ZAP is in arrears with the settlement payment to Hogan & Lovells. The current negotiated balance due is $779,500 as of June 30, 2015. In 2013,$779,500. Hogan & Lovells agreed to reduce the total amount owed by $453,827, as long as we didthe Company does not default on ourits payment agreement. If Hogan & Lovells does seek a judgment, the total balance due immediately would be $1,233,327. Currently ZAP is seeking additional funding, and is working with prospective investors or lenders so ZAP can resume the installment payments to Hogan & Lovells.
NOTE 1314 – SUBSEQUENT EVENTS
It has been agreed by Mr. Wang and Jonway Group thatIn July 2016, the $2.64 million injected into ZAP by them in June and $1.85 million in July 2015 will be converted into ZAPCompany issued an aggregated of 37,465,956 shares duringof the third quarter of 2015 in accordanceCompany’s common stock with the termsapproval of a Binding Letterthe Board to settle certain existing debts of Commitment in Equity Investment in ZAP dated February 14, 2014 and addendum dated May 30, 2015.approximately $2.5 million.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This quarterly report including the following management’s discussion and analysis, and other reports filed by the registrant from time to time with the securities and exchange commission (collectively the “filings”) contain forward-looking statements which are intended to convey our expectations or predictions regarding the occurrence of possible future events or the existence of trends and factors that may impact our future plans and operating results. These forward-looking statements are derived, in part, from various assumptions and analyses we have made in the context of our current business plan and information currently available to us and in light of our experience and perceptions of historical trends, current conditions and expected future developments and other factors we believe to be appropriate in the circumstances. you can generally identify forward-looking statements through words and phrases such as “seek”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, “budget”, “project”, “may be”, “may continue”, “may likely result”, and similar expressions. When reading any forward-looking statement you should remain mindful that all forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of our company, and are subject to risks, uncertainties, assumptions and other factors relating to our industry and results of operations, including but not limited to the following factors:
| · | our ability to establish, maintain and strengthen our brand; |
| · | our ability to successfully integrate acquired subsidiaries, particularly Jonway Auto, into our company and business; |
| · | our ability to maintain effective disclosure controls and procedures; |
| · | our limited operating history, particularly of ZAP and Jonway Auto on a consolidated basis; |
| · | whether the alternative energy and gas-efficient vehicle market for our electric products continues to grow and, if it does, the pace at which it may grow; |
| · | our ability to attract and retain the personnel qualified to implement our growth strategies; |
| · | our ability to obtain approval from government authorities for our products; |
| · | our ability to protect the patents on our proprietary technology; |
| · | our ability to fund our short-term and long-term financing needs; |
| · | our ability to compete against large competitors in a rapidly changing market for electric and conventional fuel vehicles; |
| · | changes in our business plan and corporate strategies; and |
| · | Other risks and uncertainties discussed in greater detail in various sections of this report, or set forth in part I, Item 1A of our Annual Report on Form 10-K under the heading “Risk Factors”. |
Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Each forward-looking statement should be read in context with, and with an understanding of, the various other disclosures concerning our company and our business made in our filings. You should not place undue reliance on any forward-looking statement as a prediction of actual results or developments. We are not obligated to update or revise any forward-looking statement contained in this report to reflect new events or circumstances unless and to the extent required by applicable law.
In this quarterly report on Form 10-Q the term “ZAP” refers to ZAP and its subsidiaries, the term “Jonway Auto” refers to Zhejiang Jonway Automobile Co. Ltd., of which ZAP owns 51% of the equity shares, “ZAP Jonway” refers to both ZAP and Jonway Auto on a consolidated basis, and “we,” “us” and “our” refer to ZAP or ZAP Jonway, as the context indicates.
Recent Developments
Effective on May 17, 2016, the Company accepted the resignations of Tian Ming and Bai Jianxiong, respectively, as directors. Ms. Ming and Mr. Bai each resigned for personal reasons and not as a result of any disagreement with the Company on any matter relating to the Company’s operations, accounting policies or practices.
On April 10, 2015, ZAP received notification from USPSthe United States Postal Service (“USPS”) that ZAP has been selected as one of the pre-qualified companies to participate in the USPS Federal Business Opportunity (“FBO”) RFP. In January 2015, USPS had issued a new request for response to its FBO for its Next Generation Delivery Vehicle (NGDV) Program. ZAP submitted a new proposal based on new guidelines for a complete new USPS delivery truck designed to use clean energy and environmentally friendly technologies. ZAP’s proposal submitted for this new USPS NGDV Program has been accepted for consideration. As one of the pre-qualified companies, ZAP will proceed with detailed response to the RFP, and undergo trial for the product proposed. This trial is anticipated to last for more than one year.
