Webcast and Transcript – ZAP Jonway 1Q2011 Financial Results Conference Call
Date: 1:30 PM PDT, May 25, 2011
Audio Webcast – Click Here
Priscilla Lu, Ph.D, Chairman
Steve Schneider, Co-CEO USA
Alex Wang, Co-CEO China
Benjamin Zhu, CFO
Priscilla Lu: Good afternoon ladies and gentlemen; greetings to everyone in the other time zones. Welcome to ZAP’s 1Q2011 Earnings Call. We plan to be doing these quarterly earnings calls on a regular basis from now on.
I am Dr. Priscilla Lu, the Chairman of ZAP. With me are Steve Schneider, Co-CEO of ZAP Jonway, Alex Wang, Co-CEO of ZAP Jonway for the Jonway Automobile manufacturing and sales in China, and Benjamin Zhu, our CFO for ZAP Jonway. I will start with the Safe Harbor Statement, Forward-Looking Statement that we will proceed to read.
Certain of the statements on this conference call constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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 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, into our company and business;
• our ability to maintain effective disclosure controls and procedures;
• our limited operating history, particularly of ZAP and Jonway 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 as detailed from time to time in ZAP’s periodic reports filed with the Securities and Exchange Commission.
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.
[End of Safe-Harbor Language]
Priscilla Lu: So now we shall begin our earnings report. We are pleased to share with you our first consolidated earnings result for 1Q2011, after a year long effort and hard work on both sides in successfully completing the 51% acquisition of Jonway Automobile by ZAP. The transaction closed on January 21st, 2011. With this closing, ZAP now has access to Jonway’s ISO 9000 production-ready manufacturing facilities in Zhejiang, China, with capacity of up to 30,000 vehicles per year, and an experience manufacturing team from Jonway. This factory facility on 141 acres of land was recently put in in January of 2009. Jonway Auto in addition provides ZAP with established sales distribution channels of over 90 direct dealers, and over 250 customer support centers all over China, ready to begin sales of their new electric vehicle products, the ZAP Jonway A380EV SUV when it is in mass production at the end of this year in China.
In the quarter ending March 31st, 2011, consolidated net sales were US$11.7 million and consolidated net loss was US$9.9 million for the same period. By comparison, the quarter ending March 31st, 2010, ZAP’s standalone net sales last year, without Jonway Automobile, were US$848,000 and net losses were US$3.24 million. This quarter’s consolidated results were based on the financials of two thirds of a quarter for Jonway Auto, starting from the closing of the acquisition on January 21st, 2011. The combined net sales for the full quarter would have been US$19.5 million, had we closed and consolidated on January 1st, 2011. Of the US$9.9 million in losses this quarter, more than US$7 million was non-cash related; which included US$3.3 million in losses due to one time charge of purchase price adjustments, US$1.5 million in expenses related to stock-based compensation, amortization of distribution rights and management fees related to the Jonway acquisition, and a US$1.8 million in charges attributed to the discounted price of the US$19 million convertible note. Non-recurring cash expenses in the quarter included one-time payment of US$650,000 in legal and audit fees connected to the acquisition.
Total assets of the company on March 31st, 2011, on a consolidated basis was US$118 million. This compares to US$14.5 million in total assets for ZAP standalone in March 31st, 2010. Total consolidated liabilities of the company on March 31st, 2011 was US$52.9 million, this compares to a total liability of US$12.7 million for ZAP on a standalone basis, March 31st, 2010. Total shareholders’ equity of the company on March 31st, 2011 was US$65.3 million compared to US$1.8 million end of March 31st, 2010.
And now Steve Schneider has a few words to share with you on our newly combined company.
Steve Schneider: ZAP Jonway is focused on China’s growing EV fleet market, and will continue to narrow its product offering to a few key models and streamline its corporate resources to accelerate production in China. The Company intends to take advantage of the central and local government subsidies of 60,000 RMB (US$9000), and 40,000 RMB (US$6,000) respectively, for a total of 100,000 RMB (US$15,000) in rebates to manufacturers for full electric vehicles. The Company is bringing in experienced new management team to lead the electric vehicle product line and production manufacturing in China. Meanwhile, Jonway Automobile who is debt free plans to seek additional credit facilities with Chinese banks to finance working capital and the new EV production tooling and infrastructure additions.
The Company is on track to deliver its first pre-production A380EV vehicles to the Shanghai Yangpu government for its Green City Project in June 2011. Full production of the A380EV is expected in the latter part of the fourth quarter of 2011, and Alias models will follow in early 2012.
The Company plans to engage international partners and auto engineering experts to complete safety certification, durability and vehicle dynamics analysis of its EV products between now and the end of this year before ramping up production.
