UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2014
or
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 001-33997
KANDI TECHNOLOGIES GROUP,
INC.
(Exact name of registrant as specified in its charter)
Delaware |
90-0363723 |
(State or other jurisdiction of incorporation |
(I.R.S. Employer Identification No.) |
or organization) |
|
Jinhua City Industrial Zone
Jinhua, Zhejiang
Province
People's Republic of China
Post Code
321016
(Address of principal executive offices) (Zip Code)
(86-579) 82239856
(Registrant's
telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, Par Value $0.001 Per Share |
NASDAQ Global Select Market
|
(Title of each class) |
(Name of exchange on which registered)
|
Securities Registered Pursuant to Section 12(g) of the Act:
None.
1
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
[_] No [X]
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Act.
Yes
[_] No [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
[X] No [_]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of
Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such
files).
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer [_] |
Accelerated
filer [X] |
Non-accelerated filer [_] |
Smaller reporting company [_] |
(Do not check if a smaller reporting company) |
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act).
Yes
[_] No [X]
The aggregate market value of voting common stock held by
non-affiliates of the registrant as of June 30, 2014, the last business day of
the registrant's second fiscal quarter, was approximately $400,034,259.
The number of shares of common stock outstanding as of March 9,
2015 was 46,284,855.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
2
TABLE OF CONTENTS
3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this Annual Report) contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These include statements about our expectations,
beliefs, intentions or strategies for the future, which we indicate by words or
phrases such as anticipate, expect, intend, plan, will, we believe,
our company believes, management believes and similar language. These
forward-looking statements are based on our current expectations and are subject
to certain risks, uncertainties and assumptions, including those set forth in
the discussion under Item 1, Business, Item 1A, Risk Factors and Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Our actual results may differ materially from results anticipated
in these forward-looking statements. We base our forward-looking statements on
information currently available to us, and we assume no obligation to update
them. In addition, our historical financial performance is not necessarily
indicative of the results that may be expected in the future and we believe such
comparisons cannot be relied upon as indicators of future performance.
Although we believe that the expectations reflected in the
forward looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.
4
PART I
Except as otherwise indicated by the context, references in
this Annual Report to we, us, our, Kandi, or the Company are to the
combined businesses of Kandi Technologies Group, Inc. and its subsidiaries.
Item 1. Business Introduction
Our Core Business
Before the year 2013, the Company had been mainly engaged in the design, production and distribution of the off-road vehicle products. Due to various market factors and the environment with positive government supports, starting from the year 2013, the Company gradually shifted its main focus towards the development on pure electric vehicles (which we refer to as “EVs” in this report). For the year ended December 31, 2014, the majority of the Company’s revenue and profit were generated from EV parts and EV products.
The Market for Electric Vehicles
Business Environment and Policy
Research and development of major EV technology projects in
China began in 2001. Driven by two central government five-year plans for
scientific and technological research as well as by the Olympics, World Expo and
the 1000 cars in 10 cities demonstration platform, the Chinese electric
automobile sector was officially born, which brings a positive basis for EV
business.
With the growing consumer demand for motor vehicles in China many cities are experiencing severe problems from environmental pollution. At the same time, with the lack of the efficient traffic planning, major Chinese cities are crippled by traffic congestion. Thus, major cities, such as Beijing, Shanghai, Guangzhou, Hangzhou, have begun to implement various policies restricting the purchase and usage of traditional cars. We expect that more cities will have no choices but to adopt similar policies in the future.
To improve the environment of the urban areas, the China Central Government, along with many municipalities, has been introducing numerous supporting policies that encouraged the usage and adoption of EVs, including subsidies, tax exemptions, special treatment of tag and license. Among these policies, the most significant development involved the availability of subsidies from central and local government for the sale of EVs. The process of receiving government subsidies is as follows: manufacturers receive central government subsidies through application and sell the EVs to local dealers at a discounted price, reflecting the deduction of the central government subsidy from the normal sale price. Local dealers then establish their retail price based upon the prevailing purchase price from the manufacturers, then deduct the local government subsidy from the retail price before selling the EVs to consumers. Through these steps, consumers receive both subsidies from the central and local governments when they purchase EVs.
Because the central and local government subsidies are disclosed to the public and all the subsidies are reviewed and verified by the respective governments, consumers know what subsidies they will receive along with the price they expect to pay for EVs. Therefore, even though dealers can sell vehicles at prices established at their discretion, programs are designed to assure that consumers receive the entire benefit from both subsidies. This allows for full disclosure for consumers in the costs associated with purchasing EVs, along with the added benefits of the respective subsidies.
Issues confronting the market
Although the basis for the EV industry in China has already been established, the development of Chinese EV industry is still ongoing due to five major obstacles towards extensive commercialization of EVs and the full development of the EV market in China, These obstacles include the comparatively higher cost of EVs, compared with traditional automobiles, the shorter driving range between battery charges, long charging times for standard EV batteries, the limited infrastructure of EV charging facilities, and EV battery attenuation and maintenance.
5
Our Solutions and Growth Strategy
To resolve these key market issues, given the economic and population growth in China, we believe there is an opportunity for a new business model. Kandi has been advocating, and through the Service Company, as defined below, implemented the “Micro Public Transportation” model, or MPT (the “EV-Share Program”), which provides a shared pure EV transportation platform that has not been previously afforded to urban residents. While it is less expensive than standard taxis. MPT is designed as a new business model for public transportation that maximizes the advantages of our existing EV products and technologies, and further stimulates the expansion of the EVs markets to urban communities. Since its inception, the “Micro Public Transportation” model has made impressive progress, and received great recognition and support from government officials, the end users, and our business partners throughout of China. In order to smoothly move the MPT concept forward, Kandi Electric Vehicles Group Co., Ltd., our 50/50 joint venture with Geely Automobile Holdings Ltd. ( the “JV Company”) participated in the establishing of Zhejiang ZuoZhongYou Electric Vehicle Service Co., Ltd. (the “Service Company”), of which the JV Company has a 19% of ownership interest. As of the end of 2014, the EV-Share Program had been launched, through the Service Company, in nine cities including Hangzhou, Shanghai, Chengdu, Nanjing, Guangzhou, Wuhan, Changsha, Changzhou and Rugao.
Today, cities in China face four critical challenges in the traffic environment, including pollution, traffic congestion, insufficient parking space and growing scarcity of energy supplies, which are mainly the result of ever growing volume of gas-powered automobiles. One solution to solve these problems is to create cleaner and more affordable public transportation to urban residents. Currently, subway and bus transport are the most abundant public transportation options available. In this regard, the Company advocates the EV-Share Program to reduce the total number of private cars in use, which will improve environmental conditions, ease traffic congestion, alleviate parking availability, and reduce the reliance and use of fossil fuels.
Besides the zero-emission benefit, the EV-Share Program combines the advantages of city taxis, resident vehicular transport, rental cars and traditional mass transportation, along with the benefits of the availability of the vertical automatic charging/parking garage and the street-level service stations. It is a seamless transportation tool in all dimensions for urban public transportation, designed to greatly improve the efficiency of urban EV usage, while easing traffic congestion, allowing for greater parking resources. Additionally, it will likely to promote the fast adoption of the pure EVs among Chinese consumers as MPT enables consumers to rent pure EVs on a short-term hourly base or lease them on the long-term base, without concerns on the costs and issues associated with owning and maintaining EVs individually.
The EV-Share Program is supported by a network of charging/parking stations, which provides charging, maintenance and battery recycling facilities. The stations locate at airports, train stations, hotels, business centers, selected residential areas and other strategic locations close to city public transportation network . A centralized tracking system allows the service provider of EV-Share Program to keep a close watch at the status and precise location of each vehicle. In addition to the short-term rental and long term leasing options to consumers described above, the Service Company also offers long-term leasing options to large enterprises, government entities and residential communities so they can use pure EVs for extended periods of time (the “Long-term Leasing Program”). In 2014, we have greatly benefited from the success of various MPT initiatives in China, especially the short-term hourly rental and the Long-term Leasing Program.
6
Our Organizational Structure
The Company was incorporated under the laws of the State of
Delaware on March 31, 2004. The Company changed its name from Stone Mountain
Resources, Inc. to Kandi Technologies, Corp. on August 13, 2007. On December 21,
2012, the Company changed its name to Kandi Technologies Group, Inc.
Headquartered in the Jinhua city, Zhejiang Province, China, the Company’s primary business operations are the design, development, manufacturing and commercialization of electric vehicles, electric vehicle parts and off-road vehicles, which are distributed in China 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. As part of its strategic objective to become a leader in EV market in China, the Company focuses on fuel efficient, pure EV parts manufacturing with a particular emphasis on expanding its market share in China.
The Company's organizational chart is as follows:
* The box with dotted-line border represents the entity that
has ceased operation and was dissolved in July 2014.
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). Kandi New Energy currently holds
vehicle production rights (license) on manufacturing Kandi brand electric
utility vehicles (Special-purpose Vehicles) and the production rights (license) on manufacturing battery packs used in Kandi
brand EVs.
Jinhua Three Parties New Energy Vehicles Service Co., Ltd.
(Jinhua Service) was formed as a joint venture, by and among our wholly-owned
subsidiary, Kandi Vehicles, the State Grid Power Corporation and Tianneng Power
International. The Company, indirectly through Kandi Vehicles, had a 30%
ownership interest in Jinhua Service. As of September 30, 2014, Jinhua Service
ceased its operations and was dissolved.
In April 2012, pursuant to a share exchange agreement, the
Company acquired 100% of Yongkang Scrou Electric Co, Ltd. (Yongkang Scrou), a
manufacturer of parts for automobile and electric vehicle, including EV drive
motors, EV controllers, air conditioners and other electrical products.
As a part of our EV business strategy, we believe we need more
production resources to timely and efficiently satisfy the market demands. 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 EVs and related auto parts,
and to invest in other companies with related or similar business. Each of Kandi
Vehicles and Shanghai Guorun has a 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.
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 EVs. In the fourth quarter of 2013, Kandi Vehicles entered into an ownership
transfer agreement with 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 a 50% economic interest in Kandi Changxing.
7
In April 2013, Kandi Electric Vehicles (Wanning) Co., Ltd.
(Kandi Wanning) was formed in Wanning City of Hainan Province by Kandi
Vehicles and Kandi New Energy. Kandi Vehicles has a 90% ownership in Kandi
Wanning, and Kandi New Energy has the remaining 10% interest. However, by
contract, Kandi Vehicles is, effectively, entitled to 100% of the economic
benefits, voting rights and residual interests (100% profits and losses) of
Kandi Wanning. Hainan Province is planned as an international tourism island by
the Chinese government and there is a high possibility that all non-EV vehicles
will be banned from use within the province. Therefore, the Company believes EV
business has a great potential growth rate in Hainan province. To capture this
opportunity, the Company signed an agreement with Wanning city government and
invested a total of RMB 1 billion to develop a factory in Wanning with an annual
production of 100,000 EVs. Currently, this project is expected to launch its
trial production by 2015.
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 including the EV-Share Program. The JV Company has a 19% ownership interest in the Service Company. The Company, indirectly through its 50% ownership interest in the JV Company, has a 9.5% economic interest in the Service Company.
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 a 50% economic interest in Kandi
Jinhua. According to the terms of the JV Agreement, except the JV Company and
its subsidiaries, Kandi Vehicle and its subsidiaries are not allowed to
manufacture pure EVs. However, Kandi New Energy holds the production rights
(license) on manufacturing of Special-purpose Vehicles. Therefore, it is
necessary to establish Kandi Jinhua, which is in charge of the Special-purpose
Vehicle business and entitles to use Kandi New Energys Special-purpose Vehicle
production rights (license).
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 a
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 a 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 a 50% economic interest in Kandi
Jiangsu.
Our Products
General
For the years ended December 31, 2014, 2013 and 2012, our
products include EV parts, EV products, and off-road vehicles including ATVs,
utility vehicles (UTVs), go-karts, and others. According to our market
research on consumer demand trends, we have adjusted our production line
strategically and continued to develop and manufacture new EV products in an
effort to meet market demands and better serve our customers.
8
|
|
Year Ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
|
Unit |
|
|
Sales |
|
|
Unit |
|
|
Sales |
|
|
Unit |
|
|
Sales |
|
EV parts |
|
102,236 |
|
$ |
116,431,310 |
|
|
51,588 |
|
$ |
1,724,031 |
|
|
93,881 |
|
$ |
3,517,237 |
|
EV products |
|
3,758 |
|
|
33,978,619 |
|
|
4,694 |
|
|
46,619,203 |
|
|
3,915 |
|
|
19,034,936 |
|
Off-Road Vehicles |
|
25,746 |
|
|
19,819,078 |
|
|
55,516 |
|
|
46,192,811 |
|
|
50,252 |
|
|
41,961,497 |
|
Total |
|
131,740 |
|
$ |
170,229,006 |
|
|
111,798 |
|
$ |
94,536,045 |
|
|
148,048 |
|
$ |
64,513,670 |
|
EV Parts
During the year ended December 31, 2014, our revenues from the sale of EV parts were $116,431,310. We sold our EV parts mostly to the JV Company for manufacturing of the EV products. We started the EV parts business to the JV Company in the first quarter of 2014 and achieved significant growth during the year. Among the total EV parts sales to the JV Company for the year ended December 31, 2014, approximately 83% or the majority of the sales were related to the sales of battery packs. Due to various Chinese auto industry regulations, we hold the necessary production license to manufacture battery packs to be exclusively used in the EVs manufactured by the JV Company under the Kandi brand. Approximately 6% of the sales were related to the sales of EV controllers. Approximately 5% of the sales were related to the sales of air conditioning units. Approximately 4% of the sales were related to the sales of EV drive motors, and the remaining 2% were related to the sales of body parts and other auto parts.
EV Products
We continued to sell EV products during the year of 2014. Our revenues from the sale of EV products for the fiscal year of 2014 were $33,978,619, a decrease of $12,640,584 or 27.1% from $46,619,203 for the year ended December 31, 2013, representing a 19.9% of reduction in unit sales. The decrease in the sales volume was due to a JV Agreement signed in 2013 which required us to gradually transfer our EVs production and distribution business to the JV Company.
Off-Road Vehicles
During the year ended December 31, 2014, our revenues from the
sale of the off-road vehicles declined by $26,373,733, or 57.1%, to $19,819,078
from $46,192,811 for the year ended December 31, 2013, The decrease was
primarily due to the rearrangement of our product portfolio for more efficient
use of resources to capture more sales opportunities in the fast-growing EV
market in China.
The following table shows the breakdown of Kandi's revenues
from its customers by geographic markets:
9
|
|
Year Ended December 31 |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
|
Sales Revenue |
|
|
Percentage |
|
|
Sales Revenue |
|
|
Percentage |
|
|
Sales Revenue |
|
|
Percentage |
|
North America |
$ |
2,900,789 |
|
|
2% |
|
$ |
6,906,807 |
|
|
7% |
|
$ |
7,243,257 |
|
|
11% |
|
Europe and other regions |
|
5,729,035 |
|
|
3% |
|
|
2,394,948 |
|
|
3% |
|
|
1,639,990 |
|
|
3% |
|
China |
|
161,599,182 |
|
|
95% |
|
|
85,234,290 |
|
|
90% |
|
|
55,630,423 |
|
|
86% |
|
Total |
|
170,229,006 |
|
|
100% |
|
|
94,536,045 |
|
|
100% |
|
|
64,513,670 |
|
|
100% |
|
Recent Development Activities
In November 2014, SMA7002BEV05, the first Mid-tier Luxury Pure
Electric Vehicle developed by JV Company was approved by the Ministry of Industry
and Information Technology of the People's Republic of China ("MIIT") according
to No. 69 public announcement of MIIT. The SMA7002BEV05 model is among the
latest vehicles on the lists of the approved vehicle products (MITT No. 266)
and the recommended models for energy saving & new energy vehicle
demonstration and promotion in China (MITT No. 63). As a result, purchasers of
such EV will now be the ultimate beneficiaries to receive all levels of national
and local subsidies and incentives. The approval of SMA7002BEV05 is an
indication of our beginning to enter the field of the middle and high level pure
vehicle products. We believe that our diversified products will meet the
market's growing demands and secure our leading position in manufacturing pure
electric vehicle products in China.
In December 2014, Kandi Vehicles signed a purchase contract
with Zhejiang Tianneng Energy Technology Co, Ltd ("Tianneng Energy Technology")
for a one-year supply of TNL-ITR18650-2200P lithium batteries starting in
January 2015. Kandi Vehicle's purchase amount is committed to be no less than
RMB 260 million or approximately $42.6 million in 2015. Management believes
Tianneng Energy Technology's lithium battery is a great addition and will help
Kandi to achieve a better performance for EVs.
As of the end of 2014, our EV-Share Program has been expanded to 9 cities including Hangzhou, Shanghai, Chengdu, Nanjing, Guangzhou, Wuhan, Changsha, Changzhou, and Rugao. This program is an innovative business model aimed at promoting and popularizing the use of EVs in China. Since its inception, the program has generated significant public interest, and received key recognitions and endorsements from consumers as well as the government agencies. It also includes a variety of the Long-term Leasing Program, ideal for those companies, government entities and residential communities. As of the end of 2014, there had been a total of 14,398 Kandi EVs delivered to our customers. Leveraging the success of the EV-Share Program, Kandi has built a solid foundation to be recognized as the one of the leaders in the pure EV market in China.
On January 14, 2015, we announced that the first 60 Kandi Brand EVs were delivered to launch an innovative EV business model, which we called “Mini Police Car” Program. The EVs are the first time used by Hangzhou Uptown Public Security Bureau to facilitate performance of community safety patrols, population permit patrols, fire safety inspections, as well as other police duties. The Mini Police Car offers the advantage for police to quick access into these congested areas and small alleyways to carry out its duties. Kandi equips these EVs with the necessary police equipment, firefighting apparatuses, emergency kits, and other related equipment. In addition to our successful EV sharing program catering to average Chinese consumers, we hope to explore more EV growth opportunities in the area of fleet sales and leasing to large business and government entities in China in the future.
From January 23 to 25, 2015, the 2014 Global New Energy Auto Conference was held in Tianjin China. More than 700 people attended this conference, including government officers, scholars, auto industry experts, ecommerce companies, electric vehicles users, industry investors, technical development personnel, media and others. During the conference, Mr. Hu Xiaoming, our Chairman and CEO, was granted the sole award for “Innovator of Annual Green Auto ”.
10
On January 31 2015, Mr. Hu Xiaoming, our Chairman and CEO, visited Shenzhen Chuangming Battery Technology Co., LTD. (“Chuangming”), which engages in research and development, production and distribution in the field of Lithium ion battery. Both parties had a friendly detailed discussion on how to apply the high performance battery No. 18650 from Chuangming on Kandi’s EVs and align with the intention of cooperation. The visit for Mr. Hu is to seek the partner for high performance battery for Kandi’s EV products, and secure the supply of EV’s battery for future mass EVs production.
On February 15, 2015, the management of the JV Company made a decision to add the direct-selling operation to its business for the sale of pure EVs, in addition to the current fleet sale model. The JV Company has made good progress in selling EV products to the Service Company, which operates various leasing options including short-term rental and the Long-term Leasing Program. We believe the EV-Share Program will continue to be the main business growth driver for the JV Company. Meanwhile, in line with the growing direct market demand from end users, the JV Company will begin to explore direct selling option. A new pure EV product, JL7001BEV03, or Cyclone, developed by the JV Company will be mainly directly sold to the end users. Up to date, Cyclone has passed the required technical inspection and tests from various regulated agencies in China, including National Passenger Car Quality Supervision and Inspection Centre. The Company also filed the final application of the product public announcement with China’s MIIT and expect the application to be approved within the next two months. “Cyclone” is a five-door, four-seat vehicle equipped with a newly developed triple element lithium ion battery, with a comfortable seating area and reliable safety conditions. Cyclone utilizes a central control system that features both touch screen and conventional buttons, and it has also achieved multiple domestic automobile leading standards. The participated launch of Cyclone will further strengthen the leading position of the JV Company in the new energy automobile industry. As the JV Company gears up to sell EVs direct to end users this year, we believe that the JV Company will have great advantages in both fleet sales and direct sales markets.
Sales and Distribution
The Company has three main products: electric vehicle products, electric vehicle parts and off-road vehicles in year 2014. According to the JV Agreement with Geely, we will be gradually transferring the production of the EV products to the JV Company, and continue to share the 50% economic benefits share from the JV Company. Besides EVs, Kandi focuses on the design, production and distribution of EVs parts, which has demonstrated significant growth in 2014. Additionally, Kandi still continued to produce and sell the off-road vehicles, which is our traditional products.
Customers
As of December 31, 2014, our major customers, in the aggregate,
accounted for 71% of our sales. Currently, the Company is developing new
business partners and clients for our products to reduce our dependence on
existing customers and focusing the new business development efforts on our pure
EV business.
The Company's major customers, each of whom accounted for more
than 10% of our consolidated revenue, were as follows:
11
|
|
Sales |
|
|
Accounts Receivable and Amount Due from JV Company,
Net (1) |
|
|
|
Year |
|
|
Year |
|
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
December, |
|
|
December, |
|
|
December, |
|
|
December |
|
|
December |
|
|
December |
|
|
|
31, |
|
|
31, |
|
|
31, |
|
|
31, |
|
|
31, |
|
|
31, |
|
Major Customers |
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Kandi Electric Vehicles (Changxing) Co.,
Ltd. |
|
38% |
|
|
- |
|
|
- |
|
|
17% |
|
|
- |
|
|
- |
|
Kandi Electric Vehicles (Shanghai) Co., Ltd. |
|
23% |
|
|
- |
|
|
- |
|
|
16% |
|
|
- |
|
|
- |
|
Shanghai Maple Auto Co., Ltd. |
|
10% |
|
|
23% |
|
|
- |
|
|
3% |
|
|
47% |
|
|
- |
|
|
(1) |
The balance at December 31, 2014 didnt include the
one-year entrusted loan of $24,376,371 that Kandi Vehicle lent to the JV
Company. |
Sources of Supply
All the raw materials are purchased from the suppliers. The
major parts of our products are mainly manufactured by Kandi. Other components
and parts that are needed are purchased from third-party suppliers. Kandi does
not have, and does not anticipate having, any difficulty in obtaining required
materials from its suppliers. In reaching this determination, we considered our
current contracts and our current business relationships with our suppliers.
The Company's material suppliers, each of whom accounted for
more than 10% of our total purchases, were as follows:
|
|
Purchases |
|
|
Accounts Payable |
|
|
|
Year |
|
|
Year |
|
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
December, 31, |
|
|
December, 31, |
|
|
December, 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
Major Suppliers |
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Zhejiang New Energy Auto System Co., Ltd. |
|
31% |
|
|
33% |
|
|
26% |
|
|
12% |
|
|
12% |
|
|
- |
|
Shandong Henyuan New Energy Tech Co., Ltd. |
|
25% |
|
|
- |
|
|
- |
|
|
32% |
|
|
- |
|
|
- |
|
Zhongju (Tianjin) New Energy Investment
Co., Ltd. |
|
11% |
|
|
- |
|
|
- |
|
|
29% |
|
|
- |
|
|
- |
|
12
Competitors
Our EV business faces the competition from two parts, one is the competition with traditional vehicles and the other is the competition from other EVs manufacturers.
In terms of the competition with the traditional vehicle manufacturers, many competitors are larger and have greater financial resources. But the traditional automobile companies face many urban traffic challenges, including urban pollution, traffic congestion, insufficient parking space and energy crisis., which gives us great opportunities for EVs’ development. The government grants great support and issues favorable policies to promote EVs development, which is a clear evidence for EVs growth. We believe electric vehicle industry in China has many years of great potential growth ahead.
Within electric vehicle market itself, the competitions are fierce as we have to compete with many domestic and global EV manufactures with greater brand recognition and financial resources. However, being one of the earliest companies to engage in the research, production and distribution of electric vehicles, we believe we have the advantage on the technology, innovation on the vehicle business operation and distribution channel. In particular, the innovative EV-Share Program, or MPT model we have been advocating, is different from our competitors’ offering, and has been well received by the government and the end users. This business model, along with our continuous efforts on research and development as well as strategic alliance, shall help us to build competitive advantages over other EV manufacturers.
Intellectual Property and Licenses
Our success depends, at least in part, on our ability to
protect our core technology and intellectual property. We rely on a combination
of patents, patent applications, trademarks, copyright and trade secret
protection laws in China and other jurisdictions, as well as confidentiality
procedures and contractual provisions to protect our intellectual property and
our brand. As of December 31, 2014, we had 26 issued patents, 2 issued software
copyrights and 6 pending patent applications with Chinese patent authority
related to electrical vehicle products, electrical vehicle parts and off-road
vehicle products. Under the PRC Patent Law, an invention patent is valid for a
term of 20 years and a utility or design patent is valid for a term of 10 years.
Our patents are valid for 10 years. In addition, we are authorized to use the
trademark of Kandi and we are the owner of the trademark of JASSCOL. We
intend to continue to file additional patent applications with respect to our
technology.
Employees
As of December 31, 2014, excluding the contractors, Kandi had a
total of 516 full-time employees as compared to 430 full-time employees on
December 31, 2013, of which 328 employees are production personnel, 14 employees
are sales personnel, 44 employees are research and development personnel, and
130 employees are administrative personnel. None of our employees are covered by
collective bargaining agreements. We consider our relationships with our
employees to be good. We also employ consultants on an as needed basis.
Pure Electric Vehicles Subsidies
Currently, there are two subsidies from central and local governments for the pure EVs in China – one from each of the central and local governments. The ultimate beneficiary for these subsidies is the consumer and the actual prices that consumers pay reflect the deduction of both subsidies.
a) The central government provides a subsidy to manufacturers
paid in advance quarterly upon application and approval and settled annually.
After selling product to dealers, manufacturers can submit subsidy payment
applications with invoices and other supporting documents at the end of each
quarter to the requisite central government agencies through their regional
offices. After the review and approval by the agencies, the central government
makes advance subsidy payments to the manufacturers. At the end of the year, the
final subsidy amounts are verified, reconciled according to the number of
vehicles actually sold to consumers and settled on an annual basis.
b) Pursuant to the requirement of the central government, the
local governments provide a subsidy to consumers who purchase EVs by a price
reduction from the dealer. After the consumer purchases an EV at a reduced
selling price from the dealer, the dealer submits a subsidy application to the
local government, including a consumer authorization letter for subsidy
application, consumer personal I.D., EV Vehicle License, EV purchase invoice
and other required documents and requests reimbursement (to the dealer) for the
local government subsidy.
13
Environmental and Safety Regulation
Emissions
Our products are all subject to international laws and
emissions related regulations, including regulations and related standards
established by China Environmental Protection Agency, the United States
Environmental Protection Agency (EPA), the California Air Resources Board
(CARB), Europe and Canada.
All Kandi's products comply with all applicable emissions
standards and regulations in China Environmental Protection Agency, the United
States and internationally, the California Air Resources Board (CARB), Europe
and Canada. However, we are unable to predict the ultimate impact of standards
and regulations adopted in the future or proposed regulations on Kandi and its
business.
Use regulation
The sale and use of products must be subject to the "Traffic
Law" and relevant laws & regulations in China. National, State, and federal
laws and regulations have been promulgated, or are under consideration, that
impact the use or manner of use of Kandi's products. Certain states and local
authorities have adopted, or are considering the adoption of, legislation and
local ordinances which restrict the use of ATVs and off-road vehicles to
specified hours and locations. The federal government also has restricted the
use of ATVs and off-road vehicles in some national parks and federal lands. In
several instances, the restriction has been a complete ban on the recreational
use of these vehicles. Kandi is unable to predict the outcome of such actions or
the possible effect on its business. Kandi believes that its off-road vehicle
business would be no more adversely affected than those of its competitors by
the adoption of any such pending laws or regulations.
Product Safety and Regulation
Safety Regulation
The U.S. federal government and individual states have adopted,
or are considering the adoption of, laws and regulations relating to the use and
safety of Kandi's products. The federal government is the primary regulator of
product safety. The Consumer Product Safety Commission (CPSC) has federal
oversight over product safety issues related to ATVs and off-road vehicles. The
National Highway Transportation Safety Administration (NHTSA) has federal
oversight over product safety issues related to on-road motorcycles.
In August 2008, the Consumer Product Safety Improvement Act
(the Act) was passed. The Act requires all manufacturers and distributors who
import into or distribute ATVs within the United States to comply with the
ANSI/SVIA safety standards, which were previously voluntary. The Act also
requires the same manufacturers and distributors to have ATV action plans filed
with the CPSC that are substantially similar to the voluntary action plans that
were previously in effect. Kandi currently complies with the ANSI/SVIA
standards.
Kandi's motorcycles are subject to federal vehicle safety
standards administered by NHTSA. Kandi's motorcycles are also subject to various
state vehicle safety standards. Kandi believes that its motorcycles comply with
safety standards applicable to motorcycles.
Kandi's products are also subject to international safety
standards in places where it sells its products outside the United States. Kandi
believes that its motorcycles and EVs comply with applicable safety standards in
the United States and internationally.
14
Principal Executive Offices
Our principal executive office is located in the Jinhua City
Industrial Zone in Jinhua, Zhejiang Province, PRC, 321016 and our telephone
number is (86-579) 82239856.
Item 1A. Risk Factors.
You should carefully consider the risks described below
together with all of the other information included in this report before making
an investment decision with regard to our securities. The statements contained
in or incorporated into this Annual Report that are not historic facts are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in or
implied by forward-looking statements. If any of the following risks actually
occurs, our business, financial condition or results of operations could be
harmed. In that case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
Risks Relating to Our Business
Our future growth is dependent upon consumers
willingness to adopt EVs.
Our growth is highly dependent upon the adoption by consumers
of, and we are subject to a risk of any reduced demand for, alternative fuel
vehicles in general and EVs in particular. The market for alternative fuel
vehicles (including EVs) is relatively new, rapidly evolving, characterized by
rapidly changing technologies, price competition, additional competitors,
evolving government regulation and industry standards, frequent new vehicle
announcements and changing consumer demands and behaviors. If the market for EVs
in China does not develop as we expect or develops more slowly than we expect,
our business, prospects, financial condition and operating results will be
harmed.
The unavailability, reduction or elimination of
government and economic incentives could have a material adverse effect on our
business, financial condition, operating results and prospects.
Chinese government has made significant efforts in actively
advocating the development of new energy vehicles to reach production and sales
targets of 0.5 million New Energy Vehicles (NEVs) by 2015 and 5 million NEVs by
2020. We received support from the local and central government of the PRC from
time to time. Any reduction, elimination or discriminatory application of
government subsidies and economic incentives because of policy changes, the
reduced need for such subsidies and incentives due to the customer base of our
EVs, fiscal tightening or other reasons may result in the diminished
competitiveness of the alternative fuel vehicle industry generally or our EVs in
particular. This could materially and adversely affect the growth of the
alternative fuel automobile markets and our business, prospects, financial
condition and operating results.
Our growth depends in part on the availability and amounts of
government subsidies and economic incentives for alternative fuel vehicles
generally and performance EVs specifically. For example, purchasers of three
models of Kandi brand EVs are eligible to receive purchase tax exemption at the
amount of 10% of the vehicles total purchase price during the three-year period
from September 1, 2014. Purchasers of Kandi's SMA7000BEV and SMA7001BEV models
are the ultimate beneficiaries, on a per car basis, the national government
subsidy of RMB 47,500.00 (Approximately $7,738.00) and the local government
subsidy of RMB 47,500.00 (Approximately $7,738.00) from provincial government
and municipal government combined at both Chengdu (Sichuan province) and Nanjing
(Jiangsu province). Additionally, these two vehicle models also qualify for free
license plates in Shanghai. The license plates in Shanghai are auctioned to the
public at an average price between RMB70,000.00 to RMB80,000.00 ($11,410.00 to
$13,040.00) per license plate. While we believe the latest tax exemption, along
with a series of government incentives and subsidies, may have a very positive
impact on the sales of Kandi Brand EVs in China going forward, we cannot assure
you it is always the case. In the event such favored policy and treatment
discontinue, our business outlook and financial conditions could be negatively
impacted.
15
Developments in alternative technologies or improvements
in the internal combustion engine may materially adversely affect the demand for our EVs.
Significant developments in alternative technologies, such as
advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements
in the fuel economy of the internal combustion engine, may materially and
adversely affect our business and prospects in ways we do not currently
anticipate. Any failure by us to develop new or enhanced technologies or
processes, or to react to changes in existing technologies, could materially
delay our development and introduction of new and enhanced EVs, which could
result in the loss of competitiveness of our vehicles, decreased revenue and a
loss of market share to competitors.
If we are unable to keep up with advances in electric
vehicle technology, we may suffer a decline in our competitive position.
We may be unable to keep up with changes in EV technology and,
as a result, may suffer a decline in our competitive position. Any failure to
keep up with advances in EV technology would result in a decline in our
competitive position which would materially and adversely affect our business,
prospects, operating results and financial condition. Our research and
development efforts may not be sufficient to adapt to changes in EV technology.
As technologies change, we plan to upgrade or adapt our vehicles and introduce
new models in order to continue to provide vehicles with the latest technology,
in particular battery cell technology. However, our vehicles may not compete
effectively with alternative vehicles if we are not able to source and integrate
the latest technology into our vehicles. For example, we do not manufacture
battery cells, which makes us dependent upon other suppliers of battery cell
technology for our battery packs.
Our business depends substantially on the continuing
efforts of our executive officers, and our business may be severely disrupted if
we lose their services.
Our future success depends substantially on the continued
services of our executive officers, especially our CEO and Chairman of the Board
of Directors, Mr. Hu Xiaoming. We do not maintain key man life insurance on any
of our executive officers. If any of our executive officers are unable or
unwilling to continue in their present positions, we may not be able to replace
them readily, if at all. Therefore, our business may be severely disrupted, and
we may incur additional expenses to recruit and retain new officers. In
addition, if any of our executive officers joins a competitor or forms a
competing company, we may lose some of our customers.
We may be subject to product liability claims, or recalls
which could be expensive, damage our reputation and result in a diversion of
management resources.
We may be subject to lawsuits resulting from injuries
associated with the use of the vehicles that we sells or produces. We may incur
losses relating to these claims or the defense of these claims. There is a risk
that claims or liabilities will exceed our insurance coverage. In addition, we
may be unable to retain adequate liability insurance in the future.
We may also be required to participate in recalls involving our
vehicles, if any prove to be defective, or we may voluntarily initiate a recall
or make payments related to such claims as a result of various industry or
business practices or the need to maintain good customer relationships. Such a
recall would result in a diversion of resources. While we do maintain product
liability insurance, we cannot assure you that it will be sufficient to cover
all product liability claims, that such claims will not exceed our insurance
coverage limits or that such insurance will continue to be available on
commercially reasonable terms, if at all. Any product liability claim brought
against us could have a material adverse effect on our results of operations.
We retain certain personal information about our
customers and may be subject to various privacy and consumer protection laws.
We and our operating companies use our vehicles electronic
systems to log information about each vehicles condition, performance and use
in order to aid us in providing customer service, including vehicle diagnostics,
repair and maintenance, as well as to help us collect data regarding our
customers charge time, battery usage, mileage and efficiency habits and to
improve our vehicles. We also collect information about our customers through
our website, at our stores and facilities, and via telephone.
