonway Auto is under a separate subsidiary of Jonway Auto, and this may be retained by ZAP while reorganizing the manufacturing production arm of Jonway Auto. The repayment of the CEVC convertible note would also reduce the outstanding liability of ZAP, while maintaining control of the sales and marketing of Jonway Auto’s business with the sales subsidiary.
 

Results of Operations

The following table sets forth, as a percentage of net sales, certain items included in ZAP’s condensed consolidated statements of operations (see Condensed Consolidated Financial Statements and Notes) for the periods indicated:

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2016			2015			2016			2015
Statements of Operations Data:
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		-124.4	%		-105.1	%		-110.4	%		-105.7	%
Operating expenses		-70.5	%		-88.3	%		-79.6	%		-59.9	%
Loss from operations		-94.9	%		-93.4	%		-90.0	%		-65.6	%
Net loss attributable to ZAP		-77.7	%		-66.2	%		-72.5	%		-47.7	%

These results of operations that have been derived from our condensed consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States of America and that include the results of operations of Jonway Auto since the date of ZAP’s acquisition of 51% of the equity shares of Jonway Auto on January 21, 2011.

Three Months Ended June 30, 2016 Compared to the Three Months Ended June 30, 2015

Net sales for the three months ended June 30, 2016 were $3.0 million as compared to $5.4 million for the three months ended June 30, 2015.  The decrease of sales was mainly due to the intense competitions in the auto market.

Jonway Auto’s revenue for the three months ended June 30, 2016 decreased by $2.3 million from $5.3 million for the quarter ended June 30, 2015 compared to $3.0 million for the quarter ended June 30, 2016.

The sales volume decreased because of the drop of sales for SUV and Urbee.  The sales of SUV decreased by $2.2 million from $2.2 million for the three months ended June 30, 2015 to $Nil for the three months ended June 30, 2016.   The sales of Urbee decreased by $2.5 million from $2.5 million for the three months ended June 30, 2015 to $Nil for the three months ended June 30, 2016.  However, the sales for EV minivans increased significantly, from $0.01 million for the three months ended June 30, 2015 to $2.9 million for the three months ended June 30, 2016.

Furthermore,  at the end of 2015, the Chinese government issued a notice that required all electronic vehicle manufacturers to be reviewed by the government and all EV related government subsidies would be delayed until the government completed its review process. Since EVs have relative higher unit cost than traditional fuel cars, EV manufacturers and dealers would only manufacture and sell EVs with government subsidies.  The 2015 notice increased the risk of loss for all EV manufacturers and dealers.  This notice also negatively impacted the Company's EV sales in fiscal 2016.

Gross loss increased by $453,000 from a gross loss of $271,000 for the three months ended June 30, 2015 to a gross loss of $724,000 for the three months ended June 30, 2016.  Our margins decreased from (5.06)% to (24.4)%.  The increase of the gross loss was primarily due to the decrease in sales.

Jonway Auto’s gross loss increased by $447,000 from a gross loss $278,000 for the three months ended June 30, 2015 to a gross loss of $725,000 for the three months ended June 30, 2016. The sales volume for both SUV and Urbee dropped significantly in three months ended June 30, 2016 in comparing with the same period last year.

Sales and marketing expenses decreased $0.4 million from $0.9 million for the three months ended June 30, 2015, to $0.5 million for the three months ended June 30, 2016.  The decrease was mainly due to the less marketing activities during the three months ended June 30, 2016.  The percentage of sales and marketing expense to net sales decreased from 16.7% for the three months ended June 30, 2015 to 15.6% for the three months ended June 30, 2016 due to the decrease in net sales.

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General and administrative expenses decreased by $1.2 million from $2.8 million for the quarter ended June 30, 2015 to $1.6 million for the quarter ended June 30, 2016. This was primarily due to the less spending on general and administrative activities.

Research and development expenses decreased by $1.02 million from $1.07 million for the three months ended June 30, 2015 to $0.05 million for the three months ended June 30, 2016.  The decrease was mainly due to the less research and development activities during the three months ended June 30, 2016.

Interest expense, net decreased $5,000 from $674,000 in the second quarter of 2015 to $669,000 in the second quarter of 2016.   The decrease was due to the lower borrowing rate.

Other income decreased by $87,000 from $198,000 for the three months ended June 30, 2015 to $111,000 for the three months ended June 30, 2016. 

Net loss for the three months ended June 30, 2016 was $3.4 million compared to $5.5 million loss for the three months ended June 30, 2015.

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Net sales decreased by $7.3 million to $6.4 million for the six months ended June 30, 2016 from $13.7 million in June 30, 2015.  The decrease of sales was mainly due to the intense competitions in the auto market.

Jonway Auto’s revenue for the six months ended June 30, 2016 decreased by $7.2 million from $13.5 million for the six months ended June 30, 2015 to $6.3 million for the six months ended June 30, 2016.  The sales volume decreased because of the drop of sales for SUV and Urbee.  The sales of SUV decreased by $6.1 million from $7.6 million for the six months ended June 30, 2015 to $1.5 million for the six months ended June 30, 2016.  The sales of Urbee decreased by $4.91 million from $5.0 million for the six months ended June 30, 2015 to $0.09 million for the six months ended June 30, 2016.  However, the sales for EV minivans increased significantly, from $0.02 million for the six months ended June 30, 2015 to $4.4 million for the six months ended June 30, 2016. 

Furthermore,  at the end of 2015, the Chinese government issued a notice that required all electronic vehicle manufacturers to be reviewed by the government and all EV related government subsidies would be delayed until the government completed its review process. Since EVs have relative higher unit cost than traditional fuel cars, EV manufacturers and dealers would only manufacture and sell EVs with government subsidies.  The 2015 notice increased the risk of loss for all EV manufacturers and dealers.  This notice also negatively impacted the Company's EV sales in fiscal 2016.

Gross loss decreased by $0.12 million from $(0.78) million for the six months ended June 30, 2015 to $(0.66) million for the six months ended June 30, 2016.  The increase of the gross loss was primarily due to the decrease in sales.

Jonway Auto’s gross loss decreased by $0.2 million from $(0.9) million for the first six months of 2015 to $(0.7) million for the six months ended June 30, 2016. The increase in gross loss in the six months ended June 30, 2016 was principally related to the higher profits on the sales of EV minivans. Management expects gross margin will be increased and becomes positive along with the sales of EV products with the sales growth.

Sales and marketing expenses in the first six months of 2016 decreased by $0.8 million from $1.9 million in 2015 to $1.1 million in 2016.  The decrease was mainly due to the less marketing activities during the six months ended June 30, 2016. As a percentage of sales, the expense increased from 13.72% for the six months ended June 30, 2015 to 16.48% for the six months ended June 30, 2016.

General and administrative expenses decreased by approximately $0.8 million, from $4.6 million for the six months ended June 30, 2016 to $3.8 million for the six months ended June 30, 2015. This was primarily due the less spending on general and administrative activities.

Research and development expenses decreased by $1.5 million from $1.7 million for the six months ended June 30, 2015 to $0.2 million for the six months ended June 30, 2016.  The decrease was mainly due to the less research and development activities during the six months ended June 30, 2016

Interest expense, net decreased by $0.2 million from an interest expense of $1.4 million for the first six months of 2015 to interest expense of $1.2 million in the six months ended June 30, 2016. The decrease was due to the lower borrowing rate.

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Other income decreased $0.1 million from $0.3 million for the six months ended June 30, 2015 to $0.2 million for the six months ended June 30, 2016.

Net loss for the six months ended June 30, 2016 was $6.8 million compared to $10.2 million loss for the six months ended June 30, 2015.

Critical Accounting Policies and Use of Estimates

Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with United States generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The more significant estimates relate to revenue recognition, contractual allowances and uncollectible accounts, intangible assets, accrued liabilities, derivative liabilities, income taxes, litigation and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for judgments about results and the carrying values of assets and liabilities. Actual results and values may differ significantly from these estimates.

Recent Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Changes to the current guidance include the accounting for equity investments, the presentation and disclosure requirements for financial instruments, and the assessment of valuation allowance on deferred tax assets related to available-for-sale securities. In addition, ASU 2016-01 establishes an incremental recognition and disclosure requirement related to the presentation of fair value changes of financial liabilities for which the fair value option has been elected. Under this guidance, an entity would be required to separately present in other comprehensive income the portion of the total fair value change attributable to instrument-specific credit risk as opposed to reflecting the entire amount in earnings. ASU 2016-01 is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adoption on our consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Codification (“ASC”) 842 (“ASC 842”), “Leases” which replaces the existing guidance in ASC 840, Leases.  ASC 842 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ASC 842 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (ROU) asset and a corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the ROU asset and for operating leases the lessee would recognize a straight-line total lease expense.  The Company is currently evaluating the impact of adoption on the consolidated financial statements.
 

In March 2016, the FASB issued Accounting Standards Update No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments clarify what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. All entities have the option of adopting the new requirements early, including adoption in an interim period. If an entity early adopts the new requirements in an interim period, it must reflect any adjustments as of the beginning of the fiscal year that includes that interim period. The Company does not expect any material impact of this new standard on its consolidated financial statements.

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In April 2016, the FASB released ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. While aimed at reducing the cost and complexity of the accounting for share-based payments, the amendments are expected to significantly impact net income, EPS, and the statement of cash flows. Implementation and administration may present challenges for companies with significant share-based payment activities. The ASU is effective for public companies in annual periods beginning after December 15, 2016, and interim periods within those years. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

In April 2016, FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

In May 2016, the FASB issued ASU No. 2016-11 Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815); Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, which is rescinding certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition, and Topic 932, Extractive Activities—Oil and Gas, effective upon adoption of Topic 606. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

In May 2016, FASB issued ASU No. 2016-12 Revenue from Contracts with Customers (Topic 606); Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis.  The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

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Liquidity and Capital Resources

As of June 30, 2016, our current liabilities exceeded the current assets by approximately $72.4 million and our equity deficiency was $15.7 million, which raise substantial doubt about our ability to continue as a going concern. In addition, we have recurring net losses. Given our expected capital expenditure in the foreseeable future, we have comprehensively considered our available sources of funds as follows:

· Financial support and credit guarantee from related parties; and

· Other available sources of financing from domestic banks and other financial institutions given our credit history.

The Company does not currently have sufficient cash or commitments for financing to sustain its operations for the next twelve months. The Company plans to substantially increase our cash flows from operations and revenue derived from our products. If the Company’s revenues do not reach the level anticipated in our plan and the Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all, the Company may be unable to implement its current plans for expansion, repay our debt obligations or respond to competitive pressures, any of which would have a material adverse effect on its business, prospects, financial condition and results of operations. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

In assessing our liquidity, we monitor and analyze our cash on-hand, and our operating and capital expenditure commitments.  Our principal liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations.

In June 2015, we were approved for up to an aggregate of $6.9 million of a credit line from China Everbright Bank with 50% restricted cash deposited and credit exposure of $3.5 million The Company renewed the agreement in June 2016. The renewed agreement approved for up to an aggregated of $6.0 million of a credit line with 50% restricted cash deposited and credit exposure of $3.0 million. The renewed credit line expires in June 2017.  The credit line is secured by a land use right and a building with a total carrying amount of $2.1 million. Three shareholders and the Chief Executive Officer (“CEO”) Alex Wang also personally guaranteed on this credit line.  As of June 30, 2016, $6.0 million was drawn down as notes payable from Everbright Bank. The amount of restricted cash deposited with the bank was $3.0 million. As of June 30, 2016, the renewed credit line has been fully utilized.

 In March 2014, the Company has obtained up to an aggregate of $15.1 million of credit line with the credit exposure of $5.6 million from CITIC Sanmen Branch through Jonway Auto.  The credit line was extended for one more year and expires on November 2016. The credit line is secured by land and building owned by Jonway Auto and guaranteed by the related party – Jonway Group.  The shareholder and CEO Alex Wang also personally guaranteed this credit line. As of June 30, 2016, the Company borrowed aggregated $5.6 million loans with various due dates in March 25, 2017 to April 26, 2017 from CITIC Sanmen Branch. The loans carried at annual interests of 6.0%.  The Company has also drawn down $7.0 million in the form of notes payable as of June 30, 2016.  The Company deposited $7.0 million restricted cash as collateral for these notes payable. These notes are due from July 2016 to September 2016.  As of June 30, 2016, the line of credit has been fully utilized.

