Kewa Luo - IR Hu Xiaoming - Founder, Chairman and CEO Henry Wang - CFO

Arthur Porcari - Corporate Strategies Ted Schwartz - TAS Associates Michael Fairnow - Focus Tech Investments

Good day and welcome to the Kandi Technologies' First Quarter 2016 Financial Results Call and Webcast. All participants are in a listen-only mode [Operator Instructions]. Please note this even is being recorded. I would now like to turn the conference over to Kewa Luo. Please go ahead.

Thank you, Operator. Hello everyone and welcome to Kandi Technologies Group’s first quarter 2016 earnings conference call. The company distributed its earnings press release earlier today at 7:00 AM and you can find a copy on Kandi’s website at www.kandivehicle.com. With us today are Kandi’s Founder, Chairman and Chief Executive Officer, Mr. Hu Xiaoming; and Chief Financial Officer, Mr. Henry Wang, both will deliver prepared remarks followed by a question-and-answer session. Before we get started, I’m going to review the Safe Harbor statement regarding today’s conference call. Please note that the discussions today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such the company’s results may differ materially from the views expressed today. Further information regarding these and other risks and uncertainties are included in the company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016 and the other documents filed with the U.S. Securities and Exchange Commission. Kandi does not assume any obligation to update any forward-looking statements except as required under applicable law. As a reminder, this conference call is being recorded. In addition, an audio webcast of this conference will be available on Kandi’s Investor Relations website. I will now turn the call over to Kandi's Founder, Chairman and CEO, Mr. Hu Xiaoming. I apologize to you that I have just received a message that Mr. Hu right now is having an emergency. He will try to get back to the call as soon as possible. So right now Mr. Henry Wang will --. Yes.

Yes, Mr. Hu is already there, so you can ask Mr. Hu to continue.

Go ahead Mr. Hu.

Good morning to those on the other side of the world and a good evening to those participants in Asia. Thank you for joining our first quarter 2016 earnings conference call. Today we will discuss our first quarter financial results and recent development and give our outlook for the second quarter and full year 2016. In the first quarter, we had total revenue of $50.7 million, 15.7% increase from the same quarter last year, and EV product sale was $46.2 million, a 7.5% increase from the same quarter last year. During this quarter, waiting for including the newly approved product list from Ministry of Industrial and Information Technology of China or MIIT for national subsidies and the subsequent tending of the list of vehicles entitled to purchase tax exemption from the National Tax Bureau, it has impacted heavily to JV Company sales and Kandi’s financial performance. After the National Tax Bureau announced a new approved for vehicle purchase tax exemption and the JV Company’s EV product were on the list. JV has started to sell EV products starting from April 2016, although JV Company has no sales in the first quarter. I believe its EV sales will catch up in the rest of the year and achieve the full year target. These expect to deliver 5,500 to 6,000 EV products in the second quarter and no less than 35,000 EVs for the full year. Our full progress of 35,000 EVs will anticipate 10,000 EVs for MPT program, while 25,000 EVs will be allocated for the direct sales channel. The key strategy for MPT program in 2016 is to increase the EV deployment in the existing cities and enhance the business operating scale. The main targeting cities will be Hangzhou, Haikuo, Kunming, Nanjing, Tianjin and so on. The main EV products for MPT will be K17 and it will also be some K12, which we believe will be very well received by the market. In the year of 2016 JV Company will develop more distribution channel and services doors to achieve the direct sales target of 25,000 or more EVs. Until May 2016, JV Company has established 74 service stores countrywide to cover the primary market in those important cities, some of which are shared with direct distribution channels such as Beijing, Shanghai, Nanjing, Suzhou, Haikuo and etcetera. Meanwhile JV Company will also work with the distributor closely and plan to establish the strategic partnership with about 45 strategic distribution partners including Pang Da Automobile sales group and [Hang Seng] Automobiles Group Inc. Currently China’s government wrapping its industry wise investigations with regards to the potential violation of new energy vehicle subsidy policy. In the first quarter, the JV Company received numerous audits from the Ministry of Finance, National Audits Office and the inspection team of [State] Council. The related auditing team gave very positive comments for Kandi’s business model and MPT Program. We very much welcome for these audits from the government agencies. As I stated before, the current investigations from the government target to enhance the healthy development of the Chinese EV industry and it shall eventually spend a large scale and a qualified manufacturers like Kandi in the long run. Furthermore, China’s Central Government has recently expanded its continued support and confidence in developing the new energy vehicle industry by enacting additional favorable policies such as no traffic controls and purchase quotas on new energy vehicles, encouraging government purchases, promoting EV car share program and release the credit control on your energy vehicle purchase etcetera. We believe that Kandi will benefit from those policies that continuous growth. Now I would like to turn the call to our Chief Financial Officer, Mr. Henry Wang to give you more details on our financial highlights.

