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.) | |
| Jinhua New Energy Vehicle Town Jinhua, Zhejiang Province People’s Republic of China | 321016 | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
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 May 4, 2021, the registrant had
TABLE OF CONTENTS
i
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
KANDI
TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2021 | December 31, 2020 | |||||||
| (UNAUDITED) | ||||||||
| 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 | ||||||||
| Amount due from the Affiliate Company | ||||||||
| Amount due from related party | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Land use rights, net | ||||||||
| Construction in progress | ||||||||
| Deferred taxes assets | ||||||||
| Long term investment | ||||||||
| Investment in the Affiliate Company | ||||||||
| Goodwill | ||||||||
| Other long term assets | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Other payables and accrued expenses | ||||||||
| Notes payable | ||||||||
| Income tax payable | ||||||||
| Advance receipts | ||||||||
| Amount due to related party | ||||||||
| Other current liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Deferred taxes liability | ||||||||
| Contingent consideration liability | ||||||||
| Other long-term liabilities | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDER'S EQUITY | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit (the restricted portion is $ | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements
1
KANDI
TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| Three Months Ended | ||||||||
| March 31, 2021 | March 31, 2020 | |||||||
| REVENUES FROM UNRELATED PARTIES, NET | $ | $ | ||||||
| REVENUES FROM THE AFFILIATE COMPANY AND RELATED PARTIES, NET | ||||||||
| REVENUES, NET | ||||||||
| COST OF GOODS SOLD | ( | ) | ( | ) | ||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES: | ||||||||
| Research and development | ( | ) | ( | ) | ||||
| Selling and marketing | ( | ) | ( | ) | ||||
| General and administrative | ( | ) | ( | ) | ||||
| TOTAL OPERATING EXPENSES | ( | ) | ( | ) | ||||
| LOSS 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 Affiliate Company | ||||||||
| Share of loss after tax of the Affiliate Company | ( | ) | ( | ) | ||||
| Other income, net | ||||||||
| TOTAL OTHER INCOME, NET | ||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| INCOME TAX EXPENSE | ( | ) | ( | ) | ||||
| NET LOSS | ( | ) | ( | ) | ||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | ||
| WEIGHTED AVERAGE SHARES OUTSTANDING BASIC AND DILUTED | ||||||||
| NET LOSS PER SHARE, BASIC AND DILUTED | $ | ( | ) | $ | ( | ) | ||
See accompanying notes to 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 | Total | ||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Stock issuance and award | ||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
| Number of Outstanding Shares | Common Stock | Treasury Stock | Additional Paid-in Capital | Accumulated Earning (Deficit) | Accumulated Other Comprehensive Income | Total | ||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Stock issuance and award | ||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Reversal of reduction in the Affiliate Company’s equity (net off tax effect of $ | - | |||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
KANDI
TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Three Months Ended | ||||||||
| March 31, 2021 | March 31, 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Impairments | ||||||||
| Share of loss after tax of the Affiliate Company | ||||||||
| Gain from equity sale in the Affiliate Company | ( | ) | ||||||
| Change in fair value of contingent consideration | ( | ) | ( | ) | ||||
| Stock based compensation expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ( | ) | ||||
| Other receivables and other assets | ( | ) | ( | ) | ||||
| Advances to supplier and prepayments and prepaid expenses | ( | ) | ||||||
| Amount due from the Affiliate Company | ||||||||
| Increase (Decrease) In: | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Other payables and accrued liabilities | ( | ) | ||||||
| Notes payable | ( | ) | ||||||
| Income tax payable | ||||||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property, plant and equipment, net | ( | ) | ( | ) | ||||
| Payment for construction in progress | ( | ) | ||||||
| Repayments of loan to third party | ||||||||
| Certificate of deposit | ( | ) | ||||||
| Cash received from sales of equity in the Affiliate Company | ||||||||
| Long Term Investment | ( | ) | ||||||
| Net cash provided by investing activities | $ | $ | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from short-term loans | ||||||||
| Net cash provided by financing activities | $ | $ | ||||||
| NET INCREASE (DECREASE) 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 Affiliate Company due to change in its equity (net off tax effect of $491,400) | $ | |||||||
| Increase of other receivable for equity transfer payment of the Affiliate Company | $ | |||||||
See accompanying notes to 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 (through the Affiliate Company, formerly defined as the JV Company), EV parts, and off-road vehicles for sale in the Chinese and the global markets. The Company conducts its primary business operations through its wholly-owned subsidiaries, Zhejiang Kandi Vehicles Co., Ltd. (“Kandi Vehicles”), Kandi Vehicles’ wholly and partially-owned subsidiaries, and SC Autosports LLC (“SC Autosports”, d/b/a Kandi America) 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:
The Company’s primary business operations consist of designing, developing, manufacturing and commercializing EV products, EV parts, automatic power exchange equipment for pure electric vehicles, off-road vehicles and the dynamic power train system of intelligent transportation.
5
NOTE 2 - LIQUIDITY
The
Company had a working capital of $
On
February 18, 2021, Zhejiang Kandi Technologies signed an Equity Transfer Agreement with Geely to transfer all of its remaining
Although the Company expects that most of its outstanding trade receivables from customers will be collected in the next twelve months, there are uncertainties with respect to the timing in collecting these receivables, especially the receivables due from the Affiliate Company, because most of them are indirectly impacted by the progress of the receipt of government subsidies.
The Company’s primary need for liquidity stems from its need to fund working capital requirements of the Company’s businesses, its capital expenditures and its general operations, including debt repayment. The Company has historically financed its operations through short-term commercial bank loans from Chinese banks, as well as its ongoing operating activities by using funds from operations, external credit or financing arrangements. Although the Company didn’t have any short-term bank loans as of March 31, 2021, it still retains the credit line, which can be used at any time when the Company has special needs.