In March 2014, we were approved up to an aggregate of $5.0 million of a credit line from ICBC. This credit line was secured by land and buildings owned by Jonway Auto and guaranteed by related parties. The credit line expires on March 2017. As of June 30, 2016, the total outstanding loan under this credit line was $4.5 million. The annual interest rates are from 4.36% to 6.66%.  The loans are due in various dates from July 24, 2016 to June 22, 2017.  As of June 30, 2016, the unused line of credit was approximately $0.5 million.

Jonway Auto intends to utilize the above credit lines to expand its electric vehicle business as well as other future vehicle models.  This includes on-going working capital needs, electric vehicle production equipment requirements, testing, homologation and new EV product molds. Also our principal shareholder, Jonway Group, has agreed to provide the necessary support to meet our financial obligations through December 31, 2016 in the event that we require additional liquidity. In addition, China Electric Vehicle Corporation (“CEVC”) has renewed the convertible note with an extension through December 31, 2016.

We will require additional capital to expand our current operations.  In particular, we require additional capital to continue development of our electric vehicle business, to continue strengthening our dealer network and after-sale service centers and expanding our market initiatives.  We also require financing the investment for the continued roll-out of new products and to add qualified sales and professional staff to execute on our business plan and pursue our efforts in the research and development of advanced technology vehicles, such as the new ZAP Alias, the electric and other fuel efficient vehicles.

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We intend to fund our long term liquidity needs related to operations through the incurrence of indebtedness, equity financing or a combination of both.  Our ability to fund these needs will depend on our future performance, which will be subject in part to general economic, financial, regulatory and other factors beyond our control, including trends in our industry and technological developments.  

Jonway Group has continued to provide support in financing the capital requirements of Jonway Auto. For the year ended December 31, 2015, Alex Wang, the CEO and Jonway Group injected $5.4 million to the Company and plans to inject additional capital to support the critical on-going manufacturing operations to meet the delivery of the EV minivans and SUV orders in the pipeline.

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Off-Balance Sheet Arrangements

None.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting, we are not required to provide disclosure pursuant to this Item 3.

Item 4.  Controls and Procedures

As discussed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2015, we identified a lack of sufficient control in the area of technical competency in review and approval of financial reporting processes. This control weakness allowed for reconciliations, reports and other documents to be insufficiently reviewed prior to being approved by management and audit adjustments to be identified by our auditors as part of their year-end audit work. This material weakness resulted in errors in the recording of non-routine and complex accounting transactions in the preparation of our annual consolidated financial statements and disclosures. The Company is considering utilizing outside accounting experts to assist us in accounting for future complex transactions.

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Co- Chief Executive Officers and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and Exchange Act of 1934 Rules 13a-15(f). Based on this evaluation, our Co-Chief Executive Officers and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.

Changes in internal control over financial reporting

No significant changes were made in our internal control over financial reporting during this quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

ZAP is in arrears with the settlement payment to Hogan & Lovells. The current negotiated balance due is $779,500.  Hogan & Lovells agreed to reduce the total amount owed by $453,827, as long as we did not default on our payment agreement. If Hogan & Lovells does seek a judgment, the total balance due immediately would be $1,233,327. Currently ZAP is seeking additional funding, and is working with prospective investors or lenders so ZAP can resume the installment payments to Hogan & Lovells.  As of June 30, 2016 and December 31, 2015, the Company accrued approximately $0.7 million for this litigation.

Item 1A. Risk Factors

There have been no material changes to the Company’s risk factors which are included and described in the annual report on Form 10-K for the fiscal year ended December 31, 2015.

33

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

  Effective   May 17, 2016, the board of directors authorized the issuance of   the equity securities:

7,540,041 shares of common stock were authorized for issuance at $0.05 per share to Cathaya Operations Management or its designees in satisfaction of advances and loans made to the Company.

1,282,259 shares of common stock were authorized for issuance at $0.05 per share to Victor Huang for outstanding unpaid compensation in the amount of $64,112.95.

200,000 shares of common stock were authorized for issuance to   Michael   Ringstad   as compensation for services provided by Mr. Ringstad as the Company’s CFO since June 2015.

Effective June 23, 2016, the board of directors authorized the issuance of the following equity securities:

27,111,095 shares of common stock were authorized for issuance to China Electric Vehicle Corporation in satisfaction of unpaid accrued interest owing on the Company’s Senior Secured Convertible Promissory Note.

1,332,561 shares of common stock were authorized for issuance to Cathaya Operations Management or its designees for advances made on behalf of the Company.

As of June 30, 2016, the foregoing securities have not been issued to their respective recipients.

Each of the foregoing issuances were deemed exempt from the registration requirements of the Securities Act of 1933, as amended,(“1933 Act”)  pursuant to  Section 4(a)(2) of the 1933 Act for transactions not involving a public offering.

Item 3.  Defaults upon Senior Securities

None

Item 4.  Mine safety disclosure

Not Applicable

Item 5.  Other Information

None

Item 6.  Exhibits

(b) Exhibits.

Exhibit Number	Description
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14/15d-14 of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to 13a-14/15d-14 of the Exchange Act as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed.

Furnished herewith, XBLR (Extensive Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

34

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 15, 2016	By: /s/ Alex Wang
	Name: Alex Wang
	Title: Chief Executive Officer
	(Principal Executive Officer).

Dated: August 15, 2016	By: /s/ Michael Ringstad
	Name: Michael Ringstad
	Title: Interim Chief Financial Officer
	(Interim Principal Financial Officer)

35

EXHIBIT 31.1

CERTIFICATION

 Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:

 I, Alex Wang, certify that:

1.          I have reviewed this 10-Q of ZAP.

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

 3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report.

 4.          The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or its reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

/s/ Alex Wang

Title: Chief Executive Officer

Date: August 15, 2016

EXHIBIT 31.2

CERTIFICATION

 Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:

I, Michael Ringstad, certify that:

1.          I have reviewed this 10-Q of ZAP.

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

 3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report.

 4.          The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or its reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

/s/ Michael Ringstad

Title: Interim Chief Financial Officer (Principal Financial and Accounting Officer)

Date:  August 15, 2016

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of ZAP (the "Company") on Form 10-Q for the  quarterly period ended June 30, 2016 as filed with the U.S. Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  August 15, 2016

By: /s/ Alex Wang

Chief Executive Officer

(Principal Executive Officer).

Dated: August  15, 2016

 By: /s/ Michael Ringstad

Interim Chief Financial Officer

(Principal Financial Officer)

EX-31.1

EXHIBIT 31.1

CERTIFICATION

 Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:

 I, Alex Wang, certify that:

1.          I have reviewed this 10-Q of ZAP.

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

 3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report.

 4.          The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or its reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

/s/ Alex Wang

Title: Chief Executive Officer

Date: August 15, 2016

EX-31.2

EXHIBIT 31.2

CERTIFICATION

 Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:

I, Michael Ringstad, certify that:

1.          I have reviewed this 10-Q of ZAP.

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

 3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report.

 4.          The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or its reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

/s/ Michael Ringstad

Title: Interim Chief Financial Officer (Principal Financial and Accounting Officer)

Date:  August 15, 2016

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of ZAP (the "Company") on Form 10-Q for the  quarterly period ended June 30, 2016 as filed with the U.S. Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  August 15, 2016

By: /s/ Alex Wang

Chief Executive Officer

(Principal Executive Officer).

Dated: August  15, 2016

 By: /s/ Michael Ringstad

Interim Chief Financial Officer

(Principal Financial Officer)

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 10, 2016
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2016
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2016
Entity Registrant Name	ZAP
Entity Central Index Key	0001024628
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		610,405,648

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 112	$ 60
Restricted cash	10,806	8,988
Notes receivable	135
Accounts receivable, net	5,552	5,915
Inventories, net	7,173	7,743
Prepaid taxes		147
Prepaid expenses and other current assets	529	574
Total current assets	24,307	23,427
Property, plant and equipment, net	32,351	35,893
Land use rights, net	8,619	8,930
Other assets:
Distribution fees, net	6,239	6,959
Intangible assets, net	2,298	2,513
Goodwill	307	314
Due from related parties	1,334	1,614
Total other assets	10,178	11,400
Total assets	75,455	79,650
Current liabilities:
Short term loans	10,084	7,702
Accounts payable	21,284	21,486
Senior convertible debt	21,465	21,465
Accrued liabilities	4,115	4,000
Notes payable	13,049	14,366
Advances from customers	6,556	7,391
Taxes payable	1,314	1,638
Due to related parties	16,707	13,978
Other payables	2,161	2,256
Total current liabilities	96,735	94,282
Long term liabilities:
Accrued liabilities and others	149	152
Total long term liabilities	149	152
Total liabilities	96,884	94,434
Commitments and contingencies
Deficiency
Common stock, no par value; 800 million shares authorized; 578,465,159 and 578,465,159 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively	251,725	251,689
Accumulated other comprehensive income	1,312	1,359
Accumulated deficit	(268,747)	(264,144)
Total ZAP shareholders' deficiency	(15,710)	(11,096)
Non-controlling interest	(5,719)	(3,688)
Total deficiency	(21,429)	(14,784)
Total liabilities and deficiency	$ 75,455	$ 79,650

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares	Jun. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Common stock, shares authorized	800,000,000	800,000,000
Common stock, shares issued	578,465,159	578,465,159
Common stock, shares outstanding	578,465,159	578,465,159

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Income Statement [Abstract]
Net sales	$ 2,971	$ 5,356	$ 6,353	$ 13,718
Cost of goods sold	(3,695)	(5,627)	(7,011)	(14,501)
Gross loss	(724)	(271)	(658)	(783)
Operating expenses:
Sales and marketing	462	890	1,047	1,882
General and administrative	1,584	2,770	3,845	4,649
Research and development	49	1,070	168	1,683
Total operating expenses	2,095	4,730	5,060	8,214
Loss from operations	(2,819)	(5,001)	(5,718)	(8,997)
Other income (expense):
Interest expense, net	(669)	(674)	(1,223)	(1,435)
Other income	111	198	175	279
Total other expense	(558)	(476)	(1,048)	(1,156)
Loss before income taxes	(3,377)	(5,477)	(6,766)	(10,153)
Income tax expense
Net loss	(3,377)	(5,477)	(6,766)	(10,153)
Less: loss attributable to non-controlling interest	1,069	1,930	2,163	3,614
Net loss attributable to ZAP's common shareholders	(2,308)	(3,547)	(4,603)	(6,539)
Net loss	(3,377)	(5,477)	(6,766)	(10,153)
Other comprehensive loss
Foreign currency translation adjustments	156	83	85	129
Total comprehensive loss	(3,221)	(5,394)	(6,681)	(10,024)
Less: Comprehensive loss attributable to non-controlling interest	891	1,930	2,031	3,511
Comprehensive loss attributable to ZAP's common shareholders	$ (2,330)	$ (3,464)	$ (4,650)	$ (6,513)
Net loss per share attributable to common shareholders:
Basic and diluted	$ (0.00)	$ (0.01)	$ (0.01)	$ (0.02)
Weighted average number of common shares outstanding:
Basic and diluted	578,465	460,213	578,465	460,448

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (6,766)	$ (10,153)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Gain from disposal of equipment		(6)
Stock-based employee compensation	36	37
Depreciation and amortization	3,157	4,198
Amortization of distribution agreement	720
Provision for doubtful accounts	418	533
Changes in inventory reserve	218	(89)
Changes in assets and liabilities:
Accounts receivable	(186)	428
Notes receivable	(138)	78
Inventories	183	933
Prepaid expenses and other assets	181	(155)
Due from related parties	248	(115)
Accounts payable	244	(1,311)
Accrued liabilities	184	267
Taxes payable	(291)	82
Advances from customers	(676)	1,880
Due to related parties	2,970	7,090
Other payables	(28)	(535)
Net cash provided by operating activities	474	3,162
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment	(131)	(92)
Proceeds from disposal of equipment	204	17
Net cash provided by (used in) investing activities	73	(75)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in restricted cash	(2,059)	(386)
Proceeds from notes payable	13,264	14,631
Proceeds from short term loans	6,732	1,146
Repayment of convertible bond		(100)
Repayments of notes payable	(14,268)	(13,355)
Repayments of short term loans	(4,161)	(5,162)
Net cash used in financing activities	(492)	(3,226)
Effect of exchange rate changes on cash and cash equivalents	(3)	32
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	52	(107)
CASH AND CASH EQUIVALENTS, beginning of period	60	238
CASH AND CASH EQUIVALENTS, end of period	112	131
Supplemental disclosure of cash flow information:
Cash paid during period for interest	542	602
Cash paid during period for income taxes
Non-cash transaction:
Cancellation of 1,182,558 shares of common stock issued to pay convertible bond		$ 100

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical)	6 Months Ended
	Jun. 30, 2015 shares
Statement of Cash Flows [Abstract]
Shares cancelled	1,182,558

XML

ORGANIZATION AND BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND BASIS OF PRESENTATION

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

ZAP was incorporated in California in September, 1994 (together with its subsidiaries, the “Company” or “ZAP Group”).  ZAP Group markets electric, alternative energy, and fuel efficient automobiles and commercial vehicles, motorcycles and scooters, and other forms of personal transportation. The Company’s business strategy is to develop, acquire, and commercialize electric vehicles and electric vehicle power systems which the Company believes have fundamental practical and environmental advantages over available internal combustion modes of transportation and that can be produced commercially on an economically competitive basis.