Thank you Mr. Hu and hello to everyone on the call. Now I would like to provide a brief overview of our financial results for the first quarter of 2016. Please note that all the numbers I would discuss today are in US dollars, unless otherwise noted. First, let me walk you through for the first quarter financial results. Total net revenues for the first quarter were 50.7 million, an increase of 15.7% from 43.8 million for the same quarter of 2015. The increase in revenues was mainly due to the increase in EV part sales and also in EV product sales in the stock. EV part sales were approximately 46.2 million for the first quarter of 2016 or 91.2% of our total net revenues, an increase of 3.2 million or 7.5% compared with the same quarter of last year. Please note that under the JV agreement, our EV products (inaudible) was gradually transferred to the JV Company which was completed at the end of 2014. Kandi is now primarily responsible for supplying the JV Companies with EV parts, while the JV Company is primarily responsible for the production of EV products. The EV products we saw in this quarter were the product in the original stock. Our cost of goods sold was 43.9 million during the first quarter, an increase of 17.5% from 37.4 million in the same quarter of 2015. The increase was mainly due to the increase in corresponding sales. Gross profit for the first quarter was 6.7 million, an increase of 5.5% from 6.4 million for the same quarter of 2015. Gross margin decreased to 13.3% in the first quarter from 14.6% in the same quarter of 2015. Margin decrease was mainly due to one-time loan margin EV product sales happened in this quarter. Total operating expenses in the first quarter were 80.3 million compared with 45 million in the same quarter of 2015. The increase in total operating expenses was due to a 4.9 million increase in stock compensation expenses. Net income was 0.1 million in the first quarter compared with 6.1 million in the same quarter of 2015. The net income decrease was heavily impacted by higher stock compensation expenses and the change of the fair value of financial derivatives, which together were 4.9 million and 1.5 million more respectively in the first quarter of 2016 compared to the same quarter of 2015. Non-GAAP net income in the first quarter was 3.7 million, a 7.5% increase from 3.4 million in the same quarter of last year. The increase was mainly due to the revenue growth, and the corporate income tax benefit occurred in this quarter. Let touch on the JV financials now; for the first quarter of 2016 the JV Company’s net sales was net to 0.5 million due to the weak (inaudible) discount occurred in this quarter. It was partly negative 1.1 million and the net loss was 80.1 million. We accounted for our investment in the JV Company under the equity measure of accounting, as we share a 50% ownership in the JV Company. Other results, we recorded a 50% JV Company’s loss or 4 million for the first quarter of 2016. After eliminating interest, entity and profits and the losses our share of after tax losses of the JV Company was 4.8 million for this quarter. Next I will review the company’s cash flow; in this quarter cash used in operating activities was 6.2 million compared towards cash used by operating activities of 9.5 million in the same quarter of 2015. The major operating activities that provided cash for this quarter were an increase in accounts payable of 17 million and a decrease in accounts receivable from the related party for 34.8 million. The major operating activities that used the cash in this quarter were an increase in accounts receivable of 32.2 million and 15.9 million from the JV Company. Cash provided by investing activities in this quarter was 11.3 million. Other results I will deal with payment of notes receivable of 2.4 million by making off the increase of short term investment for 1.5 million. Cash provided by the national activities in this quarter were 2.5 million. Other results proceeds from those payable for 2.1 [billion] and also 0.4 million for warranty exercising this quarter. Finally, just take a look at our guidance; for the second quarter of 2016, Kandi expects net revenues to be in the range of $55 million to $57 million with a gross margin in the range of 12.5% to 13.5%. For full year 2016 Kandi expects net revenue to be in the range of 270 million to 300 million. The company also expects the JV Company to delivering 5,500 to 6,000 EV products in the second quarter and a total of 35,000 or more EV products in the full year. This outlook reflects Kandi’s current view, which is subject to change. This concludes my prepared remarks for the first quarter of 2016. Operator, now the management team is ready to take some question please.

[Operator Instructions] And our next question will come from Steve Miller, Private Investor. Please go ahead.