NOTE 3 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim information, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for annual financial statements. In the management’s opinion, the interim financial statements reflect all normal adjustments that are necessary to provide a fair presentation of the financial results for the interim periods presented. Operating results for interim periods are not necessarily indicative of results that may be expected for an entire fiscal year. The condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited consolidated financial statements as of such date. For a more complete understanding of the Company’s business, financial position, operating results, cash flows, risk factors and other matters, please refer to its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Form 10-K”).
6
NOTE 4 - PRINCIPLES OF CONSOLIDATION
The Company’s consolidated financial statements reflect the accounts of the Company and its ownership interests in the following subsidiaries:
| (1) | Continental Development Limited (“Continental”), a wholly-owned subsidiary of the Company, incorporated under the laws of Hong Kong; |
| (2) | Zhejiang Kandi Technologies, a wholly-owned subsidiary of Continental, incorporated under the laws of the PRC; |
| (3) | Kandi
New Energy Vehicle Co. Ltd. (“Kandi New Energy”), a |
| (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; and |
| (7) | SC Autosports (d/b/a Kandi America), a wholly-owned subsidiary of the Company formed under the laws of the State of Texas. |
| (8) | China Battery Exchange Technology Co., Ltd. (“China Battery Exchange”) and its subsidiaries, a wholly-owned subsidiary of Zhejiang Kandi Technologies, incorporated under the laws of the PRC. |
| (9) | Kandi Investment, a wholly-owned subsidiary of SC Autosports formed under the laws of the State of Texas. |
Equity Method Investees
The
Company’s consolidated net income also includes the Company’s proportionate share of the net income or loss of its equity
method investment in the 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 consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenues and expenses during the reported period in the consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s consolidated financial statements primarily include, but are not limited to, allowances for doubtful accounts, lower of cost and net realizable value of inventory, assessment for impairment of long-lived assets and intangible assets, valuation of deferred tax assets, change in fair value of contingent consideration, determination of share-based compensation expenses as well as fair value of stock warrants.
Management bases the estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates.
NOTE 6 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are detailed in “Note 6 - Summary of Significant Accounting Policies” of the Company 2020 Form 10-K.
7
NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update No. 2016-13,”Financial Instruments - Credit Losses (Topic 326)” (“ASU 2016-13”). ASU 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. In November 2019, FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).” This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023.The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13 on its consolidated financial statements, particularly its recognition of allowances for accounts receivable.
NOTE 8 - CONCENTRATIONS
(a) Customers
For
the three-month period ended March 31, 2021, the Company’s major customers, each of whom accounted for more than
| Sales | Trade Receivable | |||||||||||||||
| Three Months | Three Months | |||||||||||||||
| Ended | Ended | |||||||||||||||
| March 31, | March 31, | March 31, | December 31, | |||||||||||||
| Major Customers | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Customer A | | % | ||||||||||||||
| Customer B | % | % | % | % | ||||||||||||
| Customer C | % | % | ||||||||||||||
(b) Suppliers
For
the three-month period ended March 31, 2021, the Company’s material suppliers, each of whom accounted for more than
| Purchases | Accounts Payable | |||||||||||||||
| Three Months | Three Months | |||||||||||||||
| Ended | Ended | |||||||||||||||
| March 31, | March 31, | March 31, | December 31, | |||||||||||||
| Major Suppliers | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Zhejiang Kandi Supply Chain Management Co., Ltd. | | % | | % | | % | | % | ||||||||
| Supplier D | % | % | % | % | ||||||||||||
NOTE 9 - LOSS PER SHARE
The
Company calculates loss per share in accordance with ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted
earnings per share. Basic loss per share are computed using the weighted average number of shares outstanding during the reporting period.
Diluted loss per share represents basic earnings per share adjusted to include the potentially dilutive effect of outstanding stock options
and warrants (using treasury stock method). Due to the average market price of the common stock during the period below the exercise
price of the options, approximately
8
NOTE 10 - ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
NOTE 11 - INVENTORIES
Inventories are summarized as follows:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Raw material | $ | $ | ||||||
| Work-in-progress | ||||||||
| Finished goods | ||||||||
| Inventories | $ | $ | ||||||
NOTE 12 - NOTES RECEIVABLE
As
of March 31, 2021, there was $
NOTE 13 - ADVANCES TO SUPPLIERS
Advances to suppliers are summarized as follows:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Advance payment for inventory purchase (1) | $ | $ | ||||||
| Advance payment for R & D (2) | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
| (1) |
| (2) |
9
NOTE 14 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plants and equipment as of March 31, 2021 and December 31, 2020, consisted of the following:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| 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 facility moved out of the old location and completed the relocation process in April 2021. As of March 31, 2021, the property ownership certificate of Jinhua facility’s old location has been cancelled and the corresponding properties have been reclassed to other long term assets.
Depreciation
expenses for the three months ended March 31, 2021 and 2020 were $
NOTE 15 - INTANGIBLE ASSETS
Intangible assets include acquired other intangibles of trade name, customer relations and patent recorded at estimated fair values in accordance with purchase accounting guidelines for acquisitions.
The following table provides the gross carrying value and accumulated amortization for each major class of our intangible assets, other than goodwill:
| Remaining | March 31, | December 31, | ||||||||
| useful life | 2021 | 2020 | ||||||||
| Gross carrying amount: | ||||||||||
| Trade name | $ | $ | ||||||||
| Customer relations | ||||||||||
| Patent | ||||||||||
| Less : Accumulated amortization | ||||||||||
| Trade name | $ | ( | ) | $ | ( | ) | ||||
| Customer relations | ( | ) | ( | ) | ||||||
| Patent | ( | ) | ( | ) | ||||||
| ( | ) | ( | ) | |||||||
| Intangible assets, net | $ | $ | ||||||||
The
aggregate amortization expenses for those intangible assets were $
Amortization expenses for the next five years and thereafter are as follows:
| Nine months ended December 31, 2021 | $ | |||
| Years ended December 31, | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total | $ |
10
NOTE 16 - LAND USE RIGHTS, NET
The Company’s land use rights consist of the following:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Cost of land use rights | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Land use rights, net | $ | $ | ||||||
By the end of March 2021, the Company finished relocating production and offices to the new industrial park and vacated the old factory property. In early April, the relevant Economic Zone authorities inspected the vacated land and determined that it met all stipulated conditions. This inspection and acceptance will now be verified by an additional set of interested parties. The land certificate of Jinhua facility’s old location has been cancelled in year 2020 and the corresponding land use right have been reclassed to other long term assets.
