XML 23 R7.htm IDEA: XBRL DOCUMENT v2.4.0.6
Organization And Operations
3 Months Ended
Mar. 31, 2012
Organization And Operations [Abstract]  
Organization And Operations

NOTE 1 - ORGANIZATION AND OPERATIONS:

     ZAP was incorporated in California in September 1994 (together with its subsidiaries, "the Company," or "ZAP"). ZAP markets advanced transportation, including alternative energy and fuel efficient automobiles, motorcycles, bicycles, scooters, personal watercraft, hovercraft, neighborhood electric vehicles and commercial vehicles. The Company's business strategy has been 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 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").

     On January 21, 2011, the Company completed the acquisition of 51% of the equity shares of Jonway for a total purchase price of $31.75 million consisting of approximately $29 million in cash and 8 million shares of ZAP common stock valued at $2.7 million. The Company believes that the acquisition will allow it to expand its electric vehicle ("EV") business and distribution network around the world, give it access to the rapidly growing Chinese market for electric vehicles and have competitive production capacity in an ISO 9000 certified manufacturing facility with the capacity and resources to support production of ZAP's electric vehicles and new product line of mini vans and new SUVs.

     Jonway 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 Xiao Ying (the daughter of Wang Huaiyi and all three individuals collectively referred to as the "Wang Family") Jonway's approved scope of business operations includes the production and sale of vehicle spare parts, and the sale of UFO licensed SUV vehicles. The principal activities of Jonway are the production and sale of automobile spare parts and the production and distribution of SUVs in China using the consigned UFO license from an affiliate of Jonway Group.

     With the completion of the acquisition of a majority interest in Jonway, the combined companies' new product lines planned for the second half of 2012 include the A380 SUV EV and the minivan EV. Both products leverage the production moldings, the manufacturing engineering infrastructure and facilities currently in place for the gasoline models of these vehicles. Since the acquisition, the companies have been working on developing the joint product line, marketing and sales plans for the 2012 EV product lines.

     Jonway is preparing for certification of the EV production line by the Chinese electric vehicle authorities, which we expect to occur in the second half of 2012, since we anticipate that the EV production facilities in Jonway will be ready for the certification process in the first half of 2012. Meanwhile, the engineering teams from both companies are undertaking extensive testing of the A380 SUV EV at Jonway Auto and ZAP Hangzhou EV research and development center.

     The Company's target is to deliver the EV A380 SUV and EV minivan in the second half of 2012, with the purpose of obtaining the Chinese central government electric vehicle incentives of up to RMB 60,000 or over $9,680 per vehicle. ZAP intends to use the existing manufacturing plant from Jonway that is being upgraded for the production of the electric vehicles and utilizing the existing Jonway models to gain economy of scale and reduce

 

molding investment costs. ZAP also intends to leverage Jonway's distribution and customer support centers in China to support the sales and marketing of its new EV product line.

     ZAP's strategy outside of China is to open up markets ready to accept affordable, fully electric SUVs and vans for fleets.

BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements include the financial statements of ZAP, and its subsidiaries: Jonway Automobile, Voltage Vehicles and ZAP Stores and are prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP"). In these financial statements, "subsidiaries" are companies that are over 50% controlled, the financial statements of which are consolidated with those of the Company. Significant inter-company transactions and balances are eliminated in consolidation; profits from inter-company sales, are also eliminated; non –controlling interests are included in equity.

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (all of which are of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2012 are not indicative of the results that may be expected for the year ending December 31, 2012 or for any other future period. These condensed consolidated financial statements and the notes thereto should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission (the "SEC") on April 16, 2012 (the "10-K").

Liquidity and Capital Resources

     In assessing the Company's liquidity, management monitors and analyzes the Company's cash on-hand, liquidation value of its investment in securities, 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.

     The Company's principal sources of liquidity consist of its existing cash on hand, bank facilities from China-based banks for Jonway Auto, its investment in securities with Samyang Optics, Ltd. and transactions with Luo Hua Liang, the brother-in-law of Alex Wang, the Co-CEO and a director of ZAP. In 2011, the Company entered into private placement subscription agreements with Mr. Luo for the purchase of ZAP common stock for the aggregate purchase price of $7 million, of which it received $2 million as of the quarter ended March 31, 2011. The private placement subscription agreements were then superseded and terminated by a stock purchase agreement with Mr. Luo in August 2011. Pursuant to the stock purchase agreement, Mr. Luo agreed to purchase ZAP common stock for an aggregate purchase price of $2 million in multiple closings. On September 8, 2011, the Company issued approximately 2.3 million shares of ZAP common stock in connection with the initial closing of $771,000. The Company received an additional $1.025 million in subsequent closings for which it issued approximately 3.35 million shares of ZAP common stock. During 2011, the Company issued 7.7 million shares to Mr. Liang for cash of $3.8 million.

     In 2011, the Company was approved up to an aggregate of $6.2 million of bank facility from the Taizhou Branch of China Merchants Bank ("CMB") through its majority-owned subsidiary, Jonway. Although it has been approved for the credit line, there are no legal obligations or rights to the credit line until it executes agreements with the lender to borrow funds under the credit line. When drawn down, the credit line will be secured by lands owned by Jonway and guaranteed by Jonway Group.

     Under the above mentioned credit line of $6.2 million granted by CMB on August 19, 2011, Jonway entered into a Credit Agreement with CMB for a revolving short term bank loan in the aggregate amount of approximately US$3.2 million which was drawn down in 2011. The annual interest rate is 7.22% and is due on August 18, 2012. The loan is secured by a Maximum Amount Mortgage Contract by and between Jonway and CMB

 

dated August 11, 2011 in which land use rights over two parcels of land owned by Jonway at Sanmen Factory have been pledged as security for this loan. The remaining $3.0 million of the credit line is available for future executions at the discretion of Jonway Auto.

     In December 2011, Jonway established additional short term bank loans amounting to approximately $2.22 million from three small-size banks based in Taizhou City, which are subject to a Jonway Group guarantee, and $790,000 of such loans is also secured by bank notes received from Jonway dealers and was repaid on March 31, 2012.

     On March 31, 2012, to support the monthly business performance target of CMB, Jonway entered into another credit agreement with this bank for a sum of short term bank loan in the aggregate amount of approximately $520,000 which was drawn down on March 31, 2012, and repaid on April 1, 2012. The annual interest rate is 6.89%. Such bank loan is secured by a sum of cash collateral amounting to $550,000.

     As of March 31, 2012, Jonway had $5.1 million in short term bank loans, which are borrowed from the above stated China-based banks with interest rates ranging from 7.22% to 9.47% per annum due through August 18, 2012.

     Jonway intends to utilize the 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. These credit lines will also be used to support the company's expansion plans, with emphasis on its electric vehicle production line facilities in China. The credit will also help advance new electric vehicle initiatives, launch new strategic global sales and marketing operations, bolster infrastructure, and finance working capital.

     In the event that we require additional liquidity, our principal shareholders, Cathaya and Jonway Group, have agreed to provide the necessary support to meet our financial obligations through May 21, 2013.