0001213900-21-040913.txt : 20210809 0001213900-21-040913.hdr.sgml : 20210809 20210809075134 ACCESSION NUMBER: 0001213900-21-040913 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 96 CONFORMED PERIOD OF REPORT: 20210630 FILED AS OF DATE: 20210809 DATE AS OF CHANGE: 20210809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Kandi Technologies Group, Inc. CENTRAL INDEX KEY: 0001316517 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 870700927 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-33997 FILM NUMBER: 211154667 BUSINESS ADDRESS: STREET 1: JINHUA NEW ENERGY VEHICLE TOWN STREET 2: ZHEJIANG PROVINCE CITY: JINHUA STATE: F4 ZIP: 321016 BUSINESS PHONE: (86-0579) 82239851 MAIL ADDRESS: STREET 1: JINHUA NEW ENERGY VEHICLE TOWN STREET 2: ZHEJIANG PROVINCE CITY: JINHUA STATE: F4 ZIP: 321016 FORMER COMPANY: FORMER CONFORMED NAME: Kandi Technologies Corp DATE OF NAME CHANGE: 20070813 FORMER COMPANY: FORMER CONFORMED NAME: STONE MOUNTAIN RESOURCES INC DATE OF NAME CHANGE: 20050203 10-Q 1 f10q0621_kanditech.htm QUARTERLY REPORT

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2021

 

or

 

  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from ______to______

 

Commission file number 001-33997

 

KANDI TECHNOLOGIES GROUP, INC.
(Exact name of registrant as specified in charter)

 

Delaware   90-0363723
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
 Jinhua New Energy Vehicle Town
Jinhua, Zhejiang Province
People’s Republic of China
  321016
(Address of principal executive offices)   (Zip Code)

 

(86 - 579) 82239856
(Registrant’s telephone number, including area code)

 

Jinhua City Industrial ZoneJinhua, Zhejiang ProvincePeople’s Republic of China 321016

(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
Common Stock   KNDI   NASDAQ Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☒
Non-accelerated filer ☐ Smaller reporting company 
  Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐    No 

 

As of August 4, 2021, the registrant had 77,452,516 shares of common stock issued and 75,909,904 shares of common stock outstanding, par value $0.001 per share.

   

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
PART I — FINANCIAL INFORMATION  
   
Item 1. Financial Statements (Unaudited) 1
     
  Condensed Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020 1
     
  Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) –  Three Months and Six Months Ended June 30, 2021 and 2020 2
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) Three Months and Six Months Ended June 30, 2021 and 2020 3
     
  Condensed Consolidated Statements of Cash Flows (unaudited) –Three Months and Six Months Ended June 30, 2021 and 2020 4
     
  Notes to Condensed Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 32
     
Item 4. Controls and Procedures 32
     
PART II — OTHER INFORMATION  
     
Item 1. Legal proceedings 33
     
Item 6. Exhibits 33

 

i

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

KANDI TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30,
2021
   December 31,
2020
 
   (UNAUDITED)     
Current assets        
Cash and cash equivalents  $132,071,957   $142,078,190 
Restricted cash   16,117,526    442,445 
Certificate of deposit   54,222,374    
-
 
Accounts receivable (net of allowance for doubtful accounts of $111,512 and $110,269 as of June 30, 2021 and December 31, 2020, respectively)   48,713,854    38,547,137 
Inventories   23,232,234    19,697,383 
Notes receivable   8,985,422    31,404,630 
Other receivables   40,574,115    1,875,245 
Prepayments and prepaid expense   16,791,928    13,708,149 
Advances to suppliers   13,274,911    36,733,182 
Amount due from the Affiliate Company   
-
    21,742,226 
Amount due from related party   
-
    886,989 
TOTAL CURRENT ASSETS   353,984,321    307,115,576 
           
NON-CURRENT ASSETS          
Property, plant and equipment, net   81,579,358    65,402,680 
Intangible assets, net   2,936,697    3,232,753 
Land use rights, net   3,248,223    3,257,760 
Construction in progress   6,123,956    16,317,662 
Deferred taxes assets   7,852,209    8,964,946 
Long term investment   154,921    45,958 
Investment in the Affiliate Company   
-
    28,892,638 
Goodwill   29,970,415    29,712,383 
Other long term assets   18,012,160    32,307,484 
TOTAL NON-CURRENT ASSETS   149,877,939    188,134,264 
           
TOTAL ASSETS  $503,862,260   $495,249,840 
           
CURRENT LIABILITIES          
Accounts payable  $31,373,506   $34,257,935 
Other payables and accrued expenses   8,930,573    7,218,395 
Short-term loans   250,000    
-
 
Notes payable   232,382    92,445 
Income tax payable   11,280,164    1,313,754 
Advance receipts   
-
    38,229,242 
Amount due to related party   500,000    500,000 
Other current liabilities   4,067,928    2,185,654 
TOTAL CURRENT LIABILITIES   56,634,553    83,797,425 
           
NON-CURRENT LIABILITIES          
Deferred taxes liability   602,435    3,483,171 
Contingent consideration liability   
-
    3,743,000 
Other long-term liabilities   464,763    459,580 
TOTAL NON-CURRENT LIABILITIES   1,067,198    7,685,751 
           
TOTAL LIABILITIES   57,701,751    91,483,176 
           
STOCKHOLDER’S EQUITY          
Common stock, $0.001 par value; 100,000,000 shares authorized; 77,547,099 and 77,298,499 shares issued and 75,626,155 and 75,377,555 outstanding at June 30,2021 and December 31,2020, respectively   75,626    75,377 
Additional paid-in capital   443,717,378    439,549,338 
Accumulated deficit (the restricted portion is $4,422,033 and $4,422,033 at June 30,2021 and December 31,2020, respectively)   7,446,854    (27,079,900)
Accumulated other comprehensive loss   (5,079,349)   (8,778,151)
TOTAL STOCKHOLDERS’ EQUITY   446,160,509    403,766,664 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $503,862,260   $495,249,840 

   

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   Six Months Ended 
   June 30,
2021
   June 30,
2020
   June 30,
2021
   June 30,
2020
 
                 
REVENUES FROM UNRELATED PARTIES, NET  $29,875,835   $19,436,120   $45,852,002   $25,808,544 
REVENUES FROM THE AFFILIATE COMPANY AND RELATED PARTIES, NET   -    956    1,587    956 
                     
REVENUES, NET   29,875,835    19,437,076    45,853,589    25,809,500 
                     
COST OF GOODS SOLD   (23,778,053)   (15,900,298)   (35,401,456)   (21,105,463)
                     
GROSS PROFIT   6,097,782    3,536,778    10,452,133    4,704,037 
                     
OPERATING INCOME (EXPENSE):                    
Research and development   (3,564,905)   (1,149,901)   (25,189,502)   (1,790,141)
Selling and marketing   (1,057,517)   (763,666)   (2,204,383)   (1,641,972)
General and administrative   (5,359,572)   (3,907,191)   (9,789,695)   (6,973,926)
Gain on disposal of long-lived assets   48,253,667    13,907,574    48,253,667    13,907,574 
TOTAL OPERATING INCOME   38,271,673    8,086,816    11,070,087    3,501,535 
                     
INCOME FROM OPERATIONS   44,369,455    11,623,594    21,522,220    8,205,572 
                     
OTHER INCOME (EXPENSE):                    
Interest income   974,105    221,792    1,502,697    560,736 
Interest expense   (78,069)   (1,123,056)   (204,417)   (2,105,990)
Change in fair value of contingent consideration   (357,000)   (929,000)   -    2,863,000 
Government grants   114,402    86,799    349,195    97,898 
Gain from sale of equity in the Affiliate Company   33,651    
-
    17,733,911    - 
Share of loss after tax of the Affiliate Company   (4,904)   (2,978,529)   (2,584,401)   (4,081,299)
Other income, net   3,827,089    1,043,335    4,325,990    1,062,985 
TOTAL OTHER INCOME (EXPENSE), NET   4,509,274    (3,678,659)   21,122,975    (1,602,670)
                     
INCOME BEFORE INCOME TAXES   48,878,729    7,944,935    42,645,195    6,602,902 
                     
INCOME TAX EXPENSE   (7,949,255)   (3,889,889)   (8,118,441)   (4,122,502)
                     
NET INCOME   40,929,474    4,055,046    34,526,754    2,480,400 
                     
OTHER COMPREHENSIVE INCOME (LOSS)                    
Foreign currency translation adjustment   4,874,815    477,734    3,698,802    (3,045,331)
                     
COMPREHENSIVE INCOME (LOSS)  $45,804,289   $4,532,780   $38,225,556   $(564,931)
                     
WEIGHTED AVERAGE SHARES OUTSTANDING BASIC AND DILUTED   75,510,788    53,369,602    75,447,633    52,862,043 
                     
NET INCOME PER SHARE, BASIC AND DILUTED  $0.54   $0.08   $0.46   $0.05 

 

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   52,839,441   $52,839   $(2,477,965)  $259,691,370   $(16,685,736)  $(22,723,581)  $217,856,927 
Stock issuance and award   10,000    10    
-
    22,290    
-
    
-
    22,300 
Net loss   -    
-
    
-
    
-
    (1,574,646)   
-
    (1,574,646)
Foreign currency translation   -    
-
    
-
    
-
    
-
    (3,523,065)   (3,523,065)
                                    
Balance, March 31, 2020   52,849,441   $52,849   $(2,477,965)  $259,713,660   $(18,260,382)  $(26,246,646)  $212,781,516 
Stock issuance and award   1,502,717    1,503         3,164,925              3,166,428 
Net income                       4,055,043         4,055,043 
Foreign currency translation                            477,734    477,734 
                                    