The
land use right of gross value of $
The
amortization expenses for the three months ended March 31, 2021 and 2020, were $
Amortization expense for the next five years and thereafter is as follows:
| Nine months ended December 31, 2021 | $ | |||
| Years ended December 31, | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total | $ |
NOTE 17 - OTHER LONG TERM ASSETS
Other long term assets as of March 31, 2021 and December 31, 2020, consisted of the following:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Long term deferred assets | $ | $ | ||||||
| Prepayments for land use right (i) | ||||||||
| Land and properties with certificates cancelled (ii) | ||||||||
| Other receivables-Long term | ||||||||
| Prepayments for new product molds | ||||||||
| Right - of - use asset (iii) | ||||||||
| Others | ||||||||
| Total other long term asset | $ | $ | ||||||
| (i) |
| (ii) |
| (iii) |
11
NOTE 18 - TAXES
(a) Corporation Income Tax
Pursuant
to the tax laws and regulations of the PRC, the Company’s applicable corporate income tax (“CIT”) rate is
The
Company’s tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective
tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates its
estimate of the annual effective tax rate, and if its estimated tax rate changes, the management makes a cumulative adjustment. For 2020,
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 more or less volatile based on the amount of pre-tax income
or loss. The income tax provision for the three months ended March 31, 2021 and 2020 was tax expense 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 March 31, 2021, the Company did not have any liability for unrecognized tax benefits. The Company files income tax returns with the U.S. Internal Revenue Services (“IRS”) and those states where the Company has operations. The Company is subject to U.S. federal or state income tax examinations by the IRS and relevant state tax authorities for years after 2006. During the periods open to examination, the Company has net operating loss carry forwards (“NOLs”) for U.S. federal and state tax purposes that have attributes from closed periods. Since these NOLs may be utilized in future periods, they remain subject to examination. The Company also files certain tax returns in the PRC. As of March 31, 2021, the Company was not aware of any pending income tax examinations by U.S. or PRC tax authorities. The Company records interest and penalties on uncertain tax provisions as income tax expense. As of March 31, 2021, the Company has no accrued interest or penalties related to uncertain tax positions.
The
aggregate NOLs in 2020 was $
(b) Tax Holiday Effect
For
the three months ended March 31, 2021 and 2020, the PRC CIT rate was
The combined effects of income tax expense exemptions and reductions available to the Company for the three months ended March 31, 2021 and 2020 are as follows:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Tax benefit (holiday) credit | $ | $ | ||||||
| Basic net income per share effect | $ | $ | ||||||
12
NOTE 19 - LEASES
The
Company has renewed its corporate office leases for SC Autosports, with a term of
During
October 2020, land use right of gross value of $
As
of March 31, 2021,
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:
| Three months ended March 31, 2021 | ||||
| Cash payments for operating leases | $ | |||
Maturities of lease liabilities as of March 31, 2021 were as follow:
| Maturity of Lease Liabilities: | Lease payable | |||
| Year ended December 31, 2021 | ||||
| Total | $ | |||
NOTE 20 - 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 KSBC Shareholders have
the right to receive an aggregate of
13
On
July 1, 2018, the Company completed the acquisition of
The Company recorded contingent consideration liability of the estimated fair value of the contingent consideration the Company currently expects to pay to the KSBS Shareholders and SC Autosports’ former members upon the achievement of certain milestones. The fair value of the contingent consideration liability associated with remaining shares of restrictive common stock was estimated by using the Monte Carlo simulation method, which took into account all possible scenarios. This fair value measurement is classified as Level 3 within the fair value hierarchy prescribed by ASC Topic 820, Fair Value Measurement and Disclosures. In accordance with ASC Topic 805, Business Combinations, the Company will re-measure this liability each reporting period and record changes in the fair value through a separate line item within the Company’s consolidated statements of income.
As
of March 31, 2021 and December 31, 2020, the Company’s contingent consideration liability was $
Details of the contingent consideration liability as of March 31, 2021 and December 31, 2020 were as follow:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Contingent consideration liability to KSBS Shareholders | $ | |||||||
| Total contingent consideration liability | $ | $ | ||||||
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
January 29, 2019, the Board appointed Ms. Zhu Xiaoying as interim Chief Financial Officer. Ms. Zhu was entitled to receive
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.
14
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 March 31, 2021 and 2020, the Company recognized $
NOTE 22 - SUMMARIZED INFORMATION OF EQUITY METHOD INVESTMENT IN THE AFFILIATE COMPANY
The Company’s condensed consolidated net income (loss) includes the Company’s proportionate share of the net income or loss of the Company’s equity method investees. When the Company records its proportionate share of net income (loss) in such investees, it increases equity income (loss) – net in the Company’s consolidated statements of income and the Company’s carrying value in that investment. Conversely, when the Company records its proportionate share of a net loss in such investees, it decreases equity income (loss) – net in the Company’s consolidated statements of income (loss) and the Company’s carrying value in that investment. All intra-entity profits and losses with the Company’s equity method investees have been eliminated.
On
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 Affiliate Company under the equity method of accounting. As the equity transfer was completed at March 9, 2021, the Company recorded 22% of the Affiliate Company’s loss for the period until completion of equity transfer during the first quarter of 2021.
