KANDI TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Nine Months Ended
|
|
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
2,315,659
|
|
$
|
13,900,350
|
|
Adjustments to reconcile net income to net
cash provided by operating activities
|
|
|
|
|
|
|
Depreciation and amortization
|
|
3,681,345
|
|
|
4,388,902
|
|
Deferred taxes
|
|
(2,608,702
|
)
|
|
(1,854,863
|
)
|
Change in fair value of
financial instruments
|
|
(3,823,590
|
)
|
|
(11,802,586
|
)
|
Share of profit after tax of JV Company
|
|
203,375
|
|
|
(1,900,128
|
)
|
Stock compensation cost
|
|
13,930,829
|
|
|
12,486,881
|
|
|
|
|
|
|
|
|
Changes in operating
assets and liabilities, net of effects of
acquisition:
|
|
|
|
|
|
|
(Increase) Decrease In:
|
|
|
|
|
|
|
Accounts receivable
|
|
(33,335,798
|
)
|
|
(19,286,512
|
)
|
Inventories
|
|
1,802,780
|
|
|
(17,289,849
|
)
|
Other receivables and other
assets
|
|
(11,868,318
|
)
|
|
(298,976
|
)
|
Due from employee
|
|
17,718
|
|
|
(10,535
|
)
|
Prepayments and prepaid
expenses
|
|
(31,684,685
|
)
|
|
6,265,899
|
|
Amount due from JV Company
|
|
(41,182,480
|
)
|
|
(27,964,497
|
)
|
Due from related party
|
|
28,994,314
|
|
|
-
|
|
|
|
|
|
|
|
|
Increase (Decrease)
In:
|
|
|
|
|
|
|
Accounts payable
|
|
40,240,135
|
|
|
44,980,746
|
|
Other payables and accrued
liabilities
|
|
10,415,706
|
|
|
(1,302,135
|
)
|
Customer deposits
|
|
(13,598
|
)
|
|
(2,502,087
|
)
|
Income Tax payable
|
|
607,422
|
|
|
1,062,643
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
$
|
(22,307,888
|
)
|
$
|
(1,126,747
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
Purchases of plant and equipment, net
|
|
(39,250
|
)
|
|
(408,850
|
)
|
Purchases of construction in
progress
|
|
(4,236,301
|
)
|
|
(39,054
|
)
|
Issuance of notes receivable
|
|
(51,553,604
|
)
|
|
(72,040,444
|
)
|
Repayment of notes receivable
|
|
62,415,498
|
|
|
61,697,894
|
|
Long Term Investment
|
|
-
|
|
|
(1,535,651
|
)
|
Short Term Investment
|
|
1,592,024
|
|
|
-
|
|
|
|
|
|
|
|
|
Net cash provided by (used
in) investing activities
|
$
|
8,178,367
|
|
$
|
(12,326,105
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
Restricted cash
|
|
1,519,477
|
|
|
(3,232,950
|
)
|
Proceeds from short-term bank loans
|
|
-
|
|
|
30,583,709
|
|
Repayments of
short-term bank loans
|
|
-
|
|
|
(27,512,406
|
)
|
Proceeds from notes payable
|
|
5,187,040
|
|
|
9,860,498
|
|
Repayment of notes
payable
|
|
(5,849,988
|
)
|
|
(12,299,436
|
)
|
Warrant exercise
|
|
434,666
|
|
|
-
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities
|
$
|
1,291,195
|
|
$
|
(2,600,585
|
)
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH
EQUIVALENTS
|
|
(12,838,326
|
)
|
|
(16,053,437
|
)
|
Effect of exchange rate
changes on cash
|
|
(210,383
|
)
|
|
1,365,000
|
|
Cash and cash equivalents at beginning of
year
|
|
16,738,559
|
|
|
26,379,460
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
|
|
3,689,850
|
|
|
11,691,023
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOW INFORMATION
|
|
|
|
|
|
|
Income taxes paid
|
|
2,322,747
|
|
|
1,794,115
|
|
Interest paid
|
|
1,283,843
|
|
|
1,718,257
|
|
See accompanying notes to consolidated financial statements
6
NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES
Kandi Technologies Group, Inc. (Kandi Technologies) was
incorporated under the laws of the State of Delaware on March 31, 2004. Kandi
Technologies changed its name from Stone Mountain Resources, Inc. to Kandi
Technologies, Corp. on August 13, 2007. On December 21, 2012, Kandi Technologies
changed its name to Kandi Technologies Group, Inc. As used herein, the term the
Company means Kandi Technologies and its operating subsidiaries, as described
below.
Headquartered in the Jinhua city, Zhejiang Province, China, the
Company is one of Chinas leading producers and manufacturers of electrical
vehicle products, electrical vehicle parts and off road vehicles for sale in the
Peoples Republic of China (the PRC) and global markets. The Company conducts
its primary business operations through its wholly-owned subsidiary, Zhejiang
Kandi Vehicles Co., Ltd. (Kandi Vehicles), and the partial and wholly-owned
subsidiaries of Kandi Vehicles.
The Companys organizational chart is as follows:
7
Operating Subsidiaries:
Pursuant to relevant agreements executed in January 2011, Kandi
Vehicles is entitled to 100% of the economic benefits, voting rights and
residual interests (100% profits and loss absorption rate) of Jinhua Kandi New
Energy Vehicles Co., Ltd. (Kandi New Energy), a company in which Kandi
Vehicles has 50% interest. Mr. Hu Xiaoming owns the other 50% which he entrusted
Kandi Vehicles to manage Kandi New Energy. Kandi New Energy currently holds
battery packing production rights (license), and supplies the battery pack to
the JV Company (Defined below). It didnt maintain the special-purpose vehicle
production rights (license) on manufacturing Kandi brand electric utility
vehicles. According to the JV Agreement (defined below),Kandi is not allowed to
produce EVs. To avoid the maintenance fee on this license, the Company
anticipates to close the sale of the special-purpose vehicle production rights
(license) to a third party. The Ministry of Industrial and Information
Technology of the Peoples Republic of China has approved this transaction and
the transfer is in process.
8
In April 2012, pursuant to a share exchange agreement, the
Company acquired 100% of Yongkang Scrou Electric Co, Ltd. (Yongkang Scrou), a
manufacturer of automobile and EV parts. Yongkang Scrou currently manufactures
and sells EV drive motors, EV controllers, air conditioners and other electrical
products to the JV Company (defined below).
In March 2013, pursuant to a joint venture agreement (the JV
Agreement) entered into by Kandi Vehicles and Shanghai Maple Guorun Automobile
Co., Ltd. (Shanghai Guorun), a 99%-owned subsidiary of Geely Automobile
Holdings Ltd. (Geely), the parties established Zhejiang Kandi Electric
Vehicles Co., Ltd. (the JV Company) to develop, manufacture and sell EV
products and related auto parts. Each of Kandi Vehicles and Shanghai Guorun has
50% ownership interest in the JV Company. In March 2014, the JV Company changed
its name to Kandi Electric Vehicles Group Co., Ltd. At present, the JV Company
is a holding company with products that are manufactured by its subsidiaries.
For JV Companys better development, Zhejiang Geely Holding Group, the parent
company of Geely, became the direct holding company of the JV Company on October
26, 2016 by completing the purchase of the 50% equity of the JV Company held by
Shanghai Guorun with a premium price, or a purchase price exceeding the cash
amount of the aggregate of the original investment and the shared profits over
the years.
In March 2013, Kandi Vehicles formed Kandi Electric Vehicles
(Changxing) Co., Ltd. (Kandi Changxing) in the Changxing (National) Economic
and Technological Development Zone. Kandi Changxing is engaged in the production
of EV products. In the fourth quarter of 2013, Kandi Vehicles entered into an
ownership transfer agreement with the JV Company pursuant to which Kandi
Vehicles transferred 100% of its ownership in Kandi Changxing to the JV Company.
The Company, indirectly through its 50% ownership interest in the JV Company,
has 50% economic interest in Kandi Changxing.
In July 2013, Zhejiang ZuoZhongYou Electric Vehicle Service
Co., Ltd. (the Service Company) was formed. The Service Company is engaged in
various pure EV leasing businesses, which is called Micro Public Transportation
(MPT) program. The Company has 9.5% ownership interest in the Service Company
through Kandi Vehicles.
In November 2013, Zhejiang Kandi Electric Vehicles Jinhua Co.,
Ltd. (Kandi Jinhua) was formed by the JV Company. The JV Company has 100%
ownership interest in Kandi Jinhua, and the Company, indirectly through its 50%
ownership interest in the JV Company, has 50% economic interest in Kandi Jinhua.
In November 2013, Zhejiang JiHeKang Electric Vehicle Sales Co.,
Ltd. (JiHeKang) was formed by the JV Company and is engaged in car sales
business. The JV Company has 100% ownership interest in JiHeKang, and the
Company, indirectly through its 50% ownership interest in the JV Company, has
50% economic interest in JiHeKang.
In December 2013, the JV Company entered into an ownership
transfer agreement with Shanghai Guorun pursuant to which the JV Company
acquired 100% ownership of Kandi Electric Vehicles (Shanghai) Co., Ltd. (Kandi
Shanghai). As a result, Kandi Shanghai is a wholly-owned subsidiary of the JV
Company, and the Company, indirectly through its 50% ownership interest in the
JV Company, has 50% economic interest in Kandi Shanghai.
9
In January 2014, Zhejiang Kandi Electric Vehicles Jiangsu Co.,
Ltd. (Kandi Jiangsu) was formed by the JV Company. The JV Company has 100%
ownership interest in Kandi Jiangsu, and the Company, indirectly through its 50%
ownership interest in the JV Company, has 50% economic interest in Kandi
Jiangsu. The company is mainly engaged in EV research and development,
manufacturing and sales.
In November 2015, Hangzhou Puma Investment Management Co., Ltd.
(Puma Investment) was formed by the JV Company, which focuses on the
investment and consulting service. The JV Company has 50% ownership interest in
Puma Investment(the other 50% was owned by Zuozhongyou Electric Vehicles Service
(Hangzhou) Co.,Ltd., a subsidiary of Service Company, and the Company,
indirectly through its JV Company, has 25% economic interest in Puma Investment.
The other 50% ownership is held by the Service Company.
In November 2015, Hangzhou JiHeKang Electric Vehicle Service
Co., Ltd. (JiHeKang Service Company) was formed by the JV Company, which
focuses on the after-market service for the EV products sold. The JV Company has
100% ownership interest in JiHeKang Service Company, and the Company, indirectly
through its JV Company, has 50% economic interest in JiHeKang Service Company.
In January 2016, Kandi Electric Vehicles (Hainan) Co., Ltd.
(Kandi Hainan) was renamed from Kandi Electric Vehicles (Wanning) Co., Ltd.
(Kandi Wanning) which was originally formed in Wanning City of Hainan Province
by Kandi Vehicles and Kandi New Energy in April 2013 and then was transferred to
Haikou City in January 2016. Kandi Vehicles has 90% ownership in Kandi Hainan,
and Kandi New Energy has the remaining 10% interest. However, Kandi Vehicles is,
effectively, entitled to 100% of the economic benefits, voting rights and
residual interests (100% profits and losses) of Kandi Hainan.
The Companys primary business operations are designing,
development, manufacturing and commercialization of EV products, EV parts and
off-road vehicles. As part of its strategic objective to become a leading
manufacturer of EV products (through the JV Company) and related services, the
Company has increased its focus on pure EV related products with a particular
emphasis on expanding its market shares in China.
NOTE 2 LIQUIDITY
The Company had a working capital surplus of $65,512,593 as of
September 30, 2016, an increase of $5,595,440 from $59,917,153 as of December
31, 2015.
