Item
1. Financial Statements.
KANDI
TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
March 31,
2022 | | |
December 31,
2021 | |
| |
(Unaudited) | | |
| |
Current assets | |
| | |
| |
Cash and cash equivalents | |
$ | 99,997,938 | | |
$ | 129,223,443 | |
Restricted cash | |
| 58,222,796 | | |
| 39,452,564 | |
Certificate of deposit | |
| 70,957,772 | | |
| 55,041,832 | |
Accounts receivable (net of allowance for doubtful accounts of $3,065,854 and $3,053,277 as of March 31, 2022 and December 31, 2021, respectively) | |
| 40,262,353 | | |
| 52,896,305 | |
Inventories | |
| 30,958,762 | | |
| 33,171,973 | |
Notes receivable | |
| 837,302 | | |
| 323,128 | |
Other receivables | |
| 8,798,534 | | |
| 8,901,109 | |
Prepayments and prepaid expense | |
| 17,275,378 | | |
| 17,657,326 | |
Advances to suppliers | |
| 4,998,703 | | |
| 5,940,456 | |
TOTAL CURRENT ASSETS | |
| 332,309,538 | | |
| 342,608,136 | |
| |
| | | |
| | |
NON-CURRENT ASSETS | |
| | | |
| | |
Property, plant and equipment, net | |
| 110,004,425 | | |
| 111,577,411 | |
Intangible assets, net | |
| 12,770,134 | | |
| 13,249,079 | |
Land use rights, net | |
| 3,235,497 | | |
| 3,250,336 | |
Construction in progress | |
| 326,641 | | |
| 79,317 | |
Deferred tax assets | |
| 2,219,297 | | |
| 2,219,297 | |
Long-term investment | |
| 157,684 | | |
| 157,262 | |
Goodwill | |
| 36,109,089 | | |
| 36,027,425 | |
Other long-term assets | |
| 11,898,416 | | |
| 10,992,009 | |
TOTAL NON-CURRENT ASSETS | |
| 176,721,183 | | |
| 177,552,136 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 509,030,721 | | |
$ | 520,160,272 | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable | |
$ | 27,966,224 | | |
$ | 36,677,802 | |
Other payables and accrued expenses | |
| 7,747,034 | | |
| 9,676,973 | |
Short-term loans | |
| 1,450,000 | | |
| 950,000 | |
Notes payable | |
| 10,548,203 | | |
| 8,198,193 | |
Income tax payable | |
| 1,512,342 | | |
| 1,620,827 | |
Other current liabilities | |
| 6,726,257 | | |
| 7,038,895 | |
TOTAL CURRENT LIABILITIES | |
| 55,950,060 | | |
| 64,162,690 | |
| |
| | | |
| | |
NON-CURRENT LIABILITIES | |
| | | |
| | |
Long-term loans | |
| 2,210,589 | | |
| 2,210,589 | |
Deferred taxes liability | |
| 2,460,141 | | |
| 2,460,141 | |
Contingent consideration liability | |
| 5,122,000 | | |
| 7,812,000 | |
Other long-term liabilities | |
| 989,018 | | |
| 314,525 | |
TOTAL NON-CURRENT LIABILITIES | |
| 10,781,748 | | |
| 12,797,255 | |
| |
| | | |
| | |
TOTAL LIABILITIES | |
| 66,731,808 | | |
| 76,959,945 | |
| |
| | | |
| | |
STOCKHOLDER’S EQUITY | |
| | | |
| | |
Common stock, $0.001 par value; 100,000,000 shares authorized; 77,410,130 and 77,385,130 shares issued and 76,271,345 and 76,705,381 outstanding at March 31,2022 and December 31,2021, respectively | |
| 77,410 | | |
| 77,385 | |
Less: Treasury stock (1,138,785 shares with average price of $3.48 and 679,749 shares with average price of $3.52 at March 31,2022 and December 31,2021, respectively ) | |
| (3,962,527 | ) | |
| (2,392,203 | ) |
Additional paid-in capital | |
| 449,559,150 | | |
| 449,479,461 | |
Accumulated deficit (the restricted portion is $4,422,033 and $4,422,033 at March 31,2022 and December 31,2021, respectively) | |
| (5,832,158 | ) | |
| (4,216,102 | ) |
Accumulated other comprehensive loss | |
| 1,261,597 | | |
| 251,786 | |
TOTAL KANDI TECHNOLOGIES GROUP, INC. STOCKHOLDERS’ EQUITY | |
| 441,103,472 | | |
| 443,200,327 | |
| |
| | | |
| | |
Non-controlling interests | |
| 1,195,441 | | |
| - | |
TOTAL STOCKHOLDERS’ EQUITY | |
| 442,298,913 | | |
| 443,200,327 | |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | |
$ | 509,030,721 | | |
$ | 520,160,272 | |
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 | |
| |
March 31,
2022 | | |
March 31,
2021 | |
| |
| | |
| |
REVENUES FROM UNRELATED PARTIES, NET | |
$ | 24,891,404 | | |
$ | 15,976,170 | |
REVENUES FROM THE FORMER AFFILIATE COMPANY AND RELATED PARTIES, NET | |
| - | | |
| 1,584 | |
| |
| | | |
| | |
REVENUES, NET | |
| 24,891,404 | | |
| 15,977,754 | |
| |
| | | |
| | |
COST OF GOODS SOLD | |
| (22,504,241 | ) | |
| (11,623,403 | ) |
| |
| | | |
| | |
GROSS PROFIT | |
| 2,387,163 | | |
| 4,354,351 | |
| |
| | | |
| | |
OPERATING INCOME (EXPENSE): | |
| | | |
| | |
Research and development | |
| (1,140,586 | ) | |
| (21,624,597 | ) |
Selling and marketing | |
| (1,193,699 | ) | |
| (1,146,866 | ) |
General and administrative | |
| (5,756,531 | ) | |
| (4,430,123 | ) |
TOTAL OPERATING EXPENSE | |
| (8,090,816 | ) | |
| (27,201,586 | ) |
| |
| | | |
| | |
EXPENSE FROM OPERATIONS | |
| (5,703,653 | ) | |
| (22,847,235 | ) |
| |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | |
Interest income | |
| 1,222,304 | | |
| 528,592 | |
Interest expense | |
| (148,144 | ) | |
| (126,348 | ) |
Change in fair value of contingent consideration | |
| 2,690,000 | | |
| 357,000 | |
Government grants | |
| 244,098 | | |
| 234,793 | |
Gain from sale of equity in the Former Affiliate Company | |
| - | | |
| 17,700,260 | |
Share of loss after tax of the Former Affiliate Company | |
| - | | |
| (2,579,497 | ) |
Other income, net | |
| 43,782 | | |
| 498,901 | |
TOTAL OTHER INCOME , NET | |
| 4,052,040 | | |
| 16,613,701 | |
| |
| | | |
| | |
LOSS BEFORE INCOME TAXES | |
| (1,651,613 | ) | |
| (6,233,534 | ) |
| |
| | | |
| | |
INCOME TAX BENEFIT (EXPENSE) | |
| 32,600 | | |
| (169,186 | ) |
| |
| | | |
| | |
NET LOSS | |
| (1,619,013 | ) | |
| (6,402,720 | ) |
| |
| | | |
| | |
LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTERESTS | |
| 2,957 | | |
| - | |
| |
| | | |
| | |
NET LOSS ATTRIBUTABLE TO KANDI TECHNOLOGIES GROUP, INC. STOCKHOLDERS | |
| (1,616,056 | ) | |
| (6,402,720 | ) |
| |
| | | |
| | |
OTHER COMPREHENSIVE INCOME (LOSS) | |
| | | |
| | |
Foreign currency translation adjustment | |
| 1,009,811 | | |
| (1,176,013 | ) |
| |
| | | |
| | |
COMPREHENSIVE INCOME (LOSS) | |
$ | (609,202 | ) | |
$ | (7,578,733 | ) |
| |
| | | |
| | |
WEIGHTED AVERAGE SHARES OUTSTANDING BASIC AND DILUTED | |
| 76,289,846 | | |
| 75,383,777 | |
| |
| | | |
| | |
NET LOSS PER SHARE, BASIC AND DILUTED | |
$ | (0.02 | ) | |
$ | (0.08 | ) |
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 Loss | | |
Non-controlling interests | | |
Total | |
Balance,
December 31, 2020 | |
| 75,377,555 | | |
$ | 75,377 | | |
$ | - | | |
$ | 439,549,338 | | |
$ | (27,079,900 | ) | |
$ | (8,778,151 | ) | |
$ | - | | |
$ | 403,766,664 | |
Stock issuance and award | |
| 10,000 | | |
| 10 | | |
| - | | |
| 22,290 | | |
| - | | |
| - | | |
| - | | |
| 22,300 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (6,402,720 | ) | |
| - | | |
| - | | |
| (6,402,720 | ) |
Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,176,013 | ) | |
| - | | |
| (1,176,013 | ) |
Reversal of reduction in the Former Affiliate Company’s equity
(net of tax effect of $491,400) | |
| - | | |
| - | | |
| - | | |
| 2,771,652 | | |
| - | | |
| - | | |
| - | | |
| 2,771,652 | |
Balance, March 31, 2021 | |
| 75,387,555 | | |
$ | 75,387 | | |
$ | - | | |
$ | 442,343,280 | | |
$ | (33,482,620 | ) | |
$ | (9,954,164 | ) | |
$ | - | | |
$ | 398,981,883 | |
| |
Number of Outstanding Shares | | |
Common Stock | | |
Treasury Stock | | |
Additional Paid-in Capital | | |
Accumulated Earning (Deficit) | | |
Accumulated Other Comprehensive Income | | |
Non-controlling interests | | |
Total | |
Balance, December 31, 2021 | |
| 77,385,130 | | |
$ | 77,385 | | |
$ | (2,392,203 | ) | |
$ | 449,479,461 | | |
$ | (4,216,102 | ) | |
$ | 251,786 | | |
$ | - | | |
$ | 443,200,327 | |
Stock issuance and award | |
| 25,000 | | |
| 25 | | |
| - | | |
| 92,925 | | |
| - | | |
| - | | |
| - | | |
| 92,950 | |
Stock buyback | |
| | | |
| | | |
| (1,570,324 | ) | |
| (13,236 | ) | |
| | | |
| | | |
| | | |
| (1,583,560 | ) |
Capital contribution from shareholder | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,198,398 | | |
| 1,198,398 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,616,056 | ) | |
| - | | |
| (2,957 | ) | |
| (1,619,013 | ) |
Foreign currency translation | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,009,811 | | |
| - | | |
| 1,009,811 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, March 31, 2022 | |
| 77,410,130 | | |
$ | 77,410 | | |
$ | (3,962,527 | ) | |
$ | 449,559,150 | | |
$ | (5,832,158 | ) | |
$ | 1,261,597 | | |
$ | 1,195,441 | | |
$ | 442,298,913 | |
See
accompanying notes to condensed consolidated financial statements.