On April 29, the China media reported that carbon credit rating was going to begin in May of this year. A bit later I saw a second article that noted that carbon trading had started on April 27 in [Dubai]. And most US investors know that Tesla collected over $620 million an incredible figure by selling carbon credits between 2012 and 2015. It’s also been reported in China that the government expected that EV maker process by selling carbon credits is going to replace the reduced subsidies between now and 2020. So I have two just short questions, the first one, can you explain to us how soon Kandi and the JV will each individually benefit from trading the carbon credits, and secondly, how soon will these carbon credit sales be available to Kandi? Thank you.

In fact in China a lot of organizations are related to government agencies in discussion of how we should perform this carbon credit rating and we’re also trying to learn from how US does this. But I believe once this is launched, Kandi and the Joint Venture Company will also benefit from this.

Our next question will come from Arthur Porcari of Corporate Strategies. Please go ahead.

I’m real surprised Mr. Hu and great job for the quarter. I recently put an article and my suspicion was we might lose as much as 5 million to 7.5 million for the quarter, but again another pleasant surprise. I’ve got a question here that’s going to have two parts in it. I’ll read the question, a little introduction to the question is the first part and then I’d liked to answer that and then I’ll answer the second part. We’ve not seen any news announcements from the company other than just a member of the Kandi partnership with Alibaba, ZTE, Uber China, and Minsheng Bank to create the Car-Share 4.0. In the 10-K it was noted that Uber specifically has been successfully working with Kandi on a trial 200 car lease project. So I do have two questions; the first part recently Kandi partner Geely has announced that it had begun with a working relationship with Uber China. Why is that Kandi has not made a direct relationship announcement that we see in the 10-K available to the public in the press release. And if this is accurate, can you tell us how Kandi is working with Uber more specifically. I’ll hold for the second part.

I’d like to explain this a little bit more. I believe that Geely never announced such news about co-operation with Uber. From what I know, I think Uber has released a co-operation with Geely. In fact what Uber meant if Uber is co-operating with the Joint Venture, however there is some misunderstanding in the news release that it turns out to be Uber works with Geely, but actually its Uber worked with Joint Venture on those 200 try-out program in Hangzhou, and like what we have disclosed in the recent 10-K that our service company ZZY has already successfully worked with Uber China to provide K-17 electric vehicle for their business, and so far we have received a lot of very good feedback. At the same time we’re also working with a lot of other service car companies, and we believe this are going to be more opportunity to work with them not just Uber. So, I like to close out this a little bit.

I kind of wish we would have seen an announcement in the United States in the form of a press release. But let me move on to my second part, two days ago Bloomberg news reported that Alibaba and Kandi were working together on a package delivery solutions for China. There was even a quote from Mr. Hu in the Bloomberg - this is a Bloomberg US article. If true, when can it be announced, and is Kandi also actively working with any other members of the alliance?

Ever since the ceremony of this 4.0 Car-Share that I’ve hosted last year, we have been very actively discussing with all these alliance member. But so far there’s no final agreement that’s come out with anyone. So once we have any progress, we will report to the market.

Thank you very much. And again just a great delivery under the hardship that the government put on in having to redo all the cars at the last minute and look forward to a great year and next few years ahead. Thank you very much. Good job.

Our next question will come from Robert Lanson of Robert (inaudible). Please go ahead.

I want to congratulate Mr. Hu on his leadership, and I think as a US investor everyone is worried about the ethics of our company, and I must say, I am really pleased. Now to get on to my question, I believe that the showcase of China reducing pollution is going to be in the Haikou in Hainan Province. Recently there’s been a lot of new in print and TV out of China on our new 100,000 annual capacity facility. Both Mr.Hu is addressing the workers in this picture and the comments were attributed to Mr. Hu that work was ahead schedule, and that the actual construction of the building was going to be expected to be completed by this summer, and then the trial production by December. So my questions are three parts, how much do you expect this project to cost and how will it be financed?

I’d like to explain that we are trying to work very hard to be ahead of schedule. But by August most likely we’re only going to finish building the factory building. So in order to start the production I too got to be (inaudible) last year. And as far as the total cost like what we have disclosed in 10-Q, the total product cost is RMB1 billion, so far we have paid 35% and we’re going to get some loans from the local bank that will be 30% to 40% of it, and the rest will be generated from our own cash. So it shouldn’t be very difficult especially the payment if not required to be delivered at the same time.