The principal activities of Jonway Auto until recently were the production and sales of gasoline models of the SUVs and minivans in China using the consigned UFO license from an affiliate of Jonway Group. Over the past several years, Jonway Auto continued the production and sales of its gasoline model SUV and minivan, while developing and ramping production of its EV product line. Jonway Auto received type approval of its EV SUV and EV certification of its manufacturing facility from the Chinese government. It also developed two different full electric EV models for its minivan, one with lithium batteries, which has longer range and more power, and the other with lead acid batteries, intended for lower speed and shorter range. Jonway Auto began production on a new NEV, the “Urbee”, in 2014.2014 and 2015. The primary market for the Urbee is the growing aging and young adult population in China that generally do not hold a driver’s license.
Jonway Auto, as an authorized auto manufacturer in China, has access to the required licenses for China type approval for both the SUV and minivan models, providing these models with the advantage that lithium battery versions would be eligible for subsidies from the Chinese central and local governments ranging from RMB 35,000 (~US$5,000) to RMB 100,000 (~US$16,000) depending upon the range of the vehicle achieved between recharges. EVs reaching 250km in range per charge could receive up to ~$10,000 subsidies from the central government and another ~$10,000 from the local government. Currently 88 local government cities are participating in this subsidy as required by the central government. The Chinese government recently announced these subsidies have been extended to the year 2020, with the total amount of subsidies gradually tapering off each year. Additionally, the Chinese government recently mandated that government vehicles must be Chinese-made and that a minimum of 30% of the vehicles purchased are required to be full electric.
ZAP Group believes thesethe China government’s incentives, combined with the elimination of sales tax, consumer tax, and license plate registration fees on full electric vehicles (which can total more than US$20,000 for gas vehicles in some cities like Shanghai), are creating a strong economic incentive for the purchase of electric vehicles and a substantial market opportunity for Jonway Auto’s new EV SUV and EV minivan product line. Jonway Auto’s EV SUV and EV minivan have been reconfigured with smaller engines to support lower power consumption. The EV SUV has a 20kwatt (40kwatt peak) engine. The EV minivan which is a much lighter vehicle has a 13.5kwatt engine. These newly reconfigured EVs adapted to maximize range at optimal speeds are available for mass production in the first half of 2015.production.
ZAP and Jonway Auto are focused on the EV fleet markets in China. With the recent reinforced subsidies and requirements for government entities to purchase full electric vehicles, the Company believes Jonway Auto’s new EV SUV is particularly suited for use by government officials and personnel. Jonway Auto’s SUV currently has an advantage in China because most auto companies to date have focused primarily on producing small electric sedans, some with only two seats that are not very practicable for use by government officials on a daily basis. Jonway Auto’s SUV is a larger 5-person vehicle with comfortable seating and legroom.
Jonway Auto’s EV minivan is well-positioned for government city utility and maintenance transportation and service. The minivan was designed with removable rear seats so that it may also serve as a delivery van for use in the projected rapid growth market of EVs used for the transport of goods and packages in China. This EV minivan comes in both lithium battery configuration which is eligible for government subsidies as well as lead acid version which is much cheaper but is not eligible for subsidy. Currently, the Jonway Auto has received over 10,000certain orders from two major customers for Jonway Auto’s type approved EV minivan. 5,000 orders from a joint venture partner of the state owned automobile company, also known as a top automobile company in China; and another 5,000 orders from a joint venture partner of the holding company of the largest metering company in China that manufactures smart electric, gas and water meter in China. Both orders expect the deliveries to be completed before the end of the year. This capacity requires working capital that is currently beyond the Company’s ability to produce and deliver and the Company is seeking alternative financing to support the working capital requirements for these orders. Additional to these orders, Jonway Auto’s existing dealership networks also have requested delivery of the EV minivan and EV SUVs but due to strain on working capital, Jonway Auto has not accepted any additional orders of either product at this point. Jonway Auto began to focus its business on EV over the last year and its manufacturing plant has been modified to support mass production of several full electric vehicle models this year. With the urgent priority to provide multiple manufacturing EV production lines to support multiple models of EVs, Jonway Auto reduced its resource investment in the traditional gasoline vehicle products and cut back on funding the sales and marketing of its gasoline SUV and gasoline minivans. This resulted in turnover of many of the dealership networks that are currently not focusing on selling EVs. The overall dealership network has shrunk over the last year and the plan is to re-establish new dealership networks in regions with EV subsidies and EV market demands.
Jonway Auto has reorganized to support the ramp up of electric vehicle production and realigned its resources to support sales and marketing to fleet markets and large clients, including to leasing companies and government organizations in the major cities. Last year was a major transition year for Jonway Auto, where there was an intentional slowdown in gasoline vehicle production and sales, while Jonway Auto redirected its manufacturing and sales and marketing groups to support the mass rollout of its EVs, starting with the Urbee for city commuters.
The combined companies’ new EV product lines now include the A380 SUV EV, minivan EV, and the Urbee. Both the EV SUV and EV minivan products leverage the production moldings and the manufacturing engineering infrastructure and facilities currently in place for the gasoline models of these vehicles. The new Urbee started its first production delivery in 2014. The first production deliveries of the EV SUV and Minivans occuredoccurred in 2015.
