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.