The Company’s equity method investments in the Affiliate Company for the three months ended March 31, 2021 and 2020 are as follows:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Investment in the Affiliate Company, beginning of the period | $ | $ | ||||||
| Investment decreased in 2021 | ( | ) | ||||||
| Gain from equity sale | ||||||||
| Reversal of prior year reduction in the equity of the Affiliate Company | ||||||||
| Company’s share in net loss of Affiliate based on 22% ownership for period from January 1, 2021 to March 9, 2021 and three months ended March 31, 2020 | ( | ) | ( | ) | ||||
| Non-controlling interest | ||||||||
| Prior year unrealized profit realized | ||||||||
| Subtotal | ( | ) | ( | ) | ||||
| Exchange difference | ( | ) | ( | ) | ||||
| Investment in Affiliate Company, end of the period | $ | $ | ||||||
15
NOTE 23 - COMMITMENTS AND CONTINGENCIES
Guarantees and pledged collateral for bank loans to other parties
(1) Guarantees for bank loans
On
March 15, 2013, the Company entered into a guarantee contract to serve as the guarantor of Nanlong Group Co., Ltd.
(2) Pledged collateral for bank loans for which the parties other than the Company are the borrowers.
As of March 31, 2021 and December 31, 2020, none of the Company’s land use rights or plants and equipment were pledged as collateral securing bank loans for which the parties other than the Company are the borrowers.
Litigation
Beginning in March 2017, putative shareholder class actions were filed against Kandi Technologies Group, Inc. (“Kandi”) and certain of its current and former directors and officers in the United States District Court for the Central District of California and the United States District Court for the Southern District of New York. The complaints generally alleged violations of the federal securities laws based Kandi’s disclosure in March 2017 that its financial statements for the years 2014, 2015 and the first three quarters of 2016 would need to be restated, and seek damages on behalf of putative classes of shareholders who purchased or acquired Kandi’s securities prior to March 13, 2017. Kandi moved to dismiss the remaining cases, all of which were pending in the New York federal court, and that motion was granted by an order entered on September 30, 2019, and the time to appeal has run. In June 2020, a similar but separate putative securities class action was filed against Kandi and certain of its current and former directors and officers in California federal court. In September 2020, this action was transferred to the New York federal court and Kandi moved to dismiss in March 2021.
Beginning in May 2017, purported shareholder derivative actions based on the same underlying events described above were filed against certain current and former directors of Kandi in the United States District Court for the Southern District of New York. The New York federal court confirmed the voluntary dismissal of these actions in April 2019.
In October 2017, a shareholder filed a books and records action against the Company in the Delaware Court of Chancery pursuant to 8 Del. C. Section 220 seeking the production of certain documents generally relating to the same underlying items described above as well as attorney’s fees (the “Section 220 Litigation”). On September 28, 2018, the parties, through their respective counsel, agreed to dismiss the Section 220 Litigation with prejudice and with each party bearing its own attorney’s fees, costs, and expenses, thereby concluding the action. In February 2019, this same shareholder commenced a derivative action against certain current and former directors of Kandi in the Delaware Court of Chancery. A motion to dismiss this derivative action was filed in May 2019 and that motion was denied on April 27, 2020.
Separately, in connection with allegations of misconduct identified in pre-suit demands made by putative shareholders of Kandi, Kandi formed a Special Litigation Committee (“SLC”) and retained a Delaware law firm as independent counsel to the SLC to aid in the SLC’s investigation of, and to ultimately report on, the allegations of misconduct set forth in the pre-suit demands. 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.
16
While the Company believes that the claims in these litigations are without merit and will defend itself vigorously, the Company is unable to estimate the possible loss, if any, associated with these litigations. The ultimate outcome of any litigation is uncertain and the outcome of these matters, whether favorable or unfavorable, could have a negative impact on the Company’s financial condition or results of operations due to defense costs, diversion of management resources and other factors. Defending litigation can be costly, and adverse results in the litigations could result in substantial monetary judgments. No assurance can be made that litigation will not have a material adverse effect on the Company’s future financial position.
NOTE 24 - SEGMENT REPORTING
The
Company has
The following table sets forth disaggregation of revenue:
| Three Months Ended March 31 | ||||||||
| 2021 | 2020 | |||||||
| Sales Revenue | Sales Revenue | |||||||
| Primary geographical markets | ||||||||
| Overseas | $ | $ | ||||||
| China | ||||||||
| Total | $ | $ | ||||||
| Major products | ||||||||
| EV parts | $ | $ | ||||||
| EV products | ||||||||
| Off-road vehicles | ||||||||
| Electric Scooters, Electric Self-Balancing Scooters and associated parts | ||||||||
| Total | $ | $ | ||||||
| Timing of revenue recognition | ||||||||
| Products transferred at a point in time | $ | $ | ||||||
| Total | $ | $ | ||||||
NOTE 25 - SUBSEQUENT EVENT
By
the end of March 2021, the Company finished relocating production and offices to the new industrial park and vacated the old factory
property. In April 2021, the relevant Economic Zone authorities inspected the vacated land and determined that it met all stipulated
conditions. The Company will receive the final installment payment of RMB
17
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 2020 Form 10-K and those set forth from time to time in our other filings with the SEC. These documents are available on the SEC’s Electronic Data Gathering and Analysis Retrieval System at http://www.sec.gov.
Critical Accounting Policies and Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. If these estimates differ significantly from actual results, the impact to the condensed consolidated financial statements may be material. There have been no material changes in our critical accounting policies and estimates from those disclosed in on the 2020 Form 10-K. Please refer to Part II, Item 7 of such a report for a discussion of our critical accounting policies and estimates.
