UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
☒ Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For
the quarterly period ended June 30, 2020
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 001-33997
KANDI TECHNOLOGIES GROUP, INC.
(Exact name of registrant as specified in charter)
Delaware |
|
90-0363723 |
(State
or other jurisdiction of |
|
(I.R.S.
Employer |
incorporation
or organization) |
|
Identification
No.) |
|
|
|
Jinhua
City Industrial Zone
Jinhua, Zhejiang Province
People’s Republic of China |
|
321016 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(86 - 579) 82239856
(Registrant’s telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on
which registered |
Common
Stock |
|
KNDI |
|
NASDAQ
Global Select Market |
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 of 1934 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 ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit and
post such
files) Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See definitions of “large
accelerated filer,” “accelerated filer” “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer |
☐ |
Accelerated
filer |
☒ |
Non-accelerated
filer |
☐ |
Smaller
reporting company |
☒ |
|
|
Emerging
growth company |
☐ |
If an
emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of
August 5, 2020, the registrant had 56,521,702 shares of common
stock issued and 54,600,758 shares of common stock outstanding, par
value $0.001 per share.
TABLE
OF CONTENTS
PART I — FINANCIAL INFORMATION
Item
1. Financial Statements.
KANDI
TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
June 30,
2020 |
|
|
December 31,
2019 |
|
|
|
(UNAUDITED) |
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,457,498 |
|
|
$ |
5,490,557 |
|
Restricted cash |
|
|
3,221,053 |
|
|
|
11,022,078 |
|
Accounts receivable (net of allowance
for doubtful accounts of $251,012 and $254,665 as of June 30, 2020
and December 31, 2019, respectively) |
|
|
60,020,455 |
|
|
|
61,181,849 |
|
Inventories |
|
|
28,245,267 |
|
|
|
27,736,566 |
|
Notes receivable |
|
|
-
|
|
|
|
42,487,225 |
|
Other receivables |
|
|
42,661,342 |
|
|
|
5,019,971 |
|
Prepayments and prepaid
expense |
|
|
10,407,572 |
|
|
|
10,615,063 |
|
Amount due from the Affiliate Company,
net |
|
|
20,107,347 |
|
|
|
31,330,763 |
|
Other current assets |
|
|
13,283,400 |
|
|
|
688,364 |
|
TOTAL CURRENT ASSETS |
|
|
181,403,934 |
|
|
|
195,572,436 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM ASSETS |
|
|
|
|
|
|
|
|
Property, plant and equipment,
net |
|
|
69,907,964 |
|
|
|
74,407,858 |
|
Intangible assets |
|
|
3,298,384 |
|
|
|
3,654,772 |
|
Land use rights, net |
|
|
8,765,196 |
|
|
|
11,272,815 |
|
Investment in the Affiliate
Company |
|
|
42,490,448 |
|
|
|
47,228,614 |
|
Goodwill |
|
|
27,962,871 |
|
|
|
28,270,400 |
|
Other long term assets |
|
|
10,529,348 |
|
|
|
10,811,501 |
|
TOTAL Long-Term Assets |
|
|
162,954,211 |
|
|
|
175,645,960 |
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
344,358,145 |
|
|
$ |
371,218,396 |
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
59,656,133 |
|
|
$ |
72,093,940 |
|
Other payables and accrued
expenses |
|
|
4,239,760 |
|
|
|
6,078,041 |
|
Short-term loans |
|
|
- |
|
|
|
25,980,364 |
|
Notes payable |
|
|
2,971,053 |
|
|
|
10,765,344 |
|
Income tax payable |
|
|
2,901,610 |
|
|
|
1,796,601 |
|
Advance receipts |
|
|
18,497,676 |
|
|
|
- |
|
Long term loans - current
portion |
|
|
16,128,576 |
|
|
|
13,779,641 |
|
Other current liability |
|
|
1,421,364 |
|
|
|
1,379,808 |
|
Total Current Liabilities |
|
|
105,816,172 |
|
|
|
131,873,739 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
Long term loans |
|
|
11,712,415 |
|
|
|
14,353,792 |
|
Deferred taxes liability |
|
|
3,448,922 |
|
|
|
1,362,786 |
|
Contingent consideration
liability |
|
|
2,334,000 |
|
|
|
5,197,000 |
|
Other long-term liability |
|
|
565,915 |
|
|
|
574,152 |
|
Total Long-Term
Liabilities |
|
|
18,061,252 |
|
|
|
21,487,730 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
123,877,424 |
|
|
|
153,361,469 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDER’S EQUITY |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value;
100,000,000 shares authorized; 56,273,102 and 56,263,102
shares issued and 54,352,158 and 52,839,441 outstanding at June
30,2020 and December 31,2019, respectively |
|
|
54,352 |
|
|
|
52,839 |
|
Less: Treasury stock (487,155 shares
with average price of $5.09 at June 30,2020 and December 31,2019,
respectively ) |
|
|
(2,477,965 |
) |
|
|
(2,477,965 |
) |
Additional paid-in capital |
|
|
262,878,585 |
|
|
|
259,691,370 |
|
Accumulated deficit (the restricted
portion is $4,422,033 and $4,422,033 at June 30,2020 and December
31,2019, respectively) |
|
|
(14,205,339 |
) |
|
|
(16,685,736 |
) |
Accumulated other comprehensive
loss |
|
|
(25,768,912 |
) |
|
|
(22,723,581 |
) |
TOTAL STOCKHOLDERS’ EQUITY |
|
|
220,480,721 |
|
|
|
217,856,927 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY |
|
$ |
344,358,145 |
|
|
$ |
371,218,396 |
|
See
accompanying notes to condensed consolidated financial
statements
KANDI
TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30,
2020 |
|
|
June 30,
2019 |
|
|
June 30,
2020 |
|
|
June 30,
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES FROM UNRELATED PARTY, NET |
|
$ |
19,436,120 |
|
|
$ |
20,056,696 |
|
|
$ |
25,808,544 |
|
|
$ |
36,391,659 |
|
REVENUES FROM THE AFFILIATE COMPANY AND RELATED PARTY, NET |
|
|
956 |
|
|
|
4,089,534 |
|
|
|
956 |
|
|
|
5,823,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES, NET |
|
|
19,437,076 |
|
|
|
24,146,230 |
|
|
|
25,809,500 |
|
|
|
42,214,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD |
|
|
(15,900,298 |
) |
|
|
(19,944,076 |
) |
|
|
(21,105,463 |
) |
|
|
(34,876,099 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
3,536,778 |
|
|
|
4,202,154 |
|
|
|
4,704,037 |
|
|
|
7,338,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (EXPENSES): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development |
|
|
(1,149,901 |
) |
|
|
(632,590 |
) |
|
|
(1,790,141 |
) |
|
|
(1,170,023 |
) |
Selling
and marketing |
|
|
(763,666 |
) |
|
|
(899,478 |
) |
|
|
(1,641,972 |
) |
|
|
(1,517,481 |
) |
General
and administrative |
|
|
(3,907,191 |
) |
|
|
(5,623,798 |
) |
|
|
(6,973,926 |
) |
|
|
(7,663,326 |
) |
Gain on disposal of long-live asset |
|
|
13,907,574 |
|
|
|
- |
|
|
|
13,907,574 |
|
|
|
- |
|
Total Operating Income (Expenses) |
|
|
8,086,816 |
|
|
|
(7,155,866 |
) |
|
|
3,501,535 |
|
|
|
(10,350,830 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS |
|
|
11,623,594 |
|
|
|
(2,953,712 |
) |
|
|
8,205,572 |
|
|
|
(3,012,239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
|
221,792 |
|
|
|
97,814 |
|
|
|
560,736 |
|
|
|
350,218 |
|
Interest
expense |
|
|
(1,123,056 |
) |
|
|
(429,355 |
) |
|
|
(2,105,990 |
) |
|
|
(868,538 |
) |
Change
in fair value of contingent consideration |
|
|
(929,000 |
) |
|
|
548,000 |
|
|
|
2,863,000 |
|
|
|
637,000 |
|
Government grants |
|
|
86,799 |
|
|
|
175,319 |
|
|
|
97,898 |
|
|
|
223,043 |
|
Gain
from equity dilution in the Affiliate Company |
|
|
-
|
|
|
|
(24,131 |
) |
|
|
- |
|
|
|
4,341,259 |
|
Share of
loss after tax of the Affiliate Company |
|
|
(2,978,529 |
) |
|
|
(4,500,201 |
) |
|
|
(4,081,299 |
) |
|
|
(14,449,359 |
) |
Other income (expenses), net |
|
|
1,043,335 |
|
|
|
(174,597 |
) |
|
|
1,062,985 |
|
|
|
299,793 |
|
Total other expenses, net |
|
|
(3,678,659 |
) |
|
|
(4,307,151 |
) |
|
|
(1,602,670 |
) |
|
|
(9,466,584 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
7,944,935 |
|
|
|
(7,260,863 |
) |
|
|
6,602,902 |
|
|
|
(12,478,823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX (EXPENSE) BENEFIT |
|
|
(3,889,889 |
) |
|
|
(57,295 |
) |
|
|
(4,122,502 |
) |
|
|
751,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
|
4,055,046 |
|
|
|
(7,318,158 |
) |
|
|
2,480,400 |
|
|
|
(11,727,630 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
477,734 |
|
|
|
(4,915,589 |
) |
|
|
(3,045,331 |
) |
|
|
488,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS) |
|
$ |
4,532,780 |
|
|
$ |
(12,233,747 |
) |
|
$ |
(564,931 |
) |
|
$ |
(11,239,191 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING BASIC |
|
|
53,369,602 |
|
|
|
52,806,331 |
|
|
|
52,862,043 |
|
|
|
52,189,237 |
|
WEIGHTED AVERAGE
SHARES OUTSTANDING DILUTED |
|
|
53,369,602 |
|
|
|
52,806,331 |
|
|
|
52,862,043 |
|
|
|
52,189,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER SHARE, BASIC |
|
$ |
0.08 |
|
|
$ |
(0.14 |
) |
|
$ |
0.05 |
|
|
$ |
(0.22 |
) |
NET
INCOME (LOSS) PER SHARE, DILUTED |
|
$ |
0.08 |
|
|
$ |
(0.14 |
) |
|
$ |
0.05 |
|
|
$ |
(0.22 |
) |
See
accompanying notes to condensed consolidated financial
statements
KANDI
TECHNOLOGIES GROUP, INC.
AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
|
|
Number of Outstanding Shares |
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Additional Paid-in Capital |
|
|
Accumulated Deficit |
|
|
Accumulated Other Comprehensive Income |
|
|
Total |
|
Balance, December 31, 2018 |
|
|
51,484,444 |
|
|
$ |
51,484 |
|
|
$ |
-
|
|
|
$ |
254,989,657 |
|
|
$ |
(9,497,009 |
) |
|
$ |
(19,921,258 |
) |
|
$ |
225,622,874 |
|
Stock issuance and award |
|
|
1,096,397 |
|
|
|
1,097 |
|
|
|
-
|
|
|
|
3,387,379 |
|
|
|
-
|
|
|
|
-
|
|
|
|
3,388,476 |
|
Net income (loss) |
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,409,472 |
) |
|
|
-
|
|
|
|
(4,409,472 |
) |
Foreign currency translation |
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,404,028 |
|
|
|
5,404,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019 |
|
|
52,580,841 |
|
|
$ |
52,581 |
|
|
$ |
-
|
|
|
$ |
258,377,036 |
|
|
$ |
(13,906,481 |
) |
|
$ |
(14,517,230 |
) |
|
$ |
230,005,906 |
|
Stock issuance and award |
|
|
238,600 |
|
|
|
238 |
|
|
|
|
|
|
|
1,259,569 |
|
|
|
|
|
|
|
|
|
|
|
1,259,807 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,318,158 |
) |
|
|
|
|
|
|
(7,318,158 |
) |
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,915,589 |
) |
|
|
(4,915,589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019 |
|
|
52,819,441 |
|
|
|
52,819 |
|
|
|
-
|
|
|
|
259,636,605 |
|
|
|
(21,224,639 |
) |
|
|
(19,432,819 |
) |
|
|
219,031,966 |
|
|
|
Number of Outstanding Shares |
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Additional Paid-in Capital |
|
|
Accumulated Deficit |
|
|
Accumulated Other Comprehensive Income |
|
|
Total |
|
Balance, December 31, 2019 |
|
|
52,839,441 |
|
|
$ |
52,839 |
|
|
$ |
(2,477,965 |
) |
|
$ |
259,691,370 |
|
|
$ |
(16,685,736 |
) |
|
$ |
(22,723,581 |
) |
|
$ |
217,856,927 |
|
Stock issuance and award |
|
|
10,000 |
|
|
|
10 |
|
|
|
-
|
|
|
|
22,290 |
|
|
|
-
|
|
|
|
-
|
|
|
|
22,300 |
|
Net income (loss) |
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,574,646 |
) |
|
|
-
|
|
|
|
(1,574,646 |
) |
Foreign currency translation |
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,523,065 |
) |
|
|
(3,523,065 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020 |
|
|
52,849,441 |
|
|
$ |
52,849 |
|
|
$ |
(2,477,965 |
) |
|
$ |
259,713,660 |
|
|
$ |
(18,260,382 |
) |
|
$ |
(26,246,646 |
) |
|
$ |
212,781,516 |
|
Stock issuance and award |
|
|
1,502,717 |
|
|
|
1,503 |
|
|
|
-
|
|
|
|
3,164,925 |
|
|
|
-
|
|
|
|
-
|
|
|
|
3,166,428 |
|
Net income (loss) |
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,055,043 |
|
|
|
-
|
|
|
|
4,055,043 |
|
Foreign currency translation |
|
|
- |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
477,734 |
|
|
|
477,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020 |
|
|
54,352,158 |
|
|
|
54,352 |
|
|
|
(2,477,965 |
) |
|
|
262,878,585 |
|
|
|
(14,205,339 |
) |
|
|
(25,768,912 |
) |
|
|
220,480,721 |
|
See
accompanying notes to condensed consolidated financial
statements.