ZAP and Jonway Auto has increased its factory production capacity and running its operations at seven days per week, single shift, with production of around 50 EV minivans per day in order to meet pressing backlog orders from Dong Feng Motor Corporation. Jonway Auto is on target to produce 800 EV minivans for October, 2016, and will be ramping up to meet the 3,000 EV minivans. A second shift with additional factory equipment may have to be added to reliably meet volumes of 2,000 or more per month. The target is to reach sales of no less than 20,000 of Jonway’s EV minivans in 2016 and aggregating to sales of 100,000 of ZAP and Jonway’s EV minivans as projected by Dong Feng over the next three years. The partnership with Dong Feng Motor facilitated by Shi Kong from Hangzhou enables Jonway Auto to offload the cost of lithium battery and the electric motor cost to Dong Feng and Shi Kong. This represents more than half of the cost of materials for the EV minivans.
ZAP and Jonway is seeking funding and partnerships to manage the sales and production demands of the EV fleet market in China. Ultimately, the objective is to be able to build its own financial strength in order to sell and produce the whole EV minivan so that direct sales to major customers, partners or dealers can be achieved to further improve gross margins. Due to the high demand for some of the critical supplier parts, ZAP and Jonway Auto is currently in discussions regarding potential partnerships with companies producing lithium batteries and EV motors in order to help mitigate the risk of availability of parts and to finance working capital of these high cost items.
Jonway Auto recently launched the E-3D SUV, an attractively designed 3 door SUV that comfortably accommodates 4 passengers. The model’s chassis and body had previously undergone and passed European crash tests, and ZAP is currently exploring dealership partners to complete the EV type approval for the European overseas market. Potentially in the first halffuture, this E-3D SUV competitively priced would also be suitable for the US market after type approval and certification in the US. The E-3D SUV comes in lithium battery version with range of 2015.over 200km or 125 miles, and achieves a top speed of 140km per hour or over 85 miles per hour. The lead acid version of the E-3D SUV has a lower top speed of 55 mph and shorter range of 80 miles but with a range extender option, it can go for more than 150 miles.
The near term objective is to produce enough volume of the Urbees in order to cover the overhead cost of Jonway’s factory, despite the lower gross margins of the Urbees. Our target is to be able to produce and sell around 1500 to 2000 per month which will cover part of the overhead cost of the factory. However, the Urbees are limited by the constraint that LSV is not an approved category for automobiles in China, although in many provinces local governments have allow these vehicles to be operating in small towns and country roads. There are many LSV companies lobbying with the government to approve this as a legal category so that LSVs can receive automobile license plates and operate legally in all of the cities. Jonway’s strategy currently is to address the EV city market by offering the SUV and minivan with the shorter range and smaller engines targeting city drivers and short distance delivery van markets because both the SUV and the minivan are approved categories under the Chinese automobile license that Jonway has.
Our strategy in the longer term is to serve the growing fleet EV market with the EV minivan and EV SUV, with emphasis initially on the EV minivan for delivery market. While many electric vehicle companies are focused on passenger cars and sedans for mainstream consumers, ZAP Jonway believes government and corporate fleets can more quickly and more successfully deploy electric vehicles because they are more likely to have adequate charging infrastructure, service and support and the vehicles may travel along predictable routes and have a central point of operation. Fleet markets or delivery vehicles are more sensitive to the economics of fuel cost and when electric vehicles can be offered at comparable prices to gasoline vehicles, given the support of subsidies, the proposition to use EVs can be compelling for these markets.
The high cost of lithium battery EV power train has created working capital challenges for Jonway. As a result, Jonway signed partnership agreements with companies that has access to capital and has orders from larger distribution channels. Since Jonway is not directly selling into the distribution channels or end customers, and will be selling the EV minivans through the partnerships, the margins are slimmer, and the EV power train will be configured according to the partnerships’ specification. This partnership arrangement mitigates the strain for working capital and cost of sales, but this also significantly reduces the margins. This is in the near term one of the ways to address the market without adequate working capital.
As Chinese government continues to offer excellent incentives for EVs, moving away from the amount of lithium batteries to incentivizing longer range of the EV models, the market is now more readily adopting EVs for utility markets where recharging is less of an issue due to the use of central depot for charge stations. The smaller EV products of both SPARKEE and URBEE are focused on addressing urban commuter markets. The plan going forward is to adapt these models to support EMS vehicles for deliveries and service industries.
With the demand for high working capital, outstanding liability that Jonway Auto has accrued and the lack of bank financing because of Chinese bank credit crunch, ZAP Jonway is looking at several options to address the financial needs and outstanding liabilities. Jonway may in the future be looking for equity financing in China which may reduce ZAP’s majority ownership of Jonway Auto. Therefore, ZAP is considering reorganizing the company to reduce the financial burdens of the bank loans and supplier payables that were carried over from the gasoline vehicle business under Jonway Automobile and separating this from the business associated with the sales and marketing of EVs produced by Jonway and potentially with other partner companies’ electric vehicles, such as the recent agreement signed with Dong Feng Automobile for the EV minivans. Currently the sales and marketing organization of Jonway Auto is under a separate subsidiary of Jonway Auto, and this may be retained by ZAP while reorganizing the manufacturing production arm of Jonway Auto. The repayment of the CEVC convertible note would also reduce the outstanding liability of ZAP, while maintaining control of the sales and marketing of Jonway Auto’s business with the sales subsidiary.
