Kandi Technologies Group, Inc. - Quarter Report: 2008 September (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
þ Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the
quarterly period ended September 30, 2008
or
¨ Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the
transition period from ______to______
Commission
file number 000-52186
Kandi
Technologies, Corp.
(Exact
name of registrant as specified in charter)
|
Delaware
|
87-0700927
|
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
Jinhua
City Industrial Zone
Jinhua,
Zhejiang Province
People’s
Republic of China
Post
Code 321016
(Address
of principal executive offices)
(86
- 0579) 82239700
(Registrant’s
telephone number, including area code)
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 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 is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
No
x
As
of
November 12, 2008 the registrant had issued and outstanding 19,961,000 shares
of
common stock, par value $.001 per share.
TABLE
OF CONTENTS
|
Page
|
|||||||
|
PART
I— FINANCIAL INFORMATION
|
|||||||
|
Item 1.
|
Condensed
Consolidated Financial Statements
|
2
|
|||||
|
Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
24
|
|||||
|
Item 4T.
|
Controls
and Procedures
|
30
|
|||||
|
PART
II— OTHER INFORMATION
|
|||||||
|
Item 1A.
|
Risk
Factors
|
II-1
|
|||||
|
Item 6.
|
Exhibits
|
II-1
|
|||||
PART
I— FINANCIAL INFORMATION
Item
1. Financial Statements. (Unaudited)
In
the
opinion of management, the accompanying condensed consolidated financial
statements included in this Form 10-Q reflect all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of the results
of operations for the periods presented. The results of all operations for
the
periods presented are not necessarily indicative of the results to be expected
for the full year.
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
ASSETS
|
September 30,
|
|||||||
|
2008
|
December 31,
|
||||||
|
(Unaudited)
|
2007
|
||||||
|
CURRENT
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
3,277,089
|
$
|
1,149,140
|
|||
|
Restricted
cash
|
11,086,636
|
1,367,222
|
|||||
|
Accounts
receivable, net of allowance for doubtful accounts of $1,638 and
$3,701 as
of September 30, 2008 and December 31, 2007, respectively
|
11,236,454
|
11,401,367
|
|||||
|
Inventories
|
8,558,637
|
3,293,529
|
|||||
|
Notes
receivable, net of discount of $43,350 and $0 as of September 30,
2008 and
December 31, 2007, respectively
|
4,189,008
|
47,853
|
|||||
|
Other
receivables
|
221,190
|
416,454
|
|||||
|
Prepayments
and prepaid expenses
|
111,658
|
17,774
|
|||||
|
Due
from employees
|
-
|
9,932
|
|||||
|
Discontinued
operation
|
-
|
14,158,890
|
|||||
|
Total
Current Assets
|
38,680,672
|
31,862,161
|
|||||
|
LONG-TERM
ASSETS
|
|||||||
|
Plant
and equipment, net
|
17,534,685
|
10,427,176
|
|||||
|
Land
use rights, net
|
9,422,789
|
385,539
|
|||||
|
Construction
in progress
|
861,497
|
1,321,832
|
|||||
|
Deposit
for acquisition
|
-
|
12,270,859
|
|||||
|
Deferred
taxes
|
488,761
|
405,006
|
|||||
|
Discontinued
operation
|
-
|
506,526
|
|||||
|
Total
Long-Term Assets
|
28,307,732
|
25,316,938
|
|||||
|
TOTAL
ASSETS
|
$
|
66,988,404
|
$
|
57,179,099
|
|||
The
accompanying notes are an integral part of the financial
statements.
2
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
September 30,
|
|||||||
|
2008
|
December 31,
|
||||||
|
(Unaudited)
|
2007
|
||||||
|
CURRENT
LIABILITIES
|
|||||||
|
Accounts
payable
|
$
|
9,127,294
|
$
|
6,333,057
|
|||
|
Other
payables and accrued expenses
|
477,639
|
378,675
|
|||||
|
Short-term
bank loans
|
26,111,946
|
20,869,862
|
|||||
|
Customer
deposits
|
1,439,234
|
483,320
|
|||||
|
Notes
payable
|
11,404,531
|
1,476,600
|
|||||
|
Due
to employees
|
9,553
|
310
|
|||||
|
Due
to related party
|
180,659
|
-
|
|||||
|
Discontinued
operation
|
-
|
14,296,572
|
|||||
|
Total
Current Liabilities
|
48,750,856
|
43,838,396
|
|||||
|
LONG-TERM
LIABILITIES
|
|||||||
|
Deferred
taxes
|
296,511
|
296,511
|
|||||
|
Discontinued
operation
|
-
|
2,651
|
|||||
|
Total
Long-Term Liabilities
|
296,511
|
299,162
|
|||||
|
TOTAL
LIABILITIES
|
49,047,367
|
44,137,558
|
|||||
|
COMMITMENTS
AND CONTINGENCIES
|
-
|
||||||
|
STOCKHOLDERS’
EQUITY
|
|||||||
|
Common
stock, $0.001 par value; 100,000,000 shares authorized; 19,961,000
and
19,961,000 shares issued and outstanding at September 30, 2008 and
December 31, 2007, respectively
|
19,961
|
19,961
|
|||||
|
Additional
paid-in capital
|
7,138,105
|
7,138,105
|
|||||
|
Retained
earnings (the restricted portion is $534,040 and $0 at September
30, 2008
and December 31, 2007, respectively)
|
9,620,184
|
5,125,120
|
|||||
|
Accumulated
other comprehensive income
|
1,162,787
|
758,355
|
|||||
|
TOTAL
STOCKHOLDERS’ EQUITY
|
17,941,037
|
13,041,541
|
|||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
66,988,404
|
$
|
57,179,099
|
|||
The
accompanying notes are an integral part of the financial
statements.
3
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||
|
September 30,
2008
|
September 30,
2007
|
September 30,
2008
|
September 30,
2007
|
||||||||||
|
REVENUES,
NET
|
$
|
9,261,033
|
$
|
8,808,836
|
$
|
30,767,280
|
$
|
25,293,958
|
|||||
|
COST
OF GOODS SOLD
|
(6,966,103
|
)
|
(7,315,162
|
)
|
(23,098,186
|
)
|
(20,158,923
|
)
|
|||||
|
GROSS
PROFIT
|
2,294,930
|
1,493,674
|
7,669,094
|
5,135,035
|
|||||||||
|
Research
and development
|
230,023
|
12,033
|
487,755
|
64,888
|
|||||||||
|
Selling
and marketing
|
229,795
|
179,386
|
632,132
|
366,879
|
|||||||||
|
General
and administrative
|
324,672
|
228,603
|
1,019,385
|
536,731
|
|||||||||
|
INCOME
FROM CONTINUING OPERATIONS
|
1,510,440
|
1,073,652
|
5,529,822
|
4,166,537
|
|||||||||
|
Interest
expense, net
|
(547,511
|
)
|
(373,467
|
)
|
(1,540,631
|
)
|
(666,704
|
)
|
|||||
|
Government
grants
|
17,484
|
-
|
57,533
|
-
|
|||||||||
|
Forfeiture
of customer deposits
|
-
|
233,585
|
-
|
500,304
|
|||||||||
|
Other,
net
|
26,551
|
548
|
39,599
|
(69,672
|
)
|
||||||||
|
INCOME
FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
1,006,964
|
934,318
|
4,086,323
|
3,930,465
|
|||||||||
|
INCOME
TAX BENEFIT
|
7,581
|
-
|
81,042
|
-
|
|||||||||
|
INCOME
FROM CONTINUING OPERATIONS
|
1,014,545
|
934,318
|
4,167,365
|
3,930,465
|
|||||||||
|
DISCONTINUED
OPERATION
|
|||||||||||||
|
Loss
from discontinued operation
|
-
|
(62,820
|
)
|
(33,396
|
)
|
(203,272
|
)
|
||||||
|
Gain
from disposition of discontinued operation
|
-
|
-
|
361,096
|
-
|
|||||||||
|
NET
GAIN (LOSS) FROM
DISCONTINUED
OPERATION
|
-
|
(62,820
|
)
|
327,700
|
(203,272
|
)
|
|||||||
|
NET
INCOME
|
1,014,545
|
871,498
|
4,495,065
|
3,727,193
|
|||||||||
|
Foreign
currency translation
|
51,770
|
30,276
|
404,432
|
166,661
|
|||||||||
The
accompanying notes are an integral part of the financial
statements.