In pursuit of a manufacturing plant and a partner with an existing product line, a distribution and customer support network in China, and experience in vehicle manufacturing, ZAP acquired a majority of the outstanding equity in Zhejiang Jonway Automobile Co., Ltd. (“Jonway Auto”). The Company believes its 51% acquisition of Jonway Auto will enable it to access the rapidly-growing Chinese market for electric vehicles (“EV”) and to expand its EV business and distribution network around the world. The Company also believes Jonway Auto’s ISO 9001 certified manufacturing facility provides the competitive production capacity and resources to support production of ZAP Group’s new line of electric SUV, minivan, and Neighborhood EV (“NEV”).

Jonway Auto is a limited liability company incorporated in Sanmen County, Zhejiang Province of the People’s Republic of China (“the PRC”) on April 28, 2004 by Jonway Group Co., Ltd. (“Jonway Group”). Jonway Group is under the control of three individuals, Wang Huaiyi, Alex Wang (the son of Wang Huaiyi) and Wang Xiaoying (the daughter of Wang Huaiyi and all three individuals collectively referred to as the “Wang Family”).

ZAP has a wholly owned subsidiary, ZAP Hong Kong, a Hong Kong limited company. ZAP Hong Kong was established in 2011 as a wholly foreign owned enterprises (“WFOE”) and has no operation since incorporated. Jonway Auto established three wholly-owned subsidiaries, namely, Taizhou Selling Co., Ltd., focusing on vehicles marketing and distribution, Taizhou Fuxing Vehicle Sale Co., Ltd., focusing on minivan marketing and distribution in China, and Taizhou Vehicle Leasing Co., Ltd., focusing on the vehicle leasing business in Taizhou.

XML

LIQUIDITY AND CAPITAL RESOURCES

6 Months Ended

Jun. 30, 2016

LIQUIDITY AND CAPITAL RESOURCES [Abstract]

LIQUIDITY AND CAPITAL RESOURCES

NOTE 2 – LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2016, the Company’s current liabilities exceeded the current assets by approximately $72.4 million and its equity deficiency was $15.7 million, which raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company has recurring net losses. Given the Company’s expected capital expenditure in the foreseeable future, the Company has comprehensively considered its available sources of funds as follows:

· Financial support and credit guarantee from related parties; and

· Other available sources of financing from domestic banks and other financial institutions given its credit history.

The Company does not currently have sufficient cash or commitments for financing to sustain its operations for the next twelve months. The Company plans to substantially increase its cash flows from operations and revenue derived from its products. If the Company’s revenues do not reach the level anticipated in its plan and the Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all, the Company may be unable to implement its current plans for expansion, repay its debt obligations or respond to competitive pressures, any of which would have a material adverse effect on its business, prospects, financial condition and results of operations. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

In assessing the Company’s liquidity, the Company monitors and analyzes its cash on-hand, and its operating and capital expenditure commitments.  The Company’s principal liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations.

              In June 2015, the Company was approved for up to an aggregate of $6.9 million of a credit line from China Everbright Bank with 50% restricted cash deposited and credit exposure of $3.5 million The Company renewed the agreement in June 2016. The renewed agreement approved for up to an aggregated of $6.0 million of a credit line with 50% restricted cash deposited and credit exposure of $3.0 million. The renewed credit line expires in June 2017.  The credit line is secured by a land use right and a building with a total carrying amount of $2.1 million. Three shareholders and the Chief Executive Officer (“CEO”) Alex Wang also personally guaranteed on this credit line.  As of June 30, 2016, $6 million was drawn down as notes payable from Everbright Bank.  The amount of restricted cash deposited with the bank was $3.0 million. As of June 30, 2016, the renewed credit line has been fully utilized.

In March 2014, the Company has obtained up to an aggregate of $15.1 million of credit line with the credit exposure of $5.6 million from CITIC Sanmen Branch through Jonway Auto.  The credit line was extended for one more year and expires on November 2016. The credit line is secured by land and building owned by Jonway Auto and guaranteed by the related party – Jonway Group.  The shareholder and CEO Alex Wang also personally guaranteed this credit line. As of June 30, 2016, the Company borrowed aggregated $5.6 million loans with various due dates in March 25, 2017 to April 26, 2017 from CITIC Sanmen Branch. The loans carried at annual interests of 6.0%.  The Company has also drawn down $7.0 million in the form of notes payable as of June 30, 2016.  The Company deposited $7.0 million restricted cash as collateral for these notes payable. These notes are due from July 2016 to September, 2016.  As of June 30, 2016, the line of credit has been fully utilized.

In March 2014, the Company was approved up to an aggregate of $5.0 million of a credit line from ICBC. This credit line was secured by land and buildings owned by Jonway Auto and guaranteed by related parties. The credit line expires on March 2017. As of June 30, 2016, the total outstanding loan under this credit line was $4.5 million. The annual interest rates are from 4.36% to 6.66%.  The loans are due in various dates from July 24, 2016 to June 22, 2017.  As of June 30, 2016, the unused line of credit was approximately $0.5 million.

Jonway Auto intends to utilize the above credit lines to expand its electric vehicle business as well as other future vehicle models.  This includes on-going working capital needs, electric vehicle production equipment requirements, testing, homologation and new EV product molds. Also the Company’s principal shareholder, Jonway Group, has agreed to provide the necessary support to meet the Company’s financial obligations through December 31, 2016 in the event that the Company requires additional liquidity. In addition, China Electric Vehicle Corporation (“CEVC”), a related party, has renewed the convertible note with an extension through December 31, 2016 (see Note 8).

The Company will require additional capital to expand its current operations.  In particular, the Company requires additional capital to continue development of its electric vehicle business, to continue strengthening its dealer network and after-sale service centers and expanding its market initiatives.  The Company also requires financing the investment for the continued roll-out of new products and to add qualified sales and professional staff to execute on its business plan and pursue its efforts in the research and development of advanced technology vehicles, such as the new ZAP Alias, the electric and other fuel efficient vehicles.

The Company intends to fund its long term liquidity needs related to operations through the incurrence of indebtedness, equity financing or a combination of both.  The Company’s ability to fund these needs will depend on its future performance, which will be subject in part to general economic, financial, regulatory and other factors beyond its control, including trends in its industry and technological developments.  

Jonway Group has continued to provide support in financing the capital requirements of Jonway Auto. For the year ended December 31, 2015, Alex Wang, the CEO and Jonway Group injected $5.4 million to the Company and plan to inject additional capital to support the critical on-going manufacturing operations to meet the delivery of the EV minivans and SUV orders in the pipeline.

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SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements include the financial statements of ZAP, and its subsidiaries, Jonway Auto and ZAP Hong Kong for the six months ended June 30, 2016 and the year ended December 31, 2015 and are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Management considers subsidiaries to be companies that are over 50% controlled. Significant intercompany transactions and balances are eliminated in consolidation; profits from intercompany sales, are also eliminated; non-controlling interests are included in equity.  The Company accounts for its 37.5% interest in the ZAP Hangzhou and its 50% interest in Shanghai Zapple using the equity method of accounting because it has significant influence but not control. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the financial statements have been included. Interim results are not necessarily indicative of results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction with information included in the 2015 annual report on Form 10-K filed on April 14, 2016.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The more significant estimates relate to revenue recognition, contractual allowances and uncollectible accounts, intangible assets, accrued liabilities, warranty costs, stock based compensation, income taxes, litigation and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for judgments about results and the carrying values of assets and liabilities. Actual results and values may differ significantly from these estimates.

Revenue Recognition

The Company records revenues for non-Jonway Auto sales when all of the following criteria have been met:

-  Persuasive evidence of an arrangement exists. The Company generally relies upon sales contracts or agreements, and customer purchase orders to determine the existence of an arrangement.

- Sales price is fixed or determinable. The Company assesses whether the sales price is fixed or determinable based on the payment terms and whether the sales price is subject to refund or adjustment. 

- Delivery has occurred. The Company uses shipping terms and related documents, or written evidence of customer acceptance, when applicable, to verify delivery or performance. The Company’s customary shipping terms are FOB shipping point.

- Collectability is reasonably assured.  The Company assesses collectability based on creditworthiness of customers as determined by the Company’s credit checks and their payment histories. The Company records accounts receivable net of allowance for doubtful accounts and estimated customer returns.

 The Company records revenues for Jonway Auto sales only upon the occurrence of all of the following conditions:

- The Company has received a binding purchase order from the customer or distributor authorized by a representative empowered to commit the purchaser (evidence of a sale);

- The purchase price has been fixed, based on the terms of the purchase order;

- The Company has delivered the product from its factory to a common carrier acceptable to the customer; and

- The Company deems the collection of the amount invoiced probable.

The Company provides no price protection. Sales are recognized net of sale discounts, rebates and return allowances.

Fair Value of Financial Instruments

Accounting Standards Update (“ASU”) 820, “Fair Value Measurements” and Accounting Standards Codification (“ASC”) 825, Financial Instruments, requires an entity to use observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions and methodologies that result in management’s best estimate of fair value.

The carrying value of accounts receivable, other current assets and prepaid expenses, short term loans, other payables and accrued expenses approximate their fair values because of the short-term nature of these instruments. The carrying value of the senior convertible debt (see Note 8), which approximates fair value, is influenced by interest rates and the Company’s stock price, and is determined by prices for the convertible debts observed in market trading, which are Level 2 inputs.

Foreign Currency Translation

The Company and its wholly owned subsidiary/investments, maintain their accounting records in United States Dollars (“US$”) whereas Jonway Auto maintains its accounting records in the currency of Renminbi (“RMB”), being the primary currency of the economic environment in which their operations are conducted.

Jonway Auto’s principal country of operations is the PRC. The financial position and results of the Company’s operations are determined using RMB, the local currency, as the functional currency.  The results of operations and the statement of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period.  Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date.  The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution.  Due to the fact that cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.  Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholder’s equity as “Accumulated Other Comprehensive Income.”