KANDI
TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
Three Months Ended | |
| |
March 31,
2022 | | |
March 31,
2021 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net loss | |
$ | (1,619,013 | ) | |
$ | (6,402,720 | ) |
Adjustments to reconcile net income to net cash provided by operating activities | |
| | | |
| | |
Depreciation and amortization | |
| 3,294,499 | | |
| 2,212,965 | |
Provision (reversal) of allowance for doubtful accounts | |
| 4,389 | | |
| - | |
Share of loss after tax of the Former Affiliate Company | |
| - | | |
| 2,579,497 | |
Loss from equity sale in the Former Affiliate Company | |
| - | | |
| (17,700,260 | ) |
Change in fair value of contingent consideration | |
| (2,690,000 | ) | |
| (357,000 | ) |
Stock based compensation expense | |
| 22,925 | | |
| 22,925 | |
| |
| | | |
| | |
Changes in operating assets and liabilities: | |
| | | |
| | |
| |
| | | |
| | |
Accounts receivable | |
| 5,197,268 | | |
| 8,916,548 | |
Notes receivable | |
| 1,965,596 | | |
| - | |
Inventories | |
| 2,498,914 | | |
| (864,177 | ) |
Other receivables and other assets | |
| (790,486 | ) | |
| (13,058,262 | ) |
Advances to supplier and prepayments and prepaid expenses | |
| 1,425,684 | | |
| 18,807,547 | |
| |
| | | |
| | |
Increase (Decrease) In: | |
| | | |
| | |
Accounts payable | |
| 3,088,095 | | |
| (340,133 | ) |
Other payables and accrued liabilities | |
| (1,688,414 | ) | |
| 107,011 | |
Notes payable | |
| (4,401,457 | ) | |
| - | |
Income tax payable | |
| (119,559 | ) | |
| 58,779 | |
Net cash provided by (used in) operating activities | |
$ | 6,188,441 | | |
$ | (6,017,280 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Purchases of property, plant and equipment, net | |
| (709,881 | ) | |
| (5,866,207 | ) |
Payment for construction in progress | |
| (246,971 | ) | |
| (4,339,770 | ) |
Repayment from (loan to) third party | |
| - | | |
| 13,113,237 | |
Certificate of deposit | |
| (15,759,448 | ) | |
| (15,427,337 | ) |
Proceeds from sales of equity in the Former Affiliate Company | |
| - | | |
| 23,758,099 | |
Long-term Investment | |
| - | | |
| (107,991 | ) |
Net cash (used in) provided by investing activities | |
$ | (16,716,300 | ) | |
$ | 11,130,031 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from short-term loans | |
| 500,000 | | |
| - | |
Contribution from non-controlling shareholder | |
| 803,732 | | |
| - | |
Purchase of treasury stock | |
| (1,583,561 | ) | |
| - | |
Net cash used in financing activities | |
$ | (279,829 | ) | |
$ | - | |
| |
| | | |
| | |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND
RESTRICTED CASH | |
$ | (10,807,688 | ) | |
$ | 5,112,751 | |
Effect of exchange rate changes | |
$ | 352,415 | | |
$ | (438,313 | ) |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR | |
$ | 168,676,007 | | |
$ | 142,520,635 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | |
$ | 158,220,734 | | |
$ | 147,195,073 | |
-CASH AND CASH EQUIVALENTS AT END OF PERIOD | |
| 99,997,938 | | |
| 146,714,469 | |
-RESTRICTED CASH AT END OF PERIOD | |
| 58,222,796 | | |
| 480,604 | |
| |
| | | |
| | |
SUPPLEMENTARY CASH FLOW INFORMATION | |
| | | |
| | |
Income taxes paid | |
$ | 5,496 | | |
| 110,407 | |
Interest paid | |
$ | 37,116 | | |
| - | |
| |
| | | |
| | |
SUPPLEMENTAL NON-CASH DISCLOSURES: | |
| | | |
| | |
Reversal of decrease in investment in the Former Affiliate Company due to change in its equity (net of tax effect of $491,400) | |
| - | | |
| 2,807,696 | |
Increase of other receivable for equity transfer payment of the Former Affiliate Company | |
| - | | |
| 23,758,099 | |
Contribution from non-controlling shareholder by inventories and fix assets | |
| 393,986 | | |
| - | |
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, 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) and its wholly-owned subsidiary, Kandi America Investment, LLC
(“Kandi Investment”). In March 2021, Zhejiang Kandi Vehicles Co., Ltd. changed its name to Zhejiang Kandi Technologies Group
Co., Ltd. (“Zhejiang Kandi Technologies”).
The
Company’s organizational chart as of the date of this report is as follows:
On February 15, 2022, Kandi Hainan and Jiangsu Xingchi Signed a joint venture agreement, the two parties jointly invested RMB 30,000,000
(approximately $4.6 million) in Haikou, Hainan (of which Kandi Hainan owns 66.7% and Jiangsu Xingchi owns 33.3%) to establish Hainan Kandi
Holding New Energy Technology Co., Ltd. (“Hainan Kandi Holding”).
NOTE
2 - LIQUIDITY
The
Company had working capital of $ 276,359,478 as of March 31, 2022, a decrease of $ 2,085,968 from working capital of $278,445,446 as
of December 31, 2021. As of March 31, 2022 and December 31, 2021, the Company’s cash and cash equivalents were $99,997,938 and
$129,223,443, respectively, the Company’s restricted cash was $58,222,796 and $39,452,564, respectively. As of March 31, 2022 and
December 31, 2021, the Company had multiple certificates of deposit with a total amount of $70,957,772 and $55,041,832, respectively.
These certificates of deposit have an annual interest rate from 3.35% to 3.99% which can be transferred when necessary
without any penalty or any loss of interest and principal.
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 Fengsheng Automotive
Technology Group Co., Ltd., (“Former 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. Currently the Company has sufficient cash in hand to meet the existing operational needs, but the
credit line is retained which can be utilized timely when the Company has special capital needs. The PRC subsidiaries do not have any
short-term bank loans and the US subsidiaries have $3.7 million short-term and long-term bank loans as of March 31, 2022.
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 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, 2021 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,
2021 (the “2021 Form 10-K”).