Results of Operations
The following table sets forth, as a percentage of net sales, certain items included in ZAP’s condensed consolidated statements of operations (see Condensed Consolidated Financial Statements and Notes) for the periods indicated:
| | Three Months | | | Six Months | |
| | Ended June 30, | | | Ended June 30, | |
| | | 2015 | | | 2014 | | | 2015 | | | 2014 | |
| Statements of Operations Data: | | | | | | | | | | |
| Net sales | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
| Cost of sales | | | -105.1 | % | | | -99.7 | % | | | -105.7 | % | | | -106.6 | % |
| Operating expenses | | | -88.3 | % | | | -42.1 | % | | | -59.9 | % | | | -42.9 | % |
| Loss from operations | | | -93.4 | % | | | -41.9 | % | | | -65.6 | % | | | -49.5 | % |
| Net loss attributable to ZAP | | | -66.2 | % | | | -36.5 | % | | | -47.7 | % | | | -43.0 | % |
| | | Three Months | | Six Months | |
| | | Ended June 30, | | Ended June 30, | |
| | | 2016 | | 2015 | | 2016 | | 2015 | |
| Statements of Operations Data: | | | | | | | |
| Net sales | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
| Cost of sales | | | -124.4 | % | | | -105.1 | % | | | -110.4 | % | | | -105.7 | % |
| Operating expenses | | | -70.5 | % | | | -88.3 | % | | | -79.6 | % | | | -59.9 | % |
| Loss from operations | | | -94.9 | % | | | -93.4 | % | | | -90.0 | % | | | -65.6 | % |
| Net loss attributable to ZAP | | | -77.7 | % | | | -66.2 | % | | | -72.5 | % | | | -47.7 | % |
These results of operations that have been derived from our condensed consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States of America and that include the results of operations of Jonway Auto since the date of ZAP’s acquisition of 51% of the equity shares of Jonway Auto on January 21, 2011.
Three Months Ended June 30, 20152016 Compared to the Three Months Ended June 30, 20142015
Net sales for the three months ended June 30, 20152016 were $5.4$3.0 million as compared to $7.6$5.4 million for the three months ended June 30, 2014.2015. The decrease of sales was mainly due to the intense competitions in the auto market.
Jonway Auto’s revenue for the three months ended June 30, 20152016 decreased by $1.9$2.3 million from $7.2 million for the quarter ended June 30, 2014 compared to $5.3 million for the quarter ended June 30, 2015. 2015 compared to $3.0 million for the quarter ended June 30, 2016.
The sales volume decreased because of the Company intentional slowdown in traditional gasoline vehicle production anddrop of sales and the new Urbee, EVfor SUV and EV minivan products are still inUrbee. The sales of SUV decreased by $2.2 million from $2.2 million for the beginning stagethree months ended June 30, 2015 to $Nil for the three months ended June 30, 2016. The sales of market development. The new Urbee started its first production delivery in 2014. The first production deliveries of the EV SUV and Minivans occured in the first half of 2015. Urbee sales contributeddecreased by $2.5 million from $2.5 million for the three months ended June 30, 2015.
Gross profit (loss) decreased by $292,000 from a gross profit of $21,0002015 to $Nil for the three months ended June 30, 20142016. However, the sales for EV minivans increased significantly, from $0.01 million for the three months ended June 30, 2015 to $2.9 million for the three months ended June 30, 2016.
Furthermore, at the end of 2015, the Chinese government issued a notice that required all electronic vehicle manufacturers to be reviewed by the government and all EV related government subsidies would be delayed until the government completed its review process. Since EVs have relative higher unit cost than traditional fuel cars, EV manufacturers and dealers would only manufacture and sell EVs with government subsidies. The 2015 notice increased the risk of loss for all EV manufacturers and dealers. This notice also negatively impacted the Company's EV sales in fiscal 2016.
Gross loss increased by $453,000 from a gross loss of $271,000 for the three months ended June 30, 2015.2015 to a gross loss of $724,000 for the three months ended June 30, 2016. Our margins decreased from 0.28%(5.06)% to (5.07)(24.4)%. The increase of the gross loss was primarily due to the decrease in sales.
Jonway Auto’s gross loss increased by $204,000$447,000 from a gross loss $74,000 for the three months ended June 30, 2014 to a gross loss of $278,000 for the three months ended June 30, 2015.2015 to a gross loss of $725,000 for the three months ended June 30, 2016. The sales volume for both SUV and minivanUrbee dropped significantly in comparing with last year but the launch of the Urbee, a low speed electric vehicle generated contributions to the company’s sales for the three months ended June 30, 2015.2016 in comparing with the same period last year.