The value of RMB against US$ and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions, any significant revaluation of RMB may materially affect the Company’s financial condition in terms of US$ reporting.  The following table outlines the currency exchange rates that were used in creating the condensed consolidated financial statements in this report:

	June 30, 2016	June 30, 2015	December 31, 2015
Balance sheet items, except for share capital, additional    paid in capital and retained earnings	$ 1=RMB 6.6443	$ 1=RMB6.0888	$1=RMB6.4917
Amounts included in the statements of operations    and cash flows	$ 1=RMB 6.5364	$ 1=RMB 6.1088	$1=RMB 6.2288

Recent Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Changes to the current guidance include the accounting for equity investments, the presentation and disclosure requirements for financial instruments, and the assessment of valuation allowance on deferred tax assets related to available-for-sale securities. In addition, ASU 2016-01 establishes an incremental recognition and disclosure requirement related to the presentation of fair value changes of financial liabilities for which the fair value option has been elected. Under this guidance, an entity would be required to separately present in other comprehensive income the portion of the total fair value change attributable to instrument-specific credit risk as opposed to reflecting the entire amount in earnings. ASU 2016-01 is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adoption on its consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Codification (“ASC”) 842 (“ASC 842”), “Leases” which replaces the existing guidance in ASC 840, Leases.  ASC 842 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ASC 842 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (ROU) asset and a corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the ROU asset and for operating leases the lessee would recognize a straight-line total lease expense.  The Company is currently evaluating the impact of adoption on the consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments clarify what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. All entities have the option of adopting the new requirements early, including adoption in an interim period. If an entity early adopts the new requirements in an interim period, it must reflect any adjustments as of the beginning of the fiscal year that includes that interim period. The Company does not expect any material impact of this new standard on its consolidated financial statements.

In April 2016, the FASB released ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. While aimed at reducing the cost and complexity of the accounting for share-based payments, the amendments are expected to significantly impact net income, EPS, and the statement of cash flows. Implementation and administration may present challenges for companies with significant share-based payment activities. The ASU is effective for public companies in annual periods beginning after December 15, 2016, and interim periods within those years. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

In April 2016, FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

  In May 2016, the FASB issued ASU No. 2016-11 Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815); Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, which is rescinding certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition, and Topic 932, Extractive Activities—Oil and Gas, effective upon adoption of Topic 606. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

   In May 2016, FASB issued ASU No. 2016-12 Revenue from Contracts with Customers (Topic 606); Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis.  The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

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ACCOUNTS RECEIVABLE

6 Months Ended

Jun. 30, 2016

Accounts Receivable, Net [Abstract]

ACCOUNTS RECEIVABLE

NOTE 4 – ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

	June 30, 2016			December 31, 2015
Accounts receivable – third parties	$	2,760		$	2,274
Accounts receivable – related parties		4,698			5,172
		7,458			7,446
Less – Allowance for doubtful accounts		(1,906	)		(1,531	)
Total account receivable, net	$	5,552		$	5,915

Changes in the Company’s allowance for doubtful accounts during the six months ended June 30, 2016 and the year ended December 31, 2015 are as follows:

	June 30, 2016		December 31, 2015
Balance, beginning of period	$	1,531	$	439
Write-off		-		(76	)
Current provision		375		1,168
Balance, end of period	$	1,906	$	1,531

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INVENTORIES, NET

6 Months Ended

Jun. 30, 2016

Inventory Disclosure [Abstract]

INVENTORIES, NET

NOTE 5 – INVENTORIES, NET

Inventories, net are summarized as follows:

	June 30, 2016			December 31, 2015
Work in Process	$	2,701		$	2,237
Parts and supplies		3,805			3,616
Finished goods		2,153			3,186
		8,659			9,039
Less - inventory reserve		(1,486	)		(1,296	)
Inventories, net	$	7,173		$	7,743

Changes in the Company’s inventory reserve during the six months ended June 30, 2016 and the year ended December 31, 2015 are as follows:

	June 30, 2016		December 31, 2015
Balance, beginning of period	$	1,296	$	1,380
Current recovery for Jonway Auto		-		(132	)
Current provision for inventory ZAP, net		190		48
Balance, end of period	$	1,486	$	1,296

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DISTRIBUTION AGREEMENTS

6 Months Ended

Jun. 30, 2016

DISTRIBUTION AGREEMENTS [Abstract]

DISTRIBUTION AGREEMENTS

NOTE 6 - DISTRIBUTION AGREEMENTS

Distribution agreements are presented below:

	June 30, 2016			December 31, 2015
Better World Products - related party	$	2,160		$	2,160
Jonway Products		14,400			14,400
		16,560			16,560
Less: amortization and impairment		(10,321	)		(9,601	)
	$	6,239		$	6,959

Amortization expenses related to these distribution agreements for the three and six months ended June 30, 2016 and 2015 was $360,000 and $360,000, $720,000 and $720,000, respectively. Amortization is based over the term of the agreements. No impairment loss was recorded for the three months ended June 30, 2016 and 2015, respectively. The estimated future amortization expense is as follows:

12 months ended June 30,
2017	$	1,440
2018		1,440
2019		1,440
2020		1,440
Thereafter		479
Total	$	6,239

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LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES

6 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES

NOTE 7 – LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES

Line of credit (Credit Exposure)

In June 2015, the Company was approved for up to an aggregate of $6.9 million of a credit line from China Everbright Bank with 50% restricted cash deposited and credit exposure of $3.5 million. The Company renewed the agreement in June 2016. The renewed agreement approved for up to an aggregated of $6.0 million of a credit line with 50% restricted cash deposited and credit exposure of $3.0 million. The renewed credit line expires in June 2017.  The credit line is secured bya land use right and a building with a total carrying amount of $2.1 million. Three shareholders and the Chief Executive Officer (“CEO”) Alex Wang also personally guaranteed on this credit line.  As of June 30, 2016, $6.0 million was drawn down as notes payable from China Everbright Bank.  The amount of restricted cash deposited with the bank was $3.0 million. As of June 30, 2016, the renewed credit line has been fully utilized.

 In March 2014, the Company has obtained up to an aggregate of $15.1 million of credit line with the credit exposure of $5.6 million from CITIC Sanmen Branch through Jonway Auto.  The credit line was extended for one more year and expires on November 2016. The credit line is secured by land and building owned by Jonway Auto and guaranteed by the related party – Jonway Group.  The shareholder and CEO Alex Wang also personally guaranteed this credit line. As of June 30, 2016, the Company borrowed aggregated $5.6 million loans with various due dates in April 13, 2017 to April 26, 2017 from CITIC Sanmen Branch. The loans carried at annual interests of 6%.  The Company has also drawn down $7.0 million in the form of notes payable as of June 30, 2016.  The Company deposited $7.0 million restricted cash as collateral for these notes payable. These notes are due from July 2016 to December, 2016.  As of June 30, 2016, the line of credit has been fully utilized.

In March 2014, the Company was approved up to an aggregate of $5.0 million of a credit line from ICBC. This credit line was secured by land and buildings owned by Jonway Auto and guaranteed by related parties. The credit line expires on March 2017. As of June 30, 2016, the total outstanding loan under this credit line was $4.5 million. The annual interest rates are from 4.36% to 6.66%.  The loans are due in various dates from July 24, 2016 to June 22, 2017.  As of June 30, 2016, the unused line of credit was approximately $0.5 million. .

Short term loans as of June 30, 2016 and December 31, 2015 are presented below: 

		June 30, 2016		December 31, 2015
Loan from CITIC bank	(a)	$	5,569	$	3,081
Loan from ICBC	(b)		4,515		4,621
		$	10,084	$	7,702

.

(a) In October 2015, Jonway Auto borrowed a half year short-term loan of $3.1 million at annual interest rate of 5.9%. The loan was repaid upon maturity in April 2016.  

On March 25, 2016, Jonway Auto borrowed a one year loan of $0.5 million at annual interest rate of 6.0%. The loan is due on March 25, 2017.  On April 13, 2016, Jonway Auto borrowed a one year loan of $1.5 million at annual interest rate of 6.0%. The loan is due on April 13, 2017. On April 14, 2016, Jonway Auto borrowed a one year loan of $1.4 million at annual interest rate of 6.0%. The loan is due on April 14, 2017. On April 26, 2016, Jonway Auto further borrowed a one year loan of $2.2 million at annual interest rate of 6.0%. The loan is due on April 26, 2017.

All loans are secured by a Maximum Amount Mortgage Contract between Jonway Auto and CITIC dated November 3, 2014, in which a land use right and a building with a total carrying amount of $5.0 million as of June 30, 2016 has been pledged as security for these loans. The shareholder and CEO Alex Wang also personally guaranteed these loans.

(b) In March 2015, the Company borrowed a one year short-term loan of $0.8 million from ICBC at an annual interest of 5.4% and fully repaid the loan upon maturity in March 2016.  In June 2015, the Company borrowed a one year short-term loan of $0.3 million from ICBC at an annual interest rate of 5.92% and fully repaid the loan upon maturity in June 2016.

In July 2015, the Company borrowed a one year short-term loan of $1.1 million from ICBC at an annual interest rate of 6.7%.   In October 2015, the Company borrowed a one year short-term loan of $1.4 million at an annual interest of 6.4%. In November 2015, the Company borrowed a one year short-term loan of $1.1 million at an annual interest rate of 6.1%.  On June 8, 2016, the Company borrowed a one year short-term loan of $0.3 million at an annual interest rate of 5.0%.  On June 22, 2016, the Company borrowed a one year short-term loan of $0.8 million at an annual interest rate of 4.4%.

These loans were guaranteed by related parties including Jonway Group, the shareholder Wang Huaiyi and the shareholder and CEO Alex Wang. The Company also pledged buildings and a land use right with a carrying value of $1.4 million with ICBC.

The weighted average interest rates were 6.0% and 6.9% for the six months ended June 30, 2016 and 2015, respectively.

Bank acceptance notes

 As of June 30, 2016, the Company has bank acceptance notes payable in the amount of $13.0 million. The notes are guaranteed to be paid by the banks and are usually for a short-term period of nine months. The Company is required to maintain cash deposits of 50% or 100% of the notes payable with these bank, in order to ensure future credit availability. As of June 30, 2016, the restricted cash for the notes was $10.8 million. Bank acceptance notes are presented below:

		June 30, 2016		December 31, 2015
Bank acceptance notes payable to China Everbright Bank	(a)	$	6,020	$	7,086
Bank acceptance notes payable to CITIC Bank	(b)		7,029		6,428
Bank acceptance notes payable to Shanghai Pudong Development bank	(c)		-		852
		$	13,049	$	14,366

(a) Notes payable to China Everbright bank have various maturity dates in December 2016. The notes payable are guaranteed by a land use right and a building with a total carrying value of $2.0 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.

(b) Notes payable to CITIC bank will be due in July to September, 2016.  The Company is required to maintain cash deposits at 100% of the notes payable with the bank, in order to ensure future credit availability.

(c) Notes payable to Shanghai Pudong Development Bank was due in January and May, 2016. The Company was required to maintain cash deposits at 100% of the notes payable with the bank. The note payable was fully repaid upon due date.

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CONVERTIBLE DEBT

6 Months Ended

Jun. 30, 2016

Convertible Debt [Abstract]

CONVERTIBLE DEBT

NOTE 8 - CONVERTIBLE DEBT

Convertible debts are presented below:

	June 30, 2016		December 31, 2015
Senior convertible debt – CEVC (a)	$	20,679		$	20,679
Convertible debt – Mr. Luo Hua Liang (b)		786			786
	$	21,465		$	21,465

(a) Senior convertible debt - CEVC (related party)

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 current shareholder 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 Auto capital stock owned by ZAP at a conversion rate of 0.003743% of shares of Jonway Auto 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.

This convertible note was extended until December 31, 2016 with interest accrual at 8% per annum with original maturing date of February 12, 2012. According to Accounting Standard Codification (“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 bears a market interest rate at 8%. With the new extension, the principal of $20.7 million has the same conversion terms 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. Beginning August 12, 2013 within 10 calendar days following the end of each fiscal quarter, the Company is required to 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 the Additional Interest accrued during such fiscal quarter divided by 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. In addition, the warrants issued in connection with the CEVC note were amended for the change of the terms of conversion and for the extension of the maturity date until December 31, 2016.

Upon expiration date of the CEVC note, this convertible note will likely be repaid by ZAP in the form of Jonway Auto shares in order to reduce the liability of ZAP. If the CEVC note is repaid by Jonway Auto shares, ZAP’s ownership of Jonway Auto would be reduced to less than majority interest, resulting in need to reconsider eligibility for consolidation.  Due to the increasing accumulation of debt from Jonway Auto, largely because of the lack of working capital to fulfill orders, Jonway Auto may seek equity funding in order to meet its operational financial needs.  If this were to happen, then the additional equity investment into Jonway Auto would also reduce ZAP’s majority equity ownership in Jonway Auto. The qualification to meet consolidation for ZAP would have to be reassessed based on ZAP’s financial control, board and management control of Jonway Auto.