Overview
The Company’s primary business operations consist of designing, developing, manufacturing and commercializing EV products, EV parts, automatic power exchange equipment for pure electric vehicles, off-road vehicles and the dynamic power train system of intelligent transportation. For the three months ended March 31, 2021, we recognized total revenue of $15,977,754 as compared to $6,372,424 for the same period of 2020, an increase of $9,605,330 or 150.7%. For the three months ended March 31, 2021, we recorded $4,354,351 of gross profit, an increase of $3,187,092 or 273.0% from the same period of 2020. Gross margin for the three months ended March 31, 2021, was 27.3%, compared to 18.3% for the same period of 220. We recorded a net loss of $6,402,720 for the three months ended March 31, 2021, compared to a net loss of $1,574,646 in the same period of 2020, an increase in loss of $4,828,074. The increase of loss is mainly due to the expense of R & D investment for new product.
The spread of COVID-19 around China and other parts of the world has caused significant volatility in the markets of China, U.S., and the rest of the world. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in China and elsewhere. Although the Company’s operations in China has fully resumed in early March 2020, the COVID-19 has affected the Company’s business performance in 2020. Though it becomes more stable in China,the extent to which the COVID-19 may impact operations of the Company, with majority of operations based in China, is alleviated though it remains uncertain due to the fact that the COVID-19 is not completely over.
Despite the challenges posed by COVID-19 around the world, overall, we were still productive during the year ended December 31, 2020. Most importantly, after a lengthy process of preparation, the “300,000 government-accredited pure EV within 5 years rideshare” program - of which Kandi was a co-founder - has begun its trial with the plan of gradual delivery of 1,000 EVs to the city of Haikou in Hainan province and 2,500 EVs to the city of Shaoxing in Zhejiang province. All the EVs delivered for the program include our battery swap feature. At present, Zhejiang Ruiheng Technology Co., Ltd, a company jointly established by Zhejiang Kandi Technologies, has negotiated with more than ten third-tier cities about the cooperation of launching the program of online car hailing based on the battery swap mode, which is expected to gradually start launching in these cities within this year. We believe that this program can drive the production and sales of our EV parts and battery swap equipment, and we can thus restore growth in our pure EV business.
The COVID-19 outbreak has seriously impacted the EV market in 2020, leading us to explore how to augment our business. As we looked at other market opportunities that leverage our expertise, the management of the Company found potential in a number of ancillary products aimed at intelligent transportation. For example, Electric Scooters and Electric Self-Balancing Vehicles have distinct potential, with tens of millions of units sold each year around the world. The Company is pursuing these opportunities by expanding production of intelligent transportation products that exploit our advantages in the Yongkang Scrou’s power electric motor and Kandi Smart Battery Swap’s power battery pack. Our products aimed at this market combine our motors and battery packs into a dynamic power train system. As this business is developing quickly and progressing, the Company transferred all of its equity interest in Yongkang Scrou to Jinhua An Kao (changed name to Kandi Smart Battery Swap), and the work of separate listing Kandi Smart Battery Swap on domestic A-share is moving forward as planned.
The Company has received the required clearance from the United States Environmental Protection Agency (EPA) for its two electric vehicle (EV) models, the K23 and K27 via Certificates of Conformity. We are performing self-inspection comparing to the safety standards published by the United States Department of Transportation. We are also in the process of modifying features, upgrading the software and technology for the EVs to cater for our potential U.S. consumers.
18
Results of Operations
Comparison of the Three Months Ended March 31, 2021 and 2020
The following table sets forth the amounts and percentage to revenue of certain items in our condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2021 and 2020.
| Three Months Ended | ||||||||||||||||||||||||
| March 31, 2021 | % of Revenue | March 31, 2020 | % of Revenue | Change in Amount | Change in % | |||||||||||||||||||
| REVENUES FROM UNRELATED PARTIES, NET | $ | 15,976,170 | 100.0 | % | $ | 6,372,424 | 100.0 | % | 9,603,746 | 150.7 | % | |||||||||||||
| REVENUES FROM THE AFFILIATE COMPANY AND RELATED PARTIES, NET | 1,584 | 0.0 | % | - | 0.0 | % | 1,584 | - | ||||||||||||||||
| REVENUES, NET | 15,977,754 | 6,372,424 | 9,605,330 | 150.7 | % | |||||||||||||||||||
| COST OF GOODS SOLD | (11,623,403 | ) | (72.7 | %) | (5,205,165 | ) | (81.7 | %) | (6,418,238 | ) | 123.3 | % | ||||||||||||
| GROSS PROFIT | 4,354,351 | 27.3 | % | 1,167,259 | 18.3 | % | 3,187,092 | 273.0 | % | |||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||||||||||
| Research and development | (21,624,597 | ) | (135.3 | %) | (640,240 | ) | (10.0 | %) | (20,984,357 | ) | 3277.6 | % | ||||||||||||
| Selling and marketing | (1,146,866 | ) | (7.2 | %) | (878,306 | ) | (13.8 | %) | (268,560 | ) | 30.6 | % | ||||||||||||
| General and administrative | (4,430,123 | ) | (27.7 | %) | (3,066,735 | ) | (48.1 | %) | (1,363,388 | ) | 44.5 | % | ||||||||||||