Sales and marketing expenses increased $0.14decreased $0.4 million from $0.75$0.9 million for the three months ended June 30, 2014,2015, to $0.89$0.5 million for the three months ended June 30, 2015.2016. The decrease was mainly due to the less marketing activities during the three months ended June 30, 2016. The percentage of sales and marketing expense to net sales increaseddecreased from 13.7% for the three months ended June 30, 2014 to 16.7% for the three months ended June 30, 2015 to 15.6% for the three months ended June 30, 2016 due to the decrease in net sales.
General and administrative expenses increaseddecreased by $393,000$1.2 million from $2.38$2.8 million for the quarter ended June 30, 20142015 to $2.77$1.6 million for the quarter ended June 30, 2015. It2016. This was primarily due to the increase of bad debt provision.less spending on general and administrative activities.
Research and development expenses increaseddecreased by $1.0$1.02 million from $0.07 million for the three months ended June 30, 2014 to $1.07 million for the three months ended June 30, 2015. The Company increased research and development expense on new EV products.
Interest expense, net decreased $0.332015 to $0.05 million from $1.0 million in the second quarter of 2014 to $0.67 million in the second quarter of 2015. In the second quarter of 2015, the amortization of the previous year’s discount on the convertible debt was lower and we are incurring interest on our notes and short term borrowings.
Other income decreased by $102,000 from $300,000 for the three months ended June 30, 20142016. The decrease was mainly due to the less research and development activities during the three months ended June 30, 2016.
Interest expense, net decreased $5,000 from $674,000 in the second quarter of 2015 to $669,000 in the second quarter of 2016. The decrease was due to the lower borrowing rate.
Other income decreased by $87,000 from $198,000 for the three months ended June 30, 2015. The decrease of other income is due2015 to $111,000 for the reversal of recall liability in the second quarter of 2014. The recall deadline expired the end of April 2014.three months ended June 30, 2016.
Net loss for the three months ended June 30, 20152016 was $5.5$3.4 million compared to $3.9$5.5 million loss for the three months ended June 30, 2014.2015.
Six Months Ended June 30, 20152016 Compared to Six Months Ended June 30, 20142015
Net sales decreased by $0.7$7.3 million to $13.7$6.4 million for the six months ended June 30, 20152016 from $14.4$13.7 million in June 30, 2014. 2015. The decrease of sales was mainly due to the intense competitions in the auto market.
Jonway Auto’s revenue for the six months ended June 30, 20152016 decreased by $0.5$7.2 million from $14.0 million for the six months ended June 30, 2014 to $13.5 million for the six months ended June 30, 2015. The sales volume increased due2015 to the following factors: (i) less SUV models were launched into market by China-based auto makers, which intensified the competition; (ii) the sales volume of minivans decreased because the company intended to withdraw from the gasoline market of this segment and focused on the electric vehicle; (iii) Jonway Auto’s upgraded A380 did not launch into market in time to compete with these competitors; (iv) the new Urbee and EV products are still in the beginning stage of market development; (v) increasing oil prices in China affected customer demand; and (iv) China’s overall economic condition worsened compared to the same period in 2014.
Sales of consumer products decreased in the first six months of 2015 by $0.24 million to $0.20 from $0.44 million in the first six months of 2014.
Gross loss decreased by $0.2 million from $(1.0)$6.3 million for the six months ended June 30, 2014 to $(0.8)2016. The sales volume decreased because of the drop of sales for SUV and Urbee. The sales of SUV decreased by $6.1 million from $7.6 million for the six months ended June 30, 2015.2015 to $1.5 million for the six months ended June 30, 2016. The sales of Urbee decreased by $4.91 million from $5.0 million for the six months ended June 30, 2015 to $0.09 million for the six months ended June 30, 2016. However, the sales for EV minivans increased significantly, from $0.02 million for the six months ended June 30, 2015 to $4.4 million for the six months ended June 30, 2016.
Furthermore, at the end of 2015, the Chinese government issued a notice that required all electronic vehicle manufacturers to be reviewed by the government and all EV related government subsidies would be delayed until the government completed its review process. Since EVs have relative higher unit cost than traditional fuel cars, EV manufacturers and dealers would only manufacture and sell EVs with government subsidies. The 2015 notice increased the risk of loss for all EV manufacturers and dealers. This notice also negatively impacted the Company's EV sales in fiscal 2016.
Gross loss decreased by $0.12 million from $(0.78) million for the six months ended June 30, 2015 to $(0.66) million for the six months ended June 30, 2016. The increase of the gross loss was primarily due to the decrease in sales.
Jonway Auto’s gross loss decreased by $0.2 million from $(1.1)$(0.9) million for the first six months of 20142015 to $(0.9)$(0.7) million for the six months ended June 30, 2015.2016. The decreaseincrease in gross loss in the six months ended June 30, 20152016 was principally related to the higher profits on the sales of Urbee.EV minivans. Management expects gross margin will be increased and becomes positive along with the sales of EV products with the sales growth.