4
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||
|
September 30,
2008
|
September 30,
2007
|
September 30,
2008
|
September 30,
2007
|
||||||||||
|
COMPREHENSIVE
INCOME
|
$
|
1,066,315
|
$
|
901,774
|
$
|
4,899,497
|
$
|
3,893,854
|
|||||
|
WEIGHTED
AVERAGE SHARES OUTSTANDING BASIC AND DILUTED
|
19,961,000
|
19,961,000
|
19,961,000
|
14,653,667
|
|||||||||
|
INCOME
PER SHARE FROM CONTINUING OPERATIONS, BASIC AND
DILUTED
|
$
|
0.05
|
$
|
0.04
|
$
|
0.21
|
$
|
0.27
|
|||||
|
NET
INCOME (LOSS) PER SHARE FROM NET GAIN (LOSS) FROM DISCONTINUED OPERATION,
BASIC AND DILUTED
|
$
|
-
|
$
|
(0.00
|
)
|
$
|
0.02
|
$
|
(0.01
|
)
|
|||
|
NET
INCOME PER SHARE, BASIC AND DILUTED
|
$
|
0.05
|
$
|
0.04
|
$
|
0.23
|
$
|
0.25
|
|||||
The
accompanying notes are an integral part of the financial
statements.
5
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
Nine Months
Ended September 30,
|
|||||||
|
2008
|
2007
|
||||||
|
CASH FLOWS
FROM OPERATING ACTIVITIES:
|
|||||||
|
Net
income
|
$
|
4,495,065
|
$
|
3,727,193
|
|||
|
Net
(gain) loss from discontinued operation
|
(327,700
|
)
|
203,272
|
||||
|
Income
from continuing operations
|
4,167,365
|
3,930,465
|
|||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||||
|
Depreciation
and amortization
|
1,318,510
|
894,102
|
|||||
|
Deferred
taxes
|
(83,755
|
)
|
-
|
||||
|
Forfeiture
of customer deposits
|
-
|
(500,304
|
)
|
||||
|
Changes
in operating assets and liabilities, net of effects of
acquisition:
|
|||||||
|
(Increase)
Decrease In:
|
|||||||
|
Accounts
receivable
|
164,913
|
(6,613,613
|
)
|
||||
|
Inventories
|
(5,265,108
|
)
|
2,084,702
|
||||
|
Other
receivables
|
195,263
|
47,278
|
|||||
|
Due
to employees
|
19,175
|
139,695
|
|||||
|
Prepayments
and prepaid expenses
|
(93,885
|
)
|
(327,502
|
)
|
|||
|
Increase
(Decrease) In:
|
|||||||
|
Accounts
payable
|
2,794,238
|
1,556,622
|
|||||
|
Other
payables and accrued liabilities
|
98,964
|
3,074
|
|||||
|
Customer
deposits
|
955,914
|
810,631
|
|||||
|
Net
cash provided by operating activities from continuing
operations
|
4,271,594
|
2,025,150
|
|||||
|
Net
cash provided by operating activities from discontinued
operation
|
739,378
|
1,231,574
|
|||||
|
Net
cash provided by operating activities
|
5,010,972
|
3,256,724
|
|||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
|
Purchases
of plant and equipment
|
(2,767,161
|
)
|
(1,082,511
|
)
|
|||
|
Purchases
of construction in progress
|
(1,049,862
|
)
|
(757,697
|
)
|
|||
|
Reverse
merger with SMOU, net of cash acquired
|
-
|
373
|
|||||
|
Purchase
of a subsidiary, net of cash acquired
|
(44,129
|
)
|
-
|
||||
|
Issuance
of notes receivable
|
(6,493,209
|
)
|
(4,992,142
|
)
|
|||
|
Repayment
of notes receivable
|
2,352,054
|
5,182,405
|
|||||
|
Deposit
for acquisition
|
-
|
(9,740,470
|
)
|
||||
|
Net
cash used in investing activities from continuing
operations
|
(8,002,307
|
)
|
(11,390,042
|
)
|
|||
|
Net
cash provided by investing activities from discontinued operation
|
-
|
72,490
|
|||||
|
Net
cash used in investing activities
|
(8,002,307
|
)
|
(11,317,552
|
)
|
|||
The
accompanying notes are an integral part of the financial
statements.
6
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
Nine Months
Ended September 30,
|
|||||||
|
2008
|
2007
|
||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
|
Restricted
cash
|
(9,719,414
|
)
|
(656,556
|
)
|
|||
|
Proceeds
from short-term bank loans
|
29,170,492
|
17,918,020
|
|||||
|
Repayments
of short-term bank loans
|
(23,928,409
|
)
|
(9,574,362
|
)
|
|||
|
Proceeds
from notes payable
|
11,386,698
|
2,405,635
|
|||||
|
Repayments
of notes payable
|
(1,458,768
|
)
|
(907,128
|
)
|
|||
|
Repayment
of advances to related parties
|
180,659
|
17,288
|
|||||
|
Net
cash provided by financing activities from continuing
operations
|
5,631,258
|
9,202,897
|
|||||
|
Net
cash used in financing activities from discontinued
operation
|
-
|
(1,319,677
|
)
|
||||
|
Net
cash provided by financing activities
|
5,631,258
|
7,883,220
|
|||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
2,639,923
|
(177,608
|
)
|
||||
|
Effect
of exchange rate changes on cash
|
(511,974
|
)
|
248,747
|
||||
|
Cash
and cash equivalents at beginning of period
|
1,149,140
|
365,567
|
|||||
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$
|
3,277,089
|
$
|
436,706
|
|||
|
SUPPLEMENTARY
CASH FLOW INFORMATION
|
|||||||
|
Income
taxes paid
|
$
|
-
|
$
|
-
|
|||
|
Interest
paid
|
$
|
1,612,853
|
$
|
682,093
|
|||
SUPPLEMENTAL
NON-CASH DISCLOSURES:
| 1. |
During
the nine months ended September 30, 2008 and 2007, $1,510,197 and
$12,132
were transferred from construction in progress to plant and equipment,
respectively.
|
| 2. |
On
June 24, 2008, the Company acquired 100% interest of Zhejiang Kandi
Special Vehicles Co., Ltd. ("KSV") for $12,314,988 in cash and KSV
became
a 100% owned subsidiary of the Company. The following represents
the
assets purchased and liabilities assumed at the acquisition
date:
|
|
Plant
and equipment, net
|
$
|
3,200,615
|
||
|
Land
use rights, net
|
9,114,373
|
|||
|
Total
assets purchased
|
12,314,988
|
|||
|
Total
liabilities assumed
|
-
|
|||
|
Total
net assets
|
$
|
12,314,988
|
||
|
Share
percentage
|
100
|
%
|
||
|
Net
assets acquired
|
$
|
12,314,988
|
||
|
Total
consideration paid (including the deposit of $12,270,859 paid in
prior
periods)
|
$
|
12,314,988
|
The
accompanying notes are an integral part of the financial
statements.
7
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
1 – ORGANIZATION
AND PRINCIPAL ACTIVITIES
Kandi
Technologies, Corp. (formerly Stone Mountain Resources, Inc.) (“the Company”)
was incorporated under the laws of the State of Delaware on March 31, 2004.
On
June 29, 2007, Stone Mountain Resources, Inc. changed its name to Kandi
Technologies, Corp.
On
June
29, 2007, pursuant to the share exchange agreement between Stone Mountain
Resources, Inc. (“Stone Mountain”), Continental Development Limited,
(“Continental”) and Excelvantage (Continental’s sole shareholder), Stone
Mountain issued 12,000,000 shares of its common stock to Excelvantage, in
exchange for 100% of the common stock of Continental. As a result of the share
exchange, Continental became a wholly-owned subsidiary of Stone Mountain. The
Company conducts its operations through its wholly owned subsidiary, Zhejiang
Kandi Vehicles Co. Ltd., a People’s Republic of China (“PRC”)
company.
The
Company closed on its acquisition of 100% of the shares of Kandi Special
Vehicles Co., Ltd. (“KSV”) on June 24, 2008 upon which KSV became a wholly-owned
subsidiary of the Company. In accordance with Statements of Financial Accounting
Standards (“SFAS”) No. 141 “Business Combinations,” the consolidated statements
of income include the results of operations of KSV from the acquisition date
through September 30, 2008.
On
May 9,
2008, the Company sold Zhejiang Yongkang Top Import & Export Co., Ltd.
(“Dingji”), a subsidiary of the Company, to certain individuals. In accordance
with SFAS 144, “Accounting for the Impairment or Disposal of Long−Lived Assets,”
the results of operations of Dingji as of the disposal date May 9, 2008 have
been removed from the detail line items to the “discontinued operation” of the
Company’s financial statements.
The
Company’s primary operations are the design, development, manufacturing, and
commercializing of all-terrain vehicles, go-karts, and specialized automobile
related products for the PRC and global export markets. Sales are made to
dealers in Asia, North America, Europe and Australia.