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) |
Zhejiang
Kandi Technologies, 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 Zhejiang Kandi Technologies (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 Zhejiang Kandi Technologies for the operation and management of Kandi New Energy and put his shares of Kandi New Energy into escrow. As a result, Zhejiang Kandi Technologies was entitled to 100% of the economic benefits, voting rights and residual interests of Kandi New Energy. Effective March 14, 2022, Mr. Hu Xiaoming transferred his 50% equity interests of Kandi New Energy to Zhejiang Kandi Technologies. As a result, Kandi New Energy has become a wholly-owned subsidiary of Zhejiang Kandi Technologies; |
| (4) | Kandi Electric Vehicles (Hainan) Co., Ltd. (“Kandi Hainan”), a subsidiary, 55% owned by Kandi New Energy and 45% owned by Zhejiang Kandi Technologies, incorporated under the laws of the PRC; |
|
(5) |
Zhejiang
Kandi Smart Battery Swap Technology Co., Ltd (“Kandi Smart Battery Swap”), a wholly-owned subsidiary of Zhejiang Kandi
Technologies, incorporated under the laws of the PRC; |
|
(6) |
Yongkang
Scrou Electric Co, Ltd. (“Yongkang Scrou”), a wholly-owned subsidiary of Kandi Smart Battery Swap, incorporated under
the laws of the PRC; and |
|
(7) |
SC
Autosports (d/b/a Kandi America), a wholly-owned subsidiary of the Company formed under the laws of the State of Texas. |
|
(8) |
China
Battery Exchange (Zhejiang) Technology Co., Ltd. (“China Battery Exchange”) and its subsidiaries, a wholly-owned subsidiary
of Zhejiang Kandi Technologies, incorporated under the laws of the PRC. |
|
(9) |
Kandi
America Investment, LLC (“Kandi Investment”), a wholly-owned subsidiary of SC Autosports formed under the laws of the
State of Texas, USA. |
| (10) | Jiangxi Province Huiyi New Energy Co., Ltd., (“Jiangxi Huiyi”) and its subsidiaries, a wholly-owned subsidiary of Zhejiang Kandi Technologies, incorporated under the laws of the PRC. |
| | |
| (11) | Hainan Kandi Holding New Energy Technology Co., Ltd. (“Hainan Kandi Holding”), a subsidiary of Kandi Hainan, incorporated under the laws of the PRC; Kandi Hainan owns 66.7% and a non-affiliate, Jiangsu Xingchi Electric Technology Co., Ltd. (“Jiangsu Xingchi”) owns 33.3% of Hainan Kandi Holding. Consequently, non-controlling interests of an aggregate of 33.3% of the equity interests of Hainan Kandi Holding held by an entity are presented in the consolidated balance sheets, separately from equity attributable to the shareholders of the Company. Non-controlling interest in the results of the Company are presented on the consolidated statement of operations as an allocation of the total income or loss for the period between non-controlling interest holders and the shareholders of the Company. |
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 investment in the Former Affiliate Company, in which the Company owned 22% equity interest until March 9, 2021.
On
February 18, 2021, Zhejiang Kandi Technologies signed an Equity Transfer Agreement with Geely to transfer all of its remaining 22%
equity interests in the Former Affiliate Company to Geely.
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 the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and related disclosures of contingent assets and liabilities at the balance
sheet date, and the reported revenues and expenses during the reported period in the consolidated financial statements and accompanying
notes. Significant accounting estimates reflected in the Company’s consolidated financial statements primarily include, but are
not limited to, allowances for doubtful accounts, lower of cost and net realizable value of inventory, assessment for impairment of long-lived
assets and intangible assets, valuation of deferred tax assets, change in fair value of contingent consideration, determination of share-based
compensation expenses as well as fair value of stock warrants.
Management
bases the estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which
form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these 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’s
2021 Form 10-K.
NOTE
7 - NEW ACCOUNTING PRONOUNCEMENTS
Accounting
Pronouncements Not Yet Adopted
In
October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805) – Accounting for Contract Assets and Contract
Liabilities from Contracts with Customers”, which requires that an acquirer recognize and measure contract assets and contract
liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts. Prior to this ASU,
an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at
fair value on the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted.
The ASU is to be applied prospectively to business combinations occurring on or after the effective date of the amendment (or if adopted
early as of an interim period, as of the beginning of the fiscal year that includes the interim period of early application). The Company
is currently assessing this standard’s impact on its consolidated financial statements.
NOTE
8 - CONCENTRATIONS
(a) Customers
For
the three-month period ended March 31, 2022 and 2021, 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 | |
| |
Three Months | | |
| | |
| |
| |
Ended | | |
| | |
| |
| |
March 31, | | |
March 31, | | |
December 31, | |
Major Customers | |
2022 | | |
2022 | | |
2021 | |
Customer A | |
| 13 | % | |
| 8 | % | |
| - | |
Customer B | |
| 10 | % | |
| 3 | % | |
| 2 | % |
Customer C | |
| 10 | % | |
| - | | |
| - | |
| |
Sales | | |
Trade Receivable | |
| |
Three Months | | |
| | |
| |
| |
Ended | | |
| | |
| |
| |
March 31, | | |
March 31, | | |
December 31, | |
Major Customers | |
2021 | | |
2021 | | |
2020 | |
Customer D | |
| 22 | % | |
| - | | |
| - | |
Customer E | |
| 15 | % | |
| 23 | % | |
| 15 | % |
Customer F | |
| 14 | % | |
| 3 | % | |
| - | |
(b) Suppliers
For
the three-month period ended March 31, 2022 and 2021, 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 | |
| |
Three Months | | |
| | |
| |
| |
Ended | | |
| | |
| |
| |
March 31, | | |
March 31, | | |
December 31, | |
Major Suppliers | |
2022 | | |
2022 | | |
2021 | |
ODES USA, Inc. | |
| 26 | % | |
| 2 | % | |
| 1 | |
Hunan Jinfuli New Energy Co., Ltd | |
| 15 | % | |
| 9 | % | |
| 8 | % |
Zhejiang Kandi Supply Chain Management Co., Ltd. | |
| 11 | % | |
| 14 | % | |
| 11 | % |
| |
Purchases | | |
Accounts Payable | |
| |
Three Months | | |
| | |
| |
| |
Ended | | |
| | |
| |
| |
March 31, | | |
March 31, | | |
December 31, | |
Major Suppliers | |
2021 | | |
2021 | | |
2020 | |
Zhejiang Kandi Supply Chain Management Co., Ltd. | |
| 51 | % | |
| 10 | % | |
| 9 | % |
Massimo Motor Sports, LLC | |
| 26 | % | |
| 5 | % | |
| 5 | % |
NOTE
9 - EARNINGS (LOSS) PER SHARE
The
Company calculates earnings (loss) per share in accordance with ASC 260, Earnings Per Share, which requires a dual presentation of basic
and diluted earnings (loss) per share. Basic earnings (loss) per share are computed using the weighted average number of shares outstanding
during the reporting period. Diluted earnings (loss) per share represents basic earnings (loss) 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, approximately 900,000 options and 8,131,332 warrants were
excluded from the calculation of diluted earnings per share, for the three-month period ended March 31, 2022.