In our Consumer Products segment we experienced a decrease of $34,000 in gross profits from a gross profit of $116,000 in 2014 to a gross profit of $82,000 in 2015. The decrease was due to reduced sales or our Zappy pro flex 350 to major customers carried out in the second quarter of 2015.
Sales and marketing expenses in the first six months of 2015 increased2016 decreased by $0.4$0.8 million from $1.5 million in 2014 to $1.9 million in 2015.2015 to $1.1 million in 2016. The decrease was mainly due to the less marketing activities during the six months ended June 30, 2016. As a percentage of sales, the expense increased from 10.27% for the six months ended June 30, 2014 to 13.72% for the six months ended June 30, 2015 due to carrying out16.48% for the promotion program for 1.5 liter model of SUV in the first quarter of 2015.six months ended June 30, 2016.
General and administrative expenses decreased by approximately $0.8 million, from $4.6 million for the six months ended June 30, 2016 to $3.8 million for the six months ended June 30, 2015. This was primarily due the less spending on general and administrative activities.
Research and development expenses decreased by $1.5 million from $1.7 million for the six months ended June 30, 2015 increased by approximatelyto $0.2 million from $4.4 million in 2014 to $4.6 million in 2015, whichfor the six months ended June 30, 2016. The decrease was principallymainly due to the increase of bad debt provision in the second quarter of 2015.
Research and development expenses increased by $1.4 million from $0.3 million in 2014 to $1.7 million in 2015. The increase was due to the introduction of Jonway Auto’s LSV line of 2 door and 4 door vehicles andless research and development on new EV product.activities during the six months ended June 30, 2016
Interest expense, net decreased by $0.5$0.2 million from an interest expense of $1.9$1.4 million for the first six months of 20142015 to interest expense of $1.4$1.2 million in the six months ended June 30, 2015.2016. The decrease was due to repayment of convertible notes and bank acceptance notes.the lower borrowing rate.
Other income decreased $0.1 million from $0.4 million for the first six months of 2014 to other income of $0.3 million for the first six month of 2015. The decrease was duemonths ended June 30, 2015 to $0.2 million for the reduction of scrap sales and the reversal of recall liability in the second quarter of 2014.six months ended June 30, 2016.
Net loss for the six months ended June 30, 20152016 was $10.2$6.8 million compared to $8.9$10.2 million loss for the six months ended June 30, 2014.2015.
Critical Accounting Policies and Use of Estimates
Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with United States generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The more significant estimates relate to revenue recognition, contractual allowances and uncollectible accounts, intangible assets, accrued liabilities, derivative liabilities, income taxes, litigation and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for judgments about results and the carrying values of assets and liabilities. Actual results and values may differ significantly from these estimates.
Recent Accounting Pronouncements
In April 2015,January 2016, the FASB issued ASU 2015-03, interest – Imputation2016-01, “Recognition and Measurement of Interest (Subtopic 835-30): SimplifyingFinancial Assets and Financial Liabilities,” which amends certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Changes to the Presentationcurrent guidance include the accounting for equity investments, the presentation and disclosure requirements for financial instruments, and the assessment of Debt Issuance Costs. The amendments in this ASU require that debt issuance costsvaluation allowance on deferred tax assets related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Theavailable-for-sale securities. In addition, ASU 2016-01 establishes an incremental recognition and measurementdisclosure requirement related to the presentation of fair value changes of financial liabilities for which the fair value option has been elected. Under this guidance, an entity would be required to separately present in other comprehensive income the portion of the total fair value change attributable to instrument-specific credit risk as opposed to reflecting the entire amount in earnings. ASU 2016-01 is effective for debt issuance costs are not affected by the amendments in this ASU. The amendments in the ASU are effectivefiscal years and interim periods beginning after December 15, 2015. We do2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not expectpermitted except for the adoptionprovision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of ASU 2015-03 to have material impactadoption on our consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Codification (“ASC”) 842 (“ASC 842”), “Leases” which replaces the existing guidance in ASC 840, Leases. ASC 842 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. ASC 842 requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use (ROU) asset and a corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the ROU asset and for operating leases the lessee would recognize a straight-line total lease expense. The Company is currently evaluating the impact of adoption on the consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments clarify what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. Public business entities must apply the new requirements for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. All entities have the option of adopting the new requirements early, including adoption in an interim period. If an entity early adopts the new requirements in an interim period, it must reflect any adjustments as of the beginning of the fiscal year that includes that interim period. The Company does not expect any material impact of this new standard on its consolidated financial statements.
In April 2016, the FASB released ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. While aimed at reducing the cost and complexity of the accounting for share-based payments, the amendments are expected to significantly impact net income, EPS, and the statement of cash flows. Implementation and administration may present challenges for companies with significant share-based payment activities. The ASU is effective for public companies in annual periods beginning after December 15, 2016, and interim periods within those years. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.