As of September 30, 2016, the Company had credit lines from
commercial banks of $35,676,489. The Company believes that its cash flows
generated internally may not be sufficient to support the growth of future
operations and to repay short-term bank loans for the next twelve (12) months.
However, the Company believes its access to existing financing sources and
established relationships with PRC banks will enable it to meet its obligations
and fund its ongoing operations.
The Company has historically financed its operations through
short-term commercial bank loans from PRC banks. The term of these loans is
typically for one year, and upon the payment of all outstanding principal and
interest in a particular loan, the banks have typically rolled over the loan for
an additional one-year term, with adjustments made to the interest rate to
reflect prevailing market rates. The Company believes this practice has been
ongoing year after year and that short-term bank loans remain available on
normal trade terms if needed.
10
NOTE 3 - BASIS OF PRESENTATION
The Company maintains its general ledger and journals with the
accrual method accounting for financial reporting purposes. The financial
statements and notes are representations of management. Accounting policies
adopted by the Company conform to generally accepted accounting principles in
the United States (U.S. GAAP) and have been consistently applied in the
presentation of the Companys financial statements.
The financial information included herein for the three-month
and nine-month period ended September 30, 2016 and 2015 are unaudited; however,
such information reflects all adjustments, consisting of normal recurring
adjustments, that are, in the opinion of management, necessary for a fair
presentation of the Companys consolidated financial statements for
these interim periods.
The results of operations for the three-month and nine-month
periods ended September 30, 2016 are not necessarily indicative of the results
expected for the entire fiscal year ending December 31, 2016.
NOTE 4 PRINCIPLES OF CONSOLIDATION
The consolidated financial statements reflect the accounts of
the Company and its ownership interest in the following subsidiaries:
(i)
|
Continental, a wholly-owned subsidiary of the
Company;
|
|
|
(ii)
|
Kandi Vehicles, a wholly-owned subsidiary of
Continental;
|
|
|
(iii)
|
Kandi New Energy, a 50% owned subsidiary of Kandi
Vehicles, Mr Hu Xiaoming has owned the other 50% equity. Pursuant to
relevant agreements executed in January 2011, Mr. Hu Xiaoming contracted
Kandi Vehicles for the operation and management of Kandi New Energy and
had his shares escrowed. As a result, Kandi Vehicles is entitled to 100%
of the economic benefits, voting rights and residual interests of Kandi
New Energy;
|
|
|
(iv)
|
Yongkang Scrou, a wholly-owned subsidiary of Kandi
Vehicles; and
|
|
|
(v)
|
Kandi Hainan, a subsidiary, 10% owned by Kandi New Energy
and 90% owned by Kandi Vehicles.
|
Equity Method Investees
The consolidated net income also includes the Companys
proportionate share of the net income or loss of its equity method investees as
following:
(vi)
|
The JV Company, 50% owned subsidiary of Kandi
Vehicles;
|
|
|
(vii)
|
Kandi Changxing, a wholly-owned subsidiary of the JV
Company. The Company, indirectly through its 50% ownership interest in the
JV Company, has 50% economic interest;
|
|
|
(viii)
|
Kandi Jinhua, a wholly-owned subsidiary of the JV
Company. The Company, indirectly through its 50% ownership interest in the
JV Company, has 50% economic interest;
|
11
(ix)
|
JiHeKang, a wholly-owned subsidiary of the JV Company.
The Company, indirectly through its 50% ownership interest in the JV
Company, has 50% economic interest;
|
|
|
(x)
|
Kandi Shanghai, a wholly-owned subsidiary of the JV
Company. The Company, indirectly through its 50% ownership interest in the
JV Company, has 50% economic interest;
|
|
|
(xi)
|
Kandi Jiangsu, a wholly-owned subsidiary of the JV
Company. The Company, indirectly through its 50% ownership interest in the
JV Company, has 50% economic interest;
|
|
|
(xii)
|
Puma Investment, a 50%-owned subsidiary of the JV
Company. The Company, indirectly through its 50% ownership interest in the
JV Company, has 25% economic interest; and
|
|
|
(xiii)
|
JiHeKang Service Company, a wholly-owned subsidiary of
the JV Company. The Company, indirectly through its 50% ownership interest
in the JV Company, has 50% economic interest.
|
All intra-entity profits and losses with the Companys equity
method investees have been eliminated.
NOTE 5 USE OF ESTIMATES
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements, and
the reported amounts of revenue and expenses during the reporting period.
Management makes these estimates using the best information available at the
time the estimates are made; however actual results when ultimately realized
could differ from those estimates.
NOTE 6 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Economic and Political Risks
The Companys operations are conducted in the PRC. As a result,
the Companys business, financial condition and results of operations may be
influenced by the political, economic and legal environments in the PRC, and by
the general state of the PRC economy. In addition, the Companys earnings are
subject to movements in foreign currency exchange rates when transactions are
denominated in Renminbi (RMB), which is the Companys functional currency.
Accordingly, the Companys operating results are affected by changes in the
exchange rate between the U.S. dollar and the RMB.
The Companys operations in the PRC are subject to special
considerations and significant risks not typically associated with companies in
North America and Western Europe. These include risks associated with, among
others, the political, economic and legal environment and foreign currency
exchange. The Companys performance may be adversely affected by changes in the
political and social conditions in the PRC, and by changes in governmental
policies with respect to laws and regulations, anti-inflationary measures,
currency conversion, remittances abroad, and rates and methods of taxation,
among other things.
12
(b)
Fair Value of Financial Instruments
ASC 820 establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. The hierarchy prioritizes
the inputs into three levels based on the extent to which inputs used in
measuring fair value are observable in the market.
These tiers include:
Level 1defined as observable inputs such as quoted prices in
active markets;
Level 2defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable; and
Level 3defined as unobservable inputs in which little or no
market data exists, therefore requiring an entity to develop its own
assumptions.
The companys financial instruments primarily consist of cash
and cash equivalents, restricted cash, accounts receivable, notes receivable,
other receivable, accounts payable, other payables and accrued liabilities,
short-term bank loans, notes payable, and warrants.
The carrying value of cash and cash equivalents, restricted
cash, accounts receivable, notes receivable, other receivable, accounts payable,
other payables and accrued liabilities and notes payable approximate fair value
because of the short term nature of these items. The estimated fair values of
short-term bank loans were not materially different from their carrying value as
presented due to the short maturities and that the interest rates on the
borrowing approximate those that would have been available for loans of similar
remaining maturity and risk profile. As the carrying amounts are reasonable
estimates of the fair value, these financial instruments are classified within
Level 1 of the fair value hierarchy. The Company identified notes payable as a
Level 2 instrument due to the fact that the inputs to the valuation are
primarily based upon readily observable pricing information. The balance of
notes payable, which was measured and disclosed at fair value, was $3,093,511
and $3,850,478 at September 30, 2016 and December 31, 2015, respectively.
Warrants, which are accounted as liabilities, are treated as
derivative instruments, and are measured at each reporting date for their fair
value using Level 3 inputs. The fair value of warrants was $0 and $3,823,590 at
September 30, 2016 and December 31, 2015, respectively. Also see Note 6(t).
(c)
Cash and Cash Equivalents
The Company considers highly-liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Restricted cash, as of September 30, 2016 and December 31,
2015, represented time deposits on account for earning interest income. As of
September 30, 2016 and December 31, 2015, the Companys restricted cash was
$14,240,615 and $16,172,009, which includes a one-year Certificate of Time
Deposit (CD) of $11,992,098 with Hangzhou Bank Jinhua Branch, among which
$5,996,049 will mature on September 29, 2017 and the remaining $5,996,049 will
mature on October 29, 2017.
13
(d)
Inventories
Inventories are stated at the lower of cost or net realizable
value (market value). The cost of raw materials is determined on the basis of
weighted average. The cost of finished goods is determined on the weighted
average basis and comprises direct materials, direct labor and an appropriate
proportion of overhead.
Net realizable value is based on estimated selling prices less
selling expenses and any further costs expected to be incurred for completion.
Adjustments to reduce the cost of inventory to its net realizable value are
made, if required, for estimated excess, obsolescence, or impaired balances.
(e)
Accounts Receivable
Accounts receivable are recognized and carried at net
realizable value. An allowance for doubtful accounts is recorded in periods in
which the Company determines a loss is probable, based on its assessment of
specific factors, such as troubled collections, historical experience, accounts
aging, ongoing business relations and other factors. Accounts are written off
after an exhaustive collection effort. If accounts receivable are to be provided
for, or written off, they are recognized in the consolidated statement of
operations within the operating expenses line item. As of September 30, 2016 and
December 31, 2015, the Company had no allowance for doubtful accounts, as per
the managements judgment based on their best knowledge.
As of September 30, 2016 and December 31, 2015, the credit
terms with the Companys customers were typically 210 to 240 days and 150 to 180
days respectively after delivery. The Company extended the credit term with its
customers this year to a longer period as referenced above due to the delayed
subsidy payments from the government on EV sales.
(f)
Notes receivable
Notes receivable represent short-term loans to third parties
with the maximum term of one year. Interest income will be recognized according
to each agreement between a borrower and the Company on an accrual basis. If
notes receivable are paid back or written off, that transaction will be
recognized in the relevant year. If the loan default is probable, reasonably
assured and the loss can be reasonably estimated, the Company will recognize
income if the written-off loan is recovered at a future date. In case of any
foreclosure proceedings or legal actions being taken, the Company provides an
accrual for the related foreclosure expenses and related litigation expenses.
The Company also receives notes receivable from the JV Company to settle the
accounts receivable. If the Company wants to discount the notes receivables for
the purpose of receiving immediate cash, the current discount rate is 3.00%
annually. As at the end of September 30, 2016, the Company had notes receivables
of $1,969,252. Among which $428,268 will mature within 3 months and the
remaining $1,540,984 will mature within 6 months.
(g)
Prepayments
Prepayments represent cash paid in advance to suppliers, which
also includes advances to raw material suppliers, mold manufacturers, and
suppliers of equipment.
As of December 31, 2013, the Company recorded a significant
prepayment made by the Company to a supplier Nanjing Shangtong Auto Technologies
Co., Ltd. (Nanjing Shangtong) as an advance of RMB 353 million (approximately $52,915,129)
and prepaid by Kandi Wanning (renamed to Kandi Hainan in January 2016). Nanjing Shangtong is a total solution contractor for Kandi Hainan project to provide all
the equipment and EV product design and research services. As of September 30,
2016, the advance payment related to Kandi Hainan facility construction to
Nanjing Shangtong was transferred to construction-in-progress as described in
Note 15.
14
In June 2016, Kandi Hainan made the second prepayment of RMB 70
million (approximately $10,493,085) to Nanjing Shangtong for the design and
research of new EVs. In July 2016 and August 2016, another two prepayments of
RMB 30 million (approximately $4,497,036) and RMB 90 million (approximately
$13,491,109) respectively, were made to Nanjing Shangtong for the same purpose
of the design and research for the new EV product. Also see Note 15.
Advances for raw materials purchases typically are settled
within two months by the Companys receipt of raw materials. Prepayment is
offset against purchase amount after equipment or materials are delivered.
(h)
Property, Plant and Equipment
Property, Plant and equipment are carried at cost less
accumulated depreciation. Depreciation is provided over the assets estimated
useful lives, using the straight-line method. Leasehold improvements are
amortized over the life of the asset or the term of the lease, whichever is
shorter. Estimated useful lives are as follows:
Buildings
|
30 years
|
Machinery and equipment
|
10 years
|
Office equipment
|
5 years
|
Motor vehicles
|
5 years
|
Molds
|
5 years
|
The cost and related accumulated depreciation of assets sold or
otherwise retired are eliminated from the accounts and any gain or loss is
included in the statements of income. The cost of maintenance and repairs is
charged to expense as incurred, whereas significant renewals and betterments are
capitalized.
