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ZAP Jonway (OTCBB:ZAAP) recently filed its Form 10-Q for the quarterly period ended March 31, 2011, which included consolidated financial results for the first time taking into account ZAP’s acquisition of 51% of the equity shares of Zhejiang Jonway Automobile Co. Ltd., or Jonway Automobile, located in Sanmen, Zhejiang, China, in January 2011. We refer to this transaction as the Jonway Acquisition. The Jonway Acquisition was the result of a yearlong effort by both parties. Jonway Automobile is an ISO 9000 production-ready automobile manufacturer in China with facilities that were installed in 2009. Through the Jonway Acquisition, ZAP has been able to gain access to a cost-competitive production team in China with manufacturing expertise and access to China’s growing electric vehicle, or EV, market. This complementary relationship is further enhanced by ZAP’s EV technology and expertise, which adds to Jonway Automobile’s existing traditional vehicle sales business and broadens its global sales footprint.
In the quarter ended March 31, 2011, consolidated net sales were US$11.7 million and consolidated net loss was US$9.9 million for the same period. By comparison, in the quarter ended March 31, 2010, net sales were US$848,000 and net loss was US$3.24 million for the same period. The increase in net sales and net loss in the quarter ended March 31, 2011 was primarily related to the Jonway Acquisition which was completed in January 2011 and the inclusion of results of operations of Jonway attributed to ZAP following the closing of the transaction.
In the quarter ended March 31, 2011, consolidated net loss included approximately US$6 million in losses attributed to ZAP, of which more than half were non-cash and a significant portion of the non-cash losses were related to the Jonway Acquisition. In addition, consolidated net loss included US$3.3 million in losses due to a one-time charge of various acquisition price adjustments. Of the non-cash losses from ZAP, approximately US$1.5 million were expenses related to stock-based compensation, amortization of distribution rights and management fees related to the Jonway Acquisition, and a non-cash charge of US$1.8 million for interest expenses related to the discounted price of the US$19 million convertible note issued by ZAP in connection with funding used to complete the Jonway Acquisition. Non-recurring expenses for the quarter included a one-time cash payment of US$650,000 in legal and audit fees in connection with the Jonway Acquisition.