16
Our customers may object to the processing of this data, which
may negatively impact our ability to provide effective customer service and
develop new vehicles and products. Collection and use of our customers personal
information in conducting our business may be subject to national and local laws
and regulations in the PRC, and such laws and regulations may restrict our
processing of such personal information and hinder our ability to attract new
customers or market to existing customers. We may incur significant expenses to
comply with privacy, consumer protection and security standards and protocols
imposed by law, regulation, industry standards or contractual obligations.
Although we take steps to protect the security of our customers personal
information, we may be required to expend significant resources to comply with
data breach requirements if third parties improperly obtain and use the personal
information of our customers or we otherwise experience a data loss with respect
to customers personal information. A major breach of our network security and
systems could have serious negative consequences for our businesses and future
prospects, including possible fines, penalties and damages, reduced customer
demand for our vehicles, and harm to our reputation and brand.
Our business will be adversely affected if we are unable
to protect our intellectual property rights from unauthorized use or
infringement by third parties.
Any failure to adequately protect our proprietary rights could
result in weakening or loss of such rights, which may allow our competitors to
offer similar or identical products or use identical or confusingly similar
branding, potentially resulting in the loss of some of our competitive
advantage, a decrease in our revenue and an attribution of potentially lower
quality products to us, which would adversely affect our business, prospects,
financial condition and operating results. Our success depends, at least in
part, on our ability to protect our core technology and intellectual property.
To accomplish this, we rely on a combination of patents, patent applications,
trade secrets, including know-how, employee and third party nondisclosure
agreements, copyright protection, trademarks, intellectual property licenses and
other contractual rights to establish and protect our proprietary rights in our
technology. We have also received from third parties patent licenses related to
manufacturing our vehicles.
The protection provided by the patent laws is and will be
important to our future opportunities. However, such patents and agreements and
various other measures we take to protect our intellectual property from use by
others may not be effective for various reasons, including the following:
- our pending patent applications may not result in the issuance of patents;
- our patents, if issued, may not be broad enough to protect our commercial
endeavors;
- the patents we have been granted may be challenged, invalidated or
circumvented because of the pre-existence of similar patented or unpatented
technology or for other reasons;
- the costs associated with obtaining and enforcing patents, confidentiality
and invention agreements or other intellectual property rights may make
aggressive enforcement impracticable; and
- current and future competitors
may independently develop similar technology, duplicate our vehicles or design
new vehicles in a way that circumvents our intellectual property.
Existing trademark and trade secret laws and confidentiality
agreements afford only limited protection. In addition, the laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States, and policing the unauthorized use of our intellectual
property is difficult.
We may need to defend ourselves against patent or
trademark infringement claims, which may be time-consuming and would cause us to
incur substantial costs.
Companies, organizations or individuals, including our
competitors, may hold or obtain patents, trademarks or other proprietary rights
that would prevent, limit or interfere with our ability to make, use, develop,
sell or market our vehicles or components, which could make it more difficult
for us to operate our business. From time to time, we may receive inquiries from
holders of patents or trademarks regarding their proprietary rights.
Companies holding patents or other intellectual property rights may bring suits
alleging infringement of such rights or otherwise assert their rights and seek
licenses. In addition, if we are determined to have infringed upon a third
partys intellectual property rights, we may be required to do one or more of
the following:
17
- cease selling, incorporating or using vehicles or offering goods or
services that incorporate or use the challenged intellectual property;
- pay substantial damages;
- obtain a license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms or at all; or
- redesign our vehicles or other goods or services.
In the event of a successful claim of infringement against us
and our failure or inability to obtain a license to the infringed technology or
other intellectual property right, our business, prospects, operating results
and financial condition could be materially adversely affected. In addition, any
litigation or claims, whether or not valid, could result in substantial costs
and diversion of resources and management attention.
We may also face claims that our use of technology licensed or
otherwise obtained from a third party infringes the rights of others. In such
cases, we may seek indemnification from our licensors/suppliers under our
contracts with them. However, indemnification may be unavailable or insufficient
to cover our costs and losses, depending on our use of the technology, whether
we choose to retain control over conduct of the litigation, and other factors.
Our vehicles make use of lithium-ion battery cells, which
could catch fire or vent smoke and flame. This may lead to additional concerns,
about the batteries used in automotive applications.
The battery pack in our EV products makes use of lithium-ion
cells. We also currently intend to make use of lithium-ion cells in battery
packs on any future vehicles we may produce. On rare occasions, lithium-ion
cells can rapidly release the energy they contain by venting smoke and flames in
a manner that can ignite nearby materials as well as other lithium-ion cells.
Extremely rare incidents of laptop computers, cell phones and EV battery packs
catching fire have focused consumer attention on the safety of these cells.
These events have raised concerns about the batteries used in
automotive applications. To address these questions and concerns, a number of
cell manufacturers are pursuing alternative lithium-ion battery cell chemistries
to improve safety. We may have to
recall our vehicles or participate in a recall of a vehicle that contains our
battery packs, and redesign our battery packs, which would be time consuming and
expensive. Also, negative public perceptions regarding the suitability of
lithium-ion cells for automotive applications or any future incident involving
lithium-ion cells such as a vehicle or other fire, even if such incident does
not involve us, could seriously harm our business.
In addition, we store a significant number of lithium-ion cells
at our manufacturing facility. Any mishandling of battery cells may cause
disruption to the operation of our facilities. While we have implemented safety
procedures related to the handling of the cells, there can be no assurance that
a safety issue or fire related to the cells would not disrupt our operations.
Such damage or injury would likely lead to adverse publicity and potentially a
safety recall. Moreover, any failure of a competitors EV, may cause indirect
adverse publicity for us and our EVs. Such adverse publicity would negatively
affect our brand and harm our business, prospects, financial condition and
operating results.
18
Compliance with environmental regulations can be
expensive, and noncompliance with these regulations may result in adverse
publicity and potentially significant monetary damages and fines.
Our business operations generate noise, waste water, gaseous
byproduct and other industrial waste. We are required to comply with all
national and local regulations regarding protection of the environment. We are
in compliance with current environmental protection requirements and have all
necessary environmental permits to conduct our business. However, if more
stringent regulations are adopted in the future, the costs of compliance with
these new regulations could be substantial. Additionally, if we fail to comply
with present or future environmental regulations, we may be required to pay
substantial fines, suspend production or cease operations. Any failure by us to
control the use of, or to adequately restrict the unauthorized discharge of,
hazardous substances could subject us to potentially significant monetary
damages and fines or suspensions to our business operations. Certain laws,
ordinances and regulations could limit our ability to develop, use, or sell our
products.
The electric vehicle industry is highly competitive, and
we are subject to risks relating to competition that may adversely affect our
performance.
The electric vehicle industry is highly competitive, and our
continued success depends upon our ability to compete effectively in markets
that contain many competitors, some of which have significantly greater
financial, marketing and other resources than we have. Competition may affect
our pricing structures, potentially causing us to lower our prices, which may
adversely impact our profits. New or existing competition that uses a business
model that is different from our business model may put pressure on us to change
our model so that we can remain competitive.
Our high concentration of sales to relatively few
customers may result in significant impact our liquidity, business, results of
operations and financial condition.
As of December 31, 2014 and 2013, our top five customers, in
the aggregate, accounted for 84% and 67%, respectively, of our sales and
accounts receivable. Due to the concentration of sales to relatively few
customers, loss of one or more of these customers will have relatively high
impact on our operational results.
Our business is subject to the risk of supplier
concentrations.
We depend on a limited number of suppliers for the sourcing of
major components and parts and principal raw materials. For the years ended
December 31, 2014 and 2013, the top two suppliers accounted for 57% and 65% of
our purchases, respectively. As a result of this concentration in our supply
chain, our business and operations would be negatively affected if any of our
key suppliers were to experience significant disruption affecting the price,
quality, availability or timely delivery of their products. The partial or
complete loss of these suppliers, or a significant adverse change in our
relationship with any of these suppliers, could result in lost revenue, added
costs and distribution delays that could harm our business and customer
relationships. In addition, concentration in our supply chain can exacerbate our
exposure to risks associated with the termination by key suppliers of our
distribution agreements or any adverse change in the terms of such agreements,
which could have a negative impact on our revenues and profitability.
Our facilities or operations could be damaged or
adversely affected as a result of disasters or unpredictable events.
Our headquarters and facilities are located in several cities
in China such as Jinhua, Yongkang and Wanning. If major disasters such
as earthquakes, fires, floods, hurricanes, wars, terrorist attacks, computer
viruses, pandemics or other events occur, or our information system or
communications network breaks down or operates improperly, our headquarters and
production facilities may be seriously damaged, or we may have to stop or delay
production and shipment of our products. We may incur expenses relating to such
damages, which could have a material adverse impact on our business, operating
results and financial condition.
19
If we fail to maintain an effective system of internal
controls, we may not be able to accurately report our financial results or
prevent fraud. As a result, current and potential shareholders could lose
confidence in our financial reporting, which would harm our business and the
trading price of our stock.
Effective internal controls are necessary for us to provide
reliable financial reports and effectively prevent fraud. As directed by Section
404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the SEC adopted rules
requiring public companies to include a report of management on our internal
controls over financial reporting in their annual reports.
Despite of our recent efforts in improving our internal control
procedures and remediating the material weakness, we cannot provide assurance
that we will not fail to achieve and maintain an effective internal control
environment on an ongoing basis, which may cause investors to lose confidence in
our reported financial information and have a material adverse effect on the
price of our common stock.
The audit report included in this Annual Report was
prepared by auditors who are not inspected by the Public Company Accounting
Oversight Board and, as a result, you are deprived of the benefits of such
inspection
The independent registered public accounting firm that issues
the audit reports included in our annual reports filed with the SEC, as auditors
of companies that are traded publicly in the United States and a firm registered
with the Public Company Accounting Oversight Board (United States), or the
PCAOB, is required by the laws of the United States to undergo regular
inspections by the PCAOB to assess its compliance with the laws of the United
States and professional standards. Because our auditors are located in the PRC,
a jurisdiction where the PCAOB is currently unable to conduct inspections
without the approval of the PRC authorities, our auditors are not currently
inspected by the PCAOB.
Inspections of other firms that the PCAOB has conducted outside
China have identified deficiencies in those firms' audit procedures and quality
control procedures, which may be addressed as part of the inspection process to
improve future audit quality. The inability of the PCAOB to conduct inspections
in China prevents the PCAOB from regularly evaluating our auditor's statements,
audits and quality control procedures. As a result, investors may be deprived of
the benefits of PCAOB inspections.
The inability of the PCAOB to conduct inspections of auditors
in China makes it more difficult to evaluate the effectiveness of our auditor's
quality control and audit procedures as compared to auditors outside of China
that are subject to PCAOB inspections. Investors may lose confidence in our
reported financial information and procedures and the quality of our financial
statements.
Risks Related to Doing Business in China
The economy of China had experienced unprecedented
growth. This growth has slowed in the recent years, and if the growth of the
economy continues to slow or if the economy contracts, our financial condition
may be materially and adversely affected.
The rapid growth of the PRC economy had historically resulted
in widespread growth opportunities in industries across China. This growth has
slowed in the recent years. As a result of the global financial crisis and the
inability of enterprises to gain comparable access to the same amounts of
capital available in past years, there may be an adverse effect on the business
climate and growth of private enterprise in the PRC. An economic slowdown could
have an adverse effect on our sales and may increase our costs. Further, if
economic growth continues to slow, and if, in conjunction, inflation is allowed
to proceed unchecked, our costs would likely increase, and there can be no
assurance that we would be able to increase our prices to an extent that would
offset the increase in our expenses.
In addition, a tightening of the labor markets in our
geographic region may result in fewer qualified applicants for job openings in
our facilities. Further, higher wages, related labor costs and other increasing
cost trends may negatively impact our results.
Changes in political and economic conditions may affect
our business operations and profitability.
Since our business operations are primarily located in China,
our business operations and financial position are subject, to a significant
degree, to the economic, political and legal developments in China.
20
While the Chinese government has not halted its economic reform
policy since 1978, any significant adverse changes in the social, political and
economic conditions of China may fundamentally impact China's economic reform
policies, and thus the Company's operations and profits may be adversely
affected.
Uncertainties with respect to the Chinese legal system
could have a material adverse effect on us and may restrict the level of legal
protections to foreign investors.
China's legal system is based on statutory law. Unlike the
common law system, statutory law is based primarily on written statutes.
Previous court decisions may be cited as persuasive authority but do not have a
binding effect. Since 1979, the PRC government has been promulgating and
amending the laws and regulations regarding economic matters, such as corporate
organization and governance, foreign investment, commerce, taxation and trade.
However, since these laws and regulations are relatively new, and the PRC legal
system continues to rapidly evolve, the interpretation of many laws, regulations
and rules is not always uniform and enforcement of these laws, regulations and
rules involves uncertainties, which may limit legal protections available to us.
In addition, any litigation in China may be protracted and may
result in substantial costs and diversion of resources and management's
attention. The legal system in China cannot provide investors with the same
level of protection as in the U.S. The Company is governed by laws and
regulations generally applicable to local enterprises in China. Many of these
laws and regulations were recently introduced and remain experimental in nature
and subject to changes and refinements. Interpretation, implementation and
enforcement of the existing laws and regulations can be uncertain and
unpredictable and therefore may restrict the legal protections available to
foreign investors.
Changes in Currency Conversion Policies in China may have
a material adverse effect on us.
Renminbi (RMB) is still not a freely exchangeable currency.
Since 1998, the State Administration of Foreign Exchange of China has
promulgated a series of circulars and rules in order to enhance verification of
foreign exchange payments under a Chinese entity's current account items, and
has imposed strict requirements on borrowing and repayments of foreign exchange
debts from and to foreign creditors under the capital account items and on the
creation of foreign security in favor of foreign creditors.
This may complicate foreign exchange payments to foreign
creditors under the current account items and thus may affect the ability to
borrow under international commercial loans, the creation of foreign security,
and the borrowing of RMB under guarantees in foreign currencies. Moreover, the
value of RMB may become subject to supply and demand, which could be largely
impacted by international economic and political environments. Any fluctuations
in the exchange rate of RMB could have an adverse effect on the operational and
financial condition of the Company and its subsidiaries in China.
You may experience difficulties in effecting service of
legal process, enforcing foreign judgments or bringing original actions based on
United States or foreign laws against us, our management or the experts named in
the prospectus.
We conduct substantially all of our operations in China and
almost all of our assets are located in China. In addition, almost all of our
senior executive officers reside in China. As a result, it may not be possible
to effect service of process on our senior executive officers within the United
States or elsewhere outside China, including with respect to matters arising
under U.S. federal securities laws or applicable state securities laws.
Moreover, our PRC counsel has advised us that the PRC does not have treaties
with the United States or many other countries providing for the reciprocal
recognition and enforcement of court orders and final judgments.
Risks Relating to Ownership of Our Securities
Our stock price may be volatile, which may result in
losses to our shareholders.
The stock markets have experienced significant price and
trading volume fluctuations, and the market prices and trading volumes of companies listed on the NASDAQ Global Market and the NASDAQ
Global Select Market have been volatile. Although our stock was listed on the
NASDAQ Global Market and upgraded to the NASDAQ Global Select Market on January
2, 2014, the trading price of our common stock is likely to be volatile and
could fluctuate significantly in response to many factors, including the
following, some of which are beyond our control:
21
-
variations in our operating results;
-
changes in expectations of our future financial performance, including
financial estimates by securities analysts and investors;
-
changes in operating and stock price performance of other companies in our
industry;
-
additions or departures of key personnel; and
-
future sales of our common stock.
Domestic and international stock markets often experience
significant price and volume fluctuations. These fluctuations, as well as
general economic and political conditions unrelated to our performance, may
adversely affect the price of our common stock.
Mr. Hu, our CEO, President and Chairman of our Board of
Directors is the beneficial owner of a substantial portion of our outstanding
common stock, which may enable Mr. Hu to exert significant influence on
corporate actions.
Excelvantage Group Limited controls approximately 25.9% of our
outstanding shares of common stock as of March 9, 2015. Hu Xiaoming, the
Company's Chief Executive Officer, President and Chairman of the Board of
Directors, is the sole stockholder of Excelvantage Group Limited. Together with
the shares held through Excelvantage Group Limited, Mr. Hu has 28.0% of our
outstanding shares of common stock which could have a substantial impact on
matters requiring the vote of our shareholders, including the election of our
directors and most corporate actions. This control could delay, defer or prevent
others from initiating a potential merger, takeover or other change in our
control, even if these actions would benefit our other shareholders and the
Company. This control could adversely affect the voting and other rights of our
other shareholders and could depress the market price of our common stock.
We do not anticipate paying any cash dividends to our
common shareholders.
We presently do not anticipate that we will pay dividends on
any of our common stock in the foreseeable future. If payment of dividends does
occur at some point in the future, it would be contingent upon our revenues and
earnings, if any, capital requirements, and general financial condition. The
payment of any common stock dividends will be within the discretion of our Board
of Directors. We presently intend to retain all earnings to implement our
business plan; accordingly, we do not anticipate the declaration of any
dividends for common stock in the foreseeable future.
Fluctuation in the value of the RMB may have a material
adverse effect on your investment.
The change in value of the RMB against the U.S. dollar, the
Euro and other currencies is affected by changes in China's political and
economic conditions, among other things. On July 21, 2005, the PRC government
changed its decade-old policy of pegging the value of the RMB to the U.S.
dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow
and managed band against certain foreign currencies. While the international
reaction to the RMB revaluation has generally been positive, there remains
significant international pressure on the PRC government to adopt an even more
flexible currency policy, which could result in a further and more significant
appreciation of the RMB against the U.S. dollar. As a portion of our costs and
expenses is denominated in RMB, the revaluation in July 2005 and potential
future revaluation has and could further increase our costs. In addition, any
significant revaluation of the RMB may have a material adverse effect on our
financial condition. For example, to the extent that we need to convert U.S.
dollars we receive from financings into RMB for our operations, appreciation of
the RMB against the U.S. dollar would have an adverse effect on the RMB amount
we receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of
making payments for business purposes, appreciation of the U.S. dollar against
the RMB would have a negative effect on the U.S. dollar amount available to us.
22
The limitation of monetary liability against our
directors, officers and employees under Delaware law and the existence of
statutory indemnification rights of our directors, officers and employees may
result in substantial expenditures by our Company and may discourage lawsuits
against our directors, officers and employees.
Our articles of incorporation do not contain any specific
provisions that limit the liability of our directors for monetary damages to our
Company and shareholders; however, we are prepared to indemnify our directors
and officers to the extent provided for by Delaware law. We may also have
include contractual indemnification obligations in our employment agreements
with our officers. The foregoing indemnification obligations could result in the
Company incurring substantial expenditures to cover the cost of settlement or
damage awards against its directors and officers, which we may be unable to
recoup. These provisions and resultant costs may also discourage our Company
from bringing a lawsuit against directors and officers for breaches of their
fiduciary duties, and may similarly discourage the filing of derivative
litigation by our shareholders against our directors and officers even though
such actions, if successful, might otherwise benefit our Company and
shareholders.
We may need additional capital, and the sale of
additional shares or other equity securities could result in additional dilution
to our shareholders.
In the future, we may require additional cash resources due to
changed business conditions or other future developments, including any
investments or acquisitions we may decide to pursue. If our resources are
insufficient to satisfy our cash requirements, we may seek to sell additional
equity or debt securities or obtain a credit facility. The sale of additional
equity securities could result in dilution to our shareholders. The incurrence
of indebtedness would result in increased debt service obligations and could
result in operating and financing covenants that would restrict our operations.
We cannot assure you that financing will be available, if at all, in amounts or
on terms acceptable to us.
Our business is subject to changing regulations related
to corporate governance and public disclosure that have increased both our costs
and the risk of noncompliance.
Because our common stock is publicly traded, we are subject to
certain rules and regulations of federal, state and financial market exchange
entities charged with the protection of investors and the oversight of companies
whose securities are publicly traded. These entities, including the Public
Company Accounting Oversight Board, the SEC and NASDAQ, have issued requirements
and regulations and continue to develop additional regulations and requirements
in response to corporate scandals and laws enacted by Congress. Our efforts to
comply with these regulations have resulted in, and are likely to continue
resulting in, increased general and administrative expenses and diversion of
management time and attention from revenue-generating activities to compliance
activities. Because new and modified laws, regulations and standards are subject
to varying interpretations in many cases due to their lack of specificity, their
application in practice may evolve over time as new guidance is provided by
regulatory and governing bodies. This evolution may result in continuing
uncertainty regarding compliance matters and additional costs necessitated by
ongoing revisions to our disclosure and governance practices.
Techniques employed by manipulative short sellers in Chinese
small cap stocks may drive down the market price of our common stock.
Short selling is the practice of selling securities that the
seller does not own but rather has, supposedly, borrowed from a third party with
the intention of buying identical securities back at a later date to return to
the lender. The short seller hopes to profit from a decline in the value of the
securities between the sale of the borrowed securities and the purchase of the
replacement shares, as the short seller expects to pay less in that purchase
than it received in the sale. As it is therefore in the short sellers best
interests for the price of the stock to decline, many short sellers (sometime
known as disclosed shorts) publish, or arrange for the publication of,
negative opinions or reports regarding the relevant issuer and its business
prospects in order to create negative market momentum and generate profits for themselves after
selling a stock short. These short attacks have, in the past, led to selling of
shares in the market, on occasion in large scale and broad base.
23
These short seller publications are not regulated by any
governmental, self-regulatory organization or other official authority in the
U.S., are not subject to the certification requirements imposed by the
Securities and Exchange Commission in Regulation AC (Regulation Analyst
Certification) and, accordingly, the opinions they express may be based on
distortions of actual facts or, in some cases, fabrications of facts. In light
of the limited risks involved in publishing such information, and the enormous
profit that can be made from running just one successful short attack, unless
the short sellers become subject to significant penalties, it is more likely
than not that disclosed short sellers will continue to issue such reports.
While we intend to strongly defend our public filings against
any such short seller attack, often times we are constrained, either by
principles of freedom of speech, applicable state law (often called Anti-SLAPP
statutes), or issues of commercial confidentiality, in the manner in which we
can proceed against the relevant short seller. You should be aware that in light
of the relative freedom to operate that such persons enjoy oftentimes blogging
from outside the U.S. with little or no assets or identity requirements should
we be targeted for such an attack, our stock will likely suffer from a
temporary, or possibly long term, decline in market price should the rumors
created not be dismissed by market participants.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Kandi has the following granted land use rights:
|
Area |
|
|
Location |
(square meters) |
Term and Expiration |
Certificate No. |
Zhejiang Jinhua Industrial Park |
72,901 |
Nov 13, 2002 - Nov 13, 2052
|
10-15-0-203-1 |
Zhejiang Jinhua Industrial Park |
39,491 |
Nov 13, 2002 - Nov 13, 2052 |
10-15-0-203-2 |
Zhejiang Jinhua Industrial Park |
46,651 |
Dec 30, 2003 - Dec 30, 2053
|
10-15-0-16 |
Zhejiang Jinhua Industrial Park |
37,515 |
Dec 30, 2003 - Dec 30, 2053 |
10-15-0-17 |
Zhejiang Jinhua Industrial Park |
49,162 |
Dec 30, 2003 - Dec 30, 2053
|
10-15-0-18 |
Zhejiang Jinhua Industrial Park |
19,309 |
Dec 07, 2009 - Dec 07, 2059 |
10-15-0-33 |
Zhejiang Qiaoxia Industrial Park |
9,405 |
Apr 03, 2001 Apr 03, 2051
|
574-26-36
|
All land in the PRC is owned by the government and cannot be
sold or transferred by or to any individual or private entity. Instead, the
government grants or allocates landholders a land use right. There are four
methods to acquire land use rights:
- grant of the right to use land;
- assignment of the right to use land;
- lease of the right to use land; and
- allocated land use rights.
In comparison with Western common law concepts, granted land
use rights are similar to life estates and allocated land use rights are in some
ways similar to leaseholds.
Granted land use rights are provided by the government in
exchange for a grant fee and carry the rights to pledge, mortgage, lease, and
transfer during the term of the grant. Land is granted for a fixed term, which
is generally 70 years for residential use, 50 years for industrial use, and 40
years for commercial or other use. The term is renewable in theory. Granted land
must be used for the specific purpose for which it was granted.
24
Allocated land use rights cannot be pledged, mortgaged, leased,
or transferred. They are generally provided by the government for an indefinite
period (usually to state-owned entities) and can be reclaimed by the government
at any time. Allocated land use rights may be converted into granted land use
rights upon the payment of a grant fee to the government.
Kandi has the following real estate properties:
Jinhua City, Zhejiang
The Company owns the following facilities located in Jinhua
Industrial Park, Jinhua City, Zhejiang Province, China. The table below lists
the primary facilities and the status of each facility:
|
|
Area |
|
|
Description |
|
(square meters) |
|
Status |
Factories |
|
93,979 |
|
Fully operational |
Sales Center |
|
3,130 |
|
Fully operational |
Test Center |
|
2,220 |
|
Fully operational |
Staff quarters |
|
8,090 |
|
Fully operational |
Canteen |
|
2,602 |
|
Fully operational
|
Yongkang City, Zhejiang
The Company owns the following facilities located in Yongkang
City, Zhejiang Province, China. The table below lists the primary facilities and
the status of each facility:
|
|
Area |
|
|
Description |
|
(square meters) |
|
Status |
Office |
|
1,301 |
|
Fully operational |
Factories |
|
4,457 |
|
Fully operational |
Warehouse |
|
341 |
|
Fully operational |
Multi-purpose room |
|
480 |
|
Fully operational |
Wanning City, Hainan
The Company acquired the land use rights and began the
construction to build EV production factories in Wanning City, Hainan Province,
China in 2014. As of the date of this report, the construction is still in
progress; thus this facility is not operational at this point. We expect the
construction will be completed and the trial production will be launched by the
end of 2015.
|
|
Area |
|
|
Description |
|
(square meters) |
|
Status |
|
|
Approximately |
|
|
Factories |
|
60,000 |
|
In progress
|
Item 3. Legal Proceedings.
In July 2013, Judge Michael M. Pritchett of the Circuit Court
of Ripley County of the State of Missouri (the Circuit Court) entered final
orders and judgments in favor of the Company and Kandi Vehicles and against
plaintiffs Griffin and Elder, respectively, pursuant to the jury verdicts
rendered in the following two cases: Griffin v. SunL Group, et al., and Elder v.
SunL Group, et al. On October 31, 2013, the plaintiffs appealed these decisions.
On January 16, 2015, the Southern District of Missouri Court of Appeals affirmed
the judgment from the Circuit Court and it is the final judgment.
25
The Company received a letter dated February 9, 2015 from the
staff of the Enforcement Division (the Division) of the U. S. Securities and
Exchange Commission (the "Commission") advising that the Division has concluded
its investigation of the Company and, based on information received to date,
does not intend to recommend to the Commission that any enforcement action be
brought against the Company. This formally concludes the Commissions
investigation that commenced in 2013. As previously disclosed, The Company
received notice of a formal investigation and a subpoena dated November 21, 2013
in connection with the Commission's investigation.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
On January 2, 2014, our common stock began trading on the
NASDAQ Global Select Market under the symbol KNDI. The following sets forth
the high and low prices for our common stock for each quarter from January 1,
2013 to December 31, 2014 as reported by NASDAQ.
|
|
HIGH |
|
|
LOW |
|
FISCAL 2014 |
|
|
|
|
|
|
Fourth Quarter (through December 31, 2014) |
$ |
18.17 |
|
$ |
10.3 |
|
Third Quarter (through September 30, 2014)
|
$ |
22.49 |
|
$ |
12.98 |
|
Second Quarter (through June 30, 2014) |
$ |
17.69 |
|
$ |
10.68 |
|
First Quarter (through March 31, 2014) |
$ |
22.4 |
|
$ |
10.9 |
|
|
|
|
|
|
|
|
FISCAL 2013 |
|
|
|
|
|
|
Fourth Quarter (through December 31, 2013) |
$ |
12.79 |
|
$ |
6.15 |
|
Third Quarter (through September 30, 2013)
|
$ |
9.20 |
|
$ |
4.12 |
|
Second Quarter (through June 30, 2013) |
$ |
8.50 |
|
$ |
3.55 |
|
First Quarter (through March 31, 2013) |
$ |
4.19 |
|
$ |
3.37 |
|
Holders of Common Stock
As of March 9, 2015, there were 11 shareholders of record of
our common stock. This does not include all the beneficial holders who hold
shares through their brokerage accounts.
Dividends
We have never paid cash dividends on our common stock. Our
policy is to retain all earnings, if any, to provide funds for operation and
expansion of our business. We do not anticipate paying cash dividends in the
foreseeable future. Any future determination to declare cash dividends will be
made at the discretion of our board of directors, subject to applicable laws,
and will depend on our financial condition, results of operations, capital
requirements, general business conditions and other factors that our board of
directors may deem relevant.
Sales of Unregistered Securities
None
26
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
None
Securities Authorized for Issuance under Equity Compensation
Plans
Please see the discussion in Item 12 titled Equity
Compensation Plan Information below.
Stock Performance Graph
This performance graph shall not be deemed filed for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange
Act), or incorporated by reference into any filing of Kandi Technologies Group,
Inc. under the Securities Act of 1933, as amended, or the Exchange Act, except
as shall be expressly set forth by specific reference in such filing.
The following graph shows a comparison from December 31, 2009
through December 31, 2014, of the cumulative total return for our common stock,
the NASDAQ Composite Index, and the S&P Automobile Manufacturers Index. Such
returns are based on historical results and are not intended to suggest future
performance. Data for the NASDAQ Composite Index and the S&P Automobile
Manufacturers Index assumes an investment of $100 on December 31, 2009 and
reinvestment of dividends. We have never paid cash dividends on our capital
stock nor do we anticipate paying any such cash dividends in the foreseeable
future.
27
Item 6. Selected Financial Data.
The following selected consolidated financial data should be
read in conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated financial statements
and the related notes included elsewhere in this Annual Report on Form 10-K.
|
|
As of December 31, |
|
CONSOLIDATED BALANCE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHEETS DATA: |
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
|
2010 |
|
Cash and cash equivalents |
$ |
26,379,460 |
|
$ |
12,762,369 |
|
$ |
12,135,096 |
|
$ |
2,294,352 |
|
$ |
7,754,166 |
|
Restricted cash |
|
13,000,731 |
|
|
1,636 |
|
|
15,835,364 |
|
|
6,634,989 |
|
|
17,398,087 |
|
Working capital (deficit) |
|
39,202,684 |
|
|
(6,631,680 |
) |
|
35,898,297 |
|
|
17,466,812 |
|
|
18,522,694 |
|
Total assets |
|
323,073,352 |
|
|
204,306,730 |
|
|
160,284,990 |
|
|
112,273,750 |
|
|
109,614,715 |
|
Short-term bank loans |
|
35,589,502 |
|
|
34,020,281 |
|
|
32,615,063 |
|
|
36,372,492 |
|
|
28,434,012 |
|
Total liabilities |
|
111,488,513 |
|
|
115,780,611 |
|
|
85,762,922 |
|
|
56,424,875 |
|
|
65,140,577 |
|
Total shareholders' equity |
|
211,584,839 |
|
|
88,526,119 |
|
|
74,522,068 |
|
|
55,848,875 |
|
|
44,474,138 |
|
28
CONSOLIDATED
STATEMENTS OF INCOME |
|
Years Ended December 31, |
|
AND COMPREHENSIVE INCOME
DATA: |
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
|
2010 |
|
REVENUES,
NET |
$ |
170,229,006 |
|
$ |
94,536,045 |
|
$ |
64,513,670 |
|
$ |
40,177,148 |
|
$ |
42,880,300 |
|
COST OF GOODS SOLD |
|
(146,825,073 |
) |
|
(72,793,517 |
) |
|
(51,620,280 |
) |
|
(30,964,173 |
) |
|
(33,257,851 |
) |
GROSS
PROFIT |
|
23,403,933 |
|
|
21,742,528 |
|
|
12,893,390 |
|
|
9,212,975 |
|
|
9,622,449 |
|
Research and development |
|
(2,755,637 |
) |
|
(3,728,730 |
) |
|
(2,877,283 |
) |
|
(2,304,373 |
) |
|
(1,908,134 |
) |
Selling and
marketing |
|
(1,345,588 |
) |
|
(399,504 |
) |
|
(455,983 |
) |
|
(414,255 |
) |
|
(1,120,739 |
) |
General and administrative |
|
(14,058,548 |
) |
|
(16,056,107 |
) |
|
(4,250,832 |
) |
|
(3,458,388 |
) |
|
(3,371,829 |
) |
INCOME FROM
CONTINUING OPERATIONS |
|
5,244,160 |
|
|
1,558,187 |
|
|
5,309,292 |
|
|
3,035,959 |
|
|
3,221,747 |
|
Interest income |
|
1,701,121 |
|
|
1,516,477 |
|
|
2,658,104 |
|
|
2,200,678 |
|
|
769,942 |
|
Interest
(expense) |
|
(3,480,646 |
) |
|
(4,395,353 |
) |
|
(2,775,891 |
) |
|
(1,945,260 |
) |
|
(2,922,960 |
) |
Investment income (expense) in
trading security |
|
- |
|
|
- |
|
|
- |
|
|
9,653 |
|
|
(1,771 |
) |
Change in fair
value of financial instruments |
|
6,531,308 |
|
|
(16,647,283 |
) |
|
1,986,063 |
|
|
5,401,929 |
|
|
(2,725,987 |
) |
Government grants |
|
288,498 |
|
|
228,396 |
|
|
132,139 |
|
|
298,072 |
|
|
351,343 |
|
Share of (loss)
in associated companies |
|
(54,308 |
) |
|
(69,056 |
) |
|
(69,429 |
) |
|
(52,696 |
) |
|
- |
|
Share of profit after tax of JV |
|
4,490,266 |
|
|
(2,414,354 |
) |
|
- |
|
|
- |
|
|
- |
|
Other income,
net |
|
(34,649 |
) |
|
676,257 |
|
|
332,936 |
|
|
717,495 |
|
|
761,960 |
|
INCOME (LOSS) BEFORE |
|
14,685,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES |
|
|
|
|
(19,546,729 |
) |
|
7,573,214 |
|
|
9,665,830 |
|
|
(545,726 |
) |
INCOME TAX EXPENSE |
|
(2,414,412 |
) |
|
(1,593,994 |
) |
|
(1,523,735 |
) |
|
(551,060 |
) |
|
(405,713 |
) |
NET (LOSS)
INCOME |
|
12,271,338 |
|
|
(21,140,723 |
) |
|
6,049,479 |
|
|
9,114,770 |
|
|
(951,439 |
) |
OTHER COMPREHENSIVE
INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation |
|
(2,725,143 |
) |
|
2,112,902 |
|
|
424,623 |
|
|
1,816,639 |
|
|
1,323,814 |
|
COMPREHENSIVE INCOME |
$ |
9,546,195 |
|
$ |
(19,027,821 |
) |
$ |
6,474,102 |
|
$ |
10,931,409 |
|
$ |
372,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES
OUTSTANDING BASIC |
|
42,583,495 |
|
|
34,707,973 |
|
|
29,439,328 |
|
|
27,438,725 |
|
|
22,173,550 |
|
WEIGHTED
AVERAGE SHARES OUTSTANDING DILUTED |
|
42,715,818 |
|
|
34,707,973 |
|
|
29,677,325 |
|
|
28,735,748 |
|
|
22,173,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
PER SHARE, BASIC |
$ |
0.29 |
|
$ |
(0.61 |
) |
$ |
0.21 |
|
$ |
0.33 |
|
$ |
(0.04 |
) |
NET INCOME PER SHARE,
DILUTED |
$ |
0.29 |
|
$ |
(0.61 |
) |
$ |
0.20 |
|
$ |
0.32 |
|
$ |
(0.04 |
) |
29
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Overview
Prior to 2013, we were primarily engaged in the design,
manufacturing and sales of traditional off-road vehicle products. Due to
fast-growing market demand for electric vehicles in China and Chinese
governments ambitious plan to lower pollution by adopting five million
alternative-energy vehicles by 2020, we gradually and successfully transformed
our core business to the development of electric vehicle products (EV products)
and electric vehicle parts (EV parts). During the year ended December 31, 2014,
we had total net revenues of $170,229,006, an increase of $75,692,961, or 80.1%,
over our net revenues for the year ended December 31, 2013. The majority of our
revenues were generated by the sales of EV parts and EV products, which
accounted for 88.4% of our total revenue in 2014.The significant revenue growth
was mainly driven by the increased sales of EV parts during the year.