(i)
Construction in Progress
Construction in progress (CIP) represents the direct costs of
construction, the acquisition cost of buildings or machinery and design fees.
Capitalization of these costs ceases, and the construction in progress is
transferred to plant and equipment, when substantially all the activities
necessary to prepare the assets for their intended use are completed. No
depreciation is provided until the assets are completed and ready for their
intended use. No interest expense has been capitalized for CIP as of September
30, 2016, as the Company did not get loans for CIP.
(j)
Land Use Rights
According to Chinese laws, land in the PRC is owned by the
government and land ownership rights cannot be sold to an individual or to a
private company. However, the government grants the user a land use right to
use the land. The land use rights granted to the Company are being amortized
using the straight-line method over a term of fifty years.
15
(k)
Accounting for the Impairment of Long-Lived
Assets
The Company periodically evaluates the carrying value of
long-lived assets to be held and used, including intangible assets subject to
amortization, when events and circumstances warrant such a review, pursuant to
the guidelines established in Statement of Financial Accounting Standards
(SFAS) No. 144 (now known as ASC 360). The carrying value of a long-lived
asset is considered impaired when the anticipated undiscounted cash flow from
such asset is separately identifiable and is less than its carrying value. In
that event, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset. Fair market value is
determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on long-lived assets to be disposed
of are determined in a similar manner, except that fair market values are
reduced for the cost to dispose.
During the reporting period, no impairment loss was recognized.
(l)
Revenue Recognition
Revenue represents the invoiced value of goods sold. Revenue is
recognized when the Company ships the goods to its customers and all of the
following criteria are met:
-
Persuasive evidence of an arrangement exists;
-
Delivery has occurred or services have been rendered;
-
The sellers price to the buyer is fixed or determinable; and
-
Collectability is reasonably assured.
The Company recognized revenue when the products and the risk
they carry are transferred to the other party.
(m)
Research and Development
Expenditures relating to the development of new products and
processes, including significant improvements to existing products, are expensed
as incurred. Research and development expenses were $522,806 and $785,450 for
the three months ended September 30, 2016 and 2015, respectively. Research and
development expenses were $1,222,967 and $1,928,091 for the nine months ended
September 30, 2016 and 2015, respectively.
(n)
Government Grants
Grants and subsidies received from the PRC Government are
recognized when the proceeds are received or collectible and the related
milestones have been reached and all contingencies have been resolved.
For the three months ended September 30, 2016 and 2015, $
594,323 and $-724 (due to the depreciation in RMB against U.S. dollars) of
grants were received by the Companys subsidiaries from the PRC government. For
the nine months ended September 30, 2016 and 2015, $2,292,180 and $92,139 of
grants were received by the Companys subsidiaries from the PRC government.
(o)
Income Taxes
The Company accounts for income tax using an asset and
liability approach, which allows for the recognition of deferred tax benefits in
future years. Under the asset and liability approach, deferred taxes are
provided for the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. The accounting for deferred tax
calculation represents the managements best estimate on the most likely future
tax consequences of events that have been recognized in our financial statements
or tax returns and related future anticipation. A valuation allowance is
provided for deferred tax assets if it is more likely than not these items will
either expire before the Company is able to realize their benefits, or that
future realization is uncertain.
16
(p)
Foreign Currency Translation
The accompanying consolidated financial statements are
presented in United States dollars. The functional currency of the Company is
Renminbi (RMB). Capital accounts of the consolidated financial statements are
translated into United States dollars from RMB at their historical exchange
rates when the capital transactions occurred.
Assets and liabilities are translated at the exchange rates as
of balance sheet date. Income and expenditures are translated at the average
exchange rate of the reporting period, which rates are obtained from the
website:
http://www.oanda.com
|
|
September
30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
Period end RMB : USD exchange
rate
|
|
6.67106
|
|
|
6.49270
|
|
|
6.37380
|
|
Average RMB : USD exchange rate
|
|
6.58121
|
|
|
6.24010
|
|
|
6.18630
|
|
(q)
Comprehensive Income
Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, all items that are required to be recognized
under current accounting standards as components of comprehensive income are
required to be reported in a financial statement that is presented with the same
prominence as other financial statements. Comprehensive income includes net
income and the foreign currency translation changes.
(r)
Segments
In accordance with ASC 280-10,
Segment Reporting
, the
Companys chief operating decision makers rely upon the consolidated results of
operations when making decisions about allocating resources and assessing
performance of the Company. As a result of the assessment made by the chief
operating decision makers, the Company has only one single operating segment.
The Company does not distinguish between markets or segments for the purpose of
internal reporting.
(s)
Stock Option Expenses
The Companys stock option expenses are recorded in accordance
with ASC 718 and ASC 505.
The fair value of stock options is estimated using the
Black-Scholes-Merton model. The Companys expected volatility assumption is
based on the historical volatility of the Companys common stock. The expected
life assumption is primarily based on the expiration date of the option. The
risk-free interest rate for the expected term of the option is based on the U.S.
Treasury yield curve in effect at the time of grant.
17
The recognition of the stock option expenses is based on awards
expected to vest, and there were no estimated forfeitures. ASC standards require
forfeitures to be estimated at the time of grant and revised in subsequent
periods, if necessary, if actual forfeitures differ from those estimates.
The stock-based option expenses for the three months ended
September 30, 2016 and 2015 were $2,777,121 and $6,109,666, respectively. The
stock-based option expenses for the nine months ended September 30, 2016 and
2015 were $13,885,604 and $8,146,221, respectively. See Note 19.
(t)
Warrant Costs
The Companys warrant costs are recorded in liabilities in
accordance with ASC 480, ASC 505 and ASC 815.
We adopted the binomial tree valuation approach to estimate the
fair value of the warrants. In binomial tree valuation approach, it is assumed
that the life of the warrant (from Valuation Date to Expiration Date) is
typically divided into many steps (or nodes). In each step there is a binomial
stock price movement. With more steps, possible stock price paths are implicitly
considered. Valuation of warrant is performed iteratively, starting at each of
the final nodes (those that may be reached at the time of expiration), and then
working backwards through the tree towards the first node (valuation date). The
value computed at each stage is the value of the warrant at that point in time.
(u)
Goodwill
The Company allocates goodwill from business combinations to
reporting units based on the expectation that the reporting unit is to benefit
from the business combination. The Company evaluates its reporting units on an
annual basis and, if necessary, reassigns goodwill using a relative fair value
allocation approach. Goodwill is tested for impairment at the reporting unit
level on an annual basis and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying value. These events or circumstances could
include a significant change in the business climate, legal factors, operating
performance indicators, competition, or sale or disposition of a significant
portion of a reporting unit.
Application of the goodwill impairment test requires judgments,
including the identification of reporting units, assignment of assets and
liabilities to reporting units, assignment of goodwill to reporting units, and
the determination of the fair value of each reporting unit. The Company first
assesses qualitative factors to determine whether it is more likely than not
that goodwill is impaired. If the more likely than not threshold is met, the
Company performs a quantitative impairment test.
As of September 30, 2016, the Company determined that its
goodwill was not impaired.
(v)
Intangible assets
Intangible assets consist of trade names and customer relations
associated with the purchase price from the allocation of Yongkang Scrou. Such
assets are being amortized over their estimated useful lives of 9.7 years.
Intangible assets were amortized as of September 30, 2016. The amortization
expenses for intangible assets were $20,524 and $20,524 for the three months
ended September 30, 2016 and 2015, respectively, and $61,571 and $61,571 for the
nine months ended September 30, 2016 and 2015, respectively.
18
(w)
Accounting for Sale of Common Stock and Warrants
Gross proceeds are firstly allocated according to the initial
fair value of the freestanding derivative instruments (i.e. the warrants issued
to the Companys investors in its previous offerings, or the Investor
Warrants). The remaining proceeds are allocated to common stock. The related
issuance expenses, including the placement agent cash fees, legal fees, the
initial fair value of the warrants issued to the placement agent and others were
allocated between the common stock and the Investor Warrants based on how the
proceeds are allocated to these instruments. Expenses related to the issuance of
common stock were charged to paid-in capital. Expenses related to the issuance
of derivative instruments were expensed upon issuance.
(x)
Consolidation of variable interest entities
In accordance with accounting standards regarding consolidation
of variable interest entities, or VIEs, VIEs are generally entities that lack
sufficient equity to finance their activities without additional financial
support from other parties or whose equity holders lack adequate decision making
ability. All VIEs with which the Company is involved must be evaluated to
determine the primary beneficiary of the risks and rewards of the VIE. The
primary beneficiary is required to consolidate the VIE for financial reporting
purposes.
The Company has concluded, based on the contractual
arrangements, that Kandi New Energy is a VIE and that the Companys wholly-owned
subsidiary, Kandi Vehicles, absorbs a majority of the risk of loss from the
activities of these companies, thereby enabling the Company, through Kandi
Vehicles, to receive a majority of their respective expected residual returns.
Additionally, as Kandi New Energy is under common control with
other entities, the consolidated financial statements have been prepared as if
the transactions had occurred retroactively as to the beginning of the reporting
period of these consolidated financial statements.
Control and common control are defined under the accounting
standards as an individual, enterprise, or immediate family members who hold
more than 50 percent of the voting ownership interest of each entity. Because
the owners collectively own 100% of Kandi New Energy, and have agreed to vote
their interests in concert since the establishment of each of these three
companies as memorialized the Voting Rights Proxy Agreement, the Company
believes that the owners collectively have control and common control of the
company. Accordingly, the Company believes that Kandi New Energy was
constructively held under common control by Kandi Vehicles as of the time the
Contractual Agreements were entered into, establishing Kandi Vehicles as their
primary beneficiary. Kandi Vehicles, in turn, is owned by Continental, which is
owned by the Company.
NOTE 7 NEW ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements that the Company has adopted
or may be required to adopt in the future are summarized below.
In March 2016, the FASB has issued Accounting Standards Update
(ASU)No. 2016-07 Topic 323, InvestmentsEquity Method and Joint Ventures:
Simplifying the Transition to the Equity Method of Accounting, which aims to
identify, evaluate, and improve areas of generally accepted accounting
principles (GAAP) for which cost and complexity can be reduced while maintaining
or improving the usefulness of the information provided to users of financial
statements. The amendments in this Update affect all entities that have an
investment that becomes qualified for the equity method of accounting as a
result of an increase in the level of ownership interest or degree of influence.
The amendments in this Update are effective for all entities for fiscal years,
and interim periods within those fiscal years, beginning after December 15,
2016. The amendments should be applied prospectively upon their effective date
to increases in the level of ownership interest or degree of influence that
result in the adoption of the equity method. Earlier application is permitted.
We are currently in the process of evaluating the impact of the adoption of ASU
2016-07 on our consolidated financial statements.
19
In March 2016, the FASB has issued ASU No. 2016-08 Topic 606,
Revenue from Contracts with Customers: Principal versus Agent Considerations
(Reporting Revenue Gross versus Net), which requires the entity to determine
whether the nature of its promise is to provide good or service to the customer
(that is, the entity is a principal) or to arrange for the good or service to be
provided to the customer by the other party (that is, the entity is an agent).
This determination is based upon whether the entity controls the good or the
service before it is transferred to the customer. The amendments in this Update
affect entities with transactions included within the scope of Topic 606. The
core principle of the guidance in Topic 606 is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. The amendments in this Update
affect the guidance in Accounting Standards Update 2014-09, Revenue from
Contracts with Customers (Topic 606), which is not yet effective. The effective
date and transition requirements for the amendments in this Update are the same
as the effective date and transition requirements of Update 2014-09. Accounting
Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date, defers the effective date of Update 2014-09 by
one year. We are currently in the process of evaluating the impact of the
adoption of ASU 2016-08 on our consolidated financial statements.
