UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ______to______
Commission File Number
(Exact name of registrant as specified in charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
People’s Republic of | ||
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 3, 2022, the registrant had 77,658,730
shares of common stock issued and
TABLE OF CONTENTS
i
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
KANDI
TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September 30, 2022 |
December 31, 2021 |
|||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Certificate of deposit | ||||||||
| Accounts receivable (net of allowance for doubtful accounts of $ |
||||||||
| Inventories | ||||||||
| Notes receivable | ||||||||
| Other receivables | ||||||||
| Prepayments and prepaid expense | ||||||||
| Advances to suppliers | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Land use rights, net | ||||||||
| Construction in progress | ||||||||
| Deferred tax assets | ||||||||
| Long-term investment | ||||||||
| Goodwill | ||||||||
| Other long-term assets | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Other payables and accrued expenses | |
|||||||
| Short-term loans | ||||||||
| Notes payable | ||||||||
| Income tax payable | |
|||||||
| Other current liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | |
|||||||
| NON-CURRENT LIABILITIES | ||||||||
| Long-term loans | ||||||||
| Deferred taxes liability | ||||||||
| Contingent consideration liability | ||||||||
| Other long-term liabilities | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | |
|||||||
| STOCKHOLDER’S EQUITY | ||||||||
| Common stock, $ |
||||||||
| Less: Treasury stock ( |
( |
) | ( |
) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit (the restricted portion is $ |
( |
) | ( |
) | ||||
| Accumulated other comprehensive loss | ( |
) | ||||||
| TOTAL KANDI TECHNOLOGIES GROUP, INC. STOCKHOLDERS’ EQUITY | |
|||||||
| Non-controlling interests | ||||||||
| TOTAL STOCKHOLDERS’ EQUITY | |
|||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements
1
KANDI TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| REVENUES FROM UNRELATED PARTIES, NET | $ | $ | $ | $ | ||||||||||||
| REVENUES FROM THE FORMER AFFILIATE COMPANY AND RELATED PARTIES, NET | ||||||||||||||||
| REVENUES, NET | ||||||||||||||||
| COST OF GOODS SOLD | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING INCOME (EXPENSE): | ||||||||||||||||
| Research and development | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Selling and marketing | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on disposal of long-lived assets | ||||||||||||||||
| TOTAL OPERATING EXPENSE | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (LOSS) INCOME FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of contingent consideration | - | |||||||||||||||
| Government grants | ||||||||||||||||
| Gain from sale of equity in the Former Affiliate Company | ||||||||||||||||
| Share of loss after tax of the Former Affiliate Company | ( | ) | ( | ) | ||||||||||||
| Other income, net | ||||||||||||||||
| TOTAL OTHER INCOME , NET | ||||||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | ) | ( | ) | ||||||||||||
| INCOME TAX (EXPENSE) BENEFIT | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME (LOSS) | ( | ) | ( | ) | ||||||||||||
| LESS: NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS | ||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO KANDI TECHNOLOGIES GROUP, INC. STOCKHOLDERS | ( | ) | ( | ) | ||||||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| COMPREHENSIVE (LOSS) INCOME | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING BASIC | ||||||||||||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING DILUTED | ||||||||||||||||
| NET INCOME (LOSS) PER SHARE, BASIC | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| NET INCOME (LOSS) PER SHARE, DILUTED | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements
2
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 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Stock issuance and award | ||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Reversal of reduction in the Former Affiliate Company’s equity (net of tax effect of $ | - | |||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||||
| Stock issuance and award | ||||||||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||
| Stock issuance and award | - | - | - | - | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | - | $ | $ | ( | ) | $ | ( | ) | $ | - | $ | |||||||||||||||||||
| 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 | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||
| Stock issuance and award | ||||||||||||||||||||||||||||||||
| Stock buyback | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Capital contribution from shareholder | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||
| Stock issuance and award | ||||||||||||||||||||||||||||||||
| Stock buyback | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Net income (loss) | - | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Foreign currency translation | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||
| Stock issuance and award | ||||||||||||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||||||
| Stock buyback | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Capital contribution from shareholder | - | |||||||||||||||||||||||||||||||
| Net income (loss) | - | |
||||||||||||||||||||||||||||||
| Foreign currency translation | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | |
|||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
KANDI
TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended | ||||||||
| September 30, 2022 |
September 30, 2021 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | ( |
) | $ | ||||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Provision (reversal) of allowance for doubtful accounts | ||||||||
| Deferred taxes | ( |
) | ( |
) | ||||
| Share of loss after tax of the Former Affiliate Company | ||||||||
| Gain from equity sale in the Former Affiliate Company | ( |
) | ||||||
| Gain on disposal of long-lived assets | ( |
) | ||||||
| Change in fair value of contingent consideration | ( |
) | ||||||
| Stock award and stock based compensation expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ||||||
| Notes receivable | ||||||||
| Inventories | ( |
) | ( |
) | ||||
| Other receivables and other assets | ( |
) | ( |
) | ||||
| Advances to supplier and prepayments and prepaid expenses | ||||||||
| Increase (Decrease) In: | ||||||||
| Accounts payable | ( |
) | ||||||
| Other payables and accrued liabilities | ||||||||
| Notes payable | ( |
) | ( |
) | ||||
| Income tax payable | ( |
) | ||||||
| Net cash provided by (used in) operating activities | $ | $ | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property, plant and equipment, net | ( |
) | ( |
) | ||||
| Acquisition of Jiangxi Huiyi | - | ( |
) | |||||
| Payment for construction in progress | ( |
) | ( |
) | ||||
| Proceeds from disposal of long-lived assets | - | |||||||
| (Loan to) Repayment from third party | ( |
) | ||||||
| Certificate of deposit | ( |
) | ( |
) | ||||
| Proceeds from sales of equity in the Former Affiliate Company | ||||||||
| Long-term Investment | ( |
) | ||||||
| Advance receipts of equity transfer | - | |||||||
| Net cash (used in) provided by investing activities | $ | ( |
) | $ | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from short-term loans | ||||||||
| Repayments of short-term loans | ( |
) | - | |||||
| Contribution from non-controlling shareholder | ||||||||
| Purchase of treasury stock | ( |
) | ||||||
| Net cash provided by financing activities | $ | $ | ||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | $ | ( |
) | $ | ||||
| Effect of exchange rate changes | $ | ( |
) | $ | ||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR | $ | $ | ||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | $ | ||||||
| -CASH AND CASH EQUIVALENTS AT END OF PERIOD | ||||||||
| -RESTRICTED CASH AT END OF PERIOD | ||||||||
| SUPPLEMENTARY CASH FLOW INFORMATION | ||||||||
| Income taxes paid | $ | |||||||
| Interest paid | $ | |||||||
| 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 $ |
||||||||
| Contribution from non-controlling shareholder by inventories, fix assets and intangible assets | ||||||||
| Common stock issued for settlement of payables related to acquisitions (see Note 19) | - | |||||||
See accompanying notes to unaudited condensed consolidated financial statements
4
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, electric off-road vehicles, and associated parts 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 Electric Technology Co., Ltd. (“Jiangsu Xingchi”) signed a joint venture agreement, pursuant to which the two parties
jointly invested RMB
5
NOTE 2 - LIQUIDITY
The Company had working capital of $
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.
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 and 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 $
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 Amendment No.1 to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2021 (the “2021 Form 10-K/A”).
6
NOTE 4 - PRINCIPLES OF CONSOLIDATION
The Company’s unaudited condensed 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”), formerly, a |
| (4) | Kandi Electric Vehicles (Hainan) Co., Ltd. (“Kandi Hainan”), a subsidiary |
| (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; |
| (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”), a wholly-owned subsidiary of Zhejiang Kandi Technologies, and its subsidiaries, 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; and | |
| (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 |
7
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 Fengsheng Automotive Technology
Group Co., Ltd. (“Former Affiliate Company”), in which the Company owned
On February 18, 2021, Zhejiang Kandi Technologies
signed an Equity Transfer Agreement with Geely to transfer all of its remaining
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 unaudited condensed 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 unaudited condensed consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s unaudited condensed 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/A.