Balance, June 30, 2020   54,352,158   $54,352   $(2,477,965)  $262,878,585   $(14,205,339)  $(25,768,912)  $220,480,721 
                                    
    Number of
Outstanding
Shares
    Common
Stock
    Treasury
Stock
    Additional
Paid-in
Capital
    Accumulated
Earning
(Deficit)
    Accumulated
Other
Comprehensive
Income
    Total 
Balance, December 31, 2020   75,377,555   $75,377   $
-
   $439,549,338   $(27,079,900)  $(8,778,151)  $403,766,664 
Stock issuance and award   10,000    10    
-
    22,290    
-
    
-
    22,300 
Net loss   -    
-
    
-
    
-
    (6,402,720)   
-
    (6,402,720)
Foreign currency translation   -    
-
    
-
    
-
    
-
    (1,176,013)   (1,176,013)
Reversal of reduction in the Affiliate Company’s equity (net off tax effect of $491,400)   -    
-
    
-
    2,771,652    
-
    
-
    2,771,652 
                                    
Balance, March 31, 2021   75,387,555   $75,387   $
-
   $442,343,280   $(33,482,620)  $(9,954,164)  $398,981,883 
Stock issuance and award   238,600    239         1,374,098              1,374,337 
Net income                       40,929,474         40,929,474 
Foreign currency translation                            4,874,815    4,874,815 
                                    
Balance, June 30, 2021   75,626,155   $75,626   $
-
   $443,717,378   $7,446,854   $(5,079,349)  $446,160,509 

 

See accompanying notes to condensed consolidated financial statements.

 

3

 

  

KANDI TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 

   Six Months Ended 
   June 30,
2021
   June 30,
2020
 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $34,526,754   $2,480,400 
Adjustments to reconcile net income to net cash provided by operating activities          
Depreciation and amortization   4,443,218    4,022,676 
Impairments   
-
    (148,054)
Deferred taxes   (11,970)   2,089,505 
Share of loss after tax of the Affiliate Company   2,584,401    4,081,299 
Gain from equity sale in the Affiliate Company   (17,733,911)   
-
 
Gain on disposal of long-live assets   (48,253,667)   (13,907,574)
Change in fair value of contingent consideration   
-
    (2,863,000)
Stock based compensation expense   1,429,456    847,546 
           
Changes in operating assets and liabilities:          
           
Accounts receivable   2,054,930    (1,431,388)
Inventories   (3,328,120)   (743,483)
Other receivables and other assets   (14,040,619)   (11,248,701)
Advances to supplier and prepayments and prepaid expenses   20,596,182    (12,586,777)
Amount due from the Affiliate Company   
-
    4,129,516 
           
Increase (Decrease) In:          
Accounts payable   (1,044,040)   (282,560)
Other payables and accrued liabilities   (463,016)   736,715 
Notes payable   (93,273)   (10,664,922)
Income tax payable   7,671,740    1,161,312 
Net cash used in operating activities  $(11,661,935)  $(34,327,490)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchases of property, plant and equipment, net   (6,565,755)   (59,670)
Payment for construction in progress   (1,869,028)   
-
 
Proceeds from disposal of long-lived assets   23,234,680    34,696,547 
Repayments of loan to third party   31,686,168    
-
 
Certificate of deposit   (54,098,335)   
-
 
Cash received from sales of equity in the Affiliate Company   23,803,268    15,641,886 
Long Term Investment   (108,197)   
-
 
Net cash provided by investing activities  $16,082,801   $50,278,763 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from short-term loans   250,000    24,031,625 
Repayments of short-term loans   
-
    (49,769,638)
Repayments of long-term loans   
-
    (284,398)
Proceeds from long-term loans   
-
    394,116 
Net cash provided by (used in) financing activities  $250,000   $(25,628,295)
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH  $4,670,866   $(9,677,022)
Effect of exchange rate changes  $997,982   $(157,062)
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  $148,189,483   $6,678,551 
-CASH AND CASH EQUIVALENTS AT END OF PERIOD   132,071,957    3,457,498 
-RESTRICTED CASH AT END OF PERIOD   16,117,526    3,221,053 
           
SUPPLEMENTARY CASH FLOW INFORMATION          
Income taxes paid  $373,433    870,082 
Interest paid  $
-
    641,213 
           
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)  $2,813,968    
-
 
Increase of other receivable for equity transfer payment of the Affiliate Company  $23,803,268    
-
 

 

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 $ 297,349,768 as of June 30, 2021, an increase of $74,031,617 from a working capital of $223,318,151 as of December 31, 2020. As of June 30, 2021 and December 31, 2020, the Company’s cash and cash equivalents were $132,071,957 and $142,078,190, respectively, the Company’s restricted cash was $16,117,526 and $442,445, respectively. As of June 30, 2021, the Company had multiple certificates of deposit with a total amount of $54,222,374. These certificates of deposit have an annual interest rate from 3.7% to 3.99% which can be transferred when necessary without any penalty or any loss of interest and principal.

 

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 ($81 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 ($77 million) over the next eight years. On May 22, 2020, the Company received the first payment of RMB 244 million (approximately $38 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. On May 20, 2021, the Company received the final portion of repurchase payment of RMB 150 million (approximately $23 million) under the Repurchase Agreement. In addition, there was RMB 12 million (approximately $2 million) reward for moving out of the old location has been submitted to the government for approval and will be collected after the approval.

 

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 $48 million). On March 16, 2021, the Company received the first half of the equity transfer payment of RMB 154,000,000 (approximately $24 million), and the rest half will be received within six months from March 9, 2021according to the Equity Transfer Agreement. If the transfer of the remaining 22% equity interests of the Affiliate Company took place on January 1, 2020, the net income for the six months ended June 30, 2021 and 2020 would have been $19.4 million and $1.6 million, respectively.

 

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. Currently the Company has sufficient cash in hand to meet the existing operational needs, but the credit line is retained which can be utilized timely when the Company has special capital needs. The PRC subsidiaries do not have any short-term bank loans and SC Autosports only has $250,000 short-term bank loans as of June 30, 2021.

 

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 50%-owned subsidiary of Zhejiang Kandi Technologies (Mr. Hu Xiaoming owns the other 50%), incorporated under the laws of the PRC. Pursuant to agreements executed in January 2011, Mr. Hu Xiaoming contracted with Zhejiang Kandi Technologies for the operation and management of Kandi New Energy and put his shares of Kandi New Energy into escrow. As a result, Zhejiang Kandi Technologies is entitled to 100% of the economic benefits, voting rights and residual interests of Kandi New Energy;

 

(4)Kandi Electric Vehicles (Hainan) Co., Ltd. (“Kandi Hainan”), a subsidiary, 10% owned by Kandi New Energy and 90% owned by Zhejiang Kandi Technologies, incorporated under the laws of the PRC;

 

(5)Zhejiang Kandi Smart Battery Swap Technology Co., Ltd (“Kandi Smart Battery Swap”), a wholly-owned subsidiary of Zhejiang Kandi Technologies, incorporated under the laws of the PRC;

 

(6)Yongkang Scrou Electric Co, Ltd. (“Yongkang Scrou”), a wholly-owned subsidiary of Kandi Smart Battery Swap, incorporated under the laws of the PRC; and

 

(7)SC Autosports (d/b/a Kandi America), a wholly-owned subsidiary of the Company formed under the laws of the State of Texas, USA.

 

(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, USA.

 

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 22% equity interest until March 9. 2021.

 

On February 18, 2021, Zhejiang Kandi Technologies signed an Equity Transfer Agreement with Geely to transfer all of its remaining 22% equity interests in the Affiliate Company to Geely. As the equity transfer was completed on March 9, 2021, the Company recorded 22% of the Affiliate Company’s loss for the period from January 1, 2021 to March 9, 2021 and recognized the gain from equity sale of $17.7 million during the first quarter of 2021. As of June 30, 2021, the amount due from the Affiliate Company has been reclassed to accounts receivable of $17.6 million and other receivables of $2.2 million.

 

All intra-entity profits and losses with regard to the Company’s equity method investees have been eliminated.

 

7

 

 

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.

 

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 June 30, 2021, the Company’s major customers, each of whom accounted for more than 10% of the Company’s consolidated revenue, were as follows:

  

   Sales   Trade Receivable 
   Three Months   Three Months         
   Ended   Ended         
   June 30,   June 30,   June 30,   December 31, 
Major Customers  2021   2020   2021   2020 
Customer A   24%   15%   15%   7%
Customer B   22%   
-
    13%   13%
Customer C   12%   
-
    5%   3%
Customer D   10%   
-
    5%   
-
 

 

For the six-month period ended June 30, 2021, the Company’s major customers, each of whom accounted for more than 10% of the Company’s consolidated revenue, were as follows:

  

   Sales   Trade Receivable 
   Six Months   Six Months         
   Ended   Ended         
   June 30,   June 30,   June 30,   December 31, 
Major Customers  2021   2020   2021   2020 
Customer A   18%   15%   15%   7%
Customer B   16%   
-
    13%   13%

 

8

 

 

(b) Suppliers

 

For the three-month period ended June 30, 2021, the Company’s material suppliers, each of whom accounted for more than 10% of the Company’s total purchases, were as follows:

 

   Purchases   Accounts Payable 
   Three Months   Three Months         
   Ended   Ended         
   June 30,   June 30,   June 30,   December 31, 
Major Suppliers  2021   2020   2021   2020 
Zhejiang Kandi Supply Chain Management Co., Ltd.   60%   59%   9%       9%

 

For the six-month period ended June 31, 2020, the Company’s material suppliers, each of whom accounted for more than 10% of the Company’s total purchases, were as follows:

 

   Purchases   Accounts Payable 
   Six Months   Six Months         
   Ended   Ended         
   June 30,   June 30,   June 30,   December 31, 
Major Suppliers  2021   2020   2021   2020 
Zhejiang Kandi Supply Chain Management Co., Ltd.   57%   59%   9%         9%
Supplier E   12%   25%   16%   5%

  

NOTE 9 - EARNINGS PER SHARE

 

The Company calculates earnings per share in accordance with ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during the reporting period. Diluted earnings per share represents basic earnings per share adjusted to include the potentially dilutive effect of outstanding stock options and warrants (using treasury stock method). Due to the average market price of the common stock during the period below the exercise price of the options, approximately 900,000 options and 8,131,332 warrants were excluded from the calculation of diluted net earnings per share, for the three-month and six-month period ended June 30, 2021.