In April 2016, the FASB has issued ASU No. 2016-09 Topic 718,
CompensationStock Compensation: Improvements to Employee Share-Based Payment
Accounting, which aims to identify, evaluate, and improve areas of generally
accepted accounting principles (GAAP) for which cost and complexity can be
reduced while maintaining or improving the usefulness of the information
provided to users of financial statements. The amendments in this Update affect
all entities that issue share-based payment awards to their employees. The areas
for simplification in this Update involve several aspects of the accounting for
share-based payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and classification on
the statement of cash flows. The amendments eliminate the guidance in Topic 718
that was indefinitely deferred shortly after the issuance of FASB Statement No.
123 (revised 2004), Share-Based Payment. For public business entities, the
amendments in this Update are effective for annual periods beginning after
December 15, 2016, and interim periods within those annual periods. For all
other entities, the amendments are effective for annual periods beginning after
December 15, 2017, and interim periods within annual periods beginning after
December 15, 2018. Early adoption is permitted for any entity in any interim or
annual period. We are currently evaluating the impact of the adoption of ASU
2016-09 on our consolidated financial statements.
In April 2016, the FASB has issued ASU No. 2016-10 Topic 606,
Revenue from Contracts with Customers: Identifying Performance Obligations and
Licensing. The amendments in this Update do not change the core principle of
the guidance in Topic 606. Rather, the amendments in this Update clarify the
following two aspects of Topic 606: identifying performance obligations and the
licensing implementation guidance, while retaining the related principles for
those areas. The amendments in this Update clarify that contractual provisions
that, explicitly or implicitly, require an entity to transfer control of
additional goods or services to a customer (for example, by requiring the entity
to transfer control of additional rights to use or rights to access intellectual
property that the customer does not already control) should be distinguished
from contractual provisions that, explicitly or implicitly, define the
attributes of a single promised license (for example, restrictions of time,
geographical region, or use). The amendments in this Update affect the guidance
in Accounting Standards Update 2014-09, Revenue from Contracts with Customers
(Topic 606), which is not yet effective. We are currently in the process of
evaluating the impact of the adoption of ASU 2016-10 on our consolidated
financial statements.
20
In May 2016, the FASB has issued ASU No. 2016-12 Topic 606,
Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical
Expedients. The amendments in this Update add a project to its technical agenda
to improve Topic 606, Revenue from Contracts with Customers, by reducing: 1. the
potential for diversity in practice at initial application; 2. the cost and
complexity of applying Topic 606 both at transition and on an ongoing basis. The
amendments in this Update affect entities with transactions included within the
scope of Topic 606. The amendments in this Update affect the guidance in
Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers
(Topic 606), which is not yet effective. The effective date and transition
requirements for the amendments in this Update are the same as the effective
date and transition requirements for Topic 606 (and any other Topic amended by
Update 2014-09). We are currently in the process of evaluating the impact of the
adoption of ASU 2016-12 on our consolidated financial statements.
In June 2016, the FASB has issued ASU No. 2016-13 Topic 326,
Financial InstrumentsCredit Losses: Measurement of Credit Losses on Financial
Instruments. The amendments in this Update provide financial statement users
with more decision-useful information about the expected credit losses on
financial instruments and other commitments to extend credit held by a reporting
entity at each reporting date. To achieve this objective, the amendments in this
Update replace the incurred loss impairment methodology in current GAAP with a
methodology that reflects expected credit losses and requires consideration of a
broader range of reasonable and supportable information to inform credit loss
estimates. The amendments affect entities holding financial assets and net investment in
leases that are not accounted for at fair value through net income. The
amendments in this Update affect an entity to varying degrees depending on the
credit quality of the assets held by the entity, their duration, and how the
entity applies current GAAP. For public business entities that are U.S.
Securities and Exchange Commission (SEC) filers, the amendments in this Update
are effective for fiscal years beginning after December 15, 2019, including
interim periods within those fiscal years. For all other public business
entities, the amendments in this Update are effective for fiscal years beginning
after December 15, 2020, including interim periods within those fiscal years.
For all other entities, including not-for-profit entities and employee benefit
plans within the scope of Topics 960 through 965 on plan accounting, the
amendments in this Update are effective for fiscal years beginning after
December 15, 2020, and interim periods within fiscal years beginning after
December 15, 2021. We do not expect the adoption of ASU 2016-13 to have a
material impact on our consolidated financial statements.
In August 2016, the FASB has issued ASU No. 2016-15 Topic 230,
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash
Payments. The amendments in this Update provide guidance on the following eight
specific cash flow issues:(1) Debt Prepayment or Debt Extinguishment Costs;(2)
Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon
Interest Rates That Are Insignificant in Relation to the Effective Interest Rate
of the Borrowing;(3) Contingent Consideration Payments Made after a Business
Combination;(4) Proceeds from the Settlement of Insurance Claims;(5) Proceeds
from the Settlement of Corporate-Owned Life Insurance Policies, including
Bank-Owned Life Insurance Policies;(6) Distributions Received from Equity Method
Investees;(7) Beneficial Interests in Securitization Transactions;(8) Separately
Identifiable Cash Flows and Application of the Predominance Principle. The
amendments are an improvement to GAAP because they provide guidance for each of
the eight issues, thereby reducing the current and potential future diversity in
practice. The amendments in this Update are effective for public business
entities for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2018, and interim periods within
fiscal years beginning after December 15, 2019. We do not expect the adoption of
ASU 2016-15 to have a material impact on our consolidated financial statements.
21
NOTE 8 CONCENTRATIONS
(a)
Customers
For the three-month period ended September 30, 2016, the
Companys major customers, each of whom accounted for more than 10% of the
Companys consolidated revenue, were as follows:
|
|
Sales
|
|
|
Accounts Receivable
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
Major
Customers
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Kandi Electric Vehicles Group Co., Ltd.and
its subsidiaries
|
|
19%
|
|
|
70%
|
|
|
64%
|
|
|
55%
|
|
Jinhua Chaoneng Automobile Sales Co., Ltd.
|
|
56%
|
|
|
-
|
|
|
25%
|
|
|
-
|
|
Zhejiang Yongkang Dingji Imp.& Exp.
CO.,LTD.
|
|
24%
|
|
|
-
|
|
|
1%
|
|
|
-
|
|
For the nine-month period ended September 30, 2016, the
Companys major customers, each of whom accounted for more than 10% of the
Companys consolidated revenue, were as follows:
|
|
Sales
|
|
|
Accounts Receivable
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
Major
Customers
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Kandi Electric Vehicles Group Co., Ltd. and
its subsidiaries
|
|
55%
|
|
|
76%
|
|
|
64%
|
|
|
55%
|
|
Jinhua Chaoneng Automobile Sales Co. Ltd.
|
|
35%
|
|
|
-
|
|
|
25%
|
|
|
-
|
|
22
(b) Suppliers
For the three-month period ended September 30, 2016, the
Companys material suppliers, each of whom accounted for more than 10% of the
Companys total purchases, were as follows:
|
|
Purchases
|
|
|
Accounts Payable
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
|
Major
Suppliers
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Dongguan Chuangming Battery Technology Co.,
Ltd.
|
|
56%
|
|
|
26%
|
|
|
27%
|
|
|
15%
|
|
Zhuhai Enpower Electrical Limited
|
|
14%
|
|
|
-
|
|
|
6%
|
|
|
-
|
|
For the nine-month period ended September 30, 2016, the
Companys material suppliers, each of whom accounted for more than 10% of the
Companys total purchases, were as follows:
|
|
Purchases
|
|
|
Accounts Payable
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
|
Major
Suppliers
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Dongguan Chuangming Battery Technology Co.,
Ltd.
|
|
48%
|
|
|
17%
|
|
|
27%
|
|
|
15%
|
|
Zhejiang Tianneng Energy Technology Co., Ltd.
|
|
19%
|
|
|
24%
|
|
|
21%
|
|
|
24%
|
|
NOTE 9 EARNINGS PER SHARE
The Company calculates earnings per share in accordance with
ASC 260,
Earnings Per Share
, which requires a dual presentation of basic
and diluted earnings per share. Basic earnings per share are computed using the
weighted average number of shares outstanding during the reporting period.
Diluted earnings per share represents basic earnings per share adjusted to
include the potentially dilutive effect of outstanding stock options, warrants
and convertible notes (using the if-converted method). For the three months
ended September 30, 2016 and 2015, the average number of dilutive
common shares was 0 and 0, respectively. For the nine months ended September 30,
2016 and 2015, the average number of dilutive common shares was 0 and 274,744,
respectively. The potential dilutive common shares as of September 30, 2016 and
2015 were 4,900,000 and 949,419 shares respectively.
23
The following is the calculation of earnings per share for the
three-month periods ended September 30, 2016 and 2015:
|
|
For three months ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Net income
|
$
|
(565,941
|
)
|
$
|
2,343,195
|
|
Weighted average shares used in basic computation
|
|
47,695,290
|
|
|
46,959,638
|
|
Dilutive shares
|
|
-
|
|
|
-
|
|
Weighted average shares used in diluted computation
|
|
47,695,290
|
|
|
46,959,638
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
Basic
|
$
|
(0.01
|
)
|
$
|
0.05
|
|
Diluted
|
$
|
(0.01
|
)
|
$
|
0.05
|
|
The following is the calculation of earnings per share for the
nine-month periods ended September 30, 2016 and 2015:
|
|
For nine months ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Net income
|
$
|
2,315,659
|
|
$
|
13,900,350
|
|
Weighted average shares used in basic computation
|
|
47,436,418
|
|
|
46,670,533
|
|
Dilutive shares
|
|
-
|
|
|
274,744
|
|
Weighted average shares used in diluted computation
|
|
47,436,418
|
|
|
46,945,277
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
Basic
|
$
|
0.05
|
|
$
|
0.30
|
|
Diluted
|
$
|
0.05
|
|
$
|
0.30
|
|
24
NOTE 10 - ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Accounts receivable
|
$
|
40,805,693
|
|
$
|
8,136,421
|
|
Less: Provision for doubtful debts
|
|
-
|
|
|
-
|
|
Accounts receivable, net
|
$
|
40,805,693
|
|
$
|
8,136,421
|
|
NOTE 11 - INVENTORIES
Inventories are summarized as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Raw material
|
$
|
7,825,367
|
|
$
|
8,509,421
|
|
Work-in-progress
|
|
2,384,830
|
|
|
1,648,498
|
|
Finished goods
|
|
5,782,689
|
|
|
8,101,661
|
|
Total inventories
|
|
15,992,886
|
|
|
18,259,580
|
|
Less: provision for slowing moving
inventories
|
|
(472,910
|
)
|
|
(485,901
|
)
|
Inventories, net
|
$
|
15,519,976
|
|
$
|
17,773,679
|
|
NOTE 12 - NOTES RECEIVABLE
Notes receivable are summarized as follows:
|
|
September 30,
|
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Notes receivable as below:
|
|
|
|
|
|
|
Due September 30, 2016, interest at 7.2%
per annum
|
$
|
0
|
|
$
|
10,578,574
|
|
Bank acceptance notes
|
|
1,969,252
|
|
|
2,454,741
|
|
Notes receivable
|
$
|
1,969,252
|
|
$
|
13,033,315
|
|
Details of Notes Receivable as of September 30, 2016 are as
below:
25
Index
|
Amount ($)
|
Counter party
|
Relationship
|
Nature
|
Manner of
settlement
|
1
|
1,316,132
|
Kandi Shanghai
|
Subsidiary of the JV Company
|
Payments for sales
|
Not due
|
2
|
428,268
|
Hohhot Xinhui
Hengtong Automobile Trade Co. Ltd.