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.
8
NOTE 8 - CONCENTRATIONS
(a) Customers
For the three-month period ended September 30,
2022 and 2021, the Company’s major customers, each of whom accounted for more than
| Sales | Trade Receivable | |||||||||||
| Three Months | ||||||||||||
| Ended | ||||||||||||
| September 30, | September 30, | December 31, | ||||||||||
| Major Customers | 2022 | 2022 | 2021 | |||||||||
| Customer A | % | % | ||||||||||
| Sales | Trade Receivable | |||||||
| Three Months | ||||||||
| Ended | ||||||||
| September 30， | September 30， | |||||||
| Major Customers | 2021 | 2021 | ||||||
| Customer B | % | % | ||||||
| Customer C | % | % | ||||||
For the nine-month period ended September 30, 2022 and 2021, the Company’s
major customers, each of whom accounted for more than
| Sales | Trade Receivable | |||||||||||
| Nine Months | ||||||||||||
| Ended | ||||||||||||
| September 30, | September 30, | December 31, | ||||||||||
| Major Customers | 2022 | 2022 | 2021 | |||||||||
| Customer A | % | % | ||||||||||
9
| Sales | Trade Receivable | |||||||
| Nine Months | ||||||||
| Ended | ||||||||
| September 30, | September 30, | |||||||
| Major Customers | 2021 | 2021 | ||||||
| Customer B | % | % | ||||||
| Customer D | % | |||||||
(b) Suppliers
For the three-month period ended September 30,
2022 and 2021, the Company’s material supplier, the purchase made by which accounted for more than
| Purchases | Accounts Payable | |||||||||||
| Three Months | ||||||||||||
| Ended | ||||||||||||
| September 30, | September 30, | December 31, | ||||||||||
| Major Suppliers | 2022 | 2022 | 2021 | |||||||||
| Zhejiang Kandi Supply Chain Management Co., Ltd.(1) | % | % | % | |||||||||
| Purchases | Accounts Payable | |||||||
| Three Months | ||||||||
| Ended | ||||||||
| September 30, | September 30, | |||||||
| Major Suppliers | 2021 | 2021 | ||||||
| Zhejiang Kandi Supply Chain Management Co., Ltd.(1) | % | % | ||||||
| (1) | Zhejiang Kandi Technologies owns 10% equity interest of the supplier. |
10
For the nine-month period ended September 30,
2022 and 2021, the Company’s material supplier, the purchase made by which accounted for more than
| Purchases | Accounts Payable | |||||||||||
| Nine Months | ||||||||||||
| Ended | ||||||||||||
| September 30, | September 30, | December 31, | ||||||||||
| Major Suppliers | 2022 | 2022 | 2021 | |||||||||
| Zhejiang Kandi Supply Chain Management Co., Ltd.(1) | % | % | % | |||||||||
| Purchases | Accounts Payable | |||||||
| Nine Months | ||||||||
| Ended | ||||||||
| September 30, | September 30, | |||||||
| Major Suppliers | 2021 | 2021 | ||||||
| Zhejiang Kandi Supply Chain Management Co., Ltd.(1) | % | % | ||||||
| (1) | Zhejiang Kandi Technologies owns 10% equity interest of the supplier. |
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 is 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 being below the exercise price of certain options and warrants, approximately
On September 7, 2022, the Compensation Committee
of the Board of Directors of the Company approved the grant of
11
NOTE 10 - ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
The following table sets forth the movement of provision for doubtful accounts:
| Allowance for Doubtful Accounts | ||||
| BALANCE AT DECEMBER 31, 2020 | $ | |||
| Provision | ||||
| Addition of allowance resulted from acquisition of Jiangxi Huiyi | ||||
| Exchange rate difference | ||||
| BALANCE AT DECEMBER 31, 2021 | $ | |||
| Provision | ||||
| Exchange rate difference | ( | ) | ||
| BALANCE AT September 30, 2022 | $ | |||
NOTE 11 - INVENTORIES
Inventories are summarized as follows:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Raw material | $ | $ | ||||||
| Work-in-progress | ||||||||
| Finished goods * | ||||||||
| Inventories | $ | $ | ||||||
| * |
12
NOTE 12 - OTHER RECEIVABLES
Other receivables consist of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Fund in the Company’s broker account① | ||||||||
| Interest receivable | ||||||||
| Loan to third party ② | $ | $ | ||||||
| Others | ||||||||
| Total other receivables | $ | $ | ||||||
| ① |
| ② |
NOTE 13 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plants and equipment as of September 30, 2022 and December 31, 2021, consisted of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| At cost: | ||||||||
| Buildings | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Office equipment | ||||||||
| Motor vehicles and other transport equipment | ||||||||
| Molds and others | ||||||||
| Less : Accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
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
Depreciation expenses for the three months ended September 30,
2022 and 2021 were $
13
NOTE 14 - 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:
| September 30, | December 31, | |||||||||
| Remaining useful life | 2022 | 2021 | ||||||||
| Gross carrying amount: | ||||||||||
| Patent | $ | |||||||||
| Technology | ||||||||||
| Less : Accumulated amortization | ||||||||||
| Patent | $ | ( | ) | ( | ) | |||||
| Technology | ( | ) | ( | ) | ||||||
| ( | ) | ( | ) | |||||||
| Intangible assets, net | $ | $ | ||||||||
The aggregate amortization expenses for those
intangible assets were $
Amortization expenses for the next five years and thereafter are as follows:
| Three months ended December 31, 2022 | $ | |||
| Years ended December 31, | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
NOTE 15 - LAND USE RIGHTS, NET
The Company’s land use rights consist of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Cost of land use rights | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Land use rights, net | $ | $ | ||||||
14
The amortization expenses for the three months
ended September 30, 2022 and 2021, were $
| Three months ended December 31, 2022 | $ | |||
| Years ended December 31, | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
NOTE 16 - OTHER LONG TERM ASSETS
Other long term assets as of September 30, 2022 and December 31, 2021, consisted of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Prepayments for land use right (i) | $ | |||||||
| Right - of - use asset (ii) | ||||||||
| Others | ||||||||
| Total other long-term asset | $ | $ | ||||||
| (i) |
| (ii) |
15
NOTE 17 - 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
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.
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 nine months ended September
30, 2022 and 2021 was tax benefit of $
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 September 30, 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 September 30, 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 September 30, 2022, the Company has no accrued interest or penalties related to uncertain tax positions.
The tax effected aggregate Net Operating Loss
(“NOL”) was $
16
(b) Tax Holiday Effect
For the nine months ended September 30, 2022 and
2021, the PRC CIT rate was
The combined effects of income tax expense exemptions and reductions available to the Company for the nine months ended September 30, 2022 and 2021 are as follows:
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Tax benefit (holiday) credit | $ | $ | ||||||
| Basic net income per share effect | $ | $ | ||||||
NOTE 18 - LEASES
The Company previously renewed its corporate office
leases for SC Autosports, with a term of 15 months from January 31, 2020 to April 30, 2021.
During October 2020, land use right of gross value
of $
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 and deposit amount of $253,337.