Now Back to Dr. Lu to conclude our earnings report:
Priscilla Lu: This acquisition was orchestrated by Cathaya Capital with the specific objective of leveraging the complementary synergies between ZAP and Jonway to form the foundation for a competitive New Energy Vehicle company. We are taking what ZAP offers in EV technology and design experience and applying this to Jonway’s automobile production manufacturing know-how to produce a scalable platform that can utilize new design models and modes to address the expanding Chinese EV market. With Jonway’s growing Chinese sales distribution network, and plans to increase this dealership network by 15% this year, the new EV products will have immediate access nationwide in China when they are in mass production end of this year. At the same time, ZAP here in the USA, is able to help expand and develop the international markets for Jonway Auto’s full product line, and facilitate in further EV technology development with our international partners, assist in type approval and homologation process in many of the international markets that we shall be selling into.
We look forward to an exciting 2011 year where we shall be introducing our new production EV products, and adding to our traditional gasoline models with the delivery of a 7 passenger van SUV, along with our new smaller 3 door version of the SUV for international markets. These new products will be available at the end of 4Q2011.
Ladies and gentlemen, thank you very much and I look forward to speaking to you all again on June 20th, 2011, on Monday, starting at 10 am, at our annual shareholders’ meeting which will be held at Burlingame Grand Hyatt Hotel, near the San Francisco airport in the Bay Area. Please refer to our web site http://www.zapworld.com for more details.
Steve, you want to answer some of the questions that came in from the shareholders?
Questions & Answers
Steve Schneider: 1) Yes there were several questions that came in from the shareholders. Question was raised about the reverse split that will be voted on at the shareholders’ meeting on June 20th, 2011. Why do we need to do a reverse split and how much will the split be?
Answer: There are a number of reasons ZAP is considering a reverse stock split. These reasons are outlined in detail in ZAP’s recently filed proxy statement. One significant reason is that ZAP plans to list its shares on NASDAQ in the second half of 2011, pending approval of the reverse stock split of course at the shareholders’ meeting and approval of ZAP’s Board of Directors. In order to do so, ZAP would need to affect a reverse split to satisfy the minimum share price of US$4 required for listing on Nasdaq. The ratio of the reverse split will depend on ZAP’s share price at the time we affect the reverse split.
2) Question was raised on the availability of the EV products from ZAP Jonway in the USA. What will be available here and when?
ZAP Jonway’s A380 EV which expect to be in production by 4Q2011 will first be introduced in China, and available to be shipped to other international markets outside of US after that. We anticipate that the process of type approval and homologation for the US will begin in the third quarter of 2011, as we finalize all of the baseline testing and performance calibration that is required for all countries. Due to the complex, extensive process for type approval and homologation in the US for sedans, we believe that A380EV will not be available for the US market until the end of 2012.
However, the Alias which was purposely configured as a 3-wheel motor vehicle is classified differently and does not require as extensive testing as do the 4-wheel sedans. Therefore, the period to undergo all of the testing will be shortened. Nonetheless, the Company will be testing internally as well as outsourcing to auto experts to certify the safety and robustness of the Alias. Therefore, the Alias will undergo all of the safety, air bags, roll over and crash resistance analysis that we would do regardless of the requirement for conformance. We are targeting the Alias to be available in the US some time 2Q2012.
3) Question was raised regarding how this transaction compares to other transactions done lately by Chinese companies. Compare this transaction to the RTO’s made by Chinese companies in the US stock exchange.
First of all, this is an acquisition (NOT a reverse-merger or RTO) of 51% of the equity shares of Jonway Automobile, and this acquisition was initiated and made by ZAP for the purpose of fulfilling a much needed vacuum in ZAP’s EV manufacturing capabilities and have access to an ISO 9000 professional production facilities and team, and also to secure market access to an expanding China EV market. In this acquisition, ZAP engaged two separate top tier accounting firms for independent financial due diligence and the Jonway standalone audits. The company engaged an independent government approved assessor for the valuation, as well as extensive independent legal due diligence in China by a top law firm on compliancy on all registration and license issuance. It is the board and executive management’s mandate and priority to exercise rigorous financial controls and transparency by bringing in a new experienced financial management team to oversee financial management, controls and reporting for both ZAP and Jonway.
And that will conclude the questions and answers that came in from the public.
Priscilla Lu: Thank you, Steve, so that concludes our earnings report for the first quarter March 2011 for ZAP Jonway. Again, I look forward to seeing all of you at our shareholders meeting this coming June 20th at the Hyatt Regency in Burlingame, near San Francisco Airport.
Thank you and good afternoon.