KANDI
TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
June 30,
2020 |
|
|
June 30,
2019 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,480,400 |
|
|
$ |
(11,727,630 |
) |
Adjustments to reconcile net income to net cash provided by
operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
4,022,676 |
|
|
|
4,376,097 |
|
Impairments |
|
|
(148,054 |
) |
|
|
59,799 |
|
Allowance for doubtful accounts |
|
|
-
|
|
|
|
15,543 |
|
Deferred taxes |
|
|
2,089,505 |
|
|
|
51,275 |
|
Share of loss after tax of the Affiliate Company |
|
|
4,081,299 |
|
|
|
14,449,359 |
|
Gain from equity dilution in the Affiliate Company |
|
|
-
|
|
|
|
(4,341,259 |
) |
Gain on disposal of long-live asset |
|
|
(13,907,574 |
) |
|
|
- |
|
Change in fair value of contingent consideration |
|
|
(2,863,000 |
) |
|
|
(637,000 |
) |
Stock compensation cost |
|
|
847,546 |
|
|
|
1,314,408 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) Decrease In: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(1,431,388 |
) |
|
|
(16,560,338 |
) |
Notes receivable |
|
|
-
|
|
|
|
250,593 |
|
Notes receivable from the Affiliate Company and related party |
|
|
-
|
|
|
|
442,223 |
|
Inventories |
|
|
(743,483 |
) |
|
|
(7,093,904 |
) |
Other receivables and other assets |
|
|
(11,248,701 |
) |
|
|
(6,258,341 |
) |
Advances to supplier and prepayments and prepaid expenses |
|
|
(12,586,777 |
) |
|
|
708,825 |
|
Amount due from the Affiliate Company |
|
|
4,129,516 |
|
|
|
(4,128,506 |
) |
|
|
|
|
|
|
|
|
|
Increase (Decrease) In: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(282,560 |
) |
|
|
387,505 |
|
Other payables and accrued liabilities |
|
|
736,715 |
|
|
|
7,868,402 |
|
Notes payable |
|
|
(10,664,922 |
) |
|
|
(10,161,233 |
) |
Income tax payable |
|
|
1,161,312 |
|
|
|
(2,134,722 |
) |
Net cash used in by operating activities |
|
$ |
(34,327,490 |
) |
|
$ |
(33,118,904 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment, net |
|
|
(59,670 |
) |
|
|
(512,707 |
) |
Proceeds from disposal of long-live asset
|
|
|
34,696,547 |
|
|
|
- |
|
Cash received from equity sale in the Affiliate Company |
|
|
15,641,886 |
|
|
|
-
|
|
Advance receipts of equity transfer |
|
|
- |
|
|
|
14,740,783 |
|
Net cash provided by investing activities |
|
$ |
50,278,763 |
|
|
$ |
14,228,076 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from short-term loans |
|
|
24,031,625 |
|
|
|
17,541,532 |
|
Repayments of short-term loans |
|
|
(49,769,638 |
) |
|
|
(15,920,046 |
) |
Proceeds from long-term loans |
|
|
394,116 |
|
|
|
- |
|
Repayments of long-term loans |
|
|
(284,398 |
) |
|
|
(147,408 |
) |
Net cash (used in) provided by financing activities |
|
$ |
(25,628,295 |
) |
|
$ |
1,474,078 |
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
(9,677,022 |
) |
|
|
(17,416,750 |
) |
Effect of exchange rate changes on cash |
|
|
(157,062 |
) |
|
|
246,604 |
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF
YEAR |
|
|
16,512,635 |
|
|
|
22,353,071 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
|
|
6,678,551 |
|
|
|
5,182,925 |
|
-CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
|
3,457,498 |
|
|
|
3,608,933 |
|
-RESTRICTED CASH AT END OF PERIOD |
|
|
3,221,053 |
|
|
|
1,573,992 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Income taxes paid |
|
|
870,082 |
|
|
|
1,199,807 |
|
Interest paid |
|
|
641,213 |
|
|
|
868,538 |
|
See
accompanying notes to condensed consolidated financial
statements
NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES
Kandi
Technologies Group, Inc. (“Kandi Technologies”) was incorporated
under the laws of the State of Delaware on March 31, 2004. As used
herein, the terms “Company” or “Kandi” refer to Kandi Technologies
and its operating subsidiaries, as described below.
Headquartered
in Jinhua City, Zhejiang Province, People’s Republic of China
(“China” or “PRC”), the Company is one of China’s leading producers
and manufacturers of electric vehicle (“EV”) products (through the
Affiliate Company, formerly defined as the JV Company), EV parts,
and off-road vehicles for sale in the Chinese and the global
markets. The Company conducts its primary business operations
through its wholly-owned subsidiaries, Zhejiang Kandi Vehicles Co.,
Ltd. (“Kandi Vehicles”), Kandi Vehicles’ wholly and partially-owned
subsidiaries, and SC Autosports LLC (“SC Autosports”, d/b/a Kandi
America).
The
Company’s organizational chart as of the date of this report is as
follows:
In
June 2020, Jinhua An Kao Power Technology Co., Ltd. changed its
name to Zhejiang Kandi Smart Battery Swap Technology Co., Ltd
(“Kandi Smart Battery Swap”).
The
Company’s original primary business operations consist of
designing, developing, manufacturing and commercializing EV
products (through Kandi Electric Vehicles (Hainan) Co., Ltd. and
the Affiliate Company), EV parts and off-road vehicles. The
COVID-19 outbreak has seriously impacted the EV market in 2020. As
a result, the Company plans to manufacture and sell a number of
ancillary products aimed at the dynamic power train system of
intelligent transportation. For example, the dynamic power train
system of Electric Scooters and Electric Self-Balancing Vehicles.
The Company is pursuing these opportunities by expanding production
of intelligent transportation products that exploit its advantages
in the Yongkang Scrou Electric Co, Ltd.’s power electric motor and
Kandi Smart Battery Swap’s power battery pack. The products aimed
at this market combine the Company’s motors and battery packs into
a dynamic power train system. As part of its strategic objective of
becoming a leading manufacturer of EV products (through the
Affiliate Company) and related services, in the future, the Company
will increase its focus on pure EV-related products and intelligent
transportation dynamic power train system, and is actively pursuing
expansion in the domestic and foreign markets.
NOTE 2 - LIQUIDITY
The
Company had working capital of $75,587,762 as of June 30, 2020, an
increase of $11,889,065 from the working capital of $63,698,697 as
of December 31, 2019. As of June 30, 2020 and December 31, 2019,
the Company’s cash and cash equivalents were $3,457,498 and
$5,490,557, respectively. The Company’s restricted cash was
$3,221,053 and $11,022,078, respectively.
After
two years of negotiations, on March 10, 2020, a real estate
repurchase agreement (the “Repurchase Agreement”) was entered into
by and between Kandi Vehicles and Jinhua Economic and Technological
Development Zone pursuant to which the local government shall
purchase the land use right over the land of 66 acres (400 mu,
265,029 square meters) that is owned by Kandi Vehicles for RMB 525
million ($74 million). Payments to Kandi Vehicles shall be made in
three installments as the Company disclosed in a Current Report on
Form 8-K filed with the SEC on March 9, 2020. In addition, if Kandi
Vehicles achieves certain milestones that contribute to local
economic development, the Company will be eligible for tax rebates
totaling up to RMB 500 million ($71 million) over the next eight
years. On May 22, 2020, the Company received the first payment of
RMB 244 million (approximately $35 million) under the Repurchase
Agreement. On July 9, 2020, the Company received the second payment
of RMB 119 million (approximately $17 million) under the Repurchase
Agreement. The final payment of RMB 162 million ($22.9 million)
will be received when the Company vacates the land, factory
buildings, and other real estate and moved to the new facility.
Kandi Vehicles intends to use a portion of the proceeds from the
land repurchase (approximately RMB 130 million, or $18.4 million)
to fund the land use acquisition and factory construction in the
New Energy Automotive Zone, and use the rest portion to fund growth
initiatives and for general corporate purposes. Although the
Company expects that most of its outstanding trade receivables from
customers will be collected in the next twelve months, there are
uncertainties with respect to the timing in collecting these
receivables, especially the receivables due from the Affiliate
Company, because most of them are indirectly impacted by the
progress of the receipt of government subsidies.
The Company’s primary need for liquidity stems from its need to
fund working capital requirements of the Company’s businesses, its
capital expenditures and its general operations, including debt
repayment. The Company has historically financed its operations
through short-term commercial bank loans from Chinese banks, as
well as its ongoing operating activities by using funds from
operations, external credit or financing arrangements. Although the
Company has paid off all the short-term bank loans as of June 30,
2020, it still retains the credit line, which can be used at any
time when the Company has special needs. In addition, the Company
received the remaining RMB186 million (approximately $26.3 million)
equity transfer payment from Geely in July, 2020. The management
believes that the Company currently has sufficient working capital
to support its ongoing operations for the next twelve
months.
NOTE
3 - BASIS OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”)
for interim information, and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X promulgated by the Securities and
Exchange Commission (“SEC”). Accordingly, they do not include all
of the information and notes required by U.S. GAAP for annual
financial statements. In the management’s opinion, the interim
financial statements reflect all normal adjustments that are
necessary to provide a fair presentation of the financial results
for the interim periods presented. Operating results for interim
periods are not necessarily indicative of results that may be
expected for an entire fiscal year. The condensed consolidated
balance sheet as of December 31, 2019 has been derived from the
audited consolidated financial statements as of such date. For a
more complete understanding of the Company’s business, financial
position, operating results, cash flows, risk factors and other
matters, please refer to its Annual Report on Form 10-K for the
fiscal year ended December 31, 2019 (the “2019 Form
10-K”).
Beginning in 2020, a strain of new coronavirus (“COVID-19”) has
spread globally and at this point, the extent to which the COVID-19
may impact operations of the Company is uncertain. The extent of
the impact of the COVID-19 on the Company's business and operations
will depend on several factors, such as the duration, severity, and
geographic spread of the pandemic, development of the testing and
treatment and stimulus measures of the government. The Company is
monitoring and assessing the evolving situation closely and
evaluating its potential exposure. The operating results for the
six months ended June 30, 2020 may not be indicative of the future
operating results for the fiscal year ending December 31, 2020
or other future periods, particularly in light of the uncertain
impact COVID-19 could have on the Company's business.
NOTE
4 - PRINCIPLES OF CONSOLIDATION
The
Company’s consolidated financial statements reflect the accounts of
the Company and its ownership interests in the following
subsidiaries:
(1) |
Continental
Development Limited (“Continental”), a wholly-owned subsidiary of
the Company, incorporated under the laws of Hong Kong; |
(2) |
Kandi
Vehicles, a wholly-owned subsidiary of Continental, incorporated
under the laws of the PRC; |
(3) |
Kandi
New Energy Vehicle Co. Ltd. (“Kandi New Energy”), a 50%-owned
subsidiary of Kandi Vehicles (Mr. Hu Xiaoming owns the other 50%),
incorporated under the laws of the PRC. Pursuant to agreements
executed in January 2011, Mr. Hu Xiaoming contracted with Kandi
Vehicles for the operation and management of Kandi New Energy and
put his shares of Kandi New Energy into escrow. As a result, Kandi
Vehicles is entitled to 100% of the economic benefits, voting
rights and residual interests of Kandi New Energy; |
(4) |
Yongkang
Scrou Electric Co, Ltd. (“Yongkang Scrou”), a wholly-owned
subsidiary of Kandi Vehicles, incorporated under the laws of the
PRC; |
(5) |
Kandi
Electric Vehicles (Hainan) Co., Ltd. (“Kandi Hainan”), a
subsidiary, 10% owned by Kandi New Energy and 90% owned by Kandi
Vehicles, incorporated under the laws of the PRC; and |
(6) |
Zhejiang
Kandi Smart Battery Swap Technology Co., Ltd (“Kandi Smart Battery
Swap”), a wholly-owned subsidiary of Kandi Vehicles, incorporated
under the laws of the PRC. |
(7) |
SC
Autosports, a wholly-owned subsidiary of the Company formed under
the laws of the State of Texas. |
Equity
Method Investees
The
Company’s consolidated net income also includes the Company’s
proportionate share of the net income or loss of its equity method
investees as follows:
The
Affiliate Company, a 22% owned subsidiary of Kandi
Vehicles
All
intra-entity profits and losses with regard to the Company’s equity
method investees have been eliminated.
NOTE
5 - USE OF ESTIMATES
The
preparation of financial statements in conformity with U.S. GAAP
requires the Company’s management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of
revenue and expenses during the reporting period. Management makes
these estimates using the best information available at the time
the estimates are made; however actual results when ultimately
realized could differ from those estimates.
NOTE
6 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our
significant accounting policies are detailed in “Note 6 - Summary
of Significant Accounting Policies” of the Company 2019 Form 10-K,
excepting the following.
(v)
Reclassification
Certain
reclassifications have been made to the condensed consolidated
statements of cash flows for six months ended June 30, 2019 to
conform to the presentation of consolidated financial statement for
six months ended June 30, 2020. The Company reclassified the
following 1) grouping due from employees into other receivables and
other assets; 2) grouping customer deposits and deferred income
into other payables and accrued liabilities.
NOTE
7 - NEW ACCOUNTING PRONOUNCEMENTS
In
February 2018, the FASB released ASU 2018-2, “Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income.”
This standard update addresses a specific consequence of the Tax
Cuts and Jobs Act (the “Tax Act”) and allows a reclassification
from accumulated other comprehensive income to retained earnings
for the stranded tax effects resulting from the Tax Act.
Consequently, the update eliminates the stranded tax effects that
were created as a result of the historical U.S. federal corporate
income tax rate to the newly enacted U.S. federal corporate income
tax rate. The Company is required to adopt this standard in the
first quarter of fiscal year 2020, with early adoption permitted.
The amendments in this update should be applied either in the
period of adoption or retrospectively to each period in which the
effect of the change in the U.S. federal corporate income tax rate
in the Tax Cuts and Jobs Act is recognized. The Company adopted
this ASU in the first quarter of 2020 and the new standard did not
have a material impact on the consolidated financial
statements.
In
August 2018, the FASB issued ASU 2018-13 Disclosure Framework
— Changes to the Disclosure Requirements for Fair Value
Measurement, which eliminates, adds, and modifies certain
disclosure requirements for fair value measurements under ASC 820.
This ASU is to be applied on a prospective basis for certain
modified or new disclosure requirements, and all other amendments
in the standard are to be applied on a retrospective basis. The new
standard is effective for interim and annual periods beginning
after December 15, 2019, with early adoption permitted. The Company
adopted this ASU in the first quarter of 2020 and the new standard
did not have a material impact on the consolidated financial
statements.
In January 2020, the FASB issued ASU 2020-01, Investments—Equity
Securities, Investments—Equity Method and Joint Ventures, and
Derivatives and Hedging, which clarifies the interaction of the
accounting for equity securities under Topic 321, the accounting
for equity method investments in Topic 323, and the accounting for
certain forward contracts and purchased options in Topic 815. This
guidance will be effective in the first quarter of 2021 on a
prospective basis, with early adoption permitted. The Company is
currently evaluating the impact of the new guidance and do not
expect the adoption of this guidance will have a material impact on
the consolidated financial statements.
NOTE 8 - CONCENTRATIONS
(a) Customers
For
the three-month period ended June 30, 2020, the Company’s major
customers, each of whom accounted for more than 10% of the
Company’s consolidated revenue, were as follows:
|
|
Sales |
|
|
Trade Receivable |
|
Major Customers |
|
Three Months
Ended
June 30,
2020 |
|
|
Three Months
Ended
June 30,
2019 |
|
|
June 30,
2020 |
|
|
December 31,
2019 |
|
Customer A |
|
|
57 |
% |
|
|
36 |
% |
|
|
66 |
% |
|
|
55 |
% |
Customer B |
|
|
15 |
% |
|
|
27 |
% |
|
|
6 |
% |
|
|
5 |
% |
For
the six-month period ended June 30, 2020, the Company’s major
customers, each of whom accounted for more than 10% of the
Company’s consolidated revenue, were as follows:
|
|
Sales |
|
|
Trade Receivable |
|
Major Customers |
|
Six Months
Ended
June
30,
2020 |
|
|
Six Months
Ended
June
30,
2019 |
|
|
June 30,
2020 |
|
|
December
31,
2019 |
|
Customer A |
|
|
51 |
% |
|
|
47 |
% |
|
|
66 |
% |
|
|
55 |
% |
Customer B |
|
|
15 |
% |
|
|
18 |
% |
|
|
6 |
% |
|
|
5 |
% |
(b) Suppliers
For
the three-month period ended June 30, 2020, the Company’s material
suppliers, each of whom accounted for more than 10% of the
Company’s total purchases, were as follows:
|
|
Purchases |
|
|
Accounts Payable |
|
Major Suppliers |
|
Three Months
Ended
June
30,
2020 |
|
|
Three Months
Ended
June
30,
2019 |
|
|
June
30,
2020 |
|
|
December 31,
2019 |
|
Zhejiang Kandi Supply Chain Management Co., Ltd. |
|
|
59 |
% |
|
|
69 |
% |
|
|
13 |
% |
|
|
8 |
% |
Supplier C |
|
|
24 |
% |
|
|
13 |
% |
|
|
-
|
|
|
|
-
|
|
For
the six-month period ended June 30, 2020, the Company’s material
suppliers, each of whom accounted for more than 10% of the
Company’s total purchases, were as follows:
|
|
Purchases |
|
|
Accounts Payable |
|
Major Suppliers |
|
Six Months
Ended
June
30,
2020 |
|
|
Six Months
Ended
June
30,
2019 |
|
|
June
30,
2020 |
|
|
December 31,
2019 |
|
Zhejiang Kandi Supply Chain Management Co., Ltd. |
|
|
59 |
% |
|
|
48 |
% |
|
|
13 |
% |
|
|
8 |
% |
Supplier C |
|
|
25 |
% |
|
|
15 |
% |
|
|
-
|
|
|
|
-
|
|
NOTE 9 - EARNINGS (LOSS) PER SHARE
The
Company calculates earnings per share in accordance with ASC 260,
Earnings Per Share, which requires a dual presentation of basic and
diluted earnings per share. Basic earnings per share are computed
using the weighted average number of shares outstanding during the
reporting period. Diluted earnings per share represents basic
earnings per share adjusted to include the potentially dilutive
effect of outstanding stock options and warrants (using treasury
stock method). Due to the average market price of the common stock
during the period below the exercise price of the options and due
to the loss from operations, approximately 3,900,000 options were
excluded from the calculation of diluted net loss per share, for
the three-month and six-month period ended June 30,
2020.
