SUMMARIZED INFORMATION OF EQUITY METHOD INVESTMENT IN THE JV COMPANY

3 Months Ended

Mar. 31, 2015

SUMMARIZED INFORMATION OF EQUITY METHOD INVESTMENT IN THE JV COMPANY [Text Block]

NOTE 23 – SUMMARIZED INFORMATION OF EQUITY METHOD INVESTMENT IN THE JV COMPANY

The Company’s consolidated net income includes the Company’s proportionate share of the net income or loss of the Company’s equity method investees. When the Company records its proportionate share of net income, it increases equity income (loss) – net in the Company’s consolidated statements of income and the Company’s 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 Company’s consolidated statements of income and the Company’s carrying value in that investment. All intra-entity profits and losses with the Company’s 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%-ow ned 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.

As of March 31, 2015, 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 Company’s consolidated net income for the three months ended March 31, 2015, 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:

		Three months ended
		March 31,
		2015		2014
Condensed income statement information:
Net sales	$	30,564,996	$	34,860,044
Gross income		7,980,664		4,287,928
Net income		803,221		1,656,824
Company’s equity in net income of JV	$	401,610	$	828,412

		March 31,		December 31,
		2015		2014
Condensed balance sheet information:
Current assets	$	375,015,723	$	262,543,256
Noncurrent assets		195,345,452		194,229,114
Total assets	$	570,361,175	$	456,772,370
Current liabilities		387,909,049		280,779,432
Noncurrent liabilities		14,077,276		9,006,787
Equity		168,374,850		166,986,151
Total liabilities and equity	$	570,361,175	$	456,772,370

During the first three months of 2015, 100% of the JV Company’s revenues were derived from the sales of EV products in the PRC with a total of 1,670 units sold. The growth of sales of EV products was mainly driven by the demand by Hangzhou Public EV Sharing Program (the “EV-Share” Program) and group long-term lease project. 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 didn’t consolidate the JV Company’s financial results but included equity income from the JV Company during such periods.

Note: The following table illustrates the captions used in the Company’s Income Statements for its equity basis investments in the JV Company.

Changes in the Company’s equity method investment in JV Company for the three months ended March 31, 2015 and 2014 are as follows:

		Three Months Ended
		March 31,
		2015			2014
Investment in JV Company,  beginning of the period,	$	83,309,095		$	79,331,930
Share of profit		401,610			828,412
Intercompany transaction elimination		(116,252	)
Year 2014 unrealized profit realized		183,998			899,943
Exchange difference		292,327			(661,106	)
Investment in JV Company, end of the period	$	84,070,778		$	80,399,179

Sales to the Company’s customers, the JV Company’s subsidiaries, for the three months ended March 31, 2015 were $29,055,004, and they 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 sales were to Kandi Changxing which amounted to $17,605,302, Kandi Shanghai which amounted to $9,859,319 and Kandi Jinhua which amounted to $1,590,383. Theses EV parts were used in manufacturing of pure EV products by the JV’s Company’s subsidiaries to sell entirely to the JV Company’s customer via Zhejiang Geely Automobile Company Limited (“Zhejiang Geely”). Zhejiang Geely holds the country’s vehicle production rights of sedan, equivalent to license, that qualifies it to sell the EV products to the end customers. Zhejiang Geely is 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 Zhejiang Geely’s vehicle production rights (license) to the end customers or the Service Company, which purchased and used the cars in Hangzhou Public EV-sharing Program and group long-term lease project. Among the total sales to the JV Company and its subsidiaries for the three months ended March 31, 2015, approximately 86% of the sales were related to the sales of battery packs because Kandi New Energy holds a production rights (license) to manufacture requisite battery packs used in manufacturing of Kandi brand’s EVs. Under the JV agreement, the Company’s EV product manufacturing business has been completely transferred to the JV Company. The Company is mainly responsible for supplying the JV Company with EV parts and the JV Company is responsible to produce EV products and to sell finished goods through channel to its end customers.

As of March 31, 2015 and December 31, 2014, the amount due from the JV Company, net was $71,267,257 and $51,450,612, respectively, of which the majority was the balances with Kandi Jinhua, Kandi Changxing, Kandi Shanghai. The breakdown was as below:

		March		December 31,
		31, 2015		2014
Kandi Shanghai	$	16,538,927	$	6,978,618
Kandi Changxing		20,389,790		7,359,202
Kandi Jinhua		9,877,099		12,736,420
JV Company		24,461,441		24,376,372
Consolidated JV Company	$	71,267,257	$	51,450,612

The amount due from the JV Company of $24,461,441 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 on the date of withdraw plus 5% of that rate. The rate will not be adjusted after the withdraw during the lending period, which was 5.88% . The loan was organized by Bank of Communications Hangzhou Zhongan Branch as the agent bank between Kandi Vehicle and the JV Company. Entrusted loans are commonly found in China, where direct borrowing and lending between commercial enterprises are restricted.