(b) Convertible debt – Mr. Luo Hua Liang

On September 3, 2015, the board approved issuance of a convertible note to Mr. Luo Hua Liang (Mr. Wang Alex’s brother in-law) for his investment of RMB 5 million immediately deposited within one week of signing of the agreement and another investment up to RMB 5 million within one month of signing of the agreement. Both notes have one year terms at the interest rate of 12% per annum. The investment was transferred to Jonway Auto as the loan from the Company to Jonway Auto. The convertible note shall either be repaid in cash from Jonway Auto or be paid in ZAP shares. The convertible note’s conversion price is $0.06 per share.  

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SEGMENT REPORTING

6 Months Ended

Jun. 30, 2016

Segment Reporting [Abstract]

SEGMENT REPORTING

NOTE 9 – SEGMENT REPORTING

Operating Segments

In accordance with ASC 280, the Company has identified three reportable segments consisting of Jonway Auto, ZAP (Consumer Product) and ZAP Hong Kong. The Jonway Auto segment represents sales of the gas fueled Jonway Auto A380 three and five-door sports utility vehicles, EV minivan and EV SUVs and spare parts principally through distributors in China. The ZAP Consumer Product segment represents rechargeable portable energy products, the Company’s Zapino scooter, and the Company’s ZAPPY3 personal transporters. These segments are strategic business units that offer different services. They are managed separately because each business requires different resources and strategies. The Company’s chief operating decision making group, which is comprised of the CEOs and the senior executives of each of ZAP’s strategic segments, regularly evaluate the financial information about these segments in deciding how to allocate resources and in assessing performance.

The performance of each segment is measured based on its profit or loss from operations before income taxes. Segment results are summarized as follows (in thousands):

	Jonway Auto			ZAP			ZAP Hong Kong		Total
For the three months ended June 30, 2016
Net sales	$	2,966		$	5		$	-	$	2,971
Gross profit (loss)	$	(725	)	$	1		$	-	$	(724	)
Depreciation and amortization	$	1,955		$	-		$	-	$	1,955
Net loss	$	(2,183	)	$	(1,194	)	$	-	$	(3,377	)
Total assets	$	62,105		$	13,350		$	-	$	75,455
For the three months ended June 30, 2015
Net sales	$	5,331		$	25		$	-	$	5,356
Gross profit (loss)	$	(278	)	$	7		$	-	$	(271	)
Depreciation and amortization	$	1,455		$	651		$	-	$	2,106
Net loss	$	(4,023	)	$	(1,454	)	$	-	$	(5,477	)
Total assets	$	67,925		$	18,273		$	9	$	86,207
For the six months ended June 30, 2016
Net sales	$	6,344		$	9		$	-	$	6,353
Gross profit (loss)	$	(660	)	$	2		$	-	$	(658	)
Depreciation and amortization	$	3,226		$	651		$	-	$	3,877
Net loss	$	(4,413	)	$	(2,353	)	$	-	$	(6,766	)
Total assets	$	62,105		$	13,350		$	-	$	75,455
For the six months ended June 30, 2015
Net sales	$	13,517		$	201		$	-	$	13,718
Gross profit (loss)	$	(865	)	$	82		$	-	$	(783	)
Depreciation and amortization	$	2,890		$	1,308		$	-	$	4,198
Net loss	$	(7,294	)	$	(2,859	)	$	-	$	(10,153	)
Total assets	$	67,925		$	18,273		$	9	$	86,207

Customer information

Approximately 99.8% or $3.0 million of the Company’s revenues for the three months ended June 30, 2016 are from sales in China.  Jonway Auto distributes its products to an established network of over 70 factory level dealers in China with one customer contributing over 10% of the Company’s consolidated revenue during the three months ended June 30, 2016. Approximately 99.6% or $5.3 million of the Company’s revenues for the three months ended June 30, 2015 are from sales in China. Jonway Auto distributes its products to an established network of over 63 factory level dealers in China with no customer contributing to more than 10% of the Company’s consolidated revenue during the three months ended June 30, 2015.

Approximately 99.9% or $6.3 million of the Company’s revenue for the six months ended June 30, 2016 are from sales in China. Jonway Auto distributes its products to an established network of over 70 factory level dealers in China with one customer contributing over 10% of the Company’s consolidated revenue during the six months ended June 30, 2016. Approximately 98.5% or $13.5 million of the Company’s revenue for the six months ended June 30, 2015 are from sales in China. Jonway Auto distributed its product to an established network of over 65 factory level dealers in China with one customer contributing 10% of the Company’s consolidated revenue during the six months ended June 30, 2015.

Supplier information

For the three months ended June 30, 2016 and 2015, approximately 100% or $3.7 million and 100% or $5.6 million of the consolidated cost of goods sold were purchased in China. For the three months ended June 30, 2016, no vendors contributed to over 10% of the Company’s purchase.  For the three months ended June 30, 2015, one vender accounted for 11% of the total purchase. For the six months ended June 30, 2016 and 2015, approximately 100% or $7.0 million and 100% or $14.5 million of the consolidated cost of goods sold were purchased in China. For the six months ended June 30, 2016, one vendor accounted for 14% of the total purchase. For the six months ended June 30, 2015, no vendor contributed to over 10% of the Company’s purchase.

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RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2016

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 10 – RELATED PARTY TRANSACTIONS

Due from (to) related parties

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

Amounts due from related parties are as follows (in thousands):

	June 30, 2016		December 31, 2015
Sanmen Branch of Zhejiang UFO Automobile Manufacturing Co., Ltd	$	994	$	998
Zhejiang Jonway Motorcycle		96		-
Taizhou Jonway		120		-
Shanghai Zapple		124
Jonway Economy and Trade Co., Ltd.		-		616
	$	1,334	$	1,614

In addition, accounts receivable included in accounts receivable due from related parties as follows (in thousands):

	June 30, 2016		December 31, 2015
Jonway EV selling Ltd.	$	4,249	$	4,659
Sanmen Branch of Zhejiang UFO Automobile Manufacturing Co., Ltd		155		212
Jonway Motorcycle		294		301
	$	4,698	$	5,172

Amounts due to related parties are follows (in thousands):

	June 30, 2016		December 31, 2015
Jonway Group	$	14,721	$	12,606
Jonway Motor Cycle		64		64
Taizhou Huadu		1,310		846
Shanghai Zapple		-		35
Mr. Alex Wang		7		74
Mr. Huaiyi Wang		14		-
Betterworld		149		149
Zhejiang Jonway Painting Co., Ltd.		-		11
Cathaya Operations Management Ltd.		442		193
	$	16,707	$	13,978

Transactions with Jonway Group

Jonway Group is considered as a related party as the Wang Family, one of the principal shareholders of the Company, has controlling interests in Jonway Group. Jonway Group supplies some of plastics spare parts to Jonway Auto and gave guarantees on Jonway Auto short term bank facilities from China-based banks. Jonway Auto made such purchase from Jonway Group for a total of $627,000 and $1,299,000 for the six months ended June 30, 2016 and 2015, respectively. Jonway Auto made such purchase from Jonway Group for a total of $138,000 and $544,000 for the three months ended June 30, 2016 and 2015, respectively.

Jonway Auto Agreement with Zhejiang UFO

Based on a contract by and among the Zhejiang UFO, Jonway Group and Jonway Auto dated as of January 1, 2006, Zhejiang UFO has authorized Jonway Auto 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 Auto shall pay Zhejiang UFO a variable contractual fee which is calculated based on the number of SUVs that Jonway Auto assembles in the Sanmen Branch every year, at the following rates (historical exchange rate):

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 Auto, has certain non-controlling equity interests in Zhejiang UFO.  For the six months ended June 30, 2016 and 2015, $0.1 million and $Nil were recorded as assembling fees, respectively.  For the three months ended June 30, 2016 and 2015, $0.1 million and $Nil were recorded as assembling fees, respectively.

  Other Related Party Transactions

For the six months ended June 30, 2016, Jonway Auto purchased parts in amount of $301,000 and $98,000 from Taizhou Huadu and Jonway Group, respectively. For the six months ended June 30, 2015, Jonway Auto purchased $Nil and $1,299,000 spare parts from Taizhou Huadu and Jonway Group, respectively.

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SHAREHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2016

Stockholders' Equity Note [Abstract]

SHAREHOLDERS' EQUITY

NOTE 11 - SHAREHOLDERS’ EQUITY

Common stock

2015 ISSUANCES

On February 11, 2015, the cancellation of 1,182,558 shares of common stock was processed to pay back the proceeds from convertible notes, and a partial repayment representing a principal reduction of $100,000 and $8,433 of interest was paid on the Company’s outstanding convertible bond held by Yung. For the year ended December 31, 2015, the Company repurchased 4,811,633 shares of common stock at cost of $406,872 from Yung and cancelled those shares. The balance of the outstanding note issued to Korea Yung was $133,116 after the payment and cancellation of these shares. Yung is allowed to engage in open market sales of the shares through December 31, 2015. In the event the gross proceeds realized from the sale of the shares by Yung is greater than the principal and interest due on the bond as of the maturity date, Yung will be entitled to retain all proceeds. If the proceeds from the sale of shares are less than the principal and interest due on the bond as of the maturity date, ZAP will pay the shortfall to Yung in cash within five business days of written notice from Yung.

In September 2015, the Company issued 89,194,715 shares to Mr. Alex Wang, the Chief Executive Officer of the Company for his investment of $5,351,683 in the Company (approximately $4.5 million investment was loan by the Company to its subsidiary Jonway Auto).

In September 2015, the amount of $814,863 investment from Cathaya Management Co Ltd and $350,000 due to Cathaya Management Co Ltd have been converted into 13,581,051 and 5,833,333 shares of common stock at price of $0.06, respectively.

In September 2015, China Electric Vehicle Corporation (CEVC) has elected to convert the interest of $1,237,345 due on the $20.7 million convertible note to 14,454,743 shares of common stock at the average price of $0.086.

Stock-based Compensation

The Company has stock compensation plans for employees and directors. The Company recognizes the stock-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. All of the stock-based compensation is accounted for as an equity instrument.

In June 2015, the Company granted 200,000 restricted shares to Michael Ringstad in lieu of salary compensation and also for his acceptance for the position of Interim CFO. The stock was set at average of last 30 trading days, and the vesting period is for a period of 3 years from the date of grant. Michael Ringstad cannot sell the shares within six months from the date of grant and the Company retains the right to buy back the shares at any time at the market price. $658 was charged to general and administrative expense for three and six months ended June 30, 2015.

For the three and six months ended June 30, 2016, $18,000 and $36,000 was recorded as stock-based compensation expenses, respectively. For the three and six months ended June 30, 2015, $18,000 and $37,000 was recorded as stock-based compensation expenses, respectively.

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LITIGATION

6 Months Ended

Jun. 30, 2016

Loss Contingency, Information about Litigation Matters [Abstract]

LITIGATION

NOTE 12 – LITIGATION

ZAP is in arrears with the settlement payment to Hogan & Lovells. The current negotiated balance due is $779,500.  Hogan & Lovells agreed to reduce the total amount owed by $453,827, as long as the Company does not default on its payment agreement. If Hogan & Lovells does seek a judgment, the total balance due immediately would be $1,233,327. Currently ZAP is seeking additional funding, and is working with prospective investors or lenders so ZAP can resume the installment payments to Hogan & Lovells. As of June 30, 2016 and December 31, 2015, the Company accrued approximately $0.7 million for this litigation.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 13 – COMMITMENTS AND CONTINGENCIES

Guarantees

Jonway Auto guaranteed certain financial obligations of outside third parties including suppliers and customers to support the Company’s business and economic growth. Guarantees will terminate on payment and/or cancellation of the obligation once it is repaid. A payment by the Company would be triggered by failure of the guaranteed party to fulfill its obligation covered by the guarantee. Maximum potential payments under guarantees total $2.2 million at June 30, 2016 (December 31, 2015 - $2.3 million). The guarantee expires at variance dates from March 31, 2016 to December 2019. The Company’s performance risk under these guarantees is reviewed regularly, and has resulted in no changes to its initial valuations.