As of September 30, 2022, the Company’s
operating lease right-of-use assets (grouped in other long-term assets on the balance sheet) was $
Supplemental information related to operating leases was as follows:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash payments for operating leases | $ | $ | ||||||
17
Maturities of lease liabilities as of September 30, 2022 were as follow:
| Maturity of Lease Liabilities: | Lease payable | |||
| Years ended December 31, | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
NOTE 19 - CONTINGENT CONSIDERATION LIABILITY
On January 3, 2018,
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
18
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 September 30, 2022 and December 31,
2021, the Company’s contingent consideration liability to former members of Jiangxi Huiyi was $
NOTE 20 - STOCK OPTIONS
On September 7, 2022, the Compensation Committee
of the Board of Directors of the Company approved the grant of stock options to purchase
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
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
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
On May 15, 2020, the Board appointed Mr. Jehn
Ming Lim as the Chief Financial Officer. Mr. Lim was entitled to receive
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.
19
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
For the three months ended September 30,
2022 and 2021, the Company recognized $
NOTE 22 - EQUITY METHOD INVESTMENT IN THE 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
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
The Company’s equity method investments in the Former Affiliate Company for the nine months ended September 30, 2022 and 2021 are as follows:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Investment in the Former Affiliate Company, beginning of the period, | $ | $ | ||||||
| Investment decreased in 2021 | ( | ) | ||||||
| Gain from equity sale | ||||||||
| Reversal of prior year reduction in the equity of the Former Affiliate Company | ||||||||
| Company’s share in net loss of Former Affiliate based on | ( | ) | ||||||
| Non-controlling interest | ||||||||
| Prior year unrealized profit realized | ||||||||
| Subtotal | ( | ) | ||||||
| Exchange difference | ||||||||
| Investment in Former Affiliate Company, end of the period | $ | $ | ||||||
20
NOTE 23 - COMMITMENTS AND CONTINGENCIES
Guarantees and pledged collateral for bank loans to other parties
(1) Guarantees for bank loans
(2) Pledged collateral for bank loans for which the parties other than the Company are the borrowers.
As of September 30, 2022 and December 31, 2021, 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 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’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, 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 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 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 moved to dismiss that complaint in January 2022, and the motion was granted in part and denied in part in September 2022. Discovery is ongoing as to the remaining claims and defendants.
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. Discovery is ongoing.
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. The SLC recommended to Kandi’s 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 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’s 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.
21
NOTE 24 - SEGMENT REPORTING
The Company has
The following table sets forth disaggregation of revenue:
| Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Sales Revenue | Sales Revenue | |||||||
| Primary geographical markets | ||||||||
| U.S. and other | $ | $ | ||||||
| China | ||||||||
| Total | $ | $ | ||||||
| Major products | ||||||||
| EV parts | $ | $ | ||||||
| EV products | ||||||||
| Off-road vehicles and associated parts | ||||||||
| Electric Scooters, Electric Self-Balancing Scooters and associated parts | ||||||||
| Battery exchange equipment and Battery exchange service | ||||||||
| Lithium-ion cells | ||||||||
| Total | $ | $ | ||||||
| Timing of revenue recognition | ||||||||
| Products transferred at a point in time | $ | $ | ||||||
| Total | $ | $ | ||||||
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Sales Revenue | Sales Revenue | |||||||
| Primary geographical markets | ||||||||
| U.S. and other countries/areas | $ | $ | ||||||
| China | ||||||||
| Total | $ | $ | ||||||
| Major products | ||||||||
| EV parts | $ | $ | ||||||
| EV products | ||||||||
| Off-road vehicles and associated parts | ||||||||
| Electric Scooters, Electric Self-Balancing Scooters and associated parts | ||||||||
| Battery exchange equipment and Battery exchange service | ||||||||
| Lithium-ion cells | ||||||||
| Total | $ | $ | ||||||
| Timing of revenue recognition | ||||||||
| Products transferred at a point in time | $ | $ | ||||||
| Total | $ | $ | ||||||
NOTE 25 - SUBSEQUENT EVENT
During October 1, 2022 to November 3, 2022,
the Company had repurchased a total of
22
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/A 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 unaudited 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/A. Please refer to Part II, Item 7 of such a report for a discussion of our critical accounting policies and estimates.
Overview
For the nine months ended September 30, 2022, our operating entities recognized total revenue of $79,405,788 as compared to $62,649,301 for the same period of 2021, an increase of $16,756,487 or 26.7%. For the nine months ended September 30, 2022, our operating entities recorded $11,475,193 of gross profit, a decrease of 13.1% from the same period of 2021. Gross margin for the nine months ended September 30, 2022 was 14.5%, compared to 21.1% for the same period of 2021. Our operating entities recorded a net loss of $2,421,617 for the nine months ended September 30, 2022, compared to a net income of $26,657,935 in the same period of 2021, which is a decrease of $29,079,552 or 109.1%.
Thanks to our business strategy adjustment, we made inroads in electric off-road vehicles, despite the resurgences of COVID-19, which has been causing frequent lockdowns in many cities and severe disruption of supply chain. Now with the global trend of “fuel to electrification” of off-road vehicles becoming more and more obvious, we have successfully developed electric crossover golf carts and put them on the market in batches, which have been favored by users. Next, we will successively launch various electric off-road vehicles, including electric crossover golf carts and electric UTVs. With the successively introduction of new products, we are confident to achieve sustained growth in the field of the pure electric off-road vehicles. As for our EV business, due to the persisting COVID-19 situation in China and the fact that the Chinese EV market has not entered a healthy and orderly development stage, currently the Company will continue to operate in small-scale, and expedite the progress when the EV market of China entered a healthy and orderly development stage.
23
Results of Operations
Comparison of the Three Months Ended September 30, 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 September 30, 2022 and 2021.
| Three Months Ended | ||||||||||||||||||||||||
| September 30, 2022 |
% of Revenue |
September 30, 2021 |
% of Revenue |
Change in Amount |
Change in % |
|||||||||||||||||||
| REVENUES FROM UNRELATED PARTIES, NET | $ | 33,673,201 | 100.0 | % | $ | 16,795,712 | 100.0 | % | 16,877,489 | 100.5 | % | |||||||||||||
| REVENUES FROM THE FORMER AFFILIATE COMPANY AND RELATED PARTIES, NET | - | 0.0 | % | - | 0.0 | % | - | - | ||||||||||||||||
| REVENUES, NET | 33,673,201 | 16,795,712 | 16,877,489 | 100.5 | % | |||||||||||||||||||
| COST OF GOODS SOLD | (27,304,038 | ) | (81.1 | )% | (14,046,041 | ) | (83.6 | )% | (13,257,997 | ) | 94.4 | % | ||||||||||||
| GROSS PROFIT | 6,369,163 | 18.9 | % | 2,749,671 | 16.4 | % | 3,619,492 | 131.6 | % | |||||||||||||||
| OPERATING INCOME (EXPENSE): | ||||||||||||||||||||||||
| Research and development | (1,433,649 | ) | (4.3 | )% | (6,747,934 | ) | (40.2 | )% | 5,314,285 | (78.8 | )% | |||||||||||||