NOTE
2 – BASIS
OF PRESENTATION
The
unaudited condensed consolidated financial statements as of September 30, 2008
and for the three and nine months ended September 30, 2008 and 2007 of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial statements in the United States of America
(“GAAP”) and pursuant to the requirements for reporting on Rule 8-03 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by GAAP for complete financial statements. However, such
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for the fair
presentation of the consolidated financial position and the consolidated results
of operations. Results shown for interim periods are not necessarily indicative
of the results to be obtained for a full year. The condensed consolidated
balance sheet information as of December 31, 2007 was derived from the audited
consolidated financial statements included in the Company’s Annual Report on
Form 10-K. These interim condensed consolidated financial statements should
be
read in conjunction with that report.
NOTE
3 – PRINCIPLES
OF CONSOLIDATION
The
consolidated financial statements include the accounts of Kandi Technologies,
Corp. and the following subsidiaries:
| (i) |
Continental
Development Ltd. (100% subsidiary of the
Company)
|
| (ii) |
Zhejiang
Kandi Vehicles Co. Ltd. (100% subsidiary of
Continental)
|
| (iii) |
Kandi
Special Vehicle Co. Ltd. (100% subsidiary of the
Company)
|
Intercompany
accounts and transactions have been eliminated in consolidation.
As
of May
9, 2008, Dingji was sold and is presented in the financial statements as a
discontinued operation.
Also
see
Note 20.
8
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
4 – USE
OF ESTIMATES
The
preparation of the unaudited condensed consolidated financial statements in
conformity with GAAP requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting periods.
Management
makes these estimates using the best information available at the time the
estimates are made. Actual results could differ materially from those
estimates.
NOTE
5 – CONCENTRATIONS
The
Company has major customers who accounted for the following percentage of total
sales and accounts receivable:
|
Sales
|
Accounts Receivable
|
||||||||||||
|
Major
Customers
|
Nine Months
Ended
September 30,
2008
|
Nine Months
Ended
September 30,
2007
|
September 30,
2008
|
December 31,
2007
|
|||||||||
|
Company
A
|
87
|
%
|
29
|
%
|
73
|
%
|
20
|
%
|
|||||
|
Company
B
|
6
|
%
|
18
|
%
|
24
|
%
|
19
|
%
|
|||||
|
Company
C
|
3
|
%
|
13
|
%
|
0
|
%
|
13
|
%
|
|||||
|
Company
D
|
3
|
%
|
14
|
%
|
1
|
%
|
12
|
%
|
|||||
|
Company
E
|
0
|
%
|
10
|
%
|
2
|
%
|
9
|
%
|
|||||
The
Company has major suppliers who accounted for the following percentages of
total
purchases and accounts payable:
|
Purchases
|
Accounts
Payable
|
||||||||||||
|
Major
Suppliers
|
Nine Months
Ended
September 30,
2008
|
Nine Months
Ended
September 30,
2007
|
September 30,
2008
|
December 31,
2007
|
|||||||||
|
Company
F
|
63
|
%
|
9
|
%
|
12
|
%
|
7
|
%
|
|||||
|
Company
G
|
2
|
%
|
10
|
%
|
3
|
%
|
5
|
%
|
|||||
|
Company
H
|
2
|
%
|
6
|
%
|
3
|
%
|
5
|
%
|
|||||
|
Company
I
|
2
|
%
|
6
|
%
|
0
|
%
|
4
|
%
|
|||||
|
Company
J
|
1
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
|||||
9
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
6 – FOREIGN
CURRENCY TRANSLATION
The
accompanying condensed consolidated financial statements are presented in U.S.
dollars. The functional currency of the Company is the Renminbi (RMB). The
condensed consolidated financial statements are translated into United States
dollars from RMB at period end exchange rates as to assets and liabilities
and
average exchange rates as to revenues and expenses. Capital accounts are
translated into United States dollars from RMB at their historical exchange
rates when the capital transactions occurred.
|
September 30,
2008
|
December 31,
2007
|
September 30,
2007
|
||||||||
|
Period end
RMB : US$ exchange rate
|
6.8551
|
7.3141
|
7.6155
|
|||||||
|
Average
period RMB : US$ exchange rate
|
7.0846
|
7.5614
|
7.6598
|
|||||||
NOTE
7 – EARNINGS
PER SHARE
Basic
earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed similarly to basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
There were no potentially dilutive securities for the three and nine months
ended September 30, 2008 and 2007.
NOTE
8 – FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
Company’s financial instruments include cash and cash equivalents, restricted
cash, accounts receivable, notes receivable, prepayments and prepaid expenses,
other receivables due from employees, accounts payable due to employees and
related parties, other payables and accrued liabilities, notes payable,
short-term band loans and customer deposits. Management has estimated that
the
carrying amount approximates fair value due to their short-term nature.
NOTE
9 – NEW
ACCOUNTING PRONOUNCEMENTS
In
December 2007, the FASB issued SFAS No. 141 (R), Business Combinations. SFAS
No.
141 (R) requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquire at their
fair values on the acquisition date, with goodwill being the excess value over
the net identifiable assets acquired. The calculation of earnings per share
will
continue to be based on income amounts attributable to the parent. SFAS No.141
(R) is effective for financial statements issued for fiscal years beginning
after December 15, 2008. Early adoption is prohibited. We have not yet
determined the effect on our consolidated financial statements, if any, upon
adoption of SFAS No.141 (R). SFAS 141(R) will significantly affect the
accounting for future business combinations and we will determine the accounting
as new combinations are determined.
10
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
9 – NEW
ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements. This Statement establishes accounting and
reporting standards that require the ownership interests in subsidiaries’
non-parent owners be clearly presented in the equity section of the balance
sheet; requires the amount of consolidated net income attributable to the parent
and to the noncontrolling interest be clearly identified and presented on the
face of the consolidated statement of income; requires that changes in a
parent’s ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently; requires that when
a
subsidiary is deconsolidated, any retained noncontrolling equity investment
in
the former subsidiary be initially measured at fair value and the gain or loss
on the deconsolidation of the subsidiary be measured using the fair value of
any
noncontrolling equity; requires that entities provide disclosures that clearly
identify the interests of the parent and the interests of the noncontrolling
owners. This Statement is effective as of the beginning of an entity’s first
fiscal year that begins after December 15, 2008. The Company has not determined
the impact, if any, SFAS No. 160 will have on its financial
statements.
In
March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" ("SFAS No. 161"), which amends SFAS No.133 and expands
disclosures to include information about the fair value of derivatives, related
credit risks and a company's strategies and objectives for using derivatives.
SFAS No. 161 is effective for fiscal periods beginning on or after November
15,
2008. The Company is currently in the process of assessing the impact that
SFAS
No. 161 will have on the disclosures in its financial statements.
NOTE
10 – INVENTORIES
Inventories
consist of the following:
|
September 30,
2008
|
December 31,
2007
|
||||||
|
(Unaudited)
|
|||||||
|
Raw
materials
|
$
|
1,369,646
|
$
|
1,534,448
|
|||
|
Work-in-progress
|
5,724,838
|
1,402,073
|
|||||
|
Finished
goods
|
1,464,153
|
357,008
|
|||||
|
Total
inventories
|
$
|
8,558,637
|
$
|
3,293,529
|
|||
NOTE 11 – NOTES RECEIVABLE
Notes
receivable consist of the following:
|
September 30,
2008
|
December 31,
2007
|
||||||
|
(Unaudited)
|
|||||||
|
Notes
receivable from unrelated companies:
|
|||||||
|
Due
January 1, 2009
|
$
|
189,348
|
$
|
-
|
|||
|
Due
March 2, 2009
|
2,548
|
-
|
|||||
|
Due
March 30, 2009
|
649,275
|
-
|
|||||
|
Due
March 31, 2009
|
2,661,803
|
-
|
|||||
|
Due
April 29, 2009
|
729,384
|
-
|
|||||
|
Subtotal
|
4,232,358
|
47,853
|
|||||
|
Notes
receivable discount
|
(43,350
|
)
|
-
|
||||
|
Notes
receivable, net
|
$
|
4,189,008
|
$
|
47,853
|
|||
11
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
In
2008,
interest-free notes were provided to companies for their assistance in
developing distribution channels and new markets for the Company. The Company
recorded selling and distribution expense and a discount on the notes receivable
of $43,350 based on the present value of the notes receivable using a 7.2%
discount rate.
For
the
nine months ended September 30, 2008 and 2007, $231,356 and $184,350 of interest
income, respectively, was recognized in the accompanying condensed consolidated
statement of income from the amortization of the discount.