Jonway Auto pledged a land use right and a building to Shanghai Pu Dong Development Bank to secure a bank loan of $1.0 million offered to a related company, Taizhou Jonway Jing Mao Trading Ltd., which is a subsidiary of Jonway Group. The period of guarantee is five years from 2014 to 2019. The net value of the land use right and the building pledged as at June 30, 2016 and December 31, 2015 were $0.4 million and $0.5 million, respectively.

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2016

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 14 – SUBSEQUENT EVENTS

In July 2016, the Company issued an aggregated of 37,465,956 shares of the Company’s common stock with the approval of the Board to settle certain existing debts of approximately $2.5 million.

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Basis of Presentation and Consolidation

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements include the financial statements of ZAP, and its subsidiaries, Jonway Auto and ZAP Hong Kong for the six months ended June 30, 2016 and the year ended December 31, 2015 and are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Management considers subsidiaries to be companies that are over 50% controlled. Significant intercompany transactions and balances are eliminated in consolidation; profits from intercompany sales, are also eliminated; non-controlling interests are included in equity.  The Company accounts for its 37.5% interest in the ZAP Hangzhou and its 50% interest in Shanghai Zapple using the equity method of accounting because it has significant influence but not control. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the financial statements have been included. Interim results are not necessarily indicative of results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction with information included in the 2015 annual report on Form 10-K filed on April 14, 2016.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The more significant estimates relate to revenue recognition, contractual allowances and uncollectible accounts, intangible assets, accrued liabilities, warranty costs, stock based compensation, income taxes, litigation and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for judgments about results and the carrying values of assets and liabilities. Actual results and values may differ significantly from these estimates.

Revenue Recognition

Revenue Recognition

The Company records revenues for non-Jonway Auto sales when all of the following criteria have been met:

-  Persuasive evidence of an arrangement exists. The Company generally relies upon sales contracts or agreements, and customer purchase orders to determine the existence of an arrangement.

- Sales price is fixed or determinable. The Company assesses whether the sales price is fixed or determinable based on the payment terms and whether the sales price is subject to refund or adjustment. 

- Delivery has occurred. The Company uses shipping terms and related documents, or written evidence of customer acceptance, when applicable, to verify delivery or performance. The Company’s customary shipping terms are FOB shipping point.

- Collectability is reasonably assured.  The Company assesses collectability based on creditworthiness of customers as determined by the Company’s credit checks and their payment histories. The Company records accounts receivable net of allowance for doubtful accounts and estimated customer returns.

 The Company records revenues for Jonway Auto sales only upon the occurrence of all of the following conditions:

- The Company has received a binding purchase order from the customer or distributor authorized by a representative empowered to commit the purchaser (evidence of a sale);

- The purchase price has been fixed, based on the terms of the purchase order;

- The Company has delivered the product from its factory to a common carrier acceptable to the customer; and

- The Company deems the collection of the amount invoiced probable.

The Company provides no price protection. Sales are recognized net of sale discounts, rebates and return allowances.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Accounting Standards Update (“ASU”) 820, “Fair Value Measurements” and Accounting Standards Codification (“ASC”) 825, Financial Instruments, requires an entity to use observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions and methodologies that result in management’s best estimate of fair value.

The carrying value of accounts receivable, other current assets and prepaid expenses, short term loans, other payables and accrued expenses approximate their fair values because of the short-term nature of these instruments. The carrying value of the senior convertible debt (see Note 8), which approximates fair value, is influenced by interest rates and the Company’s stock price, and is determined by prices for the convertible debts observed in market trading, which are Level 2 inputs.

Foreign Currency Translation

Foreign Currency Translation

The Company and its wholly owned subsidiary/investments, maintain their accounting records in United States Dollars (“US$”) whereas Jonway Auto maintains its accounting records in the currency of Renminbi (“RMB”), being the primary currency of the economic environment in which their operations are conducted.

Jonway Auto’s principal country of operations is the PRC. The financial position and results of the Company’s operations are determined using RMB, the local currency, as the functional currency.  The results of operations and the statement of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period.  Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date.  The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution.  Due to the fact that cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.  Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholder’s equity as “Accumulated Other Comprehensive Income.”

The value of RMB against US$ and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions, any significant revaluation of RMB may materially affect the Company’s financial condition in terms of US$ reporting.  The following table outlines the currency exchange rates that were used in creating the condensed consolidated financial statements in this report:

	June 30, 2016	June 30, 2015	December 31, 2015
Balance sheet items, except for share capital, additional    paid in capital and retained earnings	$ 1=RMB 6.6443	$ 1=RMB6.0888	$1=RMB6.4917
Amounts included in the statements of operations    and cash flows	$ 1=RMB 6.5364	$ 1=RMB 6.1088	$1=RMB 6.2288

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Changes to the current guidance include the accounting for equity investments, the presentation and disclosure requirements for financial instruments, and the assessment of valuation allowance on deferred tax assets related to available-for-sale securities. In addition, ASU 2016-01 establishes an incremental recognition and disclosure requirement related to the presentation of fair value changes of financial liabilities for which the fair value option has been elected. Under this guidance, an entity would be required to separately present in other comprehensive income the portion of the total fair value change attributable to instrument-specific credit risk as opposed to reflecting the entire amount in earnings. ASU 2016-01 is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adoption on its consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Codification (“ASC”) 842 (“ASC 842”), “Leases” which replaces the existing guidance in ASC 840, Leases.  ASC 842 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ASC 842 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (ROU) asset and a corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the ROU asset and for operating leases the lessee would recognize a straight-line total lease expense.  The Company is currently evaluating the impact of adoption on the consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments clarify what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. All entities have the option of adopting the new requirements early, including adoption in an interim period. If an entity early adopts the new requirements in an interim period, it must reflect any adjustments as of the beginning of the fiscal year that includes that interim period. The Company does not expect any material impact of this new standard on its consolidated financial statements.

In April 2016, the FASB released ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. While aimed at reducing the cost and complexity of the accounting for share-based payments, the amendments are expected to significantly impact net income, EPS, and the statement of cash flows. Implementation and administration may present challenges for companies with significant share-based payment activities. The ASU is effective for public companies in annual periods beginning after December 15, 2016, and interim periods within those years. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

In April 2016, FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

  In May 2016, the FASB issued ASU No. 2016-11 Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815); Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, which is rescinding certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition, and Topic 932, Extractive Activities—Oil and Gas, effective upon adoption of Topic 606. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

   In May 2016, FASB issued ASU No. 2016-12 Revenue from Contracts with Customers (Topic 606); Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis.  The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

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SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Schedule of Foreign Currency Exchange Balance

	June 30, 2016	June 30, 2015	December 31, 2015
Balance sheet items, except for share capital, additional    paid in capital and retained earnings	$ 1=RMB 6.6443	$ 1=RMB6.0888	$1=RMB6.4917
Amounts included in the statements of operations    and cash flows	$ 1=RMB 6.5364	$ 1=RMB 6.1088	$1=RMB 6.2288

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ACCOUNTS RECEIVABLE (Tables)

6 Months Ended

Jun. 30, 2016

Accounts Receivable, Net [Abstract]

Schedule of accounts receivable

	June 30, 2016			December 31, 2015
Accounts receivable – third parties	$	2,760		$	2,274
Accounts receivable – related parties		4,698			5,172
		7,458			7,446
Less – Allowance for doubtful accounts		(1,906	)		(1,531	)
Total account receivable, net	$	5,552		$	5,915

Schedule of changes in allowance for doubtful accounts

	June 30, 2016		December 31, 2015
Balance, beginning of period	$	1,531	$	439
Write-off		-		(76	)
Current provision		375		1,168
Balance, end of period	$	1,906	$	1,531

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INVENTORIES, NET (Tables)

6 Months Ended

Jun. 30, 2016

Inventory Disclosure [Abstract]

Schedule of Inventories

	June 30, 2016			December 31, 2015
Work in Process	$	2,701		$	2,237
Parts and supplies		3,805			3,616
Finished goods		2,153			3,186
		8,659			9,039
Less - inventory reserve		(1,486	)		(1,296	)
Inventories, net	$	7,173		$	7,743

Schedule of Inventory Reserve

	June 30, 2016		December 31, 2015
Balance, beginning of period	$	1,296	$	1,380
Current recovery for Jonway Auto		-		(132	)
Current provision for inventory ZAP, net		190		48
Balance, end of period	$	1,486	$	1,296

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DISTRIBUTION AGREEMENTS (Tables)

6 Months Ended

Jun. 30, 2016

DISTRIBUTION AGREEMENTS [Abstract]

Schedule of Distribution Agreements

	June 30, 2016			December 31, 2015
Better World Products - related party	$	2,160		$	2,160
Jonway Products		14,400			14,400
		16,560			16,560
Less: amortization and impairment		(10,321	)		(9,601	)
	$	6,239		$	6,959

Schedule of Estimated Future Amortization Expense Related to Agreements

12 months ended June 30,
2017	$	1,440
2018		1,440
2019		1,440
2020		1,440
Thereafter		479
Total	$	6,239

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LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES (Tables)

6 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Schedule of Short-Term Debt

		June 30, 2016		December 31, 2015
Loan from CITIC bank	(a)	$	5,569	$	3,081
Loan from ICBC	(b)		4,515		4,621
		$	10,084	$	7,702

Schedule of Bank Acceptance Notes

		June 30, 2016		December 31, 2015
Bank acceptance notes payable to China Everbright Bank	(a)	$	6,020	$	7,086
Bank acceptance notes payable to CITIC Bank	(b)		7,029		6,428
Bank acceptance notes payable to Shanghai Pudong Development bank	(c)		-		852
		$	13,049	$	14,366

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CONVERTIBLE DEBT (Tables)

6 Months Ended

Jun. 30, 2016

Convertible Debt Tables

Schedule of convertible debt

	June 30, 2016		December 31, 2015
Senior convertible debt – CEVC (a)	$	20,679		$	20,679
Convertible debt – Mr. Luo Hua Liang (b)		786			786
	$	21,465		$	21,465

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SEGMENT REPORTING (Tables)

6 Months Ended

Jun. 30, 2016

Segment Reporting Tables

Schedule of Segment Results

	Jonway Auto			ZAP			ZAP Hong Kong		Total
For the three months ended June 30, 2016
Net sales	$	2,966		$	5		$	-	$	2,971
Gross profit (loss)	$	(725	)	$	1		$	-	$	(724	)
Depreciation and amortization	$	1,955		$	-		$	-	$	1,955
Net loss	$	(2,183	)	$	(1,194	)	$	-	$	(3,377	)
Total assets	$	62,105		$	13,350		$	-	$	75,455
For the three months ended June 30, 2015
Net sales	$	5,331		$	25		$	-	$	5,356
Gross profit (loss)	$	(278	)	$	7		$	-	$	(271	)
Depreciation and amortization	$	1,455		$	651		$	-	$	2,106
Net loss	$	(4,023	)	$	(1,454	)	$	-	$	(5,477	)
Total assets	$	67,925		$	18,273		$	9	$	86,207
For the six months ended June 30, 2016
Net sales	$	6,344		$	9		$	-	$	6,353
Gross profit (loss)	$	(660	)	$	2		$	-	$	(658	)
Depreciation and amortization	$	3,226		$	651		$	-	$	3,877
Net loss	$	(4,413	)	$	(2,353	)	$	-	$	(6,766	)
Total assets	$	62,105		$	13,350		$	-	$	75,455
For the six months ended June 30, 2015
Net sales	$	13,517		$	201		$	-	$	13,718
Gross profit (loss)	$	(865	)	$	82		$	-	$	(783	)
Depreciation and amortization	$	2,890		$	1,308		$	-	$	4,198
Net loss	$	(7,294	)	$	(2,859	)	$	-	$	(10,153	)
Total assets	$	67,925		$	18,273		$	9	$	86,207

XML

RELATED PARTY TRANSACTIONS (Tables)

6 Months Ended

Jun. 30, 2016

Related Party Transactions [Abstract]