|
No relationship
beyond loan
|
Payments for
sales
|
Not
due
|
3
|
224,852
|
Kandi Electric Vehicles Group
Co., Ltd.
|
the JV Company
|
Payments for sales
|
Not due
|
Details of Notes Receivable as of December 31, 2015 are as
below:
Index
|
Amount ($)
|
Counter party
|
Relationship
|
Nature
|
Manner of settlement
|
|
|
|
|
|
|
1
|
10,578,574
|
Yongkang HuiFeng
Guarantee Co., Ltd
|
No
relationship beyond loan
|
Receive interest
income
|
Not due
|
2
|
1,871,332
|
Kandi Electric Vehicles Group Co.,
Ltd.
|
the JV Company
|
Payments for sales
|
Not due
|
3
|
59,744
|
Kandi Shanghai
|
Subsidiary of the JV
Company
|
Payments for sales
|
Not due
|
4
|
523,665
|
Zhuhai Enpower electrical Limited
|
No relationship beyond loan
|
Payments for sales
|
Not due
|
26
NOTE 13 PROPERTY, PLANT AND EQUIPMENT
Plant and equipment consisted of the following:
|
|
September
30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
At cost:
|
|
|
|
|
|
|
Buildings
|
$
|
13,512,024
|
|
$
|
13,883,211
|
|
Machinery and equipment
|
|
9,010,008
|
|
|
7,804,097
|
|
Office equipment
|
|
462,751
|
|
|
395,328
|
|
Motor vehicles
|
|
334,438
|
|
|
335,227
|
|
Moulds
|
|
27,394,924
|
|
|
32,931,740
|
|
|
|
50,714,145
|
|
|
55,349,603
|
|
Less : Accumulated depreciation
|
|
|
|
|
|
|
Buildings
|
$
|
(3,997,470
|
)
|
$
|
(3,755,582
|
)
|
Machinery and equipment
|
|
(8,492,712
|
)
|
|
(7,108,925
|
)
|
Office equipment
|
|
(251,069
|
)
|
|
(249,378
|
)
|
Motor vehicles
|
|
(280,502
|
)
|
|
(271,495
|
)
|
Moulds
|
|
(20,949,656
|
)
|
|
(23,385,363
|
)
|
|
|
(33,971,409
|
)
|
|
(34,770,743
|
)
|
Less: provision for impairment for fixed assets
|
|
(52,299
|
)
|
|
(53,734
|
)
|
Plant and equipment, net
|
$
|
16,690,437
|
|
$
|
20,525,126
|
|
As of September 30, 2016 and December 31, 2015, the net book
value of plant and equipment pledged as collateral for bank loans was $9,351,427
and $9,949,661, respectively.
Depreciation expenses for the nine months ended September 30,
2016 and 2015, was $3,370,032 and $4,036,771, respectively. Depreciation
expenses for the three months ended September 30, 2016 and 2015, was $1,106,755
and $1,317,383, respectively.
NOTE 14 LAND USE RIGHTS
The Companys land use rights consisted of the following:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Cost of land use rights
|
$
|
14,868,506
|
|
$
|
15,276,957
|
|
Less: Accumulated amortization
|
|
(2,525,602
|
)
|
|
(2,341,836
|
)
|
Land use rights, net
|
$
|
12,342,904
|
|
$
|
12,935,121
|
|
27
As of September 30, 2016 and December 31, 2015, the net book
value of land use rights pledged as collateral for the Companys bank loans was
$ 9,077,942 and $9,512,598, respectively. Also see Note 17.
The amortization expense for the nine months ended September
30, 2016 and 2015 was $249,742 and $290,559, respectively. The amortization
expense for the three months ended September 30, 2016 and 2015 was $95,906 and
$95,332, respectively. Amortization expense for the next five years and
thereafter is as follows:
2016 (three months)
|
$
|
83,247
|
|
2017
|
|
332,989
|
|
2018
|
|
332,989
|
|
2019
|
|
332,989
|
|
2020
|
|
332,989
|
|
Thereafter
|
|
10,927,701
|
|
Total
|
$
|
12,342,904
|
|
NOTE 15 - CONSTRUCTION-IN-PROGRESS
As of September 30, 2016, a total amount of advances to a
supplier of RMB 353,000,000, or $52,915,129, made by Kandi Hainan to Nanjing
Shangtong Nanjing Shangtong for equipment purchases was included in CIP. None of
the CIP was transferred to property, plant and equipment as of September 30,
2016. See also Note 6(g).
The government of Hainan Province is enforcing a new plan to
centralize the manufacturing in designated industry park, the Wanning facility
has been relocated from Wanning City to Haikou City. In addition, all related
expenses and assets disposal caused by the relocation were compensated by the
local government. Currently Hainan facility is under construction. It is
expected to be completed for production testing in the middle of 2017.
No depreciation is provided for CIP until such time as the
facility is completed and placed into operation.
The contractual obligation under CIP of the Company as of
September 30, 2016 is as follow:
Project
|
|
|
Total in CIP as of
September 30,
2016
|
|
|
Contracted but
not provided for
|
|
|
Total contract
amount
|
|
|
|
|
|
|
|
|
|
|
|
|
Kandi Hainan facility
|
|
$
|
57,094,373
|
|
$
|
16,189,331
|
|
$
|
73,283,704
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
57,094,373
|
|
$
|
16,189,331
|
|
$
|
73,283,704
|
|
As of September 30, 2016 and December 31, 2015, the Company had
CIP amounting to $57,094,373 and $54,368,753, respectively.
28
No interest expense has been capitalized for CIP as of
September 30, 2016 and 2015, respectively, as the Company did not get loans for
CIP.
NOTE 16 SHORT TERM BANK LOANS
Short-term loans are summarized as follows:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Loans from China Ever-bright Bank
|
|
|
|
|
|
|
Interest rate 4.698% per annum, renewed on October 21, 2016, secured by the assets of the Company, guaranteed by Mr. Hu Xiaoming and his wife, $6,295,851 due on April 21, 2017 and $5,396,444 due on April 20, 2017.
|
|
11,692,295
|
|
|
12,013,492
|
|
Loans from Hangzhou Bank
|
|
|
|
|
|
|
Interest rate 4.60% per annum, renewed on October 12, 2016, due on October 17, 2017, secured by the assets of the Company. Also see Note 14 and Note 15.
|
|
7,315,179
|
|
|
7,516,134
|
|
Interest rate 4.82% per annum, paid off on July 1, 2016, secured by the assets of the Company. Also see Note 14 and Note 15.
|
|
-
|
|
|
7,700,956
|
|
Interest rate 4.85% per annum, paid off on July 1, 2016, secured by the assets of the Company. Also see Note 14 and Note 15.
|
|
-
|
|
|
3,419,225
|
|
Interest rate 4.35% per annum, due on July 3, 2017, secured by the assets of the Company. Also see Note 14 and Note 15.
|
|
10,822,868
|
|
|
-
|
|
Interest rate 4.35% per annum, due on March 23, 2017, secured by the assets of the Company. Also see Note 14 and Note 15.
|
|
5,846,147
|
|
|
-
|
|
Interest rate 5.35% per annum, paid off on March 22, 2016, secured by the assets of the Company. Also see Note 14 and Note 15.
|
|
-
|
|
|
6,006,746
|
|
|
|
|
|
|
|
|
|
$
|
35,676,489
|
|
|
36,656,553
|
|
29
The interest expenses for the nine months ended September 30,
2016 and 2015 were $1,299,549 and $1,730,898, respectively. The interest
expenses for the three months ended September 30, 2016 and 2015 were $425,152
and $534,987, respectively.
As of September 30, 2016, the aggregate amount of short-term
loans that was guaranteed by various third parties was $0.
NOTE 17 NOTES PAYABLE
By issuing bank notes payables rather than paying cash to
suppliers, the Company can defer the payments until the date the bank notes
payable are due. Simultaneously, the Company may need to deposit restricted cash
in banks to back up the bank notes payable. The restricted cash deposited in
banks will generate interest income.
Notes payable as of September 30, 2016 and December 31, 2015
were summarized as follows:
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Bank acceptance notes:
|
|
|
|
|
|
|
Due May 12, 2016
|
$
|
-
|
|
$
|
2,310,287
|
|
Due June 17, 2016
|
|
-
|
|
|
1,540,191
|
|
Due November 16, 2016
|
|
2,248,518
|
|
|
-
|
|
Due December 23, 2016
|
|
428,268
|
|
|
-
|
|
Due March 22, 2017
|
|
416,725
|
|
|
|
|
Total
|
$
|
3,093,511
|
|
$
|
3,850,478
|
|
A bank acceptance note is a promised future payment or time
draft, which is accepted and guaranteed by a bank and drawn on a deposit at the
bank. The banker's acceptance specifies the amount of money, the date, and the
person to which the payment is due.
After acceptance, the draft becomes an unconditional liability
of the bank, but the holder of the draft can sell (exchange) it for cash at a
discount to a buyer who is willing to wait until the maturity date for the funds
in the deposit. $3,093,511 and $3,850,478 were held as collateral for the notes
payable as of September 30, 2016 and December 31, 2015, respectively.
NOTE 18 TAXES
(a) Corporation Income Tax
In accordance with the relevant tax laws and regulations of the
PRC, the applicable corporate income tax (CIT) rate for Kandis subsidiaries
are as below:
30
Company Name
|
Applicable Corporate Income Tax
|
Kandi Vehicles
|
15%
|
Kandi New Energy
|
25%
|
Yongkang Scrou
|
25%
|
Kandi Hainan
|
25%
|
JV Company
|
25%
|
The Company, qualified as a high technology company in China,
was entitled to pay a reduced CIT rate of 15%. After combining with the research
and development tax credit of 25% on certain qualified research and development
expenses, the final effective reduced income tax rate was 16.60% . The combined
tax benefits were 49.58% . The actual effective income tax rate was reduced from
25% to 12.60% in the third quarter of 2016.
According to the PRC CIT reporting system, the CIT sales
cut-off base is concurrent with the value-added tax (VAT), which should
reported to the State Administration of Taxation (SAT) on a quarterly basis.
Since the VAT and CIT are accounted for on a VAT tax basis that recorded all
sales on a State provided official invoices reporting system, the Company is
reporting the CIT according to the SAT prescribed tax reporting rules. Under the
VAT tax reporting system, sales cut-off is not done on an accrual basis but
rather on a VAT taxable reporting basis. Therefore, when the Company adopted
U.S. GAAP using an accrual basis, the sales cut-off CIT timing (due to the VAT
reporting system) creates a temporary sales cut-off timing difference. This
difference is reflected in the deferred tax assets or liabilities calculations
on the income tax estimate reported elsewhere on the report.
Effective January 1, 2007, the Company adopted ASC 740, Income
Taxes. The interpretation addresses the determination of whether tax benefits
claimed or expected to be claimed on a tax return should be recorded in the
financial statements.
Under ASC 740, the Company may recognize the tax benefit from
an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based on the
largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement. ASC 740 also provides guidance on
de-recognition, classification, interest and penalties on income taxes,
accounting in interim periods and requires increased disclosures. As of
September 30, 2016, the Company did not have a liability for unrecognized tax
benefits. The Company files income tax returns to the U.S. Internal Revenue
Services (IRS) and states where the Company has operations. The Company is
subject to U.S. federal or state income tax examinations by the IRS and relevant
state tax authorities for years after 2006. During the periods open to
examination, the Company has net operating loss carry forwards (NOLs) for U.S.
federal and state tax purposes that have attributes from closed periods. Since
these NOLs may be utilized in future periods, they remain subject to
examination. The Company also files certain tax returns in China. As of
September 30, 2016, the Company was not aware of any pending income tax
examinations by U.S. and China tax authorities. The Company's policy is to
record interest and penalties on uncertain tax provisions as income tax expense.