 

NOTE 10 - ACCOUNTS RECEIVABLE

 

Accounts receivable are summarized as follows:

 

   June 30,   December 31, 
   2021   2020 
Accounts receivable  $48,825,366   $38,657,406 
Less: allowance for doubtful accounts   (111,512)   (110,269)
Accounts receivable, net  $48,713,854   $38,547,137 

 

NOTE 11 - INVENTORIES

 

Inventories are summarized as follows:

 

   June 30,   December 31, 
   2021   2020 
Raw material  $10,202,043   $7,512,259 
Work-in-progress   5,638,319    5,488,532 
Finished goods *   7,391,872    6,696,592 
Inventories  $23,232,234   $19,697,383 

 

*approximately $1.1 million of inventory of off-roads and EVs held by SC Autosports were pledged as collateral for the $250,000 short-term loan.

 

NOTE 12 - NOTES RECEIVABLE

 

As of June 30, 2021, there was $8,985,422 notes receivable from unrelated parties, among which $4.6 million will be matured on August 20, 2021 and $4.3 million will be matured on September 20, 2021. As of December 31, 2020, there was $31,404,630 notes receivable from unrelated parties with a 6% annual interest rate, among which $6.1 million was collected on January 15, 2021, $6.9 million was collected on January 27, 2021, $9.2 million was collected on April 20, 2021 and $9.2 million was collected on June 22, 2021.

 

9

 

 

NOTE 13 - Other receivables

 

As of June 30, 2021, the Company had $40,574,115 other receivables, among which $23.9 million were receivables of Affiliate Equity Transfer, $11.1 million were lease deposits and $2.9 million were interest receivables. As of December 31, 2020, the Company had $ 1,875,245 other receivables.

 

NOTE 14 - ADVANCES TO SUPPLIERS

 

Advances to suppliers are summarized as follows:

 

   June 30,   December 31, 
   2021   2020 
Advance payment for inventory purchase (1)  $11,164,073   $13,107,630 
Advance payment for R & D (2)   
-
    19,365,947 
Others   2,110,838    4,259,605 
Total  $13,274,911   $36,733,182 

 

(1)This amount represents the advance payment in order to lock up the purchase price of the inventory.

 

(2)This amount presents the advance payment to a third party for designing a new EV model, as well as related research and development and consulting works. The Company entered into a research and development contract with a third party on December 1, 2020 with total contract amount of $38.3 million, and advance payment of $23.0 million as per the contract. This advance payment will be expensed progressively according to the progress of the R & D project. In the first half of 2021, $18.2 million expense was incurred accordingly.

  

NOTE 15 - PROPERTY, PLANT AND EQUIPMENT, NET

 

Property, plants and equipment as of June 30, 2021 and December 31, 2020, consisted of the following:

 

   June 30,   December 31, 
   2021   2020 
At cost:          
Buildings *  $37,389,860   $18,924,734 
Machinery and equipment   65,449,228    67,893,378 
Office equipment   1,226,586    1,138,870 
Motor vehicles and other transport equipment   584,420    587,785 
Molds and others   12,945,460    12,752,789 
    117,595,554    101,297,556 
Less : Accumulated depreciation   (36,016,196)   (35,894,876)
Property, plant and equipment, net  $81,579,358   $65,402,680 

 

* approximately $10.9 million of production line building structures were recognized as fixed assets during the second quarter of 2021 due to completion of relocation process and readiness in working condition for their intended use.

  

Depreciation expenses for the three months ended June 30, 2021 and 2020 were $1,942,294 and $1,750,013, respectively. Depreciation expenses for the six months ended June 30, 2021 and 2020 were $3,766,555 and $3,530,165, respectively.

 

NOTE 16 - INTANGIBLE ASSETS

 

Intangible assets include acquired other intangibles of trade name, customer relations and patent recorded at estimated fair values in accordance with purchase accounting guidelines for acquisitions.

  

The following table provides the gross carrying value and accumulated amortization for each major class of our intangible assets, other than goodwill:

 

   Remaining  June 30,   December 31, 
   useful life  2021   2020 
Gross carrying amount:             
Trade name  0.5 years  $492,235   $492,235 
Customer relations  0.5 years   304,086    304,086 
Patent  4.00-5.67 years   4,926,490    4,871,547 
       5,722,811    5,667,868 
Less : Accumulated amortization             
Trade name     $(465,170)  $(439,798)
Customer relations      (287,366)   (271,691)
Patent      (2,033,578)   (1,723,626)
       (2,786,114)   (2,435,115)
Intangible assets, net     $2,936,697   $3,232,753 

  

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The aggregate amortization expenses for those intangible assets were $165,722 and $152,846 for the three months ended June 30, 2021 and 2020, respectively. The aggregate amortization expenses for those intangible assets were $330,894 and $307,702 for the six months ended June 30, 2021 and 2020, respectively.

 

Amortization expenses for the next five years and thereafter are as follows:

 

Six months ended December 31, 2021  $330,894 
Years ended December 31,     
2022   582,429 
2023   579,692 
2024   579,692 
2025   513,271 
Thereafter   350,719 
Total  $2,936,697 

 

NOTE 17 - LAND USE RIGHTS, NET

 

The Company’s land use rights consist of the following:

 

   June 30,   December 31, 
   2021   2020 
Cost of land use rights  $4,070,283   $4,024,889 
Less: Accumulated amortization   (822,060)   (767,129)
Land use rights, net  $3,248,223   $3,257,760 

 

The amortization expenses for the three months ended June 30, 2021 and 2020, were $23,130 and $79,751, respectively. The amortization expenses for the six months ended June 30, 2021 and 2020, were $46,172 and $160,712, respectively. Amortization expenses for the next five years and thereafter is as follows:

 

Six months ended December 31, 2021  $46,172 
Years ended December 31,     
2022   92,344 
2023   92,344 
2024   92,344 
2025   92,344 
Thereafter   2,832,675 
Total  $3,248,223 

 

NOTE 18 - OTHER LONG TERM ASSETS

 

Other long term assets as of June 30, 2021 and December 31, 2020, consisted of the following:

 

   June 30,   December 31, 
   2021   2020 
Long term deferred assets  $3,308,514   $3,706,560 
Prepayments for land use right (i)   4,322,440    4,319,305 
Land and properties with certificates cancelled (ii)   
-
    13,728,557 
Other receivables- Long term   154,921    153,193 
Prepayments for new product molds   6,739,066    6,663,909 
Right - of - use asset (iii)   3,454,805    3,496,993 
Others   32,414    238,967 
Total other long term asset  $18,012,160   $32,307,484 

 

(i)As of June 30, 2021 and December 31, 2020, the Company’s other long term asset included net value of prepayments for land use right of Hainan facility of $4,322,440 and $4,319,305, respectively. As of June 30, 2021, the land us right of Hainan was not recognized since the land certificate is still in process. The amortization expense for the three months ended June 30, 2021 and 2020 were $22,781 and $20,760, respectively. The amortization expense for the six months ended June 30, 2021 and 2020 were $45,475 and $41,836, respectively.

 

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(ii)As of December 31, 2020, the Company’s other long term asset included net value of land of Jinhua facility’s old location with certificates cancelled of $6,095,310 and net value of properties (or buildings/housing) of Jinhua facility’s old location with certificates cancelled of $7,633,247, respectively. As of June 30, 2021, the land and property of Jinhua facility’s old location has been written off. The land amortization expense of Jinhua facility’s old location for the three months ended June 30, 2021 were $21,508. The land amortization expense of Jinhua facility’s old location for the six months ended June 30, 2021 were $67,898. The property depreciation expense of Jinhua facility’s old location for the three months ended June 30, 2021 were $37,288. The property depreciation expense of Jinhua facility’s old location for the six months ended June 30, 2021 were $151,230. 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 the relocation was formally completed by meeting all stipulated conditions. As of June 30, 2021, the property of Jinhua facility’s old location has been fully disposed, and the related $48 million gain on disposal of long-live asset was recognized.

 

(iii)As of June 30, 2021 and December 31, 2020, the Company’s operating lease right-of-use assets in other long term asset included net value of newly acquired land use right of Jinhua facility of $3,454,805 and $3,450,958, respectively. The amortization expense for the three months ended June 30, 2021 were $17,530. The amortization expense for the six months ended June 30, 2021 were $34,994.

 

NOTE 19 - TAXES

 

(a) Corporation Income Tax

 

Pursuant to the tax laws and regulations of the PRC, the Company’s applicable corporate income tax (“CIT”) rate is 25%. High and New Technology Enterprise (“HNTE”) company’s applicable CIT rate is 15%. Zhejiang Kandi Technologies, Jinhua Ankao and Kandi Hainan qualify as HNTE companies in the PRC, and are entitled to pay a reduced income tax rate of 15% for the years presented within the validity period. A HNTE Certificate is valid for three years. An entity may re-apply for an HNTE certificate when the prior certificate expires. Zhejiang Kandi Technologies has successfully re-applied for such certificates in December 2020. Jinhua Ankao has been qualified as HNTE since 2018. Kandi Hainan has been qualified as HNTE since 2020. Therefore no records for renewal are available. The applicable CIT rate of each of the Company’s other subsidiaries, Kandi New Energy and Yongkang Scrou is 25%.