| Selling and marketing | (1,440,995 | ) | (4.3 | )% | (1,290,544 | ) | (7.7 | )% | (150,451 | ) | 11.7 | % | ||||||||||||
| General and administrative | (5,686,233 | ) | (16.9 | )% | (3,733,230 | ) | (22.2 | )% | (1,953,003 | ) | 52.3 | % | ||||||||||||
| Gain on disposal of long-lived assets | - | 0.0 | % | 2,238 | 0.0 | % | (2,238 | ) | (100.0 | )% | ||||||||||||||
| TOTAL OPERATING EXPENSE | (8,560,877 | ) | (25.4 | )% | (11,769,470 | ) | (70.1 | )% | 3,208,593 | (27.3 | )% | |||||||||||||
| LOSS FROM OPERATIONS | (2,191,714 | ) | (6.5 | )% | (9,019,799 | ) | (53.7 | )% | 6,828,085 | (75.7 | )% | |||||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||||||||||
| Interest income | 2,138,130 | 6.3 | % | 1,247,544 | 7.4 | % | 890,586 | 71.4 | % | |||||||||||||||
| Interest expense | (177,417 | ) | (0.5 | )% | (63,368 | ) | (0.4 | )% | (114,049 | ) | 180.0 | % | ||||||||||||
| Change in fair value of contingent consideration | 434,995 | 1.3 | % | - | 0.0 | % | 434,995 | - | ||||||||||||||||
| Government grants | 829,539 | 2.5 | % | 220,967 | 1.3 | % | 608,572 | 275.4 | % | |||||||||||||||
| Gain from sale of equity in the Former Affiliate Company | - | 0.0 | % | 822 | 0.0 | % | (822 | ) | (100.0 | )% | ||||||||||||||
| Share of loss after tax of the Former Affiliate Company | - | 0.0 | % | (119 | ) | (0.0 | )% | 119 | (100.0 | )% | ||||||||||||||
| Other income, net | 536,726 | 1.6 | % | 442,102 | 2.6 | % | 94,624 | 21.4 | % | |||||||||||||||
| TOTAL OTHER INCOME , NET | 3,761,973 | 11.2 | % | 1,847,948 | 11.0 | % | 1,914,025 | 103.6 | % | |||||||||||||||
| INCOME BEFORE INCOME TAXES | 1,570,259 | 4.7 | % | (7,171,851 | ) | (42.7 | )% | 8,742,110 | (121.9 | )% | ||||||||||||||
| INCOME TAX EXPENSE | (497,211 | ) | (1.5 | )% | (696,968 | ) | (4.1 | )% | 199,757 | (28.7 | )% | |||||||||||||
| NET INCOME (LOSS) | 1,073,048 | 3.2 | % | (7,868,819 | ) | (46.9 | )% | 8,941,867 | (113.6 | )% | ||||||||||||||
| LESS: NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS | 694,029 | 2.1 | % | - | 0.0 | % | 694,029 | - | ||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO KANDI TECHNOLOGIES GROUP, INC. STOCKHOLDERS | 379,019 | (1.1 | )% | (7,868,819 | ) | (46.9 | )% | 8,247,838 | (104.8 | )% | ||||||||||||||
24
(a) Revenue
For the three months ended September 30, 2022, Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenue was $33,673,201, compared to $16,795,712 for the same period of 2021, representing an increase of $16,877,489 or 100.5%. The increase in revenue was mainly due to the increase in the sales volume of off-road vehicles and associated parts.
The following table summarizes our revenues by product types for the three months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Sales | Sales | |||||||
| EV parts | $ | 2,624,505 | $ | 3,166,740 | ||||
| EV products | 1,726,681 | 328,772 | ||||||
| Off-road vehicles and associated parts | 21,748,245 | 6,848,448 | ||||||
| Electric Scooters, Electric Self-Balancing Scooters and associated parts | 1,167,208 | 6,275,645 | ||||||
| Battery exchange equipment and Battery exchange service | 71,184 | 176,107 | ||||||
| Lithium-ion cells | 6,335,378 | - | ||||||
| Total | $ | 33,673,201 | $ | 16,795,712 | ||||
EV Parts
During the three months ended September 30, 2022, Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenues from the sales of EV parts were $2,624,505, representing a decrease of $542,235 or 17.1% from $3,166,740 for the same quarter of 2021. The decrease was primarily due to the reduced demand from the market during the three months ended September 30, 2022.
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenue in EV parts for the three months ended September 30, 2022 primarily generates 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 7.8% of total sales.
EV Products
During the three months ended September 30, 2022, Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenue from the sale of EV Products was $1,726,681, representing an increase of $1,397,909 from $328,772 for the same quarter of 2021. The increase was mainly due to the sales of EV in China market during the three months ended September 30, 2022.
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ EV Products business line accounted for approximately 5.1% of the total net revenue for the three months ended September 30, 2022.
Off-Road Vehicles and associated parts
During the three months ended September 30, 2022, Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenue from the sales of off-road vehicles, including go karts, all-terrain vehicles (“ATVs”), others and associated parts, were $21,748,245, representing an increase of $14,899,797 or 217.6% from $6,848,448, for the same quarter of 2021. The increase was mainly due to the increased sales volume of “crossover” electric golf carts.
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ off-road vehicles business line accounted for approximately 64.6% of our operating entities’ total net revenue for the three months ended September 30, 2022.
Electric Scooters, Electric Self-Balancing Scooters and associated parts
During the three months ended September 30, 2022, Zhejiang Kandi Technologies and its subsidiaries’ revenue from the sale of electric scooters, electric self-balancing scooters and associated parts was $1,167,208, representing a decrease of $5,108,437 or 81.4% from $6,275,645 for the same period of 2021. During the prior period in 2021, we sold electric scooters manufactured by ourselves. However, during the current period, we only manufactured motors and certain parts as one of our business partners began producing these electric scooters and scooter related products on their own.
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ electric scooters, electric self-balancing scooters and associated parts business line accounted for approximately 3.5% of the total net revenue for the three months ended September 30, 2022.
Battery exchange equipment and Battery exchange service
During the three months ended September 30, 2022, Zhejiang Kandi Technologies and its subsidiaries’ revenue from the sale of battery exchange equipment and battery exchange service was $71,184, representing a decrease of $104,923 or 59.6% from $176,107 for the same period of 2021.
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ sale of battery exchange equipment and battery exchange service business line accounted for approximately 0.2% of the total net revenue for the three months ended September 30, 2022.
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Lithium-ion cells
During the three months ended September 30, 2022, Zhejiang Kandi Technologies and its subsidiaries’ revenue from the sale of Lithium-ion cells was $6,335,378, 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.
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ Lithium-ion cell business line accounted for approximately 18.8% of the total net revenue for the three months ended September 30, 2022.
The following table shows the breakdown of our net revenues:
| Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Sales Revenue | Sales Revenue | |||||||
| Primary geographical markets | ||||||||
| U.S. and other countries/areas | $ | 20,480,662 | $ | 7,060,320 | ||||
| China | 13,192,539 | 9,735,392 | ||||||
| Total | $ | 33,673,201 | $ | 16,795,712 | ||||
| Major products | ||||||||
| EV parts | $ | 2,624,505 | $ | 3,166,740 | ||||
| EV products | 1,726,681 | 328,772 | ||||||
| Off-road vehicles and associated parts | 21,748,245 | 6,848,448 | ||||||
| Electric Scooters, Electric Self-Balancing Scooters and associated parts | 1,167,208 | 6,275,645 | ||||||
| Battery exchange equipment and Battery exchange service | 71,184 | 176,107 | ||||||
| Lithium-ion cells | 6,335,378 | - | ||||||
| Total | $ | 33,673,201 | $ | 16,795,712 | ||||
| Timing of revenue recognition | ||||||||
| Products transferred at a point in time | $ | 33,673,201 | $ | 16,795,712 | ||||
| Total | $ | 33,673,201 | $ | 16,795,712 | ||||
(b) Cost of goods sold
Cost of goods sold was $27,304,038 during the three months ended September 30, 2022, representing an increase of $13,257,997, or 94.4%, compared to $14,046,041 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.