The
following is the calculation of earnings per share for the
three-month and six-month periods ended June 30, 2020 and
2019:
|
|
For three months ended |
|
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
Net income (loss) |
|
$ |
4,055,046 |
|
|
$ |
(7,318,158 |
) |
Weighted average shares used in basic computation |
|
|
53,369,602 |
|
|
|
52,806,331 |
|
Dilutive shares |
|
|
- |
|
|
|
- |
|
Weighted average shares used in diluted computation |
|
|
53,369,602 |
|
|
|
52,806,331 |
|
Income
(loss) per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.08 |
|
|
$ |
(0.14 |
) |
Diluted |
|
$ |
0.08 |
|
|
$ |
(0.14 |
) |
|
|
For six months ended |
|
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
Net income (loss) |
|
$ |
2,480,400 |
|
|
$ |
(11,727,630 |
) |
Weighted average shares used in basic computation |
|
|
52,862,043 |
|
|
|
52,189,237 |
|
Dilutive shares |
|
|
- |
|
|
|
- |
|
Weighted average shares used in diluted computation |
|
|
52,862,043 |
|
|
|
52,189,237 |
|
Income
(loss) per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.05 |
|
|
$ |
(0.22 |
) |
Diluted |
|
$ |
0.05 |
|
|
$ |
(0.22 |
) |
NOTE 10 - ACCOUNTS RECEIVABLE
Accounts
receivable are summarized as follows:
|
|
June 30, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
Accounts receivable |
|
$ |
60,271,467 |
|
|
$ |
61,436,514 |
|
Less: allowance for doubtful accounts |
|
|
(251,012 |
) |
|
|
(254,665 |
) |
Accounts receivable, net |
|
$ |
60,020,455 |
|
|
$ |
61,181,849 |
|
NOTE 11 - INVENTORIES
Inventories
are summarized as follows:
|
|
June 30, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
Raw material |
|
$ |
10,022,590 |
|
|
$ |
12,127,957 |
|
Work-in-progress |
|
|
11,369,771 |
|
|
|
4,545,736 |
|
Finished goods |
|
|
6,852,906 |
|
|
|
11,062,873 |
|
Inventories |
|
$ |
28,245,267 |
|
|
$ |
27,736,566 |
|
NOTE 12 - NOTES RECEIVABLE
As of
June 30, 2020, there was $0 notes receivable from unrelated
parties. As of December 31, 2019, there was $42,487,225 notes
receivable from unrelated parties, which was commercial acceptance
notes from payments for equity transfer of the Affiliate Company ,
among which $15,562,661 had been collected during first half of
2020 and the rest were considered as other receivables (refer to
Note 22-summarized information of equity method investment in the
Affiliate Company).
NOTE 13 - OTHER RECEIVABLES
Other
receivables consist of the following:
|
|
June 30, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
Amount due from unrelated party for equity transfer of the
Affiliate company |
|
$ |
26,315,045 |
|
|
$ |
-
|
|
Loan
to third party |
|
|
13,726,757 |
|
|
|
3,577,145 |
|
Others |
|
|
2,619,540 |
|
|
|
1,442,826 |
|
Total other receivables |
|
$ |
42,661,342 |
|
|
$ |
5,019,971 |
|
As of
June 30, 2020, the Company’s other receivable includes $26,315,045
amount due from unrelated party for equity transfer of the
Affiliate Company (refer to Note 22-summarized information of
equity method investment in the Affiliate Company). As of June 30,
2020 and December 31, 2019, the Company’s other receivable includes
$13,726,757 and $3,577,145 short-term loan lent to an unrelated
party with a 6% annual interest rate to maximize the use of idled
cash. This loan can be redeemed at any time.
NOTE
14 - PROPERTY, PLANT AND EQUIPMENT, NET
Property,
plants and equipment as of June 30, 2020 and December 31, 2019,
consisted of the following:
|
|
June 30, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
At
cost: |
|
|
|
|
|
|
Buildings |
|
$ |
30,017,395 |
|
|
$ |
30,447,480 |
|
Machinery and equipment |
|
|
62,128,182 |
|
|
|
62,973,794 |
|
Office
equipment |
|
|
1,041,911 |
|
|
|
1,048,651 |
|
Motor
vehicles and other transport equipment |
|
|
412,260 |
|
|
|
413,046 |
|
Molds and others |
|
|
25,467,098 |
|
|
|
25,836,241 |
|
|
|
|
119,066,846 |
|
|
|
120,719,212 |
|
Less :
Accumulated depreciation |
|
|
|
|
|
|
|
|
Buildings |
|
$ |
(6,396,987 |
) |
|
$ |
(5,975,030 |
) |
Machinery and equipment |
|
|
(16,735,598 |
) |
|
|
(14,127,506 |
) |
Office
equipment |
|
|
(611,384 |
) |
|
|
(537,829 |
) |
Motor
vehicles and other transport equipment |
|
|
(369,453 |
) |
|
|
(360,098 |
) |
Molds and others |
|
|
(25,045,460 |
) |
|
|
(25,310,891 |
) |
|
|
|
(49,158,882 |
) |
|
|
(46,311,354 |
) |
Property, plant and equipment, net |
|
$ |
69,907,964 |
|
|
$ |
74,407,858 |
|
As of
June 30, 2020 and December 31, 2019, the net book value of
property, plant and equipment pledged as collateral for the
Company’s bank loans totaled $0 and $6,484,497, respectively. Also
see Note 17.
Depreciation
expenses for the three months ended June 30, 2020 and 2019 were
$1,750,013 and $1,876,569, respectively. Depreciation expenses for
the six months ended June 30, 2020 and 2019 were $3,530,165 and
$3,892,028, respectively.
NOTE
15 - INTANGIBLE ASSETS
Intangible
assets include acquired other intangibles of trade name, customer
relations and patent recorded at estimated fair values in
accordance with purchase accounting guidelines for
acquisitions.
The
following table provides the gross carrying value and accumulated
amortization for each major class of our intangible assets, other
than goodwill:
|
|
Remaining |
|
June 30, |
|
|
December 31, |
|
|
|
useful life |
|
2020 |
|
|
2019 |
|
Gross
carrying amount: |
|
|
|
|
|
|
|
|
Trade
name |
|
1.5
years |
|
$ |
492,235 |
|
|
$ |
492,235 |
|
Customer
relations |
|
1.5
years |
|
|
304,086 |
|
|
|
304,086 |
|
Patent |
|
5-6.67
years |
|
|
4,499,024 |
|
|
|
4,564,506.00 |
|
|
|
|
|
|
5,295,345 |
|
|
|
5,360,827 |
|
Less :
Accumulated amortization |
|
|
|
|
|
|
|
|
|
|
Trade
name |
|
|
|
$ |
(414,426 |
) |
|
$ |
(389,053 |
) |
Customer
relations |
|
|
|
|
(256,017 |
) |
|
|
(240,342 |
) |
Patent |
|
|
|
|
(1,326,518 |
) |
|
|
(1,076,660 |
) |
|
|
|
|
|
(1,996,961 |
) |
|
|
(1,706,055 |
) |
Intangible
assets, net |
|
|
|
$ |
3,298,384 |
|
|
$ |
3,654,772 |
|
The
aggregate amortization expenses for those intangible assets were $
152,846 and $157,967 for the three months ended June 30, 2020 and
2019, respectively. The aggregate amortization expenses for those
intangible assets were $307,702 and $317,470 for the six months
ended June 30, 2020 and 2019, respectively.
Amortization
expenses for the next five years and thereafter are as
follows:
2020 (Six months) |
|
$ |
307,702 |
|
2021 |
|
|
615,403 |
|
2022 |
|
|
536,044 |
|
2023 |
|
|
533,308 |
|
2024 |
|
|
533,308 |
|
Thereafter |
|
|
772,619 |
|
Total |
|
$ |
3,298,384 |
|
NOTE
16 - LAND USE RIGHTS, NET
The
Company’s land use rights consist of the following:
|
|
June 30, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
Cost of land use rights |
|
$ |
11,531,218 |
|
|
$ |
14,731,847 |
|
Less: Accumulated amortization |
|
|
(2,766,022 |
) |
|
|
(3,459,032 |
) |
Land use rights, net |
|
$ |
8,765,196 |
|
|
$ |
11,272,815 |
|
During June 2020, $2.2 million of land use rights was returned to
the government as the Company began to perform its obligations
under the Repurchase Agreement.
As of
June 30, 2020 and December 31, 2019, the net book value of land use
rights pledged as collateral for the Company’s bank loans was $0
and $4,937,138, respectively. Also see Note 17.
The
amortization expenses for the three months ended June 30, 2020 and
2019, were $79,751 and $82,837, respectively. The amortization
expenses for the six months ended June 30, 2020 and 2019, were
$160,712 and $166,599, respectively. Amortization expenses for the
next five years and thereafter is as follows:
2020 (Six months) |
|
$ |
160,712 |
|
2021 |
|
|
321,424 |
|
2022 |
|
|
321,424 |
|
2023 |
|
|
321,424 |
|
2024 |
|
|
321,424 |
|
Thereafter |
|
|
7,318,788 |
|
Total |
|
$ |
8,765,196 |
|
NOTE
17 - SHORT-TERM AND LONG-TERM LOANS
Short-term
loans are summarized as follows:
|
|
June 30, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
Bank A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate 5.66% per annum, paid off on May 22, 2020, secured by
the assets of Kandi Vehicle, also guaranteed by
company’s subsidiaries. Also see Note 14 and Note 16. |
|
|
-
|
|
|
|
7,004,650 |
|
|
|
|
|
|
|
|
|
|
Interest rate 5.66% per annum, paid off on May 22, 2020,secured by
the assets of Kandi Vehicle, also guaranteed by
company’s subsidiaries. Also see Note 14 and Note 16. |
|
|
-
|
|
|
|
4,621,921 |
|
Bank B |
|
|
|
|
|
|
|
|
Interest rate 5.22% per annum, paid off on April 22, 2020, secured
by the assets of Kandi Vehicle. Also see Note 14 and
Note 16. |
|
|
-
|
|
|
|
5,741,517 |
|
Interest rate 5.22% per annum, paid off on April 24, 2020, secured
by the assets of Kandi Vehicle. Also see Note 14 and
Note 16. |
|
|
-
|
|
|
|
4,306,138 |
|
Interest rate 5.22% per annum, paid off on April 26, 2020, secured
by the assets of Kandi Vehicle. Also see Note 14 and
Note 16. |
|
|
-
|
|
|
|
4,306,138 |
|
|
|
$ |
-
|
|
|
$ |
25,980,364 |
|
Long-term
loans are summarized as follows:
|
|
June 30, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
Long term bank loans: |
|
$ |
|
|
|
|
|
|
Bank C |
|
|
|
|
|
|
|
|
Interest rate 7% per annum, due on December 12, 2021, guaranteed by
the Company’s subsidiaries. |
|
|
27,446,875 |
|
|
|
28,133,433 |
|
Other long term loans: |
|
|
|
|
|
|
|
|
Loan under Paycheck Protection Program① |
|
|
244,116 |
|
|
|
-
|
|
Economic Injury Disaster Loan ② |
|
|
150,000 |
|
|
|
-
|
|
Long term loans - current and noncurrent portion |
|
$ |
27,840,991 |
|
|
|
28,133,433 |
|
① |
The
Coronavirus Aid, Relief, and Economic Security Act, or CARES Act,
was signed into law on March 27, 2020, and provides over $2.0
trillion in emergency economic relief to individuals and businesses
impacted by the COVID-19 pandemic. The CARES Act authorized the
Small Business Administration (“SBA”) to temporarily guarantee
loans under a new 7(a) loan program called the Paycheck Protection
Program (“PPP”). An eligible business can apply for a PPP loan up
to the greater of: (1) 2.5 times its average monthly “payroll
costs;” or (2) $10.0 million. PPP loans will have: (a) an interest
rate of 1.0%, (b) a two-year loan term to maturity; and (c)
principal and interest payments deferred for six months from the
date of disbursement. The SBA will guarantee 100% of the PPP loans
made to eligible borrowers. The entire principal amount of the
borrower’s PPP loan, including any accrued interest, is eligible to
be reduced by the loan forgiveness amount under the PPP so long as
employee and compensation levels of the business are maintained and
75% of the loan proceeds are used for payroll expenses, with the
remaining 25% of the loan proceeds used for other qualifying
expenses. As of June 30, 2020, we had received $244,116 under the
PPP. |
② |
In
addition, Economic Injury Disaster Loans (“EIDL”) through the SBA
was also made available under the CARES Act passed by Congress in
response to the COVID-19 pandemic. During June 2020, $150,000 of
EIDL loan was approved with the term of a 3.75% rate over 30 years,
and a 12-month deferment on the first repayment of principal with
interest accrued during deferment. |
The
interest expenses of short-term and long-term loans for the three
months ended June 30, 2020 and 2019 were $748,269 and $429,355,
respectively. The interest expenses of short-term and long-term
loans for the six months ended June 30, 2020 and 2019 were
$1,590,317 and $868,538, respectively.
As of
June 30, 2020, the aggregate amount of short-term and long-term
loans guaranteed by various third parties was $0.
NOTE
18 - TAXES
(a)
Corporation Income Tax
Pursuant
to the tax laws and regulations of the PRC, the Company’s
applicable corporate income tax (“CIT”) rate is 25%. However, Kandi
Vehicles and Kandi Smart Battery Swap qualify as High and New
Technology Enterprise (“HNTE”) companies in the PRC, and are
entitled to pay a reduced income tax rate of 15% for the years
presented. A HNTE Certificate is valid for three years. An entity
may re-apply for an HNTE certificate when the prior certificate
expires. Historically, Kandi Vehicles has successfully re-applied
for such certificates when the its prior certificates expired.
Kandi Smart Battery Swap has been qualified as HNTE since 2018.
Therefore no records for renewal are available. The applicable CIT
rate of each of the Company’s three other subsidiaries, Kandi New
Energy, Yongkang Scrou and Kandi Hainan, the Affiliate Company and
its subsidiaries is 25%.