NOTE
10 - ACCOUNTS RECEIVABLE
Accounts
receivable are summarized as follows:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Accounts receivable | |
$ | 43,328,207 | | |
$ | 55,949,582 | |
Less: allowance for doubtful accounts | |
| (3,065,854 | ) | |
| (3,053,277 | ) |
Accounts receivable, net | |
$ | 40,262,353 | | |
$ | 52,896,305 | |
The
following table sets forth the movement of provision for doubtful accounts:
| |
Allowance
for Doubtful
Accounts | |
BALANCE AT DECEMBER 31, 2020 | |
$ | 110,269 | |
Provision | |
| 1,147,679 | |
Addition of allowance resulted from acquisition of Jiangxi Huiyi | |
| 1,763,231 | |
Exchange rate difference | |
| 32,098 | |
BALANCE AT DECEMBER 31, 2021 | |
$ | 3,053,277 | |
Provision | |
| 4,389 | |
Exchange rate difference | |
| 8,188 | |
BALANCE AT MARCH 31, 2022 | |
$ | 3,065,854 | |
NOTE
11 - INVENTORIES
Inventories
are summarized as follows:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Raw material | |
$ | 10,274,275 | | |
$ | 9,291,441 | |
Work-in-progress | |
| 6,845,533 | | |
| 9,116,194 | |
Finished goods* | |
| 13,838,954 | | |
| 14,764,338 | |
Inventories | |
$ | 30,958,762 | | |
$ | 33,171,973 | |
* |
As of March 31, 2022, approximately $4.5 million of inventory of off-roads and EVs held by SC Autosports were pledged as collateral for the $1,450,000 short-term loan. |
NOTE
12 - PROPERTY, PLANT AND EQUIPMENT, NET
Property,
plants and equipment as of March 31, 2022 and December 31, 2021, consisted of the following:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
At cost: | |
| | |
| |
Buildings | |
$ | 52,883,764 | | |
$ | 52,481,460 | |
Machinery and equipment | |
| 82,629,619 | | |
| 81,994,596 | |
Office equipment | |
| 1,617,256 | | |
| 1,497,461 | |
Motor vehicles and other transport equipment | |
| 1,106,755 | | |
| 1,068,616 | |
Molds and others | |
| 11,884,341 | | |
| 11,852,568 | |
| |
| 150,121,735 | | |
| 148,894,701 | |
Less : Accumulated depreciation | |
| (40,117,310 | ) | |
| (37,317,290 | ) |
Property, plant and equipment, net | |
$ | 110,004,425 | | |
$ | 111,577,411 | |
The Company’s
Jinhua factory completed the relocation to a new industrial park in April 2021. The new location covers an area of more than 57,000 square
meters and a construction area of more than 98,000 square meters. The Company’s off-road vehicles, EV battery packs, electric scooters
battery packs, smart battery swap system and some EV parts are manufactured in the Jinhua factory. The Company’s Jinhua factory
owns the above production facilities. The Company’s EV
products, EV parts and electrical off-road vehicles, including Neighborhood EVs (“NEVs”), pure electric utility vehicles (“UTV”),
pure electric golf cart and EV parts of K23 are manufactured in the Hainan factory. Currently, the Company’s Hainan factory has
production capacity with an annual output (three shifts) of 100,000 units of various models of EV products, EV parts and electrical off-road
vehicles and owns the above facilities. Currently, the project completion acceptance of Hainan factory is being processed. Before the
completion acceptance is finished, the Hainan factory is manufacturing the above products in the form of trial production.
Depreciation
expenses for the three months ended March 31, 2022 and 2021 were $2,701,507 and $1,824,261, respectively.
NOTE
13 - INTANGIBLE ASSETS
Intangible
assets include acquired other intangibles of patent and technology 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 useful life |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
Gross carrying amount: |
|
|
|
|
|
|
|
|
|
|
Patent |
|
3.25-4.92 years |
|
$ |
5,014,349 |
|
|
|
5,000,944 |
|
Technology |
|
6.58-9.58 years |
|
|
10,880,192 |
|
|
|
10,851,104 |
|
|
|
|
|
|
16,690,862 |
|
|
|
16,648,369 |
|
Less : Accumulated amortization |
|
|
|
|
|
|
|
|
|
|
Patent |
|
|
|
$ |
(2,513,382 |
) |
|
|
(2,359,212 |
) |
Technology |
|
|
|
|
(611,025 |
) |
|
|
(243,757 |
) |
|
|
|
|
|
(3,920,728 |
) |
|
|
(3,399,290 |
) |
Intangible assets, net |
|
|
|
$ |
12,770,134 |
|
|
$ |
13,249,079 |
|
The
aggregate amortization expenses for those intangible assets were $514,169 and $165,172 for the three months ended March 31, 2022 and
2021, respectively.
Amortization
expenses for the next five years and thereafter are as follows:
Nine months ended December 31, 2022 | |
$ | 1,542,507 | |
Years ended December 31, | |
| | |
2023 | |
| 2,056,677 | |
2024 | |
| 2,056,677 | |
2025 | |
| 1,988,954 | |
2026 | |
| 1,762,356 | |
Thereafter | |
| 3,362,963 | |
Total | |
$ | 12,770,134 | |
NOTE
14 - LAND USE RIGHTS, NET
The
Company’s land use rights consist of the following:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Cost of land use rights | |
$ | 4,142,872 | | |
$ | 4,131,797 | |
Less: Accumulated amortization | |
| (907,375 | ) | |
| (881,461 | ) |
Land use rights, net | |
$ | 3,235,497 | | |
$ | 3,250,336 | |
The
amortization expenses for the three months ended March 31, 2022 and 2021, were $23,538 and $23,042, respectively.
Amortization
expenses for the next five years and thereafter are as follows:
Nine months ended December 31, 2022 | |
$ | 70,614 | |
Years ended December 31, | |
| | |
2023 | |
| 94,152 | |
2024 | |
| 94,152 | |
2025 | |
| 94,152 | |
2026 | |
| 94,152 | |
Thereafter | |
| 2,788,275 | |
Total | |
$ | 3,235,497 | |
NOTE
15 - OTHER LONG TERM ASSETS
Other
long term assets as of March 31, 2022 and December 31, 2021, consisted of the following:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Prepayments for land use right (i) | |
$ | 4,329,938 | | |
| 4,341,496 | |
Right - of - use asset (ii) | |
| 7,225,917 | | |
| 6,308,374 | |
Others | |
| 342,561 | | |
| 342,139 | |
Total other long-term asset | |
$ | 11,898,416 | | |
$ | 10,992,009 | |
(i) |
As of March 31, 2022 and December 31, 2021, the Company’s other long term assets included net value of prepayments for land use right of Hainan facility of $4,329,938 and $4,341,496, respectively. As of March 31, 2022, the land use right of Hainan was not recognized since the land certificate is still in process. The amortization expense for the three months ended March 31, 2022 and 2021 were $23,183 and $22,694, respectively. |
(ii) | As of March 31, 2022 and December 31, 2021, the Company’s operating lease right-of-use assets in other long term assets included net value of land use right of Jinhua facility acquired in October 2020 and Jiangxi facility acquired in October 2021 of $6,293,164 and $6,308,374, respectively, as well as the amount of $932,753 related to the lease of Hangzhou office starting January 1, 2022. The amortization expense of land use right of Jinhua facility and Jiangxi facility for the three months ended March 31, 2022 and 2021 were $32,102 and $17,464, respectively. |
NOTE
16 - 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,
Zhejiang Kandi Technologies, Kandi Smart Battery Swap, Jiangxi Huiyi and Kandi Hainan qualify as High and New Technology Enterprise (“HNTE”)
companies in the PRC, and are entitled to 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, Zhejiang Kandi Technologies,
Kandi Smart Battery Swap, Jiangxi Huiyi have successfully re-applied for such certificates when their prior certificates expired. Kandi
Hainan has been qualified as a HNTE since 2020. Therefore, no records for renewal is available. The applicable CIT rate of each of the
Company’s other subsidiaries, Kandi New Energy, Yongkang Scrou, China Battery Exchange and its subsidiaries and and Hainan Kandi
Holding is 25%.
The
Company’s provision or benefit from income taxes for interim periods is determined using an estimate of the Company’s 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, management makes a cumulative adjustment.
For 2022, the Company’s effective tax rate is favorably affected by a super-deduction for qualified research and development costs
and adversely affected by non-deductible expenses such as stock rewards for non-US employees, and part of entertainment expenses. The
Company records valuation allowances against the deferred tax assets associated with losses and other timing differences for which we
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 three months ended March 31, 2022 and 2021 was a tax benefit
of 1.97% on a reported loss before taxes of approximately $1.7 million, 2.71% on a reported loss before taxes of approximately $6.2 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 volatile based on the amount of pre-tax income or loss.
The income tax provision for the three months ended March 31, 2022 and 2021 was tax benefit of $32,600 and tax expense of $169,186, 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 March 31, 2022, 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. 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 March 31, 2022, 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 March
31, 2022, the Company has no accrued interest or penalties related to uncertain tax positions.
The
tax effected aggregate Net Operating Loss (“NOL”) was $7.2 million and $3.4 million in tax year 2021 and 2020, which were
deriving from entities in the PRC, Hong Kong and U.S. Some of the NOLs will start to expire from 2026 if they are not used. The cumulative
NOL in the PRC can be carried forward for five years in general, and ten years for entities qualify HNTE treatment, which is $0.8 million
and $6.4 million respectfully, to offset future net profits for income tax purposes. The Company also has $0.5 million tax effected NOL
in U.S. to carry forward with indefinite carryforward period, and $0.1 million tax effected NOL in Hong Kong can be carried forward without
an expiration date as well.
(b)
Tax Holiday Effect
For
the three months ended March 31, 2022 and 2021, the PRC CIT rate was 25%. Certain subsidiaries of the Company are entitled to tax exemptions
(tax holidays) for the three months ended March 31, 2022 and 2021.