Schedule of Amount Due To/From Related Parties

	June 30, 2016		December 31, 2015
Sanmen Branch of Zhejiang UFO Automobile Manufacturing Co., Ltd	$	994	$	998
Zhejiang Jonway Motorcycle		96		-
Taizhou Jonway		120		-
Shanghai Zapple		124
Jonway Economy and Trade Co., Ltd.		-		616
	$	1,334	$	1,614

	June 30, 2016		December 31, 2015
Jonway EV selling Ltd.	$	4,249	$	4,659
Sanmen Branch of Zhejiang UFO Automobile Manufacturing Co., Ltd		155		212
Jonway Motorcycle		294		301
	$	4,698	$	5,172

	June 30, 2016		December 31, 2015
Jonway Group	$	14,721	$	12,606
Jonway Motor Cycle		64		64
Taizhou Huadu		1,310		846
Shanghai Zapple		-		35
Mr. Alex Wang		7		74
Mr. Huaiyi Wang		14		-
Betterworld		149		149
Zhejiang Jonway Painting Co., Ltd.		-		11
Cathaya Operations Management Ltd.		442		193
	$	16,707	$	13,978

Schedule of Contract 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

XML

ORGANIZATION AND BASIS OF PRESENTATION (Basis Of Presentation) (Details)	Jun. 30, 2016
Jonway Auto [Member]
Organization and Basis of Presentation [Line Items]
Percentage ownership in Jonway	51.00%

XML

LIQUIDITY AND CAPITAL RESOURCES (Details) - USD ($)	1 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015	Mar. 31, 2014
Line of Credit Facility [Line Items]
Current liabilities exceeded current assets	$ 72,400,000
Equity Deficiency	15,700,000
Wang Gang And Jonway Group [Member]
Line of Credit Facility [Line Items]
Additional capital injected			$ 5,400,000
China Everbright Bank [Member]
Line of Credit Facility [Line Items]
Maximum borrowing capacity	6,000,000	$ 6,900,000
Credit exposure	$ 3,000,000	$ 3,500,000
Required cash deposit	50.00%	50.00%
Notes payable	$ 6,000,000
Restricted cash deposit	3,000,000
Renewed line of credit	6,000,000
Collateral amount	2,100,000
CITIC Bank [Member]
Line of Credit Facility [Line Items]
Maximum borrowing capacity				$ 15,100,000
Credit exposure				5,600,000
Amount outstanding	$ 5,600,000
Interest rate	6.00%
Notes payable	$ 7,000,000
Restricted cash deposit	7,000,000
Collateral amount	5,000,000
ICBC [Member]
Line of Credit Facility [Line Items]
Maximum borrowing capacity				$ 5,000,000
Amount outstanding	4,500,000
Unused line of credit	500,000
Collateral amount	$ 1,400,000
ICBC [Member] | Minimum [Member]
Line of Credit Facility [Line Items]
Interest rate	4.36%
ICBC [Member] | Maximum [Member]
Line of Credit Facility [Line Items]
Interest rate	6.66%

XML

SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details) - ¥ / $	6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Currency exchange rate	6.6443	6.0888	6.4917
Average currency exchange rate	6.5364	6.1088	6.2288
Zap Hangzhou [Member]
Equity Method Investment, Ownership Percentage	37.50%
Shanghai Zapple [Member]
Equity Method Investment, Ownership Percentage	50.00%

XML

ACCOUNTS RECEIVABLE (Schedule Of Accounts Receivable) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Accounts Receivable, Net [Abstract]
Accounts receivable - third parties	$ 2,760	$ 2,274
Accounts receivable - related parties	4,698	5,172
Account receivable, gross	7,458	7,446
Less - Allowance for doubtful accounts	(1,906)	(1,531)
Total account receivable, net	$ 5,552	$ 5,915

XML

ACCOUNTS RECEIVABLE (Schedule Of Changes In Allowance For Doubtful Accounts) (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Accounts Receivable, Net [Abstract]
Balance, beginning of period	$ 1,531	$ 439	$ 439
Write-off			(76)
Current provision	418	$ 533	1,168
Balance, end of period	$ 1,906		$ 1,531

XML

INVENTORIES, NET (Schedule of Inventories) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015	Dec. 31, 2014
Inventory Disclosure [Abstract]
Work in Process	$ 2,701	$ 2,237
Parts and supplies	3,805	3,616
Finished goods	2,153	3,186
Inventories	8,659	9,039
Less - inventory reserve	(1,486)	(1,296)	$ (1,380)
Inventories, net	$ 7,173	$ 7,743

XML

INVENTORIES, NET (Schedule of Inventory Reserve) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Inventory Disclosure [Abstract]
Balance, beginning of period	$ 1,296	$ 1,380
Current recovery for Jonway Auto		(132)
Current provision for inventory ZAP, net	190	(48)
Balance, end of period	$ 1,486	$ 1,296

XML

DISTRIBUTION AGREEMENTS (Narrative) (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Distribution Agreements [Line Items]
Depreciation and amortization	$ 1,955,000	$ 2,106,000	$ 3,877,000	$ 4,198,000
Distribution Agreements [Member]
Distribution Agreements [Line Items]
Depreciation and amortization	$ 360,000	$ 720,000	$ 360,000	$ 720,000

XML

DISTRIBUTION AGREEMENTS (Schedule of Distribution Agreements) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Distribution Agreements [Line Items]
Distribution agreements	$ 16,560	$ 16,560
Less: amortization and impairment	(10,321)	(9,601)
Distribution agreements, net	6,239	6,959
Better World [Member]
Distribution Agreements [Line Items]
Distribution agreements	2,160	2,160
Jonway Products [Member]
Distribution Agreements [Line Items]
Distribution agreements	$ 14,400	$ 14,400

XML

DISTRIBUTION AGREEMENTS (Schedule of Future Amortization Expense) (Details) - Distribution Agreements [Member] $ in Thousands	Jun. 30, 2016 USD ($)
Estimated future amortization expense:
2017	$ 1,440
2018	1,440
2019	1,440
2020	1,440
Thereafter	479
Total	$ 6,239

XML

LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES (Line of Credit) (Details) - USD ($)	1 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Mar. 31, 2014
China Everbright Bank [Member]
Line of Credit Facility [Line Items]
Maximum borrowing capacity	$ 6,000,000	$ 6,900,000
Credit exposure	3,000,000	$ 3,500,000
Notes payable	6,000,000
Restricted cash deposit	3,000,000
Collateral amount	$ 2,100,000
Required cash deposit	50.00%	50.00%
CITIC Bank [Member]
Line of Credit Facility [Line Items]
Maximum borrowing capacity			$ 15,100,000
Credit exposure			5,600,000
Amount outstanding	$ 5,600,000
Interest rate	6.00%
Notes payable	$ 7,000,000
Restricted cash deposit	7,000,000
Collateral amount	5,000,000
ICBC [Member]
Line of Credit Facility [Line Items]
Maximum borrowing capacity			$ 5,000,000
Amount outstanding	4,500,000
Unused line of credit	500,000
Collateral amount	$ 1,400,000
ICBC [Member] | Minimum [Member]
Line of Credit Facility [Line Items]
Interest rate	4.36%
ICBC [Member] | Maximum [Member]
Line of Credit Facility [Line Items]
Interest rate	6.66%

XML

LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES (Schedule of Short-Term Debt) (Details) - USD ($) $ in Thousands						1 Months Ended							6 Months Ended
		Jun. 08, 2016	Apr. 14, 2016	Apr. 13, 2016	Mar. 25, 2016	Jun. 22, 2016	Apr. 26, 2016	Nov. 30, 2015	Oct. 31, 2015	Jul. 31, 2015	Jun. 30, 2015	Mar. 31, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Short-term Debt [Line Items]
Short term loans													$ 10,084		$ 7,702
CITIC Bank [Member]
Short-term Debt [Line Items]
Interest rate													6.00%
Collateral amount													$ 5,000
ICBC [Member]
Short-term Debt [Line Items]
Collateral amount													1,400
CITIC Bank [Member]
Short-term Debt [Line Items]
Short term loans	[1]												5,569		3,081
Face amount			$ 1,400	$ 1,500	$ 500		$ 2,200		$ 3,100
Term			1 year	1 year	1 year		1 year		6 months
Interest rate			6.00%	6.00%	6.00%		6.00%		5.90%
Debt Instrument, Maturity Date			Apr. 14, 2017	Apr. 13, 2017	Mar. 25, 2017		Apr. 26, 2017
ICBC [Member]
Short-term Debt [Line Items]
Short term loans	[2]												$ 4,515		$ 4,621
Face amount		$ 300				$ 800		$ 1,100	$ 1,400	$ 1,100	$ 300	$ 800		$ 300
Term		1 year				1 year		1 year	1 year	1 year	1 year	1 year
Interest rate		5.00%				4.40%		6.10%	6.40%	6.70%	5.92%	5.40%		5.92%
Weighted average interest rate													6.00%	6.90%

[1] In October 2015, Jonway Auto borrowed a half year short-term loan of $3.1 million at annual interest rate of 5.9%. The loan was repaid upon maturity in April 2016. On March 25, 2016, Jonway Auto borrowed a one year loan of $0.5 million at annual interest rate of 6.0%. The loan is due on March 25, 2017. On April 13, 2016, Jonway Auto borrowed a one year loan of $1.5 million at annual interest rate of 6.0%. The loan is due on April 13, 2017. On April 14, 2016, Jonway Auto borrowed a one year loan of $1.4 million at annual interest rate of 6.0%. The loan is due on April 14, 2017. On April 26, 2016, Jonway Auto further borrowed a one year loan of $2.2 million at annual interest rate of 6.0%. The loan is due on April 26, 2017. All loans are secured by a Maximum Amount Mortgage Contract between Jonway Auto and CITIC dated November 3, 2014, in which a land use right and a building with a total carrying amount of $5.0 million as of June 30, 2016 has been pledged as security for these loans. The shareholder and CEO Alex Wang also personally guaranteed these loans.

[2] In March 2015, the Company borrowed a one year short-term loan of $0.8 million from ICBC at an annual interest of 5.4% and fully repaid the loan upon maturity in March 2016. In June 2015, the Company borrowed a one year short-term loan of $0.3 million from ICBC at an annual interest rate of 5.92% and fully repaid the loan upon maturity in June 2016. In July 2015, the Company borrowed a one year short-term loan of $1.1 million from ICBC at an annual interest rate of 6.7%. In October 2015, the Company borrowed a one year short-term loan of $1.4 million at an annual interest of 6.4%. In November 2015, the Company borrowed a one year short-term loan of $1.1 million at an annual interest rate of 6.1%. On June 8, 2016, the Company borrowed a one year short-term loan of $0.3 million at an annual interest rate of 5.0%. On June 22, 2016, the Company borrowed a one year short-term loan of $0.8 million at an annual interest rate of 4.4%.

XML

LINE OF CREDIT, SHORT TERM DEBT AND BANK ACCEPTANCE NOTES (Schedule of Bank Acceptance Notes) (Details) - USD ($) $ in Thousands					1 Months Ended	6 Months Ended
		Apr. 14, 2016	Apr. 13, 2016	Mar. 25, 2016	Apr. 26, 2016	Jun. 30, 2016	Dec. 31, 2015
Short-term Debt [Line Items]
Bank acceptance notes payable						$ 13,049	$ 14,366
Notes Payable to Banks [Member]
Short-term Debt [Line Items]
Bank acceptance notes payable						13,000
Restricted cash deposit						$ 10,800
Notes Payable to Banks [Member] | Minimum [Member]
Short-term Debt [Line Items]
Required cash deposit						50.00%
Notes Payable to Banks [Member] | Maximum [Member]
Short-term Debt [Line Items]
Required cash deposit						100.00%
China Everbright Bank [Member]
Short-term Debt [Line Items]
Ending maturity date						Dec. 31, 2016
Collateral amount						$ 2,000
Required cash deposit						50.00%
China Everbright Bank [Member] | Notes Payable to Banks [Member]
Short-term Debt [Line Items]
Bank acceptance notes payable	[1]					$ 6,020	7,086
CITIC Bank [Member]
Short-term Debt [Line Items]
Beginning maturity date						Jul. 01, 2016
Ending maturity date						Sep. 30, 2016
Required cash deposit						100.00%
Maturity date		Apr. 14, 2017	Apr. 13, 2017	Mar. 25, 2017	Apr. 26, 2017
CITIC Bank [Member] | Notes Payable to Banks [Member]
Short-term Debt [Line Items]
Bank acceptance notes payable	[2]					$ 7,029	6,428
Shanghai Pudong Development Bank [Member]
Short-term Debt [Line Items]
Beginning maturity date						Jan. 01, 2016
Ending maturity date						May 31, 2016
Required cash deposit						100.00%
Shanghai Pudong Development Bank [Member] | Notes Payable to Banks [Member]
Short-term Debt [Line Items]
Bank acceptance notes payable	[3]						$ 852

[1] Notes payable to China Everbright bank have various maturity dates in December 2016. The notes payable are guaranteed by a land use right and a building with a total carrying value of $2.0 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.