The
Company’s tax provision or benefit from income taxes for interim
periods is determined using an estimate of its annual effective tax
rate, adjusted for discrete items, if any, that are taken into
account in the relevant period. Each quarter the Company updates
its estimate of the annual effective tax rate, and if its estimated
tax rate changes, the management makes a cumulative adjustment. For
2019, the management estimates that its effective tax rate will be
favorably affected by non-taxable income such as the share of
income of the Affiliate Company and the gain from the change of
fair value of contingent liabilities and certain research and
development super-deduction and adversely affected by
non-deductible expenses such as part of entertainment expenses. The
Company records valuation allowances against the deferred tax
assets associated with losses for which it may not realize a
related tax benefit. After combining research and development tax
credits of 25% on certain qualified research and development
expenses, the Company’s effective tax rate for the six months ended
June 30, 2020 and 2019 were a tax expense of 62.43% on a reported
income before taxes of approximately $6.6 million, a tax benefit of
6.02% on a reported loss before taxes of approximately $12.5
million, respectively.
The
quarterly tax provision, and the quarterly estimate of the
Company’s annual effective tax rate, is subject to significant
variation due to several factors, including variability in
accurately predicting the Company’s pre-tax and taxable income and
loss, acquisitions (including integrations) and investments,
changes in its stock price, changes in its deferred tax assets and
liabilities and their valuation, return to provision true-up,
foreign currency gains (losses), changes in regulations and
interpretations related to tax, accounting, and other areas.
Additionally, the Company’s effective tax rate can be more or less
volatile based on the amount of pre-tax income or loss. The income
tax provision for the six months ended June 30, 2020 and 2019 was
tax expense of $4,122,502 and tax benefit of $751,193,
respectively.
Under
ASC 740 guidance relating to uncertain tax positions, which
addresses the determination of whether tax benefits claimed or
expected to be claimed on a tax return should be recorded in the
financial statements, the Company 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. ASC 740 also provides guidance on
de-recognition, classification, interest and penalties on income
taxes, accounting in interim periods and requires increased
disclosures. As of June 30, 2020, the Company did not have any
liability for unrecognized tax benefits. The Company files income
tax returns with the U.S. Internal Revenue Services (“IRS”) and
those states where the Company has operations. The Company is
subject to U.S. federal or state income tax examinations by the IRS
and relevant state tax authorities for years after 2006. During the
periods open to examination, the Company has net operating loss
carry forwards (“NOLs”) for U.S. federal and state tax purposes
that have attributes from closed periods. Since these NOLs may be
utilized in future periods, they remain subject to examination. The
Company also files certain tax returns in the PRC. As of June 30,
2020, the Company was not aware of any pending income tax
examinations by U.S. or PRC tax authorities. The Company records
interest and penalties on uncertain tax provisions as income tax
expense. As of June 30, 2020, the Company has no accrued interest
or penalties related to uncertain tax positions.
The
aggregate NOLs in 2019 was $9.6 million deriving from entities in
the PRC and Hong Kong. The aggregate NOLs in 2018 was $28.1 million
deriving from entities in the PRC and Hong Kong. The NOLs will
start to expire from 2021 if they are not used. The cumulative net
operating loss in the PRC can be carried forward for five years, to
offset future net profits for income tax purposes. The Company has
$0 cumulative net operating loss in U.S. to carry forward as of
June 30, 2020. The cumulative net operating loss in Hong Kong can
be carried forward without an expiration date.
(b)
Tax Holiday Effect
For
the six months ended June 30, 2020 and 2019, the PRC CIT rate was
25%. Certain subsidiaries of the Company are entitled to tax
exemptions (tax holidays) for the six months ended June 30, 2020
and 2019.
The
combined effects of income tax expense exemptions and reductions
available to the Company for the six months ended June 30, 2020 and
2019 are as follows:
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
Tax benefit (holiday) credit |
|
$ |
164,163 |
|
|
$ |
169,810 |
|
Basic
net income per share effect |
|
$ |
0.000 |
|
|
$ |
0.000 |
|
(c) CARES Act
On March 27, 2020, the “Coronavirus Aid, Relief and Economic
Security (CARES) Act” was signed into law. The CARES Act, among
other things, includes provisions relating to refundable payroll
tax credits, deferment of employer side social security payments,
net operating loss carryback periods, alternative minimum tax
credit refunds, modifications to the net interest deduction
limitations and technical corrections to tax depreciation methods
for qualified improvement property. The Company does not anticipate
significant income tax impact on its financial and continue to
examine the impacts this CARES Act may have on its business.
NOTE
19 - LEASES
The
Company has renewed its corporate office leases for SC Autosports,
with a term of 15 months from January 31, 2020 to April 30, 2021.
The monthly lease payment is $11,000 from February 2020 to April
2020 and $12,000 from May 2020 to April 2021. The Company recorded
operating lease assets and operating lease liabilities at January
31, 2020, with a remaining lease term of 15 months and discount
rate of 4.25%.
As of
June 30, 2020, the Company’s right - of - use asset (grouped in
other long term assets on the balance sheet) was $115,087 and lease
liability (grouped in other current liability on the balance sheet)
was $117,695. For the three months ended June 30, 2020, the
Company’s operating lease cost was $35,000. For the six months
ended June 30, 2020, the Company’s operating lease cost was
$68,000.
Supplemental
information related to operating leases was as follows:
|
|
Six months ended
June 30,
2020 |
|
Cash payments for operating leases |
|
$ |
68,000 |
|
Maturities
of lease liabilities as of June 30, 2020, were as
follow:
Maturity of Lease Liabilities: |
|
Lease payable |
|
2020 |
|
$ |
70,117 |
|
2021 |
|
|
47,578 |
|
Total |
|
$ |
117,695 |
|
NOTE
20 - CONTINGENT CONSIDERATION LIABILITY
On
January 3, 2018, the Company completed the acquisition of 100% of
the equity of Jinhua An Kao, currently known as Kandi Smart Battery
Swap Co., Ltd. (“Kandi Smart Battery Swap”). The Company paid
approximately RMB 25.93 million (approximately $4 million) at the
closing of the transaction using cash on hand and issued a total of
2,959,837 shares of restrictive stock or 6.2% of the Company’s
total outstanding shares of the common stock immediately prior to
the closing of the acquisition valued at approximately $20.7
million to the former shareholders of Kandi Smart Battery Swap and
his designees (the “KSBS Shareholders”), and may be required to pay
future consideration of up to an additional 2,959,837 shares of
common stock, which are being held in escrow and to be released
contingent upon the achievement of certain net income-based
milestones in the next three years. Any escrowed shares that are
not released from escrow to the KSBS Shareholders as a result of
the failure to achieve the milestones will be forfeited and
returned to the Company for cancellation. While the escrowed shares
are held in escrow, the Company will retain all voting rights with
respect to such shares. For the year ended December 31, 2018, Kandi
Smart Battery Swap achieved its first year net profit target.
Accordingly, the KSBS Shareholders received 739,959 shares of
Kandi’s restrictive common stock or 12.5% of the total equity
consideration (i.e., 5,919,674 total shares) as part of the
purchase price. For the year ended December 31, 2019, Kandi Smart
Battery Swap achieved its second year net profit target.
Accordingly, the KSBS Shareholders received 986,810 shares of
Kandi’s restrictive common stock or 16.67% of the total equity
consideration (i.e., 5,919,674 total shares) as part of the
purchase price. All the escrowed shares have been included in the
Company’s registration statement on Form S-3 declared effective by
the SEC on April 5, 2019.
As
the outbreak of COVID-19 in 2020 affected Kandi Smart Battery
Swap’s operation and business, on July 7, 2020, the Company and the
KSBS Shareholders made following supplements to Condition III of
the original Supplementary Agreement: The transferor has the right
to receive a total of 20.83% of total equity consideration (i.e.,
5,919,674 total shares), provided that Kandi Smart Battery Swap
realizes a net profit of RMB50,000,000 or more for the period from
January 1, 2020 to June 30, 2021 (as opposed to be the originally
stated “December 31, 2020”), and such profit is audited or reviewed
and Kandi Smart Battery Swap gets annual or quarterly financial
report issued subject to US GAAP.
On
July 1, 2018, the Company completed the acquisition of 100% of the
equity of SC Autosports (d/b/a Kandi America). The Company issued a
total of 171,969 shares of restrictive stock or approximately 0.3%
of the Company’s total outstanding shares of the common stock
immediately prior to the closing of the acquisition valued at
approximately $0.8 million at the closing of transaction to the
former members of SC Autosports within 30 days from the signing
date of the Transfer Agreement, and may be required to pay future
consideration of up to an additional 1,547,721 shares of common
stock of the Company, which are being held in escrow and to be
released contingent upon the achievement of certain pre-tax profit
based milestones in the next three years. Any escrowed shares that
are not released from escrow to the SC Autosports former members
due to the failure to achieve the milestones will be forfeited and
returned to the Company for cancellation. While the escrowed shares
are held in escrow, the Company will retain all voting rights with
respect to the shares. For the year ended December 31, 2018, SC
Autosports achieved its first year pre-tax profit target.
Accordingly, the former members of SC Autosports received 343,938
shares of Kandi’s restrictive common stock or 20% of the total
equity consideration in the purchase price. For the year ended
December 31, 2019, SC Autosports achieved its second year pre-tax
profit target. Accordingly, the former members of SC Autosports
received 515,907 shares of Kandi’s restrictive common stock or 30%
of the total equity consideration in the purchase price. All the
escrowed shares have been included in the Company’s registration
statement on Form S-3 declared effective by the SEC on April 5,
2019.
The
Company recorded contingent consideration liability of the
estimated fair value of the contingent consideration the Company
currently expects to pay to the KSBS Shareholders and SC
Autosports’ former members upon the achievement of certain
milestones. The fair value of the contingent consideration
liability associated with remaining shares of restrictive common
stock was estimated by using the Monte Carlo simulation method,
which took into account all possible scenarios. This fair value
measurement is classified as Level 3 within the fair value
hierarchy prescribed by ASC Topic 820, Fair Value Measurement and
Disclosures. In accordance with ASC Topic 805, Business
Combinations, the Company will re-measure this liability each
reporting period and record changes in the fair value through a
separate line item within the Company’s consolidated statements of
income.
As of
June 30, 2020 and December 31, 2019, the Company’s contingent
consideration liability was $2,334,000 and $5,197,000,
respectively. The decrease in contingent consideration liability
was mainly due to the decrease of the forecast of SC Autosports’
third year net income as of June 30, 2020.
NOTE
21 - STOCK AWARD
In
connection with the appointment of Mr. Henry Yu as a member of the
Board of Directors (the “Board”), the Board authorized the Company
to compensate Mr. Henry Yu with 5,000 shares of Company’s
restricted common stock every six months as compensation, beginning
in July 2011.
As
compensation for Mr. Jerry Lewin’s services as a member of the
Board, the Board authorized the Company to compensate Mr. Jerry
Lewin with 5,000 shares of Company’s restricted common stock every
six months, beginning in August 2011.
As
compensation for Ms. Kewa Luo’s services as the Company’s investor
relation officer, the Board authorized the Company to compensate
Ms. Kewa Luo with 5,000 shares of the Company’s common stock every
six months, beginning in September 2013.
In
November 2016, the Company entered into a three-year employment
agreement with Mr. Mei Bing, to hire him as the Company’s Chief
Financial Officer. Under the agreement, Mr. Mei Bing was entitled
to receive an aggregate 10,000 shares of common stock each year,
vested in four equal quarterly installments of 2,500 shares. On
January 29, 2019, Mr. Mei resigned from his position as the
Company’s CFO.
On
January 29, 2019, the Board appointed Ms. Zhu Xiaoying as interim
Chief Financial Officer. Ms. Zhu was entitled to receive 10,000
shares of the common stock annually under the Company’s 2008
Omnibus Long-Term Incentive Plan (the “2008 Plan”) as a year-end
equity bonus. Effective May 15, 2020, Ms. Zhu resigned from her
position as interim Chief Financial Officer of the
Company.
On May 15, 2020, the Board appointed Mr. Jehn Ming Lim as the Chief
Financial Officer. Mr. Lim was entitled to receive 6,000 shares of
the common stock annually, which shall be issuable evenly on each
six-month anniversary hereof.
The
fair value of stock awards based on service is determined based on
the closing price of the common stock on the date the shares are
approved by the Board for grant. The compensation costs for awards
of common stock are recognized over the requisite service period of
three or six months.
On
December 30, 2013, the Board approved a proposal (as submitted by
the Compensation Committee) of an award (the “Board’s Pre-Approved
Award Grant Sub-Plan under the 2008 Plan”) for certain executives
and other key employees. The fair value of each award granted under
the 2008 Plan is determined based on the closing price of the
Company’s stock on the date of grant of such award. On September
26, 2016, the Board approved to terminate the previous Board’s
Pre-Approved Award Grant Sub-Plan under the 2008 Plan and adopted a
new plan to grant the total number of shares of common stock of the
stock award for selected executives and key employees 250,000
shares of common stock for each fiscal year. On April 18, 2018, the
Company granted 238,600 shares of common stock to certain
management members and employees as compensation for their past
services under the 2008 Plan. On April 30, 2019, the Company
granted 238,600 shares of common stock to certain management
members and employees as compensation for their past services under
the 2008 Plan. On May 9, 2020, the Company granted 238,600 shares
of common stock to certain management members and employees as
compensation for their past services under the 2008
Plan.
For
the three months ended June 30, 2020 and 2019, the Company
recognized $824,621 and $1,282,733 of employee stock award expenses
for stock compensation and annual incentive award under the 2008
Plan paid to Board members, management and consultants under
General and Administrative Expenses, respectively. For the six
months ended June 30, 2020 and 2019, the Company recognized
$847,546 and $1,314,408 of employee stock award expenses for stock
compensation and annual incentive award under the 2008 Plan paid to
Board members, management and consultants under General and
Administrative Expenses, respectively.
NOTE
22 - SUMMARIZED INFORMATION OF EQUITY METHOD INVESTMENT IN THE
AFFILIATE COMPANY
The
Company’s condensed consolidated net income (loss) includes the
Company’s proportionate share of the net income or loss of the
Company’s equity method investees. When the Company records its
proportionate share of net income (loss) in such investees, it
increases equity income (loss) – net in the Company’s consolidated
statements of income and the Company’s carrying value in that
investment. Conversely, when the Company records its proportionate
share of a net loss in such investees, it decreases equity income
(loss) – net in the Company’s consolidated statements of income
(loss) and the Company’s carrying value in that investment. All
intra-entity profits and losses with the Company’s equity method
investees have been eliminated.
On
March 21, 2019, Kandi Vehicles signed an Equity Transfer Agreement
with Geely Technologies Group Co., Ltd. (“Geely”) to transfer
certain equity interests in the Affiliate Company to Geely.
Pursuant to the Transfer Agreement, the Affiliate Company converted
a loan of RMB 314 million (approximately $44.4 million) from Geely
last year to equity in order to increase its cash flow. As a
result, the registered capital of the Affiliate Company became RMB
2.40 billion (approximately $339.5 million), of which Kandi
Vehicles owned 43.47% and Geely owned 56.53%, respectively, upon
the conversion of the loan into equity in the Affiliate Company.
Kandi Vehicles further agree to sell 21.47% of its equity interests
in the Affiliate Company to Geely for a total amount of RMB 516
million (approximately $73.0 million). Kandi Vehicles shall own 22%
of the equity interests of the Affiliate Company as a result of the
transfer. As of September 29, 2019, the Company had received
payments in cash totaling RMB 220 million (approximately $31.1
million) and certain commercial acceptance notes of RMB 296 million
(approximately $41.9 million) from Geely, of which RMB 140 million
(approximately $19.8 million) shall mature on January 20, 2020 and
the remaining RMB 156 million (approximately $22.1 million) shall
mature on March 29, 2020. As of September 30, 2019, the equity
transfer had been completed. Therefore, in the third quarter of
2019, the Company recognized the gain from equity sale of
$20,438,986. As of June 30, 2020, RMB 110 million (approximately
$15.6 million) of the commercial acceptance notes has been
collected. And the remaining RMB186 million (approximately $26.3
million) has been collected on July 27, 2020.