During the year 2014, we focused our efforts on the design,
manufacturing and sales of EV parts and experienced significant sales growth
from this business line. For the year ended December 31, 2014, we achieved net
revenue of $116,431,310 from selling EV parts, mostly to our JV Company, an
increase of $114,707,279, or 6653.4%, as compared to $1,724,031 for the year
ended December 31, 2013. We were in the early stage of EV parts manufacturing in
2014, we havent reached a scale production and the unit prices of related parts
were relatively high, which resulted in less profitable gross margin for our EV
parts manufacturing. We believe, as our production volumes pick up and raw
materials and unit prices of parts continue to fall, our EV parts unit
production cost will gradually decrease and our gross margin will gradually
improve.
Pursuant to our Joint Venture agreement, we gradually
transferred our EV production to the JV Company in 2014, which caused our sales
volume of EV products to decrease in the year compared with year 2013. However,
as we have a 50% ownership interest in the JV Company and accounted for our
investments in the JV Company under the equity method of accounting, we received
50% of the JV Companys net profit for the year or $3,763,082 in the year ended
December 31, 2014, compared to a loss of $1,510,378 in the year ended December
31, 2013. As the JV Company was established not too long ago and the business
was still in the start-up phase, its earnings were not high but have great
potential for growth. We believe our economic benefits from the JV Company will
greatly increase in the future as its business continues to steadily grow.
We continued to produce off-road vehicles in 2014 and our
revenues from this business line decreased by $26,373,733 from year-ago period,
or 57.1%, to $19,819,078 for the year ended December 31, 2014. This decrease
was mainly because we shifted our business strategy to put more resources and
efforts on Chinese EV industry to meet the increasing market demand for
alternative energy vehicles. We believe this realignment of business focus is in
the best interest of the Companys long-term strategy for business growth.
In 2014, we recorded $23,403,933 of gross profit, an increase
of 7.6% from 2013, primarily due to the increase of revenue. We recorded a net
profit of $12,271,338 in 2014 compared to a net loss of $21,140,723 in
2013.Excluding the effects of stock award expenses, which were $8,455,422 and
$9,658,320 for the years ended December 31, 2014 and 2013, respectively, and the
change of the fair value of financial derivatives, which were a gain of
$6,531,308 and a loss of $16,647,283 for the years ended December 31, 2014 and
2013, respectively, our net income (non-GAAP) was $14,195,452for the year ended
December 31, 2014 as compared to net income (non-GAAP) of $5,164,880 for the
year ended December 31, 2013, an increase of $9,030,572 or 174.8%. The increase
in such net income was primarily attributable to the increase of revenue and
gross profits during the year of 2014.
The vehicle manufacturing industry is highly competitive in
China. Current and future factors impacting our industry include: (i) the
exponential growth of electrical vehicle sales and dedicated platforms in the
global market place, (ii) the consolidation of supply chains and costs of
components, (iii) rapid technology developments (including 3D printing
technology) and (iv) emerging strategic partnerships and joint ventures in the
automotive industry generally.
30
Our business strategy includes our efforts to provide our customers with high-quality products, to expand our footprint in new and existing markets, and to advance our profile and demand for our EV products through the EV Sharing Project. To further this initiative, we are working with our business partners to build a network of public EV sharing stations to provide energy-efficient, convenient travel options for local citizens and tourists. We anticipate that our pure EV business in China, through the operations of the JV Company and with the support of new Chinese subsidy policies, will continue to develop and grow in the future.
Results of Operations
Comparison of Years Ended December 31, 2014, 2013 and
2012
The following table sets forth the amounts and the percentage
relationship to revenues of certain items in our consolidated statements of
income for the years ended December 31, 2014, 2013 and 2012:
|
|
Year |
|
|
|
|
|
Year |
|
|
|
|
|
Year |
|
|
|
|
|
|
Ended |
|
|
|
|
|
Ended |
|
|
|
|
|
Ended |
|
|
|
|
|
|
December 31, |
|
|
% Of |
|
|
December 31, |
|
|
% Of |
|
|
December 31, |
|
|
% Of |
|
|
|
2014 |
|
|
Revenue |
|
|
2013 |
|
|
Revenue |
|
|
2012 |
|
|
Revenue |
|
REVENUES, NET |
$ |
170,229,006
|
|
|
100.0% |
|
$ |
94,536,045
|
|
|
100.0% |
|
$ |
64,513,670
|
|
|
100.0% |
|
COST OF GOODS SOLD |
|
(146,825,073 |
) |
|
-86.3% |
|
|
(72,793,517 |
) |
|
-77.0% |
|
|
(51,620,280 |
) |
|
-80.0% |
|
GROSS PROFIT |
|
23,403,933 |
|
|
13.7% |
|
|
21,742,528 |
|
|
23.0% |
|
|
12,893,390 |
|
|
20.0% |
|
Research and Development |
|
(2,755,637 |
) |
|
-1.6% |
|
|
(3,728,730 |
) |
|
-3.9% |
|
|
(2,877,283 |
) |
|
-4.5% |
|
Selling and Marketing |
|
(1,345,588 |
)
|
|
-0.8% |
|
|
(399,504 |
)
|
|
-0.4% |
|
|
(455,983 |
)
|
|
-0.7% |
|
General and Administration |
|
(14,058,548 |
) |
|
-8.3% |
|
|
(16,056,107 |
) |
|
-17.0% |
|
|
(4,250,832 |
) |
|
-6.6% |
|
INCOME FROM
OPERATIONS |
|
5,244,160 |
|
|
3.1% |
|
|
1,558,187 |
|
|
1.6% |
|
|
5,309,292 |
|
|
8.2% |
|
Interest income |
|
1,701,121 |
|
|
1.0% |
|
|
1,516,477 |
|
|
1.6% |
|
|
2,658,104 |
|
|
4.1% |
|
Interest (expense) |
|
(3,480,646 |
)
|
|
-2.0% |
|
|
(4,395,353 |
)
|
|
-4.6% |
|
|
(2,775,891 |
)
|
|
-4.3% |
|
Change in Fair Value of Financial Instruments
|
|
6,531,308 |
|
|
3.8% |
|
|
(16,647,283 |
) |
|
-17.6% |
|
|
1,986,063 |
|
|
3.1% |
|
Government Grants |
|
288,498 |
|
|
0.2% |
|
|
228,396 |
|
|
0.2% |
|
|
132,139 |
|
|
0.2% |
|
Share of (loss) of associated company |
|
(54,308 |
) |
|
0.0% |
|
|
(69,056 |
) |
|
-0.1% |
|
|
(69,429 |
) |
|
-0.1% |
|
Share of Loss after tax of JV
|
|
4,490,266 |
|
|
2.6% |
|
|
(2,414,354 |
)
|
|
-2.6% |
|
|
- |
|
|
- |
|
Other Income, Net |
|
(34,649 |
) |
|
0.0% |
|
|
676,257 |
|
|
0.7% |
|
|
332,936 |
|
|
0.5% |
|
INCOME (LOSS)
BEFORE INCOME TAX |
|
14,685,750 |
|
|
8.6% |
|
|
(19,546,729 |
)
|
|
-20.7% |
|
|
7,573,214 |
|
|
11.7% |
|
INCOME TAX (EXPENSE) |
|
(2,414,412 |
) |
|
-1.4% |
|
|
(1,593,994 |
) |
|
-1.7% |
|
|
(1,523,735 |
) |
|
-2.4% |
|
NET (LOSS) INCOME |
$ |
12,271,338
|
|
|
7.2% |
|
$ |
(21,140,723 |
)
|
|
-22.4% |
|
$ |
6,049,479
|
|
|
9.4% |
|
Revenues
For the year ended December 31, 2014, we had net revenues of
$170,229,006 compared to net revenues of $94,536,045 for the year ended December
31, 2013 and $64,513,670 for the year ended December 31, 2012, representing an
increase of $75,692,961, or 80.1%, from 2013 and an increase of $105,715,336, or
163.9%, from 2012, respectively. Our products include EV parts, EV products, and
off-road vehicles, including ATVs, utility vehicles (UTVs), go-karts, and
others. For the year ended December 31, 2014, 2013 and 2012, 95%, 90% and 86%, respectively, of our
revenues were derived from the sales of our products in the Peoples Republic of
China (the PRC).
31
The following table summarizes our revenues as well as the
number of units sold by product types for the years ended December 31, 2014,
2013 and 2012:
|
|
Year
Ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
|
Unit |
|
|
Sales |
|
|
Unit |
|
|
Sales |
|
|
Unit |
|
|
Sales |
|
EV parts |
|
102,236 |
|
$ |
116,431,310 |
|
|
51,588 |
|
$ |
1,724,031 |
|
|
93,881 |
|
$ |
3,517,237 |
|
EV products |
|
3,758 |
|
|
33,978,619 |
|
|
4,694 |
|
|
46,619,203 |
|
|
3,915 |
|
|
19,034,936 |
|
Off-Road Vehicles |
|
25,746 |
|
|
19,819,078 |
|
|
55,516 |
|
|
46,192,811 |
|
|
50,252 |
|
|
41,961,497 |
|
Total |
|
131,740 |
|
$ |
170,229,006 |
|
|
111,798 |
|
$ |
94,536,045 |
|
|
148,048 |
|
$ |
64,513,670 |
|
EV Parts
During the year ended December 31, 2014, our revenues from the
sale of EV parts were $116,431,310, representing an increase of $114,707,279 or
6,653.4% from $1,724,031 for the year ended December 31, 2013 and an increase of
$112,914,073 or 3,210.3% from $3,517,237 for the year ended December 31, 2012,
respectively
Our revenue for the year ended December 31, 2014 primarily consisted of the sales of battery packs, body parts, EV drive motors, EV controllers, air conditioning units and other auto parts to the JV Company for manufacturing of EV products. Of the total EV parts sold for the year ended December 31, 2014, approximately 83%, or the majority of the sales, were related to the sale of battery packs. Due to the Chinese auto industry regulation, we hold the necessary production license to manufacture the battery packs exclusively used in Kandi brand name’s EVs manufactured by the JV Company. Besides the sale of battery packs, approximately 6% of the sales were related to the sales of EV controllers, approximately 5% of the sales were related to the sales of air conditioning units, approximately 4% of the sales were related to the sales of EV drive motors and approximately 2% of the sales were related to the sales of body parts and other auto parts.
We started the EV parts business to the JV Company in the first quarter of 2014. During the year ended December 31, 2014, our revenues from the sale of EV parts to the JV Company accounted the majority or approximately 68% of our total net revenue for the year. For the year ended December 31, 2014, the majority of EV parts sold to the JV Companies, or approximately 56% of the sales were to Kandi Changxing, approximately 34% of the sales were to Kandi Shanghai, and approximately 10% of the sales were to Kandi Jinhua. Theses EV parts were used in manufacturing pure EV products by the JV Company’s subsidiaries, all of which were sold to Shanghai Maple Auto Co., Ltd.(“Shanghai Maple”). Shanghai Maple is an unaffiliated company that was granted by the Chinese government vehicle production rights for EV sedans, which is equivalent to a license that qualifies it to sell the EV products to the end customers. Our increased sales of EV parts during the year were largely driven by the manufacturing of EV products by the JV Company to meet the EV demand of EV-Share Program. According to the JV Agreement, we are primarily responsible for supplying the JV Company with EV parts and the JV Company is primarily responsible for producing EV products and finished automobiles through sales channels to its end customers.
During the year ended December 31, 2014, of the total EV parts
sales, our revenues from the sale of auto generators to other customers were
$57,632, a decrease of $1,666,399, or 96.7% from $1,724,031 for the year ended
December 31, 2013 and a decrease of $3,459,605 or 98.4% from $3,517,237 for the
year ended December 31, 2012. This decrease in revenue was primarily due to the
realignment of Yongkang Scrous product offering to shift focus to the
manufacturing of automobile motors, air-conditioning systems, controllers, and
accelerator pedals for EVs.
32
EV Products
Our revenues from the sale of EV products for the fiscal year
of 2014 were $33,978,619 including $33,421,638 from selling EV products and
$556,981 from OEM-EV business line, representing a decrease of $12,640,584 or
27.1% from $46,619,203 for the year ended December 31, 2013 but an increase of
$14,943,683 or 78.5% from $19,034,936 for the year ended December 31, 2012,
respectively
We continued to sell certain EV products (completed automobiles)
during the year of 2014. Our revenues from the sale of EV products for the year
ended December 31, 2014 decreased by $13,197,565, or 28.3%, from $46,619,203 for
the year ended December 31, 2013 to $33,421,638 for the year ended December 31,
2014, representing a 44.4% of reduction in unit sales but a 29.0% of increase in
the average unit price. As compared to our sale of EV products for the year
ended December 31, 2012, we increased our sales by $14,386,702, or 75.6%,
representing a 33.4% of reduction in unit sales but a 163.6% of increase in the
average unit price. The increase of the average unit price was largely due to
the inclusion of the cost for battery packs in the unit selling price in 2014.
In addition, during the year ended December 31, 2014, our revenues from OEM
business were $556,981 or 0.3% of total revenue. We started our OEM business in
the second quarter of 2014, and our sales for the year ended December 31, 2014
were primarily derived from assembling EV products for Kandi Jinhua, a
wholly-owned subsidiary of the JV Company. Indirectly through our 50% ownership
interest in the JV Company, we have a 50% economic interest in Kandi Jinhua.
Our EV products business accounted approximately 20.0% of our
total revenue for the year ended December 31, 2014, reduced from 49.3% and 29.5%
in the years ended December 31, 2013 and 2012, respectively. Of the total sales
of EV products for the year ended December 31, 2014, approximately $25,593,023,
or 75.3%, was sold to Shanghai Maple. The sales of EV products were mainly
driven by the demand by EV-Share Program. In
March 2013, Kandi Vehicles and Shanghai Maple Guorun Automobile Co., Ltd.
(Shanghai Guorun), a 99%-owned subsidiary of Geely Automobile Holdings Ltd.
(Geely) formed a joint venture (the JV Company ) to develop, manufacture and
sell EVs and related auto parts. Under the JV Agreement, our EV product
manufacturing business will be gradually transferred to the JV Company. The
decreased sales of EV products in 2014 as compared to that in 2013 was a result
of this JV Agreement. In the future, under the JV Agreement, we will be mainly
responsible for supplying the JV Company with EV parts and the JV Company will
be responsible for manufacturing EV products and selling finished goods through
channel to its end customers.
Off-Road Vehicles
During the year ended December 31, 2014, our revenues from the
sale of off-road vehicles including selling go karts, all-terrain vehicles
(ATVs), and others were $19,819,078, representing a decrease of $26,373,733 or
57.1% from $46,192,811 for the year ended December 31, 2013 and a decrease of
$22,142,419 or 52.8% from $41,961,497 for the year ended December 31, 2012,
respectively.
Our off road vehicles business line accounted for approximately
11.6% of our total net revenue for the fiscal year 2014, compared to 48.9% for
the fiscal year 2013 and 65.0% for the fiscal year 2012, respectively. Of which
go-kart business accounted for approximately 7.5% of our total net revenue for
the year ended December 31, 2014, reduced from 35.1% and 47.7% for the years
ended December 31, 2013 and 2012, respectively, and ATV business accounted for
approximately 4.2% of our total net revenue for the year ended December 31,
2014, reduced from 11.0% and 9.9% for the years ended December 31, 2013 and
2012, respectively. The sales of three wheeled motorcycles, utility vehicles
(UTVs) and refitted cars were insignificant in the fiscal year of 2014 as
compared to the sales in the fiscal years 2013 and 2012. The decreased sales of
these products were primarily due to the rearrangement of our product portfolio
for more efficient use of our resources to capture more sales opportunities in
the fast-growing EV market in China.
33
The following table shows the breakdown of our net revenues
from customers by geographic markets:
|
|
Year Ended December 31 |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
Sales Revenue |
|
Percentage |
|
|
Sales Revenue |
|
Percentage |
|
|
Sales Revenue |
|
Percentage |
|
North America |
$ |
2,900,789 |
|
2.0% |
|
$ |
6,906,807 |
|
7.0% |
|
$ |
7,243,257 |
|
11.0% |
|
Europe and other regions |
|
5,729,035 |
|
3.0% |
|
|
2,394,948 |
|
3.0% |
|
|
1,639,990 |
|
3.0% |
|
China |
|
161,599,182 |
|
95.0% |
|
|
85,234,290 |
|
90.0% |
|
|
55,630,423 |
|
86.0% |
|
Total |
$ |
170,229,006 |
|
100.0% |
|
$ |
94,536,045 |
|
100.0% |
|
$ |
64,513,670 |
|
100.0% |
|
Cost of Goods Sold
Cost of goods sold for the year ended December 31, 2014 was
$146,825,073, representing an increase of $74,031,556, or 101.7%, from
$72,793,517 for the year ended December 31, 2013 and an increase of $95,204,793,
or 184.4%, from $51,620,280 for the year ended December 31, 2012. This increase
was primarily due to the corresponding increased sales for the year ended
December 31, 2014. However, the increase in cost of goods sold outpaced the
growth of our revenues, which was largely due to relatively less profitable raw
material purchases in our newly-added EV parts product line, and the sale of EV
parts accounted for 68.4% of total revenue for the year ended December 31, 2014.
As a result, cost of goods sold for our EV parts product line comprised the
majority, or 72.5%, of the total cost of goods sold for the year ended December
31, 2014. The battery sales accounted for the majority of our EV parts sales and
their corresponding cost of goods sold accounted for 61.6% of total cost of
goods sold.
For the year ended December 31, 2014, excluding the battery
business mentioned above, our cost of raw materials declined by 2.2% compared to
the sales increase in the same period of time year over year.
Excluding the battery business mentioned above, total wages and
salaries for the year ended December 31, 2014, increased by 1.8% compared to the
sale increase in the same period of time year over year.
Excluding the battery business mentioned above, our other
overhead costs for the year ended December 31, 2014 increased by 0.3% compared
to the sales increase in the same period of time year over year.
For the year ended December 31, 2014, raw material costs
comprised approximately 95.2% of total cost of goods sold, labor costs comprised
approximately 1.5% of total cost of goods sold, and manufacturing overhead
comprised approximately 3.3% of the total cost of goods sold. For the year ended
December 31, 2013, raw material costs comprised approximately 90.1% of total
cost of goods sold, labor costs comprised approximately 1.7% of total cost of
goods sold, and manufacturing overhead comprised approximately 8.2% of the total
cost of goods sold. For the year ended December 31, 2012, raw material costs
comprised approximately 91.5% of total cost of goods sold, labor costs comprised
approximately 2.5% of total cost of goods sold, and manufacturing overhead
comprised approximately 6.0% of the total cost of goods sold.
Gross Profit
Gross profit for the year ended December 31, 2014 was
$23,403,933 as compared to $21,742,528 for year ended December 31, 2013 and
$12,893,390 for year ended December 31, 2012, representing an increase of
$1,661,405 or 7.6% from 2013 and an increase of $10,510,543 or 81.5% from 2012,
respectively. This increase was primarily attributable to the increase in our
revenue driven by the sales of our newly-added business line of EV parts.
However, our gross margin for the year ended December 31, 2014 decreased to
13.7% from 23.0% for the year ended December 31, 2013 and 20.0% for the year
ended December 31, 2012. The decreased gross margin was mainly because the
majority of our revenue growth during the year ended December 31, 2014 came from
the relatively less profitable EV parts product lines, which accounted for 68.4%
of total sales for the year and had a gross margin of 8.5% compared to the
average gross margin of 13.7% for our company as a whole.
34
Research and Development
Research and development expenses, including materials, labor,
equipment depreciation, design, testing, inspection, and other related expense,
totaled $2,755,637 for the year ended December 31, 2014, compared to $3,728,730
for the year ended December 31, 2013 and $2,877,283 for the year ended December
31, 2012, representing a decrease of $973,093, or 26.1%, from 2013 and a
decrease of $121,646, or 4.2%, from 2012, respectively. These decreases were
primarily due to the shift of our business strategy to focus more of our efforts
on the China EV auto market and our primary responsibility under the JV
agreement, which is to supply the JV Company with EV parts rather than EV
products.
For the year ended December 31, 2014, approximately 40% of our
research and development expenses was spent on the research and development of
five new EV product models and the projects to develop new auto air conditioning
system, vehicle control system and EV intelligent control platform (centralized
control platform) used in our EV products, while the remaining or 60% of our
research and development expenses was spent on the projects to develop EV
related and off road vehicle products that we initiated in the previous year.
For the year ended December 31, 2013, the majority of our research and
development expense was spent to develop off road vehicle products. We initiated
research and development efforts to develop new EV products to meet market
demands in the fourth quarter of 2013.
Sales and Marketing
Selling and distribution expenses were $1,345,588 for the year
ended December 31, 2014, compared to $399,504 for the year ended December 31,
2013 and $455,983 for the year ended December 31, 2012, representing an increase
of $946,084, or 236.8%, from 2013 and an increase of $889,605, or 195.1%, from
2012, respectively. These increases were primarily attributable to the warranty
expenses of $832,439 for repair and maintenance charged during the year of 2014.
In 2014, we contracted a qualified third party to provide repair and maintenance
services for the 1,620 Kandi 7001 series EV sedans we have sold. Excluding this
charge, our selling and distribution expenses increased $113,645, or 28.4%, as
compared to last year. The increase was largely due to the increased expenses in
the shipping and handling costs and other sales and marketing related costs,
while decreased product liability insurance partially offset this increase.
General and Administrative
General and administrative expenses were $14,058,548 for the
year ended December 31, 2014, compared to $16,056,107 for the year ended
December 31, 2013 and $4,250,832 for the year ended December 31, 2012,
representing a decrease of $1,997,559,or 12.4%, from 2013 and an increase of
$9,807,716, or 230.7%, from 2012, respectively. For the year ended December 31,
2014, general and administrative expenses included $8,455,422 in expenses for
common stock awards to employees and consultants for their services, compared to
$9,658,320 and $85,558 for the years ended December 31, 2013 and 2012,
respectively. Excluding stock award costs, our net general and administrative
expenses for the year ended December 31, 2014 were $5,603,126, a decrease of
$794,661, or 12.4%, compared to $6,397,787 for the year ended December 31, 2013.
This decrease was primarily attributable to more costs related to the capital
raise were expensed in 2013 than 2014. The costs related to issuance of the
derivative instruments in the capital raises during 2014, or $578,757, were
expensed upon issuance in 2014. Additionally, the general and administrative
expenses in 2012 also included $19,053 of stock-based compensation costs for the
options issued to our executives and managerial level employees, while for the
years ended December 31, 2014 and 2013, we didnt have such expenses.
Interest Income (Expense), Net
Net interest expense was $1,779,525 for the year ended December
31, 2014, compared to $2,878,876 for the year ended December 31, 2013 and
$117,787 for the year ended December 31, 2012, representing a decrease of
$1,099,351, or 38.2%, from 2013 but an increase of $1,661,738, or 1,410.8%, from
2012. The decrease in net interest expense compared to last year was primarily
attributable to an increase in interest income earned on loans made to third
parties for the year ended December 31, 2014. We recorded interest income of
$1,701,121 for the year ended December 31, 2014, which included$1,573,421 earned
on loans made to third parties, $39,849 earned on an entrusted loan lent
to the JV Company through Bank of Communications Hangzhou Zhongan Branch as the
agent bank, and $87,851 earned on bank deposits. We recorded interest expense of
$3,480,646 for the year ended December 31, 2014, which included bank loan
interest of $2,217,955 and bond interest of $1,262,691.
35
Change in Fair Value of Financial Instruments
For the year ended December 31, 2014, the gain related to
changes in the fair value of the derivative liability relating to the warrants
issued to investors and placement agents was $6,531,308, compared to a loss of
$16,647,283 for the year ended December 31, 2013 and a gain of $1,986,063 for
the year ended December 31, 2012, an increase of $23,178,591from 2013 and an
increase of $4,545,245 from 2012, respectively. The gain on the changes in the
fair value of derivative liability was due to the decrease in the fair value
price of the derivative which was primarily attributable to two factors. First,
it was caused by the decrease in our stock price of the common stock underlying
the warrants issued on September 4, 2014, which decreased from $17.13 on the
issuance date to $14.01 on December 31, 2014. Secondly, it was due to the
passage of remaining life of outstanding warrants (excluding the warrants issued
in September 2014), a significant portion of which warrants expired in January
2015.
Government Grants
Government grants totaled $288,498 for the year ended December
31, 2014, representing an increase of $60,102, or 26.3%, from $228,396 in 2013
and an increase of $156,359, or 118.3%, from $132,139 in 2013. The increases
were largely due to the subsidies we received from the Chinese government for
promoting local business and innovation.
Share of Profit (Loss) of Associated Company
Investment losses were $54,308 for the year ended December 31,
2014, compared to a loss of $69,056 for the year ended December 31, 2013 and a
loss of $69,429 for the year ended December 31, 2012, a decrease of $14,748, or
21.4%, from 2013 and a decrease of $15,121, or 21.8%, from 2012, respectively.
For the years ended December 31, 2014 and 2013, these losses were attributable
to our 30% equity ownership of Jinhua Service. In July 2014, Jinhua Service
ceased its operations and was dissolved. As a result, we wrote off the remaining
investment in this entity and associated liabilities due to this entity.
Share of Profit (Loss) after Tax of the JV
Company
For the year ended December 31, 2014, the JV Companys net
sales were $215,537,203, gross income was $41,889,144, and net income was
$7,526,164. We accounted for our investments in the JV Company under the equity
method of accounting as we have a 50% ownership interest in the JV Company. As a
result, we recorded 50% of the JV Companys profit, or $3,763,082 for the year
ended December 31, 2014. After eliminating intra-entity profits and losses, our
share of the after tax profit of the JV Company was $4,490,266 for the year
ended December 31, 2014, compared to a loss of $2,414,354 for the year ended
December 31, 2013, representing an increase in income of $6,904,620.
During the year of 2014, the JV Companys revenues were
primarily derived from the sales of EV products in the PRC with a total of
10,935 units sold during the year.
Other Income (Expense), Net
Net other expense was ($34,649) for the year ended December 31,
2014, compared to net other income of $676,257 for the year ended December 31,
2013 and net other income of $332,936 for the year ended December 31, 2012, a
decrease in net other income of $710,906, or 105.1%, from 2013 and a decrease in
net other income of $367,585, or 110.4% from 2012, respectively. This difference
was primarily attributable to a write-off of $841,251 payable to Ever Lotts
Investment Limited incurred in 2013. In addition, we received less rental income
received during the year of 2014.
36
Income Taxes
In accordance with the relevant tax laws and regulations of the
PRC, our applicable corporate income tax rate is 25%. However, Kandi Vehicle is
a qualified as high technology company in China and is therefore entitled to pay
a reduced income tax rate of 15%.
Each of our wholly-owned subsidiaries, Kandi New Energy,
Yongkang Scrou and Kandi Wanning, has an applicable corporate income tax rate of
25%.
We have a 50% ownership interest in the JV Company, which has
an applicable corporate income tax of 25%. Each of the JV Companys subsidiaries
has an applicable corporate income tax rate of 25% as well.
We qualified as a high technology company in China, and were
entitled to pay a reduced income tax rate of 15%. After combining with the
research and development tax credit of 25% on certain qualified research and
development expenses, our effective reduced income tax rate was 18.40% as
compared to 16.68% in 2013. The combined tax benefit was 60.38% as compared to
50.1% in 2013. The actual effective income tax rate was reduced from 25% to
9.91% of the 2014 taxable corporate income as compared to 12.48% of the 2013
taxable corporate income.
Net Income (Loss)
We recorded net income of $12,271,338 for the year ended December 31, 2014, compared to net loss of ($21,140,723) for the year ended December 31, 2013 and a net income of $6,049,479 for the year ended December 31, 2012, an increase of $33,412,061, or 158.0%, from the year ended December 31, 2013 and an increase of $6,221,859, or 102.8%, from the year ended December 31, 2012, respectively. The net income was primarily attributable to increased revenue and gross profits, and the gain from the change in the fair value of warrant derivatives.
Excluding (i) the effects of stock award expenses, which were
$8,455,422 and $9,658,320 for the years ended December 31, 2014 and 2013,
respectively, and (ii) the change of the fair value of financial derivatives,
which were a gain of $6,531,308 and a loss of ($16,647,283) for the years ended
December 31, 2014 and 2013, respectively, our net income (non-GAAP) was
$14,195,452for the year ended December 31, 2014 as compared to net income
(non-GAAP) of $5,164,880 for the year ended December 31, 2013, an increase of
$9,030,572 or 174.8%. The increase in such net income was primarily
attributable to the increase of revenue and gross profits during the year of
2014.
We make reference to certain non-GAAP financial measures, i.e.,
the adjusted net income. Management believes that such adjusted financial result
is useful for investors in evaluating our operating performance because it
presents a meaningful measure of corporate performance. See the non-GAAP
reconciliation table below. Any non-GAAP measures should not be considered as a
substitute for, and should only be read in conjunction with, measures of
financial performance prepared in accordance with GAAP.
The following table summarizes our non-GAAP net income from
continuing operations for the years ended December 31, 2014, 2013and 2012:
|
|
Year Ended December 31 |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
GAAP net income (loss) |
$ |
12,271,338 |
|
$ |
(21,140,723 |
) |
$ |
6,049,479 |
|
Stock award expenses |
|
8,455,422 |
|
|
9,658,320 |
|
|
85,558 |
|
Options expenses |
|
- |
|
|
- |
|
|
19,053 |
|
Convertible note's interest expense |
|
- |
|
|
- |
|
|
2 |
|
Amortization of discount on
convertible notes |
|
- |
|
|
- |
|
|
43 |
|
Change of the fair value of financial
derivatives |
|
(6,531,308 |
) |
|
16,647,283 |
|
|
(1,986,063 |
) |
Non-GAAP net income |
$ |
14,195,452 |
|
$ |
5,164,880 |
|
$ |
4,168,072 |
|
37
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
For the year ended December 31, 2014, cash used in operating
activities was $7,453,756, as compared to cash provided by operating activities
of $14,687,446 for the year ended December 31, 2013 and cash used in operating
activities of $10,721,895 for the year ended December 31, 2012. The major
operating activities that provided cash for the year ended December 31, 2014
were net income of $12,271,338, an increase in accounts payable of $23,095,825
and a decrease in accounts receivable of $15,445,962. The major operating
activity that used cash for the year ended December 31, 2014 was an increase in
receivables from the JV Company of $48,593,522.
Cash used in investing activities for the year ended December
31, 2014 was $50,108,255, as compared to cash used in investing activities of
$59,844,162 and $4,751,858 for the years ended December 31, 2013 and 2012,
respectively. Cash provided by investing activities for the year ended December
31, 2014 was primarily the result of the repayment of notes receivable of
$29,354,592. Cash used in investing activities for the year ended December 31,
2014 was primarily the result of the purchases of construction in progress of
$50,891,170 and the issuance of notes receivable of $24,705,489.
Cash provided by financing activities for the year ended
December 31, 2014 was $72,775,040, as compared to cash provided by financing
activities of $46,317,978 and $25,622,819 for the years ended December 31, 2013
and 2012, respectively. Cash provided by financing activities for the year ended
December 31, 2014 was primarily the result of proceeds from short-term loans of
$48,306,743, proceeds from notes payable of $18,718,944, proceeds from common
stock and warrants issued of $78,358,991, and proceeds from warrant exercises of
$21,101,039. Cash used in financing activities for the year ended December 31,
2014 was primarily the result of repayments of short-term loans of $46,517,604,
repayments of notes payable of $29,602,112, repayment of bond payable of
$13,011,917 and placement of restricted cash of $13,010,291.
As of December 31, 2014, we had unrestricted cash of
$26,379,460. Our total current assets were $138,327,197, and our total current
liabilities were $99,124,513, which resulted in a net working capital of
$39,202,684.
Working Capital
We had a working capital surplus of $39,202,684 at December 31,
2014, which reflected an increase from a working capital deficit of ($6,631,680)
as of December 31, 2013.
As of December 31, 2014, we had credit lines from commercial
banks of $42,739,904, of which $35,589,502 was used as of December 31, 2014. We
believe that our cash flows generated internally may not be sufficient to
support the growth in operations and to repay short-term bank loans for the next
twelve (12) months. However, we believe our access to existing financing
sources, including the remaining net proceeds from our $71 million registered
direct offering financing completed on September 4, 2014, and established
relationships with PRC banks will enable us to meet our obligations and fund its
ongoing operations.
We have historically financed our 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. We believe that this situation has not changed and that short-term
bank loans will be available on normal trade terms if needed.
On March 24, 2014, we raised approximately $11.05 million from
the sale to two institutional investors of an aggregate of 606,000 shares of our
common stock at a price of $18.24 per share. As part of the transaction, we also
issued to the investors warrants for the purchase of up to 90,900 shares of
common stock at an exercise price of $22.80 per share, which warrants expire in
September 2015.
38
On September 4, 2014, we raised approximately $71.00 million
before deducting fees to the placement agent and other offering expenses
incurred us from the sale to six institutional investors of an aggregate of
4,127,908 shares of our common stock at a price of $17.20 per share. As part of
the transaction terms, we also issued to the investors warrants for the purchase
of up to 743,024 shares of common stock at an exercise price of $21.50 per
share, which warrants expire in February 2016.
Capital Requirements and Capital Provided
Capital requirements and capital provided for the year ended
December 31, 2014 were as follows:
|
|
Year Ended |
|
|
|
12/31/2014 |
|
Capital requirements |
|
(In thousands) |
|
Purchase of plant and equipment |
$ |
2,101 |
|
Purchases
of land use rights |
|
1,669 |
|
Purchase of construction in progress |
|
50,891 |
|
Issuance of
notes receivable |
|
24,706 |
|
Disposal of associated company |
|
96 |
|
Repayments
of short-term bank loans |
|
46,518 |
|
Repayments of notes payable |
|
29,602 |
|
Repayments
of bond |
|
13,012 |
|
Increase in restricted cash |
|
13,010 |
|
Internal
cash used in operations |
|
7,454 |
|
Increase in cash |
|
13,617 |
|
Total
capital requirements |
$ |
202,676 |
|
|
|
|
|
Capital provided |
|
|
|
Repayments of notes receivable |
$ |
29,355 |
|
Proceeds
from short-term bank loan |
|
48,307 |
|
Proceeds from notes payable |
|
18,719 |
|
Common
stock and warrants issued |
|
78,359 |
|
Warrant exercise |
|
21,101 |
|
Other
financing activities |
|
8,431 |
|
Total capital provided |
$ |
204,272 |
|
The difference between capital provided and capital required is
caused by the exchange rate changes over the past twelve months.