 

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. After combining research and development tax credits of 25% on certain qualified research and development expenses, the Company’s effective tax rate for the six months ended June 30, 2021 and 2020 were a tax expense of 19.04% on a reported income before taxes of approximately $42.6 million, a tax expense of 62.43% on a reported income before taxes of approximately $6.6 million, respectively.

 

The quarterly tax provision, and the quarterly estimate of the Company’s annual effective tax rate, is subject to significant variation due to several factors, including variability in accurately predicting the Company’s pre-tax and taxable income and loss, acquisitions (including integrations) and investments, changes in its stock price, changes in its deferred tax assets and liabilities and their valuation, return to provision true-up, foreign currency gains (losses), changes in regulations and interpretations related to tax, accounting, and other areas. Additionally, the Company’s effective tax rate can be more or less volatile based on the amount of pre-tax income or loss. The income tax provision for the three months ended June 30, 2021 and 2020 was tax expense of $8,118,441 and tax expense of $4,122,502, respectively.

 

Under ASC 740 guidance relating to uncertain tax positions, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of June 30, 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 June 30, 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 June 30, 2021, the Company has no accrued interest or penalties related to uncertain tax positions.

 

12

 

 

The aggregate NOLs in tax year 2020 was $21.3 million deriving from entities in the PRC, Hong Kong and U.S. The aggregate NOLs in tax year 2019 was $9.6 million deriving from entities in the PRC and Hong Kong. The NOLs will start to expire from 2026 if they are not used. The cumulative net operating loss in the PRC can be carried forward for five years in general, and ten years for entities qualify HNTE treatment, to offset future net profits for income tax purposes. The Company has $0.8 million cumulative net operating loss in U.S. to carry forward as of June 30, 2021 with indefinite carryforward period. The cumulative net operating loss in Hong Kong of $0.1 million can be carried forward without an expiration date as well.

 

(b) Tax Holiday Effect

 

For the six months ended June 30, 2021 and 2020, the PRC CIT rate was 25%. Certain subsidiaries of the Company are entitled to tax exemptions (tax holidays) for the six months ended June 30, 2021 and 2020.

 

The combined effects of income tax expense exemptions and reductions available to the Company for the six months ended June 30, 2021 and 2020 are as follows:

 

   Six Months Ended 
   June 30, 
   2021   2020 
Tax benefit (holiday) credit  $5,543,010   $164,163 
Basic net income per share effect  $0.000   $0.000 

 

NOTE 20 - LEASES

 

The Company has renewed its corporate office leases for SC Autosports, with a term of 15 months from January 31, 2020 to April 30, 2021. The monthly lease payment is $11,000 from February 2020 to April 2020 and $12,000 from May 2020 to April 2021. The Company recorded operating lease assets and operating lease liabilities at January 31, 2020, with a remaining lease term of 15 months and discount rate of 4.25%.

 

During October 2020, land use right of gross value of $3.5 million was acquired from the government as the new site of Jinhua Facility’s relocation as per the Repurchase Agreement. This lease was wholly prepaid when the land use right was acquired. See NOTE 18 for more details.

 

As of June 30, 2021, the Company’s operating lease right-of-use assets (grouped in other long term assets on the balance sheet) was $3,454,805. For the three months ended June 30, 2021, the Company’s operating lease cost was $29,530. For the six months ended June 30, 2021, the Company’s operating lease cost was $82,994.

 

Supplemental information related to operating leases was as follows:

 

    Six months ended
June 30,
2021
 
Cash payments for operating leases   $ 82,994  

 

NOTE 21 - CONTINGENT CONSIDERATION LIABILITY

 

On January 3, 2018, the Company completed the acquisition of 100% of the equity of Jinhua An Kao, currently known as Kandi Smart Battery Swap Co., Ltd. (“Kandi Smart Battery Swap”). The Company paid approximately RMB 25.93 million (approximately $4 million) at the closing of the transaction using cash on hand and issued a total of 2,959,837 shares of restrictive stock or 6.2% of the Company’s total outstanding shares of the common stock immediately prior to the closing of the acquisition valued at approximately $20.7 million to the former shareholders of Kandi Smart Battery Swap and his designees (the “KSBS Shareholders”), and may be required to pay future consideration of up to an additional 2,959,837 shares of common stock, which are being held in escrow and to be released contingent upon the achievement of certain net income-based milestones in the next three years. Any escrowed shares that are not released from escrow to the KSBS Shareholders as a result of the failure to achieve the milestones will be forfeited and returned to the Company for cancellation. While the escrowed shares are held in escrow, the Company will retain all voting rights with respect to such shares. For the year ended December 31, 2018, Kandi Smart Battery Swap achieved its first year net profit target. Accordingly, the KSBS Shareholders received 739,959 shares of Kandi’s restrictive common stock or 12.5% of the total equity consideration (i.e., 5,919,674 total shares) as part of the purchase price. For the year ended December 31, 2019, Kandi Smart Battery Swap achieved its second year net profit target. Accordingly, the KSBS Shareholders received 986,810 shares of Kandi’s restrictive common stock or 16.67% of the total equity consideration (i.e., 5,919,674 total shares) as part of the purchase price. All the escrowed shares have been included in the Company’s registration statement on Form S-3 declared effective by the SEC on April 5, 2019.

 

13

 

 

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 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 RMB50,000,000 or more for the period from January 1, 2020 to June 30, 2021 (as opposed to be the originally stated “December 31, 2020”), and such profit is audited or reviewed and Kandi Smart Battery Swap gets annual or quarterly financial report issued 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 will receive 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 July 1, 2018, the Company completed the acquisition of 100% of the equity of SC Autosports (d/b/a Kandi America). The Company issued a total of 171,969 shares of restrictive stock or approximately 0.3% of the Company’s total outstanding shares of the common stock immediately prior to the closing of the acquisition valued at approximately $0.8 million at the closing of transaction to the former members of SC Autosports within 30 days from the signing date of the Transfer Agreement, and may be required to pay future consideration of up to an additional 1,547,721 shares of common stock of the Company, which are being held in escrow and to be released contingent upon the achievement of certain pre-tax profit based milestones in the next three years. Any escrowed shares that are not released from escrow to the SC Autosports former members due to the failure to achieve the milestones will be forfeited and returned to the Company for cancellation. While the escrowed shares are held in escrow, the Company will retain all voting rights with respect to the shares. For the year ended December 31, 2018, SC Autosports achieved its first year pre-tax profit target. Accordingly, the former members of SC Autosports received 343,938 shares of Kandi’s restrictive common stock or 20% of the total equity consideration in the purchase price. For the year ended December 31, 2019, SC Autosports achieved its second year pre-tax profit target. Accordingly, the former members of SC Autosports received 515,907 shares of Kandi’s restrictive common stock or 30% of the total equity consideration in the purchase price. For the year ended December 31, 2020, SC Autosports partially achieved its third year pre-tax profit target. As the gap between third year’s pretax profit and pre-tax profit target is less than 20%, the former members of SC Autosports will receive 515,907 shares of Kandi’s restrictive common stock or 30% of the total equity consideration in the purchase price. All the escrowed shares have been included in the Company’s registration statement on Form S-3 declared effective by the SEC on April 5, 2019.

 

The Company recorded contingent consideration liability of the estimated fair value of the contingent consideration the Company currently expects to pay to the KSBS Shareholders and SC Autosports’ former members upon the achievement of certain milestones. The fair value of the contingent consideration liability associated with remaining shares of restrictive common stock was estimated by using the Monte Carlo simulation method, which took into account all possible scenarios. This fair value measurement is classified as Level 3 within the fair value hierarchy prescribed by ASC Topic 820, Fair Value Measurement and Disclosures. In accordance with ASC Topic 805, Business Combinations, the Company will re-measure this liability each reporting period and record changes in the fair value through a separate line item within the Company’s consolidated statements of income.

 

As of June 30, 2021 and December 31, 2020, the Company’s contingent consideration liability was $0 and $3,743,000, respectively.

 

14

 

 

NOTE 22 - STOCK AWARD

 

In connection with the appointment of Mr. Henry Yu as a member of the Board of Directors (the “Board”), the Board authorized the Company to compensate Mr. Henry Yu with 5,000 shares of Company’s restricted common stock every six months as compensation, beginning in July 2011.

 

As compensation for Mr. Jerry Lewin’s services as a member of the Board, the Board authorized the Company to compensate Mr. Jerry Lewin with 5,000 shares of Company’s restricted common stock every six months, beginning in August 2011.

 

As compensation for Ms. Kewa Luo’s services as the Company’s investor relation officer, the Board authorized the Company to compensate Ms. Kewa Luo with 5,000 shares of the Company’s common stock every six months, beginning in September 2013.

 

On January 29, 2019, the Board appointed Ms. Zhu Xiaoying as interim Chief Financial Officer. Ms. Zhu was entitled to receive 10,000 shares of the common stock annually under the Company’s 2008 Omnibus Long-Term Incentive Plan (the “2008 Plan”) as a year-end equity bonus. Effective May 15, 2020, Ms. Zhu resigned from her position as interim Chief Financial Officer of the Company.

 

On May 15, 2020, the Board appointed Mr. Jehn Ming Lim as the Chief Financial Officer. Mr. Lim was entitled to receive 6,000 shares of the common stock annually, which shall be issuable evenly on each six-month anniversary hereof.

