SUMMARIZED INFORMATION OF EQUITY METHOD INVESTMENT IN THE JV COMPANY | NOTE 22 – 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 in such investees, 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 in such investees, 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. 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 order to improve JV Company’s development, Zhejiang Geely Holding Group (“Geely Holding”), the parent company of Geely, became the shareholder of the JV Company on October 26, 2016, by purchasing the 50% in the JV Company held by Shanghai Guorun at a purchase price exceeding the cash amount of the aggregate of the original investment and past shared profits. 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 now has a 50% indirect economic interest in Kandi Changxing through its 50% ownership interest in the JV Company. On May 19, 2017, due to business development, Geely Holding entrusted Mr. Hu Xiaoming, Chairman of the Board of the JV Company, to hold 19% equity of the JV Company from its 50% holding of the JV Company on behalf of Geely Holding as a nominal holder. On the same day, Geely Holding transferred its remaining 31% equity in the JV Company to Geely Group (Ningbo) Ltd., a company wholly owned by Li Shufu, Chairman of the Board of Geely Holding. On May 25, 2017, Mr. Hu pledged its 19% equity in the JV Company held on behalf of Geely Holding to Geely Holding. On June 30, 2017, due to the JV Company’s operational needs, Kandi Vehicle pledged its 50% equity in the JV Company to Geely Holding as counter-guarantee because Geely Holding provides 100% guarantee on the JV Company’s borrowings. Despite of the pledge, guarantee and counter-guarantee arrangements stated above, there is no change in control with respect to the 50% ownership held by each shareholder of the JV Company. In November 2013, Kandi Electric Vehicles Jinhua Co., Ltd. (“Kandi Jinhua”) was formed by the JV Company. The JV Company has a 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 a 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% of the ownership of Kandi Electric Vehicles (Shanghai) Co., Ltd. (“Kandi Shanghai”). As a result, Kandi Shanghai is now 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, Kandi Electric Vehicles Jiangsu Co., Ltd. (“Kandi Jiangsu”) was formed by the JV Company. The JV Company has a 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 July 2013, Zhejiang ZuoZhongYou Electric Vehicle Service Co., Ltd. (the “Service Company”) was formed. The JV Company had a 19% ownership interest in the Service Company. In March 2014, the JV Company changed its name to Kandi Electric Vehicles Group Co., Ltd., and in August 2015, the JV Company transferred its shares of the Service Company to Shanghai Guorun and Kandi Vehicles for 9.5% respectively. As the result, the JV Company no longer has any ownership in the Service Company. In November 2015, Hangzhou Puma Investment Management Co., Ltd. (“Puma Investment”) was formed by the JV Company. The JV Company has a 50% ownership interest in Puma Investment and the Company, indirectly through its 50% ownership interest in the JV Company, has a 25% economic interest in Puma Investment. In November 2015, Hangzhou JiHeKang Electric Vehicle Service Co., Ltd. (“JiHeKang Service Company”) was formed by the JV Company. The JV Company has a 100% ownership interest in JiHeKang Service Company and the Company, indirectly through its 50% ownership interest in the JV Company, has a 50% economic interest in JiHeKang Service Company. In August 2016, Jiangsu JiDian Electric Vehicle Sales Co., Ltd. (“Jiangsu JiDian”) was formed by JiHeKang. Jiangsu JiDian is engaged in the car sales business. Because JiHeKang is 100% owned by the JV Company, the JV Company has a 100% ownership interest in Jiangsu JiDian, and the Company, indirectly through its 50% ownership interest in the JV Company, has a 50% economic interest in Jiangsu JiDian. In October 2016, JiHeKang acquired Tianjin BoHaiWan Vehicle Sales Co., Ltd. (“Tianjin BoHaiWan”). Tianjin BoHaiWan is engaged in the car sales business. Because JiHeKang is 100% owned by the JV Company, the JV Company has a 100% ownership interest in Tianjin BoHaiWan, and the Company, indirectly through its 50% ownership interest in the JV Company, has a 50% economic interest in Tianjin BoHaiWan. In November 2016, Changxing Kandi Vehicle Maintenance Co., Ltd. (“Changxing Maintenance”) was formed by Kandi Changxing. Changxing Maintenance is engaged in the car repair and maintenance business. Because Kandi Changxing is 100% owned by the JV Company, the JV Company has a 100% ownership interest in Changxing Maintenance, and the Company, indirectly through its 50% ownership interest in the JV Company, has a 50% economic interest in Changxing Maintenance. In March 2017, Hangzhou Liuchuang Electric Vehicle Technology Co., Ltd. (“Liuchuang”) was formed by Kandi Jiangsu. Since Kandi Jiangsu is 100% owned by the JV Company, the JV Company has a 100% ownership interest in Liuchuang, and the Company, indirectly through its 50% ownership interest in the JV Company, has a 50% economic interest in Liuchuang. In April 2017, in order to promote business development, Kandi Jinhua, JiHeKang, and JiHeKang Service Company were reorganized to become subsidiaries of Kandi