My second question has to do with what model EV will be made in Haikou and how soon while you answer that in ’17 do you think sales production can begin, while we kind of say it in the middle of the year. So just really what model?

Well we want to keep it as a surprise; it’s still confidential as far as what JV models will be made in Haikou facility. We will make an announcement at the same time when the time is appropriate. We believe that this model is going to be something the consumers are very excited about. So let’s keep this as a surprise.

And my last question has to do with the 100,000 capacity [Haikou] facility started production of the K-12 and if so why has there been no public announcement.

The reason you haven’t the official announcement is because we are at the testing period, and we expect to start the official production starting in Q3. So by then you will see a public announcement.

Our next question will come from Ted Schwartz of TAS Associates. Please go ahead.

In regards to the K-12 I thought we were expecting you to start the K-12 sales this quarter, but apparently it’s going to be delayed. Do you expect any of the K-12 to start this quarter, and will the K-12 be added to the MPT program or only consumer sales, and if it is added to the MPT program will it replace the K-10 or be added as a fourth option. What will be the sales price of the K-12?

I really appreciate your interest in K-12 and the reason K-12 production got delayed because the shareholder and the management and team of the Joint Venture are very, very strict about all the product evaluation. So the JV Company is planning on releasing the go-to-perfect vehicle to the market, that’s why it got delayed. Eventually we were planning on releasing 200 K-12 in May and 500 in June, but the plan got delayed. But however we still expect to deliver no less than 5,000 model of K-12 in the entire 2016. And we think K-12 will be mostly for consumer sales, but we also have come to target the MPT program and the sales price for this model is not confirmed yet. So once this is ready to hit the market, we will announce more details on the price.

There’s one other question in reference to the K-17. There appears to be two different K-17 models that were approved. What’s the difference between the two?

As they have pretty much same functionality, the only difference is one, K-17 has one pack of battery the other has two, and that’s why you see two models, because government will be quite very strict on the model, even you only have difference in battery packs and they require you to apply for the new certificate for the cars. But before the K-17 we only one pack of battery, but in order to be in line with [tenders] battery packs, so we upgrade the pack of batteries in to two, so this will be easier for battery maintenance and to repair in the future.

Our next question will come from John Moore, a private investor. Please go ahead.

I had a question on batteries. On the last conference call Mr. Hu stated that a new generation battery which I believe he called the [Tenergy] battery which had been under development with the (inaudible) for several years, had already acquired (inaudible) and you spend several thousand cars managed here. This was a surprise for shareholder since we never saw a company announcement. Just a couple of questions on his battery; first, what is different with that battery compared to other EV batteries and is it being used on all Kandi cars. And second, got to continue to sell this battery to other manufacturers and since Kandi co-developed the batter, how does Kandi benefit from this contribution to the development? Thank you.

This Tenergy lithium battery has higher density offering longer judgment range, and now pretty much all of our JV Company EV product uses these batteries, but because they don’t have enough supply and still some of our EV products use batteries from other suppliers. And to your second question, Kandi can’t sell the battery to other manufacturers, but due to this R&D partnership Kandi will always be provided with a favorable price and always be guaranteed with the priority supply. But of course in the future when they have a large volume of battery manufactured if we cannot take all of them, they allow to sell it to other manufacturers.

Our next question will come from Michael Fairnow of Focus Tech Investments. Please go ahead.

The government late last year announced that the cars had been retooled or upgrade so they’d have a 100 kilometer range, and they too further announced that all the Kandi vehicles are upgraded to meet the new government requirements as of April 01, and April 15. This riddle is to a three part question. Can you discuss what the cost was to Kandi for the upgrades and how much of the cost was shared with the Joint Venture? On average do you feel the increased cost with the vehicles will be absorbed with increased purchase price on the cars, and third due to the increased range and speed on the vehicles, do you expect that to possibly increase consumer demand?

To answer all your questions, but first, the cost for ranging the minimum speed from 80 to 100 per hour to a 100 kilometers per hour is not significant due to the increase in [such] value we have been having. But there are quite a bit of foundation work that needs to be done. I think we are very lucky to have these all four models approved. To answer your second question; in China the overall EV industry is growing at a very modest pace, but the competition is still quite intense. I don’t think we’re going to increase the sales to cover the cost of increasing the minimum speed. It’s not realistic to absorb the increase cost by the gross margin in my opinion. The improvement in the gross margin I still think needs to rely on the increase in scale and decreasing the cost to really realize. The third question, I want to clarify that there might be some misunderstanding about raising speed, and increasing the driving range. They are not equally the same thing. We are raising speed doesn’t necessarily mean that it would increase the driving range for the EV; however it improves speed functionality is a very positive to the market. But that necessarily translates to the longer driving range. So just to clarify.