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(c) Gross profit
Our operating entities’ margins by product for the three months ended September 30, 2022 and 2021 are as set forth below:
| Three Months Ended September 30, | ||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||
| Sales | Cost | Gross Profit | Margin % | Sales | Cost | Gross Profit | Margin % | |||||||||||||||||||||||||
| EV parts | $ | 2,624,505 | 2,408,952 | 215,553 | 8.2 | % | $ | 3,166,740 | 2,770,713 | 396,027 | 12.5 | % | ||||||||||||||||||||
| EV products | 1,726,681 | 1,527,679 | 199,002 | 11.5 | % | 328,772 | 198,897 | 129,875 | 39.5 | % | ||||||||||||||||||||||
| Off-road vehicles and associated parts | 21,748,245 | 16,275,896 | 5,472,349 | 25.2 | % | 6,848,448 | 5,293,000 | 1,555,448 | 22.7 | % | ||||||||||||||||||||||
| Electric Scooters, Electric Self-Balancing Scooters and associated parts | 1,167,208 | 1,178,742 | (11,534 | ) | -1.0 | % | 6,275,645 | 5,630,824 | 644,821 | 10.3 | % | |||||||||||||||||||||
| Battery exchange equipment and Battery exchange service | 71,184 | 67,519 | 3,665 | 5.1 | % | 176,107 | 152,607 | 23,500 | 13.3 | % | ||||||||||||||||||||||
| Lithium-ion cells | 6,335,378 | 5,845,250 | 490,128 | 7.7 | % | - | - | - | - | |||||||||||||||||||||||
| Total | $ | 33,673,201 | 27,304,038 | 6,369,163 | 18.9 | % | $ | 16,795,712 | 14,046,041 | 2,749,671 | 16.4 | % | ||||||||||||||||||||
Gross profit for the third quarter of 2022 increased 131.6% to $6,369,163 compared to $2,749,671 for the same period last year. This was primarily attributable to the sales increase of off-road vehicles and associated parts. Our operating entities’ gross margin increased to 18.9% compared to 16.4% for the same period of 2021. The increase in our operating entities’ gross margin was mainly due to the product mix shifting to off-roads vehicles, and more proportion of revenue was generated from the off-road vehicles which offers higher gross margin.
(d) Research and development
Research and development expenses, including materials, labor, equipment depreciation, design, testing, inspection, and other related expenses, totaled $1,433,649 for the third quarter of 2022, a decrease of $5,314,285 or 78.8% compared to $6,747,934 for the same period of last year. 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 $1,440,995 for the third quarter of 2022, compared to $1,290,544 for the same period last year, representing an increase of $150,451 or 11.7%. The increase was mainly due to the increased customs clearing charges.
(f) General and administrative expenses
General and administrative expenses were $5,686,233 for the third quarter of 2022, compared to $3,733,230 for the same period last year, representing an increase of $1,953,003 or 52.3%. For the three months ended September 30, 2022, general and administrative expenses included $273,598 as expenses for common stock awards and stock options to employees and Board members, compared to $22,925 for the same period in 2021. Besides stock compensation expense, our operating entities’ net general and administrative expenses for the three months ended September 30, 2022 were $5,412,635, representing an increase of $1,702,330, from $3,710,305 for the same period of 2021, which was largely due to increase in salaries expense from the addition of new hires for operations, depreciation expense and amortization expense compared to the same period in 2021 due to acquisition of Jiangxi Huiyi consummated on October 31, 2021.
(g) Gain on disposal of long-lived assets
Gain on disposal of long-lived assets was $0 for the third quarter of 2022, compared to $2,238 for the same period last year.
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(h) Interest income
Interest income was $2,138,130 for the third quarter of 2022, representing an increase of $890,586 or 71.4% compared to $1,247,544 for the same period of last year. The increase was primarily attributable to the increased interest earned on increased certificate of deposit compared to the same period in 2021.
(i) Interest expenses
Interest expenses were $177,417 in the third quarter of 2022, representing an increase of $114,049 or 180.0% compared to $63,368 for the same period of last year. The increase was primarily due to interest expenses related to increased short-term and long-term debt of the Company compared to the same period in 2021.
(j) Change in fair value of contingent consideration
For the third quarter of 2022, the gain related to changes in the fair value of contingent consideration was $434,995 compared to gain related to changes in the fair value of contingent consideration of $0 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 19 – 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 $829,539 for the third quarter of 2022, compared to $220,967 for the same quarter last year, representing an increase of $608,572, or 275.4%, which was largely attributable to grants from Jinhua and Jiangxi local government in the third quarter of 2022.
(l) Gain from sale of equity in the Affiliate Company
Gain from equity sale was $0 for the third quarter of 2022, compared to $822 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 second 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).
(m) Share of loss after tax of the Affiliate Company
For the third quarter of 2022, our share of loss of the Affiliate Company was $0 as compared to share of loss of $119 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).
(n) Other income, net
Other income, net was $536,726 for the third quarter of 2022, compared to $442,102 for the same period of last year, representing an increase of $94,624, or 21.4%.
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(o) 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%. Additionally, Hainan Kandi Holding also has an income tax rate of 15% due to its local preferred tax rate in Hainan Free Trade Port.
Each of our other subsidiaries, Kandi New Energy, Yongkang Scrou, China Battery Exchange and its subsidiaries has an applicable corporate income tax rate of 25%.
Our actual effective income tax rate for the third quarter of 2022 was a tax expense of 31.66% on a reported income before taxes of approximately $1.6 million, compared to a tax expense of 9.72% on a reported loss before taxes of approximately $7.2 million for the same period of last year.
(p) Net income (loss)
Net income was $1,073,048 for the third quarter of 2022, representing a decrease loss of $8,941,867 compared to net loss of $7,868,819 for the same period of last year. The decreased loss was primarily attributable to the increased sales and decreased research and development expenses compared to the same period of last year.
Comparison of the Nine Months Ended September 30, 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 nine months ended September 30, 2022 and 2021.
| Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2022 |
% of Revenue |
September 30, 2021 |
% of Revenue |
Change in Amount |
Change in % |
|||||||||||||||||||
| REVENUES FROM UNRELATED PARTIES, NET | $ | 79,405,788 | 100.0 | % | $ | 62,647,714 | 100.0 | % | 16,758,074 | 26.7 | % | |||||||||||||
| REVENUES FROM THE FORMER AFFILIATE COMPANY AND RELATED PARTIES, NET | - | 0.0 | % | 1,587 | 0.0 | % | (1,587 | ) | (100.0 | )% | ||||||||||||||
| REVENUES, NET | 79,405,788 | 100.0 | % | 62,649,301 | 100.0 | % | 16,756,487 | 26.7 | % | |||||||||||||||
| COST OF GOODS SOLD | (67,930,595 | ) | (85.5 | )% | (49,447,497 | ) | (78.9 | )% | (18,483,098 | ) | 37.4 | % | ||||||||||||
| GROSS PROFIT | 11,475,193 | 14.5 | % | 13,201,804 | 21.1 | % | (1,726,611 | ) | (13.1 | )% | ||||||||||||||