The
Company accounted for its investments in the Affiliate Company
under the equity method of accounting. The Company recorded 22% of
the Affiliate Company’s loss for the first half of 2020.
The
consolidated results of operations and financial position of the
Affiliate Company are summarized below:
|
|
Three Months ended |
|
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
Condensed income statement information: |
|
|
|
|
|
|
Net sales |
|
$ |
16,456,551 |
|
|
$ |
2,828,732 |
|
Gross
loss |
|
|
(2,304,516 |
) |
|
|
(2,606,809 |
) |
Gross margin |
|
|
-14.0 |
% |
|
|
-92.2 |
% |
Net loss |
|
|
(13,535,506 |
) |
|
|
(10,359,258 |
) |
|
|
Six Months ended |
|
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
Condensed income statement information: |
|
|
|
|
|
|
Net sales |
|
$ |
23,083,813 |
|
|
$ |
4,085,605 |
|
Gross
loss |
|
|
(2,642,287 |
) |
|
|
(2,628,351 |
) |
Gross margin |
|
|
-11.4 |
% |
|
|
-64.3 |
% |
Net loss |
|
|
(18,572,368 |
) |
|
|
(30,550,572 |
) |
|
|
June 30, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
Condensed balance sheet information: |
|
|
|
|
|
|
Current assets |
|
$ |
561,723,436 |
|
|
$ |
640,688,401 |
|
Noncurrent assets |
|
|
52,287,099 |
|
|
|
64,589,516 |
|
Total assets |
|
$ |
614,010,535 |
|
|
$ |
705,277,917 |
|
Current liabilities |
|
|
420,915,948 |
|
|
|
490,625,640 |
|
Equity |
|
|
193,094,587 |
|
|
|
214,652,277 |
|
Total liabilities and equity |
|
$ |
614,010,535 |
|
|
$ |
705,277,917 |
|
Note:
The following table illustrates the captions used in the Company’s
Income Statements for its equity based investment in the Affiliate
Company.
The
Company’s equity method investments in the Affiliate Company for
the six months ended June 30, 2020 and 2019 are as
follows:
|
|
Six Months ended |
|
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
Investment in the Affiliate Company, beginning of the period, |
|
$ |
47,228,614 |
|
|
$ |
128,929,893 |
|
Gain from equity dilution |
|
|
-
|
|
|
|
4,341,259.00 |
|
Company’s share in net (loss) income of Affiliate based on 22%
ownership for six months ended June 30, 2020 and 50% ownership for
three months ended March 31, 2019, 43.47% ownership for
three months ended June 30, 2019 |
|
|
(4,086,848 |
) |
|
|
(14,591,456 |
) |
Intercompany transaction elimination |
|
|
-
|
|
|
|
(14,157 |
) |
Prior year unrealized profit realized |
|
|
5,549 |
|
|
|
156,254 |
|
Subtotal |
|
|
(4,081,299 |
) |
|
|
(14,449,359 |
) |
Exchange difference |
|
|
(656,867 |
) |
|
|
323,099 |
|
Investment in Affiliate Company, end of the period |
|
$ |
42,490,448 |
|
|
$ |
119,144,892 |
|
The
gain from equity dilution for three months ended March 31, 2019
resulted from the Affiliate Company issuing shares to the major
shareholder of the Affiliate Company, Greely, in exchange for
extinguishment of a loan from Greely, resulting in dilution of
equity ownership of the Company from 50% to 43.47%. This dilutive
transaction was treated as if the Company sold a proportional share
of its investment in the Affiliate Company.
Sales
to the Company’s customers, the Affiliate Company and its
subsidiaries, for the three months ended June 30, 2020, were $ 956
or 0% of the Company’s total revenue, a decrease of 100% from
$4,089,534 of the same quarter last year. Sales to the Company’s
customers, the Affiliate Company and its subsidiaries, for the six
months ended June 30, 2020, were $ 956 or 0% of the Company’s total
revenue, a decrease of 100% from $5,823,031 of the same quarter
last year. Sales to the Affiliate Company and its subsidiaries were
primarily of battery packs, body parts, EV drive motors, EV
controllers, air conditioning units and other auto
parts.
As of
June 30, 2020 and December 31, 2019, the net amount due from the
Affiliate Company and its subsidiaries, was $20,107,347 and
$31,330,763, respectively. As of June 30, 2020 and December 31,
2019 the net amount due from the Affiliate Company and its
subsidiaries included $2,053,131 and $2,056,564 interest receivable
related to the loan lent to the Affiliate Company, but didn’t
include any outstanding loan principal.
NOTE
23 - COMMITMENTS AND CONTINGENCIES
Guarantees
and pledged collateral for bank loans to other
parties
(1)
Guarantees for bank loans
On
March 15, 2013, the Company entered into a guarantee contract to
serve as the guarantor of Nanlong Group Co., Ltd. (“NGCL”) for
NGCL’s $ 2,829,575 (RMB 20 million) loan from Shanghai Pudong
Development Bank Jinhua Branch, with a related loan period from
March 15, 2013 to March 15, 2016. NGCL is not related to the
Company. Under this guarantee contract, the Company agreed to
assume joint liability as the loan guarantor. In April 2017,
Shanghai Pudong Development Bank filed a lawsuit against NGCL, the
Company and ten other parties in Zhejiang Province People’s Court
in Yongkang City, alleging NGCL defaulted on a bank loan borrowed
from Shanghai Pudong Development Bank for a principal amount of
approximately $2.9 million and demanded that the guarantor bear the
liability for compensation. On May 27, 2017, a judicial mediation
took place in Yongkang City and parties reached a settlement in
mediation, in which the plaintiff agreed NGCL would repay the loan
principal and interest in installments. If there were an event of
default that NGCL could not repay the loan, the Company may be
obligated to bear the liability of defaulted amount. The Company
expects the likelihood of incurring losses in connection with this
matter to be remote.
On
September 29, 2015, the Company entered into a guarantee contract
to serve as the guarantor of Zhejiang Shuguang Industrial Co., Ltd.
(“ZSICL”) for a bank loan in the amount of $4,102,883 (RMB 29
million) from Ping An Bank, with a related loan period of September
29, 2015, to September 28, 2016. ZSICL is not related to the
Company. Under this guarantee contract, the Company agreed to
perform all the obligations of ZSICL under the loan contract if
ZSICL failed to perform its obligations as set forth therein. In
August 2016, Ping An Bank Yiwu Branch (“Ping An Bank”) filed a
lawsuit against ZSICL, the Company, and three other parties in
Zhejiang Province People’s Court in Yiwu City, alleging ZSICL
defaulted on a bank loan it had borrowed from Pin An Bank for a
principal amount of RMB 29 million or approximately $4.2 million
(the “Principal”), for which the Company was a guarantor along with
other three parties. On December 25, 2016, the court ruled that
ZSICL should repay Ping An Bank the principal and associated
interest remaining on the bank loan within 10 days once the
adjudication was effective. Additionally, the court found that the
Company and the three other parties, acting as guarantors, have
joint liability for this bank loan. On July 31, 2017, the Company
and Ping An Bank reached an agreement to settle. According to the
agreement, the Company was to pay Ping An Bank RMB 20 million or
approximately $3.0 million in four installments before October 31,
2017 to release the Company from its guarantor liability for this
default. As of October 31, 2017, the Company has paid all four
installments totaling RMB 20 million or approximately $3.0 million
to Ping An Bank and thus the Company has been released from its
guarantor liability for this default. According to the Company’s
agreement with ZSICL, ZSICL agreed to reimburse all the Company’s
losses due to ZSICL’s default on the loan principal and interests,
of which RMB 13.9 million has been reimbursed to the Company as of
the date of this report and the remainder is expected to be
reimbursed in installments. The Company expects the likelihood of
incurring losses in connection with this matter to be
low.
(2)
Pledged collateral for bank loans for which the parties other than
the Company are the borrowers.
As of
June 30, 2020 and December 31, 2019, none of the Company’s land use
rights or plants and equipment were pledged as collateral securing
bank loans for which the parties other than the Company are the
borrowers.
Litigation
Beginning
in March 2017, putative shareholder class actions were filed
against Kandi Technologies Group, Inc. (“Kandi”) and certain of its
current and former directors and officers in the United States
District Court for the Central District of California and the
United States District Court for the Southern District of New York.
The complaints generally alleged violations of the federal
securities laws based Kandi’s disclosure in March 2017 that its
financial statements for the years 2014, 2015 and the first three
quarters of 2016 would need to be restated, and seek damages on
behalf of putative classes of shareholders who purchased or
acquired Kandi’s securities prior to March 13, 2017. Kandi moved to
dismiss the remaining cases, all of which were pending in the New
York federal court, and that motion was granted by an order entered
on September 30, 2019, and the time to appeal has run. In June
2020, a similar but separate putative securities class action was
filed against Kandi and certain of its current and former directors
and officers in California federal court and remains
pending.
Beginning
in May 2017, purported shareholder derivative actions based on the
same underlying events described above were filed against certain
current and former directors of Kandi in the United States District
Court for the Southern District of New York. The New York federal
court confirmed the voluntary dismissal of these actions in April
2019.
In
October 2017, a shareholder filed a books and records action
against the Company in the Delaware Court of Chancery pursuant to 8
Del. C. Section 220 seeking the production of certain documents
generally relating to the same underlying items described above as
well as attorney’s fees (the “Section 220 Litigation”). On
September 28, 2018, the parties, through their respective counsel,
agreed to dismiss the Section 220 Litigation with prejudice and
with each party bearing its own attorney’s fees, costs, and
expenses, thereby concluding the action. In February 2019, this
same shareholder commenced a derivative action against certain
current and former directors of Kandi in the Delaware Court of
Chancery. A motion to dismiss this derivative action was filed in
May 2019 and that motion was denied on April 27, 2020.
Separately,
in connection with allegations of misconduct identified in pre-suit
demands made by putative shareholders of Kandi, Kandi formed a
Special Litigation Committee (“SLC”) and retained a Delaware law
firm as independent counsel to the SLC to aid in the SLC’s
investigation of, and to ultimately report on, the allegations of
misconduct set forth in the pre-suit demands. In June 2020, the SLC
recommended that it be dissolved in light of the ongoing derivative
action pending in the Delaware Court of Chancery as referenced in
the immediate above paragraph.
While
the Company believes that the claims in these litigations are
without merit and will defend itself vigorously, the Company is
unable to estimate the possible loss, if any, associated with these
litigations. The ultimate outcome of any litigation is uncertain
and the outcome of these matters, whether favorable or unfavorable,
could have a negative impact on the Company’s financial condition
or results of operations due to defense costs, diversion of
management resources and other factors. Defending litigation can be
costly, and adverse results in the litigations could result in
substantial monetary judgments. No assurance can be made that
litigation will not have a material adverse effect on the Company’s
future financial position.
NOTE
24 - SEGMENT REPORTING
The
Company has one operating segment. The Company’s revenue and
long-lived assets are primarily derived from and located in China
and US. The Company does not have manufacturing operations outside
of China.
The
following table sets forth disaggregation of revenue:
|
|
Three Months Ended
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
Sales Revenue |
|
|
Sales Revenue |
|
Primary geographical markets |
|
|
|
|
|
|
Overseas |
|
$ |
8,571,281 |
|
|
$ |
5,050,136 |
|
China |
|
|
10,865,795 |
|
|
|
19,096,094 |
|
Total |
|
$ |
19,437,076 |
|
|
$ |
24,146,230 |
|
|
|
|
|
|
|
|
|
|
Major
products |
|
|
|
|
|
|
|
|
EV
parts |
|
$ |
12,514,548 |
|
|
$ |
18,988,741 |
|
EV
products |
|
|
(1,913 |
) |
|
|
-
|
|
Off-road vehicles |
|
|
6,564,415 |
|
|
|
5,157,489 |
|
Electric Scooters and Electric Self-Balancing Scooters |
|
|
360,026 |
|
|
|
-
|
|
Total |
|
$ |
19,437,076 |
|
|
$ |
24,146,230 |
|
|
|
|
|
|
|
|
|
|
Timing
of revenue recognition |
|
|
|
|
|
|
|
|
Products transferred at a point in time |
|
$ |
19,437,076 |
|
|
$ |
24,146,230 |
|
Total |
|
$ |
19,437,076 |
|
|
$ |
24,146,230 |
|
The
negative amount is due to exchange rate difference.
|
|
Six Months Ended
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
Sales Revenue |
|
|
Sales Revenue |
|
Primary geographical markets |
|
|
|
|
|
|
Overseas |
|
$ |
10,702,105 |
|
|
$ |
10,272,661 |
|
China |
|
|
15,107,395 |
|
|
|
31,942,029 |
|
Total |
|
$ |
25,809,500 |
|
|
$ |
42,214,690 |
|
|
|
|
|
|
|
|
|
|
Major
products |
|
|
|
|
|
|
|
|
EV
parts |
|
$ |
14,595,883 |
|
|
$ |
31,760,181 |
|
EV
products |
|
|
253,906 |
|
|
|
-
|
|
Off-road vehicles |
|
|
10,599,685 |
|
|
|
10,454,509 |
|
Electric Scooters and Electric Self-Balancing Scooters |
|
|
360,026 |
|
|
|
-
|
|
Total |
|
$ |
25,809,500 |
|
|
$ |
42,214,690 |
|
|
|
|
|
|
|
|
|
|
Timing
of revenue recognition |
|
|
|
|
|
|
|
|
Products transferred at a point in time |
|
$ |
25,809,500 |
|
|
$ |
42,214,690 |
|
Total |
|
$ |
25,809,500 |
|
|
$ |
42,214,690 |
|
NOTE
25 - SUBSEQUENT EVENTS
On
July 9, 2020, the Company received the second payment of RMB 119
million (approximately $17 million) under the Repurchase
Agreement.
In
order to construct a new facility in the Jinhua New Energy
Automotive Zone, on July 7, 2020, Kandi Vehicles entered in to a
construction contract. The total contract amount was RMB 138.2
million (approximately $19.6 million).
On
July 27, 2020, the Company received the remaining RMB186 million
(approximately $26.3 million) equity transfer payment from
Geely.
Item
2. Management’s Discussion and Analysis of Financial
Condition and Results 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 terminologies, 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
terminologies, 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 2019 Form 10-K and those set
forth from time to time in our other filings with the SEC. These
documents are available on the SEC’s Electronic Data Gathering and
Analysis Retrieval System at http://www.sec.gov.
Critical
Accounting Policies and Estimates
The
preparation of the condensed consolidated financial statements in
conformity with U.S. GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, as
of the date of the financial statements, and the reported amounts
of revenue and expenses during the reported period. If these
estimates differ significantly from actual results, the impact to
the condensed consolidated financial statements may be material.
There have been no material changes in our critical accounting
policies and estimates from those disclosed in on the 2019 Form
10-K. Please refer to Part II, Item 7 of such a report for a
discussion of our critical accounting policies and
estimates.
Overview
We
are one of the leading manufacturers of EV products (through Kandi
Hainan and the Affiliate Company), EV parts and off-road vehicles
in China. For the six months ended June 30, 2020, we recognized
total revenue of $25,809,500 as compared to $42,214,690 for the
same period of 2019, a decrease of $16,405,190 or 38.9%. For the
six months ended June 30, 2020, we recorded $4,704,037 of
gross profit, a decrease of 35.9% from the same period of 2019.
Gross margin for the six months ended June 30, 2020 was 18.2%,
compared to 17.4% for the same period of 2019. We recorded a net
income of $2,480,400 for the six months ended June 30, 2020,
compared to a net loss of $11,727,630 in the same period of 2019, a
positive change from net loss to net income by gaining $14,208,030
or 121.2%.