 

The fair value of stock awards with service condition is determined based on the closing price of the common stock on the date the shares are granted. The compensation costs for awards of common stock are recognized over the requisite service period.

  

On December 30, 2013, the Board approved a proposal (as submitted by the Compensation Committee) of an award (the “Board’s Pre-Approved Award Grant Sub-Plan under the 2008 Plan”) for certain executives and other key employees. The fair value of each award granted under the 2008 Plan is determined based on the closing price of the Company’s stock on the date of grant of such award. On September 26, 2016, the Board approved to terminate the previous Board’s Pre-Approved Award Grant Sub-Plan under the 2008 Plan and adopted a new plan to grant the total number of shares of common stock of the stock award for selected executives and key employees 250,000 shares of common stock for each fiscal year. On April 18, 2018, the Company granted 238,600 shares of common stock to certain management members and employees as compensation for their past services under the 2008 Plan. On April 30, 2019, the Company granted 238,600 shares of common stock to certain management members and employees as compensation for their past services under the 2008 Plan. On May 9, 2020, the Company granted 238,600 shares of common stock to certain management members and employees as compensation for their past services under the 2008 Plan. On April 30, 2021, the Company granted 238,600 shares of common stock to certain management members and employees as compensation for their past services under the 2008 Plan.

 

For the three months ended June 30, 2021 and 2020, the Company recognized $1,406,531 and $824,621 of employee stock award expenses for stock compensation and annual incentive award under the 2008 Plan paid to Board members, management and consultants under General and Administrative Expenses, respectively. For the six months ended June 30, 2021 and 2020, the Company recognized $1,429,456 and $847,546 of employee stock award expenses for stock compensation and annual incentive award under the 2008 Plan paid to Board members, management and consultants under General and Administrative Expenses, respectively.

 

15

 

 

 

NOTE 23 - 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 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 will be paid within 6 months from March 9, 2021.

 

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 six months ended June 30, 2021 and 2020 are as follows:

 

   Six Months Ended 
   June 30, 
   2021   2020 
Investment in the Affiliate Company, beginning of the period,  $28,892,638   $47,228,614 
Investment decreased in 2021   (47,715,689)   
-
 
Gain from equity sale   17,733,911    
-
 
Reversal of prior year reduction in the equity of the Affiliate Company   3,312,946    
-
 
Company’s share in net (loss) income of Affiliate based on 22% ownership for period from January 1, 2021 to March 9, 2021 and six months ended June 30, 2020   (2,683,986)   (4,086,848)
Non-controlling interest   99,585    
-
 
Prior year unrealized profit realized   
-
    5,549 
Subtotal   (2,584,401)   (4,081,299)
Exchange difference   360,595    (656,867)
Investment in Affiliate Company, end of the period  $
-
   $42,490,448 

 

NOTE 24 - COMMITMENTS AND CONTINGENCIES

 

Guarantees and pledged collateral for bank loans to other parties

 

(1) Guarantees for bank loans

 

On March 15, 2013, the Company entered into a guarantee contract to serve as the guarantor of Nanlong Group Co., Ltd. (“NGCL”) for NGCL’s $3,098,421 (RMB 20 million) loan from Shanghai Pudong Development Bank Jinhua Branch, with a related loan period from March 15, 2013 to March 15, 2016. NGCL is not related to the Company. Under this guarantee contract, the Company agreed to assume joint liability as the loan guarantor. In April 2017, Shanghai Pudong Development Bank filed a lawsuit against NGCL, the Company and ten other parties in Zhejiang Province People’s Court in Yongkang City, alleging NGCL defaulted on a bank loan borrowed from Shanghai Pudong Development Bank for a principal amount of approximately $2.9 million and demanded that the guarantor bear the liability for compensation. On May 27, 2017, a judicial mediation took place in Yongkang City and parties reached a settlement in mediation, in which the plaintiff agreed NGCL would repay the loan principal and interest in installments until December 2021. If there were an event of default that NGCL could not repay the loan, the Company may be obligated to bear the liability of defaulted amount. The Company expects the likelihood of incurring losses in connection with this matter to be remote.

 

(2) Pledged collateral for bank loans for which the parties other than the Company are the borrowers.

 

As of June 30, 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.

 

16

 

 

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 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.

 

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 25 - SEGMENT REPORTING

 

The Company has one operating segment. The Company’s revenue and long-lived assets are primarily derived from and located in China and US. The Company does not have manufacturing operations outside of China.

 

The following table sets forth disaggregation of revenue:

 

   Three Months Ended
June 30,
 
   2021   2020 
   Sales Revenue   Sales Revenue 
Primary geographical markets        
Overseas  $6,180,582   $8,571,281 
China   23,695,253    10,865,795 
Total  $29,875,835   $19,437,076 
           
Major products          
EV parts  $6,680,515   $12,514,548 
EV products   610,812    (1,913)
Off-road vehicles   5,473,195    6,564,415 
Electric Scooters, Electric Self-Balancing Scooters and associated parts   16,526,436    360,026 
Battery exchange equipment and Battery exchange service   584,877    - 
Total  $29,875,835   $19,437,076 
           
Timing of revenue recognition          
Products transferred at a point in time  $29,875,835   $19,437,076 
Total  $29,875,835   $19,437,076 

 

17

 

 

The negative amount is due to exchange rate difference.

 

   Six Months Ended
June 30,
 
   2021   2020 
   Sales Revenue   Sales Revenue 
Primary geographical markets        
Overseas  $14,048,008   $10,702,105 
China   31,805,581    15,107,395 
Total  $45,853,589   $25,809,500 
           
Major products          
EV parts  $13,048,846   $14,595,883 
EV products   732,306    253,906 
Off-road vehicles   11,092,199    10,599,685 
Electric Scooters, Electric Self-Balancing Scooters and associated parts   20,395,361    360,026 
Battery exchange equipment and Battery exchange service   584,877    - 
Total  $45,853,589   $25,809,500 
           
Timing of revenue recognition          
Products transferred at a point in time  $45,853,589   $25,809,500 
Total  $45,853,589   $25,809,500 

 

NOTE 26 - SUBSEQUENT EVENTS

 

On July 13, 2021 (the “Signing Date”), Zhejiang Kandi Technologies entered into (i) a Share Transfer Agreement (the “Share Transfer Agreement”) with three individual shareholders of Jiangxi Huiyi, as defined below (the “Transferors”) and (ii) a Supplementary Agreement (the “Supplementary Agreement”) with the Transferors, pursuant to which Zhejiang Kandi Technologies agreed to purchase all the equity interests of Jiangxi Province Huiyi New Energy Co., Ltd., a company organized under the laws of the People’s Republic of China (“Jiangxi Huiyi”). The consummation of the transactions contemplated in the Share Transfer Agreement is expected to take place no later than thirty business days after the Signing Date. The consummation of the transactions contemplated in the Supplementary Agreement is expected to take place in the following three years after the Signing Date. The acquisition is for the purpose of growing the Company’s business through vertical integration.

 

Pursuant to the terms of the Share Transfer Agreement, Zhejiang Kandi Technologies will acquire all the equity interests of Jiangxi Huiyi for a purchase price of RMB 50 million (approximately $7.7 million) in cash to the Transferors. Zhejiang Kandi Technologies is obligated to pay 50% of the cash portion of the purchase price no later than five business days after the Signing Date. The remaining 50% of the cash portion of the purchase price will be paid upon consummation of the transactions contemplated by the Share Transfer Agreement. In addition, pursuant to the Supplementary Agreement by and between the two parties, the Company may issue 858,770 shares of registered stock (the “Shares”) to the Transferors each year for the next three years, conditioned on the fulfillment of the undertaking by the Transferors of Jiangxi Huiyi to achieve no less than RMB 15 million (approximately $2.3 million) net income (the “Annual Profit Target”) over the course of each of the following three years without additional investment by Zhejiang Kandi Technologies. The Shares will be registered on proper registration statement.

 

The Supplementary Agreement sets forth the terms and conditions of the issuance of the Shares for each of the next three years ended June 30, 2022, 2023 and 2024 as below -

 

If Jiangxi Huiyi achieves the Annual Profit Target, 858,770 shares will be issued to the Transferors. However, a reduced number of shares may be issued to Transferors if Jiangxi Huiyi fails to achieve its Annual Profit Target: If the annual net profits of Jiangxi Huiyi fall below the Annual Profit Target by 20% or less, 687,016 shares will be issued to the Transferors; if net profits of Jiangxi Huiyi fall below the Annual Profit Target by a percentage between 20% and 40%, 515,262 shares will be issued to the Transferors; and if net profits of Jiangxi Huiyi fall below the Annual Profit Target by 40% or more, no shares will be issued to the Transferors.

 

By the end of July 2021, the Company has paid RMB 25 million (approximately $3.4 million) in cash to the Transferors according to the Share Transfer Agreement.

 

18

 

 

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 six months ended June 30, 2021, we recognized total revenue of $45,853,589 as compared to $25,809,500 for the same period of 2020, an increase of $20,044,089 or 77.7%. For the six months ended June 30, 2021, we recorded $10,452,133 of gross profit, an increase of 122.2% from the same period of 2020. Gross margin for the six months ended June 30, 2021 was 22.8%, compared to 18.2% for the same period of 2020. We recorded a net income of $34,526,754 for the six months ended June 30, 2021, compared to a net income of $2,480,400 in the same period of 2020, an increase of $32,046,354 or 1,292.0% from the same period of 2020

 

19

 

 

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 have fully resumed in early March 2020, the COVID-19 has affected the Company’s business performance in 2020, and the impact continued during 2021 though it appears to be on the wane. Though the situation became more stable in China at the end of 2020, the impact of the COVID-19 on the Company's operations is still uncertain.

