NOTE 2 – LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2015, our current liabilities exceeded the current assets by approximately $55.0 million and our equity deficiency was $12.4 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:

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Financial support and credit guarantee from related parties; and

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

Management projects that we have sufficient funds to meet our working capital requirements and debt obligations as they become due based on the above considerations. However, these projections are based on the demand of our EV products, economic conditions, the overall sales trends in the automobile industry in China and on our operating results not continuing to deteriorate and our vendors and related parties being able to provide continued liquidity. As a result our consolidated financial statements for the quarter ended June 30, 2015 have been prepared on a going concern basis.

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.

As of June 30, 2015, we were approved up to an aggregate of $16.4 million of a credit line, with the credit exposure of $6.08 million from the Sanmen Branch of CITIC Bank (“CITIC”) through Jonway Auto. As of June 30, 2015, the credit exposure of $6.07 million has been used. The credit line expires in March 2016.

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. This credit line expired as of January 2015. In June 2015, we were approved for up to an aggregate of $7.6 million of a credit line from Everbright Bank, with 50% restricted cash deposited and credit exposure of $3.8 million. As of June 30, 2015, the credit line has been fully used. The credit line expires in April 2016.

In March 2014, we were approved up to an aggregate of $5.4 million of a credit line from Industrial and Commercial Bank of China (“ICBC”) with credit exposure of $5.4 million. This credit line expires in March 2017. As of June 30, 2015, a credit exposure of $4.1 million has been used.

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 June 30, 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, as of July 30th, 2015 (see Note 7).

We will require additional capital immediately to support the working capital requirements for the current sales orders in the pipeline and to meet the delivery of the backlog as well as to support our current operations. In particular, we require additional capital to continue development of our electric vehicle business, produce new models to compete in the market, and to continue to strengthen our dealer network to support EV channels and after-sale service centers and expanding our market initiatives. We also require financing of the investment for the continued roll-out of new products and to add qualified sales and professional staff to execute our business plan and pursue our efforts in the research and development of advanced technology vehicles, 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.

Jonway Group has continued to provide support in financing the capital requirements of Jonway Auto. Wang Gang (Alex Wang), the Co-Chief Executive Officer (“Co-CEO”) and Jonway Group plans to inject additional capital through ZAP to support the critical on-going manufacturing operations to meet the delivery of the EV minivans and SUV orders in the pipeline. Mr. Wang and Jonway Group have injected $2.64 million and $1.85 million in June and July 2015, respectively.