NOTE 2 – LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2016, our current liabilities exceeded the current assets by approximately $73.4 million and our equity deficiency was $13.4 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.

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 $7.2 million of a credit line from Everbright Bank, with 50% restricted cash deposited and credit exposure of $3.6 million. The credit line expires in June 2016. As of March 31, 2016 and December 31, 2015, $7.1 million was drawn down as notes payable. The amount of restricted cash deposited with the bank was $3.6 million. As of March 31, 2016, the line of credit has been fully utilized.

In March 2014, the Company has obtained up to an aggregate of $15.5 million of credit line with the credit exposure of $5.7 million from CITIC Sanmen Branch through Jonway Auto. The line is secured by land and building owned by Jonway Auto and guaranteed by the related party – Jonway Group. As of March 31, 2016, the Company borrowed aggregated $3.6 million loans with various due dates in April 28, 2016 to March 25, 2017. The loans carried at annual interests from 5.92% to 5.96%. The Company has also drawn down $9.3 million in the form of notes payable as of March 31, 2016. The Company deposited $7.2 million restricted cash as collateral for these notes payable. These notes are due from April 2016 to September 2016. As of March 31, 2016, the unused line of credit was approximately $8,000. The Company renewed the credit line of approximately $23.3 million from CITIC Sanmen Branch through Jonway Auto. The new credit line is secured by a land use right and a building with a total carrying amount of $5.2 million as of March 31, 2016. The shareholder and CEO Alex Wang also personally guaranteed on this credit line. The credit line expires on March 31, 2018.

In March 2014, we were approved up to an aggregate of $5.1 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. As of March 31, 2016, the total outstanding loan under this credit line was $3.9 million. The annual interest rates are from 5.9% to 6.7%. The loans are due in various dates from June 2016 to November 2016. As of March 31, 2016, the unused line of credit was approximately $1.2 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, as of July 30th, 2015 (see Note 8).

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.

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, Wang Gang, the Chief Executive Officer (“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.