 

Despite the challenges posed by COVID-19 around the world, overall, we were still productive during the year ended December 31, 2020 and first half of fiscal year 2021. 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 (“Zhejiang Ruiheng”), a company jointly established by Zhejiang Kandi Technologies, has negotiated with more than ten third-tier cities about the cooperation of launching the program of online car hailing based on the battery swap mode, which is expected to gradually start launching in these cities during second half of 2021. 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, and the impact continued during 2021 though it appears to be on the wane, 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 in September 2020 (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.

 

In November 2020, 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.

 

20

 

 

Results of Operations

 

Comparison of the Three Months Ended June 30, 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 June 30, 2021 and 2020.

 

   Three Months Ended             
   June 30,
2021
   % of
Revenue
   June 30,
2020
   % of
Revenue
   Change in
Amount
   Change in
%
 
                         
REVENUES FROM UNRELATED PARTIES, NET  $29,875,835    100.0%  $19,436,120    100.0%   10,439,715    53.7%
REVENUES FROM THE AFFILIATE COMPANY AND RELATED PARTIES, NET   -    0.0%   956    0.0%   (956)   (100.0)%
                               
REVENUES, NET   29,875,835         19,437,076         10,438,759    53.7%
                               
COST OF GOODS SOLD   (23,778,053)   (79.6)%   (15,900,298)   (81.8)%   (7,877,755)   49.5%
                               
GROSS PROFIT   6,097,782    20.4%   3,536,778    18.2%   2,561,004    72.4%
                               
OPERATING INCOME (EXPENSE):                              
Research and development   (3,564,905)   (11.9)%   (1,149,901)   (5.9)%   (2,415,004)   210.0%
Selling and marketing   (1,057,517)   (3.5)%   (763,666)   (3.9)%   (293,851)   38.5%
General and administrative   (5,359,572)   (17.9)%   (3,907,191)   (20.1)%   (1,452,381)   37.2%
Gain on disposal of long-lived assets   48,253,667    161.5%   13,907,574    71.6%   34,346,093    247.0%
TOTAL OPERATING INCOME   38,271,673    128.1%   8,086,816    41.6%   30,184,857    373.3%
                               
INCOME FROM OPERATIONS   44,369,455    148.5%   11,623,594    59.8%   32,745,861    281.7%
                               
OTHER INCOME (EXPENSE):                              
Interest income   974,105    3.3%   221,792    1.1%   752,313    339.2%
Interest expense   (78,069)   (0.3)%   (1,123,056)   (5.8)%   1,044,987    (93.0)%
Change in fair value of contingent consideration   (357,000)   (1.2)%   (929,000)   (4.8)%   572,000    (61.6)%
Government grants   114,402    0.4%   86,799    0.4%   27,603    31.8%
Gain from sale of equity in the Affiliate Company   33,651    0.1%   -    0.0%   33,651    - 
Share of loss after tax of the Affiliate Company   (4,904)   (0.0)%   (2,978,529)   (15.3)%   2,973,625    (99.8)%
Other income, net   3,827,089    12.8%   1,043,335    5.4%   2,783,754    266.8%
TOTAL OTHER INCOME (EXPENSE), NET   4,509,274    15.1%   (3,678,659)   (18.9)%   8,187,933    (222.6)%
                               
INCOME BEFORE INCOME TAXES   48,878,729    163.6%   7,944,935    40.9%   40,933,794    515.2%
                               
INCOME TAX EXPENSE   (7,949,255)   (26.6)%   (3,889,889)   (20.0)%   (4,059,366)   104.4%
                               
NET INCOME   40,929,474    137.0%   4,055,046    20.9%   36,874,428    909.3%

 

21

 

 

(a) Revenue

 

For the three months ended June 30, 2021, our revenue was $29,875,835 compared to $19,437,076 for the same period of 2020, representing an increase of $10,438,759 or 53.7%. The increase in revenue was mainly due to the increase in Electric Scooters, Electric Self-Balancing Scooters and associated parts sales, which was resulted from 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 June 30, 2021 and 2020:

 

   Three Months Ended
June 30
 
   2021   2020 
   Sales   Sales 
EV parts  $6,680,515   $12,514,548 
EV products   610,812    (1,913)
Off-road vehicles   5,473,195    6,564,415 
Electric Scooters, Electric Self-Balancing Scooters and associated parts   16,526,436    360,026 
Battery exchange equipment and Battery exchange service   584,877    - 
Total  $29,875,835   $19,437,076 

 

The negative amount is due to exchange rate difference.

 

EV Parts

 

During the three months ended June 30, 2021, our revenues from the sales of EV parts were $6,680,515, representing a decrease of $5,834,033 or 46.6% from $12,514,548 for the same quarter of 2020, which was mainly due to the decreased battery packs sales compared to the same period of last year; however, the sales of EV parts was stable during 2021. The revenue of $6,680,515 during the three months ended June 30, 2021 was comparable to the revenue of $6,368,331 the three months ended March 31, 2021.

 

Our revenue for the three months ended June 30, 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 22.4% of total sales.

 

EV Products

 

During the three months ended June 30, 2021, our revenue from the sale of EV Products was $610,812, representing an increase of $612,725 from negative $1,913 (Which was due to exchange rate difference. For the three months ended June 30, 2020, there were no EV product sales in local currency.) for the same period of 2020. These sales accounted for 2.0% of total sales for the three months ended June 30, 2021.

 

Off-Road Vehicles

 

During the three months ended June 30, 2021, our revenue from the sales of off-road vehicles, including go karts, all-terrain vehicles (“ATVs”) and others, were $5,473,195, representing a decrease of $1,091,220 or 16.6% from $6,564,415 for the same quarter of 2020. The decrease was mainly due to shortage of inventory to fulfill all sales orders received from the customers in the United States. The global shortage of shipping containers, primarily caused by the Covid-19 pandemic, has led to increased delay times and hence shortage of inventory.

 

Our off-road vehicles business line accounted for approximately 18.3% of our total net revenue for the three months ended June 30, 2021.

 

Electric Scooters, Electric Self-Balancing Scooters and associated parts

 

During the three months ended June 30, 2021, our revenue from the sale of Electric Scooters and Electric Self-Balancing Scooters and associated parts was $16,526,436, representing an increase of $16,166,410 or 4,490.3% from $360,026 for the same period of 2020. The sales during the same quarter of 2020 was immaterial. 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, and we are now having sufficient capacity to fulfill the sales orders of Electric Scooters and Electric Self-Balancing Scooters and associated parts.

 

Battery exchange equipment and Battery exchange service

 

During the three months ended June 30, 2021, our revenue from the sale of Battery exchange equipment and Battery exchange service was $584,877, there was no such sales for the same period of 2020.

 

22

 

 

The following table shows the breakdown of our net revenues:

 

   Three Months Ended
June 30,
 
   2021   2020 
   Sales Revenue   Sales Revenue 
Primary geographical markets        
Overseas  $6,180,582   $8,571,281 
China   23,695,253    10,865,795 
Total  $29,875,835   $19,437,076 
           
Major products          
EV parts  $6,680,515   $12,514,548 
EV products   610,812    (1,913)
Off-road vehicles   5,473,195    6,564,415 
Electric Scooters, Electric Self-Balancing Scooters and associated parts   16,526,436    360,026 
Battery exchange equipment and Battery exchange service   584,877    - 
Total  $29,875,835   $19,437,076 
           
Timing of revenue recognition          
Products transferred at a point in time  $29,875,835   $19,437,076 
Total  $29,875,835   $19,437,076 

 

The negative amount is due to exchange rate difference.

 

(b) Cost of goods sold

 

Cost of goods sold was $23,778,053 during the three months ended June 30, 2021, representing an increase of $7,877,755, or 49.5%, compared to $15,900,298 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.

 

(c) Gross profit

 

Our margins by product for the three months ended June 30, 2021 and 2020 are as set forth below:

 

   2021   2020 
   Sales   Cost   Gross Profit   Margin %   Sales   Cost   Gross Profit   Margin % 
EV parts  $6,680,515    5,608,759    1,071,756    16.0%  $12,514,548    10,745,020    1,769,528    14.1%
EV products   610,812    542,121    68,691    11.2%   (1,913)   (4,793)   2,880    - 
Off-road vehicles   5,473,195    4,098,401    1,374,794    25.1%   6,564,415    4,827,659    1,736,756    26.5%
Electric Scooters, Electric Self-Balancing Scooters and associated parts   16,526,436    12,999,612    3,526,824    21.3%   360,026    332,412    27,614    7.7%
Battery exchange equipment and Battery exchange service   584,877    529,160    55,717    9.5%   -    -    -    - 
Total  $29,875,835    23,778,053    6,097,782    20.4%  $19,437,076    15,900,298    3,536,778    18.2%

 

23

 

 

The negative amount is due to exchange rate difference.

 

Gross profit for the second quarter of 2021 increased 72.4% to $6,097,782, compared to $3,536,778 for the same period last year. This was primarily attributable to the sales increase of Electric Scooters, Electric Self-Balancing Scooters and associated parts. Our gross margin increased to 20.4% compared to 18.2% for the same period of 2020. The increase in our gross margin was mainly due to a higher concentration of sales generated from the product line of Electric Scooters, Electric Self-Balancing Scooters and associated parts which has a higher gross margin compared to other product lines. The sales generated from the product line of Electric Scooters, Electric Self-Balancing Scooters and associated parts was immaterial in the same period of 2020.

