NOTE - 2 – GOING CONCERN

As of December 31, 2016, the Company’s current liabilities exceeded its current assets by approximately $71.6 million and its equity deficiency was $46.1 million. For the year ended December 31, 2016, the Company’s sales dropped 63% and its net loss increased by 70% comparing to year ended December 31, 2015. In addition, the Company has recurring net losses, and there is an uncertainty whether the Company will be able to continue to consolidate its Chinese subsidiary, Jonway Auto, due to the pending decision of the Note holder, CEVC, to convert the Note with an outstanding principal balance of approximately $20.7 million into shares of Jonway Auto common stock, which will reduce the Company’s equity position in Jonway Auto to approximately 12% (see Notes 1 and 10). All these factors raise substantial doubt about the Company’s ability to continue as a going concern. Given the Company’s expected capital expenditure for its working capital needs in the foreseeable future, as well as the payments should be made to the creditors, the Company has comprehensively considered 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 from financing to sustain its operations for the next twelve months. The Company plans to substantially increase cash flows from operations and revenue derived from its products. If the Company’s revenues do not reach the level anticipated in its plan then the Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. As a result, 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 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, liquidation value of its current assets, 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.

Jonway Auto intends to utilize its existing credit lines (see Note 9) 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, 2017 in the event that the Company requires additional liquidity.

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 short and 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.