| TOTAL OPERATING EXPENSES | (27,201,586 | ) | (170.2 | %) | (4,585,281 | ) | (72.0 | %) | (22,616,305 | ) | 493.2 | % | ||||||||||||
| LOSS FROM OPERATIONS | (22,847,235 | ) | (143.0 | %) | (3,418,022 | ) | (53.6 | %) | (19,429,213 | ) | 568.4 | % | ||||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||||||||||
| Interest income | 528,592 | 3.3 | % | 338,944 | 5.3 | % | 189,648 | 56.0 | % | |||||||||||||||
| Interest expense | (126,348 | ) | (0.8 | %) | (982,934 | ) | (15.4 | %) | 856,586 | (87.1 | %) | |||||||||||||
| Change in fair value of contingent consideration | 357,000 | 2.2 | % | 3,792,000 | 59.5 | % | (3,435,000 | ) | (90.6 | %) | ||||||||||||||
| Government grants | 234,793 | 1.5 | % | 11,099 | 0.2 | % | 223,694 | 2015.4 | % | |||||||||||||||
| Gain from sale of equity in the Affiliate Company | 17,700,260 | 110.8 | % | - | 0.0 | % | 17,700,260 | - | ||||||||||||||||
| Share of loss after tax of the Affiliate Company | (2,579,497 | ) | (16.1 | %) | (1,102,770 | ) | (17.3 | %) | (1,476,727 | ) | 133.9 | % | ||||||||||||
| Other income, net | 498,901 | 3.1 | % | 19,650 | 0.3 | % | 479,251 | 2438.9 | % | |||||||||||||||
| TOTAL OTHER INCOME, NET | 16,613,701 | 104.0 | % | 2,075,989 | 32.6 | % | 14,537,712 | 700.3 | % | |||||||||||||||
| LOSS BEFORE INCOME TAXES | (6,233,534 | ) | (39.0 | %) | (1,342,033 | ) | (21.1 | %) | (4,891,501 | ) | 364.5 | % | ||||||||||||
| INCOME TAX EXPENSE | (169,186 | ) | (1.1 | %) | (232,613 | ) | (3.7 | %) | 63,427 | (27.3 | %) | |||||||||||||
| NET LOSS | (6,402,720 | ) | (40.1 | %) | (1,574,646 | ) | (24.7 | %) | (4,828,074 | ) | 306.6 | % | ||||||||||||
19
(a) Revenue
For the three months ended March 31, 2020, our revenue was $15,977,754 compared to $6,372,424 for the same period of 2020, representing an increase of $9,605,330 or 150.7%. The increase in revenue was mainly due to the increase in EV parts and Electric Scooters, Electric Self-Balancing Scooters and associated parts sales, which was primarily due to the outbreak of COVID-19 and the lock-down policy in China in the first quarter of 2020, as well as our successful expansion of intelligent transportation products after the COVID-19 outbreak seriously impacted the EV market in 2020.
The following table summarizes our revenues by product types for the three months ended March 31, 2021 and 2020:
| Three Months Ended March 31 | ||||||||
| 2021 | 2020 | |||||||
| Sales | Sales | |||||||
| EV parts | $ | 6,368,331 | $ | 2,081,335 | ||||
| EV products | 121,494 | 255,819 | ||||||
| Off-road vehicles | 5,619,004 | 4,035,270 | ||||||
| Electric Scooters, Electric Self-Balancing Scooters and associated parts | 3,868,925 | - | ||||||
| Total | $ | 15,977,754 | $ | 6,372,424 | ||||
EV Parts
During the three months ended March 31, 2021, our revenues from the sales of EV parts were $6,368,331, representing an increase of $4,286,996 or 206.0% from $2,081,335 for the same quarter of 2020.
Our revenue for the three months ended March 31, 2021 primarily consisted of revenue from the sales of battery packs, body parts, EV controllers, air conditioning units and other auto parts for use in the manufacturing of EV products. These sales accounted for 39.9% of total sales.
EV Products
During the three months ended March 31, 2021, our revenue from the sale of EV Products was $121,494, representing a decrease of $134,325 or 52.5% from $255,819 for the same quarter of 2020.
Off-Road Vehicles
During the three months ended March 31, 2021, our revenue from the sales of off-road vehicles, including go karts, all-terrain vehicles (“ATVs”) and others, were $5,619,004, representing an increase of $1,583,734 or 39.2% from $4,035,270, for the same quarter of 2020. The increase was mainly due to the outbreak of COVID-19 in the first quarter of 2020.
Our off-road vehicles business line accounted for approximately 35.2% of our total net revenue for the three months ended March 31, 2021.
20
Electric Scooters, Electric Self-Balancing Scooters and associated parts
During the three months ended March 31, 2021, our revenue from the sales of electric Scooters, electric self-balancing scooters and associated parts, were $3,868,925. There were no such sales in the same quarter of 2020. The increase was mainly due to our successful expansion of intelligent transportation products after the COVID-19 outbreak seriously impacted the EV market in 2020.
Our electric Scooters, electric self-balancing scooters and associated parts business line accounted for approximately 24.2% of our total net revenue for the three months ended March 31, 2021.
The following table shows the breakdown of our net revenues:
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Sales Revenue | Sales Revenue | |||||||
| Primary geographical markets | ||||||||
| Overseas | $ | 7,867,426 | $ | 2,130,824 | ||||
| China | 8,110,328 | 4,241,600 | ||||||
| Total | $ | 15,977,754 | $ | 6,372,424 | ||||
| Major products | ||||||||
| EV parts | $ | 6,368,331 | $ | 2,081,335 | ||||
| EV products | 121,494 | 255,819 | ||||||
| Off-road vehicles | 5,619,004 | 4,035,270 | ||||||
| Electric Scooters, Electric Self-Balancing Scooters and associated parts | 3,868,925 | - | ||||||
| Total | $ | 15,977,754 | $ | 6,372,424 | ||||
| Timing of revenue recognition | ||||||||
| Products transferred at a point in time | $ | 15,977,754 | $ | 6,372,424 | ||||
| Total | $ | 15,977,754 | $ | 6,372,424 | ||||
(b) Cost of goods sold
Cost of goods sold was $11,623,403 during the three months ended March 31, 2021, representing an increase of $6,418,238, or 123.3%, compared to $5,205,165 for the same period of 2020. The increase was primarily due to the corresponding increase in sales. Please refer to the Gross Profit section below for product margin analysis.