The
combined effects of income tax expense exemptions and reductions available to the Company for the three months ended March 31, 2022 and
2021 are as follows:
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Tax benefit (holiday) credit | |
$ | 154,097 | | |
$ | 65,965 | |
Basic net income per share effect | |
$ | 0.00 | | |
$ | 0.00 | |
NOTE
17 - LEASES AND RIGHT-OF-USE-ASSETS
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 on January 31, 2020, with a remaining lease term of 15 months
and discount rate of 4.25%. SC Autosports bought its own corporate office after this lease term expired in April 2021.
During
October 2020, land use right of gross value of $3.5 million was acquired from the government as the new site of Jinhua Facility’s
relocation as per the Repurchase Agreement. On October 31, 2021, the Company acquired $2.8 million of land use rights through the acquisition
of Jiangxi Huiyi. This land use rights was wholly prepaid. See NOTE 15 for more details.
The
Company has entered into a lease for Hangzhou office, with a term of 48 months from January 1, 2022 to December 31, 2025. The Company
recorded operating lease assets and operating lease liabilities on January 1, 2022, with a remaining lease term of 48 months and discount
rate of 3.70%. The annual lease payment for 2022 was prepaid as of January 1, 2022. The Company has prepaid the first year of lease
amount of $262,449.
As
of March 31, 2022, the Company’s operating lease right-of-use assets (grouped in other long-term assets on the balance sheet) was
$7,225,917 and lease liability was $732,487 (grouped in other current liabilities and other long-term liabilities on the balance sheet).
For the three months ended March 31, 2022 and 2021, the Company’s operating lease expense were $94,250 and $53,464, respectively.
Supplemental
information related to operating leases was as follows:
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Cash payments for operating leases | |
$ | 94,250 | | |
$ | 53,464 | |
Maturities
of lease liabilities as of March 31, 2022 were as follow:
Maturity of Lease Liabilities: | |
Lease
payable | |
| |
$ | |
Years ended December 31, | |
| |
2023 | |
| 235,347 | |
2024 | |
| 244,055 | |
2025 | |
| 253,085 | |
NOTE
18 - 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 registered 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 the following supplements to Condition III of the original Supplementary Agreement: The KSBS Shareholders have
the right to receive an aggregate of 20.83% of the total equity consideration (i.e., 5,919,674 total shares), provided
that Kandi Smart Battery Swap realizes a net profit of RMB50 million (approximately $8 million) 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 under US GAAP. For the period from January
1, 2020 to June 30, 2021, Kandi Smart Battery Swap achieved its net profit target. Accordingly, the KSBS Shareholders received 1,233,068 shares
of Kandi’s restrictive common stock or 20.83% 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.
On
October 31, 2021, the Company completed the acquisition of 100% of the equity of Jiangxi Huiyi. The Company paid approximately RMB
50 million (approximately $7.9 million) at the closing of the transaction using cash on hand and may be required to pay future consideration
of up to an additional 2,576,310 shares of common stock, upon the achievement of certain net income-based milestones in the
next three years.
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 Jiangxi Huiyi’s 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 March 31, 2022 and December 31, 2021, the Company’s contingent consideration liability to former members of Jiangxi Huiyi
was $5,122,000 and $7,812,000, respectively.
NOTE
19 - 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.
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 with service condition is determined based on the closing price of the common stock on the date the shares
are granted. The compensation costs for awards of common stock are recognized over the requisite service period.
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. On April 30, 2021, 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 March 31, 2022 and 2021, the Company recognized $22,925 and $22,925 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
20 - SUMMARIZED INFORMATION OF EQUITY METHOD INVESTMENT IN THE FORMER AFFILIATE COMPANY
The
Company’s 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 in such investees, it increases equity income
(loss) – net in the Company’s consolidated statements of income (loss) and the Company’s carrying value in that investment.
Conversely, when the Company records its proportionate share of 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
February 18, 2021, Zhejiang Kandi Technologies signed an Equity Transfer Agreement with Geely to transfer all of its remaining 22%
equity interests in the Former Affiliate Company to Geely for a total consideration of RMB 308 million (approximately $48 million).
Zhejiang Provincial Administration for Market Regulation recorded the update of the ownership of Former Affiliate Company on March 9,
2021. On March 16, 2021, the Company received the first half of the equity transfer payment of RMB 154,000,000 (approximately
$24 million). On September 10, 2021, the Company received the second half of the equity transfer payment of RMB 154,000,000 (approximately
$24 million).
The
Company accounted for its investments in the Former Affiliate Company under the equity method of accounting. As the equity transfer was
completed on March 9, 2021, the Company recorded 22% of the Former Affiliate Company’s loss for the period until completion
of equity transfer during the first quarter of 2021.
The Company’s equity method investments
in the Former Affiliate Company for the three months ended March 31, 2022 and 2021 are as follows:
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Investment in the Former Affiliate Company, beginning of the period, | |
$ | - | | |
$ | 28,892,638 | |
Investment decreased in 2021 | |
| - | | |
| (46,997,070 | ) |
Gain from equity sale | |
| - | | |
| 17,700,260 | |
Reversal of prior year reduction in the equity of the Former Affiliate Company | |
| - | | |
| 3,263,052 | |
Company’s share in net (loss) income of Former Affiliate based on 22% ownership for period from January 1, 2021 to March 9, 2021 | |
| - | | |
| (2,678,893 | ) |
Non-controlling interest | |
| - | | |
| 99,396 | |
Prior year unrealized profit realized | |
| - | | |
| - | |
Subtotal | |
| - | | |
| (2,579,497 | ) |
Exchange difference | |
| - | | |
| (279,383 | ) |
Investment in Former Affiliate Company, end of the period | |
$ | - | | |
$ | - | |
NOTE 21 - 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
$3,153,679 (RMB 20 million) loan from Shanghai Pudong Development Bank Jinhua Branch, for a term 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. According to the current financial situation of NGCL, the
Company does not expect it will incur any losses in connection with this matter.
(2) | Pledged collateral for bank loans for which the parties other
than the Company are the borrowers. |
As of March 31, 2022 and December 31, 2021, none
of the Company’s land use rights or plants and equipment was 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 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 on 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 sought damages on behalf of putative
classes of shareholders who purchased or acquired Kandi Technologies’ securities prior to March 13, 2017. Kandi Technologies moved
to dismiss the remaining cases, all of which were pending in the New York federal court, that motion was granted in September 2019, and
the time to appeal has run. In June 2020, a similar but separate putative securities class action was filed against Kandi Technologies
and certain of its current and former directors and officers in California federal court. This action was transferred to the New York
federal court in September 2020, Kandi Technologies moved to dismiss in March 2021, and that motion was granted in October 2021. The plaintiff
in this case subsequently filed an amended complaint, Kandi Technologies moved to dismiss that complaint in January 2022, and the motion
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 Technologies
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 Technologies 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 Technologies, Kandi Technologies 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. The SLC recommended to Kandi Technologies’
board of directors in June 2020 that the SLC be dissolved in light of the ongoing derivative action pending in the Delaware Court of Chancery,
and this recommendation was adopted by the board in August 2020.
In December 2020, a putative securities class
action was filed against Kandi Technologies and certain of its current officers in the United States District Court for the Eastern District
of New York. The complaint generally alleges violations of the federal securities laws based on claims made in a report issued by Hindenburg
Research in November 2020, and seeks damages on behalf of a putative class of shareholders who purchased or acquired Kandi Technologies’
securities prior to March 15, 2019. This action remains pending.
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 22 - 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 the US. The Company does not have
manufacturing operations outside of China.
The following table sets forth disaggregation
of revenue:
| |
Three Months Ended
March 31, | |
| |
2022 | | |
2021 | |
| |
Sales Revenue | | |
Sales Revenue | |
Primary geographical markets | |
| | |
| |
Overseas | |
$ | 10,736,375 | | |
$ | 7,867,426 | |
China | |
| 14,155,029 | | |
| 8,110,328 | |
Total | |
$ | 24,891,404 | | |
$ | 15,977,754 | |
| |
| | | |
| | |
Major products | |
| | | |
| | |
EV parts | |
$ | 3,667,778 | | |
$ | 6,368,331 | |
EV products | |
| 339,955 | | |
| 121,494 | |
Off-road vehicles | |
| 10,713,741 | | |
| 5,619,004 | |
Electric Scooters, Electric Self-Balancing Scooters and associated parts | |
| 2,127,365 | | |
| 3,868,925 | |
Battery exchange equipment and Battery exchange service | |
| 25,511 | | |
| - | |
Lithium-ion cells | |
| 8,017,054 | | |
| - | |
Total | |
$ | 24,891,404 | | |
$ | 15,977,754 | |
| |
| | | |
| | |
Timing of revenue recognition | |
| | | |
| | |
Products transferred at a point in time | |
$ | 24,891,404 | | |
$ | 15,977,754 | |
Total | |
$ | 24,891,404 | | |
$ | 15,977,754 | |
NOTE 23 - SUBSEQUENT EVENT
During April 1 to May 5, 2022, the Company had
repurchased a total of 603,500 shares of the common stock at an average stock price of $2.69 per share under the repurchase plan referenced
under Item 2 of Part II of this report.