In April 2016, FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic 606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.
In May 2016, the FASB issued ASU No. 2016-11 Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815); Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, which is rescinding certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition, and Topic 932, Extractive Activities—Oil and Gas, effective upon adoption of Topic 606. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.
In May 2016, FASB issued ASU No. 2016-12 Revenue from Contracts with Customers (Topic 606); Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.
Liquidity and Capital Resources
As of June 30, 2015,2016, our current liabilities exceeded the current assets by approximately $55.0$72.4 million and our equity deficiency was $12.4$15.7 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:
| · | 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. |
Management projects that weThe Company does not currently have sufficient fundscash or commitments for financing to meetsustain its operations for the next twelve months. The Company plans to substantially increase our workingcash 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 requirements andon 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 as they become due basedor respond to competitive pressures, any of which would have a material adverse effect on the above considerations. However, these projections are based on the demandits business, prospects, financial condition and results 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 ouroperations. The accompanying condensed consolidated financial statements fordo not include any adjustments that might result from the quarter ended June 30, 2015 have been prepared on a going concern basis.outcome of this uncertainty.
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 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 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$6.9 million of a credit line from China Everbright Bank with 50% restricted cash deposited and credit exposure of $3.8$3.5 million The Company renewed the agreement in June 2016. The renewed agreement approved for up to an aggregated of $6.0 million of a credit line with 50% restricted cash deposited and credit exposure of $3.0 million. The renewed credit line expires in June 2017. The credit line is secured by a land use right and a building with a total carrying amount of $2.1 million. Three shareholders and the Chief Executive Officer (“CEO”) Alex Wang also personally guaranteed on this credit line. As of June 30, 2016, $6.0 million was drawn down as notes payable from Everbright Bank. The amount of restricted cash deposited with the bank was $3.0 million. As of June 30, 2015,2016, the renewed credit line has been fully used.utilized.
In March 2014, the Company has obtained up to an aggregate of $15.1 million of credit line with the credit exposure of $5.6 million from CITIC Sanmen Branch through Jonway Auto. The credit line was extended for one more year and expires on November 2016. The credit line is secured by land and building owned by Jonway Auto and guaranteed by the related party – Jonway Group. The shareholder and CEO Alex Wang also personally guaranteed this credit line. As of June 30, 2016, the Company borrowed aggregated $5.6 million loans with various due dates in March 25, 2017 to April 26, 2017 from CITIC Sanmen Branch. The loans carried at annual interests of 6.0%. The Company has also drawn down $7.0 million in the form of notes payable as of June 30, 2016. The Company deposited $7.0 million restricted cash as collateral for these notes payable. These notes are due from July 2016 to September 2016. As of June 30, 2016, the line of credit has been fully utilized.
In March 2014, we were approved up to an aggregate of $5.4$5.0 million of a credit line from Industrial and Commercial Bank of China with credit exposure of $5.4 million.ICBC. This credit line was secured by land and buildings owned by Jonway Auto and guaranteed by related parties. The credit line expires inon March 2017. As of June 30, 2015, a2016, the total outstanding loan under this credit exposureline was $4.5 million. The annual interest rates are from 4.36% to 6.66%. The loans are due in various dates from July 24, 2016 to June 22, 2017. As of $4.1 million has been used.June 30, 2016, the unused line of credit was approximately $0.5 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 June 30,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, 2015.2016.
In addition, Jonway Auto is cutting back on the number of gasoline SUV models in order to reduce the overhead costs of carrying too many different gasoline versions. Jonway Auto will focus on its high volume lower cost gasoline model priced at around $10,000, replacing its 1.6 liters gasoline model with a more cost effective and efficient 1.5 liter engine model. This will be Jonway Auto’s mainstream gasoline model.
The goal of the Company is to become cash flow positive by the end of 2015 by producing and selling vehicles at a target rate of a few thousand EV’s per month on average with at least a few hundred SUVs or minivans per month, combining the delivery of both EVs and gasoline versions of the models. The Company’s strategy for achieving this goal is to leverage the volume sales orders from the current major customers and support the continuing demand from the market for Urbees to drive down the cost of production in the factory for EVs and to substantially absorb the overhead of the factory. The Company believes mass production ramp up of the Urbees will help streamline the EV manufacturing process, provide a good training ground for the production engineers, and pave the way for volume production of the more sophisticated EV products of minivan and EV SUVs.
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 supportexpand 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 strengthenstrengthening 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 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, ourOur 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, Alex Wang, Gang, the Co-Chief Executive OfficerCEO and Jonway Group injected $5.4 million to the Company and 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.
Off-Balance Sheet Arrangements
None.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
AAs a smaller reporting, company iswe are not required to provide disclosure pursuant to this Item 3.