As of September 30, 2016, the Company has no accrued interest or penalties
related to uncertain tax positions. The Company has not recorded a provision for
U.S. federal income tax as of September 30, 2016 due to the net operating loss
in 2016 and an accumulated net operating loss carry forward from prior years in
the United States.
31
Income tax expense (benefit) for the nine months ended
September 30, 2016 and 2015 is summarized as follows:
|
|
For Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
(Unaudited)
|
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
Provision for CIT
|
$
|
2,925,100
|
|
$
|
3,175,287
|
|
Provision for Federal Income Tax
|
|
-
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
Provision for CIT
|
|
(2,608,702
|
)
|
|
-
|
|
Income tax expense (benefit)
|
$
|
316,399
|
|
$
|
3,175,287
|
|
The Companys income tax benefit (expense) differs from the
expected tax expense for the nine months ended September 30, 2016 and 2015
(computed by applying the U.S. Federal Income Tax rate of 34% and PRC CIT rate
of 25%, respectively, to income before income taxes) as follows:
|
|
For Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
(Unaudited)
|
|
|
|
2016
|
|
|
2015
|
|
Computed expected expense
|
$
|
3,638,048
|
|
$
|
(322,716
|
)
|
Favorable tax rate
|
|
(229,839
|
)
|
|
(880,016
|
)
|
Permanent differences
|
|
(69,203
|
)
|
|
280,798
|
|
Valuation allowance
|
|
(3,022,607
|
)
|
|
4,097,221
|
|
Income tax expense (benefit)
|
$
|
316,399
|
|
$
|
3,175,287
|
|
32
The tax effects of temporary differences that give rise to the
Companys net deferred tax assets and liabilities as of September 30, 2016 and
December 31, 2015 are summarized as follows:
|
|
September 30
,
|
|
|
December 31
,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
Current portion:
|
|
|
|
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
Expense
|
$
|
165,221
|
|
|
(272,953
|
)
|
Subtotal
|
|
165,221
|
|
|
(272,953
|
)
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
Sales cut-off difference
derived from Value Added Tax reporting system to calculate PRC Corporation
Income Tax in accordance with the PRC State Administration of Taxation
|
|
-
|
|
|
290,850
|
|
Other
|
|
(252,608
|
)
|
|
(2,392,821
|
)
|
Subtotal
|
|
(252,608
|
)
|
|
(2,101,971
|
)
|
|
|
|
|
|
|
|
Total deferred tax assets
(liabilities) current portion
|
|
(87,387
|
)
|
|
(2,374,924
|
)
|
|
|
|
|
|
|
|
Non-current portion:
|
|
|
|
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
Inventory
falling price reserves
|
|
70,936
|
|
|
-
|
|
Bad debt reserves
|
|
3,772
|
|
|
-
|
|
Depreciation
|
|
219,758
|
|
|
(353,115
|
)
|
Loss
carried forward
|
|
(3,022,607
|
)
|
|
7,645,386
|
|
Valuation allowance
|
|
3,022,607
|
|
|
(7,645,386
|
)
|
Subtotal
|
|
294,467
|
|
|
(353,115
|
)
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Long term deferred assets
|
|
(1,578,802
|
)
|
|
-
|
|
Accumulated other comprehensive gain
|
|
-
|
|
|
(1,240,467
|
)
|
Subtotal
|
|
(1,578,802
|
)
|
|
(1,240,467
|
)
|
|
|
|
|
|
|
|
Total deferred tax assets
non-current portion
|
|
(1,284,335
|
)
|
|
(1,593,582
|
)
|
|
|
|
|
|
|
|
Net deferred tax assets
(liabilities)
|
$
|
(1,371,722
|
)
|
|
(3,968,506
|
)
|
33
(b)
Tax Benefit (Holiday) Effect
For the nine months ended September 30, 2016 and 2015, the PRC
CIT rate was 25%. Certain subsidiaries of the Company were entitled to tax
benefit (holidays) for the nine months ended September 30, 2016 and 2015.
The combined effects of the income tax expense exemptions and
reductions available to the Company for the three and nine months ended
September 30, 2016 and 2015 were as follows:
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
(Unaudited)
|
|
|
|
2016
|
|
|
2015
|
|
Tax benefit
(holiday) credit
|
$
|
229,839
|
|
$
|
880,016
|
|
Basic net income per share
effect
|
$
|
0.005
|
|
$
|
0.019
|
|
NOTE 19 - STOCK OPTIONS AND WARRANTS
(a)
Stock Options
On May 29, 2015, the Compensation Committee of the Board of
Directors of the Company approved the grant of stock options to purchase
4,900,000 shares of common stock at an exercise price of $9.72 per share to the
Companys directors, officers and senior employees. The stock options will vest
ratably over three years and expire on the tenth anniversary of the grant date.
The Company valued the stock options at $39,990,540 and will amortize the stock
compensation expense using the straight-line method over the service period from
May 29, 2015 through May 29, 2018. The value of the options was estimated using
the Black Scholes Model with an expected volatility of 90%, expected life of 10
years, risk-free interest rate of 2.23% and expected dividend yield of 0.00%
.There was $13,885,604 stock compensation expense booked in the first three
quarters of 2016.
The fair value of the 4,900,000 options issued to the employees
and directors on May 29, 2015 is $8.1613 per share.
(b)
Warrants
We adopted the binomial tree valuation approach to estimate the
fair value of the warrant. In binomial tree valuation approach, it is assumed
that the life of the warrant(from Valuation Date to Expiration Date) is
typically divided into many steps(or nodes). In each step there is a binomial
stock price movement. With more steps, possible stock price paths are implicitly
considered. Valuation of warrant is performed iteratively, starting at each of
the final nodes (those that may be reached at the time of expiration), and then
working backwards through the tree towards the first node (valuation date). The
value computed at each stage is the value of the warrant at that point in time.
On June 26, 2013, the Company entered into a securities
purchase agreement (the 2013 Securities Purchase Agreement) with certain
institutional investors (the Third Round Investors) that closed on July 1,
2013, pursuant to which the Company sold to the Third Round Investors, in a
registered direct offering, an aggregate of 4,376,036 shares of the Companys
common stock at a negotiated purchase price of $6.03 per share. Under the 2013
Securities Purchase Agreement, the Third Round Investors also received Series A
warrants for the purchase of up to 1,750,415 shares of the Companys common
stock at an exercise price of $7.24 per share and an option to make an
additional investment in the form of Series B warrants and Series C warrants,
Series B warrants to purchase a maximum aggregate of 728,936 shares of the
Companys common stock at an exercise price of $7.24 per share and Series C
warrants to purchase a maximum aggregate of 291,574 shares of the Companys
common stock at an exercise price of $8.69 (the Third Round Warrants). As of
June 30, 2014, all the Third Round Warrants had been exercised on a cash basis.
In addition, the placement agent for this transaction also received warrants for
the purchase of up to 262,562 shares of the Companys common stock with an exercise price of
$7.24 per share (the Third Round Placement Agent Warrants). Based on the terms
of the warrants, they contain the downward ratchet protection and anti-dilution
terms, so the Company classified these warrants as liabilities on the balance
sheet. On July 1, 2016, the Third Round Placement Agent Warrants expired without
any exercise.
34
On January 15, 2014, the Company sold to certain institutional
investors warrants to purchase an aggregate of 1,429,393 shares of the Companys
common stock at an exercise price of $15 per share (the January 2014 Warrants)
for a total purchase price of approximately $14,294. According to the warrant
subscription agreement by and among the Company and the holders, the exercise
price was reduced by a credit of $0.01, which reflected the price per warrant
share paid in connection with the issuance of the January 2014 Warrants.
Consequently, the effective exercise price per warrant share is $14.99. Based on
the terms of the warrants, they contain the downward ratchet protection and
anti-dilution terms, so the Company classified these warrants as liabilities on
the balance sheet. The January 2014 Warrants expired on January 30, 2015 and no
investors exercised their warrants.
On March 19, 2014, the Company entered into a securities
purchase agreement with certain purchasers (the Fourth Round Investors),
pursuant to which the Company sold to the Fourth Round Investors, in a
registered direct offering, an aggregate of 606,000 shares of common stock, at a
negotiated purchase price of $18.24 per share, for aggregate gross proceeds to
the Company of approximately $11,053,440, before deducting fees to the placement
agent and other estimated offering expenses payable by the Company. As part of
the transaction, the Fourth Round Investors also received warrants for the
purchase of up to 90,900 shares of the Companys common stock at an exercise
price of $22.80 per share (the Fourth Round Warrants). In addition, the
placement agent for this transaction also received warrants for the purchase of
up to 36,360 shares of the Companys common stock at an exercise price of $22.80
per share, which was adjusted to $9.72 on July 27, 2015. The Fourth Round
Warrants have a term of eighteen months and are exercisable by the holders at
any time after the date of issuance. On August 8, 2015, the Company extended the
expiration date of these warrants from September 21, 2015 to January 20, 2016,
among these warrants, 44,783 shares were exercised in January 2016 and the rest
warrant shares were expired without exercise. Based on the terms of the
warrants, they contain the downward ratchet protection and anti-dilution terms,
so the Company classified these warrants as liabilities on the balance sheet.
On September 4, 2014, the Company entered in a securities
purchase agreement with certain purchasers (the Fifth Round Investors),
pursuant to which the Company sold to the Fifth Round Investors, in a registered
direct offering, an aggregate of 4,127,908 shares of its common stock at a price
of $17.20 per share, for aggregate gross proceeds to the Company of
approximately $71 million, before deducting fees to the placement agent and
other estimated offering expenses payable by the Company (the Fifth Round
Financing). As part of the transaction, the Fifth Round Investors also received
warrants for the purchase of up to 743,024 shares of the Companys common stock
at an exercise price of $21.50 per share (the Fifth Round Warrants), which was
adjusted to $9.72 on July 27, 2015. The Fifth Round Warrants have a term of
seventeen months and are exercisable by the holders at any time after the date
of issuance. On August 8, 2015, the Company extended the expiration date of
these warrants from February 4, 2016 to June 3, 2016, and as of now these
warrants were expired without any exercise. In addition, the placement agent for
this transaction also received warrants for the purchase of up to 206,395 shares
of the Companys common stock at an exercise price of $20.64 per share, which
was adjusted to $9.72 per share as the exercise price in December 2015 due to
its financial consulting service. The placement agents warrants are exercisable
for a term of seventeen months after six months from the issuance. Based on the
terms of the warrants, they contain the downward ratchet protection and
anti-dilution terms, so the Company classified these warrants as liabilities on
the balance sheet. On August 3, 2016, all the placement agent warrants were
expired without any exercise.
35
As of September 30, 2016 and December 31, 2015, the derivative
liability relating to the warrants issued to the investors and a placement agent
was $0 and $3,823,590, respectively. For the three and nine months ended
September 30, 2016, the gain related to changes in the fair value of derivative
liability relating to the warrants issued to the investors and a placement agent
was $10,692 and $3,823,590, respectively.
NOTE 20 STOCK AWARD
In connection with the appointment of Mr. Henry Yu as a member
of the Board of Directors (the Board), and as compensation, the Board
authorized the Company to provide Mr. Henry Yu with 5,000 shares of Company's
restricted common stock every six months, beginning in July 2011.
As compensation for having Mr. Jerry Lewin to serve as a member
of the Board, the Board authorized the Company to provide Mr. Jerry Lewin with
5,000 shares of Company's restricted common stock every six months, beginning in
August 2011.