Contractual Obligations and Off-balance Sheet
Arrangements
Contractual Obligations
The following table summarizes our contractual obligations:
39
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations |
|
|
Total |
|
|
Less than 1 year |
|
|
1 3 years |
|
|
3 5 years |
|
|
More than 5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction-in-progress |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations |
|
$ |
103,999,090 |
|
$ |
103,999,090 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
103,999,090 |
|
$ |
103,999,090 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Short-term Loans:
Short-term loans are summarized as follows:
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Loans from Jinhua Bank
|
|
|
|
|
|
|
Monthly interest only payments at 6.30% per
annum, due October 10, 2014, guaranteed by Mr. Hu Xiaoming and Ms. Ling
Yueping, and secured by the assets of the Company. The loan was fully
repaid. Also see Note 13 and Note 14. |
$ |
- |
|
$ |
1,635,590 |
|
|
|
|
|
|
|
|
Monthly interest only payments at 6.30% per
annum, due December 2, 2014, guaranteed by Mr. Hu Xiaoming and Ms. Ling
Yueping, and secured by the assets of the Company. The loan was fully
repaid. Also see Note 13 and Note 14. |
|
- |
|
|
817,795 |
|
|
|
|
|
|
|
|
Monthly interest only payments at 6.30% per
annum, due December 2, 2014, guaranteed by Zhejiang Kangli Metal
Manufacturing Company, Mr. Hu Xiaoming, Ms. Ling Yueping, Mr. Lv Qingbo
and Mr. Lv Qingjiang, and secured by the assets of the Company. The loan
was fully repaid. Also see Note 13 and Note 14. |
|
- |
|
|
3,271,181 |
|
|
|
|
|
|
|
|
Loans from Yongkang Rural Cooperative
Bank |
|
|
|
|
|
|
Monthly interest only
payments at 1.026% per month, due March 31, 2014, guaranteed by Yongkang
Sanli Metal Co., Ltd. The loan was fully repaid. |
|
- |
|
|
817,795 |
|
|
|
|
|
|
|
|
Loans from China
Ever-bright Bank |
|
|
|
|
|
|
Monthly interest only payments at 6.94% per
annum, due May 14, 2014, secured by the assets of the Company, guaranteed
by Mr. Hu Xiaoming, Mr. Hu Wangyuan, Nanlong Group Co., Ltd. and Zhejiang
Mengdeli Electric Co., Ltd. The loan was fully repaid. Also see Note 13
and Note 14. |
|
- |
|
|
12,757,606 |
|
|
|
|
|
|
|
|
Monthly interest only payments at 7.08% per
annum, due May 11, 2015, secured by the assets of the Company, guaranteed
by Mr. Hu Xiaoming, Mr. Hu Wangyuan, Nanlong Group Co., Ltd. and Zhejiang
Mengdeli Electric Co., Ltd. Also see Note 13 and Note 14. |
|
12,675,713 |
|
|
- |
|
Loans from Shanghai Pudong
Development Bank |
|
|
|
|
|
|
Monthly interest only payments at 6.60% per
annum, due September 4, 2014, secured by the assets of the Company,
guaranteed by Mr. HuXiaoming. The loan was fully repaid. Also see Note 13
and Note 14. |
|
- |
|
|
6,542,362 |
|
|
|
|
|
|
|
|
Loans from Bank of Shanghai |
|
|
|
|
|
|
Monthly interest only payments at 6.60% per
annum, due December 27, 2014, guaranteed by Mr. Hu Xiaoming, Ms. Ling
Yueping, Zhejiang Kangli Metal Manufacturing Company and Nanlong Group
Co., Ltd. The loan was fully repaid. |
|
- |
|
|
4,906,771 |
|
|
|
|
|
|
|
|
Loans from China Ever-growing Bank
|
|
|
|
|
|
|
Monthly interest only payments at 7.20% per annum, due
April 22, 2014, guaranteed by Mr. Hu Xiaoming, Ms. Ling Yueping, Zhejiang
Shuguang industrial Co., Ltd. and Zhejiang Mengdeli Electric Company. The
loan was fully repaid. |
|
- |
|
|
3,271,181 |
|
Monthly interest only payments at 7.20% per
annum, due April 22, 2015, guaranteed by Mr. Hu Xiaoming, Ms. Ling
Yueping, and Zhejiang Shuguang industrial Co., Ltd. |
|
3,250,183 |
|
|
- |
|
|
|
|
|
|
|
|
Loans from Hangzhou Bank |
|
|
|
|
|
|
Monthly interest only payments at 6.00% per annum, due
October 20, 2015, secured by the assets of the Company. Also see Note 13
and Note 14. |
|
7,930,446 |
|
|
- |
|
Monthly interest only payments at 6.00% per
annum, due November 17, 2015, secured by the assets of the Company. Also
see Note 13 and Note 14. |
|
11,733,160 |
|
|
- |
|
|
$ |
35,589,502 |
|
$ |
34,020,281 |
|
40
Guarantees and pledged collateral for third party bank loans
As of December 31, 2014 and 2013, we provided guarantees for
the following third parties:
(1) Guarantees for bank loans
Guarantee provided to: |
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Yongkang Angtai Trade Co., Ltd. |
$ |
- |
|
$ |
817,795 |
|
Nanlong Group Co., Ltd. |
|
9,750,548 |
|
|
9,813,543 |
|
Zhejiang Shuguang industrial Co., Ltd. |
|
4,875,274 |
|
|
4,906,771 |
|
Zhejiang Kangli Metal Manufacturing Company. |
|
4,875,274 |
|
|
4,906,771 |
|
Total |
$ |
19,501,096 |
|
$ |
20,444,880 |
|
On January 6, 2013, we entered into a guarantee contract to
serve as the guarantor for the bank loans borrowed from China Communication Bank
Jinhua Branch in the amount of $817,795 by Yongkang Angtai Trade Co., Ltd.
(YATCL) for the period from January 6, 2013 to January 6, 2014. YATCL is not
related to our company. Under this guarantee contract, we agreed to perform all
obligations of YATCL under the loan contracts if YATCL fails to perform its
obligations as set forth therein.
On February 26, 2013, we entered into a guarantee contract to
serve as the guarantor for the bank loan borrowed from PingAn Bank in the amount
of $4,906,771 by Zhejiang Shuguang Industrial Co., Ltd. (ZSICL) for the period
from February 26, 2013 to February 26, 2014. On March 4, 2014, we entered into a
guarantee contract to serve as the guarantor for the bank loan borrowed from
PingAn Bank in the amount of $4,875,274 by Zhejiang Shuguang industrial Co.,
Ltd. (ZSICL) for the period from March 4, 2014 to March 4, 2015. ZSICL is not
related to our company. Under these guarantee contracts, we agreed to perform
all obligations of ZSICL under the loan contracts if ZSICL fails to perform its
obligations as set forth therein.
41
On March 15, 2013 and December 27, 2013, we entered into two
guarantee contracts to serve as the guarantor for the bank loans borrowed from
Shanghai Pudong Development Bank Jinhua Branch and Shanghai Bank Hangzhou branch
in the amount of $3,250,183 and $6,500,366, respectively, by Nanlong Group Co.,
Ltd. (NGCL) for the period from March 15, 2013 to March 15, 2016, and December
27, 2013 to December 27, 2014, respectively. The guarantee contract to serve as
the guarantor for the bank loan borrowed from Shanghai Bank Hangzhou branch was
extended for four months to April 27, 2015 with the same terms after its
original contract ended on December 27, 2014. NGCL is not related to our
company. Under these guarantee contracts, we agreed to perform all obligations
of NGCL under the loan contract if NGCL fails to perform its obligations as set
forth therein.
On December 27, 2013, we entered into a guarantee contract to
serve as the guarantor for the bank loan borrowed from Shanghai Bank Hangzhou
branch in the amount of $ 4,875,274 by Zhejiang Kangli Metal Manufacturing
Company (ZKMMC) for the period from December 27, 2013 to December 27, 2014.
The guarantee contract was extended for six months to June 27, 2015 with the
same terms after its original contract ended on December 27, 2014. ZKMMC is not
related to our company. Under this guarantee contract, we agreed to perform all
obligations of ZKMMC under the loan contract if ZKMMC fails to perform its
obligations as set forth therein.
(2) Pledged collateral for a third party bank loans
As of December 31, 2014 and 2013, none of our land use rights
or plant and equipment were pledged as collateral securing bank loans to third
parties.
Critical Accounting Policies and Related Estimates That
Could Have a Material Effect on Our Consolidated Financial Statements
This section should be read together with the Summary of
Significant Accounting Policies in the attached consolidated financial
statements included in this Annual Report.
Estimates affecting accounts receivable and
inventories
The preparation of our consolidated financial statements
requires management to make estimates and assumptions that affect our reporting
of assets and liabilities (and contingent assets and liabilities). These
estimates are particularly significant where they affect the reported net
realizable value of our accounts receivable and inventories.
Accounts receivable are recognized and carried at net
realizable value. An allowance for doubtful accounts is recorded in the period
when a loss is probable based on an assessment of specific factors, such as
troubled collection, historical experience, accounts aging, ongoing business
relations and other factors. Accounts are written off after exhaustive efforts
at collection. If accounts receivable are to be provided for, or written off,
they would be recognized in the consolidated statement of operations within
operating expenses. We had an allowance for doubtful accounts of $0 for the
years ended December 31, 2014 and 2013, in accordance with our management's
judgment based on their best knowledge.
Inventory is stated at the lower of cost, determined on a
weighted average basis, or net realizable value. Net realizable value is the
estimated selling price in the ordinary course of business less the estimated
cost of completion and the estimated costs necessary to make the sale.
Adjustments to reduce the cost of inventory to its net realizable value are
made, if required, for estimated excess, obsolescence, or impaired balances.
When inventories are sold, their carrying amount is charged to expense in the
year in which the revenue is recognized. Write-downs for declines in net
realizable value or for losses of inventories are recognized as an expense in
the year the impairment or loss occurs. There was a $315,584 and $352,734 of
decline in net realizable value of inventory for the year ended of December 31,
2014 and 2013 due to our provision for slow moving inventory.
Although we believe that there is little likelihood that actual
results will differ materially from current estimates, if customer demand for
our products decreases significantly in the near future, or if the financial
condition of our customers deteriorates in the near future, we could realize
significant write downs for slow-moving inventories or uncollectible accounts
receivable.
42
Policy affecting recognition of revenue
Our revenue recognition policy plays a key role in our
consolidated financial statements. Revenues represent the invoiced value of
goods sold, recognized upon the shipment of goods to customers, and revenues are
recognized when all of the following criteria are met:
1. |
Persuasive evidence of an arrangement exists; |
2. |
Delivery has occurred or services have been
rendered; |
3. |
The seller's price to the buyer is fixed or determinable;
and |
4. |
Collectability is reasonably
assured. |
The revenue recognition policies for our EV products and legacy
products including ATVs, go-karts and other products are the same: When the
products are delivered, the associated risk of loss is deemed transferred, and
at that time we recognize revenue.
Policy affecting options, warrants and convertible
notes
Our stock option cost is recorded in accordance with ASC 718
and ASC 505. The fair value of stock options is estimated using the
Black-Scholes-Merton model. Our expected volatility assumption is based on the
historical volatility of our 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. Stock option expense recognition is based on awards
expected to vest. 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.
Our warrant costs are recorded in liabilities and equities,
respectively, in accordance with ASC 480, ASC 505 and ASC 815. The fair value of
a warrant, which is classified as a liability, is estimated using the
Black-Scholes-Merton model and the lattice valuation model. Our expected
volatility assumption is based on the historical volatility of our common stock.
The expected life assumption is primarily based on the expiration date of the
warrant. The risk-free interest rate for the expected term of the warrant is
based on the U.S. Treasury yield curve in effect at the time of measurement. The
warrants, which are freestanding derivatives classified as liabilities on the
balance sheet, are measured at fair value on each reporting date, with decreases
in fair value recognized in earnings and increases in fair values recognized in
expenses.
The fair value of equity-based warrants, which are not
considered derivatives under ASC 815, is estimated using the
Black-Scholes-Merton model. Our expected volatility assumption is based on the
historical volatility of our common stock. The expected life assumption is
primarily based on the expiration date of the warrant. 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.
In accordance with ASC 815, the conversion feature of the
convertible notes is separated from the debt instrument and accounted for
separately as a derivative instrument. On the date the convertible notes are
issued, the conversion feature is recorded as a liability at its fair value, and
future decreases in fair value are recognized in earnings while increases in
fair values are recognized in expenses. We used the Black-Scholes-Merton
option-pricing model to obtain the fair value of the conversion feature. We
expected volatility assumption is based on the historical volatility of our
common stock. The expected life assumption is primarily based on the expiration
date of the conversion features. The risk-free interest rate for the expected
term of the conversion features is based on the U.S. Treasury yield curve in
effect at the time of measurement.
Warranty Liability
Most of our non-EV products (the Legacy Products) are
exported out of China to foreign countries that have legal and regulatory
requirements with which we are not familiar. Development of warranty policies
for our Legacy Products in each of these countries would be virtually impossible
and prohibitively expensive. Therefore, we provide price incentives and free
parts to our customers and in exchange, our customers establish appropriate
warranty policies and assume warranty responsibilities.
43
Consequently, warranty issues are taken into consideration
during the price negotiation for our products. The free parts are delivered
along with the products, and when products are sold, the related parts are
recorded as cost of goods sold. Due to the reliable quality of our products, we
have been able to maintain this warranty policy and we have not had any product
liability attributed to the quality of our products.
For the EV products that we sell in China, there is a 3 year or
50,000 kilometer manufacturer warranty. This warranty affects the Company
through our participation and investment in the JV Company, which manufactures
the EVs.
Item 7A.Quantitative and Qualitative Disclosures About
Market Risk.
Foreign Currency Exchange Rate Risk
While our reporting currency is the U.S. dollar, to date the
majority of our revenues and costs are denominated in RMB and a significant
portion of our assets and liabilities are denominated in RMB. As a result, we
are exposed to foreign exchange risk as our revenues and results of operations
may be affected by fluctuations in the exchange rate between the U.S. dollar and
the RMB. If the RMB depreciates against the U.S. dollar, the value of our RMB
revenues and assets as expressed in our U.S. dollar financial statements will
decline. Since 2005, China reformed its exchange rate regime and the RMB is no
longer pegged to the U.S. dollar. In 2010, the Peoples Bank of China decided to
move further to reform the RMB exchange rate regime to enhance the flexibility
of the RMB exchange rate. At the end of 2014, the RMB has already appreciated
more than 10% since 2010. In the long term, the RMB may appreciate or depreciate
more significantly in value against the U.S. dollar or other foreign currencies,
depending on the market supply and demand with reference to a basket of
currencies. To date, we have not entered into any hedging transactions in an
effort to reduce our exposure to foreign currency exchange risk. While we may
decide to enter into hedging transactions in the future, the effectiveness of
these hedges may be limited and we may not be able to successfully hedge our
exposure. Accordingly, we may incur economic losses in the future due to foreign
exchange rate fluctuations, which could have a negative impact on our financial
condition and results of operations.
Interest Rate Risk
We had cash and cash equivalents and restricted cash totaling
$39.4 million and notes receivable of $9.1 million as of December 31, 2014. Cash
and cash equivalents are held for working capital purposes. We do not enter into
investments for trading or speculative purposes. As of December 31, 2014, we had
$35.6 million of short-term bank loans outstanding, which are fixed rate
instruments. Our exposure to interest rate risk primarily relates to the
interest income generated from cash held in bank deposits and notes receivable,
and interest expense generated from short-term bank loans. We believe that we do
not have any material exposure to changes in the fair value as a result of
changes in interest rates due to the short term nature of our cash equivalents.
We have not been exposed nor do we anticipate being exposed to material risks
due to changes in interest rates.
Inflation Rate Risk
According to the National Bureau of Statistics of China, the
change in the consumer price index in China was 2.0%, 2.6% and 2.6% in 2014,
2013, and 2012, respectively. China's inflation rate in 2014 was near a
five-year low and was well below the government's target of 3.5%. China's
National Statistics Bureau said the fall was largely due to falling oil prices.
While this rate declined in 2014 compared to the past two years, there may be
further increased inflation in the future, which could have an adverse effect on
our business.
Item 8. Financial Statements and Supplementary Data.
44
KANDI TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2014 AND 2013
KANDI TECHNOLOGIES GROUP, INC.
AND
SUBSIDIARIES
CONTENTS |
PAGE F-2 |
REPORTS
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS |
|
|
PAGES
F-3-4 |
CONSOLIDATED
BALANCE SHEETS AS OF DECEMBER 31, 2014 AND 2013 |
|
|
PAGES
F-5 |
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER
31, 2014, 2013 AND 2012 |
|
|
PAGE
F-6 |
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER
31, 2014, 2013 AND 2012 |
|
|
PAGES F-7 |
CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND
2012 |
|
|
PAGES
F-8-34 |
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
2014, 2013 AND 2012 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To: The Board of Directors and Stockholders of Kandi
Technologies Group, Inc
We have audited the accompanying consolidated balance sheet of
Kandi Technologies Group, Inc. and subsidiaries ("the Company") as of December
31, 2014 and 2013 and the related consolidated statements of income and
comprehensive income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2014. We have also audited the internal
control over financial reporting of the Company as of December 31, 2014, based
on criteria established in the Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework). The Company's management is responsible for these consolidated
financial statements, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management's Annual Report on
Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on these consolidated financial statements and an opinion on the
Company's internal control over financial reporting based on our audit.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of Kandi Technologies Group, Inc. as of December 31, 2014 and 2013 and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2014, in conformity with US
generally accepted accounting principles.
Also, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2014, based on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework).
Hong Kong, China |
/s/ AWC (CPA) Limited |
March 16, 2015 |
Certified Public Accountants
|
F-2
KANDI TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
26,379,460 |
|
$ |
12,762,369 |
|
Restricted cash |
|
13,000,731 |
|
|
1,636 |
|
Accounts receivable |
|
15,736,805 |
|
|
31,370,862 |
|
Inventories (net of provision
for slow moving inventory of $315,584 and $352,734 as of December 31,
2014 and 2013 respectively |
|
15,403,840 |
|
|
9,187,714 |
|
Notes receivable |
|
9,060,441 |
|
|
13,794,094 |
|
Other receivables |
|
238,567 |
|
|
556,904 |
|
Prepayments and prepaid expenses |
|
120,761 |
|
|
505,513 |
|
Due from employees |
|
34,475 |
|
|
34,272 |
|
Advances to suppliers |
|
6,901,505 |
|
|
8,867,074 |
|
Amount due from JV Company,
net |
|
51,450,612 |
|
|
2,917,592 |
|
Deferred tax |
|
- |
|
|
13,706 |
|
Total Current Assets |
|
138,327,197 |
|
|
80,011,736 |
|
|
|
|
|
|
|
|
LONG-TERM ASSETS |
|
|
|
|
|
|
Plant and equipment, net |
|
26,215,356 |
|
|
29,333,516 |
|
Land use rights, net |
|
15,649,152 |
|
|
14,453,191 |
|
Construction in progress |
|
58,510,051 |
|
|
16,356 |
|
Deferred taxes |
|
- |
|
|
81,076 |
|
Investment in associated company |
|
- |
|
|
96,838 |
|
Investment in JV Company |
|
83,309,095 |
|
|
79,331,930 |
|
Goodwill |
|
322,591 |
|
|
322,591 |
|
Intangible assets |
|
577,401 |
|
|
659,496 |
|
Other long-term assets |
|
162,509 |
|
|
- |
|
Total
Long-Term Assets |
|
184,746,155 |
|
|
124,294,994 |
|
TOTAL ASSETS |
$ |
323,073,352 |
|
$ |
204,306,730 |
|
See notes to consolidated financial statements
F-3
KANDI TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
CURRENT LIABILITIES |
|
|
|
|
|
|
Accounts payable |
$ |
45,772,481 |
|
$ |
22,843,143 |
|
Other payables and accrued
expenses |
|
5,101,740 |
|
|
2,422,613 |
|
Short-term bank loans |
|
35,589,502 |
|
|
34,020,281 |
|
Customer deposits |
|
2,630,723 |
|
|
44,404 |
|
Notes payable |
|
5,702,121 |
|
|
16,683,023 |
|
Income tax payable |
|
1,835,685 |
|
|
1,362,828 |
|
Due to employees |
|
15,787 |
|
|
10,297 |
|
Deferred taxes |
|
230,864 |
|
|
- |
|
Financial derivate - liability |
|
2,245,610 |
|
|
9,256,827 |
|
Total
Current Liabilities |
|
99,124,513 |
|
|
86,643,416 |
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
Deferred tax |
|
2,266,725 |
|
|
1,009,477 |
|
Bond payable |
|
- |
|
|
13,084,724 |
|
Financial derivatives - liability |
|
10,097,275 |
|
|
15,042,994 |
|
Total
Long-Term Liabilities |
|
12,364,000 |
|
|
29,137,195 |
|
TOTAL LIABILITIES |
|
111,488,513 |
|
|
115,780,611 |
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
Common stock, $0.001 par
value; 100,000,000 shares authorized; 46,274,855 and 37,012,904 shares
issued and outstanding at December 31, 2014 and 2013, respectively |
|
46,275 |
|
|
37,013 |
|
Additional paid-in capital |
|
190,258,037 |
|
|
76,754,774 |
|
Retained earnings (the
restricted portion is $4,172,324 and $3,807,551 at December 31, 2014
and 2013, respectively) |
|
16,390,424 |
|
|
4,119,086 |
|
Accumulated other comprehensive income |
|
4,890,103 |
|
|
7,615,246 |
|
TOTAL
STOCKHOLDERS' EQUITY |
|
211,584,839 |
|
|
88,526,119 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ |
323,073,352 |
|
$ |
204,306,730 |
|
See notes to consolidated financial statements
F-4
KANDI TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR
THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
REVENUES, NET
|
$ |
170,229,006 |
|
$ |
94,536,045 |
|
$ |
64,513,670 |
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD |
|
(146,825,073 |
) |
|
(72,793,517 |
) |
|
(51,620,280 |
) |
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
23,403,933 |
|
|
21,742,528 |
|
|
12,893,390 |
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
Research and development |
|
(2,755,637 |
) |
|
(3,728,730 |
|
|
(2,877,283 |
) |
Selling and marketing |
|
(1,345,588 |
) |
|
(399,504 |
) |
|
(455,983 |
) |
General and administrative |
|
(14,058,548 |
) |
|
(16,056,107 |
) |
|
(4,250,832 |
) |
Total operating expenses |
|
(18,159,773 |
) |
|
(20,184,341 |
) |
|
(7,584,098 |
) |
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
5,244,160 |
|
|
1,558,187 |
|
|
5,309,292 |
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
(EXPENSE): |
|
|
|
|
|
|
|
|
|
Interest income |
|
1,701,121 |
|
|
1,516,477 |
|
|
2,658,104 |
|
Interest (expense) |
|
(3,480,646 |
) |
|
(4,395,353 |
) |
|
(2,775,891 |
) |
Change in fair value of financial instruments
|
|
6,531,308 |
|
|
(16,647,283 |
) |
|
1,986,063 |
|
Government grants |
|
288,498 |
|
|
228,396 |
|
|
132,139 |
|
Share of (loss) in associated companies |
|
(54,308 |
) |
|
(69,056 |
) |
|
(69,429 |
) |
Share of profit (loss) after tax of
JV |
|
4,490,266 |
|
|
(2,414,354 |
) |
|
- |
|
Other income (expense), net |
|
(34,649 |
) |
|
676,257 |
|
|
332,936 |
|
Total other income (expense), net |
|
9,441,590 |
|
|
(21,104,916 |
) |
|
2,263,922 |
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES |
|
14,685,750 |
|
|
(19,546,729 |
) |
|
7,573,214 |
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME
TAXES |
|
(2,414,412 |
) |
|
(1,593,994 |
) |
|
(1,523,735 |
) |
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
12,271,338 |
|
|
(21,140,723 |
) |
|
6,049,479 |
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE
INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
(2,725,143 |
) |
|
2,112,902 |
|
|
424,623 |
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
(LOSS) |
$ |
9,546,195 |
|
$ |
(19,027,821 |
) |
$ |
6,474,102 |
|
WEIGHTED AVERAGE SHARES OUTSTANDING BASIC
|
|
42,583,495 |
|
|
34,707,973 |
|
|
29,439,328 |
|
WEIGHTED AVERAGE
SHARES OUTSTANDING DILUTED |
|
42,715,818 |
|
|
34,707,973 |
|
|
29,677,325 |
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER
SHARE, BASIC |
$ |
0.29 |
|
$ |
(0.61 |
) |
$ |
0.21 |
|
NET INCOME (LOSS) PER
SHARE, DILUTED |
$ |
0.29 |
|
$ |
(0.61 |
) |
$ |
0.20 |
|
F-5
KANDI TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Par
|
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
Shares |
|
|
Value |
|
|
Capital |
|
|
Earnings |
|
|
Income |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2011
|
|
27,445,600 |
|
$ |
27,446 |
|
$ |
31,533,378 |
|
$ |
19,210,330 |
|
$ |
5,077,721
|
|
$ |
55,848,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issuance, warrant and
stock option exercise |
|
4,251,1 94 |
|
|
4,251 |
|
|
11,543,3 20 |
|
|
- |
|
|
- |
|
|
11,547,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax effect |
|
- |
|
|
- |
|
|
(78,689 |
) |
|
- |
|
|
- |
|
|
(78,689 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option issued |
|
- |
|
|
- |
|
|
19,053 |
|
|
- |
|
|
- |
|
|
19,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of SCROU |
|
- |
|
|
- |
|
|
711,156 |
|
|
- |
|
|
- |
|
|
711,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
gain |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
424,623 |
|
|
424,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
- |
|
|
- |
|
|
- |
|
|
6,049,47 9 |
|
|
- |
|
|
6,049,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2012 |
|
31,696,794 |
|
$ |
31,697 |
|
$ |
43,728,218 |
|
$ |
25,259,809 |
|
$ |
5,502,344
|
|
$ |
74,522,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issuance and
award |
|
4,396,036
|
|
|
4,396 |
|
|
28,983,299 |
|
|
- |
|
|
- |
|
|
28,987,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant exercise |
|
920,074 |
|
|
920 |
|
|
4,089,720 |
|
|
- |
|
|
- |
|
|
4,090,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax effect |
|
- |
|
|
- |
|
|
(46,463 |
) |
|
- |
|
|
- |
|
|
(46,463 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
2,112,902 |
|
|
2,112,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
- |
|
|
- |
|
|
- |
|
|
(21,140,723 |
) |
|
- |
|
|
(21,140,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2013 |
|
37,012, 904 |
|
$ |
37,013 |
|
$ |
76,754,774 |
|
$ |
4,119,086 |
|
$ |
7,615,246
|
|
$ |
88,526,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issuance and award |
|
6,169,534 |
|
|
6,170 |
|
|
91,058,441 |
|
|
- |
|
|
- |
|
|
91,064,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant exercise |
|
3,092,417 |
|
|
3,092 |
|
|
22,444,822 |
|
|
- |
|
|
- |
|
|
22,447,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax effect |
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(2,725,143 |
) |
|
(2,725,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
- |
|
|
- |
|
|
- |
|
|
12,271,338 |
|
|
- |
|
|
12,271,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2014 |
|
46,274,855 |
|
$ |
46,275 |
|
$ |
190,258,037 |
|
$ |
16,390,424 |
|
$ |
4,890,103 |
|
$ |
211,584,839 |
|
F-6
KANDI TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS
ENDED DECEMBER 31, 2014, 2013 AND 2012
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
CASH FLOWS FROM
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
12,271,338 |
|
$ |
(21,140,723 |
) |
$ |
6,049,479 |
|
Adjustments to
reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
5,571,465 |
|
|
7,708,923 |
|
|
4,978,626 |
|
Assets impairments |
|
- |
|
|
355,876 |
|
|
465,199 |
|
Deferred taxes |
|
1,579,855 |
|
|
876,255 |
|
|
92,521 |
|
Change in value of financial
instruments |
|
(6,531,308 |
) |
|
16,647,283 |
|
|
(1,986,063 |
) |
Loss in investment in associated company |
|
54,308 |
|
|
69,056 |
|
|
69,429 |
|
Share of profit after tax of
JV |
|
(4,490,266 |
) |
|
2,414,354 |
|
|
- |
|
Decrease in reserve for fixed assets |
|
(302,023 |
) |
|
- |
|
|
- |
|
Option cost |
|
- |
|
|
- |
|
|
19,053 |
|
|
|
|
|
|
|
|
|
|
|
Changes in operating
assets and liabilities, net of effects of acquisition: |
|
|
|
|
|
|
|
|
|
(Increase) Decrease In: |
|
|
|
|
|
|
|
|
|
|
|
15,445,962 |
|
|
|
|
|
(20,513,099 |
) |
Accounts receivable |
|
|
|
|
3,251,168 |
|
|
|
|
Inventories |
|
(6,280,502 |
) |
|
(1,287,045 |
) |
|
(904,355 |
) |
Other receivables |
|
315,071 |
|
|
(38,491 |
) |
|
1,955,055 |
|
Due from employees |
|
5,139 |
|
|
10,797 |
|
|
37,117 |
|
Prepayments and prepaid expenses |
|
(5,360,637 |
) |
|
(3,810,447 |
) |
|
(4,285,489 |
) |
Amount due from JV |
|
(48,593,522 |
) |
|
(2,877,972 |
) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
In: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
23,095,825 |
|
|
13,699,528 |
|
|
3,566,354 |
|
Other payables and accrued
liabilities |
|
2,694,689 |
|
|
(746,838 |
) |
|
(50,333 |
) |
Customer deposits |
|
2,588,830 |
|
|
(254,151 |
) |
|
(740,419 |
) |
Income tax payable |
|
482,020 |
|
|
651,124 |
|
|
525,030 |
|
Due to related party |
|
- |
|
|
(841,251 |
) |
|
- |
|
Net
cash (used in) provided by operating activities |
|
(7,453,756 |
) |
|
14,687,446 |
|
|
(10,721,895 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
(Purchases)/Disposal of plant and equipment,
net |
|
(2,101,355 |
) |
|
(158,830 |
) |
|
(9,072,230 |
) |
Purchases of land use rights
|
|
(1,668,534 |
) |
|
- |
|
|
- |
|
Purchases of construction in progress |
|
(50,891,170 |
) |
|
(16,134 |
) |
|
- |
|
Deposit for acquisition |
|
- |
|
|
- |
|
|
(24,383,529 |
) |
Asset acquisition, net of deposit |
|
- |
|
|
(39,673,000 |
) |
|
- |
|
Disposal of subsidiary |
|
(96,299 |
) |
|
64,535,177 |
|
|
- |
|
Issuance of notes receivable |
|
(24,705,489 |
) |
|
(4,174,247 |
) |
|
(1,011,821 |
) |
Repayments of notes
receivable |
|
29,354,592 |
|
|
311,844 |
|
|
29,603,171 |
|
Investment in JV |
|
- |
|
|
(80,668,972 |
) |
|
- |
|
Cash acquired in acquisition
|
|
- |
|
|
- |
|
|
112,551 |
|
Net cash (used in) investing activities |
|
(50,108,255 |
) |
|
(59,844,162 |
) |
|
(4,751,858 |
) |
CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Restricted cash |
|
(13,010,291 |
) |
|
16,135,044 |
|
|
(9,143,907 |
) |
Proceeds from
short-term bank loans |
|
48,306,743 |
|
|
52,918,845 |
|
|
41,504,215 |
|
Repayments of short-term bank
loans |
|
(46,517,604 |
) |
|
(52,596,170 |
) |
|
(45,539,128 |
) |
Proceeds from
notes payable |
|
18,718,944 |
|
|
83,251,992 |
|
|
40,491,531 |
|
Repayments of notes payable |
|
(29,602,112 |
) |
|
(92,609,593 |
) |
|
(21,063,559 |
) |
Proceeds from
bond payable |
|
- |
|
|
12,907,035 |
|
|
12,658,548 |
|
Repayments of bond payable |
|
(13,011,917 |
) |
|
(12,907,035 |
) |
|
- |
|
Fund raising
through issuing common stock and warrants |
|
78,358,991 |
|
|
26,387,498 |
|
|
- |
|
Option exercise, stock award
& other financing |
|
8,431,247 |
|
|
9,659,103 |
|
|
1,258,231 |
|
Warrant exercise
|
|
21,101,039 |
|
|
3,171,259 |
|
|
1,672,739 |
|
Common stock issued for
acquisition, net of cost of capital |
|
- |
|
|
- |
|
|
3,784,149 |
|
Net
cash provided by financing activities |
|
72,775,040 |
|
|
46,317,978 |
|
|
25,622,819 |
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND
CASH EQUIVALENTS |
|
15,213,029 |
|
|
1,161,262
|
|
|
10,149,066 |
|
Effect of exchange rate changes
on cash |
|
(1,595,938 |
) |
|
(533,989 |
) |
|
(308,322 |
) |
Cash and cash
equivalents at beginning of year |
|
12,762,369 |
|
|
12,135,096 |
|
|
2,294,352 |
|
CASH AND CASH EQUIVALENTS AT END OF
YEAR |
$ |
26,379,460 |
|
$ |
12,762,369 |
|
$ |
12,135,096 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOW
INFORMATION |
|
|
|
|
|
|
|
|
|
Income taxes
paid |
$ |
1,932,392 |
|
$ |
942,870 |
|
$ |
998,706 |
|
Interest paid |
$ |
3,475,893 |
|
$ |
3,565,496 |
|
$ |
2,570,691 |
|
Issuance of
Common stock for acquisition |
$ |
- |
|
$ |
- |
|
$ |
8,616,416 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL NON-CASH
DISCLOSURES: |
|
|
|
|
|
|
|
|
|
Prepayments transferred to
construction in progress |
$ |
7,652,959 |
|
$ |
- |
|
$ |
- |
|
Construction in
progress transferred to plant and equipment |
$ |
- |
|
$ |
- |
|
$ |
10,078,637 |
|
F-7
KANDI TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
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:
* The box with dotted-line border represents the entity that
has ceased operation and was dissolved in July 2014.
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 a 50% interest. Mr. Hu Xiaoming owns the other 50% which he
entrusted Kandi Vehicles to manage Kandi New Energy. Kandi New Energy was
established in accordance with relevant Chinese government regulations on
automobile manufacturing enterprises, which prohibit foreign ownership of
greater than 50%. Kandi New Energy currently holds vehicle production rights
(license) on manufacturing Kandi brand electric utility vehicles
(Special-purpose Vehicles) and production rights (license) on manufacturing
battery packs used in Kandi brand electric vehicles (EVs). Kandi New Energy
supplies battery packs for Kandi brand EVs.
F-8
Jinhua Three Parties New Energy Vehicles Service Co., Ltd.
(Jinhua Service) was formed as a joint venture, by and among our wholly-owned
subsidiary, Kandi Vehicles, the State Grid Power Corporation and Tianneng Power
International. The Company, indirectly through Kandi Vehicles, had a 30%
ownership interest in Jinhua Service. Jinhua Service was established in order to
provide public charging stations for lead-acid batteries for EVs in Jinhua city.