NOTE
12 – LAND
USE RIGHTS
Land
use
rights consist of the following:
|
September 30,
2008
|
December 31,
2007
|
||||||
|
(Unaudited)
|
|||||||
|
Cost
of land use rights
|
$
|
9,588,012
|
$
|
460,943
|
|||
|
Less:
Accumulated amortization
|
(165,223
|
)
|
(75,404
|
)
|
|||
|
Land
use rights, net
|
$
|
9,422,789
|
$
|
385,539
|
|||
During
the nine months ended September 30, 2008, the Company acquired a land use right,
which expires on December 30, 2053, with a net book value of $9,114,373 in
the
acquisition of KSV completed on June 24, 2008. Also see Note 18.
The
net
book value of land use rights pledged for certain bank loans at September 30,
2008 and December 31, 2007 was $2,813,466 and $267,214, respectively. Also
see
Note 14.
Amortization
expense for the nine months ended September 30, 2008 and 2007 was $77,123 and
$6,605, respectively.
Amortization
expense for the next five years and thereafter is as follows:
|
2008
within one year
|
$
|
56,198
|
||
|
2009
|
224,794
|
|||
|
2010
|
224,794
|
|||
|
2011
|
224,794
|
|||
|
2012
|
224,794
|
|||
|
Thereafter
|
8,467,415
|
|||
|
Total
|
$
|
9,422,789
|
12
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
13 – PLANT
AND EQUIPMENT
Plant
and
equipment consist of the following:
|
September 30,
2008
|
December 31,
2007
|
||||||
|
(Unaudited)
|
|||||||
|
At
cost:
|
|||||||
|
Buildings
|
$
|
7,674,567
|
$
|
3,911,944
|
|||
|
Machinery
and equipment
|
9,182,466
|
8,572,451
|
|||||
|
Transportation
|
4,424,856
|
93,840
|
|||||
|
Office
equipment
|
107,299
|
254,885
|
|||||
|
Patterns
|
1,854,256
|
1,742,125
|
|||||
|
23,243,444
|
14,575,245
|
||||||
|
Less
: Accumulated depreciation
|
|||||||
|
Buildings
|
(599,765
|
)
|
(428,834
|
)
|
|||
|
Machinery
and equipment
|
(4,449,244
|
)
|
(3,520,084
|
)
|
|||
|
Transportation
|
(202,004
|
)
|
(64,427
|
)
|
|||
|
Office
equipment
|
(82,794
|
)
|
(43,765
|
)
|
|||
|
Patterns
|
(374,952
|
)
|
(90,959
|
)
|
|||
|
(5,708,759
|
)
|
(4,148,069
|
)
|
||||
|
Plant
and equipment, net
|
$
|
17,534,685
|
$
|
10,427,176
|
|||
During
the nine months ended September 30, 2008, the Company acquired plant and
equipment with a net book value of $3,406,621 in
the
acquisition of KSV completed on June 24, 2008. Also see Note 18. Depreciation
expense for nine months ended September 30, 2008 and 2007 was $1,241,387 and
$980,691, respectively.
The
net
book value of plant and equipment pledged for certain bank loans at September
30, 2008 and December 31, 2007 was $3,000,773 and $1,652,616, respectively.
Also
see Note 14.
13
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
14 – SHORT
TERM BANK LOANS
Short-term
bank loans consist of the following:
|
September 30,
2008
|
December 31,
2007
|
||||||
|
(Unaudited)
|
|||||||
|
Loans
from ICBC-Development Zone Branch
|
|||||||
|
Monthly
interest only payments at 7.88% per annum, due April 10, 2008, secured
by
the assets of the Company. Also see Notes 12 and 13 (subsequently
repaid
on its due date).
|
$
|
-
|
$
|
683,611
|
|||
|
Monthly
interest only payments at 7.88% per annum, due June 5, 2008, secured
by
the assets of the Company. Also see Notes 12 and 13 (subsequently
repaid
on its due date).
|
-
|
683,611
|
|||||
|
Monthly
interest only payments at 8.75% per annum, due October 10, 2008,
secured
by the assets of the Company. Also see Notes 12 and 13 (subsequently
repaid on its due date).
|
437,630
|
410,167
|
|||||
|
Monthly
interest only payments at 8.75% per annum, due October 16, 2008,
secured
by the assets of the Company. Also see Notes 12 and 13 (subsequently
repaid on its due date).
|
554,332
|
369,150
|
|||||
|
Monthly
interest only payments at 8.75% per annum, due October 23, 2008,
secured
by the assets of the Company. Also see Notes 12 and 13 (subsequently
repaid on its due date).
|
510,569
|
410,167
|
|||||
|
Monthly
interest only payments at 8.75% per annum, due November 24, 2008,
secured
by the assets of the Company. Also see Notes 12 and 13.
|
583,507
|
519,544
|
|||||
|
Monthly
interest only payments at 9.41% per annum, due April 7, 2009, secured
by
the assets of the Company. Also see Notes 12 and 13.
|
729,384
|
478,528
|
|||||
|
Monthly
interest only payments at 7.88% per annum, due June 4, 2009, secured
by
the assets of the Company. Also see Notes 12 and 13.
|
729,384
|
546,889
|
|||||
|
Monthly
interest only payments at 7.47% per annum, due September
2, 2009, secured by the assets of the Company. Also see Notes 12
and
13.
|
393,867
|
-
|
|||||
|
Monthly
interest only payments at 6.22% per annum, due March 18, 2009,
collateralized by a time deposit.
|
656,446
|
-
|
|||||
14
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
14 – SHORT
TERM BANK LOANS (CONTINUED)
|
September 30,
2008
|
December 31,
2007
|
||||||
|
(Unaudited)
|
|||||||
|
Loans
from ICBC-Development Zone Branch
|
|||||||
|
Monthly
interest only payments at 6.22% per annum, due March 23, 2009,
collateralized by a time deposit.
|
656,446
|
-
|
|||||
|
Monthly
interest only payments at 7.47% per annum, due August 4, 2009, secured
by
the assets of the Company. Also see Notes 12 and 13.
|
437,630
|
-
|
|||||
|
Loans
from Commercial Bank-Jiangnan Branch
|
|||||||
|
Monthly
interest only payments at 7.58% per annum, due January 10, 2008,
secured
by the assets of the Company. Also see Notes 12 and 13 (subsequently
repaid on its due date).
|
-
|
2,734,444
|
|||||
|
Monthly
interest only payments at 7.67% per annum, due May 10, 2008, secured
by
the assets of the Company. Also see Notes 12 and 13 (subsequently
repaid
on its due date).
|
-
|
1,367,222
|
|||||
|
Monthly
interest only payments at 8.22% per annum, due January 10, 2009 secured
by
the assets of the Company. Also see Notes 12 and 13.
|
2,917,536
|
-
|
|||||
|
Monthly
interest only payments at 8.22% per annum, due May 9, 2009 secured
by the
assets of the Company. Also see Notes 12 and 13.
|
1,458,768
|
-
|
|||||
|
Loans
from ICBC-Jinhua Branch
|
|||||||
|
Monthly
interest only payments at 6.88% per annum, due January 18, 2008,
secured
by the assets of the Company. Also see Notes 12 and 13 (subsequently
repaid on its due date).
|
-
|
189,753
|
|||||
|
Monthly
interest only payments at 6.58% per annum, due February 1, 2008,
secured
by the assets of the Company. Also see Notes 12 and 13 (subsequently
repaid on its due date).
|
-
|
948,766
|
|||||
15
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
14 – SHORT
TERM BANK LOANS (CONTINUED)
|
September 30,
2008
|
December 31,
2007
|
||||||
|
(Unaudited)
|
|||||||
|
Loans
from ICBC-Jinhua Branch
|
|||||||
|
Monthly
interest only payments at 6.88% per annum, due March 3, 2008, secured
by
the assets of the Company. Also see Notes 12 and 13 (subsequently
repaid
on its due date).
|
-
|
858,883
|
|||||
|
Monthly
interest only payments at 7.88% per annum, due March 21, 2008, secured
by
the assets of the Company. Also see Notes 12 and 13 (subsequently
repaid
on its due date).
|
-
|
1,098,571
|
|||||
|
Loans
from Huaxia Bank
|
|||||||
|
Monthly
interest only payments at 7.92% per annum, due September 12, 2009,
guaranteed by Kandi Investment Group and Kandi Metal Co. Ltd. and
secured
by the assets owned by Jinydezhen Deer Investement Co. and the Company.