As compensation for having Ms. Kewa Luo to serve as the
Companys investor relation officer, the Board authorized the Company to provide
Ms. Kewa Luo with 5,000 shares of Company's common stock every six months,
beginning in September 2013.
The fair value of stock awards based on service is determined
based on the closing price of the common stock on the date the shares are
approved by the board for grant. The compensation costs for awards of common
stock are recognized over the requisite service period of six months.
On December 30, 2013, the Board approved a proposal (as
submitted by the Compensation Committee) of an award (Boards Pre-Approved
Award Grant Sub-Plan under the 2008 Plan) for selected executives and other key
employees comprising a total of 335,000 shares of common stock for each fiscal
year, beginning with the 2013 fiscal year, under the Companys 2008 Omnibus
Long-Term Incentive Plan (the 2008 Plan), if the Companys Non-GAAP Net
Income for the current fiscal year increased by 10% comparing to that of the
prior year. The specific number of shares of common stock to be issued in
respect of such award could proportionally increase or decrease if the actual
Non-GAAP Net Income increase is more or less than 10%. Non-GAAP Net Income
means the Companys net income for a particular year calculated in accordance
with GAAP, excluding option-related expenses, stock award expenses, and the
effects caused by the change of fair value of financial derivatives. For
example, if Non-GAAP Net Income for the 2014 fiscal year increased by 10%
compared to the Non-GAAP Net Income for the 2013 fiscal year, the selected
executives and other key employees each would be granted his or her target
amount of common stock of the Company. If Non-GAAP Net Income in 2014 is less
than Non-GAAP Net Income in 2013, then no common stock would be granted. If
Non-GAAP Net Income in 2014 increased compared to Non-GAAP Net Income in 2013
but the increase is less than 10%, then the target amount of the common stock
grant would be proportionately decreased. If Non-GAAP Net Income in 2014
increased compared to Non- GAAP Net Income in 2013 but the increase is more than
10%, then the target amount of the common stock grant would be proportionately
increased up to 200% of the target amount. Any such increase in the grant would
be subject to the total number of shares available under the 2008 Plan, and the
Companys Board and shareholders will need to approve an increase in the number
of shares reserved under the 2008 Plan if the number of shares originally
reserved is used up. On May 20, 2015, the shareholders of the Company approved
an increase of 9,000,000 shares under the 2008 Plan at its annual meeting. The
fair value of each award granted under the 2008 Plan is determined based on the
closing price of the Companys stock on the date of grant of the award.
Stock-based compensation expense is calculated based on grant date fair value
and number of awards expected to be earned at the end of each quarter and
recognized in the quarter. In subsequent periods, stock-based compensation expense is
adjusted based on grant date fair value and the change of number of awards
expected to be earned. Final stock-based compensation expense for the year is
calculated based on grant date fair value and number of awards earned for the
year and recognized at the end of year. On September 26, 2016, the Board
approved to terminate the previous Boards Pre-Approved Award Grant Sub-Plan
under the 2008 Plan and adopted a new plan to reduce the total number of shares
of common stock of the stock award for selected executives and key employees
from 335,000 shares of common stock to 250,000 shares of common stock for each
fiscal year and the other term was as same as before. For the three months ended
September 30, 2016 and 2015, there were $4,003,250 of expense reversal and
$872,107 of employee stock award expense recognized under General and
Administrative Expenses, respectively. For the nine months ended September 30,
2016 and 2015, there were $0 and $4,296,060 of employee stock award expense
recognized under General and Administrative Expenses, respectively.
36
The stock award was below starting from 2013 based on the award
plan above:
Issue Date
|
For Year
|
Shares
|
May 22, 2014
|
2013
|
801,163
|
April 15, 2015 / June 12, 2015
|
2014
|
670,000
|
April 13, 2016
|
2015
|
670,000
|
37
NOTE 21 INTANGIBLE ASSETS
The following table provides the gross carrying value and
accumulated amortization for each major class of intangible assets other than
goodwill:
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
Remaining
|
|
|
2016
|
|
|
2015
|
|
|
|
useful life
|
|
|
|
|
|
|
|
Gross carrying amount:
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
5.25 years
|
|
$
|
492,235
|
|
$
|
492,235
|
|
Customer relations
|
|
5.25 years
|
|
|
304,086
|
|
|
304,086
|
|
|
|
|
|
|
796,321
|
|
|
796,321
|
|
|
|
|
|
|
|
|
|
|
|
Less : Accumulated
amortization
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
|
|
$
|
(224,128
|
)
|
$
|
(186,069
|
)
|
Customer relations
|
|
|
|
|
(138,458
|
)
|
|
(114,946
|
)
|
|
|
|
|
|
(362,586
|
)
|
|
(301,015
|
)
|
Intangible assets, net
|
|
|
|
$
|
433,735
|
|
$
|
495,306
|
|
The aggregate amortization expense for those intangible assets
that continue to be amortized is reflected in amortization of intangible assets
in the consolidated statements of income, and comprehensive income were $20,524
and $20,524 for the three months ended September 30, 2016 and 2015,
respectively, and $61,571 and $61,571 for the nine month period ended September
30, 2016 and 2015, respectively.
Amortization expense for the next five years and thereafter is
as follows:
2016 (three months)
|
$
|
20,524
|
|
2017
|
|
82,095
|
|
2018
|
|
82,095
|
|
2019
|
|
82,095
|
|
2020
|
|
82,095
|
|
Thereafter
|
|
84,831
|
|
Total
|
$
|
433,735
|
|
NOTE 22 SUMMARIZED INFORMATION OF EQUITY METHOD INVESTMENT
IN THE JV COMPANY
The Companys consolidated net income includes the Companys
proportionate share of the net income or loss of the Companys equity method
investees. When the Company records its proportionate share of net income in
such investees, it increases equity income (loss) net in the Companys
consolidated statements of income and the Companys carrying value in that
investment. Conversely, when the Company records its proportionate share of a
net loss in such investees, it decreases equity income (loss) net in the
Companys consolidated statements of income and the Companys carrying value in
that investment. All intra-entity profits and losses with the Companys equity
method investees have been eliminated.
38
Kandi Electric Vehicles Group Co., Ltd. (the JV Company)
In March 2013, pursuant to a joint venture agreement (the JV
Agreement) entered into between Kandi Vehicles and Shanghai Maple Guorun
Automobile Co., Ltd. (Shanghai Guorun), a 99%-owned subsidiary of Geely
Automobile Holdings Ltd. (Geely), the parties established Zhejiang Kandi
Electric Vehicles Co., Ltd. (the JV Company) to develop, manufacture and sell
electric vehicles (EVs) and related auto parts. Each of Kandi Vehicles and
Shanghai Guorun has 50% ownership interest in the JV Company. For JV Companys
better development, Zhejiang Geely Holding Group, the parent company of Geely,
became the direct holding company of the JV Company on October 26, 2016 by
completing the purchase of the 50% equity of the JV Company held by Shanghai
Guorun with a premium price, or a purchase price exceeding the cash amount of
the aggregate of the original investment and the shared profits over the years. In the fourth
quarter of 2013, Kandi Vehicles entered into an ownership transfer agreement
with the JV Company pursuant to which Kandi Vehicles transferred 100% of its
ownership in Kandi Changxing to the JV Company. As a result, the Company
indirectly has 50% economic interest in Kandi Changxing through its 50%
ownership interest in the JV Company after this transfer. In November 2013,
Zhejiang Kandi Electric Vehicles Jinhua Co., Ltd. (Kandi Jinhua) was formed by
the JV Company. The JV Company has 100% ownership interest in Kandi Jinhua, and
the Company, indirectly through its 50% ownership interest in the JV Company,
has 50% economic interest in Kandi Jinhua. In November 2013, Zhejiang JiHeKang
Electric Vehicle Sales Co., Ltd. (JiHeKang) was formed by the JV Company. The
JV Company has 100% ownership interest in JiHeKang, and the Company, indirectly
through its 50% ownership interest in the JV Company, has 50% economic interest
in JiHeKang. In December 2013, the JV Company entered into an ownership transfer
agreement with Shanghai Guorun pursuant to which the JV Company acquired 100%
ownership of Kandi Electric Vehicles (Shanghai) Co., Ltd. (Kandi Shanghai). As
a result, Kandi Shanghai is a wholly-owned subsidiary of the JV Company, and the
Company, indirectly through its 50% ownership interest in the JV Company, has
50% economic interest in Kandi Shanghai. In January 2014, Zhejiang Kandi
Electric Vehicles Jiangsu Co., Ltd. (Kandi Jiangsu) was formed by the JV
Company. The JV Company has 100% ownership interest in Kandi Jiangsu, and the
Company, indirectly through its 50% ownership interest in the JV Company, has
50% economic interest in Kandi Jiangsu. In addition, In July 2013, Zhejiang
ZuoZhongYou Electric Vehicle Service Co., Ltd. (the Service Company) was
formed. The JV Company had a 19% ownership interest in the Service Company. In
March 2014, the JV Company changed its name to Kandi Electric Vehicles Group
Co., Ltd. In August 2015, the JV Company transferred its shares of the Service
Company to Shanghai Guorun and Kandi Vehicles for 9.5% respectively. As the
result, the JV Company no longer has any ownership of the Service Company since
the transfer. In November 2015, Hangzhou Puma Investment Management Co., Ltd.
(Puma Investment) was formed by the JV Company. The JV Company has 50%
ownership interest in Puma Investment and the Company, indirectly through its
50% ownership interest in the JV Company, has 25% economic interest in Puma
Investment. In November 2015,Hangzhou JiHeKang Electric Vehicle Service Co.,
Ltd. (JiHeKang Service Company) was formed by the JV Company. The JV Company
has 100% ownership interest in JiHeKang Service Company and the Company,
indirectly through its 50% ownership interest in the JV Company, has 50%
economic interest in JiHeKang Service Company.
As of September 30, 2016, the JV Company consolidated the
following entities on its financial statements: (1) 100% interest in Kandi
Changxing; (2) 100% interest in Kandi Jinhua; (3) 100% interest in JiHeKang; (4)
100% interest in Kandi Shanghai; (5) 100% interest in Kandi Jiangsu; (6) 100%
interest in JiHeKang Service; and (7) 50% interest in Puma Investment. The
Company accounted for its investments in the JV Company under the equity method
of accounting as the Company has 50% ownership interest in the JV Company.
Therefore, the Companys consolidated net income for the three months and nine
months ended September 30, 2016, included equity income from the JV Company
during such periods.
The combined results of operations and financial position of
the JV Company are summarized below:
39
|
|
Three months ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Condensed income statement
information:
|
|
|
|
|
|
|
Net sales
|
$
|
11,688,178
|
|
$
|
98,447,939
|
|
Gross income
|
|
5,937,134
|
|
|
13,325,271
|
|
% of net sales
|
|
50.8%
|
|
|
13.5%
|
|
Net income
|
|
(426,797
|
)
|
|
1,611,658
|
|
% of net sales
|
|
-3.7%
|
|
|
1.6%
|
|
Companys equity in net
income of JV
|
$
|
(213,399
|
)
|
$
|
805,829
|
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Condensed income statement
information:
|
|
|
|
|
|
|
Net sales
|
$
|
122,959,660
|
|
$
|
197,965,282
|
|
Gross income
|
|
19,538,305
|
|
|
31,958,679
|
|
% of net sales
|
|
15.9%
|
|
|
16.1%
|
|
Net income
|
|
131,323
|
|
|
4,000,781
|
|
% of net sales
|
|
0.1%
|
|
|
2.0%
|
|
Companys equity in net
income of JV
|
$
|
65,662
|
|
$
|
2,000,390
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Condensed balance sheet
information:
|
|
|
|
|
|
|
Current assets
|
$
|
510,523,657
|
|
$
|
455,368,595
|
|
Noncurrent assets
|
|
186,074,593
|
|
|
191,145,583
|
|
Total assets
|
$
|
696,598,250
|
|
$
|
646,514,178
|
|
Current liabilities
|
|
475,158,369
|
|
|
429,487,683
|
|
Noncurrent liabilities
|
|
45,463,021
|
|
|
36,348,514
|
|
Equity
|
|
175,976,860
|
|
|
180,677,981
|
|
Total liabilities and equity
|
$
|
696,598,250
|
|
$
|
646,514,178
|
|
During the first three quarters of 2016, 100% of the JV
Companys revenues were derived from the sales of EV products in the PRC with a
total of 7,384 units sold, 2,153 units of which were direct sales through the
distribution company, JiHeKang, and the rest were sold for the Micro Public
Transportation Program (MPT or the EV-Share Program). As the Company only
has a 50% ownership interest in the JV Company and accounted for its investments
in the JV Company under the equity method of accounting, the Company didnt
consolidate the JV Companys financial results but included the equity income
from the JV Company during such periods.