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 2021 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 2021 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
For the three months ended March 31, 2022, the
Company recognized total revenue of $24,891,404 as compared to $15,977,754 for the same period of 2021, an increase of $8,913,650 or 55.8%.
For the three months ended March 31, 2022, we recorded $2,387,163 of gross profit, a decrease of $1,967,188 or 45.2% from $4,354,351
for the same period of 2021. Gross margin for the three months ended March 31, 2022, was 9.6%, compared to 27.3% for the same period of
2021. We recorded a net loss of $1,619,013 for the three months ended March 31, 2022, compared to a net loss of $6,402,720 in the same
period of 2021, a decrease in loss of $4,783,707.
Despite the challenges posed by COVID-19 around
the world overall, we were still productive during the year ended December 31, 2021, as well as the three months ended March 31, 2022.
Most importantly, after a lengthy process of preparation, the “300,000 government-accredited pure EV within 5 years rideshare”
program - of which Zhejiang Kandi Technologies was a co-founder - has begun its trial. Our commitment for this project is to provide EV
products with battery swap mode (through Kandi Hainan) and battery swap system (through Kandi Smart Battery Swap) according to the project
progress of Zhejiang Ruiheng Technology Co., Ltd (“Ruiheng”) (the operating company). Our first step is to plan gradual delivery
of 1,000 EVs to the city of Haikou in Hainan province and 2,500 EVs to the city of Shaoxing in Zhejiang province. Currently, 73 EVs have
been delivered in Haikou and 109 EVs have been delivered in Shaoxing. The smart battery swap system developed by Kandi Smart Battery Swap
is composed of eight modules: (1) Battery swap system to search and swap battery automatically, (2) Vehicle positioning system to eliminate
deviations and pinpoint location of vehicles, to adjust positioning parameter setting based on the vehicle models and to provide battery
swap service for a variety of vehicles, (3) Electronic control management system to achieve automatic control through the sensor information
collection, (4) Battery capacity management system to pinpoint the empty and fully charged batteries, (5) User interaction system for
one-click operation and automatic billing, (6) Battery charging management system to regulate the whole charging process, (7) Data push
system to facilitate user to swap battery through the data pushing technology, and (8) Video monitoring system to ensure the safety of
the battery swap process through the real-time monitoring system. The smart battery swap system has six advantages: (1) One-click battery
swap. The battery swap process is completely automatic and requires no involvement of a professional. (2) High efficiency: Battery swap
is completed in 90 seconds which is even faster than refueling, (3) Automatic billing: Battery swap can calculate the cost automatically
based on the difference in battery capacity between the batteries swapped, (4) Real-time monitoring: through which the administrator can
identify the current state and condition of the system, (5) Charging at constant temperature, which can effectively extend battery life
and reduce fire risk. It can also be used as an energy storage device to balance the “peak cut” in the urban electric grid;
and (6) Land saving. Battery swap facilities merely occupy an area of around 50 square meters. Now as the Chinese government is strongly
promoting the battery swap mode, we have strong confidence in this product. However, if a more advanced mode appears, our products also
have the potential risk of being replaced. All the EVs delivered for the program include our battery swap feature. At present, Ruiheng,
a company jointly established by Zhejiang Kandi Technologies, has negotiated with more than ten third-tier cities about the cooperation
of launching the program of online car hailing based on the battery swap mode, which was originally expected to gradually start launching
in these cities during second half of 2021. Based on the persisting COVID-19 situation and the fact that the EV market of China has not
entered a healthy and orderly development stage, currently the Company will continue to operate in a small-scale trial approach, and expedite
the progress when the EV market of China entered a healthy and orderly development stage.
Results of Operations
Comparison of the Three Months Ended March
31, 2022 and 2021
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 March 31, 2022 and 2021.
| |
Three Months Ended | | |
| | |
| |
| |
March 31, 2022 | | |
% of Revenue | | |
March 31, 2021 | | |
% of Revenue | | |
Change in Amount | | |
Change in % | |
| |
| | |
| | |
| | |
| | |
| | |
| |
REVENUES FROM UNRELATED PARTIES, NET | |
$ | 24,891,404 | | |
| 100.0 | % | |
$ | 15,976,170 | | |
| 100.0 | % | |
$ | 8,915,234 | | |
| 55.8 | % |
REVENUES FROM THE FORMER AFFILIATE COMPANY AND RELATED PARTIES, NET | |
| - | | |
| 0.0 | % | |
| 1,584 | | |
| 0.0 | % | |
| (1,584 | ) | |
| (100.0 | %) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
REVENUES, NET | |
| 24,891,404 | | |
| 100.0 | % | |
| 15,977,754 | | |
| 100.0 | % | |
| 8,913,650 | | |
| 55.8 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
COST OF GOODS SOLD | |
| (22,504,241 | ) | |
| (90.4 | %) | |
| (11,623,403 | ) | |
| (72.7 | %) | |
| (10,880,838 | ) | |
| 93.6 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
GROSS PROFIT | |
| 2,387,163 | | |
| 9.6 | % | |
| 4,354,351 | | |
| 27.3 | % | |
| (1,967,188 | ) | |
| (45.2 | %) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
OPERATING INCOME (EXPENSE): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| (1,140,586 | ) | |
| (4.6 | %) | |
| (21,624,597 | ) | |
| (135.3 | %) | |
| 20,484,011 | | |
| (94.7 | %) |
Selling and marketing | |
| (1,193,699 | ) | |
| (4.8 | %) | |
| (1,146,866 | ) | |
| (7.2 | %) | |
| (46,833 | ) | |
| 4.1 | % |
General and administrative | |
| (5,756,531 | ) | |
| (23.1 | %) | |
| (4,430,123 | ) | |
| (27.7 | %) | |
| (1,326,408 | ) | |
| 29.9 | % |
TOTAL OPERATING EXPENSE | |
| (8,090,816 | ) | |
| (32.5 | %) | |
| (27,201,586 | ) | |
| (170.2 | %) | |
| 19,110,770 | | |
| (70.3 | %) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
EXPENSE FROM OPERATIONS | |
| (5,703,653 | ) | |
| (22.9 | %) | |
| (22,847,235 | ) | |
| (143.0 | %) | |
| 17,143,582 | | |
| (75.0 | %) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 1,222,304 | | |
| 4.9 | % | |
| 528,592 | | |
| 3.3 | % | |
| 693,712 | | |
| 131.2 | % |
Interest expense | |
| (148,144 | ) | |
| (0.6 | %) | |
| (126,348 | ) | |
| (0.8 | %) | |
| (21,796 | ) | |
| 17.3 | % |
Change in fair value of contingent consideration | |
| 2,690,000 | | |
| 10.8 | % | |
| 357,000 | | |
| 2.2 | % | |
| 2,333,000 | | |
| 653.5 | % |
Government grants | |
| 244,098 | | |
| 1.0 | % | |
| 234,793 | | |
| 1.5 | % | |
| 9,305 | | |
| 4.0 | % |
Gain from sale of equity in the Former Affiliate Company | |
| - | | |
| 0.0 | % | |
| 17,700,260 | | |
| 110.8 | % | |
| (17,700,260 | ) | |
| (100.0 | %) |
Share of loss after tax of the Former Affiliate Company | |
| - | | |
| 0.0 | % | |
| (2,579,497 | ) | |
| (16.1 | %) | |
| 2,579,497 | | |
| (100.0 | %) |
Other income, net | |
| 43,782 | | |
| 0.2 | % | |
| 498,901 | | |
| 3.1 | % | |
| (455,119 | ) | |
| (91.2 | %) |
TOTAL OTHER INCOME, NET | |
| 4,052,040 | | |
| 16.3 | % | |
| 16,613,701 | | |
| 104.0 | % | |
| (12,561,661 | ) | |
| (75.6 | %) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
LOSS BEFORE INCOME TAXES | |
| (1,651,613 | ) | |
| (6.6 | %) | |
| (6,233,534 | ) | |
| (39.0 | %) | |
| 4,581,921 | | |
| (73.5 | %) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
INCOME TAX BENEFIT (EXPENSE) | |
| 32,600 | | |
| 0.1 | % | |
| (169,186 | ) | |
| (1.1 | %) | |
| 201,786 | | |
| (119.3 | %) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
NET LOSS | |
| (1,619,013 | ) | |
| (6.5 | %) | |
| (6,402,720 | ) | |
| (40.1 | %) | |
| 4,783,707 | | |
| (74.7 | %) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTERESTS | |
| 2,957 | | |
| 0.0 | % | |
| - | | |
| 0.0 | % | |
| 2,957 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
NET LOSS ATTRIBUTABLE TO KANDI TECHNOLOGIES GROUP, INC. STOCKHOLDERS | |
| (1,616,056 | ) | |
| (6.5 | %) | |
| (6,402,720 | ) | |
| (40.1 | %) | |
| 4,786,664 | | |
| (74.8 | %) |
(a) Revenue
For the three months ended March 31, 2022, Zhejiang
Kandi Technologies, its subsidiaries and SC Autosports’ revenue was $24,891,404 compared to $15,977,754 for the same period
of 2021, representing an increase of $8,913,650 or 55.8%. The increase in revenue was mainly due to the increase in the sales volume of
off-road vehicles, and lithium-ion cell sales which were generated from Jiangxi Huiyi that was acquired by the Company in October 2021,
despite the decrease of sales in EV parts.