Also see Notes 12 and 13.
|
2,479,905
|
2,734,444
|
|||||
|
Loans
from China Everybright Bank
|
|||||||
|
Monthly
interest only payments at 7.23% per annum, due February 5, 2009,
secured
by the assets of Lin Yue Ping, a related party of the Company and
guaranteed by Nanlong Group Co., Ltd and Zhejiang Mengdeli Electronics
Co., Ltd.
|
4,376,304
|
4,101,668
|
|||||
|
Loans
from Shanghai Pudong Development Bank
|
|||||||
|
Monthly
interest only payments at 6.33 % per annum, due February 14, 2008,
secured
by the assets of the Company. Also see Notes 12 and 13 (subsequently
repaid on its due date).
|
-
|
2,734,444
|
|||||
|
Monthly
interest only payments at 7.84 % per annum, due October 1, 2008,
guaranteed by Nanlong Group Co., Ltd & Zhejiang Mengdeli Electric
Company (subsequently repaid on its due date).
|
2,917,536
|
-
|
|||||
|
Monthly
interest only payments at 6.72 % per annum, due April 8, 2009,
collateralized by a time deposit.
|
2,625,782
|
-
|
|||||
16
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
14 - SHORT TERM BANK LOANS (CONTINUED)
|
September 30,
2008
|
December 31,
2007
|
||||||
|
(Unaudited)
|
|||||||
|
Loans
from Bank of Communication
|
|||||||
|
Monthly
interest only payments at 8.96% per annum, due February 18, 2009,
secured
by the assets of the Company. Also see Notes 12 and 13.
|
729,384
|
-
|
|||||
|
Loans
from HengFeng Bank
|
|||||||
|
Monthly
interest only payments at 7.88% per annum, due October 24, 2008,
secured
by the assets of the Company. Also see Notes 12 and 13 (subsequently
repaid on its due date).
|
2,917,536
|
-
|
|||||
|
Total
short-term bank loans
|
$
|
26,111,946
|
$
|
20,869,862
|
|||
Interest
expenses for the nine months ended September 30, 2008 and 2007 were $1,654,002
and $767,348, respectively.
NOTE
15 – NOTES
PAYABLE
Notes
payable consist of the following:
|
September 30,
2008
|
December 31,
2007
|
||||||
|
(Unaudited)
|
|||||||
|
Notes
payable to unrelated companies:
|
|||||||
|
Due
April 17, 2008 (subsequently repaid on its due date)
|
$
|
-
|
$
|
683,611
|
|||
|
Due
September 19, 2008 (subsequently repaid on its due date)
|
-
|
683,611
|
|||||
|
Due
November 8, 2008 (subsequently repaid on its due date)
|
116,701
|
109,378
|
|||||
|
Due
November 10, 2008 (subsequently repaid on its due date)
|
218,815
|
-
|
|||||
|
Due
December 18, 2008
|
437,630
|
-
|
|||||
|
Due
January 18, 2009
|
1,458,768
|
-
|
|||||
|
Due
January 31, 2009
|
875,261
|
-
|
|||||
|
Due
March 17, 2009
|
4,376,304
|
-
|
|||||
|
Due
March 18, 2009
|
729,384
|
-
|
|||||
|
Due
March 23, 2009
|
1,458,768
|
-
|
|||||
|
Due
March 27, 2009
|
1,458,768
|
-
|
|||||
|
Due
September 24, 2009, monthly interest only payments at 7.00% per
annum
|
274,132
|
-
|
|||||
|
Total
|
$
|
11,404,531
|
$
|
1,476,600
|
|||
17
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
All
bank
acceptance notes are subject to bank charges of 0.05% of the principal as a
commission on each loan transaction. Bank charges for notes payable were $5,702
and $4,100 for the nine months ended September 30, 2008 and 2007,
respectively.
Restricted
cash of $11,086,636 and $1,367,222 is held as collateral for the following
notes
payable and short term bank loans at September 30, 2008 and December 31, 2007,
respectively:
|
September 30,
2008
|
December 31,
2007
|
||||||
|
(Unaudited)
|
|||||||
|
Due
April 17, 2008 (subsequently repaid on its due date)
|
$
|
-
|
$
|
683,611
|
|||
|
Due
September 19, 2008 (subsequently repaid on its due date)
|
-
|
683,611
|
|||||
|
Due
January 18, 2009
|
1,458,768
|
-
|
|||||
|
Due
January 31, 2009
|
875,261
|
-
|
|||||
|
Due
March 17, 2009
|
2,188,152
|
-
|
|||||
|
Due
March 18, 2009
|
729,384
|
-
|
|||||
|
Due
March 18, 2009
|
729,384
|
-
|
|||||
|
Due
March 23, 2009
|
729,384
|
-
|
|||||
|
Due
March 23, 2009
|
729,384
|
-
|
|||||
|
Due
March 27, 2009
|
729,384
|
-
|
|||||
|
Due
April 8, 2009
|
2,917,535
|
-
|
|||||
|
Total
|
$
|
11,086,636
|
$
|
1,367,222
|
|||
18
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
16 – TAXES
(a) Corporation
Income Tax (“CIT”)
Effective
January 1, 2007, the Company adopted Financial Accounting Standards Board
(“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN
48"), an interpretation of FASB statement No. 109, Accounting for 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
FIN
48, we 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. FIN 48 also provides
guidance on de-recognition, classification, interest and penalties on income
taxes, accounting in interim periods and requires increased disclosures. As
of
September 30, 2008, the Company does not have a liability for unrecognized
tax
benefits. The Company files income tax returns in the U.S. federal jurisdiction
and various states. The Company is subject to U.S. federal or state income
tax
examinations by tax authorities for years after 2005. During the periods open
to
examination, the Company has net operating loss and tax credit carry forwards
for U.S. federal and state tax purposes that have attributes from close
September 30, 2008 the Company was not aware of any pending income tax
examinations by China tax authorities. The Company's policy is to record
interest and penalties on uncertain tax provisions as an income tax expense.
As
of September 30, 2008, the Company has no accrued interest or penalties related
to uncertain tax positions.
On
March
16, 2007, the National People’s Congress of China approved the Corporate Income
Tax Law of the People’s Republic of China (the “new CIT law”), which went into
effect on January 1, 2008. In accordance with the relevant tax laws and
regulations of PRC, the Company’s applicable corporate income tax rate in the
PRC is 25%. However, according to certain rules in the tax laws, from the time
that a company has its first profitable tax year, a foreign-invested company
is
exempt from corporate income tax for the following two years of operations
and
is then entitled to a 50% tax reduction for the succeeding three years. The
Company’s first profitable year for income tax purposes as a foreign-invested
company was 2007. KSV is a subsidiary of the Company and its applicable
corporate income tax rate is 25%.
19
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
16 – TAXES
(CONTINUED)
Under
the
new CIT law, the corporate income tax rate applicable to the Company starting
from January 1, 2008 is 25%. The Company believes some of the tax concessions
granted to eligible companies prior to the new CIT law will be grandfathered.
Income tax benefit for the nine months ended September 30, 2008 and 2007 are
summarized as follows:
|
Nine
Months Ended
September
30,
(Unaudited)
|
|||||||
|
2008
|
2007
|
||||||
|
Current:
|
|||||||
|
Provision
for CIT
|
$
|
-
|
$
|
-
|
|||
|
Deferred:
|
|||||||
|
Provision
for CIT
|
(81,042
|
)
|
-
|
||||
|
Income
tax benefit
|
$
|
(81,042
|
)
|
$
|
-
|
||
The
Company’s income tax benefit differs from the “expected” tax expense for the
nine months ended September 30, 2008 and 2007 (computed by applying the CIT
rate
of 25% to income before income taxes) as follows:
|
Nine
Months Ended
September
30,
(Unaudited)
|
|||||||
|
2008
|
2007
|
||||||
|
Computed
“expected” expense
|
$
|
1,021,581
|
$
|
1,230,670
|
|||
|
Permanent
difference
|
90,692
|
2,185
|
|||||
|
Tax
exemption
|
(1,193,315
|
)
|
(1,232,855
|
)
|
|||
|
Income
tax benefit
|
$
|
(81,042
|
)
|
$
|
-
|
||
20
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
16 – TAXES
(CONTINUED)
The
tax
effects of temporary differences that give rise to the Company's net deferred
tax assets and liabilities are as follows:
|
September 30,
2008
(Unaudited)
|
December 31,
2007
|
||||||
|
Deferred
tax assets:
|
|||||||
|
Non-current
portion:
|
|||||||
|
Depreciation
|
$
|
778,267
|
$
|
694,512
|
|||
|
Valuation
allowance
|
(289,506
|
)
|
(289,506
|
)
|
|||
|
Subtotal
|
488,761
|
405,006
|
|||||
|
Total
deferred tax assets
|
488,761
|
405,006
|
|||||
|
Deferred
tax liabilities:
|
|||||||
|
Non-current
portion:
|
|||||||
|
Accumulated
other comprehensive gain
|
(296,511
|
)
|
(296,511
|
)
|
|||
|
Subtotal
|
(296,511
|
)
|
(296,511
|
)
|
|||
|
Total
deferred tax liabilities
|
(296,511
|
)
|
(296,511
|
)
|
|||
|
Net
deferred tax assets
|
$
|
192,250
|
$
|
108,495
|
|||
(b)
Tax
Holiday Effect
For
2008
and 2007 the PRC corporate income tax rate was 25% and 33%, respectively.