| OPERATING INCOME (EXPENSE): | ||||||||||||||||||||||||
| Research and development | (3,828,078 | ) | (4.8 | )% | (31,937,436 | ) | (51.0 | )% | 28,109,358 | (88.0 | )% | |||||||||||||
| Selling and marketing | (3,807,222 | ) | (4.8 | )% | (3,494,927 | ) | (5.6 | )% | (312,295 | ) | 8.9 | % | ||||||||||||
| General and administrative | (18,016,843 | ) | (22.7 | )% | (13,522,925 | ) | (21.6 | )% | (4,493,918 | ) | 33.2 | % | ||||||||||||
| Gain on disposal of long-lived assets | - | 0.0 | % | 48,255,905 | 77.0 | % | (48,255,905 | ) | (100.0 | )% | ||||||||||||||
| TOTAL OPERATING EXPENSE | (25,652,143 | ) | (32.3 | )% | (699,383 | ) | (1.1 | )% | (24,952,760 | ) | 3567.8 | % | ||||||||||||
| (LOSS) INCOME FROM OPERATIONS | (14,176,950 | ) | (17.9 | )% | 12,502,421 | 20.0 | % | (26,679,371 | ) | (213.4 | )% | |||||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||||||||||
| Interest income | 4,739,208 | 6.0 | % | 2,750,241 | 4.4 | % | 1,988,967 | 72.3 | % | |||||||||||||||
| Interest expense | (463,994 | ) | (0.6 | )% | (267,785 | ) | (0.4 | )% | (196,209 | ) | 73.3 | % | ||||||||||||
| Change in fair value of contingent consideration | 2,733,995 | 3.4 | % | - | 0.0 | % | 2,733,995 | - | ||||||||||||||||
| Government grants | 1,536,856 | 1.9 | % | 570,162 | 0.9 | % | 966,694 | 169.5 | % | |||||||||||||||
| Gain from sale of equity in the Former Affiliate Company | - | 0.0 | % | 17,734,733 | 28.3 | % | (17,734,733 | ) | (100.0 | )% | ||||||||||||||
| Share of loss after tax of the Former Affiliate Company | - | 0.0 | % | (2,584,520 | ) | (4.1 | )% | 2,584,520 | (100.0 | )% | ||||||||||||||
| Other income, net | 2,954,036 | 3.7 | % | 4,768,092 | 7.6 | % | (1,814,056 | ) | (38.0 | )% | ||||||||||||||
| TOTAL OTHER INCOME , NET | 11,500,101 | 14.5 | % | 22,970,923 | 36.7 | % | (11,470,822 | ) | (49.9 | )% | ||||||||||||||
| (LOSS) INCOME BEFORE INCOME TAXES | (2,676,849 | ) | (3.4 | )% | 35,473,344 | 56.6 | % | (38,150,193 | ) | (107.5 | )% | |||||||||||||
| INCOME TAX BENEFIT (EXPENSE) | 255,232 | 0.3 | % | (8,815,409 | ) | (14.1 | )% | 9,070,641 | (102.9 | )% | ||||||||||||||
| NET (LOSS) INCOME | (2,421,617 | ) | (3.0 | )% | 26,657,935 | 42.6 | % | (29,079,552 | ) | (109.1 | )% | |||||||||||||
| LESS: NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS | 752,691 | 0.9 | % | - | 0.0 | % | 752,691 | - | ||||||||||||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO KANDI TECHNOLOGIES GROUP, INC. STOCKHOLDERS | (3,174,308 | ) | (4.0 | )% | 26,657,935 | 42.6 | % | (29,832,243 | ) | (111.9 | )% | |||||||||||||
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(a) Revenue
For the nine months ended September 30, 2022, Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenue was $79,405,788 compared to $62,649,301 for the same period of 2021, representing an increase of $16,756,487 or 26.7%. The increase in revenue was mainly due to the increase in the sales volume of off-road vehicles and associated parts and lithium-ion cells.
The following table summarizes our operating entities’ revenues by product types for the nine months ended September 30, 2022 and 2021:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Sales | Sales | |||||||
| EV parts | $ | 6,881,058 | $ | 16,215,586 | ||||
| EV products | 4,553,194 | 1,061,078 | ||||||
| Off-road vehicles and associated parts | 42,554,127 | 17,940,647 | ||||||
| Electric Scooters, Electric Self-Balancing Scooters and associated parts | 4,511,647 | 26,671,006 | ||||||
| Battery exchange equipment and Battery exchange service | 179,848 | 760,984 | ||||||
| Lithium-ion cells | 20,725,914 | - | ||||||
| Total | $ | 79,405,788 | $ | 62,649,301 | ||||
EV Parts
During the nine months ended September 30, 2022, Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenues from the sales of EV parts were $6,881,058, representing a decrease of $9,334,528 or 57.6% from $16,215,586 for the same period of 2021. The decrease was primarily due to the reduced demand from the market during the nine months ended September 30, 2022.
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenue for the nine months ended September 30, 2022 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 8.7% of total sales.
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EV Products
During the nine months ended September 30, 2022, Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenue from the sale of EV Products was $4,553,194, representing an increase of $3,492,116 or 329.1% from $1,061,078 for the same period of 2021. The increase was mainly due to the sales of EV in China market during the nine months ended September 30, 2022.
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ EV Products business line accounted for approximately 5.7% of the total net revenue for the nine months ended September 30, 2022.
Off-Road Vehicles and associated parts
During the nine months ended September 30, 2022, Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ revenue from the sales of off-road vehicles, including go karts, all-terrain vehicles (“ATVs”), others and associated parts, were $42,554,127, representing an increase of $24,613,480 or 137.2% from $17,940,647, for the same period of 2021. The increase was because a new brand of off-road vehicle was introduced to the US market with aggressive price in order to promote its sales during the current period, as well as our new model of crossover golf carts which were sold in US market in the first three quarters of this year.
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ off-road vehicles business line accounted for approximately 53.6% of our operating entities’ total net revenue for the nine months ended September 30, 2022.
Electric Scooters, Electric Self-Balancing Scooters and associated parts
During the nine months ended September 30, 2022, Zhejiang Kandi Technologies and its subsidiaries’ revenue from the sale of electric scooters, electric self-balancing scooters and associated parts was $4,511,647, representing a decrease of $22,159,359 or 83.1% from $26,671,006 for the same period of 2021. During the prior period in 2021, we sold electric scooters manufactured by ourselves. However, during the current period, we only manufactured motors and certain parts as one of our business partners began producing these electric scooters and scooter related products on their own.
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ electric scooters, electric self-balancing scooters and associated parts business line accounted for approximately 5.7% of the total net revenue for the nine months ended September 30, 2022.
Battery exchange equipment and Battery exchange service
During the nine months ended September 30, 2022, Zhejiang Kandi Technologies and its subsidiaries’ revenue from the sale of Battery exchange equipment and Battery exchange service was $179,848, representing a decrease of $581,136 or 76.4% from $760,984 for the same period of 2021.
Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ battery exchange equipment and Battery exchange service business line accounted for approximately 0.2% of the total net revenue for the nine months ended September 30, 2022.
Lithium-ion cells
During the nine months ended September 30, 2022, Zhejiang Kandi Technologies and its subsidiaries’ revenue from the sale of Lithium-ion cells was $20,725,914, 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.
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Zhejiang Kandi Technologies, its subsidiaries and SC Autosports’ Lithium-ion cells business line accounted for approximately 26.1% of the total net revenue for the nine months ended September 30, 2022.