Item 4. Controls and Procedures
As discussed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2014,2015, we identified a lack of sufficient control in the area of technical competency in review and approval of financial reporting processes. This control weakness allowed for reconciliations, reports and other documents to be insufficiently reviewed prior to being approved by management and audit adjustments to be identified by our auditors as part of their year-end audit work. This material weakness resulted in errors in the recording of non-routine and complex accounting transactions in the preparation of our annual consolidated financial statements and disclosures. The Company is considering utilizing outside accounting experts to assist us in accounting for future complex transactions.
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Co- Chief Executive Officers and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and Exchange Act of 1934 Rules 13a-15(f). Based on this evaluation, our Co-Chief Executive Officers and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.
Changes in internal control over financial reporting
No significant changes were made in our internal control over financial reporting during this quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
ZAP is in arrears with the settlement payment to Hogan & Lovells. The current negotiated balance due is $779,500 by June 30, 2015. In 2013$779,500. Hogan & Lovells agreed to reduce the total amount owed by $453,827, as long as we did not default on our payment agreement. If Hogan & Lovells does seek a judgement,judgment, the total balance due immediately would be $1,233,327. Currently ZAP is seeking additional funding, and is working with prospective investors or lenders so ZAP can resume the installment payments to Hogan & Lovells. As of June 30, 2016 and December 31, 2015, the Company accrued approximately $0.7 million for this litigation.
Item 1A. Risk Factors
There have been no material changes to the Company’s risk factors which are included and described in the annual report on Form 10-K for the fiscal year ended December 31, 2014.2015.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None Effective May 17, 2016, the board of directors authorized the issuance of the equity securities:
7,540,041 shares of common stock were authorized for issuance at $0.05 per share to Cathaya Operations Management or its designees in satisfaction of advances and loans made to the Company.
1,282,259 shares of common stock were authorized for issuance at $0.05 per share to Victor Huang for outstanding unpaid compensation in the amount of $64,112.95.
200,000 shares of common stock were authorized for issuance to Michael Ringstad as compensation for services provided by Mr. Ringstad as the Company’s CFO since June 2015.
Effective June 23, 2016, the board of directors authorized the issuance of the following equity securities:
27,111,095 shares of common stock were authorized for issuance to China Electric Vehicle Corporation in satisfaction of unpaid accrued interest owing on the Company’s Senior Secured Convertible Promissory Note.
1,332,561 shares of common stock were authorized for issuance to Cathaya Operations Management or its designees for advances made on behalf of the Company.
As of June 30, 2016, the foregoing securities have not been issued to their respective recipients.
Each of the foregoing issuances were deemed exempt from the registration requirements of the Securities Act of 1933, as amended,(“1933 Act”) pursuant to Section 4(a)(2) of the 1933 Act for transactions not involving a public offering.
Item 3. Defaults upon Senior Securities
None
Item 4. Mine safety disclosure
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits
(b) Exhibits.
Exhibit Number | | Description |
31.1/31.231.1 | | Certification of Principal Executive Officer pursuant to Rule 13a-14/15d-14 of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
31.331.2 | | Certification of Principal Financial Officer pursuant to 13a-14/15d-14 of the Exchange Act as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 32.1 | | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 101.INS | | XBRL Instance Document |
| | | |
| 101.SCH | | XBRL Taxonomy Extension Schema Document |
| | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| | | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed.
Furnished herewith, XBLR (Extensive Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 14, 2015 15, 2016 | | By: /s/ Alex Wang | |
| | | Name: Alex Wang | |
| | | | |
| | | Title: Co-ChiefChief Executive Officer | |
| | | | |
| | | (Co-PrincipalPrincipal Executive Officer). | |
Dated: August 14, 2015 | | By: /s/ Chuck Schillings | |
| | Name: Chuck Schillings | |
| | | |
| | Title: Co-Chief Executive Officer | |
| | | |
| | (Co-Principal Executive Officer). | |
15, 2016
Dated: August 14, 2015 | | By: /s/ Michael Ringstad | |
| | | Name: Michael Ringstad | |
| | | | |
| | | Title: Interim Chief Financial Officer | |
| | | | |
| | | (Interim Principal Financial Officer). | |
35
EXHIBIT 31.1
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:
I, Alex Wang, certify that:
1. I have reviewed this 10-Q of ZAP.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report.
4. The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or its reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and |
5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting. |
| /s/ Alex Wang | |
| |
| Title: Chief Executive Officer | |
| |
| Date: August 15, 2016 | |
31
EXHIBIT 31.2
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:
I, Michael Ringstad, certify that:
1. I have reviewed this 10-Q of ZAP.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report.
4. The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or its reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and |
5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting. |
/s/ Michael Ringstad
Title: Interim Chief Financial Officer (Principal Financial and Accounting Officer)
Date: August 15, 2016
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of ZAP (the "Company") on Form 10-Q for the quarterly period ended June 30, 2016 as filed with the U.S. Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: August 15, 2016
By: /s/ Alex Wang
Chief Executive Officer
(Principal Executive Officer).
Dated: August 15, 2016
By: /s/ Michael Ringstad
Interim Chief Financial Officer
(Principal Financial Officer)