Certain subsidiaries of the Company are entitled to tax exemptions (tax
holidays) for the nine months ended September 30, 2008 and December 31,
2007.
Income
before income tax expense of $4,086,323 and $3,930,465 for the nine months
ended
September 30, 2008 and 2007 respectively was attributed to subsidiaries with
operations in the PRC. Income tax benefit related to PRC income for the nine
months ended September 30, 2008 and 2007 is $81,042 and $0, respectively.
The
combined effects of the income tax expense exemptions and reductions available
to the Company for the nine months ended September 30, 2008 and 2007 are as
follows:
|
Nine
Months Ended
September
30,
(Unaudited)
|
|||||||
|
2008
|
2007
|
||||||
|
Tax
holiday effect
|
$
|
1,193,315
|
$
|
1,230,744
|
|||
|
Basic
net income per share effect
|
$
|
0.06
|
$
|
0.08
|
|||
21
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
17 – CONTINGENCIES
In
2006,
the Company brought a legal action against Zhejiang Yuegong Steel Structure
Co.
Ltd. and Zhejiang Jinhua No.1 Construction Co., Ltd. for their delay in the
construction in the Jinhua industrial district. According to the judge's report
from the local court in Jinhua, PRC, on December 5, 2006, the Company prevailed
in the lawsuit and Zhejiang Yuegong steel Structure Co. and Zhejiang Jinhua
No.1
Construction Co., Ltd. will be required to pay $186,331 in damages to the
Company. However, the two defendants appealed the ruling to a higher level
court
and the Company has not received the compensation as of September 30, 2008.
Considering the uncertainties of the legal proceeding, the Company did not
record a contingent gain for this at September 30, 2008.
NOTE
18 – COMMITMENT
In
2008,
the Company signed construction contracts to construct five punching workshops.
Total commitments related to the contracts are estimated to be
$380,000.
NOTE
19 – BUSINESS
COMBINATION
In
November 2007, the Company signed a letter of intent with the shareholders
of
KSV by which the Company would acquire 100% of KSV. The Company paid $12,270,859
as a deposit in 2007. The total consideration for the acquisition was
$12,314,988. The acquisition was completed on June 24, 2008.
The
following summarizes of the acquisition:
|
Fair
value of assets acquired
|
$
|
12,314,988
|
||
|
Fair
value of liabilities assumed
|
-
|
|||
|
Net
assets acquired
|
$
|
12,314,988
|
||
|
Total
consideration paid
|
$
|
12,314,988
|
22
KANDI
TECHNOLOGIES, CORP.
(FORMERLY
STONE MOUNTAIN RESOURCES, INC.)
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008
(UNAUDITED)
NOTE
19 - BUSINESS COMBINATION (CONTINUED)
The
following unaudited pro forma combined condensed statement of income for the
three months ended March 31, 2008 was prepared as if the acquisition had
occurred on January 1, 2008. The pro forma information may not be indicative
of
the results that actually would have occurred if the acquisition had been in
effect from and on the dates indicated or which may be obtained in the
future.
|
Pro Forma Combined
(Unaudited)
|
||||
|
REVENUES
|
$
|
9,487,285
|
||
|
GROSS
PROFIT
|
$
|
2,182,008
|
||
|
INCOME
FROM OPERATIONS
|
$
|
1,640,502
|
||
|
NET
INCOME
|
$
|
1,110,176
|
||
|
NET
INCOME PER SHARE
BASIC AND DILUTED |
$
|
0.07
|
||
NOTE
20 – DISCONTINUED
OPERATION
On
May 9,
2008, the Company, through its PRC subsidiary Zhejiang Kandi Vehicles Co. Ltd.,
entered into a disposition agreement with certain individuals. Pursuant to
that
agreement, the Company agreed to sell all of its interest in Dingji to certain
individuals for $729,384, resulting in a gain of $361,096. This transaction
was
completed on May 9, 2008. Thereafter, Dingji was no longer a consolidated
subsidiary of the Company. In accordance with SFAS 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” the results of operations of
Dingji are removed from the detail line items in the Company's financial
statements and presented separately as “discontinued operation.” The losses from
discontinued operation were $33,396 and $201,161 for the nine months ended
September 30, 2008 and 2007, respectively. The gains from disposition of
discontinued operation of $361,096 are reflected in the Company’s condensed
consolidated statement of income and comprehensive income for the nine months
ended September 30, 2008.
23
Item
2. Management’s Discussion and Analysis of Financial Condition and Result of
Operations.
This
report contains forward-looking statements within the meaning of the federal
securities laws that relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology, such as "may," "will," "should," "could," "expect," "plan,"
"anticipate," "believe," "estimate," "project," "predict," "intend," "potential"
or "continue" or the negative of such terms or other comparable terminology,
although not all forward-looking statements contain such terms.
In
addition, these forward-looking statements include, but are not limited to,
statements regarding implementing our business strategy; development and
marketing of our products; our estimates of future revenue and profitability;
our expectations regarding future expenses, including research and development,
sales and marketing, manufacturing and general and administrative expenses;
difficulty or inability to raise additional financing, if needed, on terms
acceptable to us; our estimates regarding our capital requirements and our
needs
for additional financing; attracting and retaining customers and employees;
sources of revenue and anticipated revenue; and competition in our market.
Forward-looking
statements are only predictions. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot
guarantee future results, levels of activity, performance or achievements.
All
of our forward-looking information is subject to risks and uncertainties that
could cause actual results to differ materially from the results expected.
Although it is not possible to identify all factors, these risks and
uncertainties include the risk factors and the timing of any of those risk
factors described in the Company’s Form 10-K for the year ended December 31,
2007 and those set forth from time to time in our filings with the Securities
and Exchange Commission (“SEC”). These documents are available on the SEC’s
Electronic Data Gathering and Analysis Retrieval System at
http://www.sec.gov.
24
Results
of Operations
Comparison
of Three Months Ended September 30, 2008 and September 30,
2007.
The
following table sets forth the amounts and percentage relationship to revenue
of
certain items in our condensed consolidated statements of income and
comprehensive income for the three months ended September 30, 2008 and
2007:
|
Three
Month Comparison
|
||||||||||||||||||||||
|
|
Three
Months
Ended
September
30, 2008
|
% of
Revenue
|
Three
Months
Ended
September
30, 2007
|
% of
Revenue
|
Increase/
(Decrease)
|
Increase/
(Decrease)
in %
|
||||||||||||||||
|
REVENUES
|
$
|
9,261,033
|
100.0
|
%
|
$
|
8,808,836
|
100.0
|
%
|
$
|
452,197
|
5.1
|
%
|
||||||||||
|
COST
OF GOODS SOLD
|
6,966,103
|
75.2
|
%
|
7,315,162
|
83.0
|
%
|
|
(349,059
|
)
|
(4.8
|
)%
|
|||||||||||
|
GROSS
PROFIT
|
2,294,930
|
24.8
|
%
|
1,493,674
|
17.0
|
%
|
|
801,256
|
53.6
|
%
|
||||||||||||
|
Selling
and Marketing
|
229,795
|
2.5
|
%
|
179,386
|
2.0
|
%
|
|
50,409
|
28.1
|
%
|
||||||||||||
|
General
and Administrative
|
324,672
|
3.5
|
%
|
228,603
|
2.6
|
%
|
|
96,069
|
42.0
|
%
|
||||||||||||
|
Research
and Development
|
230,023
|
2.5
|
%
|
12,033
|
0.1
|
%
|
|
217,990
|
1,811.6
|
%
|
||||||||||||
|
INCOME
FROM CONTINUING OPERATIONS
|
1,510,440
|
16.3
|
%
|
1,073,652
|
12.2
|
%
|
|
436,788
|
40.7
|
%
|
||||||||||||
|
Government
Grants
|
17,484
|
0.2
|
%
|
-
|
0.0
|
%
|
|
17,484
|
100
|
%
|
||||||||||||
|
Interest
Expense, Net
|
(547,511
|
)
|
(5.9
|
)%
|
(373,467
|
)
|
(4.2
|
)%
|
|
(174,044
|
)
|
46.6
|
%
|
|||||||||
|
Forfeiture
of Customer Deposits
|
-
|
0.0
|
%
|
233,585
|
2.7
|
%
|
(233,585
|
)
|
(100.0
|
)%
|
||||||||||||
|
Other,
Net
|
26,551
|
0.3
|
%
|
548
|
0.0
|
%
|
|
26,003
|
4,745.1
|
%
|
||||||||||||
|
INCOME
FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
1,006,964
|
10.9
|
%
|
934,318
|
10.6
|
%
|
|
72,646
|
7.8
|
%
|
||||||||||||
|
INCOME
TAX BENEFIT/EXPENSE
|
7,581
|
0.1
|
%
|
-
|
0.0
|
%
|
|
7,581
|
100
|
%
|
||||||||||||
|
NET
INCOME FROM CONTINUING OPERATIONS
|
1,014,545
|
11.0
|
%
|
934,318
|
10.6
|
%
|
80,227
|
8.6
|
%
|
|||||||||||||
|
INCOME
FROM DISCONTINUED OPERATION
|
-
|
0.0
|
%
|
(62,820
|
)
|
(0.7
|
)%
|
62,820
|
(100.0
|
)%
|
||||||||||||
|
NET
INCOME
|
$
|
1,014,545
|
11.0
|
%
|
$
|
871,498
|
9.9
|
%
|
$
|
143,047
|
16.4
|
%
|
||||||||||
Revenues. For
the
three months ended September 30, 2008, our revenues increased approximately
5%
from $8,808,836 to $9,261,033 relative to the same period ended September 30,
2007. The increase in revenues is attributable to the stable increased sales
of
our go-karts and the two new product lines launched in the United
States.