Our next question will come from Frank Latimore, a private investor. Please go ahead.

I’m aware that BAIC has been issued an EV manufacturing license, the first one issued since the hiatus on licenses. That doesn’t surprise me at all, as BAIC is a state-owned enterprise. My question is, has Kandi or the JV or both applied for such a license and is there an expected timeframe when such a license might indeed be granted.

To answer your question, yes the certificate we have been applying the same as BAIC applied. The reason that right now we’re still in the process is because this license required to have 15 vehicles to pass the examination of all the technology and we have already passed that. But in addition to that examination, it also requires 30,000 kilometers testing on the road. And since everyday one vehicle only can run about a 100 to 200 kilometers, so it takes a bit time to have all these 15 vehicles to pass the examination. So please be patient, we will update the market once we have any new progress.

Our next question will come from Harold [Chupuae], a private investor. Please go ahead.

Can you give us an update as to the status of both the Kandi JV and ZZ1 IPO, and also with growing enthusiasm in China by private equity investors for pre-IPO financing of rapidly growing new generation companies, has the JV considered doing such interim financing. Thank you.

This question is very sensitive, I cannot disclose anymore other than, I can inform you that the JV Company is in the process. So till they have any new updates I cannot say anything here. Please understand.

Our next question will come Joe [Climer], a private investor. Please go ahead.

It’s been quite some time since Kandi announced receiving the last JV subsidy payment. On the last conference call, Mr. Hu said due to the nationwide investigation over recovering more subsidy recipient payments would likely be delayed until late second quarter for the 18,000 Kandi EVs sold in the last year’s second half. China media has reported that the order ended and some companies have been publicly (inaudible). Question, now that that has ended, is the payment still expected by the end of the next month?

I think we can be sure the government is still in to the process of this payment issue and their investigation in the first quarter has definitely delayed the payment. But I have the confidence that once they work out the investigation, they are going to make the payment (inaudible), but it’s up to the government schedule, it’s out of our control.

Our next question will come from [Walter Kiln of Cardi & Company. Please go ahead.

In the 10-K there were comments that for our Kandi formally very profitable legacy off-road recreational sales have been winding down. The company was working on new electric powered off-road recreational vehicles, is this been looked at Kandi as a significant revenue source outside the JV, and if so how soon and where will they be sold?

It’s true that we are working on developing the new electric powered off-road vehicle. If it can be accepted by the market it will be additional revenue for us besides the JV, I think. We have so far finished developing arterial vehicle and a three wheeled off-road vehicle. But they are now under testing and we are also trying to collect from some feedback from the users.

Our next question will come from Larry K of [TBiz]. Please go ahead.

Your shareholders were happy to see the change in auditors to the global firm BDO. My question is other than it is the same audit firm used by the JV what was behind this decision and why was BDO selected over the other audit firms, can you addressed as to whether this will help attract analysts and funds?

Upgrading the auditor always has been our agenda. I believe this also what our shareholder want us to do. So after finishing the 10-K for the 2015, we believe it’s the best timing to upgrade the auditors from the previous one. As you all know BDO is very well respected global auditing firm and they are also among the top ranked auditing firm in the United States. I believe BDO’s quality service will benefit the company’s future development and meet the demand for our business growth. Of course to mention again, they are our JV Company’s’ auditors. And to our last question, I believe that having such reputable global auditing firm will definitely help enhance the credibility of our financial reporting and provide both analysts and institutional funds confidence in our company. And ever since that we upgrade BDO; we have had a lot of analyst and funds contacting us to request to visit our factory and meeting with management. So we do believe that’s definitely going to bring a very positive impact to the company.

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Hu for any closing remarks.

Thank you ladies and gentlemen for attending Kandi’s 2016 first quarter earnings call. In closing, please allow me to represent the Board of Directors and the management team at Kandi Technologies Group to reaffirm our commitment, and we’ll continue to work diligently to maximize shareholder value and focusing out on growing our EV business strategically, while delivering strong operational results. Thank you very much for your support. We look forward to talking with you next quarter. If you have any additional questions, please don’t hesitate to contact our Investor Relations or contact the management team directly. Thank you. Good bye.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.