The spread of COVID-19
around China and other parts of the world has caused significant
volatility in the markets of China, U.S., and the rest of the
world. The pandemic has resulted in quarantines, travel
restrictions, and the temporary closure of stores and facilities in
China and elsewhere. Although the Company’s operations in China has
fully resumed in early March 2020, the COVID-19 will affect the
Company’s business performance in 2020. However, the extent to
which the COVID-19 impacts our operations will depend on its future
developments, which are highly uncertain and cannot be predicted
with confidence, including the duration of the outbreak, new
information which may emerge concerning the severity of the
coronavirus and the actions to contain the coronavirus or minimize
its harm, among others.
The COVID outbreak has seriously impacted the EV market in 2020,
leading us to explore how to augment our business. As we looked at
other market opportunities that leverage our expertise, the
management of the Company found potential in a number of ancillary
products aimed at intelligent transportation. For example, Electric
Scooters and Electric Self-Balancing Vehicles have distinct
potential, with tens of millions of units sold each year around the
world. The Company is pursuing these opportunities by expanding
production of intelligent transportation products that exploit our
advantages in the Yongkang Scrou’s power electric motor and Kandi
Smart Battery Swap’s power battery pack. Our products aimed at this
market combines our motors and battery packs into a dynamic power
train system. Through extensive product trials, we are able to meet
a leading standard in China, and thus went into production in the
second quarter. As this business is developing quickly and
progressing, the Company will consider to merge Yongkang Scrou and
Kandi Smart Battery Swap into a single company that specialized in
both smart battery swap system and powertrain technology.
The Company originally planned to export 2,000 to 5,000 units
electric vehicles to the U.S. in 2020, but due to the COVID-19
pandemic in the first half of 2020, the plan are being adjusted
according to the situation of COVID-19 control in the U.S, as well
as the virtual pre-sales event on August 18.
During the second quarter of 2020, the Company’s revenue increased
to $19.4 million from $6.4 million during the first quarter of
2020. However, COVID-19 may eventually affect the Company's 2020
overall business performance. The operating results for the three
and six months ended June 30, 2020 may not be indicative of the
future operating results for the fiscal year ending
December 31, 2020 or other future periods, particularly in
light of the uncertain impact COVID-19 could have on the Company's
business.
Results
of Operations
Comparison
of the Three Months Ended June 30, 2020 and 2019
The
following table sets forth the amounts and percentage to revenue of
certain items in our condensed consolidated statements of
operations and comprehensive income (loss) for the three months
ended June 30, 2020 and 2019.
|
|
Three
Months Ended |
|
|
|
June
30,
2020 |
|
|
% of
Revenue |
|
|
June
30,
2019 |
|
|
% of
Revenue |
|
|
Change in
Amount |
|
|
Change in % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
FROM UNRELATED PARTY, NET |
|
$ |
19,436,120 |
|
|
|
100.0 |
% |
|
$ |
20,056,696 |
|
|
|
83.1 |
% |
|
|
(620,576 |
) |
|
|
(3.1 |
%) |
REVENUES
FROM THE AFFILIATE COMPANY AND RELATED PARTY, NET |
|
|
956 |
|
|
|
0.0 |
% |
|
|
4,089,534 |
|
|
|
16.9 |
% |
|
|
(4,088,578 |
) |
|
|
(100.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES,
NET |
|
|
19,437,076 |
|
|
|
|
|
|
|
24,146,230 |
|
|
|
|
|
|
|
(4,709,154 |
) |
|
|
(19.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF
GOODS SOLD |
|
|
(15,900,298 |
) |
|
|
(81.8 |
%) |
|
|
(19,944,076 |
) |
|
|
(82.6 |
%) |
|
|
4,043,778 |
|
|
|
(20.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT |
|
|
3,536,778 |
|
|
|
18.2 |
% |
|
|
4,202,154 |
|
|
|
17.4 |
% |
|
|
(665,376 |
) |
|
|
(15.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME (EXPENSES): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development |
|
|
(1,149,901 |
) |
|
|
(5.9 |
%) |
|
|
(632,590 |
) |
|
|
(2.6 |
%) |
|
|
(517,311 |
) |
|
|
81.8 |
% |
Selling
and marketing |
|
|
(763,666 |
) |
|
|
(3.9 |
%) |
|
|
(899,478 |
) |
|
|
(3.7 |
%) |
|
|
135,812 |
|
|
|
(15.1 |
%) |
General
and administrative |
|
|
(3,907,191 |
) |
|
|
(20.1 |
%) |
|
|
(5,623,798 |
) |
|
|
(23.3 |
%) |
|
|
1,716,607 |
|
|
|
(30.5 |
%) |
Gain on
disposal of long-live asset |
|
|
13,907,574 |
|
|
|
71.6 |
% |
|
|
- |
|
|
|
0.0 |
% |
|
|
13,907,574 |
|
|
|
- |
|
Total
Operating Income (Expenses) |
|
|
8,086,816 |
|
|
|
41.6 |
% |
|
|
(7,155,866 |
) |
|
|
(29.6 |
%) |
|
|
15,242,682 |
|
|
|
(213.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS |
|
|
11,623,594 |
|
|
|
59.8 |
% |
|
|
(2,953,712 |
) |
|
|
(12.2 |
%) |
|
|
14,577,306 |
|
|
|
(493.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
|
221,792 |
|
|
|
1.1 |
% |
|
|
97,814 |
|
|
|
0.4 |
% |
|
|
123,978 |
|
|
|
126.7 |
% |
Interest
expense |
|
|
(1,123,056 |
) |
|
|
(5.8 |
%) |
|
|
(429,355 |
) |
|
|
(1.8 |
%) |
|
|
(693,701 |
) |
|
|
161.6 |
% |
Change in
fair value of contingent consideration |
|
|
(929,000 |
) |
|
|
(4.8 |
%) |
|
|
548,000 |
|
|
|
2.3 |
% |
|
|
(1,477,000 |
) |
|
|
(269.5 |
%) |
Government
grants |
|
|
86,799 |
|
|
|
0.4 |
% |
|
|
175,319 |
|
|
|
0.7 |
% |
|
|
(88,520 |
) |
|
|
(50.5 |
%) |
Gain from
equity dilution in the Affiliate Company |
|
|
- |
|
|
|
0.0 |
% |
|
|
(24,131 |
) |
|
|
(0.1 |
%) |
|
|
24,131 |
|
|
|
(100.0 |
%) |
Share of
loss after tax of the Affiliate Company |
|
|
(2,978,529 |
) |
|
|
(15.3 |
%) |
|
|
(4,500,201 |
) |
|
|
(18.6 |
%) |
|
|
1,521,672 |
|
|
|
(33.8 |
%) |
Other
income (expenses), net |
|
|
1,043,335 |
|
|
|
5.4 |
% |
|
|
(174,597 |
) |
|
|
(0.7 |
%) |
|
|
1,217,932 |
|
|
|
(697.6 |
%) |
Total
other expenses, net |
|
|
(3,678,659 |
) |
|
|
(18.9 |
%) |
|
|
(4,307,151 |
) |
|
|
(17.8 |
%) |
|
|
628,492 |
|
|
|
(14.6 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE INCOME TAXES |
|
|
7,944,935 |
|
|
|
40.9 |
% |
|
|
(7,260,863 |
) |
|
|
(30.1 |
%) |
|
|
15,205,798 |
|
|
|
(209.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX
(EXPENSE) BENEFIT |
|
|
(3,889,889 |
) |
|
|
(20.0 |
%) |
|
|
(57,295 |
) |
|
|
(0.2 |
%) |
|
|
(3,832,594 |
) |
|
|
6689.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
(LOSS) |
|
|
4,055,046 |
|
|
|
20.9 |
% |
|
|
(7,318,158 |
) |
|
|
(30.3 |
%) |
|
|
11,373,204 |
|
|
|
(155.4 |
%) |
(a)
Revenue
For
the three months ended June 30, 2020, our revenue was $19,437,076
compared to $24,146,230 for the same period of 2019, representing a
decrease of $4,709,154 or 19.5%. The decrease in revenue was mainly
due to the decrease in EV parts sales. Due to the outbreak of
COVID-19 in China, the demand of EV parts from customers was
significantly affected during the first half of 2020.
The
following table summarizes our revenues by product types for the
three months ended June 30, 2020 and 2019:
|
|
Three Months Ended
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
Sales |
|
|
Sales |
|
EV
parts |
|
$ |
12,514,548 |
|
|
$ |
18,988,741 |
|
EV
products |
|
|
(1,913 |
) |
|
|
- |
|
Off-road
vehicles |
|
|
6,564,415 |
|
|
|
5,157,489 |
|
Electric Scooters and Electric Self-Balancing Scooters |
|
|
360,026 |
|
|
|
- |
|
Total |
|
$ |
19,437,076 |
|
|
$ |
24,146,230 |
|
The
negative amount is due to exchange rate difference.
EV Parts
During
the three months ended June 30, 2020, our revenues from the sales
of EV parts were $12,514,548, representing a decrease of $6,474,193
or 34.1% from $18,988,741 for the same quarter of 2019.
Our
revenue for the three months ended June 30, 2020 primarily
consisted of revenue from the sales of battery packs, body parts,
EV controllers, air conditioning units and other auto parts for use
in the manufacturing of EV products. These sales accounted for
64.4% of total sales.
During
the three months ended June 30, 2020 and 2019, our revenue from the
sale of EV parts to the Affiliate Company and its subsidiaries
accounted for approximately 0% and 17% of our total net revenue for
the quarter, respectively.
EV Products
During
the three months ended June 30, 2020, our revenue from the sale of
EV Products was negative $1,913, which was due to exchange rate
difference. There were no EV Products sales in the same period of
2020.
Off-Road Vehicles
During
the three months ended June 30, 2020, our revenue from the sales of
off-road vehicles, including go karts, all-terrain vehicles
(“ATVs”) and others, were $6,564,415, representing an increase of
$1,406,926 or 27.3% from $5,157,489, for the same quarter of 2019.
The increase was mainly due to the increased sales from SC
Autosports because of increased demand due to the power sports’
unique form of “socially distant” recreation.
Our
off-road vehicles business line accounted for approximately 33.8%
of our total net revenue for the three months ended June 30,
2020.
Electric Scooters and Electric Self-Balancing
Scooters
During
the three months ended June 30, 2020, our revenue from the sale of
Electric Scooters and Electric Self-Balancing Scooters was
$360,026. There were no Electric Scooters and Electric
Self-Balancing Scooters sales in the same quarter of
2019.
The
following table shows the breakdown of our net revenues:
|
|
Three
Months Ended
June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
Sales
Revenue |
|
|
Sales
Revenue |
|
Primary geographical
markets |
|
|
|
|
|
|
Overseas |
|
$ |
8,571,281 |
|
|
$ |
5,050,136 |
|
China |
|
|
10,865,795 |
|
|
|
19,096,094 |
|
Total |
|
$ |
19,437,076 |
|
|
$ |
24,146,230 |
|
|
|
|
|
|
|
|
|
|
Major
products |
|
|
|
|
|
|
|
|
EV
parts |
|
$ |
12,514,548 |
|
|
$ |
18,988,741 |
|
EV
products |
|
|
(1,913 |
) |
|
|
- |
|
Off-road
vehicles |
|
|
6,564,415 |
|
|
|
5,157,489 |
|
Electric Scooters and Electric Self-Balancing Scooters |
|
|
360,026 |
|
|
|
- |
|
Total |
|
$ |
19,437,076 |
|
|
$ |
24,146,230 |
|
|
|
|
|
|
|
|
|
|
Timing of
revenue recognition |
|
|
|
|
|
|
|
|
Products transferred at a point in time |
|
$ |
19,437,076 |
|
|
$ |
24,146,230 |
|
Total |
|
$ |
19,437,076 |
|
|
$ |
24,146,230 |
|
The
negative amount is due to exchange rate difference.
(b)
Cost of goods sold
Cost
of goods sold was $15,900,298 during the three months ended June
30, 2020, representing a decrease of $4,043,778, or 20.3%, compared
to $19,944,076 for the same period of 2019. The decrease was
primarily due to the corresponding decrease in sales. Please refer
to the Gross Profit section below for product margin
analysis.
(c)
Gross profit
Our
margins by product for the three months ended June 30, 2020 and
2019 are as set forth below:
|
|
Three Months Ended June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
Sales |
|
|
Cost |
|
|
Gross Profit |
|
|
Margin % |
|
|
Sales |
|
|
Cost |
|
|
Gross Profit |
|
|
Margin % |
|
EV parts |
|
$ |
12,514,548 |
|
|
|
10,745,020 |
|
|
|
1,769,528 |
|
|
|
14.1 |
% |
|
$ |
18,988,741 |
|
|
|
15,826,401 |
|
|
|
3,162,340 |
|
|
|
16.7 |
% |
EV products |
|
|
(1,913 |
) |
|
|
(4,793 |
) |
|
|
2,880 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Off-road vehicles |
|
|
6,564,415 |
|
|
|
4,827,659 |
|
|
|
1,736,756 |
|
|
|
26.5 |
% |
|
|
5,157,489 |
|
|
|
4,117,675 |
|
|
|
1,039,814 |
|
|
|
20.2 |
% |
Electric Scooters and Electric Self-Balancing Scooters |
|
|
360,026 |
|
|
|
332,412 |
|
|
|
27,614 |
|
|
|
7.7 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total |
|
$ |
19,437,076 |
|
|
|
15,900,298 |
|
|
|
3,536,778 |
|
|
|
18.2 |
% |
|
$ |
24,146,230 |
|
|
|
19,944,076 |
|
|
|
4,202,154 |
|
|
|
17.4 |
% |
The
negative amount is due to exchange rate difference.
Gross
profit for the second quarter of 2020 decreased 15.8% to
$3,536,778, compared to $4,202,154 for the same period last year.
This was primarily attributable to the sales decrease of EV Parts,
which was primarily due to the outbreak of COVID-19 in 2020. Our
gross margin increased to 18.2% compared to 17.4% for the same
period of 2019. The increase in our gross margin was mainly due to
the sales under SC Autosports which has increased the unit price
for the parts since the end of 2019 as well as introducing the
sales of ATVs that brought higher margin than other off-road
vehicles such as UTVs since May 2019.
(d)
Research and development
Research
and development expenses, including materials, labor, equipment
depreciation, design, testing, inspection, and other related
expenses, totaled $1,149,901 for the second quarter of 2020, an
increase of $517,311 or 81.8% compared to $632,590 for the same
period of last year. The increase was mainly due to the R&D
expense related to the technology upgrading of the Company’s
products.
(e)
Sales and marketing
Selling
and distribution expenses were $763,666 for the second quarter of
2020, compared to $899,478 for the same period last year,
representing a decrease of $135,812 or 15.1%. The decrease was
primarily attributable to the reclassification of sales related
financial charges to interest expense since the end of
2019.
(f)
General and administrative expenses
General
and administrative expenses were $3,907,191 for the second quarter
of 2020, compared to $5,623,798 for the same period last year,
representing a decrease of $1,716,607 or 30.5%. For the three
months ended June 30, 2020, general and administrative expenses
included $824,621 as expenses for common stock awards and stock
options to employees and Board members, compared to $1,282,733 of
common stock awards and stock options expenses for the same period
in 2019. Besides stock compensation expense, our net general and
administrative expenses for the three months ended June 30, 2020
were $3,082,570, representing a decrease of $1,258,495, from
$4,341,065 for the same period of 2019, which was largely due to
the implementation of cost cutting strategy and tighter budget
control by the management.