The following table shows the breakdown of our net revenues:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Sales Revenue | Sales Revenue | |||||||
| Primary geographical markets | ||||||||
| U.S. and other countries/areas | $ | 41,663,512 | $ | 21,108,327 | ||||
| China | 37,742,276 | 41,540,974 | ||||||
| Total | $ | 79,405,788 | $ | 62,649,301 | ||||
| Major products | ||||||||
| EV parts | $ | 6,881,058 | $ | 16,215,586 | ||||
| EV products | 4,553,194 | 1,061,078 | ||||||
| Off-road vehicles and associated parts | 42,554,127 | 17,940,647 | ||||||
| Electric Scooters, Electric Self-Balancing Scooters and associated parts | 4,511,647 | 26,671,006 | ||||||
| Battery exchange equipment and Battery exchange service | 179,848 | 760,984 | ||||||
| Lithium-ion cells | 20,725,914 | - | ||||||
| Total | $ | 79,405,788 | $ | 62,649,301 | ||||
| Timing of revenue recognition | ||||||||
| Products transferred at a point in time | $ | 79,405,788 | $ | 62,649,301 | ||||
| Total | $ | 79,405,788 | $ | 62,649,301 | ||||
(b) Cost of goods sold
Cost of goods sold was $67,930,595 during the nine months ended September 30, 2022, representing an increase of $18,483,098, or 37.4%, compared to $49,447,497 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
Our operating entities’ margins by product for the nine months ended September 30, 2022 and 2021 are as set forth below:
| Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||
| Sales | Cost | Gross Profit | Margin % | Sales | Cost | Gross Profit | Margin % | |||||||||||||||||||||||||
| EV parts | $ | 6,881,058 | 6,229,204 | 651,854 | 9.5 | % | $ | 16,215,586 | 12,666,341 | 3,549,245 | 21.9 | % | ||||||||||||||||||||
| EV products | 4,553,194 | 4,184,867 | 368,327 | 8.1 | % | 1,061,078 | 850,775 | 210,303 | 19.8 | % | ||||||||||||||||||||||
| Off-road vehicles and associated parts | 42,554,127 | 33,774,464 | 8,779,663 | 20.6 | % | 17,940,647 | 13,504,150 | 4,436,497 | 24.7 | % | ||||||||||||||||||||||
| Electric Scooters, Electric Self-Balancing Scooters and associated parts | 4,511,647 | 4,173,192 | 338,455 | 7.5 | % | 26,671,006 | 21,744,464 | 4,926,542 | 18.5 | % | ||||||||||||||||||||||
| Battery exchange equipment and Battery exchange service | 179,848 | 201,014 | (21,166 | ) | -11.8 | % | 760,984 | 681,767 | 79,217 | 10.4 | % | |||||||||||||||||||||
| Lithium-ion cells | 20,725,914 | 19,367,854 | 1,358,060 | 6.6 | % | - | - | - | - | |||||||||||||||||||||||
| Total | $ | 79,405,788 | 67,930,595 | 11,475,193 | 14.5 | % | $ | 62,649,301 | 49,447,497 | 13,201,804 | 21.1 | % | ||||||||||||||||||||
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Gross profit for the first three quarters of 2022 decreased 13.1% to $11,475,193, compared to $13,201,804 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. Our operating entities’ gross margin decreased to 14.5% compared to 21.1% 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 the same period 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.
(d) Research and development
Research and development expenses, including materials, labor, equipment depreciation, design, testing, inspection, and other related expenses, totaled $3,828,078 for the first three quarters of 2022, a decrease of $28,109,358 or 88.0% compared to $31,937,436 for the same period of last year. 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 $3,807,222 for the first three quarters of 2022, compared to $3,494,927 for the same period last year, representing an increase of $312,295 or 8.9%, which was comparable.
(f) General and administrative expenses
General and administrative expenses were $18,016,843 for the first three quarters of 2022, compared to $13,522,925 for the same period last year, representing an increase of $4,493,918 or 33.2%. For the nine months ended September 30, 2022, general and administrative expenses included $913,288 as expenses for common stock awards to employees and board members, compared to $1,452,381 for the same period in 2021. Besides stock compensation expense, our net general and administrative expenses for the nine months ended September 30, 2022 were $17,103,555, representing an increase of $5,033,011, from $12,070,544 for the same period of 2021, which was largely due to increase in salaries expense from the addition of new hires for operations, depreciation expense and amortization expense compared to the same period in 2021 due to acquisition of Jiangxi Huiyi consummated on October 31, 2021.
(g) Gain on disposal of long-lived assets
Gain on disposal of long-lived assets was $0 for the first three quarters of 2022, compared to $48,255,905 for the same period last year, 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 in the second quarter of 2020. The Company’s Jinhua facility moved out of the old location and completed the relocation process in April 2021. The relevant Economic Zone authorities inspected the vacated land and determined that it met all stipulated conditions. The remaining related gain on disposal of long-live asset was recognized in the second quarter of 2021.
(h) Interest income
Interest income was $4,739,208 for the first three quarters of 2022, representing an increase of $1,988,967 or 72.3% compared to $2,750,241 for the same period of last year. The increase was primarily attributable to the increased interest earned on increased certificate of deposit compared to the same period in 2021.
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(i) Interest expenses
Interest expenses were $463,994 in the first three quarters of 2022, representing an increase of $196,209 or 73.3% compared to $267,785 for the same period of last year. The increase was primarily due to interest expenses related to increased short-term and long-term debt of the Company compared to the same period in 2021.
(j) Change in fair value of contingent consideration
For the first three quarters of 2022, the gain related to changes in the fair value of contingent consideration was $2,733,995 compared to gain related to changes in the fair value of contingent consideration of $0 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 19 – 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 $1,536,856 for the first three quarters of 2022, compared to $570,162 for the same quarter last year, representing an increase of $966,694, or 169.5%, which was largely attributable to grants from Jinhua and Jiangxi local government in the first three quarters of 2022.
(l) Gain from sale of equity in the Affiliate Company
Gain from equity sale was $0 for the first three quarters of 2022, compared to $17,734,733 for the same period 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 half 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).
(m) Share of loss after tax of the Affiliate Company
For the first three quarters of 2022, our share of loss of the Affiliate Company was $0 as compared to share of loss of $2,584,520 for the same period of last year. 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).
(n) Other income, net
Other income, net was $2,954,036 for the first three quarters of 2022, representing a decrease of $1,814,056 or 38.0% compared to $4,768,092 for the same period of last year, which was largely due to the income from the discount of accounts payable after negotiation with supplier in the same period of last year.
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(o) 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%. Additionally, Hainan Kandi Holding also has an income tax rate of 15% due to its local preferred tax rate in Hainan Free Trade Port.
Each of our other subsidiaries, Kandi New Energy, Yongkang Scrou, China Battery Exchange and its subsidiaries has an applicable corporate income tax rate of 25%.
Our actual effective income tax rate for the first three quarters of 2022 was a tax benefit of 9.53% on a reported loss before taxes of approximately $2.7 million, compared to a tax expense of 24.85% on a reported income before taxes of approximately $35.5 million for the same period of last year.
(p) Net income (loss)
Net loss was $2,421,617 for the first three quarters of 2022, representing a decrease of $29,079,552 compared to net income $26,657,935 for the same period of last year. The decrease was primarily attributable to the gain on disposal of long-lived assets with $48 million that was recorded during the first three quarters of 2021, whereas there was none of such gain during the first three quarters of 2022.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
| Nine Months Ended | ||||||||
| September 30, 2022 | September 30, 2021 | |||||||
| Net cash provided by (used in) operating activities | $ | 13,223,050 | $ | (19,432,052 | ) | |||
| Net cash (used in) provided by investing activities | $ | (29,225,536 | ) | $ | 30,061,352 | |||
| Net cash provided by financing activities | $ | 921,815 | $ | 2,630,000 | ||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | $ | (15,080,671 | ) | $ | 13,259,300 | |||
| Effect of exchange rate changes | $ | (13,710,508 | ) | $ | 990,440 | |||
| 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 | $ | 139,884,828 | $ | 156,770,375 | ||||
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For the first three quarters of 2022, cash derived from operating activities was $13,223,050, as compared to cash used in operating activities of $19,432,052 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 three quarters of 2022 were an increase of accounts payable of $46,861,766. The major operating activity that used cash for the first three quarters of 2022 was a decrease of accounts receivable of $20,932,970.
For the first three quarters of 2022, cash used in investing activities was $29,225,536, as compared to cash derived from investing activities of $30,061,352 for the same period of last year. The major investing activities that used cash the first three quarters of 2022 were an increase of certificate of deposit of $22,726,928.
For the first three quarters of 2022, cash derived from financing activities was $921,815, as compared to cash derived from financing activities of $2,630,000 for the same period of last year. The major financing activities that provided cash for the first three quarters of 2022 were proceeds from short-term bank loans of $20,642,224. The major financing activities that used cash for the first three quarters of 2022 were repayments of short-term bank loans of $15,987,912.