 

(d) Research and development

 

Research and development expenses, including materials, labor, equipment depreciation, design, testing, inspection, and other related expenses, totaled $3,564,905 for the second quarter of 2021, an increase of $2,415,004 or 210.0% compared to $1,149,901 for the same period of last year. The increase was mainly due to the Company’s R & D expenditure in the second quarter of 2021 for new products.

 

(e) Sales and marketing

 

Selling and distribution expenses were $1,057,517 for the second quarter of 2021, compared to $763,666 for the same period last year, representing an increase of $293,851 or 38.5%. The increase was primarily attributable to the increasing product insurance expense, freight expense and advertising expense.

 

(f) General and administrative expenses

 

General and administrative expenses were $5,359,572 for the second quarter of 2021, compared to $3,907,191 for the same period last year, representing an increase of $1,452,381 or 37.2%. For the three months ended June 30, 2021, general and administrative expenses included $1,406,531 as expenses for common stock awards and stock options to employees and Board members, compared to $824,621 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 June 30, 2021 were $3,953,041, representing an increase of $870,471, or 28.2% from $3,082,570 for the same period of 2020, which was largely due to the increase of salary expenses and depreciation expenses.

 

(g) Gain on disposal of long-live asset

 

Gain on disposal of long-live asset was $48,253,667 for the second quarter of 2021, compared to $13,907,574 for the same period last year, representing an increase of $34,346,093 or 247.0%. The increase 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 $974,105 for the second quarter of 2021, representing an increase of $752,313 or 339.2% compared to $221,792 for the same period of last year. The increase was primarily attributable to the increased interest earned on bank deposit.

 

(i) Interest expenses

 

Interest expenses were $78,069 in the second quarter of 2021, representing a decrease of $1,044,987 or 93.0% compared to $1,123,056 for the same period of last year. The decrease was primarily due to the interest expenses related to short-term and long-term debt of the Company in the same period of last year, which has been paid off as of the end of 2020.

 

(j) Change in fair value of contingent consideration

 

For the second quarter of 2021, the loss related to changes in the fair value of contingent consideration was $357,000, a decrease loss of $572,000 or 61.6% compared to loss related to changes in the fair value of contingent consideration of $929,000 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 21 – 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.

 

24

 

 

(k) Government grants

 

Government grants were $114,402 for the second quarter of 2021, compared to $86,799 for the same quarter last year, representing an increase of $27,603, or 31.8%, which was largely attributable to the financial support from Jinhua local government in the second quarter of 2021.

 

 (l) Gain from equity sale in the Affiliate Company

 

Gain from equity sale was $33,651 (Due to exchange rate difference. For the three months ended June 30, 2021, there were no gain from equity sale in the Affiliate Company in local currency.) for the second 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 $47.7 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 $23.8 million), and the rest half will be received within six months from March 9, 2021 according to the Equity Transfer Agreement. 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.

 

(m) Share of loss after tax of the Affiliate Company

 

For the second quarter of 2021, our share of loss of the Affiliate Company was $4,904 (Due to exchange rate difference. For the three months ended June 30, 2021, there were no share of loss after tax of the Affiliate Company in local currency.) as compared to share of loss of $2,978,529 for the same period of last year.

 

(n) Other income (expenses), net

 

Net other income was $3,827,089 for the second quarter of 2021, compared to net other income of $1,043,335 for the same period of last year, which was largely due the discount of accounts payable after negotiation with supplier.

 

(o) Income Taxes

 

In accordance with the relevant Chinese tax laws and regulations, our applicable corporate income tax rate is 25%. However, 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 second quarter of 2021 was a tax expense of 16.26% on a reported income before taxes of approximately $48.9 million, compared to a tax expense of 48.96% on a reported income before taxes of approximately $7.9 million for the same period of last year. The effective tax rate was decreased largely due to the decrease of the non-deductible losses in equity investment compared to the same period of last year.

 

(p) Net income

 

Net income was $40,929,474 for the second quarter of 2021, representing an increase of $36,874,428 or 909.3% compared to net income of $4,055,046 for the same period of last year. The increase was primarily attributable to $48 million gain on disposal of long-live asset recognized in the second quarter of 2021, compared to $14 million gain on disposal of long-live asset in the same period of last year, which was related to the real estate repurchase agreement of our Jinhua Facility’s relocation.

 

25

 

 

Comparison of the Six Months Ended June 30, 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 six months ended June 30, 2021 and 2020.

 

   Six Months Ended         
   June 30,
2021
   % of Revenue   June 30,
2020
   % of Revenue   Change in Amount   Change in % 
                         
REVENUES FROM UNRELATED PARTIES, NET  $45,852,002    100.0%  $25,808,544    100.0%  $20,043,458    77.7%
REVENUES FROM THE AFFILIATE COMPANY AND RELATED PARTIES, NET   1,587    0.0%   956    0.0%   631    66.0%
                               
REVENUES, NET   45,853,589    100.0%   25,809,500    100.0%   20,044,089    77.7%
                               
COST OF GOODS SOLD   (35,401,456)   (77.2)%   (21,105,463)   (81.8)%   (14,295,993)   67.7%
                               
GROSS PROFIT   10,452,133    22.8%   4,704,037    18.2%   5,748,096    122.2%
                               
OPERATING INCOME (EXPENSE):                              
Research and development   (25,189,502)   (54.9)%   (1,790,141)   (6.9)%   (23,399,361)   1307.1%
Selling and marketing   (2,204,383)   (4.8)%   (1,641,972)   (6.4)%   (562,411)   34.3%
General and administrative   (9,789,695)   (21.3)%   (6,973,926)   (27.0)%   (2,815,769)   40.4%
Gain on disposal of long-lived assets   48,253,667    105.2%   13,907,574    53.9%   34,346,093    247.0%
TOTAL OPERATING INCOME   11,070,087    24.1%   3,501,535    13.6%   7,568,552    216.1%
                               
INCOME FROM OPERATIONS   21,522,220    46.9%   8,205,572    31.8%   13,316,648    162.3%
                               
OTHER INCOME (EXPENSE):                              
Interest income   1,502,697    3.3%   560,736    2.2%   941,961    168.0%
Interest expense   (204,417)   (0.4)%   (2,105,990)   (8.2)%   1,901,573    (90.3)%
Change in fair value of contingent consideration   -    0.0%   2,863,000    11.1%   (2,863,000)   (100.0)%
Government grants   349,195    0.8%   97,898    0.4%   251,297    256.7%
Gain from sale of equity in the Affiliate Company   17,733,911    38.7%   -    0.0%   17,733,911    - 
Share of loss after tax of the Affiliate Company   (2,584,401)   (5.6)%   (4,081,299)   (15.8)%   1,496,898    (36.7)%
Other income, net   4,325,990    9.4%   1,062,985    4.1%   3,263,005    307.0%
TOTAL OTHER INCOME (EXPENSE), NET   21,122,975    46.1%   (1,602,670)   (6.2)%   22,725,645    (1418.0)%
                               
INCOME BEFORE INCOME TAXES   42,645,195    93.0%   6,602,902    25.6%   36,042,293    545.9%
                               
INCOME TAX EXPENSE   (8,118,441)   (17.7)%   (4,122,502)   (16.0)%   (3,995,939)   96.9%
                               
NET INCOME   34,526,754    75.3%   2,480,400    9.6%   32,046,354    1292.0%

 

26

 

 

(a) Revenue

 

For the six months ended June 30, 2021, our revenue was $45,853,589 compared to $25,809,500 for the same period of 2020, representing an increase of $20,044,089 or 77.7%. The increase in revenue was mainly due to the increase in Electric Scooters, Electric Self-Balancing Scooters and associated parts sales, which was resulted from 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 six months ended June 30, 2021 and 2020:

 

   Six Months Ended
June 30
 
   2021   2020 
   Sales   Sales 
EV parts  $13,048,846   $14,595,883 
EV products   732,306    253,906 
Off-road vehicles   11,092,199    10,599,685 
Electric Scooters, Electric Self-Balancing Scooters and associated parts   20,395,361    360,026 
Battery exchange equipment and Battery exchange service   584,877    - 
Total  $45,853,589   $25,809,500 

 

EV Parts

 

During the six months ended June 30, 2021, our revenues from the sales of EV parts were $13,048,846, representing a decrease of $1,547,037 or 10.6% from $14,595,883 for the same period of 2020 due to less demand in the current period.

 

Our revenue for the six months ended June 30, 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 28.5% of total sales.

 

EV Products

 

During the six months ended June 30, 2021, our revenue from the sale of EV Products was $ 732,306, representing an increase of $478,400 or 188.4% from $253,906 for the same period of 2020 due to the sales of EVs to the ride-hailing platform in China market during 2021.

 

Off-Road Vehicles

 

During the six months ended June 30, 2021, our revenue from the sales of off-road vehicles, including go karts, all-terrain vehicles (“ATVs”) and others, were $11,092,199, representing an increase of $492,514 or 4.6% from $10,599,685, for the same period of 2020 despite the decrease of sales during April to June 2021 caused by a shortage of inventory to fulfill all sales orders received from the customers in the United States.

 

27

 

 

Our off-road vehicles business line accounted for approximately 24.2% of our total net revenue for the six months ended June 30, 2021.

 

Electric Scooters, Electric Self-Balancing Scooters and associated parts

 

During the six months ended June 30, 2021, our revenue from the sale of Electric Scooters and Electric Self-Balancing Scooters and associated parts was $20,395,361, representing an increase of $20,035,335 or 5,565.0% from $360,026 for the same period 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, and we are now having sufficient capacity to fulfill the sales orders of Electric Scooters and Electric Self-Balancing Scooters and associated parts.