21
(c) Gross profit
Our margins by product for the three months ended March 31, 2021 and 2020 are as set forth below:
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||||||||
| Sales | Cost | Gross Profit | Margin % | Sales | Cost | Gross Profit | Margin % | |||||||||||||||||||||||||
| EV parts | $ | 6,368,331 | 4,286,869 | 2,081,462 | 32.7 | % | $ | 2,081,335 | 1,858,130 | 223,205 | 10.7 | % | ||||||||||||||||||||
| EV products | 121,494 | 109,757 | 11,737 | 9.7 | % | 255,819.00 | 241,387.00 | 14,432 | 5.6 | % | ||||||||||||||||||||||
| Off-road vehicles | 5,619,004 | 4,112,749 | 1,506,255 | 26.8 | % | 4,035,270 | 3,105,648 | 929,622 | 23.0 | % | ||||||||||||||||||||||
| Electric Scooters, Electric Self-Balancing Scooters and associated parts | 3,868,925 | 3,114,028 | 754,897 | 19.5 | % | - | - | - | - | |||||||||||||||||||||||
| Total | $ | 15,977,754 | 11,623,403 | 4,354,351 | 27.3 | % | $ | 6,372,424 | 5,205,165 | 1,167,259 | 18.3 | % | ||||||||||||||||||||
Gross profit for the first quarter of 2021 increased 273.0% to $4,354,351 , compared to $1,167,259 for the same period last year. This was primarily attributable to the increase in EV parts and Electric Scooters, Electric Self-Balancing Scooters and associated parts sales, which was primarily due to the outbreak of COVID-19 and the lock-down policy in China in the first quarter of 2020, as well as our successful expansion of intelligent transportation products after the COVID-19 outbreak seriously impacted the EV market in 2020. Our gross margin increased to 27.3% compared to 18.3% for the same period of 2020. The increase in our gross margin was mainly due to the sales proportion of battery processing business with high gross profit increased, as well as the contribution from our intelligent transportation products.
(d) Research and development
Research and development expenses, including materials, labor, equipment depreciation, design, testing, inspection, and other related expenses, totaled $21,624,597 for the first quarter of 2021, an increase of $20,984,357 or 3,277.6% compared to $640,240 for the same period of last year. The increase was mainly due to the Company’s R & D expenditure in the first quarter of 2021 for new product.
(e) Sales and marketing
Selling and distribution expenses were $1,146,866 for the first quarter of 2021, compared to $878,306 for the same period last year, representing an increase of $268,560 or 30.6%. The increase was primarily attributable to the increasing freight expense and advertising expense.
(f) General and administrative expenses
General and administrative expenses were $4,430,123 for the first quarter of 2021, compared to 3,066,735 for the same period last year, representing an increase of $1,363,388 or 44.5%. For the three months ended March 31, 2021, general and administrative expenses included $22,925 as expenses for common stock awards and stock options to employees and Board members, compared to $22,925 of common stock awards and stock options expenses for the same period in 2020. Besides stock compensation expense, our net general and administrative expenses for the three months ended March 31, 2021 were $4,407,198, representing an increase of $1,363,388, from $3,043,810 for the same period of 2020, which was largely due to the increase in need for professional services and other administrative activities.
22
(g) Interest income
Interest income was $528,592 for the first quarter of 2021, representing an increase of $189,648 or 56.0% compared to $338,944 for the same period of last year. The increase was primarily attributable to the increased interest earned on loan to third party and bank deposit.
(h) Interest expenses
Interest expenses were $126,348 in the first quarter of 2021, representing a decrease of $856,586 or 87.1% compared to $982,934 for the same period of last year. The decrease was primarily due to interest expenses related to short-term and long-term debt of the Company in the same period of last year. There were no such loan in the first quarter of 2021.
(i) Change in fair value of contingent consideration
For the first quarter of 2021, the gain related to changes in the fair value of contingent consideration was $357,000, a decrease of $3,435,000 or 90.6% compared to gain related to changes in the fair value of contingent consideration of $3,792,000 for the same period of last year, which was mainly due to the adjustment of the fair value of the contingent consideration liability associated with the remaining shares of restrictive common stock (Please refer to NOTE 20 – CONTINGENT CONSIDERATION LIABILITY). The fair value of the contingent consideration liability was estimated at each reporting date by using the Monte Carlo simulation method, which took into account all possible scenarios.
(j) Government grants
Government grants were $234,793 for the first quarter of 2021, compared to $11,099 for the same quarter last year, representing an increase of $223,694, or 2,015.4%, which was largely attributable to subsidies for scientific and technological innovation and subsidies for research and development the Company received from Jinhua government in the first quarter of 2021.
(k) Gain from equity sale in the Affiliate Company
Gain from equity sale was $17,700,260 for the first quarter of 2021, 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 Affiliate Company to Geely for a total consideration of RMB 308 million (approximately $47.0 million). Zhejiang Provincial Administration for Market Regulation recorded the update of the ownership of Fengsheng 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 $23.5 million), and the rest is expected to receive within six months from March 9, 2021. As of March 9, 2021, the equity transfer had been completed. Therefore, in the first quarter of 2021, the Company has recognized the gain from equity sale.
(l) Share of loss after tax of the Affiliate Company
For the first quarter of 2021, our share of loss of the Affiliate Company was $2,579,497 as compared to share of loss of $1,102,770 for the same period of last year, representing an increase of share of loss of $1,476,727 which was largely due to the decreased sales of the Affiliate Company.
(m) Other income, net
Net other income was $498,901 for the first quarter of 2021, representing an increase of $479,251 or 2,438.9% compared to net other income of $19,650 for the same period of last year, which was largely due to the income from disposal of the machinery and equipment of the Company.
(n) Income Taxes
In accordance with the relevant Chinese tax laws and regulations, our applicable corporate income tax rate is 25%. However, Zhejiang Kandi Technologies, Kandi Smart Battery Swap and Kandi Hainan are qualified as high technology companies in China and are therefore entitled to a reduced corporate income tax rate of 15%.
Each of our wholly-owned subsidiaries, Kandi New Energy and Yongkang Scrou, has an applicable corporate income tax rate of 25%.