[2] Notes payable to CITIC bank will be due in July to September, 2016. The Company is required to maintain cash deposits at 100% of the notes payable with the bank, in order to ensure future credit availability.

[3] Notes payable to Shanghai Pudong Development Bank was due in January and May, 2016. The Company was required to maintain cash deposits at 100% of the notes payable with the bank. The note payable was fully repaid upon due date.

XML

CONVERTIBLE DEBT (Schedule of Convertible Debt) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Convertible Debt [Abstract]
Senior convertible debt - CEVC	$ 20,679	$ 20,679
Convertible debt - Mr. Luo Hua Liang	786	786
Convertible debt	$ 21,465	$ 21,465

XML

CONVERTIBLE DEBT (Narrative) (Details) $ / shares in Units, ¥ in Millions, $ in Millions			6 Months Ended
	Sep. 03, 2015 $ / shares	Jan. 12, 2011 USD ($) $ / shares shares	Jun. 30, 2016 USD ($) shares	Sep. 03, 2015 CNY (¥)
Convertible Debt [Member]
Debt Instrument [Line Items]
Amount outstanding | $			$ 20.7
Conversion ratio			0.003743
Number of shares | shares			4,435
Interest rate			8.00%
Convertible Notes Payable [Member] | Luo Hua Liang [Member]
Debt Instrument [Line Items]
Term	1 year
Interest rate				12.00%
Investment immediately deposit within one week of signing of the agreement | ¥				¥ 5
Debt Instrument, Convertible, Conversion Price | $ / shares	$ 0.06
Convertible Notes Payable [Member] | Luo Hua Liang [Member] | Maximum [Member]
Debt Instrument [Line Items]
Investment deposit within one month of signing of the agreement | ¥				¥ 5
Convertible Notes Payable [Member] | Convertible Debt [Member]
Debt Instrument [Line Items]
Shares called by warrant | shares		20,000,000
Term		2 years
Exercise price | $ / shares		$ 0.50
Amount outstanding | $		$ 19.0

XML

SEGMENT REPORTING (Narrative) (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($) item	Jun. 30, 2015 USD ($)
Concentration Risk [Line Items]
Revenues	$ 2,971	$ 5,356	$ 6,353	$ 13,718
Number of reportable segments | item			3
Geographic Concentration Risk [Member] | Revenue [Member]
Concentration Risk [Line Items]
Concentration risk percentage	99.80%	99.60%	99.90%	98.50%
Revenues	$ 3,000	$ 5,300	$ 6,300	$ 13,500
Geographic Concentration Risk [Member] | Cost of Goods Sold [Member]
Concentration Risk [Line Items]
Concentration risk percentage	100.00%	100.00%	100.00%	100.00%
Revenues	$ 3,700	$ 5,600	$ 7,000	$ 14,500
Customer Concentration Risk [Member] | Revenue [Member] | Customer One [Member]
Concentration Risk [Line Items]
Concentration risk percentage	10.00%	10.00%	10.00%	10.00%
Supplier Concentration Risk [Member] | Cost of Goods Sold [Member] | Vendor One [Member]
Concentration Risk [Line Items]
Concentration risk percentage		11.00%	14.00%

XML

SEGMENT REPORTING (Schedule of Segment Results) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Segment Reporting Information [Line Items]
Net sales	$ 2,971	$ 5,356	$ 6,353	$ 13,718
Gross profit (loss)	(724)	(271)	(658)	(783)
Depreciation and amortization	1,955	2,106	3,877	4,198
Net loss	(3,377)	(5,477)	(6,766)	(10,153)
Total assets	75,455	86,207	75,455	86,207	$ 79,650
Jonway Auto [Member]
Segment Reporting Information [Line Items]
Net sales	2,966	5,331	6,344	13,517
Gross profit (loss)	(725)	(278)	(660)	(865)
Depreciation and amortization	1,955	1,455	3,226	2,890
Net loss	(2,183)	(4,023)	(4,413)	(7,294)
Total assets	62,105	67,925	62,105	67,925
ZAP [Member]
Segment Reporting Information [Line Items]
Net sales	5	25	9	201
Gross profit (loss)	1	7	2	82
Depreciation and amortization		651	651	1,308
Net loss	(1,194)	(1,454)	(2,353)	(2,859)
Total assets	13,350	18,273	13,350	18,273
ZAP Hong Kong [Member]
Segment Reporting Information [Line Items]
Net sales
Gross profit (loss)
Depreciation and amortization
Net loss
Total assets		$ 9		$ 9

XML

RELATED PARTY TRANSACTIONS (Narrative) (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Jonway Group [Member]
Related Party Transaction [Line Items]
Purchases	$ 138,000	$ 544,000	$ 627,000	$ 1,299,000
Sanmen Branch [Member]
Related Party Transaction [Line Items]
Expenses	$ 100,000		$ 100,000
Period to operate branch to assemble and sell branded products	10 years		10 years
Jonway Motor Cycle [Member] | Spare Parts [Member]
Related Party Transaction [Line Items]
Purchases			$ 301,000
Taizhou Huadu [Member] | Spare Parts [Member]
Related Party Transaction [Line Items]
Purchases			$ 98,000	$ 1,299,000

XML

RELATED PARTY TRANSACTIONS (Schedule of Related Party Balances) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Related Party Transaction [Line Items]
Amount due from related party	$ 1,334	$ 1,614
Accounts receivable included in accounts receivable due from related parties	4,698	5,172
Amount due to related party	16,707	13,978
Jonway EV Selling Ltd [Member]
Related Party Transaction [Line Items]
Accounts receivable included in accounts receivable due from related parties	4,249	4,659
Sanmen Branch [Member]
Related Party Transaction [Line Items]
Amount due from related party	994	998
Accounts receivable included in accounts receivable due from related parties	155	212
Jonway Group [Member]
Related Party Transaction [Line Items]
Amount due to related party	14,721	12,606
Jonway Motor Cycle [Member]
Related Party Transaction [Line Items]
Amount due from related party	96
Accounts receivable included in accounts receivable due from related parties	294	301
Amount due to related party	64	64
Taizhou Jonway [Member]
Related Party Transaction [Line Items]
Amount due from related party	120
Taizhou Huadu [Member]
Related Party Transaction [Line Items]
Amount due to related party	1,310	846
Shanghai Zapple [Member]
Related Party Transaction [Line Items]
Amount due from related party	124
Amount due to related party		35
Jonway Economy and Trade Co Ltd [Member]
Related Party Transaction [Line Items]
Amount due from related party		616
Mr Alex Wang [Member]
Related Party Transaction [Line Items]
Amount due to related party	7	74
Mr Huaiyi Wang [Member]
Related Party Transaction [Line Items]
Amount due to related party	14
Better World [Member]
Related Party Transaction [Line Items]
Amount due to related party	149	149
Zhejiang Jonway Painting Co., Ltd. [Member]
Related Party Transaction [Line Items]
Amount due to related party		11
Cathaya Operations [Member]
Related Party Transaction [Line Items]
Amount due to related party	$ 442	$ 193

XML

RELATED PARTY TRANSACTIONS (Schedule of Contract Fees) (Details) - Sanmen Branch [Member] $ in Thousands	6 Months Ended
	Jun. 30, 2016 USD ($) item
First 3,000 Vehicles [Member]
Related Party Transaction [Line Items]
Contractual fee per vehicle | $	$ 44
First 3,000 Vehicles [Member] | Maximum [Member]
Related Party Transaction [Line Items]
Number of vehicles assembled	3,000
Vehicles 3,001 to 5,000 [Member]
Related Party Transaction [Line Items]
Contractual fee per vehicle | $	$ 30
Vehicles 3,001 to 5,000 [Member] | Maximum [Member]
Related Party Transaction [Line Items]
Number of vehicles assembled	5,000
Vehicles 3,001 to 5,000 [Member] | Minimum [Member]
Related Party Transaction [Line Items]
Number of vehicles assembled	3,001
Over 5,000 Vehicles [Member]
Related Party Transaction [Line Items]
Contractual fee per vehicle | $	$ 22
Over 5,000 Vehicles [Member] | Minimum [Member]
Related Party Transaction [Line Items]
Number of vehicles assembled	5,000

XML

SHAREHOLDERS' EQUITY (Narrative) (Details) - USD ($)		1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	Feb. 11, 2015	Sep. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Share-based Goods and Nonemployee Services Transaction [Line Items]
Interest paid					$ 542,000	$ 602,000
Convertible notes payable			$ 786,000		786,000		$ 786,000
Shares cancelled						1,182,558
Value of shares cancelled						$ 100,000
Stock based compensation			$ 18,000	$ 18,000	$ 36,000	$ 37,000
Mr. Wang Gang [Member]
Share-based Goods and Nonemployee Services Transaction [Line Items]
Stock issued for due to related parties		$ 5,351,683
Stock issued for due to related parties, shares		89,194,715
Michael Ringstad [Member] | Restricted shares [Member]
Share-based Goods and Nonemployee Services Transaction [Line Items]
Granted, shares						200,000
Number of trading days						30 days
Vesting period						3 years
Lock in period						6 months
Amount charged to general and administrative expense				$ 658,000		$ 658,000
Korea Yung [Member]
Share-based Goods and Nonemployee Services Transaction [Line Items]
Shares cancelled							4,811,633
Value of shares cancelled							$ 406,872
Korea Yung [Member] | Convertible Debt [Member]
Share-based Goods and Nonemployee Services Transaction [Line Items]
Interest paid	$ 8,433
Shares cancelled	1,182,558
Repayment of principal amount	$ 100,000
Outstanding shares issued	133,116
Jonway Auto [Member] | Mr. Wang Gang [Member]
Share-based Goods and Nonemployee Services Transaction [Line Items]
Stock issued for due to related parties		$ 4,500,000
Cathaya Operations [Member]
Share-based Goods and Nonemployee Services Transaction [Line Items]
Amount due to related parties		$ 814,863
Due to related parties converted into shares of common stock		13,581,051
Share price (in dollars per share)		$ 0.06
Cathaya Management Ltd [Member]
Share-based Goods and Nonemployee Services Transaction [Line Items]
Amount due to related parties		$ 350,000
Due to related parties converted into shares of common stock		5,833,333
Share price (in dollars per share)		$ 0.06
CEVC [Member]
Share-based Goods and Nonemployee Services Transaction [Line Items]
Stock issued to pay interest		$ 1,237,345
Convertible notes payable		$ 20,700,000
Due to related parties converted into shares of common stock		14,454,743
Share price (in dollars per share)		$ 0.086

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LITIGATION (Details) - USD ($)	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Loss Contingency, Information about Litigation Matters [Abstract]
Settlement payment	$ 779,500
Reduction in settlement payment	453,827
Damages would be sought	1,233,327
Accrued litigation amount	$ 700,000	$ 700,000

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Shanghai Pudong Development Bank [Member] | Taizhou Jonway Jing Mao Trading Ltd [Member]
Guarantor Obligations [Line Items]
Face amount	$ 1.0
Period of guarantee	5 years
Collateral amount	$ 0.4	$ 0.5
Jonway Auto [Member]
Guarantor Obligations [Line Items]
Potential payments under guarantee	$ 2.2	$ 2.3

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SUBSEQUENT EVENTS (Details) - Subsequent Event [Member]	1 Months Ended
	Jul. 31, 2016 USD ($) shares
Subsequent Event [Line Items]
Common stock to settle debts | shares	37,465,956
Amount of debt settled | $	$ 2,500,000