Currently, most of EV customers in Jinhua have the ability to charge their EVs
by themselves. Since self-charging is more cost-efficient and most of the
customers have switched from public-charging to self-charging, Jinhua Service
ceased its operations and was dissolved accordingly in July 2014.
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 EVs and
related auto parts. Each of Kandi Vehicles and Shanghai Guorun has a 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.
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 EVs. 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 a
50% economic interest in Kandi Changxing.
In April 2013, Kandi Electric Vehicles (Wanning) Co., Ltd.
(Kandi Wanning) was formed in Wanning City of Hainan Province by Kandi
Vehicles and Kandi New Energy. Kandi Vehicles has a 90% ownership in Kandi
Wanning, and Kandi New Energy holds the remaining 10% interest. However, by
contract, Kandi Vehicles is, effectively, entitled to 100% of the economic
benefits, voting rights and residual interests (100% profits and losses) of
Kandi Wanning. According to the JV Agreement, once Kandi Wanning becomes fully
operational, its entire equity interests will be transferred to the JV Company.
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. The JV Company has a 19% ownership interest
in the Service Company. The Company, indirectly through its 50% ownership
interest in the JV Company, has a 9.5% economic interest in the Service Company.
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 a 50% economic interest in Kandi
Jinhua. Kandi Jinhua is engaged in EV manufacturing business.
In November 2013, Zhejiang JiHeKang Electric Vehicle Sales Co.,
Ltd. (JiHeKang) was formed by the JV Company and is engaged in the 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 a
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 a 50% economic interest in Kandi Shanghai. The company is mainly
engaged in EV research and development, manufacturing and sales.
F-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 a 50% economic interest in Kandi
Jiangsu. The company is mainly engaged in EV research and development,
manufacturing and sales.
The Companys primary business operations are the design,
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 and related services, the Company has increased its
focus on fuel efficient, pure EV products with a particular emphasis on
expanding its market share in China.
NOTE 2 - LIQUIDITY
The Company had a working capital surplus of $39,202,684 as of
December 31, 2014, an increase of $45,834,364 from a working capital deficit of
($6,631,680) as of December 31, 2013.
As of December 31, 2014, the Company had credit lines from
commercial banks of $42,739,904, of which $35,589,502 was used as of December
31, 2014. 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
cash reserves, including the proceeds of its $71 million registered direct
offering financing completed on September 4, 2014 and its access to existing
financing sources, including established relationships with PRC banks, will
enable it to 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
additional one-year terms, with adjustments made to the interest rate to reflect
prevailing market rates. The Company believes this situation has not changed and
that short-term bank loans remain available on normal trade terms if needed.
On March 24, 2014, the Company raised approximately $11.05
million from the sale to two institutional investors of an aggregate of 606,000
shares of its common stock at a price of $18.24 per share. As part of the
transaction, the Company also issued to the investors warrants for the purchase
of up to 90,900 shares of common stock at an exercise price of $22.80 per share,
with a term of 18 months from the date of issuance.
On September 4, 2014, the Company raised approximately $71.00
million before deducting fees to the placement agent and other offering expenses
incurred from the sale to six institutional investors of an aggregate of
4,127,908 shares of its common stock at a price of $17.20 per share. As part of
the transaction terms, the Company also issued to the investors warrants for the
purchase of up to 743,024 shares of common stock at an exercise price of $21.50
per share, with a term of 17 months from the date of issuance.
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 and have been consistently applied in the presentation of
financial statements.
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 |
F-10
(ii) |
Kandi Vehicles, a wholly-owned subsidiary of
Continental |
|
|
(iii) |
Kandi New Energy, a 50% owned subsidiary of Kandi
Vehicles. Pursuant to relevant agreements executed in January 2011, 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 |
|
|
(v) |
Kandi Wanning, a subsidiary 10% owned by Kandi New Energy
and 90% owned by Kandi Vehicles) |
|
|
|
All inter-company accounts and transactions have been
eliminated in consolidation. |
|
|
|
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, a 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 a 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 a 50% economic interest; |
|
|
(ix) |
JiHeKang, a wholly-owned subsidiary of the JV Company.
The Company, indirectly through its 50% ownership interest in the JV
Company, has a 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 a 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 a 50% economic interest; |
|
|
(xii) |
The Service Company, a 19%-owned subsidiary of the JV
Company. The Company, indirectly through its 50% ownership interest in the
JV Company, has a 9.5% economic interest; |
|
|
(xiii) |
Jinhua Service, a 30% owned subsidiary of Kandi Vehicles,
which was dissolved in July 2014. |
|
|
|
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
generally accepted accounting principles in the United States 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.
F-11
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.
(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. |
As of December 31, 2014, the Companys assets, measured at fair
value, on a recurring basis, subject to the disclosure requirements of ASC 820,
were as follows:
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
Measurements |
|
|
Active |
|
|
Significant |
|
|
|
|
|
|
at Reporting |
|
|
Markets |
|
|
Other |
|
|
Significant |
|
|
|
Date Using |
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
Quoted Prices |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
in Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
Value as of |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Cash and cash equivalents |
$ |
26,379,460
|
|
$ |
26,379,460
|
|
|
- |
|
|
- |
|
Restricted cash |
|
13,000,731 |
|
|
13,000,731 |
|
|
- |
|
|
- |
|
Warrants |
|
12,342,885 |
|
|
- |
|
|
- |
|
|
12,342,885 |
|
Cash and cash equivalents consist primarily of highly-rated
money market funds at a variety of well-known institutions with original
maturities of three months or less. Restricted cash represents time deposits on
account, some of which are used to secure short-term bank loans and notes
payable. The original cost of these assets approximates fair value due to their
short term maturity.
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. 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 December 31, 2014 and 2013, represented
time deposits on account for earning interest income. As of December 31, 2014
and 2013, the Companys restricted cash were $13,000,731, which reflects a
one-year Certificate of Time Deposit (CD) with Hangzhou Bank Jinhua Branch, and
$1,636, respectively.
F-12
(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 December 31, 2014 and
2013, the Company had no allowance for doubtful accounts, as per the
managements judgment based on their best knowledge.
As of December 31, 2014 and 2013, the credit terms with the
Companys customers were typically 90 to 120 days after delivery.
(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.
(g) Prepayments
Prepayments represent cash paid in advance to suppliers. As of
December 31, 2014, prepayments included 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 as an advance of RMB 47 million
($7,687,275) and deposited by Kandi Wanning to Nanjing Shangtong. As of December
31, 2014, the advance to Nanjing Shangtong was transferred to
construction-in-progress as described in 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) Plant and Equipment
Plant and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over the estimated useful lives of the
assets, 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 |
F-13
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 statement 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 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.
(j) Land Use Rights
According to the 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 the term of fifty years.
(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 $2,755,637, $3,728,730 and
$2,877,283 for the years ended December 31, 2014, 2013 and 2012, respectively.
F-14
(n) Government Grants
Grants and subsidies received from the PRC Government are
recognized when the proceeds are received or collectible.
For the years ended December 31, 2014, 2013and 2012, $288,498,
$228,396 and $132,139, respectively, were received by Kandi Vehicle 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.
(p) Foreign Currency Translation
The accompanying consolidated financial statements are
presented in U. S. dollars. The functional currency of the Company is the 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
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Period end RMB : USD exchange
rate |
|
6.15350 |
|
|
6.11400 |
|
Average RMB : USD exchange rate |
|
6.14821 |
|
|
6.19817 |
|
(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 (ASC
280-10), 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.
F-15
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 grants and revised in subsequent
periods, if necessary, if actual forfeitures differ from those estimates.
The stock-based option expenses for the years ended December
31, 2014, 2013 and 2012 were $0, $0 and $19,053, respectively. See Note 20.
(t) Warrant Cost
The Companys warrant costs are recorded in liabilities and
equities, respectively, in accordance with ASC 480, ASC 505 and ASC 815.
The fair value of a warrant, which is classified as a
liability, is estimated using the Black-Scholes-Merton model and the lattice
valuation 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 warrant. The
risk-free interest rate for the expected term of the warrant is based on the
U.S. Treasury yield curve in effect at the time of measurement. The warrants,
which are freestanding derivatives and are classified as liabilities on the
balance sheet, will be measured at fair value on each reporting date, with
decreases in fair value recognized in earnings and increases in fair values were
recognized in expenses.
The fair value of equity-based warrants, which are not
considered derivatives under ASC 815, 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 warrant. 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.
(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 December 31, 2014 and
2013, the Company determined that its goodwill was not impaired.
(v) Intangible assets
Intangible assets consist of tradenames 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 are amortized as of December 31, 2014 and 2013.
(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, etc, were
allocated between the common stock and the Investor Warrants based on how the
proceeds allocated to these instruments. Expenses related to the issuance of
common stock were charged to paid-in capital.
F-16
Expenses related to issuance of the derivative instruments were
expensed upon issuance.
NOTE 7 NEW ACCOUNTING PRONOUNCEMENTS
The FASB has issued Accounting Standards Update (ASU) No.
2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant,
and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity. The amendments in the ASU change the
criteria for reporting discontinued operations while enhancing disclosures in
this area. It also addresses sources of confusion and inconsistent application
related to financial reporting of discontinued operations guidance in U.S. GAAP.
Under the new guidance, only disposals representing a strategic shift in
operations should be presented as discontinued operations. Those strategic
shifts should have a major effect on the organizations operations and financial
results. Examples include a disposal of a major geographic area, a major line of
business, or a major equity method investment. In addition, the new guidance
requires expanded disclosures about discontinued operations that will provide
financial statement users with more information about the assets, liabilities,
income, and expenses of discontinued operations. The new guidance also requires
disclosure of the pre-tax income attributable to a disposal of a significant
part of an organization that does not qualify for discontinued operations
reporting. This disclosure will provide users with information about the ongoing
trends in a reporting organizations results from continuing operations. The
amendments in this ASU enhance convergence between U.S. GAAP and International
Financial Reporting Standards (IFRS). Part of the new definition of discontinued
operation is based on elements of the definition of discontinued operations in
IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations. The
amendments in the ASU are effective in the first quarter of 2015 for public
organizations with calendar year ends. For most nonpublic organizations, it is
effective for annual financial statements with fiscal years beginning on or
after December 15, 2014. Early adoption is permitted. The Company does not
expect ASU 2014-08 to have a significant impact on its consolidated results of
operations and financial condition.
The FASB has issued Accounting Standards Update (ASU) No.
2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity
Transactions, Repurchase Financings, and Disclosures, which changes the
accounting for repurchase-to-maturity transactions and repurchase financing
arrangements. It also requires additional disclosures about repurchase
agreements and other similar transactions. According to the FASB, the new
guidance aligns the accounting for repurchase-to-maturity transactions and
repurchase agreements executed as a repurchase financing with the accounting for
other typical repurchase agreements. Going forward, these transactions would all
be accounted for as secured borrowings. The guidance eliminates sale accounting
for repurchase-to-maturity transactions and supersedes the guidance under which
a transfer of a financial asset and a contemporaneous repurchase financing could
be accounted for on a combined basis as a forward agreement, which has resulted
in outcomes referred to as off-balance-sheet accounting. ASU 2014-11 also brings
U.S. GAAP into greater alignment with IFRS for repurchase-to-maturity
transactions. The amendments in the ASU require a new disclosure for
transactions economically similar to repurchase agreements in which the
transferor retains substantially all of the exposure to the economic return on
the transferred financial assets throughout the term of the transaction. The
amendments in the ASU also require expanded disclosures about the nature of
collateral pledged in repurchase agreements and similar transactions accounted
for as secured borrowings. The amendments in this ASU are effective for public
companies for the first interim or annual period beginning after December 15,
2014. In addition, for public companies, the disclosure for certain transactions
accounted for as a sale is effective for the first interim or annual period
beginning on or after December 15, 2014, and the disclosure for transactions
accounted for as secured borrowings is required to be presented for annual
periods beginning after December 15, 2014, and interim periods beginning after
March 15, 2015. For all other entities, all changes are effective for annual
periods beginning after December 15, 2014, and interim periods beginning after
December 15, 2015. Earlier application for a public company is prohibited, but
all other companies and organizations may elect to apply the requirements for
interim periods beginning after December 15, 2014. The Company does not expect
ASU 2014-11 to have a significant impact on its consolidated results of
operations and financial condition.
The FASB has issued Accounting Standards Update (ASU) No.
2014-17, Business Combinations (Topic 805): Pushdown Accounting (a consensus of
the FASB Emerging Issues Task Force). The amendments in this ASU apply to the
separate financial statements of an acquired entity and its subsidiaries that
are a business or nonprofit activity (either public or nonpublic) upon the
occurrence of an event in which an acquirer (an individual or an entity) obtains
control of the acquired entity. The amendments in this ASU provide an acquired
entity with an option to apply pushdown accounting in its separate financial
statements upon occurrence of an event in which an acquirer obtains control of
the acquired entity. An acquired entity may elect the option to apply pushdown
accounting in the reporting period in which the change-in-control event occurs.
An acquired entity should determine whether to elect to apply pushdown
accounting for each individual change-in-control event in which an acquirer
obtains control of the acquired entity. If pushdown accounting is not applied in
the reporting period in which the change-in-control event occurs, an acquired
entity will have the option to elect to apply pushdown accounting in a
subsequent reporting period to the acquired entitys most recent
change-in-control event. An election to apply pushdown accounting in a reporting
period after the reporting period in which the change-in-control event occurred
should be considered a change in accounting principle. If pushdown accounting is
applied to an individual change-in-control event, that election is irrevocable.
If an acquired entity elects the option to apply pushdown accounting in its
separate financial statements, it should disclose information in the current
reporting period that enables users of financial statements to evaluate the
effect of pushdown accounting. The amendments in this ASU are effective on
November 18, 2014. After the effective date, an acquired entity can make an
election to apply the guidance to future change-in-control events or to its most
recent change-in-control event. However, if the financial statements for the
period in which the most recent change-in-control event occurred already have
been issued or made available to be issued, the application of this guidance
would be a change in accounting principle. The Company does not expect ASU
2014-17 to have a significant impact on its consolidated results of operations
and financial condition.
F-17
Other accounting standards that have been issued or proposed by
the FASB or other standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the Companys
consolidated financial statements upon adoption.
NOTE 8 CONCENTRATIONS
(a) Customers
The Company's major customers, each of whom accounted for more
than 10% of the Companys consolidated revenue, were as follows:
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Sales |
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Accounts Receivable and Amount Due |
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from JV
Company, Net (1) |
|
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Year |
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|
Year |
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Year |
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Ended |
|
|
Ended |
|
|
Ended |
|
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December, |
|
|
December, |
|
|
December, |
|
|
December |
|
|
December |
|
|
December |
|
|
|
31, |
|
|
31, |
|
|
31, |
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|
31, |
|
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31, |
|
|
31, |
|
Major Customers |
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Kandi Electric Vehicles
(Changxing) Co., Ltd. |
|
38% |
|
|
- |
|
|
- |
|
|
17% |
|
|
- |
|
|
- |
|
Kandi Electric Vehicles (Shanghai) Co., Ltd.
|
|
23% |
|
|
- |
|
|
- |
|
|
16% |
|
|
- |
|
|
- |
|
Shanghai Maple Auto Co., Ltd.
|
|
10% |
|
|
23% |
|
|
- |
|
|
3% |
|
|
47% |
|
|
- |
|
(1) |
The balance at December 31, 2014 didnt include the
one-year entrusted loan of $24,376,371 that Kandi Vehicle lent to the JV
Company. |
(b) Suppliers
The Company's material suppliers, each of whom accounted for
more than 10% of the Companys total purchases, were as follows:
|
|
Purchases |
|
|
Accounts Payable |
|
|
|
Year |
|
|
Year |
|
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
December, 31, |
|
|
December, 31, |
|
|
December, 31, |
|
|
December, 31, |
|
|
December, 31, |
|
|
December, 31, |
|
Major Suppliers |
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Zhejiang New Energy Auto
System Co., Ltd. |
|
31% |
|
|
33% |
|
|
26% |
|
|
12% |
|
|
12% |
|
|
|
|
Shandong Henyuan New Energy Tech Co., Ltd.
|
|
25% |
|
|
- |
|
|
- |
|
|
32% |
|
|
- |
|
|
|
|
Zhongju (Tianjin) New Energy
Investment Co., Ltd. |
|
11% |
|
|
- |
|
|
- |
|
|
29% |
|
|
- |
|
|
|
|
F-18
NOTE 9 INCOME 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 year ended
December 31, 2014, 2013 and 2012, the number of potentially dilutive common
shares were 132,323, 0 and 237,997, respectively. The following table sets forth
the computation of basic and diluted net income per common share:
Twelve months Ended December 31, |
|
2014 |
|
|
2013 |
|
|
2012 |
|
Net (loss) income |
$ |
12,271,338
|
|
$ |
(21,140,723) |
|
$ |
6,049,479
|
|
Weighted average shares of common stock
outstanding |
|
|
|
|
|
|
|
|
|
Basic |
|
42,583,495 |
|
|
34,707,973 |
|
|
29,439,328 |
|
Dilutive
shares |
|
132,323 |
|
|
0 |
|
|
237,997 |
|
Diluted |
|
42,715,818 |
|
|
34,707,973 |
|
|
29,677,325 |
|
Basic earnings per share |
$ |
0.29 |
|
$ |
(0.61) |
|
$ |
0.21 |
|
Diluted earnings per share
|
$ |
0.29 |
|
$ |
(0.61) |
|
$ |
0.20 |
|
Also see Note 19.
NOTE 10 - ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Accounts receivable |
$ |
15,736,805
|
|
$ |
31,370,862
|
|
Less: Provision for doubtful debts |
|
- |
|
|
- |
|
Accounts receivable, net |
$ |
15,736,805 |
|
$ |
31,370,862 |
|
During the fiscal years ended December 31, 2014, 2013 and 2012,
the Company sold products to Kandi USA Inc., a company that operates under the
trade name of Eliteway Motorsports (Eliteway), amounting to $2,981,944,
$6,906,807 and $5,297,548, respectively. As of December 31, 2014 and 2013, the
outstanding receivable due from Eliteway were $620,410 and $2,800,958,
respectively.
F-19
Mr. Hu Wangyuan was the sole shareholder and officer of
Eliteway which served as a US importer of the Company's products. Mr. Hu
Wangyuan is the adult son of the Company's chairman and Chief Executive Officer,
Mr. Hu Xiaoming. For the years ended December 31, 2014, 2013 and 2012, Eliteway
and Mr. Hu Wangyuan were financially independent from the Company. The
transactions between the Company and Eliteway were carried out at arm's-length
without any preferential terms when compared with other customers at the
comparative order size or volume.
NOTE 11 - INVENTORIES
Inventories are summarized as follows:
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Raw material |
$ |
3,621,428
|
|
$ |
2,646,041
|
|
Work-in-progress |
|
3,104,678 |
|
|
5,065,126 |
|
Finished goods |
|
8,993,318 |
|
|
1,829,281 |
|
Total inventories |
|
15,719,424 |
|
|
9,540,448 |
|
Less: provision for slowing
moving inventories |
|
(315,584) |
|
|
(352,734) |
|
Inventories, net |
$ |
15,403,840 |
|
$ |
9,187,714 |
|
NOTE 12 - NOTES RECEIVABLE
Notes receivable are summarized as follows:
|
|
December
31, |
|
|
December
31, |
|
|
|
2014 |
|
|
2013 |
|
Notes receivable from
unrelated companies: |
|
|
|
|
|
|
Due September 30, 2015,
interest at 9.6% per annum 1 |
$ |
8,117,888
|
|
$ |
13,794,094
|
|
|
|
|
|
|
|
|
Bank acceptance notes: |
|
|
|
|
|
|
Bank acceptance notes |
|
942,553 |
|
|
- |
|
|
|
|
|
|
|
|
Notes receivable |
$ |
9,060,441 |
|
$ |
13,794,094 |
|
Notes receivable are unsecured.
Details of Notes receivable from unrelated parties as of
December 31, 2014
|
Amount($) |
Counter party |
Relationship |
Purpose of Loan |
Manner of settlement |
1) |
8,117,888 |
Yongkang HuiFeng Guarantee Co.,
Ltd |
No relationship beyond loan |
Receive interest income |
Not Due.
|
Details of Notes receivable from unrelated parties as of
December 31, 2013
|
Amount($) |
Counter party |
Relationship |
Purpose of Loan |
Manner of settlement |
1) |
13,794,094 |
Yongkang HuiFeng Guarantee Co.,
Ltd |
No relationship beyond loan |
Receive interest income |
Not Due
|
F-20
NOTE 13 PLANT AND EQUIPMENT
Plant and equipment consisted of the following:
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
At cost: |
|
|
|
|
|
|
Buildings |
$ |
14,492,949 |
|
$ |
14,514,873 |
|
Machinery and equipment |
|
7,916,281 |
|
|
10,771,899 |
|
Office equipment |
|
283,494 |
|
|
251,690 |
|
Motor vehicles |
|
355,547 |
|
|
288,004 |
|
Moulds |
|
34,523,167 |
|
|
34,230,014 |
|
|
|
57,571,438 |
|
|
60,056,480 |
|
Less : Accumulated depreciation |
|
|
|
|
|
|
Buildings |
$ |
(3,480,417) |
|
$ |
(3,010,451) |
|
Machinery and equipment |
|
(7,371,047) |
|
|
(10,278,409) |
|
Office equipment |
|
(220,944) |
|
|
(196,303) |
|
Motor vehicles |
|
(254,331) |
|
|
(228,442) |
|
Moulds |
|
(19,972,647) |
|
|
(16,648,583) |
|
|
|
(31,299,386) |
|
|
(30,362,188) |
|
Less: provision for
impairment for fixed assets |
|
(56,696) |
|
|
(360,776) |
|
Plant and equipment, net |
$ |
26,215,356 |
|
$ |
29,333,516) |
|
As of December 31, 2014 and 2013, the net book value of plant
and equipment pledged as collateral for the Company's bank loans were
$10,816,480 and $11,292,649, respectively.
Depreciation expenses for the years ended December 31, 2014,
2013 and 2012 were $5,110,681, $7,273,260 and $4,577,092, respectively.
NOTE 14 LAND USE RIGHTS
The Companys land use rights consist of the following:
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Cost of land use rights |
$ |
17,786,170 |
|
$ |
16,223,208 |
|
Less: Accumulated amortization |
|
(2,137,018) |
|
|
(1,770,017) |
|
Land use rights, net |
$ |
15,649,152 |
|
$ |
14,453,191 |
|
As of December 31, 2014 and 2013, the net book value of the
land use rights pledged as collateral for the Company's bank loans were
$9,665,834 and $9,983,647 respectively. Also see Note 16.
It is a common business practice among companies in the region
of China where Kandi is located to exchange guarantees for bank debt with no
consideration given. It is considered a favor for favor business practice and
is commonly required by the lending banks as in these cases. Zhejiang Mengdeli
Electric Co., Ltd (ZMEC) has provided a guarantee for certain of the Company's
bank loans. As of December 31, 2014 and 2013, ZMEC had guaranteed bank loans of
the Company for a total of $12,675,713 and $16,028,786, respectively.
The amortization expense for the years ended December 31, 2014,
2013 and 2012 were $378,689, $353,568 and $346,761, respectively.
F-21
Amortization expense for the next five years and thereafter is as follows:
2015 |
$ |
378,689 |
|
2016 |
|
378,689 |
|
2017 |
|
378,689 |
|
2018 |
|
378,689 |
|
2019 |
|
378,689 |
|
Thereafter |
|
13,755,707 |
|
Total |
$ |
15,649,152 |
|
NOTE 15 - CONSTRUCTION-IN-PROGRESS
Construction-in-progress (CIP) relates to facility being
built in Wanning City of Hainan Province.
Kandi Wanning facility
In April 2013, Kandi Electric Vehicles (Wanning) Co., Ltd.
(Kandi Wanning) was formed in Wanning City of Hainan Province. The Company
signed an agreement with Wanning city government and planned to invest a total
of RMB 1 billion, or $162,509,141, to develop a factory in Wanning with an
annual production of 100,000 EVs. In 2013, the Company contracted with an
unrelated third party equipment supplier, Nanjing Shangtong Auto Technologies
Co., Ltd. (Nanjing Shangtong), to purchase equipment. The equipment was
purchased and delivered according to the construction schedule and development
of Kandi Wanning. As of December 31, 2014, a total amount of advances to
suppliers of RMB 360,041,600, or $58,510,051, made by Kandi Wanning to Nanjing
Shangtong for equipment purchases was transferred to CIP. None of
construction-in-progress was transferred to property, plant and equipment during
the years ended December 31, 2014 and 2013, respectively. The Company expects
the purchase and installation of the equipment will be completed and the trial
production will be launched by the end of 2015.
No depreciation is provided for construction-in-progress until
such time when the assets are completed and placed into operation.
The construction project the Company was in the progress of
completing is as follow:
|
|
|
Total in CIP |
|
|
|
|
|
|
|
|
|
|
|
|
|
as of |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Estimated Cost to |
|
|
Estimated |
|
|
Estimated |
|
Project |
|
|
2014 |
|
|
Complete |
|
|
Total Cost |
|
|
Completion Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kandi Wanning facility |
|
$ |
58,510,051 |
|
$ |
103,999,090 |
|
$ |
162,509,141 |
|
|
December 2015 |
|
Total |
|
$ |
58,510,051 |
|
$ |
103,999,090 |
|
$ |
162,509,141 |
|
|
|
|
As of December 31, 2014 and 2013, the Company had construction
in progress amounting to $58,510,051 and $16,356, respectively.
No interest expense has been capitalized for
construction-in-progress for the years ended December 31, 2014, 2013 and 2012,
respectively.
F-22
NOTE 16 SHORT-TERM BANK LOANS
Short-term loans are summarized as follows:
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Loans from Jinhua Bank |
|
|
|
|
|
|
Monthly interest
only payments at 6.30% per annum, due October 10, 2014, guaranteed by Mr.
Hu Xiaoming and Ms. Ling Yueping, and secured by the assets of the Company. The loan was
fully repaid. Also see Note 13 and Note 14. |
$ |
- |
|
$ |
1,635,590 |
|
|
|
|
|
|
|
|
Monthly interest
only payments at 6.30% per annum, due December 2, 2014, guaranteed by Mr.
Hu Xiaoming and Ms. Ling Yueping, and secured by the assets of
the Company. The loan
was fully repaid. Also see Note 13 and Note 14. |
|
- |
|
|
817,795 |
|
|
|
|
|
|
|
|
Monthly interest only payments at 6.30% per
annum, due December 2, 2014, guaranteed by Zhejiang Kangli Metal
Manufacturing Company, Mr. Hu Xiaoming, Ms. Ling
Yueping, Mr. Lv Qingbo and Mr. Lv
Qingjiang, and secured by the assets of the Company. The loan was fully
repaid. Also see Note 13 and Note 14. |
|
- |
|
|
3,271,181 |
|
|
|
|
|
|
|
|
Loans from Yongkang Rural Cooperative Bank
|
|
|
|
|
|
|
Monthly interest only
payments at 1.026% per month, due March 31, 2014, guaranteed by Yongkang
Sanli Metal Co., Ltd. The loan was fully repaid. |
|
- |
|
|
817,795 |
|
|
|
|
|
|
|
|
Loans from China Ever-bright
Bank |
|
|
|
|
|
|
Monthly interest only payments at 6.94% per
annum, due May 14, 2014, secured by the assets of the Company, guaranteed
by Mr. Hu Xiaoming, Mr. Hu Wangyuan,
Nanlong Group Co., Ltd. and
Zhejiang Mengdeli Electric Co., Ltd. The loan was fully repaid. Also see
Note 13 and Note 14. |
|
- |
|
|
12,757,606 |
|
|
|
|
|
|
|
|
Monthly interest only payments at 7.08% per
annum, due May 11, 2015, secured by the assets of the Company, guaranteed
by Mr. Hu Xiaoming, Mr. Hu Wangyuan,
Nanlong Group Co., Ltd. and
Zhejiang Mengdeli Electric Co., Ltd. Also see Note 13 and Note 14. |
|
12,675,713 |
|
|
- |
|
Loans from Shanghai Pudong
Development Bank |
|
|
|
|
|
|
Monthly interest only
payments at 6.60% per annum, due September 4, 2014, secured by the assets
of the Company, guaranteed by Mr. HuXiaoming. The loan was fully
repaid. Also see Note 13 and Note
14.
|
|
-
|
|
|
6,542,362
|
|
|
|
|
|
|
|
|
Loans from Bank of Shanghai
|
|
|
|
|
|
|
Monthly interest only
payments at 6.60% per annum, due December 27, 2014, guaranteed by Mr. Hu
Xiaoming, Ms. Ling Yueping, Zhejiang Kangli Metal Manufacturing
Company and Nanlong Group Co.,
Ltd. The loan was fully repaid. |
|
- |
|
|
4,906,771 |
|
|
|
|
|
|
|
|
Loans from China Ever-growing
Bank |
|
|
|
|
|
|
Monthly interest only
payments at 7.20% per annum, due April 22, 2014, guaranteed by Mr. Hu
Xiaoming, Ms. Ling Yueping, Zhejiang Shuguang industrial Co., Ltd. and
Zhejiang Mengdeli Electric
Company. The loan was fully repaid. |
|
- |
|
|
3,271,181 |
|
Monthly interest only
payments at 7.20% per annum, due April 22, 2015, guaranteed by Mr. Hu
Xiaoming, Ms. Ling Yueping, and Zhejiang Shuguang industrial Co., Ltd. |
|
3,250,183 |
|
|
- |
|
|
|
|
|
|
|
|
Loans from Hangzhou Bank |
|
|
|
|
|
|
Monthly interest only
payments at 6.00% per annum, due October 20, 2015, secured by the assets
of the Company. Also see Note 13 and Note 14. |
|
7,930,446 |
|
|
- |
|
Monthly interest only
payments at 6.00% per annum, due November 17, 2015, secured by the assets
of the Company. Also see Note 13 and Note 14. |
|
11,733,160 |
|
|
- |
|
|
$ |
35,589,502
|
|
$ |
34,020,281
|
|
The interest expense of the short-term bank loans for the years
ended December 31, 2014, 2013 and 2012 were $3,480,646, $2,302,389 and
$2,556,967, respectively.
F-23
As of December 31, 2014, the aggregate amount of short-term
loans that was guaranteed by various third parties was $15,925,896
- $12,675,713 was guaranteed by Zhejiang Mengdeli Electric Co
Ltd (ZMEC).
- $3,250,183 was guaranteed by Zhejiang Shuguang industrial
Co., Ltd., whose bank loan of $4,875,274 was guaranteed by the Company. Also see
Note 24.
- $12,675,713 was guaranteed by Nanlong Group Co., Ltd., whose
bank loans of $9,750,548 was also guaranteed by the Company. Also see Note 24.
As of December 31, 2013, the aggregate amount of short-term
loans that were guaranteed or secured by various third parties was $27,477,919.
The breakdown is as follows:
- $16,028,786 was guaranteed by Zhejiang Mengdeli Electric Co
Ltd (ZMEC).
- $8,177,952 was guaranteed by Zhejiang Kangli Metal
Manufacturing Company, whose bank loan of $4,906,771 is guaranteed by the
Company. $3,271,181 of the $8,177,952 is guaranteed by Lv Qingjiang and Lv
Qingbo, two major shareholders of Zhejiang Kangli Metal Manufacturing Company.
Also see Note 24.
- $3,271,181 was guaranteed by Zhejiang Shuguang industrial
Co., Ltd., whose bank loan of $4,906,771 is guaranteed by the Company. Also see
Note 24.
- $17,664,376 was guaranteed by Nanlong Group Co., Ltd. whose
bank loans of $9,813,543 is also guaranteed by the Company. Also see Note 24.
- $817,795 was guaranteed by Yonnkang Sanli Metal Co., Ltd.
It is a common business practice among companies in the region
of the PRC in which the Company is located to exchange guarantees for bank debt
with no additional consideration given. It is considered a favor for favor
business practice and is commonly required by Chinese lending banks, as in these
cases.
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 is due. Simultaneously, depending on the requirements of the banks, the
Company may need to deposit restricted cash in banks to back up the bank notes
payable, while the restricted cash deposited in the banks will generate interest
income.
Notes payable are summarized as follows:
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Bank acceptance notes: |
|
|
|
|
|
|
Due March 18, 2014 |
$ |
- |
|
$ |
1,962,709 |
|
Due May 19, 2014 |
|
- |
|
|
8,177,952 |
|
Due May 21, 2014 |
|
- |
|
|
6,542,362 |
|
Due April 30, 2015 |
|
4,062,729 |
|
|
- |
|
Due May 4, 2015 |
|
826,846 |
|
|
- |
|
Due June 2, 2015 |
|
812,546 |
|
|
- |
|
Total |
$ |
5,702,121 |
|
$ |
16,683,023 |
|
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.
F-24
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.
All the bank acceptance notes do not bear interest, but are
subject to banks charges of 0.05% of the principal as commission on each
transaction. Bank charges for notes payable were $9,359, $21,136 and $20,246 in
2014, 2013 and 2012, respectively.
No restricted cash is held as collateral for the notes payable
at December 31, 2014 and 2013.
NOTE 18 BOND PAYABLE
On December 27, 2013, the Company issued the bond of RMB
80,000,000, or $13,000,731, to China Ever-bright Securities Co. Ltd. and CITIC
Securities Company Limited. The maturity of this bond was 3 years, and the
material terms of this bond were similar to the terms of the bond issued in 2012
and repaid in August 2013, except that the interest rate was reduced to 11.5%.
Bond interest was payable on December 27 in each of 2014, 2015 and 2016. In
October, 2014, the Company repaid, without a prepayment penalty, all principal
and interest to China Ever-bright Securities Co. Ltd. and CITIC Securities
Company Limited. For the year ended December 31, 2014, $1,262,691 of interest
expense was paid.
The Company did not issue any bond during the year ended
December 31, 2014.
NOTE 19 TAXES
(a) Corporation Income Tax
In accordance with the relevant tax laws and regulations of the
PRC, applicable corporate income tax (CIT) rate is 25%. However, the Kandi
Vehicle, qualified as a high technology company in China, was entitled to pay a
reduced income tax rate of 15%. The applicable corporate income tax rate of each
of the Companys three subsidiaries, Kandi New Energy, Yongkang Scrou and Kandi
Wanning, the JV Company and its subsidiaries and the Service Company was 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 18.40%. The combined
tax benefits were 60.38%. The actual effective income tax rate was reduced from
25% to 9.91% of the 2014 taxable corporate income.
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 this 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 December
31, 2014, the Company does 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 December 31, 2014, 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 December 31, 2014, 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 for the
year ended December 31, 2014 due to the net operating loss in 2014 and an
accumulated net operating loss carry forward from prior years in the United
States.