Our actual effective income tax rate for the first quarter of 2021 was a tax expense of 2.71% on a reported loss before taxes of approximately $6.2 million, compared to a tax expense of 17.33% on a reported loss before taxes of approximately $1.3 million for the same period of last year.
(o) Net loss
Net loss was $6,402,720 for the first quarter of 2021, representing an increase in loss of $4,828,074 compared to net loss $1,574,646 for the same period of last year. The increase of loss was primarily attributable to the expense of R & D investment for new product.
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LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
| Three Months Ended | ||||||||
| March 31, 2021 | March 31, 2020 | |||||||
| Net cash used in operating activities | $ | (6,017,280 | ) | $ | (26,526,069 | ) | ||
| Net cash provided by investing activities | 11,130,031 | 11,460,291 | ||||||
| Net cash provided by financing activities | - | 8,452,964 | ||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash | 5,112,751 | (6,612,814 | ) | |||||
| Effect of exchange rate changes on cash | (438,313 | ) | (145,928 | ) | ||||
| Cash and cash equivalents and restricted cash at beginning of year | 142,520,635 | 16,512,635 | ||||||
| Cash and cash equivalents and restricted cash at end of period | 147,195,073 | 9,753,893 | ||||||
For the first quarter of 2021, cash used in operating activities was $6,017,280, as compared to cash used in operating activities of $26,526,069 for the same period last year. Our operating cash inflows include cash received primarily from sales of our EV parts and off-road vehicles. These cash inflows are offset largely by cash paid primarily to our suppliers for production materials and parts used in our manufacturing process, operation expenses, employee compensation, and interest expenses of our financings. The major operating activities that provided cash for the first quarter of 2021 were a decrease of accounts receivable of $8,916,548 and a decrease of advances to supplier and prepayments and prepaid expenses of $18,807,547. The major operating activity that used cash for first quarter of 2021 was an increase of other receivables and other assets of $13,058,262.
For the first quarter of 2021, cash derived from investing activities was $11,130,031, as compared to cash derived from investing activities of $11,460,291 for the same period of last year. The major investing activities that provided cash for the first quarter of 2021 were an increase of cash received from equity sale in Affiliate Company of $23,758,099. The major investing activities that used cash for first quarter of 2021 were $5,866,207 used for the purchases of property, plant and equipment and $15,427,337 used for certificate of deposit.
For the first quarter of 2021, cash derived from financing activities was $0, as compared to cash derived from financing activities of $8,452,964 for the same period of last year.
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Working Capital
We had a working capital of $244,092,240 at March 31, 2021, which reflects an increase of $20,774,089 from a working capital of $223,318,151 as of December 31, 2020.
On March 10, 2020, a real estate repurchase agreement (the “Repurchase Agreement”) was entered into by and between Zhejiang Kandi Technologies and Jinhua Economic and Technological Development Zone pursuant to which the local government shall purchase the land use right over the land of 66 acres (400 mu, 265,029 square meters) that is owned by Zhejiang Kandi Technologies for RMB 525 million ($80 million). Payments to Zhejiang Kandi Technologies shall be made in three installments as the Company disclosed in a Current Report on Form 8-K filed with the SEC on March 9, 2020. In addition, if Zhejiang Kandi Technologies achieves certain milestones that contribute to local economic development, the Company will be eligible for tax rebates that could total up to RMB 500 million ($76 million) over the next eight years. On May 22, 2020, the Company received the first payment of RMB 244 million (approximately $37 million) under the Repurchase Agreement. On July 9, 2020, the Company received the second payment of RMB 119 million (approximately $18 million) under the Repurchase Agreement. By the end of March 2021, the Company finished relocating production and offices to the new industrial park and vacated the old factory property. In early April, the relevant Economic Zone authorities inspected the vacated land and determined that it met all stipulated conditions. The Company will receive the final installment payment of RMB 162 million ($25 million) in the near future.
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 Affiliate Company to Geely for a total consideration of RMB 308 million (approximately $47.0 million). On March 16, 2021, the Company received the first half of the equity transfer payment of RMB 154,000,000 (approximately $23.5 million), and the rest will be paid within 6 months from March 9, 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 Condensed Consolidated Financial Statements.
Recent Development Activities:
After the equity transfer of the Affiliate Company, as the Company is no longer restricted by the associated non-compete provisions in the cooperation agreement, recently, we are in contact with a number of target companies and actively seeking to acquire one that meets our own actual needs with a goal to continue growing in the field of electric vehicles.
With the rapid growth of China domestic market demand for short-distance small-scale pure electric vehicles and the U.S. market demand for high-end pure electric UTV, the Company is now engaged in the research and development of short-distance small-scale pure electric vehicles with total cost controlled within RMB 30,000 and fully enclosed high-end pure electric four-wheel drive UTV with air conditioning. We will strive to launch these two products within this year.
On April 20, 2021, we announced that we had completed all of the necessary work to vacate the property associated with the legacy manufacturing plant in the Jinhua Economic and Technological Development Zone (the “Development Zone”). Accordingly, the Development Zone had acknowledged the completion and delivered to Kandi all required documents that were necessary to close the transaction.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
This item is not applicable to us.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We have evaluated, under the supervision of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of March 31, 2021. 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 23 - COMMITMENTS AND CONTINGENCIES under Notes to Condensed Consolidated Financial Statements, our management is currently not aware of any legal matters or pending litigation that would have a significant effect on the Company’s results of operation of financial statements. 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 23 - COMMITMENTS AND CONTINGENCIES under Notes to Condensed Consolidated Financial Statements, which is incorporated by reference herein.
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: May 10, 2021 |
By: | /s/ Hu Xiaoming |
| Hu Xiaoming | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 10, 2021 | By: | /s/ Jehn Ming Lim |
| Jehn Ming Lim | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and | ||
| Accounting Officer) |
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