The following table summarizes Zhejiang Kandi
Technologies, its subsidiaries and SC Autosports’ revenues by product types for the three months ended March 31, 2022 and 2021:
| |
Three Months Ended
March 31, | |
| |
2022 | | |
2021 | |
| |
Sales | | |
Sales | |
EV parts | |
$ | 3,667,778 | | |
$ | 6,368,331 | |
EV products | |
| 339,955 | | |
| 121,494 | |
Off-road vehicles | |
| 10,713,741 | | |
| 5,619,004 | |
Electric Scooters, Electric Self-Balancing Scooters and associated parts | |
| 2,127,365 | | |
| 3,868,925 | |
Battery exchange equipment and Battery exchange service | |
| 25,511 | | |
| - | |
Lithium-ion cells | |
| 8,017,054 | | |
| - | |
Total | |
$ | 24,891,404 | | |
$ | 15,977,754 | |
EV Parts
During the three months ended March 31, 2022,
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenues from the sales of EV parts were $3,667,778, representing
a decrease of $2,700,553 or 42.4% from $6,368,331 for the same quarter of 2021.
Zhejiang Kandi Technologies, its subsidiaries
and SC Autosports’ revenue for the three months ended March 31, 2022 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 14.7% of total sales.
EV Products
During the three
months ended March 31, 2022, Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenue from the sale of EV Products
was $339,955, representing an increase of $218,461 or 179.8% from $121,494 for the same quarter of 2021. During the
three months ended March 31, 2022, there were no sales of K23 and K27 model of EV Products other than NEVs.
Off-Road Vehicles
During the three months ended March 31, 2022,
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenue from the sales of off-road vehicles, including go
karts, all-terrain vehicles (“ATVs”) and others, were $10,713,741, representing an increase of $5,094,737 or 90.7% from $5,619,004,
for the same quarter of 2021.
Zhejiang Kandi Technologies, its subsidiaries
and SC Autosports’ off-road vehicles business line accounted for approximately 43.0% of the total net revenue for the three
months ended March 31, 2022.
Electric Scooters, Electric Self-Balancing
Scooters and associated parts
During the three months ended March 31, 2022,
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenue from the sales of electric scooters, electric self-balancing
scooters and associated parts, were $2,127,365, representing a decrease of $1,741,560 or 45.0% from $3,868,925, for the same quarter of
2021.
Zhejiang Kandi Technologies, its subsidiaries
and SC Autosports’ electric scooters, electric self-balancing scooters and associated parts business line accounted for approximately
8.5% of the total net revenue for the three months ended March 31, 2022.
Lithium-ion cells
During the three months ended March 31, 2022,
Zhejiang Kandi Technologies and its subsidiaries’ revenue from the sale of Lithium-ion cells was $ 8,017,054, there was no
such sales for the same period of 2021 since the related entity Jiangxi Huiyi was acquired by the Company in October 2021.
The following table shows the breakdown of Zhejiang
Kandi Technologies, its subsidiaries and SC Autosports’ net revenues:
| |
Three Months Ended
March 31, | |
| |
2022 | | |
2021 | |
| |
Sales Revenue | | |
Sales Revenue | |
Primary geographical markets | |
| | |
| |
Overseas | |
$ | 10,736,375 | | |
$ | 7,867,426 | |
China | |
| 14,155,029 | | |
| 8,110,328 | |
Total | |
$ | 24,891,404 | | |
$ | 15,977,754 | |
| |
| | | |
| | |
Major products | |
| | | |
| | |
EV parts | |
$ | 3,667,778 | | |
$ | 6,368,331 | |
EV products | |
| 339,955 | | |
| 121,494 | |
Off-road vehicles | |
| 10,713,741 | | |
| 5,619,004 | |
Electric Scooters, Electric Self-Balancing Scooters and associated parts | |
| 2,127,365 | | |
| 3,868,925 | |
Battery exchange equipment and Battery exchange service | |
| 25,511 | | |
| - | |
Lithium-ion cells | |
| 8,017,054 | | |
| - | |
Total | |
$ | 24,891,404 | | |
$ | 15,977,754 | |
| |
| | | |
| | |
Timing of revenue recognition | |
| | | |
| | |
Products transferred at a point in time | |
$ | 24,891,404 | | |
$ | 15,977,754 | |
Total | |
$ | 24,891,404 | | |
$ | 15,977,754 | |
(b) Cost of goods sold
Cost of goods sold was $22,504,241 during the
three months ended March 31, 2022, representing an increase of $10,880,838, or 93.6%, compared to $11,623,403 for the same period of 2021.
The increase was primarily due to the corresponding increase in sales. Please refer to the Gross Profit section below for product margin
analysis.
(c) Gross profit
Zhejiang Kandi Technologies, its subsidiaries
and SC Autosports’ margins by product for the three months ended March 31, 2022 and 2021 are as set forth below:
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
Sales |
|
|
Cost |
|
|
Gross Profit |
|
|
Margin % |
|
|
Sales |
|
|
Cost |
|
|
Gross Profit |
|
|
Margin % |
|
EV parts |
|
$ |
3,667,778 |
|
|
|
3,328,203 |
|
|
|
339,575 |
|
|
|
9.3 |
% |
|
$ |
6,368,331 |
|
|
|
4,286,869 |
|
|
|
2,081,462 |
|
|
|
32.7 |
% |
EV products |
|
|
339,955 |
|
|
|
319,715 |
|
|
|
20,240 |
|
|
|
6.0 |
% |
|
|
121,494 |
|
|
|
109,757 |
|
|
|
11,737 |
|
|
|
9.7 |
% |
Off-road vehicles |
|
|
10,713,741 |
|
|
|
9,288,200 |
|
|
|
1,425,541 |
|
|
|
13.3 |
% |
|
|
5,619,004 |
|
|
|
4,112,749 |
|
|
|
1,506,255 |
|
|
|
26.8 |
% |
Electric Scooters, Electric Self-Balancing Scooters and associated parts |
|
|
2,127,365 |
|
|
|
1,855,115 |
|
|
|
272,250 |
|
|
|
12.8 |
% |
|
|
3,868,925 |
|
|
|
3,114,028 |
|
|
|
754,897 |
|
|
|
19.5 |
% |
Battery exchange equipment and Battery exchange service |
|
|
25,511 |
|
|
|
31,720 |
|
|
|
(6,209) |
|
|
|
(24.3 |
%) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Lithium-ion cells |
|
|
8,017,054 |
|
|
|
7,681,288 |
|
|
|
335,766 |
|
|
|
4.2 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total |
|
$ |
24,891,404 |
|
|
|
22,504,241 |
|
|
|
2,387,163 |
|
|
|
9.6 |
% |
|
$ |
15,977,754 |
|
|
|
11,623,403 |
|
|
|
4,354,351 |
|
|
|
27.3 |
% |
Gross profit for the first quarter of 2022 decreased 45.2%
to $2,387,163, compared to $4,354,351 for the same period last year. This was primarily attributable to the product mixing with higher
concentration of products with lower gross margin being sold during the current period, and hence the gross margin decreased despite the
increase in revenue. Our gross margin decreased to 9.6% compared to 27.3% for the same period of 2021. The decrease in our gross margin
was mainly due to the higher concentration of sales from the products with lower gross margin such as lithium-ion cells which was not
sold in first quarter of 2021, and less concentration the sales of products with higher gross margin such as Electric Scooters, Electric
Self-Balancing Scooters as well as EV parts. Besides, we have brought in a new brand of off-road vehicle to the US market, and we have
sold at a more aggressive price in order to promote its sales.