Cost
of Sales.
Cost
of
sales decreased from $7,315,162 for the three months ended September 30, 2007
to
$6,966,103, or approximately 4.8%, for the same period in 2008. In terms of
cost
of sales as a percentage of revenues, our cost of sales for this quarter in
2008
was approximately 75% of net revenues as compared to approximately 83% of net
revenues for the same quarter in 2007. The main reason for the decrease in
cost
of sales was due to improvements in product quality, improvements in energy
efficiency in our manufacturing process and our ability to sell our vehicles
at
higher prices.
Gross
Profit.
Gross
profit increased approximately 54% from $1,493,674 for the three months ended
September 30, 2007 to $2,294,930 for the three months ended September 30, 2008.
This increase in gross profit was primarily due to the increased revenues and
reduction in cost of sales.
25
Selling
and Marketing Expenses.
For the
three months ended September 30, 2008, selling and marketing expenses increased
approximately 28% from $179,386 to $229,795 relative to the three months ended
September 30, 2007. The increase was primarily due to the expenses associated
with the expansion of our sales department in conjunction with the rollout
of
new products in the U.S.
General
and Administrative Expenses.
For the
three months ended September 30, 2008, general and administrative expenses
increased approximately 42% from $228,603 to $324,672 relative to the three
months ended September 30, 2007. The increase was primarily due to the increase
in expenses for employee benefits.
Research
and Development Expenses.
For the
three months ended September 30, 2008, research and development expenses
increased approximately 1,182% from $12,033 to $230,023 relative to the three
months ended September 30, 2007. The increase is attributable to the expenses
incurred in conjunction with our new products.
Discontinued
Operation.
For the
three months ended September 30, 2008, discontinued operations income decreased
from $(62,820) to NIL. Dingji was sold to certain individuals as of May 9,
2008.
See Note19.
Income
Tax Provision. On
March 16, 2007, the National People’s Congress of the PRC adopted a new
corporate income tax law in its fifth plenary session. The new corporate income
tax law unifies the application scope, tax rate, tax deduction and preferential
policy for both domestic and foreign-invested enterprises. The new
corporate income tax law became effective on January 1, 2008. The Company
had a tax benefit of $7,581 for the three months ended September 30, 2008,
compared to a tax expense of NIL for the same period of 2007.
Net
Income.
Net income increased approximately 16.4% from $871,498 for the three months
ended September 30, 2007 to $1,014,545 for the three months ended September
30,
2008. This increase in net income was primarily due to the increase
in both our revenues and gross profits.
26
Comparison
of Nine Months Ended September 30, 2008 and September 30,
2007.
The
following table sets forth the amounts and percentage relationship to revenue
of
certain items in our consolidated statements of income and comprehensive income
for the nine months ended September 30, 2008 and 2007:
|
Nine
Month Comparison
|
||||||||||||||||||||||
|
|
Nine Months
Ended
September 30,
2008
|
% of
Revenue
|
Nine Months
Ended
September
30, 2007
|
% of
Revenue
|
Increase/
(Decrease)
|
Increase/
(Decrease)
in %
|
||||||||||||||||
|
REVENUES
|
$
|
30,767,280
|
100.0
|
%
|
$
|
25,293,958
|
100.0
|
%
|
$
|
5,473,322
|
21.6
|
%
|
||||||||||
|
COST
OF GOODS SOLD
|
23,098,186
|
75.1
|
%
|
20,158,923
|
79.7
|
%
|
|
2,939,263
|
14.6
|
%
|
||||||||||||
|
GROSS
PROFIT
|
7,669,094
|
24.9
|
%
|
5,135,035
|
20.3
|
%
|
|
2,534,059
|
49.3
|
%
|
||||||||||||
|
Selling
and Marketing
|
632,132
|
2.1
|
%
|
366,879
|
1.5
|
%
|
|
265,253
|
72.3
|
%
|
||||||||||||
|
General
and Administrative
|
1,019,385
|
3.3
|
%
|
536,731
|
2.1
|
%
|
|
482,654
|
89.9
|
%
|
||||||||||||
|
Research
and Development
|
487,755
|
1.6
|
%
|
64,888
|
0.3
|
%
|
|
422,867
|
651.7
|
%
|
||||||||||||
|
INCOME
FROM CONTINUING OPERATIONS
|
5,529,822
|
18.0
|
%
|
4,166,537
|
16.5
|
%
|
|
1,363,285
|
32.7
|
%
|
||||||||||||
|
Government
Grants
|
57,533
|
0.2
|
%
|
-
|
0.0
|
%
|
|
57,532
|
100
|
%
|
||||||||||||
|
Interest
Expense, Net
|
(1,540,631
|
)
|
(5.0
|
)%
|
(666,704
|
)
|
(2.6
|
)%
|
|
(873,927
|
)
|
(131.1
|
)%
|
|||||||||
|
Forfeiture
of Customer Deposits
|
-
|
0.0
|
%
|
500,304
|
2.0
|
%
|
(500,304
|
)
|
(100.0
|
)%
|
||||||||||||
|
Other,
Net
|
39,599
|
0.1
|
%
|
(69,672
|
)
|
(0.3
|
)%
|
|
109,271
|
156.8
|
%
|
|||||||||||
|
INCOME
FROM CONTINUING OPERATIONS BEFORE INCOME TAX
|
4,086,323
|
13.3
|
%
|
3,930,465
|
15.5
|
%
|
|
155,858
|
4.0
|
%
|
||||||||||||
|
INCOME
TAX BENIFET/EXPENSE
|
81,042
|
0.3
|
%
|
-
|
0.0
|
%
|
|
81,042
|
100
|
%
|
||||||||||||
|
NET
INCOME FROM CONTINUING OPERATIONS
|
4,167,365
|
13.5
|
%
|
3,930,465
|
15.5
|
%
|
236,900
|
6.0
|
%
|
|||||||||||||
|
INCOME
FROM DISCONTINUED OPERATION
|
327,700
|
1.1
|
%
|
(203,272
|
)
|
(0.8
|
)%
|
530,972
|
261.2
|
%
|
||||||||||||
|
NET
INCOME
|
$
|
4,495,065
|
14.6
|
%
|
$
|
3,727,193
|
14.7
|
%
|
$
|
767,872
|
20.6
|
%
|
||||||||||
Revenues. For
the
nine months ended September 30, 2008, our revenues increased approximately
22%
from $25,293,958 to $30,767,280 relative to the same period ended September
30,
2007. The increase in sales revenue is attributable to the stable increased
sales of our go-karts and the two new product lines launched in the United
States.
Cost
of Sales.
Cost
of
sales increased from $20,158,923 for the nine months ended September 30, 2007
to
$23,098,186, or approximately 15%, for the same period in 2008. In terms of
cost
of sales as a percentage of net revenues, our cost of sales for this quarter
in
2008 was approximately 75% of revenues as compared to approximately 80% of
revenues for the same quarter in 2007.
27
Gross
Profit.
Gross
profit increased approximately 49% from $5,135,035 for the nine months ended
September 30, 2007 to $7,669,094 for the nine months ended September 30, 2008.
This increase in gross profit was primarily due to the increase in revenues
and
profit margin.
Selling
and Marketing Expenses.