F-25
Income tax expenses for the years ended December 31, 2014, 2013
and 2012 is summarized as follows:
|
|
For the Year
Ended |
|
|
|
|
|
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Current: |
|
|
|
|
|
|
|
|
|
Provision for CIT |
$ |
2,414,412 |
|
$ |
1,593,994 |
|
$ |
1,523,735 |
|
Provision for Federal Income
Tax |
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
Provision for CIT |
|
|
|
|
|
|
|
|
|
Income tax expense |
$ |
2,414,412 |
|
$ |
1,593,994 |
|
$ |
1,523,735 |
|
The Company's income tax expense differs from the expected
tax expense for the years ended December 31, 2014, 2013 and 2012 (computed by
applying the U.S. Federal Income Tax rate of 34% and PRC Corporation Income Tax
rate of 25%, respectively to income before income taxes) as follows:
|
|
For the Year
Ended |
|
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Computed expected income
(expense) |
$ |
929,405
|
|
$ |
(1,381,713) |
|
$ |
651,245
|
|
Favorable tax rate |
|
(611,672) |
|
|
(1,378,429) |
|
|
(1,232,306) |
|
Permanent differences |
|
(929,318) |
|
|
361,230 |
|
|
932,699 |
|
Valuation Allowance |
|
3,025,997 |
|
|
3,992,906 |
|
|
1,172,097 |
|
Income tax expense |
$ |
2,414,412 |
|
$ |
1,593,994 |
|
$ |
1,523,735 |
|
The tax effects of temporary differences that give rise to the
Company's net deferred tax assets and liabilities as of December 31, 2014, 2013
and 2012 are summarized as follows:
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Current portion: |
|
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities): |
|
|
|
|
|
|
|
|
|
Expense |
$ |
(80,016) |
|
$ |
47,224 |
|
$ |
(193,777) |
|
Subtotal |
|
(80,016) |
|
|
47,224 |
|
|
(193,777) |
|
|
|
|
|
|
|
|
|
|
|
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 |
|
(26,226) |
|
|
(33,518) |
|
|
138,611 |
|
Other |
|
(124,622) |
|
|
|
|
|
|
|
Subtotal |
|
(150,848) |
|
|
(33,518) |
|
|
138,611 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
(liabilities) current portion |
|
(230,864) |
|
|
13,706 |
|
|
(55,166) |
|
|
|
|
|
|
|
|
|
|
|
Non-current portion: |
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
(551,697) |
|
|
81,076 |
|
|
223,409 |
|
Loss carried forward |
|
3,025,997 |
|
|
3,992,906 |
|
|
1,172,097 |
|
Valuation allowance |
|
(3,025,997) |
|
|
(3,992,906) |
|
|
(1,172,097) |
|
Subtotal |
|
(551,697) |
|
|
81,076 |
|
|
223,409 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Accumulated other
comprehensive gain |
|
(1,715,028) |
|
|
(1,009,477) |
|
|
(222,714) |
|
Subtotal |
|
(1,715,028 |
|
|
(1,009,477) |
|
|
(222,714) |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets non-current
portion |
|
(2,266,725) |
|
|
(928,401) |
|
|
695 |
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liabilities) assets |
|
(2,497,589) |
|
$ |
(914,695) |
|
$ |
(54,471) |
|
F-26
(b) Tax Holiday Effect
For the years ended December 31, 2014, 2013 and 2012, the PRC
corporate income tax rate was 25%. Certain subsidiaries of the Company are
entitled to tax exemptions (tax holidays) for the years ended December 31, 2014,
2013 and 2012.
The combined effects of the income tax expense exemptions and
reductions available to the Company for the years ended December 31, 2014, 2013
and 2012 are as follows:
|
|
For the Year
Ended |
|
|
|
|
|
|
|
December 31 |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Tax holiday effect |
$ |
611,672
|
|
$ |
1,378,429
|
|
$ |
1,232,306
|
|
Basic net income per share effect |
$ |
0.01 |
|
$ |
0.04 |
|
$ |
0.04 |
|
NOTE 20 - STOCK OPTIONS AND WARRANTS
(a) Stock Options
On February 11, 2009, the Compensation Committee of the Board
of Directors of the Company approved the grant of stock options to purchase
2,600,000 shares of common stock at an exercise price of $0.80 per share to ten
of the Companys employees and directors. The stock options vested ratably over
three years and expire on the tenth anniversary of the grant date. The Company
valued the stock options at $2,062,964 and amortized the stock compensation
expense using the straight-line method over the service period from February 11,
2009 through February 11, 2012. The value of the options was estimated using the
Black Scholes Model with an expected volatility of 164%, expected life of 10
years, risk-free interest rate of 2.76% and expected dividend yield of 0.00%.
On June 30, 2011, one of the Company's directors resigned, and his 6,668
unexercised options were forfeited. As of December 31, 2013, options for
2,366,672 shares have been exercised and 6,668 options had been forfeited. As of
December 31, 2014, options for 2,593,332 shares had been exercised and options
for 6,668 shares had been forfeited.
On October 6, 2009, the Company executed an agreement with Wang
Rui and Li Qiwen, third-party consultants, whereby Mr. Wang and Mr. Li were to
provide to the Company business development services in China in exchange for
options to purchase 350,000 shares of the Companys common stock at an exercise
price of $1.50 per share. Per the agreement, options to purchase 250,000 shares
vested and became exercisable on March 6, 2010, and options to purchase 100,000
shares vested and became exercisable on June 6, 2010. The options are issued
under and subject to the terms of the Companys 2008 Omnibus Long-Term Incentive
Plan. As of December 31, 2014, options for 250,000 shares had been exercised and
100,000 shares were forfeited due to the non-performance of services.
F-27
The following is a summary of the stock option activities of
the Company:
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
Number of |
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
Outstanding as of January 1, 2013 |
|
326,660 |
|
$ |
1.01 |
|
Granted |
|
- |
|
|
- |
|
Exercised |
|
- |
|
|
- |
|
Cancelled |
|
- |
|
|
- |
|
Outstanding as of January 1, 2014 |
|
326,660 |
|
|
1.01 |
|
Granted |
|
- |
|
|
- |
|
Exercised |
|
(226,660) |
|
|
0.80 |
|
Cancelled |
|
(100,000) |
|
|
1.50 |
|
Outstanding as of December 31, 2014 |
|
-
|
|
$ |
-
|
|
The fair value per share of the 2,600,000 options issued to the
employees and directors in February 2009 is $0.7934 per share.
(b) Warrants
On June 26, 2013, the Company entered into a 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
the 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). 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
at an exercise price of $7.24 per share (the Third Round Placement Agent
Warrants). As of December 31, 2014 all the Third Round Series A, Series B and
Series C warrants had been exercised on a cash basis and the Third Round
Placement Agent Warrants, which will expire on July 1, 2016, had a fair value of
$8.36 per share.
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 Fourth Round 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 shall be reduced by a credit of $0.01, which reflects the price per
warrant share paid in connection with the issuance of the Fourth Round Warrants.
Consequently, the effective exercise price per warrant share shall be $14.99.
The Fourth Round Warrants were immediately exercisable and will expire on
January 30, 2015. As of December 31, 2014, the fair value of the Fourth Round
Warrants was $1.57 per share.
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 Fifth 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. The Fourth Round Warrants have a term of eighteen months and are
exercisable by the holders at any time after the date of issuance. As of
December 31, 2014, the fair value of the Fourth Round Warrants was $4.28 per
share.
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 (the Fifth Round Offering), before deducting fees to
the placement agent and other estimated offering expenses payable by the
Company. 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). The Fifth
Round Warrants have a term of seventeen months and are exercisable by the
holders at any time after the date of issuance. 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
(the Fifth Round Placement Agent Warrants). The placement agents warrants are
exercisable for a term of seventeen months after the six months from the
issuance. As of December 31, 2014, the fair value of the Fifth Round Warrants
was $7.37 per share and the Fifth Round Placement Agent Warrants had a fair
value of $9.13 per share.
F-28
In addition, any Fifth Round Investor that invests more than
$30 million in the initial offering of shares and warrants in the Fifth Round
Offering would have an option to purchase its pro rata share of up to a $30
million of shares, or 1,744,186 shares of common stock and its pro rata share of
warrants to purchase an aggregate of up to 313,954 shares of our comment stock
at $17.20 for a period commencing from September 4, 2014 and ending on November
17, 2014. None of the Fifth Round Investors that invests more than $30 million
in the Fifth Round Offering exercised this option.
NOTE 21 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, par value $0.001, 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, par value
$0.001, 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, par
value $0.001, beginning in September 2013.
As compensation for having Mr. Wei Chen to serve CFO assistant
the Board authorized the issuance by the Company to Mr. Wei Chen of 10,000
shares of Companys common stock every year beginning in January 2012 and 2,500
shares of Companys common stock every three months, beginning in January 2014.
As of June 1, 2014, Mr. Chen was no longer with the Company.
The fair value of stock awards based on service is determined
based on closing price of the common stock on the date the shares are granted.
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 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 Plan), if the Companys determination
that 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
increases by 10% compared to the Non-GAAP Net Income for the 2013 fiscal year,
the selected executives and other key employees each will 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 will be granted. If
Non-GAAP Net Income in 2014 increases compared to Non-GAAP Net Income in 2013
but the increase is less than 10%, then the target amount of the common stock
grant will be proportionately decreased. If Non-GAAP Net Income in 2014
increases compared to Non- GAAP Net Income in 2013 but the increase is more than
10%, then the target amount of the common stock grant will be proportionately
increased up to 200% of the target amount.
F-29
The fair value of each award granted under the Plan is
determined based on the closing price of the Companys stock on the date of
grant of the award. To the extent that the performance goal does not meet and so
no shares become due, no compensation cost is recognized and any recognized
compensation cost during the applicable year is reversed. The number of shares
of common stock granted under the Plan with respect to fiscal 2014 would be
670,000 shares based on the Non-GAAP Net Income of the year of 2014. The
compensation expense is recognized in General and Administrative Expenses.
NOTE 22 INTANGIBLE ASSETS
The following table provides the gross carrying value and
accumulated amortization for each major class of intangible assets other than
goodwill:
|
|
Remaining useful life |
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Gross carrying amount: |
|
|
|
|
|
|
|
|
|
Trade name |
|
7 years |
|
$ |
492,235 |
|
$ |
492,235 |
|
Customer relations |
|
7 years |
|
|
304,086 |
|
|
304,086 |
|
|
|
|
|
|
796,321 |
|
|
796,321 |
|
Less : Accumulated
amortization |
|
|
|
|
|
|
|
|
|
Trade name |
|
|
|
$ |
(135,323) |
|
$ |
(84,576) |
|
Customer relations |
|
|
|
|
(83,597) |
|
|
(52,249) |
|
|
|
|
|
|
(218,920) |
|
|
(136,825) |
|
Intangible assets, net |
|
|
|
$ |
577,401 |
|
$ |
659,496 |
|
The aggregate amortization expenses 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 and were
$82,095, $82,095 and $54,730 for the years ended December 31, 2014, 2013 and
2012, respectively.
Amortization expenses for the next five years and thereafter is
as follows:
2015 |
$ |
82,095 |
|
2016 |
|
82,095 |
|
2017 |
|
82,095 |
|
2018 |
|
82,095 |
|
2019 |
|
82,095 |
|
Thereafter |
|
166,926 |
|
Total |
$ |
577,401 |
|
NOTE 23 SUMMARIZED INFORMATION OF 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, 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, 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.
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 a 50% ownership interest in the JV Company. 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 a 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 a 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 a 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 a 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 a 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 has a 19% ownership interest in the Service
Company. The Company, indirectly through its 50% ownership interest in the JV
Company, has a 9.5% of economic interest in the Service Company. In March 2014,
the JV Company changed its name to Kandi Electric Vehicles Group Co., Ltd.
F-30
As of December 31, 2014, 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; and (5) 100% interest in Kandi Jiangsu.
The Company accounted for its investments in the JV Company
under the equity method of accounting as the Company has a 50% ownership
interest in the JV Company. Therefore, the Companys consolidated net income for
the year Ended December 31, 2014 and 2013 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:
|
|
Year ended |
|
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Condensed income statement information: |
|
|
|
|
|
|
|
|
|
Net sales |
$ |
215,537,203 |
|
$ |
15,212,347 |
|
$ |
- |
|
Gross income (loss) |
|
41,889,144 |
|
|
(1,279,914) |
|
|
- |
|
Net income (loss) |
|
7,526,164 |
|
|
(3,020,756) |
|
|
- |
|
Companys equity in net income of the
JVCompany |
$ |
3,763,082 |
|
$ |
(1,510,378) |
|
$ |
- |
|
|
|
Three Months
ended |
|
|
|
December 31,
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
Condensed income statement
information: |
|
|
|
|
|
|
|
|
|
Net sales |
$ |
88,773,410 |
|
$ |
15,212,347 |
|
$ |
- |
|
Gross income (loss) |
|
27,944,246 |
|
|
(1,279,914) |
|
|
- |
|
Net income (loss) |
|
743,892 |
|
|
(2,780,723) |
|
|
- |
|
Companys equity in net
income of the JV Company |
$ |
371,946 |
|
$ |
(1,390,362) |
|
$ |
- |
|
F-31
|
|
December 31, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Condensed balance sheet information: |
|
|
|
|
|
|
Current assets |
$ |
262,543,256 |
|
$ |
108,139,053 |
|
Noncurrent assets |
|
194,229,114 |
|
|
146,130,466 |
|
Total assets |
$ |
456,772,370 |
|
$ |
254,269,519 |
|
Current liabilities |
|
280,779,432 |
|
|
93,772,816 |
|
Noncurrent liabilities |
|
9,006,787 |
|
|
- |
|
Equity |
|
166,986,151 |
|
|
160,496,703 |
|
Total liabilities and equity
|
$ |
456,772,370 |
|
$ |
254,269,519 |
|
For the year ended December 31, 2014, the JV Companys revenues
were $215,537,203, an increase of 1317% from $15,212,347 for the year ended
December 31, 2013. For the three months ended December 31, 2014, the JV
Companys revenues were $88,773,410, an increase of 483% from $15,212,347 for
the three months ended December 31, 2013. The revenue was primarily derived from
the sales of EV products in the PRC with a total of 10,935 units sold during the
year 2014, among which, a total of 3,656 units of EV products were sold during
the three months ended December 31, 2014. The growth of sales of EV products was
mainly driven by the demand by the EV-Share Program. For the year ended December 31, 2014, the JV Company recorded a net
profit of $7,526,164 as compared to a net loss of $3,020,756 for the year ended
December 31, 2013. For the three months ended December 31, 2014, the JV Company
recorded a net profit of $743,892 as compared to a net loss of $2,780,723 for
the three months ended December 31, 2013. 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 equity income from the JV
Company during such periods, which were a share of profit of $3,763,082 and a
share of loss of $1,510,378 for the years ended December 31, 2014 and 2013,
respectively.
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 JV Company
for the year ended December 31, 2014 and 2013 are as follows:
|
|
Year ended |
|
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Investment in the JV Company,
beginning of the period, |
$ |
79,331,930
|
|
$ |
- |
|
Investment in the JV Company |
|
- |
|
|
81,779,522 |
|
Share of profit (loss) |
|
3,763,082 |
|
|
(1,510,378) |
|
Intercompany transaction unrealized gain
elimination |
|
(184,138) |
|
|
(903,976) |
|
Year 2013 unrealized profit
realized |
|
911,322 |
|
|
- |
|
Exchange difference |
|
(513,101) |
|
|
(33,238) |
|
Investment in the JV Company,
end of the period |
$ |
83,309,095 |
|
$ |
79,331,930 |
|
Sales to the Companys customers, the JV Company, for the year
ended December 31, 2014 were $117,707,152 or 69% of the Companys total revenue
for the year, an increase of 948.7% of the sales to the JV Company from the
previous year. Sales to the JV Company for the three months ended December 31,
2014 were $39,166,994 or 74% of total revenue for that three months period. The
sales to the JV Company were primarily the sales of battery packs, body parts,
EV drive motors, EV controllers, air conditioning units and other auto parts, of
which the majority of the sales were to Kandi Changxing amounted to $14,071,221
and $65,342,342, respectively, for the three months and the year ended December
31, 2014, Kandi Shanghai amounted to $15,292,090 and $39,412,740, respectively,
for the three months and the year ended December 31, 2014, and Kandi Jinhua
amounted to $10,394,324 and $12,952,070, respectively, for the three months and
the year ended December 31, 2014. These EV parts were used in manufacturing of
pure EV products by the JV Companys subsidiaries to sell entirely to the JV
Companys customer via Shanghai Maple Automobile Company, Limited (Shanghai
Maple) and Zhejiang Geely Automobile Company Limited (Zhejiang Geely).
Shanghai Maple and Zhejiang Geely hold the countrys vehicle production rights
of sedan, equivalent to license, that qualifies it to sell the EV products to
the end customers. Both Shanghai Maple and Zhejiang Geely are 90% owned by
Zhejiang Geely Holding Group Company Limited and 10% owned by Zhejiang Maple
Asset Management Co. Ltd. According to the JV agreement, before the JV Company
receives vehicle production rights (license), the JV Company and its
subsidiaries all may sell their products through the channel of Shanghai Maples
vehicle production rights (license) to the end customers or the Service Company,
which purchased and used the cars in EV-Share Program. Under the JV Agreement, the Companys EV product
manufacturing business will be gradually transferred to the JV Company. The
Company will be mainly responsible for supplying the JV Company with EV parts in
the future and the JV Company will be responsible to produce EV products and to
sell finished goods through channel to its end customers.
F-32
The following tables summarize the effects of transactions
including sales and purchases with the JV Company:
|
|
Year ended |
|
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Sales to JV Company |
$ |
117,707,152 |
|
$ |
11,223,823 |
|
Purchase from JV Company |
$ |
356,609 |
|
$ |
487,453 |
|
As of December 31, 2014 and 2013, the amount due from the JV
Company, net were $ 51,450,612 and $2,917,592, respectively, of which the
majority were the balances with the JV Company and its subsidiaries Kandi
Changxing, Kandi Jinhua and Kandi Shanghai. As of December 31, 2014 and 2013,
the amount due from the JV Company, net were $24,376,371 and $4,121,688,
respectively, the amount due from Kandi Changxing, net were $7,359,202 and
$1,576,408, respectively, the amount due from (to) Kandi Jinhua, net were
$12,736,420 and ($2,780,504), respectively, and the amount due from Kandi
Shanghai, net were $6,978,618 and $0, respectively.
The amount due from the JV Company of $24,376,371 is a one-year
entrusted loan that Kandi Vehicle lent to the JV Company from December 16, 2014
to December 15, 2015 carrying an annual interest rate determined by using the
People's Bank of China floating benchmark lending rate over the same period plus
5% of that rate, which was 5.88% on December 31, 2014. 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, which
restricts direct borrowing and lending between commercial enterprises.
NOTE 24 - COMMITMENTS AND CONTINGENCIES
Guarantees and pledged collateral for third party bank loans
As of December 31, 2014 and 2013, the Company provided
guarantees for the following third parties:
(1) Guarantees for bank loans
Guarantee provided to: |
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Yongkang Angtai Trade Co.,
Ltd. |
$ |
- |
|
$ |
817,795 |
|
Nanlong Group Co., Ltd. |
|
9,750,548 |
|
|
9,813,543 |
|
Zhejiang Shuguang industrial
Co., Ltd. |
|
4,875,274 |
|
|
4,906,771 |
|
Zhejiang Kangli Metal Manufacturing Company
|
|
4,875,274 |
|
|
4,906,771 |
|
Total |
$ |
19,501,096
|
|
$ |
20,444,880
|
|
On January 6, 2013, the Company entered into a guarantee
contract to serve as the guarantor for the bank loans borrowed from China
Communication Bank Jinhua Branch in the amount of $817,795 by Yongkang Angtai
Trade Co., Ltd. (YATCL) for the period from January 6, 2013 to January 6,
2014. YATCL is not related to the Company. Under this guarantee contract, the
Company agrees to perform all obligations of YATCL under the loan contracts if
YATCL fails to perform its obligations as set forth therein. YATCL repaid the
loan on the maturity date and the Company obligations under this guarantee
contract extinguished thereafter.
F-33
On February 26, 2013, the Company entered into a guarantee
contract to serve as the guarantor for the bank loan borrowed from PingAn Bank
in the amount of $4,906,771 by Zhejiang Shuguang industrial Co., Ltd. (ZSICL)
for the period from February 26, 2013 to February 26, 2014. On March 4, 2014,
the Company entered into a guarantee contract to serve as the guarantor for the
bank loan borrowed from PingAn Bank in the amount of $4,875,274 by Zhejiang
Shuguang industrial Co., Ltd. (ZSICL) for the period from March 4, 2014 to
March 4, 2015. ZSICL is not related to the Company. Under these guarantee
contracts, the Company agrees to perform all obligations of ZSICL under the loan
contracts if ZSICL fails to perform its obligations as set forth therein.
On March 15, 2013 and December 27, 2013, the Company entered
into two guarantee contracts to serve as the guarantor for the bank loans
borrowed from Shanghai Pudong Development Bank Jinhua Branch and Shanghai Bank
Hangzhou branch in the amount of $ 3,250,183 and $ 6,500,366 respectively by
Nanlong Group Co., Ltd. (NGCL) for the period from March 15, 2013 to March 15,
2016, and December 27, 2013 to December 27, 2014 respectively. The guarantee
contract to serve as the guarantor for the bank loan borrowed from Shanghai Bank
Hangzhou branch was extended for four months to April 27, 2015 with the same
terms after its original contract ended on December 27, 2014. NGCL is not
related to the Company. Under these guarantee contracts, the Company agrees to
perform all obligations of NGCL under the loan contract if NGCL fails to perform
its obligations as set forth therein.
On December 27, 2013, the Company entered into a guarantee
contract to serve as the guarantor for the bank loan borrowed from Shanghai Bank
Hangzhou branch in the amount of $ 4,875,274 by Zhejiang Kangli Metal
Manufacturing Company (ZKMMC) for the period from December 27, 2013 to
December 27, 2014. The guarantee contract was extended for six months to June
27, 2015 with the same terms after its original contract ended on December 27,
2014. ZKMMC is not related to the Company. Under this guarantee contract, the
Company agrees to perform all obligations of ZKMMC under the loan contract if
ZKMMC fails to perform its obligations as set forth therein.
(2) Pledged collateral for a third party's bank loans
As of December 31, 2014 and 2013, none of the Company's land
use rights or plant and equipment were pledged as collateral securing bank loans
to third parties.
NOTE 25 SEGMENT REPORTING
The Company has only one single operating segment. The
Company's revenue and long-lived assets are primarily derived from and located
in the PRC. The Company only operates in China.
The following table sets forth revenues by geographic area:
|
|
Year Ended
December 31 |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
Long |
|
|
|
|
|
Long |
|
|
|
|
|
Long |
|
|
|
Sales |
|
|
Lived |
|
|
Sales |
|
|
Lived |
|
|
Sales |
|
|
Lived |
|
|
|
Revenue |
|
|
Assets |
|
|
Revenue |
|
|
Assets |
|
|
Revenue |
|
|
Assets |
|
North America |
$
|
2,900,789 |
|
$
|
- |
|
$
|
6,906,807 |
|
$
|
- |
|
$
|
7,243,25 7 |
|
$
|
- |
|
Europe and other region |
|
5,729,035 |
|
|
- |
|
|
2,394,948 |
|
|
- |
|
|
1,639,990 |
|
|
- |
|
China |
|
161,599,182 |
|
|
184,746,155 |
|
|
85,234,290 |
|
|
124,294,994 |
|
|
55,630,423 |
|
|
51,289,815 |
|
Total |
$ |
170,229,006 |
|
$ |
184,746,155 |
|
$ |
94,536,045 |
|
$ |
124,294,994 |
|
$ |
64,513,670 |
|
$ |
51,289,815 |
|
F-34
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and
Procedures
The Company has evaluated, under the supervision of the
Company's Chief Executive Officer and the Chief Financial Officer, the
effectiveness of disclosure controls and procedures as of December 31, 2014.
This is done in order to ensure that information the Company is required to
disclose in reports that are filed or submitted under the Securities Exchange
Act of 1934, as amended (the Exchange Act) is: (i) recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms
and (ii) accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding disclosure.
Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of December 31, 2014.
(b) Management's Annual Report on Internal Control
Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under Exchange Act. The Company's internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting principles.
The Company's internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on the consolidated financial
statements.
All internal control systems, no matter how well designed, have
inherent limitations, so that no evaluation of controls can provide absolute
assurance that all control issues are detected. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. Therefore,
any current evaluation of controls cannot and should not be projected to future
periods.
Management conducted an assessment of the effectiveness of our
system of internal control over financial reporting as of December 31, 2014, the
last day of our fiscal year. This assessment was based on criteria established
in the framework Internal ControlIntegrated Framework (2013), issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and
included an evaluation of elements such as the design and operating
effectiveness of key financial reporting controls, process documentation,
accounting policies, and our overall control environment. Based on management's
evaluation under the 2013 COSO framework, management concluded that the
Company's internal controls over financial reporting were effective as of
December 31, 2014.
45
Remediation of Previously Reported Material Weakness
As of December 31, 2014, the management evaluated the material
weakness in our internal control that was disclosed in Item 9A of our Annual
Report on Form 10-K for the year ended December 31, 2013 (the 2013 Form 10-K)
and related implementation of corrective measures in 2014. In May 2014, the
Audit Committee reviewed and approved the Company's policies and procedures
related to remediating inadequate internal control environment that was
disclosed in Item 9A of the 2013 Form 10-K, of which Audit Committee Charter and
Amended Business Ethics and Codes of Conduct have been posted on our website.
The internal auditor reports directly to the Company's audit committee. The
Chairman of the Audit Committee and management representatives met with the
internal auditor and the independent auditor who conducts the audit of internal
control over financial reporting. The Audit Committee also reviewed and approved
the amended approval procedures and guidelines for related-party transactions
(internal audit process). This new rule has been implemented by the management.
In addition, the Audit Committee conducted a self-assessment to assess our
effectiveness in oversight of management and updated the Audit Committee
Charter. The management believes that the progresses made met the remediation
requirements and were sufficient to remediate the material weakness in our
internal control that was disclosed in Item 9A of our 2013 Form 10-K.
We reviewed the results of management's assessment with the
Audit Committee of our Board of Directors.
Our independent registered public accounting firm, AWC (CPA)
Limited, has audited the effectiveness of our internal control over financial
reporting as of December 31, 2014 as stated in their report which is attached to
the auditors report included under item 8 of this report.
(c) Changes in Internal Control Over Financial
Reporting
Except for the changes noted above, there had been no other
changes in the Company's internal control over financial reporting identified in
connection with the above evaluation that occurred during the last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
Item 9B. Other Information.
On January 13, 2015, our independent public accounting firm,
Albert Wong & Co. was succeeded by AWC (CPA) Limited, in the registration
status in Public Company Accounting Oversight Board (PCAOB). AWC (CPA) Limited
is not a separately registered entity with the PCAOB and therefore we are not
required to file a current report on Form 8-K under item 4.01.
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
The following table sets forth
certain information regarding our executive officers and members of the
Company's board of directors (the Board of Directors) as of December 31, 2014:
Name |
|
Age |
|
Position |
|
Served From |
Hu Xiaoming |
|
58 |
|
Chairman of the
Board, President and Chief Executive Officer |
|
June 2007 |
Zhu Xiaoying |
|
44 |
|
Chief Financial Officer, Director
|
|
June 2007 |
Chen Liming (1), (2), (3) |
|
78 |
|
Director
(Independent) |
|
May 2012 |
Qian Jingsong |
|
54 |
|
Director |
|
January 2011 |
Ni Guangzheng (2), (3) |
|
76 |
|
Director
(Independent) |
|
November 2010 |
Jerry Lewin (1) |
|
60 |
|
Director (Independent) |
|
November 2010 |
Henry Yu (1),(2),(3) |
|
61 |
|
Director
(Independent) |
|
July 2011
|
(1) |
Member of Audit Committee |
(2) |
Member of Compensation Committee |
(3) |
Member of Nominating and Corporate Governance
Committee |
46
Business Experience of Directors and Executive Officers
Biographical Information
Hu Xiaoming was appointed as our Chief Executive
Officer, President and Chairman of the Board in June 2007. Prior to joining the
Company, from October 2003 to April 2005, Mr. Hu served as the Project Manager
(Chief Scientist) in the WX Pure Electric Vehicle Development Important Project
of Electro-vehicle in the State 863 Plan. From October 1984 to March 2003, Mr.
Hu served as: (i) Factory Director of the Yongkang Instrument Factory, (ii)
Factory Director of the Yongkang Mini Car Factory, (iii) Chairman and General
Manager of the Yongkang Vehicle Company, (iv) General Manager of the Wan Xiang
Electric Vehicle Developing Center and (v) the General Manager of the Wan Xiang
Battery Company. Mr. Hu personally owned 4 invention patents and 7 utility model
patents, which he transferred to the Company in fiscal year 2012.
Zhu Xiaoying was appointed as our Chief Financial
Officer and a director of the Company in June 2007. In addition, since September
2003, Ms. Zhu has served as Chief Financial Officer of Zhejiang Kandi Vehicles
Co., Ltd., our wholly-owned operating subsidiary. From January 2000 to September
2003, Ms. Zhu served as the Accounting Manager for Zhejiang Yonkang Automobile
Manufacture Co. Ms. Zhu graduated from Hangzhou Electronic Engineering
University. Ms. Zhu acquired CIA certificate in 2010 and EMBA certificate from
Hong Kong Polytechnic University in 2011.
Qian Jingsong was appointed as a director of the Company
on January 31, 2011. In addition, since October 2009, Mr. Qian has served as
Deputy General Manager of Zhejiang Kandi Vehicles Co. Ltd., our wholly-owned
operating subsidiary. Prior to joining the Company, from October 2006 to October
2009, Mr. Qian served in multiple capacities for Chery Karry Automobile,
including Head of the Engineering Construction Group (2006-2007), Vice Manager
of the Q21 Project (2007), Assistant General Manager of the Production
Management and Integrated Management Departments (2007-2009). During his tenure
at Chery Karry Automobile, Mr. Qian was in charge of quality assurance and
participated in strategy, planning and product development work for Chery
mini-cars. From August 1999 to September 2006, Mr. Qian served as Deputy General
Manager and Executive General Manager of Anhui Huayang Auto Manufacturing Co.,
LTD, where he oversaw technical improvement, product development, administrative
personnel, and external affairs. Mr. Qian received a degree in Professional
Ordnance from the Aerospace Staff University in Nanjing, China in 1983.
Ni Guangzheng was appointed as a director of the Company
in November 2010. Mr. Ni is a permanent member of the Chinese Society of
Electrical Engineering, and, since 1998, has served as the Deputy Director of
Technical Committee & Director of EV Research Institute of National ERC of
Power Electronic Technology. Mr. Ni has extensive experience in the areas of
electro-technical and electrical engineering. Mr. Ni has served as: Head of
Department of Electrical Engineering at Zhejiang University (1994 to 1998),
Deputy Director of Electro-technical Theory Committee of China Electro-Technical
Society (1989 to 1993), Director of the National ERC of Power Electronic
Technology (1996 to 1998) and Deputy Director of the Large Electrical Machine
Committee of Chinese Society of Electrical Engineering (1997 to 1999). Mr. Ni
received his bachelor degree in electrical machine and a master’s degree in
Electro-technology theory from Xian Jiaotong University.
Jerry Lewin was appointed as a director of the Company
in November 2010. Jerry Lewin currently serves as Senior Vice President of Field
Operations for Hyatt Hotels Corporation and is responsible for managing 35
hotels throughout the North American continent. Mr. Lewin has been with Hyatt
since 1987. In his capacity as Senior Vice President, Mr. Lewin supervises a
number of areas, including finance, sales and marketing, public relations,
customer service, engineering, and human resources. Mr. Lewin serves as a member
of the Hyatt Hotels Corporations Managing Committee and sits on the board of
directors of the New York City Hotel Association. Since July 2009, Mr. Lewin has
served as a director of EFT Biotech Holdings, Inc. Mr. Lewin currently serves as
the President of the New York Law Enforcement Foundation and as the President of
the NY State Troopers PBA Signal 30 Fund. Mr. Lewin has served in various
management capacities for several hotel companies in San Francisco, Oakland, Los
Angeles, San Diego and Las Vegas. Mr. Lewin received his Bachelor of Science
degree from Cornell University and completed the Executive Development Program at J.L. Kellogg Graduate School of
Management at Northwestern University.
47
Henry Yu was appointed as a director of the Company on
July 1, 2011. Mr. Yu serves as a Managing Director & Regional Manager of
Global Financial Institutions (Asia) of Fifth Third Bank. Prior to his current
position, Mr. Yu served as Senior Vice President of the East West Bank from July
2011 to September 2012. Prior to that, Mr. Yu served as the President of
Shanghai Bosun Capital Advisors in Shanghai, China from January to June 2011.
From January 2008 to December 2010, Mr. Yu served as Head of Business
Development at Standard Chartered Bank in China. From November 1999 to December
2007, Mr. Yu served as Managing Director of Global Trade Solutions of SunTrust
Bank in Atlanta, Georgia. From January 1995 to November 1999, Mr. Yu served as
Group Vice President of Comerica Bank in Chicago, Illinois. Mr. Yu started his
banking career in 1981 with Bank of America in HK. Currently, Mr. Yu serves as
Chair of the Advisory Board of the National Association of Chinese-Americans and
serves as an Advisor to Chinas Federation of Overseas Chinese. Mr. Yu is
currently a member of the Foundation Board Trustees of Georgia Perimeter
College, board member of Georgia State Universitys China Task Force, and member
of the Asian Studies Board of the Kennesaw State University. From 2003 to 2007,
Mr. Yu held Series 7 and 62 Certifications from the Financial Industry
Regulatory Authority. Mr. Yu received his Bachelor of Arts degree in Economics
from the University of Michigan in 1978 and his MBA in Finance from the
University of Detroit in 1980.
Chen Liming was appointed as a director of the Company
on May 1, 2012. Mr. Chen serves as an advisor to AA Wind & Solar Energy
Development Group, LLC. Prior to his current position, from February 2009 to
October 2010, Mr. Chen participated in a joint venture with Mr. Qiu Youmin, the
former designer of Geely Automobile Co., Ltd., and assisted in the development
of super mini three seat pure electric vehicles. From June 2008 to July 2009, he
participated in the development of Lithium Iron Phosphate Battery with Shanghai
Yuankai Group. Mr. Chen served as a Professor of Electrical Engineering at
Zhejiang University from 1983 to 1997. In addition, Mr. Chen served as a
visiting scholar in the Electrical Engineering Department at Columbia University
in New York City from 1981 to 1983 and as a professor in Electrical Engineering
at Zhejiang University from 1960 to 1981. Mr. Chen received his bachelor degree
from Southeast University in Jiangsu, China in 1960.
Family Relationships
No family relationships exist among any of our director
nominees or executive officers.
Audit Committee Financial Expert
Our Audit Committee currently consists of Henry Yu (Chairman),
Jerry Lewin and Chen Liming, each of whom is independent under NASDAQ listing
standards. Our Board of Directors determined that each of Mr. Yu and Mr. Lewin
qualifies as an audit committee financial expert, as defined by Item 407 of
Regulation S-K and NASDAQ Rule 5605(a)(2). In reaching this determination, the
Board of Directors made a qualitative assessment of Mr. Yu's and Mr. Lewin's
level of knowledge and experience based on a number of factors, including formal
education and business experience.