(g) Gain on disposal of long-live asset
Gain on disposal of long-live asset was $13,907,574 for the second
quarter of 2020, which was related to the real estate repurchase
agreement of our Jinhua Facility’s relocation. In June 2020, 73,333
square meters of land use right was transferred to the local
government, and the related gain was recognized.
(h)
Interest income
Interest
income was $221,792 for the second quarter of 2020, representing an
increase of $123,978 or 126.7% compared to $97,814 for the same
period of last year. The increase was primarily attributable to
increased interest earned on the loan to third party.
(i)
Interest expenses
Interest
expenses were $1,123,056 in the second quarter of 2020,
representing an increase of $693,701 or 161.6% compared to $429,355
for the same period of last year. The increase was primarily due to
the interest expense of Hainan factory’s long-term debt.
(j)
Change in fair value of contingent consideration
For
the second quarter of 2020, the loss related to changes in the fair
value of contingent consideration was $929,000, a decrease of
$1,477,000 or 269.5% compared to gain related to changes in the
fair value of contingent consideration of $548,000 for the same
period of last year, which was mainly due to the adjustment of the
fair value of the contingent consideration liability associated
with the remaining shares of restrictive common stock (Please refer
to NOTE 20 – CONTINGENT CONSIDERATION LIABILITY). The fair value of
the contingent consideration liability was estimated at each
reporting date by using the Monte Carlo simulation method, which
took into account all possible scenarios.
(k)
Government grants
Government
grants were $86,799 for the second quarter of 2020, compared to
$175,319 for the same quarter last year, representing a decrease of
$88,520, or 50.5%, which was largely attributable to the refund of
2018 social security and land use tax Kandi Vehicles received in
the second quarter of 2019.
(l)
Gain from equity dilution in the Affiliate Company
Gain
from equity dilution was $0 for the second quarter of 2020,
compared to negative $24,131 for the same quarter last year which
was due to exchange rate difference.
(m)
Share of loss after tax of the Affiliate Company
For
the second quarter of 2020, our share of loss of the Affiliate
Company was $2,978,529 as compared to share of loss of $4,500,201
for the same period of last year, representing a decrease of share
of loss of $1,521,672, which was largely attributable to the fact
that our equity interests of the Affiliate Company has been
decreased to 22% from 43.47% after the equity dilution and equity
transfer in 2019.
(n) Other income (expenses), net
Net other income was $1,043,335 for the second quarter of 2020,
compared to net other expenses of $174,597 for the same period of
last year, which was largely due to the discount of accounts
payable after negotiation with supplier.
(o)
Income Taxes
In
accordance with the relevant Chinese tax laws and regulations, our
applicable corporate income tax rate is 25%. However, Kandi Vehicle
and Kandi Smart Battery Swap are qualified as high technology
companies in China and are therefore entitled to a reduced
corporate income tax rate of 15%.
Each
of our wholly-owned subsidiaries, Kandi New Energy, Yongkang Scrou
and Kandi Hainan, has an applicable corporate income tax rate of
25%.
We
have a 22% ownership interest in the Affiliate Company, which has
an applicable corporate income tax rate of 25%. Each of the
Affiliate Company’s subsidiaries has an applicable corporate income
tax rate of 25%.
Our actual effective income tax rate for the second quarter of 2020
was a tax expense of 48.96% on a reported income before taxes
of approximately $7.9 million, compared to a tax expense of 0.79%
on a reported loss before taxes of approximately $7.3 million for
the same period of last year.
(p)
Net income (loss)
Net income was $4,055,046 for the second quarter of 2020,
representing a decrease in net loss by $11,373,204 compared to net
loss $7,318,158 for the same period of last year. The decrease in
loss was primarily attributable to gain on disposal of long-live
asset which was related to the real estate repurchase agreement of
our Jinhua Facility’s relocation.
Comparison
of the Six Months Ended June 30, 2020 and 2019
The
following table sets forth the amounts and percentage to revenue of
certain items in our condensed consolidated statements of
operations and comprehensive income (loss) for the six months ended
June 30, 2020 and 2019.
|
|
Six Months Ended |
|
|
|
June 30,
2020 |
|
|
% of Revenue |
|
|
June 30,
2019 |
|
|
% of Revenue |
|
|
Change in Amount |
|
|
Change in % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES FROM UNRELATED PARTY, NET |
|
$ |
25,808,544 |
|
|
|
100.0 |
% |
|
$ |
36,391,659 |
|
|
|
86.2 |
% |
|
|
(10,583,115 |
) |
|
|
(29.1 |
%) |
REVENUES FROM THE AFFILIATE COMPANY AND RELATED PARTY, NET |
|
|
956 |
|
|
|
0.0 |
% |
|
|
5,823,031 |
|
|
|
13.8 |
% |
|
|
(5,822,075 |
) |
|
|
(100.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES, NET |
|
|
25,809,500 |
|
|
|
100.0 |
% |
|
|
42,214,690 |
|
|
|
100.0 |
% |
|
|
(16,405,190 |
) |
|
|
(38.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD |
|
|
(21,105,463 |
) |
|
|
(81.8 |
%) |
|
|
(34,876,099 |
) |
|
|
(82.6 |
%) |
|
|
13,770,636 |
|
|
|
(39.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
4,704,037 |
|
|
|
18.2 |
% |
|
|
7,338,591 |
|
|
|
17.4 |
% |
|
|
(2,634,554 |
) |
|
|
(35.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (EXPENSES): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development |
|
|
(1,790,141 |
) |
|
|
(6.9 |
%) |
|
|
(1,170,023 |
) |
|
|
(2.8 |
%) |
|
|
(620,118 |
) |
|
|
53.0 |
% |
Selling
and marketing |
|
|
(1,641,972 |
) |
|
|
(6.4 |
%) |
|
|
(1,517,481 |
) |
|
|
(3.6 |
%) |
|
|
(124,491 |
) |
|
|
8.2 |
% |
General
and administrative |
|
|
(6,973,926 |
) |
|
|
(27.0 |
%) |
|
|
(7,663,326 |
) |
|
|
(18.2 |
%) |
|
|
689,400 |
|
|
|
(9.0 |
%) |
Gain on disposal of long-live asset |
|
|
13,907,574 |
|
|
|
53.9 |
% |
|
|
- |
|
|
|
0.0 |
% |
|
|
13,907,574 |
|
|
|
- |
|
Total Operating Income (Expenses) |
|
|
3,501,535 |
|
|
|
13.6 |
% |
|
|
(10,350,830 |
) |
|
|
(24.5 |
%) |
|
|
13,852,365 |
|
|
|
(133.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS |
|
|
8,205,572 |
|
|
|
31.8 |
% |
|
|
(3,012,239 |
) |
|
|
(7.1 |
%) |
|
|
11,217,811 |
|
|
|
(372.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
|
560,736 |
|
|
|
2.2 |
% |
|
|
350,218 |
|
|
|
0.8 |
% |
|
|
210,518 |
|
|
|
60.1 |
% |
Interest
expense |
|
|
(2,105,990 |
) |
|
|
(8.2 |
%) |
|
|
(868,538 |
) |
|
|
(2.1 |
%) |
|
|
(1,237,452 |
) |
|
|
142.5 |
% |
Change
in fair value of contingent consideration |
|
|
2,863,000 |
|
|
|
11.1 |
% |
|
|
637,000 |
|
|
|
1.5 |
% |
|
|
2,226,000 |
|
|
|
349.5 |
% |
Government grants |
|
|
97,898 |
|
|
|
0.4 |
% |
|
|
223,043 |
|
|
|
0.5 |
% |
|
|
(125,145 |
) |
|
|
(56.1 |
%) |
Gain
from equity dilution in the Affiliate Company |
|
|
- |
|
|
|
0.0 |
% |
|
|
4,341,259 |
|
|
|
10.3 |
% |
|
|
(4,341,259 |
) |
|
|
(100.0 |
%) |
Share of
loss after tax of the Affiliate Company |
|
|
(4,081,299 |
) |
|
|
(15.8 |
%) |
|
|
(14,449,359 |
) |
|
|
(34.2 |
%) |
|
|
10,368,060 |
|
|
|
(71.8 |
%) |
Other income, net |
|
|
1,062,985 |
|
|
|
4.1 |
% |
|
|
299,793 |
|
|
|
0.7 |
% |
|
|
763,192 |
|
|
|
254.6 |
% |
Total other expenses, net |
|
|
(1,602,670 |
) |
|
|
(6.2 |
%) |
|
|
(9,466,584 |
) |
|
|
(22.4 |
%) |
|
|
7,863,914 |
|
|
|
(83.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
6,602,902 |
|
|
|
25.6 |
% |
|
|
(12,478,823 |
) |
|
|
(29.6 |
%) |
|
|
19,081,725 |
|
|
|
(152.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX (EXPENSE) BENEFIT |
|
|
(4,122,502 |
) |
|
|
(16.0 |
%) |
|
|
751,193 |
|
|
|
1.8 |
% |
|
|
(4,873,695 |
) |
|
|
(648.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
|
2,480,400 |
|
|
|
9.6 |
% |
|
|
(11,727,630 |
) |
|
|
(27.8 |
%) |
|
|
14,208,030 |
|
|
|
(121.2 |
%) |
(a)
Revenue
For
the six months ended June 30, 2020, our revenue was $25,809,500
compared to $42,214,690 for the same period of 2019, representing a
decrease of $16,405,190 or 38.9%. The decrease in revenue was
mainly due to the decrease in EV parts sales. Due to the outbreak
of COVID-19 in China, the production of EV parts was interrupted
during the first quarter of 2020, and the overall demand of EV
parts from customers was significantly affected during the first
half of 2020.
The
following table summarizes our revenues by product types for the
six months ended June 30, 2020 and 2019:
|
|
Six Months Ended June 30 |
|
|
|
2020 |
|
|
2019 |
|
|
|
Sales |
|
|
Sales |
|
EV parts |
|
$ |
14,595,883 |
|
|
$ |
31,760,181 |
|
EV products |
|
|
253,906 |
|
|
|
- |
|
Off-road vehicles |
|
|
10,599,685 |
|
|
|
10,454,509 |
|
Electric
Scooters and Electric Self-Balancing Scooters |
|
|
360,026 |
|
|
|
- |
|
Total |
|
$ |
25,809,500 |
|
|
$ |
42,214,690 |
|
EV Parts
During
the six months ended June 30, 2020, our revenues from the sales of
EV parts were $14,595,883, representing a decrease of $17,164,298
or 54.0% from $31,760,181 for the same period of 2019.
Our
revenue for the six months ended June 30, 2020 primarily consisted
of revenue from the sales of battery packs, body parts, EV
controllers, air conditioning units and other auto parts for use in
the manufacturing of EV products. These sales accounted for 56.6%
of total sales.
During
the six months ended June 30, 2020 and 2019, our revenue from the
sale of EV parts to the Affiliate Company and its subsidiaries
accounted for approximately 0% and 14% of our total net revenue for
the quarter, respectively.
EV Products
During
the six months ended June 30, 2020, our revenue from the sale of EV
Products was $253,906, which was due to the export sales of Hainan
factories’ products. There weren’t any EV products sales in the
same period of 2019.
Off-Road Vehicles
During
the six months ended June 30, 2020, our revenue from the sales of
off-road vehicles, including go karts, all-terrain vehicles
(“ATVs”) and others, were $10,599,685, representing an increase of
$145,176 or 1.4% from $10,454,509, for the same period of
2019.
Our
off-road vehicles business line accounted for approximately 41.1%
of our total net revenue for the six months ended June 30,
2020.
Electric Scooters and Electric Self-Balancing
Scooters
During
the six months ended June 30, 2020, our revenue from the sale of
Electric Scooters and Electric Self-Balancing Scooters was
$360,026. There were no Electric Scooters and Electric
Self-Balancing Scooters sales in the same period of
2019.
The
following table shows the breakdown of our net revenues:
|
|
Six Months Ended June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
Sales Revenue |
|
|
Sales Revenue |
|
Primary
geographical markets |
|
|
|
|
|
|
Overseas |
|
$ |
10,702,105 |
|
|
$ |
10,272,661 |
|
China |
|
|
15,107,395 |
|
|
|
31,942,029 |
|
Total |
|
$ |
25,809,500 |
|
|
$ |
42,214,690 |
|
|
|
|
|
|
|
|
|
|
Major
products |
|
|
|
|
|
|
|
|
EV parts |
|
$ |
14,595,883 |
|
|
$ |
31,760,181 |
|
EV products |
|
|
253,906 |
|
|
|
- |
|
Off-road vehicles |
|
|
10,599,685 |
|
|
|
10,454,509 |
|
Electric
Scooters and Electric Self-Balancing Scooters |
|
|
360,026 |
|
|
|
- |
|
Total |
|
$ |
25,809,500 |
|
|
$ |
42,214,690 |
|
|
|
|
|
|
|
|
|
|
Timing of
revenue recognition |
|
|
|
|
|
|
|
|
Products
transferred at a point in time |
|
$ |
25,809,500 |
|
|
$ |
42,214,690 |
|
Total |
|
$ |
25,809,500 |
|
|
$ |
42,214,690 |
|
(b)
Cost of goods sold
Cost
of goods sold was $21,105,463 during the six months ended June 30,
2020, representing a decrease of $13,770,636, or 39.5%, compared to
$34,876,099 for the same period of 2019. The decrease was primarily
due to the corresponding decrease in sales. Please refer to the
Gross Profit section below for product margin analysis.
(c)
Gross profit
Our
margins by product for the six months ended June 30, 2020 and 2019
are as set forth below:
|
|
Six Months Ended June 30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
Sales |
|
|
Cost |
|
|
Gross Profit |
|
|
Margin % |
|
|
Sales |
|
|
Cost |
|
|
Gross Profit |
|
|
Margin % |
|
EV parts |
|
$ |
14,595,883 |
|
|
|
12,603,150 |
|
|
|
1,992,733 |
|
|
|
13.7 |
% |
|
$ |
31,760,181 |
|
|
|
26,635,967 |
|
|
|
5,124,214 |
|
|
|
16.1 |
% |
EV products |
|
|
253,906 |
|
|
|
236,594 |
|
|
|
17,312 |
|
|
|
6.8 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Off-road vehicles |
|
|
10,599,685 |
|
|
|
7,933,307 |
|
|
|
2,666,378 |
|
|
|
25.2 |
% |
|
|
10,454,509 |
|
|
|
8,240,132 |
|
|
|
2,214,377 |
|
|
|
21.2 |
% |
Electric Scooters and Electric Self-Balancing Scooters |
|
|
360,026 |
|
|
|
332,412 |
|
|
|
27,614 |
|
|
|
7.7 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total |
|
$ |
25,809,500 |
|
|
|
21,105,463 |
|
|
|
4,704,037 |
|
|
|
18.2 |
% |
|
$ |
42,214,690 |
|
|
|
34,876,099 |
|
|
|
7,338,591 |
|
|
|
17.4 |
% |
Gross
profit for the first half of 2020 decreased 35.9% to $
4,704,037, compared to $7,338,591 for the same period last year.
This was primarily attributable to the sales decrease, which was
primarily due to the outbreak of COVID-19 in 2020. Our gross margin
increased to 18.2% compared to 17.4% for the same period of 2019.
The increase in our gross margin was mainly due to the sales under
SC which has increased the unit price for the parts since end of
2019 as well as introducing the sales of ATVs that brought higher
margin than other off-road vehicles such as UTVs since May
2019.
(d)
Research and development
Research
and development expenses, including materials, labor, equipment
depreciation, design, testing, inspection, and other related
expenses, totaled $1,790,141 for the first half of 2020, an
increase of $620,118 or 53.0% compared to $1,170,023 for the same
period of last year. The increase was mainly due to the R&D
expense related to the technology upgrading of the Company’s
products.