(d) Research and development
Research and development expenses, including materials,
labor, equipment depreciation, design, testing, inspection, and other related expenses, totaled $1,140,586 for the first quarter of 2022,
a decrease of $20,484,011 or 94.7% compared to $21,624,597 for the same period in 2021. The decrease was mainly due to the completion
of Company’s R&D expenditure in the same period of 2021 for new product.
(e) Sales and marketing
Selling and distribution expenses were $1,193,699
for the first quarter of 2022, compared to $1,146,866 for the same period in 2021, representing an increase of $46,833 or 4.1%, which
was comparable.
(f) General and administrative expenses
General and administrative expenses were $5,756,531
for the first quarter of 2022, compared to $4,430,123 for the same period in 2021, representing an increase of $1,326,408 or 29.9%. For
the three months ended March 31, 2022, general and administrative expenses included $22,925 as expenses for common stock awards and stock
options to employees and Board members, compared to $22,925 of common stock awards and stock options expenses for the same period in 2021.
Besides stock compensation expense, our net general and administrative expenses for the three months ended March 31, 2022 were $5,733,606,
representing an increase of $1,326,408, from $4,407,198 for the same period in 2021, which was largely due to increase in depreciation
expense and amortization expense with approximately $1 million compared to the same period in 2021.
(g) Interest income
Interest income was $1,222,304 for the first quarter
of 2022, representing an increase of $693,712 or 131.2% compared to $528,592 for the same period of last year. The increase was primarily
attributable to the increased interest earned on bank deposit.
(h) Interest expenses
Interest expenses were $148,144 in the first quarter
of 2022, representing an increase of $21,796 or 17.3% compared to $126,348 for the same period of last year. The increase was primarily
due to interest expenses related to short-term and long-term debt of the Company in the first quarter of 2022. There were no such loans
in the same period of 2021.
(i) Change in fair value of contingent consideration
For the first quarter of 2022, the gain related
to changes in the fair value of contingent consideration was $2,690,000, an increase of $2,333,000 or 653.5% compared to gain related
to changes in the fair value of contingent consideration of $357,000 for the same period in 2021, 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 18 – 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.
(j) Government grants
Government grants were $244,098 for the first
quarter of 2022, compared to $234,793 for the same quarter last year, representing an increase of $9,305, or 4.0%, which was comparable.
(k) Gain from equity sale in the Former Affiliate
Company
Gain from equity sale was $0 for the first quarter
of 2022, compared to $17,700,260 for the same quarter last year, which was due to the Affiliate Equity Transfer. On February 18, 2021,
Zhejiang Kandi Technologies signed an Equity Transfer Agreement with Geely to transfer all of its remaining 22% equity interests
in the Former Affiliate Company to Geely for a total consideration of RMB 308 million (approximately $48 million). Zhejiang
Provincial Administration for Market Regulation recorded the update of the ownership of Former Affiliate Company on March 9, 2021. On
March 16, 2021, the Company received the first half of the equity transfer payment of RMB 154,000,000 (approximately $24 million). As
of March 9, 2021, the equity transfer had been completed. Therefore, in the first quarter of 2021, the Company has recognized the gain
from equity sale. On September 10, 2021, the Company received the second half of the equity transfer payment of RMB 154,000,000 (approximately
$24 million).
(l) Share of loss after tax of the Former Affiliate
Company
For the first quarter of 2022, our share of loss
of the Former Affiliate Company was $0 as compared to share of loss of $2,579,497 for the same period in 2021. On February 18, 2021, Zhejiang
Kandi Technologies signed an Equity Transfer Agreement with Geely to transfer all of its remaining 22% equity interests in the Former
Affiliate Company to Geely for a total consideration of RMB 308 million (approximately $48 million). Zhejiang Provincial
Administration for Market Regulation recorded the update of the ownership of Former Affiliate Company on March 9, 2021. On March 16, 2021,
the Company received the first half of the equity transfer payment of RMB 154,000,000 (approximately $24 million). As of
March 9, 2021, the equity transfer had been completed. On September 10, 2021, the Company received the second half of the equity transfer
payment of RMB 154,000,000 (approximately $24 million).
(m) Other income, net
Net other income was $43,782 for the first quarter
of 2022, representing a decrease of $455,119 or 91.2% compared to net other income of $498,901 for the same period of last year, which
was largely due to the income from disposal of the machinery and equipment of the Company in the same period of last year.
(n) Income Taxes
In accordance with the relevant Chinese tax laws
and regulations, the applicable corporate income tax rate of our Chinese subsidiaries is 25%. However, four of our subsidiaries,
including Zhejiang Kandi Technologies, Kandi Smart Battery Swap, Kandi Hainan and Jiangxi Huiyi are qualified as high technology companies
in China and are therefore entitled to a reduced corporate income tax rate of 15%.
Each of our other subsidiaries, Kandi New Energy,
Yongkang Scrou, China Battery Exchange and its subsidiaries and Hainan Kandi Holding has an applicable corporate income tax rate of 25%.
Our actual effective income tax rate for the first
quarter of 2022 was a tax benefit of 1.97% on a reported loss before taxes of approximately $1.7 million, compared to a tax expense
of 2.71% on a reported loss before taxes of approximately $6.2 million for the same period of last year.
(o) Net loss
Net loss was $1,619,013 for the first quarter
of 2022, representing a decrease in loss of $4,783,707 compared to net loss of $6,402,720 for the same period in 2021. The decrease of
loss was primarily attributable to decrease in expense of R&D investment for new product.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
| |
Three
Months Ended | |
| |
March
31,
2022 | | |
March
31,
2021 | |
Net cash provided by (used in) operating activities | |
$ | 6,188,441 | | |
$ | (6,017,280 | ) |
Net cash (used in) provided by investing activities | |
| (16,716,300 | ) | |
$ | 11,130,031 | |
Net cash used in financing activities | |
| (279,829 | ) | |
$ | - | |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND
RESTRICTED CASH | |
| (10,807,688 | ) | |
$ | 5,112,751 | |
EFFECT OF EXCHANGE RATE CHANGES | |
| 352,415 | | |
$ | (438,313 | ) |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR | |
| 168,676,007 | | |
$ | 142,520,635 | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | |
| 158,220,734 | | |
$ | 147,195,073 | |
For the first quarter of 2022, cash derived from
operating activities was $6,188,441, as compared to cash used in operating activities of $6,017,280 for the same period last year. Our
operating cash inflows include cash received primarily from sales of our EV parts, off-road vehicles, electric Scooters, electric self-balancing
scooters and associated parts and lithium-ion cells. 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 quarter of 2022 were a decrease of accounts receivable
of $5,197,268 and an increase of accounts payable of $3,088,095. The major operating activity that used cash for first quarter of 2022
was a decrease of notes payable of $4,401,457.
For the first quarter of 2022, cash used in investing
activities was $16,716,300, as compared to cash derived from investing activities of $11,130,031 for the same period in 2021. The major
investing activity that used cash for first quarter of 2022 was an increase of certificate of deposit of $15,759,448.
For the first quarter of 2022, cash used in financing
activities was $279,829, as compared to cash used in financing activities of $0 for the same period in 2021. The major financing activity
that used cash for first quarter of 2022 was purchase of treasury stock of $1,583,561.
Working Capital
We had a working capital of $276,359,478 as of
March 31, 2022, which reflects a decrease of $2,085,968 from a working capital of $278,445,446 as of December 31, 2021.
Contractual Obligations and Off-balance Sheet
Arrangements
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 21 – Commitments and Contingencies under Notes to Condensed Consolidated Financial
Statements.
Recent Development Activities:
On February 22,
2022, SC Autosports and Coleman Powersports Inc. signed a memorandum of understanding (“MOU”) regarding the sales of $29
million (5,000 units) pure electric golf crossover vehicles. On March 3, 2022, SC Autosports and more than 20 dealers signed a MOU of
selling $39 million (5,000 units) high-end pure electric golf crossover vehicles. The pure electric golf crossover car is manufactured
by Hainan Kandi Holding and has been put into production in April 2022. By the end of April 2022, 778 units were being delivered from
Hainan to SC Autosports. It is planned to deliver 2,000 units to SC Autosports in May 2022.
By the end of April
2022, 34 units of K32 UTV manufactured by Hainan factory were being delivered to SC Autosports.