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| <NonNumbericText> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>NOTE 21 – COMMITMENTS AND CONTINGENCIES</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>(a)</b> <b>Guarantees and Pledged collateral for third party bank loans</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">As of June 30, 2013, the Company provided guarantees for the following third parties:</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">(1) Guarantees for bank loans</p> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left">Guarantee provided to</td> <td align="left" style="BORDER-BOTTOM: #000000 1px solid" width="1%"> </td> <td align="center" style="BORDER-BOTTOM: #000000 1px solid" width="12%">Amount</td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Zhejiang Kangli Metal Manufacturing Company.</td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%">$</td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%"> 4,847,936 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left">Zhejiang Shuguang industrial Co., Ltd.</td> <td align="left" valign="bottom" width="1%"> </td> <td align="right" valign="bottom" width="12%"> 4,847,936 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Yongkang Angtai Trade Co., Ltd.</td> <td align="left" bgcolor="#e6efff" valign="bottom" width="1%"> </td> <td align="right" bgcolor="#e6efff" valign="bottom" width="12%"> 807,989 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left">Nanlong Group Co., Ltd.</td> <td align="left" style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" width="1%"> </td> <td align="right" style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" width="12%"> 9,695,873 </td> <td align="left" valign="bottom" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Total</td> <td align="left" bgcolor="#e6efff" style="BORDER-BOTTOM: #000000 3px double" valign="bottom" width="1%">$</td> <td align="right" bgcolor="#e6efff" style="BORDER-BOTTOM: #000000 3px double" valign="bottom" width="12%"> 20,199,734 </td> <td align="left" bgcolor="#e6efff" valign="bottom" width="2%"> </td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On December 26, 2012, the Company entered into a guarantee contract to serve as the guarantor for the bank loan borrowed from Shanghai Bank Hangzhou branch in the amount of $4,847,936 by Zhejiang Kangli Metal Manufacturing Company. (“ZKMMC”) for the period from December 26, 2012 to December 26, 2013. ZKMMC is not related to the Company. Under this guarantee contract, the Company shall perform all obligations of ZKMMC under the loan contract if ZKMMC fails to perform its obligations as set forth in the loan contract. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On October 9, 2012, the Company entered into a guarantee contract to serve as the guarantor for the bank loan borrowed from PingAn Bank Hangzhou branch in the amount of $4,847,936 by Zhejiang Shuguang industrial Co., Ltd. (“ZSICL”) for the period from October 9, 2012 to October 9, 2013. ZSICL is not related to the Company. Under these guarantee contracts, the Company shall perform all obligations of ZSICL under the loan contracts if ZSICL fails to perform its obligations as set forth in the loan contracts. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On January 6, 2013, the Company entered into a guarantee contract to serve as the guarantor for the bank loans borrowed from China Communication Bank Jinhua Branch in the amount of $807,989 by Yongkang Angtai Trade Co., Ltd. (“YATCL”) for the period from January 6, 2013 to January 6, 2014. YATCL is not related to the Company. Under these guarantee contracts, the Company shall perform all obligations of YATCL under the loan contracts if YATCL fails to perform its obligations as set forth in the loan contracts. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On March 15, 2013 and December 26, 2012, the Company entered into two guarantee contracts to serve as the guarantor for the bank loans borrowed from Shanghai Pudong Development Bank Jinhua Branch and Shanghai Bank Hangzhou branch in the amount of $3,231,958 and $6,463,915 respectively by Nanlong Group Co., Ltd. (“NGCL”) for the period from March 15, 2013 to March 15, 2016, and December 26, 2012 to December 26, 2013 respectively. NGCL is not related to the Company. Under this guarantee contract, the Company shall perform all obligations of NGCL under the loan contract if NGCL fails to perform its obligations as set forth in the loan contract. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">(2) Pledged collateral for a third party’s bank loans</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">As of June 30, 2013, the Company provided the land use rights and plant and equipment pledged as collateral for the following third party:</p> <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; font-size: 10pt; border-collapse: collapse; font-family: times new roman,times,serif;" width="100%"> <tr valign="top"> <td align="left">Zhejiang Mengdeli Electric Co., Ltd.:</td> <td align="left" width="1%"> </td> <td align="left" width="12%"> </td> <td align="left" width="2%"> </td> </tr> <tr valign="top"> <td align="left" bgcolor="#e6efff">Land use rights net book value</td> <td align="left" bgcolor="#e6efff" width="1%">$</td> <td align="right" bgcolor="#e6efff" width="12%"> 3,529,204 </td> <td align="left" bgcolor="#e6efff" width="2%"> </td> </tr> <tr valign="top"> <td align="left">Plant and equipment net book value</td> <td align="left" width="1%">$</td> <td align="right" width="12%"> 2,838,741 </td> <td align="left" width="2%"> </td> </tr> </table> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> It is a common business practice among the Chinese companies located in Kandi's geographic region to exchange guarantees for bank debt with no consideration given. It is considered a “favor for favor” business practice and is commonly required by the lending banks as in the instances above. These companies provided guarantees for the Company’s bank loans as well. The banks involved in these guarantee transactions typically allow a maximum loan amount based on a 30% to 70% discount on the net book value of the pledged collateral. Also see Note 14. </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>(b) Pending litigation</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">As of June 30, 2013, two lawsuits were pending in Ripley County, Missouri against the Company and its subsidiary Zhejiang Kandi Vehicles Co., Ltd.(“Kandi Vehicles”) as well as other parties, Kandi Investment Group and SunL, related to two persons who died in an accident on March 3, 2006 while operating a go-cart allegedly manufactured by Kandi Vehicles. Kandi Investment Group was a major shareholder of Kandi Vehicles but it transferred all its equity in Kandi Vehicles to Continental Development Limited in November 2006. Since then, Kandi Investment Group has been unrelated to the Company or its affiliates. The cases were filed in 2009 and were known as Elder vs. SunL Group and Griffen vs. SunL Group.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;">On July 29, 2013, Judge Michael M. Pritchett of the Circuit Court of Ripley County of the State of Missouri (the "Court") entered final orders and judgments in favor of the Company and Kandi Vehicles and against plaintiffs GRIFFIN and ELDER, respectively, pursuant to the jury verdicts rendered in two cases of GRIFFIN v. SUNL GROUP, et al., and ELDER v. SUNL GROUP, et al. on July 17, 2013. The costs of defendants Kandi Vehicles and Kandi Technologies are to be taxed to the plaintiffs.</p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> <b>(c) Asset purchase</b> </p> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;"> On February 27, 2013, Kandi Vehicles entered into an Assets Purchase Agreement (the “Purchase Agreement”) with Zhejiang New Energy Vehicle System Co., Ltd., a limited liability company in China (“New Energy”). Pursuant to the terms and conditions of the Purchase Agreement the Company agreed to purchase EV assembly lines and related facilities for a total price of RMB0.28 billion. The Company currently expects that all of the purchased assets will be transferred by the end of August 2013. </p> </NonNumbericText> |
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