Jiangsu. As the JV Company has a 100% ownership interest in Kandi Jiangsu, the JV Company has 100% ownership interests in Kandi Jinhua, JiHeKang, and JiHeKang Service Company, and the Company, indirectly through its 50% ownership interest in the JV Company, has a 50% economic interest in Kandi Jinhua, JiHeKang, and JiHeKang Service Company. As of June 30, 2017, the JV Company consolidated its interests in the following entities on its financial statements: (1) its 100% interest in Kandi Changxing; (2) its 100% interest in Kandi Jinhua; (3) its 100% interest in JiHeKang; (4) its 100% interest in Kandi Shanghai; (5) its 100% interest in Kandi Jiangsu; (6) its 100% interest in JiHeKang Service Company; (7) its 100% interest in Jiangsu JiDian; (8) its 100% interest in Tianjin BoHaiWan; (9) its 100% interest in Changxing Maintenance; and (10) its 100% interest in Liuchuang. The Company accounted for its investments in the JV Company under the equity method of accounting because the Company has a 50% ownership interest in the JV Company. As a result, the Company’s consolidated net income for the six months ended June 30, 2017, and 2016, included equity income from the JV Company during such periods. The combined results of operations and financial position of the JV Company are summarized below: Three months ended June 30, 2017 2016 Condensed income statement information: Net sales $ 18,650,533 $ 111,767,049 Gross (loss)income (1,487,979 ) 14,663,818 Net (loss)income (14,577,384 ) 8,626,568 Company’s equity in net (loss) income of JV $ (7,288,692 ) $ 4,313,284 Six months ended June 30, 2017 2016 Condensed income statement information: Net sales $ 19,928,152 $ 111,271,482 Gross (loss) profit (1,824,736 ) 13,601,171 Net (loss) income (25,185,112 ) 558,120 Company’s equity in net (loss) income of JV $ (12,592,556 ) $ 279,060 June 30, December 31, 2017 2016 Condensed balance sheet information: Current assets $ 575,007,161 $ 514,958,008 Noncurrent assets 176,042,414 177,563,800 Total assets $ 751,049,575 $ 692,521,808 Current liabilities 576,715,978 505,356,626 Noncurrent liabilities 40,711,567 31,817,560 Equity 133,622,030 155,347,622 Total liabilities and equity $ 751,049,575 $ 692,521,808 For the six months ended June 30, 2017, and 2016, the JV Company’s revenues were derived primarily from the sales of EV products in China. Because the Company 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 did not consolidate the JV Company’s financial results, but rather 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 based investment in the JV Company. The Company’s equity method investments in the JV Company as of June 30, 2017 and December 31, 2016 are as follows: June 30, December 31, 2017 2016 Investment in JV Company, beginning of the period, $ 77,453,014 $ 90,337,899 Share of loss (12,592,556 ) (7,077,789 ) Intercompany transaction elimination (1,530,488 ) (230,787 ) Year 2016 unrealized profit realized 223,077 1,066 Exchange difference 1,705,929 (5,577,376 ) Investment in JV Company, end of the period $ 65,258,976 $ 77,453,013 Sales to the Company’s customers, the JV Company and its subsidiaries, for the three months ended June 30, 2017, were $26,171,724 or 96% of the Company’s total revenue, a decrease of 44.9% from the same quarter last year. Sales to the Company’s customers, the JV Company and its subsidiaries, for the six months ended June 30, 2017, were $27,483,366 or 87% of the Company’s total revenue, a decrease of 54.9% from the same period last year. Sales to the JV Company and its subsidiaries were primarily battery packs, body parts, EV drive motors, EV controllers, air conditioning units and other auto parts. The breakdown of sales to the JV Company and its subsidiaries is as follows: Three Months ended June 30, 2017 2016 JV Company $ 25,715,753 $ 41,919,634 Kandi Changxing 60,810 1,657,335 Kandi Shanghai 33,841 3,766,230 Kandi Jinhua - (5,197 ) Kandi Jiangsu 361,320 130,813 Total sales to JV $ 26,171,724 $ 47,468,815 Six Months ended June 30, 2017 2016 JV Company $ 27,027,395 $ 55,005,270 Kandi Changxing 60,810 1,817,932 Kandi Shanghai 33,841 3,924,432 Kandi Jinhua - 47,067 Kandi Jiangsu 361,320 149,089 Total sales to JV $ 27,483,366 $ 60,943,790 As of June 30, 2017 and December 31, 2016, the amount due from the JV Company and its subsidiaries, was $139,801,316 and $136,536,725, respectively, of which the majority were balances with the JV Company, Kandi Jinhua, Kandi Changxing, Kandi Jiangsu and Kandi Shanghai. The breakdown is as below: June 30, December 31, 2017 2016 Kandi Shanghai $ 821,277 $ 281,657 Kandi Changxing 16,841,443 16,359,721 Kandi Jinhua 5,174,527 5,050,525 Kandi Jiangsu 767,495 352,587 JV Company 116,196,574 114,492,235 Consolidated JV $ 139,801,316 $ 136,536,725 As of June 30, 2017 and December 31, 2016, the amount due to the JV Company and its subsidiaries, was $892,759 and $566, respectively, of which the majority were balances with Kandi Changxing and Kandi Shanghai. The breakdown is as below: June 30, December 31, 2017 2016 Kandi Shanghai $ 660,643 $ - Kandi Changxing 232,116 566 Consolidated JV $ 892,759 $ 566 The amounts due from the JV Company include six short-term loans in the total amount of $43,514,175 that Kandi Vehicles lent to the JV Company. Each such loan carries an annual interest rate of 4.35%. |