40
Note: The following table illustrates the captions used in the
Companys Income Statements for its equity basis investments in the JV Company.
Changes in the Companys equity method investment in the JV
Company for the nine months ended September 30, 2016 and 2015 were as follows:
|
|
Nine Months ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Investment in JV Company,
beginning of the period,
|
$
|
90,337,899
|
|
$
|
83,309,095
|
|
Share of profit
|
|
65,662
|
|
|
2,000,390
|
|
Intercompany transaction
elimination
|
|
(270,113
|
)
|
|
(283,267
|
)
|
Year 2015 unrealized profit realized
|
|
1,076
|
|
|
183,005
|
|
Exchange difference
|
|
(2,412,569
|
)
|
|
(2,935,339
|
)
|
Investment in JV Company, end of the period
|
$
|
87,721,955
|
|
$
|
82,273,884
|
|
Sales to the Companys customers, the JV Company and its
subsidiaries, for the three months ended September 30, 2016 were $1,181,669 or
19% of the Companys total revenue, a decrease of 96.3% of the sales to the JV
Company from the same quarter last year. Sales to the Companys customers, the
JV Company and its subsidiaries, for the nine months ended September 30, 2016
were $62,125,458 or 55% of the Companys total revenue, a decrease of 41.6% of
the sales to the JV Company from the same period last year. The sales to the JV
Company and its subsidiaries were primarily the sales of battery packs, body
parts, EV drive motors, EV controllers, air conditioning units and other auto
parts, the breakdown of the sales to the JV Company and its subsidiaries is as
follows:
|
|
Three Months ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
JV Company
|
$
|
5,915,518
|
|
$
|
19,593,174
|
|
Kandi Changxing
|
|
(1,570,084
|
)
|
|
7,245,341
|
|
Kandi Shanghai
|
|
(3,300,932
|
)
|
|
5,061,218
|
|
Kandi Jinhua
|
|
(313
|
)
|
|
(10,965
|
)
|
Kandi Jiangsu
|
|
137,480
|
|
|
-
|
|
Total sales to JV
|
$
|
1,181,669
|
|
$
|
31,888,768
|
|
41
|
|
Nine Months ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
JV Company
|
$
|
60,920,788
|
|
$
|
19,593,174
|
|
Kandi Changxing
|
|
247,848
|
|
|
42,484,537
|
|
Kandi Shanghai
|
|
623,499
|
|
|
42,790,349
|
|
Kandi Jinhua
|
|
46,753
|
|
|
1,591,067
|
|
Kandi Jiangsu
|
|
286,570
|
|
|
-
|
|
Total sales to JV
|
$
|
62,125,458
|
|
$
|
106,459,127
|
|
As of September 30, 2016 and December 31, 2015, the net amount
due from the JV Company was $114,763,704 and $76,172,471, respectively, of which
the majority was the balances with the JV Company, Kandi Jinhua, Kandi
Changxing, Kandi Jiangsu and Kandi Shanghai. The breakdown is as below:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Kandi Shanghai
|
$
|
255,533
|
|
$
|
(4,488,379
|
)
|
Kandi Changxing
|
|
16,921,022
|
|
|
3,249,445
|
|
Kandi Jinhua
|
|
5,258,563
|
|
|
6,218,177
|
|
Kandi Jiangsu
|
|
287,955
|
|
|
11,453
|
|
JV Company
|
|
92,040,631
|
|
|
71,181,775
|
|
Consolidated JV
|
$
|
114,763,704
|
|
$
|
76,172,471
|
|
The amount due from the JV Company included a one-year
entrusted loan of $22,485,182 that Kandi Vehicle lent to the JV Company from
December 16, 2015 to June 15, 2016 and then extended to December 16, 2016
carrying an annual interest rate 8.7%, which will not be adjusted after the
withdrawal during the lending period. The loan was organized by Bank of
Communications Hangzhou Zhongan Branch as the agent bank between Kandi Vehicle
and the JV Company. Entrusted loans are commonly found in China, where direct
borrowing and lending between commercial enterprises are restricted.
NOTE 23 COMMITMENTS AND CONTINGENCIES
Guarantees and pledged collateral for third party bank
loans
As of September 30, 2016 and December 31, 2015, the Company
provided guarantees for the following third parties:
(1) Guarantees for bank loans
|
|
September 30,
|
|
|
December 31,
|
|
Guarantee provided to
|
|
2016
|
|
|
2015
|
|
Zhejiang Shuguang industrial
Co., Ltd.
|
|
4,347,135
|
|
|
4,466,555
|
|
Nanlong Group Co., Ltd.
|
|
2,998,024
|
|
|
3,080,383
|
|
Kandi Electric Vehicles Group
Co., Ltd.
|
|
48,717,895
|
|
|
50,056,216
|
|
Total
|
$
|
56,063,054
|
|
$
|
57,603,154
|
|
On March 15, 2013, the Company entered into a guarantee
contract to serve as the guarantor of Nanlong Group Co., Ltd. (NGCL) from
March 15, 2016 to March 15, 2018 for NGCL's loan amount of $2,998,024 from
Shanghai Pudong Development Bank Jinhua Branch with related loan period from
March 15, 2013 to March 15, 2016, which was extended to September 15, 2016. NGCL
is not related to the Company but it has provided guarantees for the Company in
the past due to industry customs. Under this guarantee contract, the Company
agreed to perform all obligations of NGCL under the loan contract if NGCL fails
to perform its obligations as set forth therein.
42
On July 20, 2015, the Company entered into a guarantee contract
to serve as the guarantor for the JV Company from July 20, 2016 to July 19, 2018
for the bank loans of $11,242,591 from Bank of China with related loan period
from July 22, 2016 to July 21, 2017. Under this guarantee contract, the Company
agreed to perform all obligations of the JV Company under the loan contract if
the JV Company fails to perform its obligations as set forth therein.
On September 29, 2015, the Company entered into a guarantee
contract to serve as the guarantor of Zhejiang Shuguang Industrial Co., Ltd.
(ZSICL) from September 29, 2015 to September 28, 2018 for the bank loan amount
of $4,347,135 from Ping An Bank with related loan period from September 29, 2015
to September 28, 2016. ZSICL is not related to the Company. Under this guarantee
contract, the Company agreed to perform all obligations of ZSICL under the loan
contract if ZSICL fails to perform its obligations as set forth therein.
On December 14, 2015, the Company entered into a guarantee
contract to serve as the guarantor for the JV Company from December 14, 2016 to
December 13, 2018 for the bank loans of $37,475,304 from China Import &
Export Bank with related loan period from December 14, 2015 to December 13,
2016. Under this guarantee contract, the Company agreed to perform all
obligations of the JV Company under the loan contract if the JV Company fails to
perform its obligations as set forth therein.
For the Company guarantee for NGCL and ZSIC, it is a common
practice that among companies in the region of the PRC in which the Company is
located to exchange guarantees for bank debts with no additional consideration
given. It is considered a favor for favor business practice and is commonly
required by Chinese lending banks. Now with Kandis creditability improvement in
the bank, the related banks have no requirement to ask the third party to
provide the company guarantee for Kandi, and the Company decides not to provide
new guarantee obligations to them accordingly in the proper time.
The Company was a party to enter into contracts to indemnify a
third party for certain liabilities, and as of September 30, 2016 and December
31, 2015, the Company guaranteed the third partys long-term loan from other
companies amounting to $56,063,054 and $57,603,154 that matured at various times
in 2018, as a guarantor. In most cases, the Company cannot estimate the
potential amount of future payments under these indemnities until events arise
that would result in a liability under the indemnities. The Company believes
that the liabilities for potential future payments of these guarantees and
indemnities are not probable.
(2) Pledged collateral for a third partys bank loans
As of September 30, 2016 and December 31, 2015, none of the
Companys land use rights or plant and equipment were pledged as collateral
securing bank loans to third parties.
NOTE 24 SEGMENT REPORTING
The Company has only one single operating segment. The
Companys revenue and long-lived assets are primarily derived from and located
in the PRC. The Company only has operations in the PRC.
43
The following table sets forth revenues by geographic area for
the nine months ended September 30, 2016 and 2015, respectively:
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Sales Revenue
|
|
|
Percentage
|
|
|
Sales Revenue
|
|
|
Percentage
|
|
Overseas
|
$
|
3,134,750
|
|
|
3%
|
|
$
|
3,380,570
|
|
|
2%
|
|
China
|
|
109,106,891
|
|
|
97%
|
|
|
138,892,521
|
|
|
98%
|
|
Total
|
$
|
112,241,641
|
|
|
100%
|
|
$
|
142,273,091
|
|
|
100%
|
|
The following table sets forth revenues by geographic area for
the three months ended September 30, 2016 and 2015, respectively:
|
|
Three Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Sales
Revenue
|
|
|
Percentage
|
|
|
Sales
Revenue
|
|
|
Percentage
|
|
Overseas
|
$
|
1,520,367
|
|
|
24%
|
|
$
|
1,436,398
|
|
|
3%
|
|
China
|
|
4,846,013
|
|
|
76%
|
|
|
49,092,147
|
|
|
97%
|
|
Total
|
$
|
6,366,380
|
|
|
100%
|
|
$
|
50,528,545
|
|
|
100%
|
|
NOTE 25 Related Party Transactions
The Board of Directors must approve all related party
transactions. All material related party transactions will be made or entered
into on terms that are no less favorable to the Company than can be obtained
from unaffiliated third parties.
The following table lists the sales to related parties (other
than the JV Company) for the three months ended September 30, 2016 and 2015:
|
|
September
30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Service Company
|
|
(26,490
|
)
|
|
-
|
|
Total
|
$
|
(26,490
|
)
|
|
-
|
|
(The above negative amount was the exchange loss due to Chinese
currency depreciation compared to US Dollar in the third quarter of 2016.)
The following table lists the sales to related parties (other
than the JV Company) for the nine months ended September 30, 2016 and 2015:
44
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Service Company
|
|
3,951,078
|
|
|
-
|
|
Total
|
$
|
3,951,078
|
|
|
-
|
|
The details for amount due from related parties (other than the
JV Company) as of the September 30, 2016 and December 31, 2015 were as below:
|
|
September
30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Service Company
|
|
10,916,700
|
|
|
40,606,162
|
|
|
|
|
|
|
|
|
Total due from related party
|
$
|
10,916,700
|
|
|
40,606,162
|
|
The Company has 9.5% ownership of the Service Company and
Mr.Hu, Chairman and CEO of the Company, has 13% ownership of the Service
Company. The main transactions between the Company and the Service Company is
that the Service Company needs to buy battery for the speed upgrade and also EV
parts for the repairing and maintenance for its operating electric vehicles.
For any transactions with JV Company, please refer to Note 22
for the details.
45