Working Capital
We had a working capital of $252,894,035 as of September 30, 2022, which reflects a decrease of $25,551,411 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 23 – Commitments and Contingencies under Notes to Unaudited Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Exchange Rate Risk
While our reporting currency is the U.S. dollar, the majority of our revenues and costs are denominated in RMB and a significant portion of our assets and liabilities are denominated in RMB. As a result, we are exposed to foreign exchange risk because our revenues and results of operations may be affected by fluctuations in the exchange rate between the U.S. dollar and the RMB. To the extent that the Company needs to convert the U.S. dollar into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against the U.S. dollar would have an adverse effect on the RMB amount the Company would receive from the conversion. Conversely, if the Company decides to convert RMB into the U.S. dollar for the purpose of making payments for dividends on common stock, strategic acquisitions or investments or other business purposes, appreciation of the U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to the Company. In addition, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of the Company’s earnings or losses. Since 2005, China reformed its exchange rate regime and the RMB is no longer pegged to the U.S. dollar. In 2010, the People’s Bank of China decided to move to further reform the RMB exchange rate regime to enhance the flexibility of the RMB exchange rate. For RMB against U.S. dollar, there was appreciation of approximately 6.3% and 2.3% during the years ended December 31, 2020 and 2021, respectively. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future, but the RMB may appreciate or depreciate more significantly in value against the U.S. dollar or other foreign currencies, depending on the market supply and demand with reference to a basket of currencies.
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While the Chinese RMB is freely convertible under the current account, it remains strictly regulated in the capital account. Chinese authorities have expressed their willingness to allow the RMB to be fully convertible in the near future.
To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the effectiveness of these hedges may be limited and we may not be able to successfully hedge our exposure. Accordingly, we may incur economic losses in the future due to foreign exchange rate fluctuations, which could have a negative impact on our financial condition and results of operations.
Interest Rate Risk
We had cash, cash equivalents, restricted cash and certificate of deposit totaling $210.2 million and notes receivable of $1.4 million as of September 30, 2022. Cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. As of September 30, 2022, we had $5.6 million of short-term bank loans and $2.2 million of long-term loans outstanding, which are fixed rate instruments. Our exposure to interest rate risk primarily relates to the interest income generated from cash held in bank deposits and notes receivable, and interest expenses generated from short-term bank loans. We believe that we do not have any material exposure to changes in fair value as a result of changes in interest rates due to the short term nature of our cash equivalents. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates.
Inflation Rate Risk
According to the Consumer Price Index (CPI) released by National Bureau of Statistics of China, in 2021, the average annual inflation rate in China ranged at around 0.85 percent compared to the previous year. Projections by the IMF published in April 2021 expect the average annual inflation rate to reach about 2.1 percent in the year of 2022. In June 2022, the monthly inflation rate in China ranged at 2.5 percent compared to the same month in the previous year, up from 2.1 percent in the previous month of May 2022. After reaching a monthly inflation rate of 5.4 percent in January 2020, it has decreased steadily thereafter but it appears that there is an increasing trend during 2022.
Economic and Political Risks
Our operations in China are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment in China and foreign currency exchange. Our performance may be adversely affected by changes in the political and social conditions in China, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.
Credit Risk
Credit risk is one of the most significant risks for the Company’s business.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. Cash held at major financial institutions located in the PRC are not insured by the government. While we believe that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.
Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. The Company manages credit risk through in-house research and analysis of the Chinese economy and the underlying obligors and transaction structures. To minimize credit risk, the Company normally require prepayment from the customers prior to begin production or delivery products. The Company identifies credit risk collectively based on industry, geography and customer type. This information is monitored regularly by management.
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Epidemics, pandemics or other outbreaks Risk
The outbreak of COVID-19 has adversely affected, and in the future it or other epidemics, pandemics or outbreaks may adversely affect, our operations. This is or may be due to closures or restrictions requested or mandated by governmental authorities, disruption to supply chains and workforce, reduction of demand for our products and services, and credit losses when customers and other counterparties fail to satisfy their obligations to us. We share most of these risks with all businesses.
In addition, the COVID-19 outbreak has significantly increased economic and demand uncertainty. The current outbreak and continued spread of COVID-19 may cause a global recession, which would have a further adverse impact on our financial condition and operations, and this impact could exist for an extensive period.
The Company is continuing to monitor the situation and take appropriate actions in accordance with the recommendations and requirements of relevant authorities. The full extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development and availability of effective treatments and vaccines, the imposition of protective public safety measures, and the impact of the pandemic on the global economy and demand for consumer products.
Additional future impacts on the Company may include, but are not limited to, material adverse effects on demand for the Company’s products and services; the Company’s supply chain and sales and distribution channels; the Company’s ability to execute its strategic plans; and the Company’s profitability and cost structure. To the extent the COVID-19 pandemic adversely affects the Company’s business, results of operations, financial condition and stock price, it may also have the effect of heightening many of the other risks described above.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We have evaluated, under the supervision of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of September 30, 2022. Based on this evaluation, our CEO and CFO concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as described above.
Changes in Internal Control over Financial Reporting
There was no change to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company is involved in legal matters arising in the ordinary course of business. Except as set forth in Note 10 - ACCOUNTS RECEIVABLE and Note 23 - COMMITMENTS AND CONTINGENCIES under Notes to Unaudited Condensed Consolidated Financial Statements, our management is currently not aware of any legal matters or pending litigation that would have a significant effect on the Company’s results of operation of financial statements. Furthermore, the Company is not aware of any other legal matters in which any director, officer, or any owner of record or beneficial owner of more than five percent of any class of voting securities of the Company, or any affiliate of any such director, officer, affiliate of the Company, or security holder, is a party adverse to the Company or has a material adverse interest to the Company. For the detailed discussion of our legal proceedings, please refer to Note 10 - ACCOUNTS RECEIVABLE and Note 23 - COMMITMENTS AND CONTINGENCIES under Notes to Unaudited Condensed Consolidated Financial Statements, which is incorporated by reference herein.
Item 1A. Risk Factors.
The following risk shall be read together with the risk factors disclosed under Item 1A of our 2021 Form 10-K/A filed with the Securities and Exchange Commission for the discussion of risk factors regarding our business and operations, which describes various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.
The enactment of Inflation Reduction Act of 2022 may influence the value of our securities.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases (including redemptions) of stock or shares by publicly traded domestic (i.e., U.S.) corporations and certain domestic subsidiaries of publicly traded foreign corporations. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock or share issuances against the fair market value of stock or share repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. Treasury has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of the excise tax. The IR Act applies only to repurchases that occur after December 31, 2022. We currently do not anticipate this provision of the IR Act to have any material impact on our financial position, results of operations or cash flows. The real impact of this provision will be dependent on the extent of share repurchases made in future periods.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
On December 1, 2021, the board of directors authorized the repurchase of up to $20 million worth of the Company’s common stock in open market transactions or in privately negotiated transactions. The following table sets forth information regarding shares of our common stock that we repurchased in the three months ended September 30, 2022.
| (d) | |||||||||||||||||
| Period | (a) Total number of shares purchased | (b) Average price paid per share | (c) Total number of shares purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs | |||||||||||||
| July 1 to July 31, 2022 | - | $ | - | - | $ | 14,064,215 | |||||||||||
| August 1 to August 31, 2022 | - | $ | - | - | $ | 14,064,215 | |||||||||||
| September 1 to September 30, 2022 | 427,213 | $ | 2.13 | 427,213 | $ | 13,154,252 | |||||||||||
| Total | 427,213 | $ | 2.13 | 427,213 | $ | 13,154,252 | |||||||||||
In summary, the Company had repurchased a total of 427,213 shares of common stock at an average stock price of $2.13 per share during the third quarter of 2022.
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Item 6. Exhibits
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: November 8, 2022 | By: | /s/ Hu Xiaoming |
| Hu Xiaoming | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 8, 2022 | By: | /s/ Jehn Ming Lim |
| Jehn Ming Lim | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and | ||
| Accounting Officer) |
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