Code of Ethics
We have adopted a code of ethics as defined by regulations
promulgated under the Securities Act of 1933, as amended, and the Exchange Act
that applies to all of our directors and employees worldwide, including our
principal executive officer, principal financial officer and principal
accounting officer. A current copy of our Code of Ethics is included as an
exhibit to our Form 8-K filed November 5, 2007. A copy of our Code of Ethics
will be provided to you without charge upon written request to Hu Xiaoming,
Chief Executive Officer, Kandi Technologies Group, Inc., Jinhua City Industrial
Zone, Jinhua, Zhejiang Province, People's Republic of China, 321016. You may
also access these filings at our web site under the investor relations link at
http://www.kandivehicle.com/default.aspx
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires
that the Company's directors and executive officers and persons who beneficially own more than ten percent (10%) of a
registered class of its equity securities, file with the SEC reports of
ownership and changes in ownership of its common stock and other equity
securities. Executive officers, directors, and greater than ten percent (10%)
beneficial owners are required by SEC regulation to furnish the Company with
copies of all Section 16(a) reports that they file. Based solely upon a review
of the copies of such reports furnished to us or written representations that no
other reports were required, the Company believes that, during fiscal year 2014,
all filing requirements applicable to its executive officers, directors, and
greater than ten percent (10%) beneficial owners were met, except for the
following: (i) Mr. Hu Xiaoming and Ms. Zhu Xiaoying did not file on time the
Form 4s after being issued 119,577 and 71,746 shares of common stock,
respectively, under the Companys 2008 Omnibus Long-Term Incentive Plan on May
22, 2014; (ii) Henry Yu did not file on time the Form 4s after being issued
5,000 shares on March 24, 2014 and September 8, 2014, respectively; and (iii)
Jerry Lewin did not file on time the Form 4s after being issued 5,000 shares on
March 24, 2014 and September 8, 2014, respectively. As of the date of this
report, all of the filings mentioned above have been made.
48
Item 11. Executive Compensation
Summary Compensation Table
The following table summarizes the compensation earned during
the years ended December 31, 2014, 2013 and 2012, by those individuals who
served as our Chief Executive Officer or Chief Financial Officer during any part
of fiscal year 2014 or any other executive officer with total compensation in
excess of $100,000 during fiscal year 2014. The individuals listed in the table
below are referred to as the named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
Deferred |
|
|
All |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Plan |
|
|
Compensation |
|
|
Other |
|
|
|
|
|
|
|
|
|
Salary |
|
|
Bonus |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Earnings |
|
|
Compensation |
|
|
Total |
|
Name and Principal |
|
Year |
|
|
($) |
|
|
($) |
|
|
($)(3) |
|
|
($)(4) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
Position |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hu Xiaoming (1) |
|
2014 |
|
$ |
29,277 |
|
|
|
|
$ |
1,195,000 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,224,27 |
|
CEO, President and |
|
2013 |
|
$ |
32,268 |
|
|
|
|
$ |
1,428,945 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,461,21 |
|
Chairman of the
Board |
|
2012 |
|
$ |
31,646 |
|
|
|
|
|
|
|
$ |
5,877 |
|
|
|
|
|
|
|
|
|
|
$ |
37,52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zhu Xiaoying (2) |
|
2014 |
|
$ |
19,518 |
|
|
|
|
$ |
717,000 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
736,51 |
|
CFO |
|
2013 |
|
$ |
24,201 |
|
|
|
|
$ |
857,365 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
881,56 |
|
|
|
2012 |
|
$ |
23,735 |
|
|
|
|
$ |
|
|
$ |
3,820 |
|
|
|
|
|
|
|
|
|
|
$ |
27,55 |
|
(1) |
Mr. Hu was appointed as CEO and President of the Company
on June 29, 2007. |
|
|
(2) |
Ms. Zhu was appointed as CFO of the Company on June 29,
2007. |
|
|
(3) |
The amounts in this column reflect the aggregate grant
date fair value under FASB ASC Topic 718 of awards made during the
respective year. As of the date of this report, the stock awards to Mr. Hu
and Ms. Zhu had been granted, but not yet issued. |
|
|
(4) |
The amounts in this column reflect the aggregate grant
date fair value under FASB ASC Topic 718 of awards made during the
respective year |
Salary and Incentive Compensation
In fiscal 2014, the primary components of our executive
compensation programs were base salary and equity compensation.
49
Salary
We use base salary to fairly and competitively compensate our
executives, including the named executive officers, for the jobs we ask them to
perform. We view base salary as the most stable component of our executive
compensation program, as this amount is not at risk. We believe that the base
salaries of our executives should be targeted at or above the median of base
salaries for executives in similar positions with similar responsibilities at
comparable companies, consistent with our compensation philosophy. At the end of
the year, each executive's performance is evaluated by our Compensation
Committee, which takes into account the individual's performance,
responsibilities of the position, adherence to our core values, experience, and
external market conditions and practices.
Incentive Compensation
We believe it is a customary and competitive practice to
include an equity-based element of compensation to the overall compensation
package for our named executive officers. We believe that a significant portion
of the compensation paid to our named executive officers should be
performance-based and therefore at risk. Awards made are granted under the Kandi
Technologies Group, Inc. Omnibus Long-Term Incentive Plan (the Plan).
At our 2008 annual meeting of shareholders, our stockholders
approved the adoption of the Plan. As of December 31, 2014, 2,600,000 options
have been granted under the Plan to the Company's employees and directors, of
which 2,593,332 have been exercised, and 6,668 have been forfeited.
On December 30, 2013, the Board of Directors approved a
proposal (as submitted by the Compensation Committee) of an award for selected
executives and other key employees comprising a total of 335,000 for each fiscal
year beginning with the 2013 fiscal year under the Plan to be delivered upon
the Company's determination that the Company's Non-GAAP Net Income for the
fiscal year increased by 10%. Non-GAAP Net Income means the Company's 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 2013 fiscal year increases by 10% compared to the Non-GAAP Net
Income for the 2012 fiscal year, the selected executives and other key employees
will each be granted his or her target amount of common stock of the Company at
the end of March 2014. If Non-GAAP Net Income in 2013 is less than Non-GAAP Net
Income in 2012, then no common stock will be granted. If Non-GAAP Net Income in
2013 increases compared to Non-GAAP Net Income in 2012 but the increase is less
than 10%, then the target amount of the common stock grant will be
proportionately decreased. If Non-GAAP Net Income in 2013 increases compared to
Non- GAAP Net Income in 2012 but the increase is more than 10%, then the target
amount of the common stock grant will be proportionately increased.
On July 25, 2014, the Board of Directors approved a proposal
submitted by the Compensation Committee to modify the languages of stock awards
in the Board Resolution of December 30, 2013. The modification was to replace
the languages of in the future years the stock grant amount will be adjusted
accordingly based on the Non-GAAP net income in 2013 and the Exhibit A attached
hereto; if the Non-GAAP net income in one year is less than the Non-GAAP net
income in the previous year, then no stock will be granted in that year; if the
Non-GAAP net income continues increasing, the stock grant amount will increase
according to the Non-GAAP net income increase percentage with the languages of
in the future years if the Non-GAAP net income in one year increases 10%
compared with the previous year, the total amount of stock listed in the Exhibit
A attached to the original Resolutions will be granted to certain employees
(management of the Company is authorized to determine list of employees and
stock amount rewarded based on position adjustment of employees, performance and
tenure of each employee in that year); if the Non-GAAP net income in one year is
less than the Non-GAAP net income in the previous year, then no stock will be
granted in that year; if the Non-GAAP net income in one year is 10% less than or
10% more than the Non-GAAP net income in the previous year, then the stock grant
amount will decrease or increase according to the Non-GAAP net income decrease
or increase percentage, but the total amount rewarded may not be over 200%.
50
Outstanding Equity Awards at 2014 Fiscal Year-End
The following table sets forth information regarding all
unexercised, outstanding equity awards held, as of December 31, 2014, by those
individuals who served as our named executive officers during any part of fiscal
year 2014.
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
|
Plan
Awards: |
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
Awards: |
|
|
Market
or |
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
|
|
|
|
|
|
|
|
|
|
Value of |
|
|
Number of |
|
|
Payout
Value |
|
|
|
Number of |
|
|
Number of |
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
Shares or |
|
|
Unearned |
|
|
of
Unearned |
|
|
|
Securities |
|
|
Securities |
|
|
Number of |
|
|
|
|
|
|
|
|
Number
of |
|
|
Units of |
|
|
Shares, |
|
|
Shares,
Units |
|
|
|
Underlying |
|
|
Underlying |
|
|
Securities |
|
|
|
|
|
|
|
|
Shares or |
|
|
Stock |
|
|
Units or |
|
|
or
Other |
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Underlying |
|
|
Option |
|
|
|
|
|
Units of |
|
|
That |
|
|
Other |
|
|
Rights
That |
|
|
|
Options |
|
|
Options |
|
|
Unexerci sed |
|
|
Exercise |
|
|
Option |
|
|
Stock That |
|
|
Have Not |
|
|
Rights That |
|
|
Have Not |
|
|
|
(#) |
|
|
(#) |
|
|
Unearned |
|
|
Price |
|
|
Expiration |
|
|
Have Not |
|
|
Vested |
|
|
Have Not |
|
|
Vested |
|
Name |
|
Exercisa ble |
|
|
Unexerci sable |
|
|
Options (#) |
|
|
($) |
|
|
Date |
|
|
Vested (#) |
|
|
($) |
|
|
Vested (#) |
|
|
($) |
|
Hu Xiaoming (1)(3) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zhu Xiaoying (2)(3) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
________________
(1) |
Mr. Hu was appointed as CEO and President of the Company
on June 29, 2007. |
(2) |
Ms. Zhu was appointed as CFO of the Company on June 29,
2007. |
(3) |
According to the award performance targets set up
pursuant to the Plan, which was approved on December 30, 2013, the
Compensation Committee and the Board approved the grant of common stock
for 100,000 shares of common stock to Mr. Hu and 60,000 to Ms. Zhu in
2014. These shares have been granted to Mr. Hu and Ms. Zhu but have not
been issued by the Company as of the date herein. |
(4) |
The grant date fair value of each share of common stock
awarded is $11.95, calculated in accordance with FASB Topic
718. |
Employment Agreements
We have employment agreements with our named executive
officers. The agreements provide an annual salary for Mr. Hu and Ms. Zhu, with
bonus to be decided at the discretion of our Board at the year-end. The
employment agreements for Mr. Hu and Ms. Zhu each have a three (3) year term,
ending on June 9, 2017.
51
Potential Payments Upon Termination or Change of Control
Under Chinese law, we may only terminate employment agreements
without cause and without penalty by providing notice of non-renewal one month
prior to the date on which the employment agreement is scheduled to expire. If
we fail to provide this notice or if we wish to terminate an employment
agreement in the absence of cause, as defined in the agreement, then we are
obligated to pay the employee one month's salary for each year we have employed
the employee. We are, however, permitted to terminate an employee for cause
without penalty pursuant to the employment agreement. If the named executive
officer is not terminated for cause, the Company will pay the remaining portion
of the executive officer's salary.
Director Compensation (excluding Named Executive
Officers)
The following table sets forth certain information regarding
the compensation earned by or awarded during the 2014 fiscal year to each of our
non-executive directors:
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
Stock |
|
|
Option |
|
|
Incentive Plan |
|
|
Deferred |
|
|
All Other |
|
|
|
|
|
|
or Paid in |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Compensation |
|
|
Compensation |
|
|
Total |
|
Name |
|
Cash |
|
|
($) (1)(2) |
|
|
($) |
|
|
($) |
|
|
Earnings |
|
|
($) |
|
|
($) |
|
|
|
($)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ni Guangzheng |
$ |
9,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qian Jingsong |
$ |
65,060 |
|
|
478,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
543,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Yu |
$ |
24,000 |
|
|
31,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
55,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry Lewin |
$ |
24,000 |
|
|
37,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
61,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chen Liming |
$ |
9,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,759 |
|
________________
(1) |
The amounts in these columns represent the aggregate
grant date fair value of stock awards granted to our non-named executive
officer directors during fiscal year ended December 31, 2014, in
accordance with ASC Topic 718. On December 30, 2013, the Compensation
Committee and the Board of Directors approved the grant of common stock to
certain executive officers and directors of the Company. The grant date
fair value of each share of common stock awarded was $11.95. |
|
|
(2) |
In setting director compensation, we consider the
significant amount of time that directors spend fulfilling their duties to
the Company, as well as the skill level required to serve as a director
and manage the affairs of the Company. Certain directors receive a monthly
fee as follows: (i) Ni Guangzheng receives a monthly fee of RMB 5,000
(approximately $813) starting 2014.; (ii) Jerry Lewin receives a monthly
fee of $2,000; (iii) Henry Yu receives a monthly fee of $2,000; and (iv)
Chen Liming receives a monthly fee of RMB 5,000 (approximately $813)
starting 2014. |
In connection with his appointment to the Board of Directors in
July 2011, the Board of Directors authorized the Company to issue to Mr. Yu with
5,000 shares of Company's restricted common stock every six months, par value
$0.001. Similarly, in July 2011, the Board of Directors authorized the Company
to issue to Mr. Lewin with 5,000 shares of Company's restricted common stock
every six months, par value $0.001. As of December 31, 2014, 30,000 shares of
restricted common stock had been issued to Mr. Lewin and Mr. Yu each.
52
The aggregate number of stock options and restricted
outstanding, as of December 31, 2014, for each of the non-named executive
officer directors were as follows:
Name |
Options |
Restricted |
|
|
stock |
Qian Jingsong |
0 |
0 |
Henry Yu |
0 |
30,000 |
Chen Liming |
0 |
0 |
Ni Guangzheng |
0 |
0 |
Jerry Lewin |
0 |
30,000 |
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The following table sets forth information known to us, as of
March 9, 2015, relating to the beneficial ownership of shares of common stock by
each person who is known by us to be the beneficial owner of more than five
percent (5%) of the outstanding shares of common stock; each director; each
executive officer; and all executive officers and directors as a group. We
believe that all persons named in the table have sole voting and investment
power with respect to all shares of common stock shown as being owned by them.
The applicable percentages of ownership are based on an aggregate of 46,284,855
shares of our Common Stock issued and outstanding on March 9, 2015.
|
|
|
Amount and Nature |
|
|
|
|
|
|
|
of Beneficial |
|
|
Percent of |
|
Title of Class |
Name of Beneficial
Owner |
|
Ownership |
|
|
Class |
|
Common Stock |
Excelvantage
Group Limited(3 ) |
|
12,000,000 |
(1) |
|
25.9% |
|
Common Stock |
Hu Xiaoming |
|
12,938,077 |
(2) |
|
28.0% |
|
Common Stock |
Zhu Xiaoying |
|
591,746 |
|
|
1.3% |
|
Common Stock |
Qian Jingsong |
|
4,000 |
|
|
* |
|
Common Stock |
Henry Yu |
|
35,000 |
|
|
* |
|
Common Stock |
Jerry Lewin |
|
35,000 |
|
|
* |
|
Common Stock |
Ni Guangzheng |
|
- |
|
|
- |
|
Common Stock |
Chen Liming |
|
- |
|
|
- |
|
All officers and directors
|
|
|
13,603,823 |
|
|
29.4% |
|
* Less than 1%
(1) |
On March 29, 2010, Hu Xiaoming, our Chief Executive
Officer, President and Chairman of the Board of Directors, became the sole
stockholder of Excelvantage Group Limited. Through his position as the
sole stockholder in Excelvantage Group Limited, Mr. Hu has the power to
dispose of or direct the disposition of the shares of common stock in
Excelvantage Limited Group. As a result, Mr. Hu may, under the rules of
the Securities and Exchange Commission, be deemed to be the beneficial
owner of the shares of common stock. |
|
|
(2) |
Includes (i) 818,500 shares owned directly by Mr. Hu,
(ii) 119,577 shares that were issued according to the plan award , and
(iii) 12,000,000 shares owned by Excelvantage Group Limited. As reflected
in footnote 1, Mr. Hu may be deemed to be the beneficial owner of these
shares. |
|
|
(3) |
Principal offices located at Jinhua City Industrial Zone,
Jinhua City, Zhejiang Province, China 321016. |
53
Item 13. Certain Relationships and Related Transactions, and
Director Independence.
Transactions with Related Persons
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 us than can be obtained from
unaffiliated third parties. During fiscal years ended December 31, 2014 and
2013, there were no transactions involving any of our current Directors or
executive officers.
Other than as set forth below, for fiscal years ended December
31, 2014 and 2013, the Company was not involved in any related party
transactions.
The following table lists the amount due from related parties
as of December 31, 2014 and 2013.
|
|
2014 |
|
|
2013 |
|
Eliteway |
$ |
620,410 |
|
$ |
2,800,958 |
|
Total due from related party |
$ |
620,410 |
|
$ |
2,800,958 |
|
During fiscal year ended December 31, 2014, 2013 and 2012, the
Company sold products to Kandi USA Inc. carrying trade name of Eliteway
Motorsports (Eliteway) amounting to $2,981,944, $6,906,807 and $5,297,548,
respectively. As of December 31, 2014 and 2013, outstanding receivable due from
Eliteway was $620,410 and $2,800,958, respectively.
Mr. Hu Wangyuan was the sole shareholder and officer of
Eliteway which served as a US importer of the Company's products. Mr. Hu
Wangyuan is the adult son of the Company's chairman and Chief Executive Officer,
Mr. Hu Xiaoming. For the year ended December 31, 2014, 2013and 2012, Eliteway
and Mr. Hu Wangyuan were financially independent from the Company. The
transactions between the Company and Eliteway were carried at arm's-length
without preferential terms comparing with other customers at the comparative
order size or volume.
Procedures For Approval of Related Party Transactions
In May 2014, we adopted a written Management Policy of
Related-Party Transaction (the Policy). According to the Policy, a Related
Transaction is any transaction, includes, but not limited to, any financial
transaction, arrangement, relationship (including any indebtedness or guarantee
of indebtedness) or any series of similar transactions, arrangements or
relationships, since the beginning of the Companys last fiscal year, or any
currently proposed transaction, and the amount involved exceeds $120,000, and in
which any related party had or will have a direct or indirect material
interest. The Policys definition of a Related Party is in line with the
definition set forth in the instructions to Item 404(a) of Regulation S-K
promulgated by the SEC.
Under the Policy, The Companys proposed material related
transaction with related person shall be submitted to the Board for
consideration and discussion after independent director presents his/her
approval opinion beforehand. The Audit Committee shall conduct audit on the
related transaction and develop a written opinion, and can engage independent
finance advisor to issue a report as a basis of its judgment, then submit it to
the Board. The Policy states that the Board meeting can be held as long as
non-affiliated directors over half of the Board attend, and any resolution made
by the Board must be approved by over half of non-affiliated directors.
Director Independence
Mr. Henry Yu, Chen Liming, Ni Guangzheng and Jerry Lewin are
all non-employee directors, all of whom our Board of Directors has determined
are independent pursuant to NASDAQ rules. All of the members of our Audit
Committee, Nominating/Corporate Governance Committee and Compensation Committee
are independent pursuant to NASDAQ rules.
54
Item 14. Principal Accounting Fees and Services.
The following table represents the aggregate fees from our
principal accountant, AWC (CPA) Limited (formerly, Albert Wong & Co.), and
other accounting related service providers for the years ended December 31, 2014
and 2013 respectively.
|
|
2014 |
|
|
2013 |
|
Audit Fees |
$ |
310,000 |
|
$ |
261,000 |
|
Audit Related Fees |
$ |
- |
|
$ |
- |
|
Tax Fees |
$ |
- |
|
|
- |
|
All Other Fees |
$ |
13,493 |
|
$ |
9,330 |
|
TOTAL FEES |
$ |
323,493 |
|
$ |
270,330 |
|
Fees for audit services include fees associated with the annual
audit and reviews of our quarterly reports. Audit-related fees mainly include
the fees associated with the financial instruments and assets evaluation, while
all other fees include fees incurred for services performed in connection with
filing of tax returns and overhead costs.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Exhibit |
|
Number |
Description |
2.1 |
Share Exchange Agreement, dated June 29, 2007, by and
among Stone Mountain Resources, Inc., Continental Development Limited and
Excelvantage Group Limited. [Incorporated by reference from Exhibit 2.1 to
the Company's Current Report on Form 8-K filed on July 6, 2007] |
|
|
3.1 |
Certificate of Incorporation. [Incorporated by reference
from Exhibit 3.1 to Form SB-2 filed by the Company on April 1, 2005]
|
|
|
3.2 |
Certificate For Renewal and Revival of Charter dated May
27, 2007. (Incorporated by reference from Exhibit 3.1 to the Companys
Registration Statement on Form S-3 dated June 20, 2014) |
|
|
3.3 |
Certificate of Amendment of Certificate of Incorporation.
(filed as Exhibit 4.2 to the Company's Form S-3, dated November 19, 2009;
File No. 333-163222) |
|
|
3.4 |
Certificate of Amendment of Certificate of Incorporation.
(filed as Exhibit 3.1 to the Company's Form 8-K, dated December 21, 2012)
|
|
|
3.5 |
Bylaws. [Incorporated by reference from Exhibit 3.2 to
Form SB-2 filed by the Company on April 1, 2005] |
|
|
4.1 |
Form of Warrant. [Incorporated by reference from Exhibit
4.1 to the Company's Current Report on Form 8-K filed on June 26, 2013]
|
|
|
4.2 |
First Amendment to the Warrant To Purchase Common Stock.
[Incorporated by reference from Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on January 29, 2013] |
|
|
4.3 |
Form of Amendment to the Warrant To Purchase Common
Stock. [Incorporated by reference from Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on December 12, 2013] |
|
|
4.4 |
Form of Warrant. [Incorporated by reference from Exhibit
4.1 to the Company's Current Report on Form 8-K filed on January 16, 2014]
|
55
4.5 |
Form of Warrant [Incorporated by reference from Exhibit
4.1 to the Company's Current Report on Form 8-K filed on March 19,
2014] |
|
|
4.6 |
Form of Warrant. [Incorporated by reference from Exhibit
4.1 to the Company's Current Report on Form 8-K filed on August 29,
2014] |
|
|
10.1 |
Form of the Director Agreement |
|
|
10.2 |
Form of the Employment Contract by and between Zhejiang
Kandi Vehicles Co., Ltd. and the executive officer |
|
|
10.3 |
Kandi Technologies, Corp. 2008 Omnibus Long-Term
Incentive Plan [Incorporated by reference from Appendix A to the Company's
Definitive Schedule 14A filed on November 24, 2008] |
|
|
10.4 |
Voting Agreement, dated January 21, 2010, by and between
the Company and Excelvantage Group Limited. [Incorporated by reference
from Exhibit 10.6 to the Company's Current Report on Form 8-K filed on
January 21 2010] |
|
|
10.5 |
The Agreement of Establishment Kandi New Energy Vehicles
Co., Ltd., dated May 18, 2010, by and between Zhejiang Kandi Vehicles Co.,
Ltd. and Mr. Hu Xiaoming, and its supplement, dated January 31, 2011.
[Incorporated by reference from Exhibit 10.13 to the Company's Annual
Report on Form 10-K filed on March 31, 2011] |
|
|
10.6 |
The Share Escrow and Trust Agreement, dated May 18, 2010,
by and between Zhejiang Kandi Vehicles Co., Ltd. and Mr. Hu Xiaoming.
[Incorporated by reference from Exhibit 10.14 to the Company's Annual
Report on Form 10-K filed on March 31, 2011] |
|
|
10.7 |
The Contractor Agreement, dated May 18, 2010, by and
between Zhejiang Kandi Vehicles Co., Ltd. and Mr. Hu Xiaoming.
[Incorporated by reference from Exhibit 10.15 to the Company's Annual
Report on Form 10-K filed on March 31, 2011] |
|
|
10.8 |
Loan Agreement, dated January 31, 2011, by and between
Zhejiang Kandi Vehicles Co., Ltd. and Mr. Xiaoming Hu. [Incorporated by
reference from Exhibit 10.1 to the Company's Form 10-Q filed on May 16,
2011] |
|
|
10.9 |
Share Exchange Agreement, dated February 13, 2012, by and
among, Kandi Technologies Corp., KO NGA Investment Limited and each of the
shareholders of KO NGA Investment Limited. [Incorporated by reference from
Exhibit 10.1 to the Company's Form 10-Q filed on May 15, 2012] |
|
|
10.10 |
Sales Contract, dated September 29, 2012, by and between,
Zhejiang Kandi Vehicles Co., Ltd. and China Aviation Lithium Battery
(Hangzhou) Co., Ltd. [ Incorporated by reference from Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on October 1, 2012] |
|
|
10.11 |
Joint Venture Agreement of Establishment of Zhejiang
Kandi Electric Vehicles Co., Ltd., by and between Zhejiang Kandi Vehicles
Co., Ltd. and Shanghai Maple Guorun Automobile Co., Ltd., dated March 22,
2013.*. [Incorporated by reference from Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q filed on May 14, 2013] |
|
|
10.12 |
Form of Securities Purchase Agreement, dated June 26,
2013, by and among the Company and certain institutional accredited
investors [Incorporated by reference from Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on June 26,2013] |
56
10.13 |
Form of Securities Purchase Agreement, dated March 19,
2014, by and among the Company and certain institutional accredited
investors [Incorporated by reference from Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on March 19, 2014] |
|
|
10.14 |
Form of Securities Purchase Agreement, dated August 29,
2014, by and among the Company and certain institutional accredited
investors [Incorporated by reference from Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on August 29, 2014] |
|
|
10.15 |
Placement Agent Agreement [Incorporated by reference from
Exhibit 10.2 to the Company's Current Report on Form 8-K filed on June 26,
2013] |
|
|
10.16 |
Form of Placement Agent Agreement [Incorporated by
reference from Exhibit 4.1 to the Company's Current Report on Form 8-K
filed on August 29, 2014] |
|
|
10.17 |
Bond Underwriting Agreement by and between Zhejiang Kandi
Vehicles Co., Ltd. and Ever-Bright Securities, dated December 26, 2013.
[Incorporated by reference from Exhibit 10.25 to the Company's Annual
Report on Form 10-K filed on March 17, 2014] |
|
|
10.18 |
Zhejiang Wanxiang Ener1 Power System Co., Ltd. Sales
Contract, between Jinhua Kandi New Energy Vehicles Co., Ltd. and Zhejiang
Wanxiang Ener1 Power System Co., Ltd., dated October 23, 2013.
[Incorporated by reference from Exhibit 10.26 to the Company's Annual
Report on Form 10-K filed on March 17, 2014] |
|
|
14.1 |
Code of Business Conduct and Ethics |
|
|
21.1 |
List of Subsidiaries of the Company. |
|
|
23.1 |
Consent of AWC (CPA) Limited |
|
|
31.1 |
Certification of CEO pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934. |
|
|
31.2 |
Certification of CFO pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934. |
|
|
32.1 |
Certifications of CEO and CFO pursuant to 18 U.S.C. §
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
Exhibits filed herewith.
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the Exchange Act), the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KANDI TECHNOLOGIES GROUP, INC.
March 16, 2015 |
By: |
/s/ Hu Xiaoming |
|
|
Hu Xiaoming |
|
|
President and Chief Executive
Officer |
Pursuant to the requirements of the Exchange Act, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Hu Xiaoming
|
|
President, Chief Executive Officer |
March 16, 2015 |
Hu Xiaoming |
|
and Chairman of the Board (Principal |
|
|
|
Executive Officer) |
|
|
|
|
|
/s/ Zhu Xiaoying
|
|
Chief Financial Officer and Director |
March 16, 2015 |
Zhu Xiaoying |
|
(Principal Financial Officer and |
|
|
|
Accounting Officer) |
|
|
|
|
|
/s/ Chen Liming
|
|
Director |
March 16, 2015 |
Chen Liming |
|
|
|
|
|
|
|
/s/ Ni Guangzheng
|
|
Director |
March 16, 2015 |
Ni Guangzheng |
|
|
|
|
|
|
|
/s/ Jerry Lewin
|
|
Director |
March 16, 2015 |
Jerry Lewin |
|
|
|
|
|
|
|
/s/ Henry Yu |
|
Director |
March 16, 2015 |
Henry Yu |
|
|
|
|
|
|
|
/s/ Qian Jingsong
|
|
Director |
March 16, 2015 |
Qian Jingsong |
|
|
|
58
Labor Contract
Party A: Zhejiang Kandi Vehicles Co., Ltd.
Address: Jinhua Industry Zong, Jinhua City, Zhejiang
Province
Party B: __________________________
ID No.
___________________________________________
Party A and Party B make this contract on the principle of
voluntaries and equality through mutual negotiation in accordance with Labor Law
of the Peoples Republic of China and other relevant prescriptions.
1. Term of labor contract
The term of contract shall be
__year(s) from this __day of __(month),__ (year) to this__day
of__(month),__(year).
2. Scope of work
Party B agrees to work at the post of
____and shall fulfill the task assigned for the post. If required by work, Party
B agrees to change the post.
3. Work condition and labor protection
Party A shall set up
regulation on production safety and labor protection, and provide Party B with
labor protection articles.
Party B shall work in according with the safety operating
procedure to ensure safety production. If Party B does not operate according to
the standard operating procedure set by Party A, Party B shall make compensation
for the economical losses caused to Party A.
4. Labor discipline
Party B shall comply with the
regulation that is set up by Part A in accordance with the Law and shall obey
the management of Party A. If Party B breaches the regulation, Party A may give
appropriate punishment to Party B in accordance with the regulations.
5. Labor compensation
Labor compensation is executed
according to method ____.
Method one: the labor compensation is made by Party A based on
the rule of distribution according to work. Party B s labor compensation is
made in accordance with the compensation regulation and method set by Party A
Method Two: annual wage system. Annual wage is RMB ____yuan,
which is pre-tax wage. One part is monthly advance payment of RMB yuan
that is made at the wage time of Party A, the other part of the wage is to be
paid after the end of the working year. The annual wage is including all the
wage subsidies and over time payment.
6. Social insurance and welfare
(1) |
Party A and party B shall carry social insurances as
required by the national law and regulations of the local government and
pay social insurance in time. Party A shall withhold the individual part
of the social insurance of Party B from the wage of Party B. |
(2) |
Other welfare shall comply with the regulations of Party
B. |
7. Change and cancellation of contract.
(1) |
If circumstances change, such as Party A adjusts
production or production projects, the two parties can change the content
of labor contract by consensus. |
(2) |
During the term of contract, each of the two parties can
cancel the contract under the circumstances according to the prescriptions
of Labor Law upon thirty days prior written notice to the other
party. |
(3) |
Under any of the following circumstances for Party B,
Party A may cancel the contract at any time: |
|
(1) Party B has absenteeism for
over working day or for over times per year; (2) Party B breaches
the working regulation or operating procedure causing an accident, or has
dereliction of duty causing serious consequences; (3) Party B
seriously breaches work order resulting in unmoral work of Party A;
(4) Party B seriously breaches the regulations or labor discipline of
Party A; (5) Party B is sentenced to detention or imprisonment or
penalty suspended or re-education through labor.
|
8. Termination of contract |
|
(1) Under any of the following
circumstances, the contract shall be terminated. (1) The contract will
be terminated at the expiration date. If any party requests for renewal of
the contract, it shall notify the other party. The procedures for renewal
of the contract can be made upon mutual consensus of the two
parties (2) Retirement or redundancy of Party B shall comply with
relevant national regulations. (2) After the termination of the
contract, Party A shall provide Party B with Certification of Termination
of Labor Contract, and follow relevant procedure. |
|
|
9. Breach Liabilities |
(1) |
The contract shall come into effect once being signed and
shall be carried out strictly by both parties. |
(2) |
Should any party breach the contract, the liable party
shall bear the legal responsibility, and make compensation for economical
losses caused to the other party in view of the result and its
liability. |
(3) |
If Party B leaves his post without permission, and cause
the termination of the contract, and caused direct economical losses to
Party A, Party B shall make compensation according to the losses. If the
economical losses are immeasurable, the Party A shall make compensation
equal to amount of the standard monthly wage. |
10. Others
11. Any dispute arising out of performance of the contract may
be settled by negotiation of the two parties.
12. The contract is in quadruplicate, with two copies held by
Party A, one held by Party B and one filed in the supervision authority.
Party
A: Party
B: ___________________
Legal representative:
(or authorized person):
Zhejiang Kandi Vehicles Co., Ltd.
Date: ___________________
|
Kandi Regulations- Code of Business Conduct and Ethics
|
CODE OF BUSINESS CONDUCT AND ETHICS
OF
KANDI TECHNOLOGIES GROUP, INC. (Version 2)
Approved on May 30, 2014
Kandi Technologies Group, Inc
1
|
Kandi Regulations- Code of Business Conduct and Ethics
|
Table of Contents
2
|
Kandi Regulations- Code of Business Conduct and Ethics
|
3
|
Kandi Regulations- Code of Business Conduct and Ethics
|
This Code of Business Conduct and Ethics helps ensure
compliance with legal requirements and our standards of business conduct. This
Code of Business Conduct and Ethics applies to all directors, officers and
employees of Kandi Technologies Group, Inc., a Delaware corporation with its
securities listed on Nasdaq Global Select Market under ticker symbol KNDI (the
Company). Therefore, all Company directors, officers and employees are
expected to read and understand this Code of Business Conduct and Ethics, uphold
these standards in day-to-day activities, comply with all applicable policies
and procedures, and ensure that all agents and contractors are aware of,
understand and adhere to these standards.
Because the principles described in this Code of Business
Conduct and Ethics are general in nature, you should also review all applicable
Company policies and procedures for more specific instruction, and contact the
Companys Chief Financial Officer (CFO) if you have any questions. If you are
CFO, please contact the Companys Chief Executive Officer (CEO).
Nothing in this Code of Business Conduct and Ethics, in any
Company policies and procedures, or in other related communications (verbal or
written) creates or implies an employment contract or term of employment.
We are committed to continuously reviewing and updating our
policies and procedures. Therefore, this Code of Business Conduct and Ethics is
subject to modification. This Code of Business Conduct and Ethics supersedes all
other such codes, policies, procedures, instructions, practices, rules or
written or verbal representations to the extent they are inconsistent.
Please sign the acknowledgment form at the end of this Code of
Business Conduct and Ethics and return the form to the CFO (or the CEO, if you
are the CFO) indicating that you have received, read, understand and agree to
comply with the Code of Business Conduct and Ethics.
The signed acknowledgment form will be located in your
personnel file.
II. COMPLIANCE IS EVERYONES BUSINESS
Ethical business conduct is critical to our business. As a
director, officer or employee, your responsibility is to respect and adhere to
these practices. Many of these practices reflect legal or regulatory
requirements. Violations of these laws and regulations can create significant
liability for you, the Company, its directors, officers, and other employees.
4
|
Kandi Regulations- Code of Business Conduct and Ethics
|
Part of your job and ethical responsibility is to help enforce
this Code of Business Conduct and Ethics. You should be alert to possible
violations and promptly report possible violations to the CFO.
You must cooperate in any internal or external investigations
of possible violations.
Reprisal, threats, retribution or retaliation against any
person who has in good faith reported a violation or a suspected violation of
law, this Code of Business Conduct or other Company policies, or against any
person who is assisting in any investigation or process with respect to such a
violation, is prohibited.
Violations of law, this Code of Business Conduct and Ethics, or
other Company policies or procedures should be reported to the CFO.
Violations of law, this Code of Business Conduct and Ethics or
other Company policies or procedures by Company directors, officers or employees
can lead to disciplinary action up to and including termination.
In trying to determine whether any given action is appropriate,
use the following test. Imagine that the words you are using or the action you
are taking is going to be fully disclosed in the media with all the details,
including your photo. If you are uncomfortable with the idea of this information
being made public, perhaps you should think again about your words or your
course of action.
In all cases, if you are unsure about the appropriateness of an
event or action, please seek assistance in interpreting the requirements of
these practices by contacting the CFO.