For the
nine months ended September 30, 2008, selling and marketing expenses increased
approximately 72% from $366,879 to $632,132 relative to the nine months ended
September 30, 2007. The increase was primarily due to the expenses associated
with the expansion of our sales department in conjunction with the rollout
of
new products in the U.S.
General
and Administrative Expenses.
For the
nine months ended September 30, 2008, general and administrative expenses
increased approximately 90% from $536,731 to $1,019,385 relative to the nine
months ended September 30, 2007. The increase was primarily due to the increase
in expenses for employee benefits.
Research
and Development Expenses.
For the
nine months ended September 30, 2008, research and development expenses
increased approximately 651% from $64,888 to $487,755 relative to the nine
months ended September 30, 2007. The increase is attributable to the expenses
incurred in conjunction with our new products.
Discontinued
Operation.
For the
nine months ended September 30, 2008, discontinued operations income increased
from $(203,272) to $327,700. Dingji was sold to certain individuals as of May
9,
2008. See Note19.
Income
Tax Provision. On
March 16, 2007, the National People’s Congress of the PRC adopted a new
corporate income tax law in its fifth plenary session. The new corporate income
tax law unifies the application scope, tax rate, tax deduction and preferential
policy for both domestic and foreign-invested enterprises. The new
corporate income tax law became effective on January 1, 2008. The Company had
a
tax benefit of $81,042 for the nine months ended September 30, 2008, compared
to
a tax expense of NIL for the same period of 2007.
Net
Income.
Net income increased approximately 21% from $3,727,193 for the nine months
ended
September 30, 2007 to $4,495,065 for the nine months ended September 30,
2008. This increase in net income was primarily due to the increase
in both our revenues and gross profits.
Liquidity
and Capital Resources
Cash
Flows
Nine
Months ended September 30, 2008 and 2007
Net
cash
flow provided by operating activities was $5,010,972 for the nine months ended
September 30, 2008, as compared to $3,256,724 in cash flow used in operating
activities in the same period of 2007. The increase of net cash flow
provided in operating activities was mainly due to the increase in the net
income from $3,727,193 to $4,495,065 as of September 30, 2007 and 2008,
respectively, and an increase in accounts payable of $2,794,238. Moreover,
the
increase in cash flow was partially offset by cash out flow of an increase
in
inventories of $5,265,108.
Net
cash
flow used in investing activities was $8,002,307 for the nine months ended
September 30, 2008, as compared to $11,317,552 in the same period of 2007.
Uses
of cash flow for investing activities off set in the nine months period ended
September 30, 2008 included the construction of manufacturing facilities, the
purchase of associated machinery and equipment, and the issuance of notes
receivables.
Net
cash
flow provided by financing activities was $5,631,258 in the nine months ended
September 30, 2008, as compared to $7,883,220 in the same period of 2007. The
net cash flow provided by financing activities resulted from the collection
of
loan payments and interest owed to the Company for the nine months ended
September 30, 2008 and 2007.
28
Working
Capital
Our
working capital was $(10,070,184) at September 30, 2008, as compared to
$(11,976,235) at December 31, 2007. The increase in working capital
at September 30, 2008 was mainly attributed to the increase in inventories
and
notes receivable.
The
Company currently generates its cash flow through operations and the Company
believes that its cash flow generated from operations will be sufficient to
sustain operations for the next twelve months. From time to time, the
Company may require extra funding through financing activities and investments
for expansion.
Accounting
Policies
Revenue
Recognition
Revenue
represents the invoiced value of goods sold, recognized upon the shipment of
goods to customers. Revenue is recognized when all of the following criteria
are
met:
| · |
Persuasive
evidence of an arrangement exists;
|
| · |
Delivery
has occurred or services have been
rendered;
|
| · |
The
seller's price to the buyer is fixed or determinable;
and
|
| · |
Collectibility
is reasonably assured.
|
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
periods.
Management
makes these estimates using the best information available at the time the
estimates are made. Actual results could differ materially from those
estimates.
Fair
Value of Financial Instruments
The
Company’s financial instruments include cash and cash equivalents, restricted
cash, accounts receivable, notes receivable, due from related parties,
prepayments and prepaid expenses, other receivables, due from employees,
accounts payable, due to employees, other payables and accrued liabilities,
notes payable, short-term band loans, and customer deposits. Management has
estimated that the carrying amount approximates fair value due to their
short-term nature.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141 (R), Business Combinations. SFAS
No.
141 (R) requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquire at their
fair values on the acquisition date, with goodwill being the excess value over
the net identifiable assets acquired. The calculation of earnings per share
will
continue to be based on income amounts attributable to the parent. SFAS No.141
(R) is effective for financial statements issued for fiscal years beginning
after December 15, 2008. Early adoption is prohibited. We have not yet
determined the effect on our consolidated financial statements, if any, upon
adoption of SFAS No.141 (R). SFAS 141(R) will significantly affect the
accounting for future business combinations and we will determine the accounting
as new combinations are determined.
29
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements. This Statement establishes accounting and
reporting standards that require the ownership interests in subsidiaries’
non-parent owners be clearly presented in the equity section of the balance
sheet; requires the amount of consolidated net income attributable to the parent
and to the noncontrolling interest be clearly identified and presented on the
face of the consolidated statement of income; requires that changes in a
parent’s ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently; requires that when
a
subsidiary is deconsolidated, any retained noncontrolling equity investment
in
the former subsidiary be initially measured at fair value and the gain or loss
on the deconsolidation of the subsidiary be measured using the fair value of
any
noncontrolling equity; and requires that entities provide disclosures that
clearly identify the interests of the parent and the interests of the
noncontrolling owners. This Statement is effective as of the beginning of an
entity’s first fiscal year that begins after December 15, 2008. The Company has
not determined the impact, if any, SFAS No. 160 will have on its financial
statements.
In
March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" ("SFAS No. 161"), which amends SFAS No.133 and expands
disclosures to include information about the fair value of derivatives, related
credit risks and a company's strategies and objectives for using derivatives.
SFAS No. 161 is effective for fiscal periods beginning on or after November
15,
2008. The Company is currently in the process of assessing the impact that
SFAS
No. 161 will have on the disclosures in its financial statements.
Item
4T. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
The
Company maintains a system of disclosure controls and procedures that is
designed to ensure that information required to be disclosed by the Company
in
this Form 10-Q, and in other reports required to be filed under the Securities
Exchange Act of 1934 (the “Exchange Act”), is recorded, processed, summarized
and reported within the time periods specified in the rules and forms for such
filings. Management of the Company, under the direction of the Company's Chief
Executive Officer and Chief Financial Officer, reviewed and performed an
evaluation of the effectiveness of the Company's disclosure controls and
procedures (as defined in Rules 13a-15a(e) and 15d-15(e) under the Exchange
Act)
as of September 30, 2008. Based on that review and evaluation, the Chief
Executive Officer and Chief Financial Officer, along with other key management
of the Company, have determined that the disclosure controls and procedures
were
not effective as of such date. The basis for this determination was that
management has identified material weaknesses in our internal control over
financial reporting, which management views as an integral part of our
disclosure controls and procedures.
The
Company established remediation plans in January 2008 and is in the process of
implementing those plans to address our material weaknesses.
Changes
in Internal Controls Over Financial Reporting
None.
30
PART
II - OTHER INFORMATION
Item
1A. Risk Factors.
As
of the
date of this filing, there have been no material changes from the risk factors
previously disclosed in our “Risk Factors” in the Form 10-K for the period ended
December 31, 2007. An investment in our common stock involves various risks.
When considering an investment in our company, you should consider carefully
all
of the risk factors described in our most recent Form 10-K. These risks and
uncertainties are not the only ones facing us and there may be additional
matters that we are unaware of or that we currently consider immaterial. All
of
these could adversely affect our business, financial condition, results of
operations and cash flows and, thus, the value of an investment in our
company.
Item
6. Exhibits.
|
31.1
Certifications pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934 by Hu Xiaoming, President and Chief
Executive Officer.
|
|
31.2
Certifications pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934 by Zhu Xiaoying, Chief Financial
Officer.
|
|
32.1
Certifications of CEO and CFO pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of
2002.
|
Items
1, 2, 3, 4, and 5 are not applicable and have been
omitted.
II-1
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
Kandi
Technologies, Corp.
|
||
|
Date:
November 14, 2008
|
By:
|
/s/
Hu Xiaoming
|
|
|
|
Hu
Xiaoming
|
|
|
|
President
and Chief Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
|
Date:
November 14, 2008
|
By:
|
/s/
Zhu Xiaoying
|
|
|
|
Zhu
Xiaoying
|
|
|
|
Chief
Financial Officer
(Principal
Financial and Accounting
Officer)
|