(e)
Sales and marketing
Selling
and distribution expenses were $1,641,972 for the first half of
2020, compared to $1,517,481 for the same period last year,
representing an increase of $124,491 or 8.2%. The increase was
primarily attributable to the increasing labor and advertising
expenses in connection with the expansion the U.S. electric vehicle
market.
(f)
General and administrative expenses
General
and administrative expenses were $6,973,926 for the first half of
2020, compared to $7,663,326 for the same period last year,
representing a decrease of $689,400 or 9.0%. For the six months
ended June 30, 2020, general and administrative expenses included
$847,546 as expenses for common stock awards and stock options to
employees and Board members, compared to $1,314,408 of common stock
awards and stock options expenses for the same period in 2019.
Besides stock compensation expense, our net general and
administrative expenses for the six months ended June 30, 2020 were
$6,126,380 which was comparable to $6,348,918 for the same period
of 2019.
(g) Gain on disposal of long-live asset
Gain on disposal of long-live asset was $13,907,574 for the first
half of 2020, which was related to the real estate repurchase
agreement of our Jinhua Facility’s relocation. In June 2020, 73,333
square meters of land use right was transferred to the local
government, and the related gain was recognized.
(h)
Interest income
Interest
income was $560,736 for the first half of 2020, representing an
increase of $210,518 or 60.1% compared to $350,218 for the same
period of last year. The increase was primarily attributable to
interest earned on collateral for bank acceptance notes and
increased interest earned on the loan to third party.
(i)
Interest expenses
Interest
expenses were $2,105,990 in the first half of 2020, representing an
increase of $1,237,452 or 142.5% compared to $868,538 for the same
period of last year. The increase was primarily due to the interest
expense of Hainan factory’s long-term debt.
(j)
Change in fair value of contingent consideration
For
the first half of 2020, the gain related to changes in the fair
value of contingent consideration was $2,863,000, an increase of
$2,226,000 or 349.5% compared to gain related to changes in the
fair value of contingent consideration of $637,000 for the same
period of last year, which was mainly due to the adjustment of the
fair value of the contingent consideration liability associated
with the remaining shares of restrictive common stock (Please refer
to NOTE 20 – CONTINGENT CONSIDERATION LIABILITY). The fair value of
the contingent consideration liability was estimated at each
reporting date by using the Monte Carlo simulation method, which
took into account all possible scenarios.
(k)
Government grants
Government
grants were $97,898 for the first half of 2020, compared to
$223,043 for the same quarter last year, representing a decrease of
$125,145, or 56.1%, which was largely attributable to the refund of
2018 social security and land use tax Kandi Vehicles received in
the second quarter of 2019.
(l)
Gain from equity dilution in the Affiliate Company
Gain
from equity dilution was $0 for the first half of 2020, compared to
$4,341,259 for the same period of last year, which was primarily
due to gain from the conversion of the loan into equity in the
Affiliate Company in March 2019. Pursuant to the Equity Transfer
Agreement, the Affiliate Company converted a loan of RMB 314
million (approximately $44.3 million) from Geely Group to equity in
order to increase its cash flow (for details please refer to Note
22 - SUMMARIZED INFORMATION OF EQUITY METHOD INVESTMENT IN THE
AFFILIATE COMPANY).
(m)
Share of loss after tax of the Affiliate Company
For
the first half of 2020, our share of loss of the Affiliate Company
was $4,081,299 as compared to share of loss of $14,449,359 for the
same period of last year, representing a decrease of share of loss
of $10,368,060, which was largely attributable to the decreased
operating expenses of the Affiliate Company, as well as the fact
that our equity interests of the Affiliate Company has been
decreased to 22% from 43.47% after the equity dilution and equity
transfer in 2019.
(n)
Other income, net
Net
other income was $1,062,985 for the first half of 2020,
representing an increase of $763,192 or 254.6% compared to net
other income of $299,793 for the same period of last year, which
was largely due to the discount of accounts payable after
negotiation with supplier.
(o)
Income Taxes
In
accordance with the relevant Chinese tax laws and regulations, our
applicable corporate income tax rate is 25%. However, Kandi Vehicle
and Kandi Smart Battery Swap are qualified as high technology
companies in China and are therefore entitled to a reduced
corporate income tax rate of 15%.
Each
of our wholly-owned subsidiaries, Kandi New Energy, Yongkang Scrou
and Kandi Hainan, has an applicable corporate income tax rate of
25%.
We
have a 22% ownership interest in the Affiliate Company, which has
an applicable corporate income tax rate of 25%. Each of the
Affiliate Company’s subsidiaries has an applicable corporate income
tax rate of 25%.
Our
actual effective income tax rate for the first half of 2020 was a
tax expense of 62.43% on a reported income before taxes of
approximately $6.6 million, compared to a tax benefit of 6.02% on a
reported loss before taxes of approximately $12.5 million for the
same period of last year.
(p)
Net income (loss)
Net income was $2,480,400 for the first half of 2020, representing
a decrease in net loss by $14,208,030 compared to net loss
$11,727,630 for the same period of last year. The decrease in loss
was primarily attributable to the Gain on disposal of long-live
asset which was related to the real estate repurchase agreement of
our Jinhua Facility’ relocation.
LIQUIDITY
AND CAPITAL RESOURCES
Cash Flow
|
|
Six Months Ended |
|
|
|
June 30,
2020 |
|
|
June 30,
2019 |
|
Net
cash used in by operating activities |
|
$ |
(34,327,490 |
) |
|
$ |
(33,118,904 |
) |
Net cash provided
by investing activities |
|
|
50,278,763 |
|
|
|
14,228,076 |
|
Net cash (used in)
provided by financing activities |
|
|
(25,628,295 |
) |
|
|
1,474,078 |
|
NET DECREASE IN
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
(9,677,022 |
) |
|
|
(17,416,750 |
) |
Effect of exchange rate changes on
cash |
|
|
(157,062 |
) |
|
|
246,604 |
|
CASH AND CASH
EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR |
|
|
16,512,635 |
|
|
|
22,353,071 |
|
CASH AND CASH
EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
|
|
6,678,551 |
|
|
|
5,182,925 |
|
For
the first half of 2020, cash used in operating activities was
$34,327,490, as compared to cash used in operating activities of
$33,118,904 for the same period last year. Our operating cash
inflows include cash received primarily from sales of our EV parts
and off-road vehicles. These cash inflows are offset largely by
cash paid primarily to our suppliers for production materials and
parts used in our manufacturing process, operation expenses,
employee compensation, and interest expenses of our financings. The
major operating activities that provided cash for the first half of
2020 were a decrease of amount due from the Affiliate Company of
$4,129,516. The major operating activity that used cash for first
half of 2020 was an increase of advances to supplier and
prepayments and prepaid expenses of $12,586,777.
For the first half of 2020, cash derived from investing activities
was $50,278,763, as compared to cash derived from investing
activities of $14,228,076 for the same period of last year. The
major investing activities that provided cash for the first half of
2020 were an increase of proceeds from disposal of long-lived
assets of $34,696,547. The major investing activities that used
cash for first half of 2020 were $59,670 used for the purchases of
property, plant and equipment.
For the first half of 2020, cash used in financing activities was $
25,628,295, as compared to cash derived from financing activities
of $1,474,078 for the same period of last year. The major financing
activities that provided cash for the first half of 2020 were
proceeds from short-term bank loans of $24,031,625. The major
financing activities that used cash for the first half of 2020 were
repayments of short-term bank loans of $49,769,638.
Working Capital
We had working capital of $75,587,762 at June 30, 2020, which
reflects an increase of $11,889,065 from a working capital of
$63,698,697 as of December 31, 2019.
After
two years of negotiations, on March 10, 2020, a real estate
repurchase agreement (the “Repurchase Agreement”) was entered into
by and between Kandi Vehicles and Jinhua Economic and Technological
Development Zone pursuant to which the local government shall
purchase the land use right over the land of 66 acres (400 mu,
265,029 square meters) that is owned by Kandi Vehicles for RMB 525
million ($74 million). Payments to Kandi Vehicles shall be made in
three installments as the Company disclosed in a Current Report on
Form 8-K filed with the SEC on March 9, 2020. In addition, if Kandi
Vehicles achieves certain milestones that contribute to local
economic development, the Company will be eligible for tax rebates
that could total up to RMB 500 million ($71 million) over the next
eight years. On May 22, 2020, the Company received the first
payment of RMB 244 million (approximately $35 million) under the
Repurchase Agreement. On July 9, 2020, the Company received the
second payment of RMB 119 million (approximately $17 million) under
the Repurchase Agreement.
Contractual
Obligations and Off-balance Sheet Arrangements
Short-term
and long-term Loans:
For
the discussion of short-term and long-term loans, please refer to
Note 17 - Short-term and Long-term Loans under Notes to Condensed
Consolidated Financial Statements.
Guarantees
and pledged collateral for third party bank loans
For
the discussion of guarantees and pledged collateral for third party
bank loans, please refer to Note 23 – Commitments and Contingencies
under Notes to Condensed Consolidated Financial
Statements.
Recent
Development Activities
On
July 13, 2020, we announced that the Affiliate Company launched
sales of its first pure electric SUV, the Maple 30x. The Maple 30x
comes in five styles and five different colors. In addition to the
four styles offered in pre-sales earlier this year, the Affiliate
Company also launched its “mobility version” customized for the
urban mobility market.
On
July 22, 2020, we announced that the Maple 60V all-electric MPV
(Multi-purpose Vehicle) produced by the Affiliate Company was
approved for purchase subsidies by China’s Ministry of Industry and
Information Technology (“MIIT”). Subsidy approval is a key
milestone as the Affiliate Company brings the 60V to market in the
near future.
On
July 30, 2020, we announced the formal launch of the most
affordable pure electric automobiles in the U.S. market, the Kandi
K27 and K23 models. The cars will be sold by Kandi America, the
trade name of Kandi’s wholly owned subsidiary SC Autosports, LLC.
Sales will initially focus on the Dallas-Fort Worth
metroplex.
On
August 3, 2020, we announced the achievement of a key milestone in
our commercialization plan for our proprietary battery swap
technology. On August 2, 2020, we delivered our fully automatic
intelligent battery exchange system to the rideshare operator in
Haikou City, Hainan Province. The system was developed and is
produced by Kandi’s wholly-owned subsidiary, Kandi Smart Battery
Swap. Installation is expected to be completed shortly, after which
the rideshare operator will use the K23 model’s battery swap
service for its online car-hailing business in Hainan.
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
This
item is not applicable to us.
Item
4. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
We
have evaluated, under the supervision of our Chief Executive
Officer (“CEO”) and our Chief Financial Officer (“CFO”), the
effectiveness of disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the “Exchange Act”) as of June 30, 2020.
Based on this evaluation, our CEO and CFO concluded that as of the
end of the period covered by this report, our disclosure controls
and procedures were effective.
Disclosure
controls and procedures are controls and procedures that are
designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act (a) is recorded,
processed, summarized and reported within the time periods
specified in the SEC’s rules and forms and (b) is accumulated and
communicated to management, including our CEO and CFO, as
appropriate, to allow timely decisions regarding required
disclosure. Our management recognizes that any controls and
procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Our
disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives as described
above.
Changes
in Internal Control over Financial Reporting
There
was no change to our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the period covered by this report that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings.
From
time to time, the Company is involved in legal matters arising in
the ordinary course of business. Except as set forth in Note 23 -
COMMITMENTS AND CONTINGENCIES under Notes to Condensed Consolidated
Financial Statements, our management is currently not aware of any
legal matters or pending litigation that would have a significant
effect on the Company’s results of operation of financial
statements, nor is the Company aware of any other legal matters in
which any director, officer, or any owner of record or beneficial
owner of more than five percent of any class of voting securities
of the Company, or any affiliate of any such director, officer,
affiliate of the Company, or security holder, is a party adverse to
the Company or has a material adverse interest to the Company. For
the detailed discussion of our legal proceedings, please refer to
Note 23 - COMMITMENTS AND CONTINGENCIES under Notes to Condensed
Consolidated Financial Statements, which is incorporated by
reference herein.
Item
6. Exhibits
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.
Date:
August 10, 2020 |
By: |
/s/ Hu
Xiaoming |
|
|
Hu
Xiaoming |
|
|
President
and Chief Executive Officer |
|
|
(Principal
Executive Officer) |
|
|
|
Date:
August 10, 2020 |
By: |
/s/ Jehn
Ming Lim |
|
|
Jehn
Ming Lim |
|
|
Chief
Financial Officer |
|
|
(Principal
Financial Officer and |
|
|
Accounting
Officer) |
47
The Coronavirus Aid, Relief, and
Economic Security Act, or CARES Act, was signed into law on March
27, 2020, and provides over $2.0 trillion in emergency economic
relief to individuals and businesses impacted by the COVID-19
pandemic. The CARES Act authorized the Small Business
Administration (“SBA”) to temporarily guarantee loans under a new
7(a) loan program called the Paycheck Protection Program (“PPP”).
An eligible business can apply for a PPP loan up to the greater of:
(1) 2.5 times its average monthly “payroll costs;” or (2) $10.0
million. PPP loans will have: (a) an interest rate of 1.0%, (b) a
two-year loan term to maturity; and (c) principal and interest
payments deferred for six months from the date of disbursement. The
SBA will guarantee 100% of the PPP loans made to eligible
borrowers. The entire principal amount of the borrower’s PPP loan,
including any accrued interest, is eligible to be reduced by the
loan forgiveness amount under the PPP so long as employee and
compensation levels of the business are maintained and 75% of the
loan proceeds are used for payroll expenses, with the remaining 25%
of the loan proceeds used for other qualifying expenses. As of June
30, 2020, we had received $244,116 under the PPP.
In addition, Economic Injury Disaster Loans (“EIDL”) through the
SBA was also made available under the CARES Act passed by Congress
in response to the COVID-19 pandemic. During June 2020, $150,000 of
EIDL loan was approved with the term of a 3.75% rate over 30 years,
and a 12-month deferment on the first repayment of principal with
interest accrued during deferment.
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2021-12-12
The Coronavirus Aid, Relief, and Economic Security Act, or CARES
Act, was signed into law on March 27, 2020, and provides over $2.0
trillion in emergency economic relief to individuals and businesses
impacted by the COVID-19 pandemic. The CARES Act authorized the
Small Business Administration ("SBA") to
temporarily guarantee loans under a new 7(a) loan program called
the Paycheck Protection Program ("PPP"). An
eligible business can apply for a PPP loan up to the greater of:
(1) 2.5 times its average monthly "payroll
costs;" or (2) $10.0 million. PPP loans will have: (a) an
interest rate of 1.0%, (b) a two-year loan term to maturity; and
(c) principal and interest payments deferred for six months from
the date of disbursement. The SBA will guarantee 100% of the PPP
loans made to eligible borrowers. The entire principal amount of
the borrower's PPP loan, including any accrued interest,
is eligible to be reduced by the loan forgiveness amount under the
PPP so long as employee and compensation levels of the business are
maintained and 75% of the loan proceeds are used for payroll
expenses, with the remaining 25% of the loan proceeds used for
other qualifying expenses. As of June 30, 2020, we had received
$244,116 under the PPP. In addition, Economic Injury Disaster Loans
("EIDL") through the SBA was also made available
under the CARES Act passed by Congress in response to the COVID-19
pandemic. During June 2020, $150,000 of EIDL loan was approved with
the term of a 3.75% rate over 30 years, and a 12-month deferment on
the first repayment of principal with interest accrued during
deferment.
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Kandi Technolgies (NASDAQ:KNDI)
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Kandi Technolgies (NASDAQ:KNDI)
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From Jan 2020 to Jan 2021