III. YOUR RESPONSIBILITIES TO THE COMPANY AND ITS
STOCKHOLDERS
A. General Standards of Conduct
The Company expects all directors, officers, employees, agents
and contractors to exercise good judgment to ensure the safety and welfare of
employees, agents and contractors and to maintain a cooperative, efficient,
positive, harmonious and productive work environment and business organization.
These standards apply while working on our premises, at offsite locations where
our business is being conducted, at Company-sponsored business and social
events, or at any other place where you are a representative of the Company.
Directors, officers, employees, agents or contractors who engage in misconduct
or whose performance is unsatisfactory may be subject to corrective action, up
to and including termination. You should review our employment handbook for more
detailed information.
5
|
Kandi Regulations- Code of Business Conduct and Ethics
|
B. Applicable Laws
All Company directors, officers, employees, agents and
contractors must comply with all applicable laws, regulations, rules and
regulatory orders. Company directors, officers and employees located outside of
the United States must comply with laws, regulations, rules and regulatory
orders of the United States, including the Foreign Corrupt Practices Act and the
U.S. Export Control Act, in addition to applicable local laws. Each director,
officer, employee, agent and contractor must acquire appropriate knowledge of
the requirements relating to his or her duties sufficient to enable him or her
to recognize potential dangers and to know when to seek advice from the CFO on
specific Company policies and procedures. Violations of laws, regulations, rules
and orders may subject the director, officer, employee, agent or contractor to
individual criminal or civil liability, as well as to discipline by the Company.
Such individual violations may also subject the Company to civil or criminal
liability or the loss of business.
C. Conflicts of Interest
Each of us has a responsibility to the Company, our
stockholders and each other.
Although this duty does not prevent us from engaging in
personal transactions and investments, it does demand that we avoid situations
where a conflict of interest might occur or appear to occur. The Company is
subject to scrutiny from many different individuals and organizations.
We should always strive to avoid even the appearance of
impropriety.
What constitutes conflict of interest? A conflict of interest
exists where the interests or benefits of one person or entity conflict with the
interests or benefits of the Company.
Examples include:
(i) Employment/Outside Employment. In consideration of
your appointment or employment with the Company, you are expected to devote your
full attention to the business interests of the Company. You are prohibited from
engaging in any activity that interferes with your performance or
responsibilities to the Company or is otherwise in conflict with or prejudicial
to the Company. Our policies prohibit any director, officer or employee from
accepting simultaneous employment with a Company supplier, customer, developer
or competitor, or from taking part in any activity that enhances or supports a
competitors position. Additionally, you must disclose to the Company any
interest that you have that may conflict with the business of the Company. If
you have any questions on this requirement, you should contact your supervisor
or the CFO.
6
|
Kandi Regulations- Code of Business Conduct and Ethics
|
(ii) Outside Directorships. It is a conflict of interest
to serve as a director of any company that competes with the Company. Although
you may serve as a director of a Company supplier, customer, developer, or other
business partner, our policy requires that you first obtain approval from the
Companys Board of Directors before accepting a directorship. Any compensation
you receive should be commensurate to your responsibilities.
Such approval may be conditioned upon the completion of
specified actions.
(iii) Business Interests. If you are considering
investing in a Company customer, supplier or competitor, you must first take
great care to ensure that these investments do not compromise your
responsibilities to the Company. Many factors should be considered in
determining whether a conflict exists, including the size and nature of the
investment; your ability to influence the Companys decisions; your access to
confidential information of the Company or of the other company; and the nature
of the relationship between the Company and the other company.
(iv) Related Parties. As a general rule, you should
avoid conducting Company business with a relative or significant other, or with
a business in which a relative or significant other is associated in any
significant role. Related parties means any director or nominee director or any
senior executive officer of the Company or any person or organization who has
beneficial ownership interest of more than 5% of any class of the Companys
voting securities, and their close family member and significant others. Close
family member includes any child, stepchild, parent, stepparent, spouse,
sibling, mother-in-law or father-in-law, daughter-in-law or son-in-law, or
brother-in-law or sister-in-law. Significant others means any person (other than
a tenant or employee) sharing the household of such people.
If such a related party transaction is unavoidable, you must
fully disclose the nature of the related party transaction to the Companys
Chief Financial Officer. If determined to be material to the Company by the
Chief Financial Officer, the Companys Audit Committee must review and approve
in writing in advance such related party transactions. The most significant
related party transactions, particularly those involving the Companys directors
or executive officers, must be reviewed and approved in writing in advance by
the Companys Board of Directors. The Company must report all such material
related party transactions under applicable accounting rules, federal securities
laws, and SEC rules and regulations, and securities market rules. Any dealings
with a related party must be conducted in such a way that no preferential
treatment is given to this business.
7
|
Kandi Regulations- Code of Business Conduct and Ethics
|
The Company discourages the employment of relatives and
significant others in positions or assignments within the same department and
prohibits the employment of such individuals in positions that have a financial
dependence or influence (e.g., an auditing or control relationship, or a
supervisor/subordinate relationship). The purpose of this policy is to prevent
the organizational impairment and conflicts that are a likely outcome of the
employment of relatives or significant others, especially in a
supervisor/subordinate relationship. If a question arises about whether a
relationship is covered by this policy, the CFO is responsible for determining
whether an applicant or transferees acknowledged relationship is covered by
this policy. The CFO shall advise all affected applicants and transferees of
this policy. Willful withholding of information regarding a prohibited
relationship/reporting arrangement may be subject to corrective action, up to
and including termination. If a prohibited relationship exists or develops
between two employees, the employee in the senior position must bring this to
the attention of his/her supervisor. The Company retains the prerogative to
separate the individuals at the earliest possible time, either by reassignment
or by termination, if necessary.
(v) Other Situations. Because other conflicts of
interest may arise, it would be impractical to attempt to list all possible
situations. If a proposed transaction or situation raises any questions or
doubts in your mind you should consult the CFO.
D. Corporate Opportunities
Employees, officers and directors may not exploit for their own
personal gain opportunities that are discovered through the use of corporate
property, information or position unless the opportunity is disclosed fully in
writing to the Companys Board of Directors and the Board of Directors declines
to pursue such opportunity.
E. Protecting the Companys Confidential Information
The Companys confidential information is a valuable asset. The
Companys confidential information includes our database of customer contacts;
details regarding our equipment procurement sources; names and lists of
customers, suppliers and employees; and financial information. This information
is the property of the Company and may be protected by patent, trademark,
copyright and trade secret laws. All confidential information must be used for
Company business purposes only. Every director, officer, employee, agent and
contractor must safeguard it.
8
|
Kandi Regulations- Code of Business Conduct and Ethics
|
THIS RESPONSIBILITY INCLUDES NOT DISCLOSING THE COMPANY
CONFIDENTIAL INFORMATION SUCH AS INFORMATION REGARDING THE COMPANYS PRODUCTS OR
BUSINESS OVER THE INTERNET.
You are also responsible for properly labeling any and all
documentation shared with or correspondence sent to the Companys outside
counsel as Attorney-Client Privileged. This responsibility includes the
safeguarding, securing and proper disposal of confidential information in
accordance with the Companys policy on Maintaining and Managing Records set
forth in Section III.I of this Code of Business Conduct and Ethics. This
obligation extends to confidential information of third parties, which the
Company has rightfully received under Non-Disclosure Agreements. See the
Companys policy dealing with Handling Confidential Information of Others set
forth in Section IV.D of this Code of Business Conduct and Ethics.
(i) Proprietary Information and Invention Agreement.
When you joined the Company, you signed an agreement to protect and hold
confidential the Companys proprietary information. This agreement remains in
effect for as long as you work for the Company and after you leave the Company.
Under this agreement, you may not disclose the Companys confidential
information to anyone or use it to benefit anyone other than the Company without
the prior written consent of an authorized Company officer.
(ii) Disclosure of Company Confidential Information. To
further the Companys business, from time to time our confidential
information may be disclosed to potential business partners. However, such
disclosure should never be done without carefully considering its potential
benefits and risks. If you determine in consultation with your manager and other
appropriate Company management that disclosure of confidential information is
necessary, you must then contact the CFO to ensure that an appropriate written
nondisclosure agreement is signed prior to the disclosure. The Company has
standard nondisclosure agreements suitable for most disclosures. You must not
sign a third partys nondisclosure agreement or accept changes to the Companys
standard nondisclosure agreements without review and approval by the CFO. In
addition, all Company materials that contain Company confidential information,
including presentations, must be reviewed and approved by the CFO prior to
publication or use.
Furthermore, any employee publication or publicly made
statement that might be perceived or construed as attributable to the Company,
made outside the scope of his or her employment with the Company, must be
reviewed and approved in writing in advance by the CFO and must include the
Companys standard disclaimer that the publication or statement represents the
views of the specific author and not of the Company.
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(iii) Requests by Regulatory Authorities. The Company
and its directors, officers, employees, agents and contractors must cooperate
with appropriate government inquiries and investigations. In this context,
however, it is important to protect the legal rights of the Company with respect
to its confidential information. All government requests for information,
documents or investigative interviews must be referred to the CFO. No financial
information may be disclosed without the prior approval of the Chief Financial
Officer.
(iii) Company Spokespeople. Specific policies have been
established regarding who may communicate information to the press and the
financial analyst community. All inquiries or calls from the press and financial
analysts should be referred to the CFO. The Company has designated its CEO and
CFO as official Company spokespeople for financial matters. These designees are
the only people who may communicate with the press on behalf of the Company.
F. Obligations Under Securities Laws- Insider
Trading
Obligations under the U.S. securities laws apply to everyone.
In the normal course of business, officers, directors, employees, agents,
contractors and consultants of the Company may come into possession of
significant, sensitive information. This information is the property of the
Company -- you have been entrusted with it. You may not profit from it by buying
or selling securities yourself, or passing on the information to others to
enable them to profit or for them to profit on your behalf. The purpose of this
policy is both to inform you of your legal responsibilities and to make clear to
you that the misuse of sensitive information is contrary to Company policy and
U.S. securities laws.
Insider trading is a crime, penalized by fines of up to
$5,000,000 and 20 years in prison for individuals. In addition, the SEC may seek
the imposition of a civil penalty of up to three times the profits made or
losses avoided from the trading. Insider traders must also disgorge any profits
made, and are often subjected to an injunction against future violations.
Finally, insider traders may be subjected to civil liability in private
lawsuits.
Employers and other controlling persons (including supervisory
personnel) are also at risk under U.S. securities laws. Controlling persons may,
among other things, face penalties of the greater of $5,000,000 or three times
the profits made or losses avoided by the trader if they recklessly fail to take
preventive steps to control insider trading.
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Thus, it is important both to you and the Company that
insider-trading violations not occur. You should be aware that stock market
surveillance techniques are becoming increasingly sophisticated, and the chance
that U.S. federal or other regulatory authorities will detect and prosecute even
small-level trading is significant. Insider trading rules are strictly enforced,
even in instances when the financial transactions seem small. You should contact
the CFO if you are unsure as to whether or not you are free to trade.
The Company has imposed a trading blackout period on members of
the Board of Directors, executive officers and certain designated employees who,
as a consequence of their position with the Company, are more likely to be
exposed to material nonpublic information about the Company. These directors,
executive officers and employees generally may not trade in Company securities
during the blackout periods.
For more details, and to determine if you are restricted from
trading during trading Blackout periods, you should review the Companys Insider
Trading Compliance Program. You can request a copy of this policy from the CFO.
You should take a few minutes to read the Insider Trading Compliance Program
carefully, paying particular attention to the specific policies and the
potential criminal and civil liability and/or disciplinary action for insider
trading violations. Directors, officers, employees, agents and contractors of
the Company who violate this Policy are also be subject to disciplinary action
by the Company, which may include termination of employment or of business
relationship. All questions regarding the Companys Insider Trading Compliance
Program should be directed to the CFO.
G. Prohibition against Short Selling of Company Stock
No Company director, officer or other employee, agent or
contractor may, directly or indirectly, sell any equity security, including
derivatives, of the Company if he or she (1) does not own the security sold, or
(2) if he or she owns the security, does not deliver it against such sale (a
short sale against the box) within twenty days thereafter, or does not within
five days after such sale deposit it in the mails or other usual channels of
transportation. No Company director, officer or other employee, agent or
contractor may engage in short sales. A short sale, as defined in this policy,
means any transaction whereby one may benefit from a decline in the Companys
stock price. While securities law does not prohibit employees who are not
executive officers or directors from engaging in short sales of Company
securities, the Company has adopted as policy that employees may not do so.
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H. Use of Companys Assets
(i) General. Protecting the Companys assets is a key
fiduciary responsibility of every director, officer, employee, agent and
contractor. Care should be taken to ensure that assets are not misappropriated,
loaned to others, or sold or donated, without appropriate authorization. All
Company directors, officers, employees, agents and contractors are responsible
for the proper use of Company assets, and must safeguard such assets against
loss, damage, misuse or theft.
Directors, officers, employees, agents or contractors who
violate any aspect of this policy or who demonstrate poor judgment in the manner
in which they use any Company asset may be subject to disciplinary action, up to
and including termination of employment or business relationship at the
Companys sole discretion. Company equipment and assets are to be used for
Company business purposes only. Directors, officers, employees, agents and
contractors may not use Company assets for personal use, nor may they allow any
other person to use Company assets. All questions regarding this policy should
be brought to the attention of the CFO.
(ii) Physical Access Control. The Company has and will
continue to develop procedures covering physical access control to ensure
privacy of communications, maintenance of the security of the Company
communication equipment, and safeguard Company assets from theft, misuse and
destruction. You are personally responsible for complying with the level of
access control that has been implemented in the facility where you work on a
permanent or temporary basis. You must not defeat or cause to be defeated the
purpose for which the access control was implemented.
(iii) Company Funds. Every Company director, officer or
employee is personally responsible for all Company funds over which he or she
exercises control. Company agents and contractors should not be allowed to
exercise control over Company funds. Company funds must be used only for Company
business purposes. Every Company director, officer, employee, agent and
contractor must take reasonable steps to ensure that the Company receives good
value for Company funds spent, and must maintain accurate and timely records of
each and every expenditure. Expense reports must be accurate and submitted in a
timely manner. Company directors, officers, employees, agents and contractors
must not use Company funds for any personal purpose.
(iv) Computers and Other Equipment. The Company strives
to furnish directors, officers and employees with the equipment necessary to
efficiently and effectively do their jobs. You must care for that equipment and
use it responsibly only for Company business purposes. If you use Company
equipment at your home or off site, take precautions to protect it from theft or
damage, just as if it were your own. If the Company no longer employs you, you
must immediately return all Company equipment. While computers and other
electronic devices are made accessible to directors, officers and employees to
assist them to perform their jobs and to promote Companys interests, all such
computers and electronic devices, whether used entirely or partially on the
Companys premises or with the aid of the Companys equipment or resources, must
remain fully accessible to the Company and, to the maximum extent permitted by
law, will remain the sole and exclusive property of the Company.
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Directors, officers, employees, agents and contractors should
not maintain any expectation of privacy with respect to information transmitted
over, received by, or stored in any electronic communications device owned,
leased, or operated in whole or in part by or on behalf of the Company. To the
extent permitted by applicable law, the Company retains the right to gain access
to any information received by, transmitted by, or stored in any such electronic
communications device, by and through its directors, officers, employees,
agents, contractors, or representatives, at any time, either with or without a
directors, officers, employees or third partys knowledge, consent or
approval.
(v) Software. All software used by directors, officers
and employees to conduct Company business must be appropriately licensed. Never
make or use illegal or unauthorized copies of any software, whether in the
office, at home, or on the road, since doing so may constitute copyright
infringement and may expose you and the Company to potential civil and criminal
liability. In addition, use of illegal or unauthorized copies of software may
subject the director, officer and employee to disciplinary action, up to and
including termination. Any non-licensed/supported software will be removed.
(vi) Electronic Usage. The purpose of this policy is to
make certain that directors, officers and employees utilize electronic
communication devices in a legal, ethical, and appropriate manner. This policy
addresses the Companys responsibilities and concerns regarding the fair and
proper use of all electronic communications devices within the organization,
including computers, e-mail, connections to the Internet, intranet and extranet
and any other public or private networks, voice mail, video conferencing,
facsimiles, and telephones. Posting or discussing information concerning the
Companys products or business on the Internet without the prior written consent
of the CFO is prohibited. Any other form of electronic communication used by
directors, officers or employees currently or in the future is also intended to
be encompassed under this policy. It is not possible to identify every standard
and rule applicable to the use of electronic communications devices. Directors,
officers and employees are therefore encouraged to use sound judgment whenever
using any feature of our communications systems. You are expected to review,
understand and follow such policies and procedures.
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I. Maintaining and Managing Records
The purpose of this policy is to set forth and convey the
Companys business and legal requirements in managing records, including all
recorded information, regardless of medium or characteristics. Records include
paper documents, CDs, computer hard disks, email, floppy disks, microfiche,
microfilm or all other media. Local, state, federal, foreign and other
applicable laws, rules and regulations to retain certain records and to follow
specific guidelines in managing its records require the Company to comply with
such mandates. Civil and criminal penalties for failure to comply with such
guidelines can be severe for directors, officers, employees, agents, contractors
and the Company, and failure to comply with such guidelines may subject the
director, officer, employee, agent or contractor to disciplinary action, up to
and including termination of employment or business relationship at the
Companys sole discretion. Such documents will be maintained and retained in
accordance with the Companys record retention policies.
The Company requires honest and accurate recording and
reporting of information in order to make responsible business decisions and to
ensure full, fair, accurate, timely, and understandable disclosure in any
reports the Company is required to file.
J. Records on Legal Hold
A legal hold suspends all document destruction procedures in
order to preserve appropriate records under special circumstances, such as
litigation or government investigations. The CFO determines and identifies what
types of Company records or documents are required to be placed under a legal
hold. Every Company director, officer, employee, agent and contractor must
comply with this policy. Failure to comply with this policy may subject the
director, officer, employee, agent or contractor to disciplinary action, up to
and including termination of employment or business relationship at the
Companys sole discretion.
The CFO will notify you if a legal hold is placed on records
for which you are responsible. You then must preserve and protect the necessary
records in accordance with instructions from the CFO.
RECORDS OR SUPPORTING DOCUMENTS THAT HAVE BEEN PLACED UNDER
A LEGAL HOLD MUST NOT BE DESTROYED, ALTERED OR MODIFIED UNDER ANY CIRCUMSTANCES.
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A legal hold remains effective until it is officially released
in writing by the CFO. If you are unsure whether a document has been placed
under a legal hold, you should preserve and protect that document while you
check with the CFO. If you have any questions about this policy you should
contact the CFO.
K. Payment Practices
(i) Accounting Practices. The Companys responsibilities
to its stockholders and the investing public require that all transactions be
fully and accurately recorded in the Companys books and records in compliance
with all applicable laws. False or misleading entries, unrecorded funds or
assets, or payments without appropriate supporting documentation and approval
are strictly prohibited and violate Company policy and the law.
Additionally, all documentation supporting a transaction should
fully and accurately describe the nature of the transaction and be processed in
a timely fashion.
(ii) Political Contributions. The Company reserves the
right to communicate its position on important issues to elected representatives
and other government officials. It is the Companys policy to comply fully with
all local, state, federal, foreign and other applicable laws, rules and
regulations regarding political contributions. The Companys funds or assets
must not be used for, or be contributed to, political campaigns or political
practices under any circumstances without the prior written approval of the CFO
and, if required, the Board of Directors.
(iii) Prohibition of Inducements. Under no circumstances
may directors, officers, employees, agents or contractors offer to pay, make
payment, promise to pay, or issue authorization to pay any money, gift, or
anything of value to customers, vendors, consultants, etc. that is perceived as
intended, directly or indirectly, to improperly influence any business decision,
any act or failure to act, any commitment of fraud, or opportunity for the
commission of any fraud. Inexpensive gifts, infrequent business meals,
celebratory events and entertainment, provided that they are not excessive or
create an appearance of impropriety, do not violate this policy. Questions
regarding whether a particular payment or gift violates this policy should be
directed to the CFO.
L. Foreign Corrupt Practices Act.
The Company requires full compliance with the Foreign Corrupt
Practices Act (FCPA) by all of its directors, officers, employees, agents, and
contractors.
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The anti-bribery and corrupt payment provisions of the FCPA
make illegal any corrupt offer, payment, promise to pay, or authorization to pay
any money, gift, or anything of value to any foreign official, or any foreign
political party, candidate or official, for the purpose of: influencing any act
or failure to act, in the official capacity of that foreign official or party;
or inducing the foreign official or party to use influence to affect a decision
of a foreign government or agency, in order to obtain or retain business for
anyone, or direct business to anyone.
All Company directors, officers, employees, agents and
contractors whether located in the United States or abroad, are responsible for
FCPA compliance and the procedures to ensure FCPA compliance.
All managers and supervisory personnel are expected to monitor
continued compliance with the FCPA to ensure compliance with the highest moral,
ethical and professional standards of the Company. FCPA compliance includes the
Companys policy on Maintaining and Managing Records in Section III.I of this
Code of Business Conduct and Ethics.
Laws in most countries outside of the United States also
prohibit or restrict government officials or employees of government agencies
from receiving payments, entertainment, or gifts for the purpose of winning or
keeping business. No contract or agreement may be made with any business in
which a government official or employee holds a significant interest, without
the prior approval of the CFO.
M. Export Controls
A number of countries maintain controls on the destinations to
which products or software may be exported. Some of the strictest export
controls are maintained by the United States against countries that the U.S.
government considers unfriendly or as supporting international terrorism. The
U.S. regulations are complex and apply both to exports from the United States
and to exports of products from other countries, when those products contain
U.S.-origin components or technology. Software created in the United States is
subject to these regulations even if duplicated and packaged abroad. In some
circumstances, an oral presentation containing technical data made to foreign
nationals in the United States may constitute a controlled export. The CFO can
provide you with guidance on which countries are prohibited destinations for
Company products or whether a proposed technical presentation to foreign
nationals may require a U.S. Government license.
IV. RESPONSIBILITIES TO OUR CUSTOMERS AND OUR SUPPLIERS
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A. Customer Relationships
If your job puts you in contact with any Company customers or
potential customers, it is critical for you to remember that you represent the
Company to the people with whom you are dealing. Act in a manner that creates
value for our customers and helps to build a relationship based upon trust. The
Company and its employees have provided products and services for many years and
have built up significant goodwill over that time. This goodwill is one of our
most important assets, and the Company employees, agents and contractors must
act to preserve and enhance our reputation.
B. Payments or Gifts from Others
Under no circumstances may directors, officers, employees,
agents or contractors accept any offer, payment, promise to pay, or
authorization to pay any money, gift, or anything of value from customers,
vendors, consultants, etc. that is perceived as intended, directly or
indirectly, to influence any business decision, any act or failure to act, any
commitment of fraud, or opportunity for the commission of any fraud. Inexpensive
gifts, infrequent business meals, celebratory events and entertainment, provided
that they are not excessive or create an appearance of impropriety, do not
violate this policy. Questions regarding whether a particular payment or gift
violates this policy are to be directed to Human Resources or the Legal
Department.
Gifts given by the Company to suppliers or customers or
received from suppliers or customers should always be appropriate to the
circumstances and should never be of a kind that could create an appearance of
impropriety. The nature and cost must always be accurately recorded in the
Companys books and records.
C. Publications of Others
The Company subscribes to many publications that help
directors, officers and employees do their jobs better. These include
newsletters, reference works, online reference services, magazines, books, and
other digital and printed works. Copyright law generally protects these works,
and their unauthorized copying and distribution constitute copyright
infringement. You must first obtain the consent of the publisher of a
publication before copying publications or significant parts of them. When in
doubt about whether you may copy a publication, consult the CFO.
D. Handling the Confidential Information of
Others
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The Company has many kinds of business relationships with many
companies and individuals. Sometimes, they will volunteer confidential
information about their products or business plans to induce the Company to
enter into a business relationship. At other times, we may request that a third
party provide confidential information to permit the Company to evaluate a
potential business relationship with that party. Whatever the situation, we must
take special care to handle the confidential information of others responsibly.
We handle such confidential information in accordance with our agreements with
such third parties. See also the Companys policy on Maintaining and Managing
Records in Section III.I of this Code of Business Conduct and Ethics.
(i) Appropriate Nondisclosure Agreements. Confidential
information may take many forms. An oral presentation about a companys product
development plans may contain protected trade secrets. A customer list or
employee list may be a protected trade secret. A demo of an alpha version of a
companys new software may contain information protected by trade secret and
copyright laws.
You should never accept information offered by a third party
that is represented as confidential, or which appears from the context or
circumstances to be confidential, unless an appropriate nondisclosure agreement
has been signed with the party offering the information.
THE CFO CAN PROVIDE NONDISCLOSURE AGREEMENTS TO FIT ANY
PARTICULAR SITUATION, AND WILL COORDINATE APPROPRIATE EXECUTION OF SUCH
AGREEMENTS ON BEHALF OF THE COMPANY.
Even after a nondisclosure agreement is in place, you should
accept only the information necessary to accomplish the purpose of receiving it,
such as a decision on whether to proceed to negotiate a deal. If more detailed
or extensive confidential information is offered and it is not necessary, for
your immediate purposes, it should be refused.
(ii) Need-to-Know. Once a third partys confidential
information has been disclosed to the Company, we have an obligation to abide by
the terms of the relevant nondisclosure agreement and limit its use to the
specific purpose for which it was disclosed and to disseminate it only to other
Company employees with a need to know the information. Every director, officer,
employee, agent and contractor involved in a potential business relationship
with a third party must understand and strictly observe the restrictions on the
use and handling of confidential information. When in doubt, consult the CFO.
(iii) Notes and Reports. When reviewing the confidential
information of a third party under a nondisclosure agreement, it is natural to
take notes or prepare reports summarizing the results of the review and, based
partly on those notes or reports, to draw conclusions about the suitability of a
business relationship. Notes or reports, however, can include confidential
information disclosed by the other party and so should be retained only long
enough to complete the evaluation of the potential business relationship.
Subsequently, they should be either destroyed or turned over to the CFO for
safekeeping or destruction. They should be treated just as any other disclosure
of confidential information is treated: marked as confidential and distributed
only to those the Company employees with a need to know.
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(iv) Competitive Information. You should never attempt
to obtain a competitors confidential information by improper means, and you
should especially never contact a competitor regarding their confidential
information. While the Company may, and does, employ former employees of
competitors, we recognize and respect the obligations of those employees not to
use or disclose the confidential information of their former employers.
E. Selecting Suppliers
The Companys suppliers make significant contributions to our
success. To create an environment where our suppliers have an incentive to work
with the Company, they must be confident that they will be treated lawfully and
in an ethical manner. The Companys policy is to purchase supplies based on
need, quality, service, price and terms and conditions. The Companys policy is
to select significant suppliers or enter into significant supplier agreements
though a competitive bid process where possible. Under no circumstances should
any Company director, officer, employee, agent or contractor attempt to coerce
suppliers in any way. The confidential information of a supplier is entitled to
the same protection as that of any other third party and must not be received
before an appropriate nondisclosure agreement has been signed. A suppliers
performance should never be discussed with anyone outside the Company. A
supplier to the Company is generally free to sell its products or services to
any other party, including competitors of the Company. In some cases where the
products or services have been designed, fabricated, or developed to our
specifications the agreement between the parties may contain restrictions on
sales.
F. Government Relations
It is the Companys policy to comply fully with all applicable
laws and regulations governing contact and dealings with government employees
and public officials, and to adhere to high ethical, moral and legal standards
of business conduct. This policy includes strict compliance with all local,
state, federal, foreign and other applicable laws, rules and regulations.
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If you have any questions concerning government relations you
should contact the CFO.
G. Lobbying
Directors, officers, employees, agents or contractors whose
work requires lobbying communication with any member or employee of a
legislative body or with any government official or employee in the formulation
of legislation must have prior written approval of such activity from the CFO.
Activity covered by this policy includes meetings with legislators or members of
their staffs or with senior executive branch officials. Preparation, research,
and other background activities that are done in support of lobbying
communication are also covered by this policy even if the communication
ultimately is not made.
H. Government Contracts
It is the Companys policy to comply fully with all applicable
laws and regulations that apply to government contracting. It is also necessary
to strictly adhere to all terms and conditions of any contract with local,
state, federal, foreign or other applicable governments.
The CFO must review and approve all contracts with any
government entity.
I. Free and Fair Competition
Most countries have well-developed bodies of law designed to
encourage and protect free and fair competition. The Company is committed to
obeying both the letter and spirit of these laws. The consequences of not doing
so can be severe for all of us.
These laws often regulate the Companys relationships with its
distributors, resellers, dealers, and customers. Competition laws generally
address the following areas: pricing practices (including price discrimination),
discounting, terms of sale, credit terms, promotional allowances, secret
rebates, exclusive dealerships or distributorships, product bundling,
restrictions on carrying competing products, termination, and many other
practices.
Competition laws also govern, usually quite strictly,
relationships between the Company and its competitors. As a general rule,
contacts with competitors should be limited and should always avoid subjects
such as prices or other terms and conditions of sale, customers, and suppliers.
Employees, agents or contractors of the Company may not knowingly make false or
misleading statements regarding its competitors or the products of its
competitors, customers or suppliers. Participating with competitors in a trade
association or in a standards creation body is acceptable when the association
has been properly established, has a legitimate purpose, and has limited its
activities to that purpose.
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No director, officer, employee, agent or contractor shall at
any time or under any circumstances enter into an agreement or understanding,
written or oral, express or implied, with any competitor concerning prices,
discounts, other terms or conditions of sale, profits or profit margins, costs,
allocation of product or geographic markets, allocation of customers,
limitations on production, boycotts of customers or suppliers, or bids or the
intent to bid or even discuss or exchange information on these subjects. In some
cases, legitimate joint ventures with competitors may permit exceptions to these
rules as may bona fide purchases from or sales to competitors on non-competitive
products, but the CFO must review all such proposed ventures in advance. These
prohibitions are absolute and strict observance is required.
Collusion among competitors is illegal, and the consequences of
a violation are severe. Although the spirit of these laws, known as antitrust,
competition, or consumer protection or unfair competition laws, is
straightforward, their application to particular situations can be quite
complex. To ensure that the Company complies fully with these laws, each of us
should have a basic knowledge of them and should involve the CFO early on when
questionable situations arise.
J. Industrial Espionage
It is the Companys policy to lawfully compete in the
marketplace. This commitment to fairness includes respecting the rights of our
competitors and abiding by all applicable laws in the course of competing. The
purpose of this policy is to maintain the Companys reputation as a lawful
competitor and to help ensure the integrity of the competitive marketplace. The
Company expects its competitors to respect our rights to compete lawfully in the
marketplace, and we must respect their rights equally. Company directors,
officers, employees, agents and contractors may not steal or unlawfully use the
information, material, products, intellectual property, or proprietary or
confidential information of anyone including suppliers, customers, business
partners or competitors.
V. WAIVERS
Any waiver of any provision of this Code of Business Conduct
and Ethics for a member of the Companys Board of Directors or an executive
officer must be approved in writing by the Companys Board of Directors and
promptly disclosed. Any waiver of any provision of this Code of Business Conduct
and Ethics with respect any other employee, agent or contractor must be approved
in writing by the CFO.
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VI. DISCIPLINARY ACTIONS
The matters covered in this Code of Business Conduct and Ethics
are of the utmost importance to the Company, its stockholders and its business
partners, and are essential to the Companys ability to conduct its business in
accordance with its stated values. We expect all of our directors, officers,
employees, agents, contractors and consultants to adhere to these rules in
carrying out their duties for the Company.
The Company will take appropriate action against any director,
officer, employee, agent, contractor or consultant whose actions are found to
violate these policies or any other policies of the Company. Disciplinary
actions may include immediate termination of employment or business relationship
at the Companys sole discretion. Where the Company has suffered a loss, it may
pursue its remedies against the individuals or entities responsible. Where laws
have been violated, the Company will cooperate fully with the appropriate
authorities.
VII. ACKNOWLEDGMENT OF RECEIPT OF CODE OF BUSINESS CONDUCT
AND ETHICS
I have received and read the Companys Code of Business Conduct
and Ethics. I understand the standards and policies contained in the Company
Code of Business Conduct and Ethics and understand that there may be additional
policies or laws specific to my job. I further agree to comply with the Company
Code of Business Conduct and Ethics.
If I have questions concerning the meaning or application of
the Company Code of Business Conduct and Ethics, any Company policies, or the
legal and regulatory requirements applicable to my job, I know I can consult my
manager or the CFO, knowing that my questions or reports to these sources will
be maintained in confidence. I acknowledge that I may report violations of the
Code of Business Conduct and Ethics to the CFO.
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Director, Officer or Employee Name
Date
Please sign and return this form to the CFO.
23
Exhibit 21.1
SUBSIDIAIRES OF KANDI TECHNOLOGIES GROUP, INC.
Name |
|
Place
of Incorporation |
|
|
|
Continental Development Limited |
|
Hong Kong, Special
Administrative Region of the People's Republic of China |
Zhejiang Kandi Vehicles Co., Ltd. |
|
The People's Republic of China |
Yongkang Scrou Electric Co, Ltd. |
|
The People's Republic of China
|
Jinhua Kandi New Energy Vehicles Co., Ltd. |
|
The People's Republic of China |
Kandi Electric Vehicles (Wanning) Co., Ltd.
|
|
The People's Republic of China
|
Exhibit 23.1
Consent of AWC (CPA) Limited, Independent Registered Public
Accounting Firm
The Board of Directors
Kandi Technologies Group, Inc.:
We consent to the incorporation by reference in the
Registration Statements on Form S-8 (File No. 333-156582) and Forms S-3s (as
amended) (File No. 333-165055; File No. 333-182319; File No. 333-191283, File No.
333-196938; File No. 333-198009) of Kandi Technologies Group, Inc. of our report dated
March 16, 2015 with respect to the consolidated financial statements of Kandi
Technologies Group, Inc., and the effectiveness of internal control over
financial reporting of Kandi Technologies Group, Inc., included in this Annual
Report on Form 10-K for the year ended December 31, 2014.
/s/ AWC (CPA) Limited
Hong Kong, China
March 16, 2015
Exhibit 31.1
Certification Pursuant to
Rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934, as Amended
I, Hu Xiaoming, certify that:
1. I have reviewed this annual report on Form 10-K of Kandi
Technologies Group, Inc.
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a15(f) and
15d15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrants fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting;
and
5. The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrants
internal control over financial reporting.
Date: March 16, 2015
/s/ Hu Xiaoming
Hu Xiaoming
President and Chief Executive
Officer
(Principal Executive Officer)
Exhibit 31.2
Certification Pursuant to
Rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934, as Amended
I, Zhu Xiaoying, certify that:
1. I have reviewed this annual report on Form 10-K of Kandi
Technologies Group, Inc.
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a15(f) and
15d15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrants fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting;
and
5. The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrants
internal control over financial reporting.
Date: March 16, 2015
/s/ Zhu Xiaoying
Zhu Xiaoying
Chief Financial Officer
(Principal Financial Officer and Accounting Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Annual Report on Form 10-K
for the year ended December 31, 2014 (the Report) of Kandi Technologies Group,
Inc. (the Company) as filed with the Securities and Exchange Commission on the
date hereof, we, Hu Xiaoming, President and Chief Executive Officer, and Zhu
Xiaoying, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.
/s/ Hu Xiaoming
Hu Xiaoming
President and Chief Executive
Officer
(Principal Executive Officer)
/s/ Zhu Xiaoying
Zhu Xiaoying
Chief Financial Officer
(Principal Financial Officer and Accounting Officer)
March 16, 2015
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