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ORGANIZATION AND BASIS OF PRESENTATION
12 Months Ended
Dec. 31, 2014
ORGANIZATION AND BASIS OF PRESENTATION [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”). 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 $29.03 million in cash and 8 million shares of ZAP common stock valued at $2.72 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 mini 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 vehicles.  The principal activities of Jonway are the production and sale of automobile spare parts and the production and distribution of SUVs and minivans 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 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 EV product lines.

 

Jonway received certification of the EV production line by the Chinese electric vehicle authorities, which occurred in February 2013. 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.

 

Our target is to deliver the EV A380 SUV and EV minivan in 2015, with the purpose of obtaining the Chinese central government electric vehicle incentives of up to RMB 70,000 or over $11,390 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. In the meantime, Jonway auto established its 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.

 

ZAP plans to focus on developing new international markets such as Brazil, South Africa, Russia and some of the Central America countries such as Costa Rica, Ecuador and Mexico. These countries are looking for affordable gasoline and electric SUVs and minivans with a competitive price and qualities.

 

BASIS OF PRESENTATION AND CONSOLIDATION

 

 The accompanying consolidated financial statements include the financial statements of ZAP, and its subsidiaries: Jonway Automobile, Voltage Vehicles, Advanced Technology Vehicles, ZAP and ZAP Hong Kong for the years ended December 31, 2014 and 2013 and are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”).

 

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.  We account for our 37.5% interest in the ZAP Hangzhou and our 50% interest in Shanghai Zapple using the equity method of accounting because we have significant influence but not control.

 

          ZAP's common stock is quoted on the OTC Bulletin Board under the symbol “ZAAP.OB.”

 

Liquidity and Capital Resources


As of December 31, 2014, our current liabilities exceeded the current assets by approximately $69.5 million and our equity deficiency was $1,881,000, 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.

Based on the above considerations, our Board of Directors is of the opinion that we have sufficient funds to meet our working capital requiremements and debt obligations as they become due. However this opinion is based on the demand of our products, economic conditions, the overcapacity issue in the automobile industry and our operating results not continuing to deteriorate and on our vendors and related parties being able to provide continued liquidity. As a result our consolidated financial statements for the year ended December 31, 2014 have been prepared on a going concern basis.

 

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

 

                                    As of March 2014, we were approved up to an aggregate of $24.3 million of a credit line, with the credit exposure of $7.3 million from the Sanmen Branch of CITIC Bank (“CITIC”) through Jonway. As of December 31, 2014, the credit exposure of $6.02 million has been fully used. The credit line expires in November 2015.


   

In early 2014, we were approved up to an aggregate of $2.4 million of a credit line from Taizhou Bank. As of December 31, 2014, a total credit exposure of $1.46 million has been used. The bank informed the company that the credit line will not renew after the settlement of outstanding borrowings in early 2015.

   

               In December 2013, we were approved for up to an aggregate of $9.2 million of a credit line from Everbright Bank. This credit line can only been used in the form of notes payable with 50% restricted cash deposited. Thus, we were approved a credit exposure of $4.6 million. As of December 31, 2014, the credit exposure of $4.6 million has been fully used. The credit line expires in December 2014 and not yet renewed as of December 31, 2014.

   

                In December 2013, we were approved up to an aggregate of $5.4 million of a credit line from Industrial and Commercial Bank of China (ICBC). As of December 31, 2014, a credit exposure of $4.9 million has been used, and $0.5 million was still available for use. The credit line expires in December 2014 and not yet renewed as of December 31, 2014.

   

        Jonway 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 March 31, 2016 in the event that we require additional liquidity. In addition, CEVC (China Electric Vehicle Corporation) would likely renew this convertible note and in the event that CEVC decides to call on the repayment, the repayment would likely be paid in full or in part in Jonway Auto shares or ZAP shares unless there is a breach by the Company on the covenant of the convertible note. 

 

We will require additional capital to expand our current operations.  In particular, we require additional capital to expand our presence across the world, 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.

 

We intend to fund our long term liquidity needs related to operations through the incurrence of indebtedness, equity financing or a combination of both.  Although we believe that these sources will provide sufficient liquidity for us to meet our future liquidity and capital obligations, 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.