 

Battery exchange equipment and Battery exchange service

 

During the six months ended June 30, 2021, our revenue from the sale of Battery exchange equipment and Battery exchange service was $584,877, there was no such sales for the same period of 2020.

 

The following table shows the breakdown of our net revenues:

 

   Six Months Ended
June 30,
 
   2021   2020 
   Sales Revenue   Sales Revenue 
Primary geographical markets          
Overseas  $14,048,008   $10,702,105 
China   31,805,581    15,107,395 
Total  $45,853,589   $25,809,500 
           
Major products          
EV parts  $13,048,846   $14,595,883 
EV products   732,306    253,906 
Off-road vehicles   11,092,199    10,599,685 
Electric Scooters, Electric Self-Balancing Scooters and associated parts   20,395,361    360,026 
Battery exchange equipment and Battery exchange service   584,877    - 
Total  $45,853,589   $25,809,500 
           
Timing of revenue recognition          
Products transferred at a point in time  $45,853,589   $25,809,500 
Total  $45,853,589   $25,809,500 

 

(b) Cost of goods sold

 

Cost of goods sold was $35,401,456 during the six months ended June 30, 2021, representing an increase of $14,295,993, or 67.7%, compared to $21,105,463 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.

 

28

 

 

(c) Gross profit

 

Our margins by product for the six months ended June 30, 2021 and 2020 are as set forth below:

 

   Six Months Ended June 30, 
   2021   2020 
   Sales   Cost   Gross Profit   Margin %   Sales   Cost   Gross Profit   Margin % 
EV parts  $13,048,846    9,895,628    3,153,218    24.2%  $14,595,883    12,603,150    1,992,733    13.7%
EV products   732,306    651,878    80,428    11.0%   253,906    236,594    17,312    6.8%
Off-road vehicles   11,092,199    8,211,150    2,881,049    26.0%   10,599,685    7,933,307    2,666,378    25.2%
Electric Scooters, Electric Self-Balancing Scooters and associated parts   20,395,361    16,113,640    4,281,721    21.0%   360,026.00    332,412.00    27,614    7.7%
Battery exchange equipment and Battery exchange service   584,877    529,160    55,717    9.5%   -    -    -    - 
Total  $45,853,589    35,401,456    10,452,133    22.8%  $25,809,500    21,105,463    4,704,037    18.2%

 

Gross profit for the first half of 2021 increased 122.2% to $10,452,133, compared to $4,704,037 for the same period last year. This was primarily attributable to the sales increase of Electric Scooters, Electric Self-Balancing Scooters and associated parts. Our gross margin increased to 22.8% compared to 18.2% for the same period of 2020. The increase in our gross margin was mainly due to a higher concentration of sales generated from the product line of Electric Scooters, Electric Self-Balancing Scooters and associated parts which has a higher gross margin compared to other product lines. The sales generated from the product line of Electric Scooters, Electric Self-Balancing Scooters and associated parts was immaterial in the same period of 2020.

 

(d) Research and development

 

Research and development expenses, including materials, labor, equipment depreciation, design, testing, inspection, and other related expenses, totaled $25,189,502 for the first half of 2021, an increase of $23,399,361 or 1,307.1% compared to $1,790,141 for the same period of last year. The increase was mainly due to the Company’s R & D expenditure in the first half of 2021 for new products.

 

(e) Sales and marketing

 

Selling and distribution expenses were $2,204,383 for the first half of 2021, compared to $$1,641,972 for the same period last year, representing an increase of $562,411 or 34.3%. The increase was primarily attributable to the increasing product insurance expense, freight expense and advertising expense.

 

(f) General and administrative expenses

 

General and administrative expenses were $9,789,695 for the first half of 2021, compared to $6,973,926 for the same period last year, representing an increase of $2,815,769 or 40.4%. For the six months ended June 30, 2021, general and administrative expenses included $1,429,456 as expenses for common stock awards and stock options to employees and Board members, compared to $847,546 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 six months ended June 30, 2021 were $8,360,239, representing an increase of $2,233,859 or 36.5% from $6,126,380 for the same period of 2020, which was largely due to the increase of depreciation expenses and the increase in need for professional services.

 

(g) Gain on disposal of long-live asset

 

Gain on disposal of long-live asset was $48,253,667 for the first half of 2021, compared to $13,907,574 for the same period last year, representing an increase of $34,346,093 or 247.0%. 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 $1,502,697 for the first half of 2021, representing an increase of $941,961 or 168.0% compared to $560,736 for the same period of last year. The increase was primarily attributable to the increased interest earned on bank deposit.

 

(i) Interest expenses

 

Interest expenses were $204,417 in the first half of 2021, representing a decrease of $1,901,573 or 90.3% compared to $2,105,990 for the same period of last year. The decrease was primarily due to the interest expenses related to short-term and long-term debt of the Company in the same period of last year, which has been paid off as of the end of 2020.

 

29

 

 

(j) Change in fair value of contingent consideration

 

For the first half of 2021, the gain related to changes in the fair value of contingent consideration was $0, a decrease of $2,863,000 or 100.0% compared to gain related to changes in the fair value of contingent consideration of $2,863,000 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 21 – 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 $349,195 for the first half of 2021, compared to $97,898 for the same quarter last year, representing an increase of $251,297, or 256.7%, which was largely attributable to the financial support from Jinhua local government in the second quarter of 2021.

 

(l) Gain from equity sale in the Affiliate Company

 

Gain from equity sale was $17,733,911 for the first half 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 $47.7 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 $23.8 million), and the rest half will be received within six months from March 9, 2021according to the Equity Transfer Agreement. 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.

 

 (m) Share of loss after tax of the Affiliate Company

 

For the first half of 2021, our share of loss of the Affiliate Company was $2,584,401 as compared to share of loss of $4,081,299 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 Affiliate Company to Geely for a total consideration of RMB 308 million (approximately $47.7 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 $23.8 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.

 

(n) Other income, net

 

Net other income was $4,325,990 for the first half of 2021, representing an increase of $3,263,005 or 307.0% compared to net other income of $1,062,985 for the same period of last year, which was largely due to the discount of accounts payable after negotiation with supplier.

 

(o) Income Taxes

 

In accordance with the relevant Chinese tax laws and regulations, our applicable corporate income tax rate is 25%. However, 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 half of 2021 was a tax expense of 19.04% on a reported income before taxes of approximately $42.6 million, compared to a tax expense of 62.43% on a reported income before taxes of approximately $6.6 million for the same period of last year. The effective tax rate was decreased largely due to the decrease of the non-deductible losses in equity investment compared to the same period of last year.

 

(p) Net income

 

Net income was $34,526,754 for the first half of 2021, representing an of $32,046,354 or 1,292.0% compared to net income $2,480,400 for the same period of last year. The increase was primarily attributable to $48 million gain on disposal of long-live asset recognized in the second quarter of 2021, compared to $14 million gain on disposal of long-live asset in the same period of last year, which was related to the real estate repurchase agreement of our Jinhua Facility’s relocation.

 

30

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash Flow

 

   Six Months Ended 
   June 30,
2021
   June 30,
2020
 
Net cash used in operating activities  $(11,661,935)  $(34,327,490)
Net cash provided by investing activities  $16,082,801   $50,278,763 
Net cash provided by (used in) financing activities  $250,000   $(25,628,295)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH  $4,670,866   $(9,677,022)
Effect of exchange rate changes  $997,982   $(157,062)
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  $148,189,483   $6,678,551 

  

For the first half of 2021, cash used in operating activities was $11,661,935, as compared to cash used in operating activities of $34,327,490 for the same period last year. Our operating cash inflows include cash received primarily from sales of our EV parts and off-road vehicles. These cash inflows are offset largely by cash paid primarily to our suppliers for production materials and parts used in our manufacturing process, operation expenses, employee compensation, and interest expenses of our financings. The major operating activities that provided cash for the first half of 2021 were a decrease of advances to supplier and prepayments and prepaid expenses of $20,596,182. The major operating activity that used cash for first half of 2021 was an increase of other receivables and other assets of $14,040,619.

 

For the first half of 2021, cash derived from investing activities was $16,082,801, as compared to cash derived from investing activities of $50,278,763 for the same period of last year. The major investing activities that provided cash for the first half of 2021 were an increase of repayments of loan to third party of $31,686,168. The major investing activities that used cash for first half of 2021 were an increase of certificate of deposit of $54,098,335 .

 

For the first half of 2021, cash derived from financing activities was $250,000, as compared to cash used from financing activities of $25,628,295 for the same period of last year. The major financing activities that provided cash for the first half of 2021 were proceeds from short-term bank loans of $250,000.

 

Working Capital

 

We had a working capital of $ 297,349,768 on June 30, 2021, which reflects an increase of $74,031,617 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 ($81 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 ($77 million) over the next eight years. On May 22, 2020, the Company received the first payment of RMB 244 million (approximately $38 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. On May 20, 2021, the Company received the final portion of repurchase payment of RMB 150 million (approximately $23 million) under the Repurchase Agreement. In addition, there was RMB 12 million (approximately $2 million) reward for moving out of the old location has been submitted to the government for approval and will be collected after the approval.

 

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 $48 million). On March 16, 2021, the Company received the first half of the equity transfer payment of RMB 154,000,000 (approximately $24 million), and the rest half will be received within six months from March 9, 2021 according to the Equity Transfer Agreement.

 

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 24 – Commitments and Contingencies under Notes to Condensed Consolidated Financial Statements.

 

31

 

 

Recent Development Activities

 

On May 24, 2021, the Company announced that we unveiled five prototypes of its new K32 UTV, produced at its factory in Hainan, China. The K32 is a premium UTV, featuring pure electric four-wheel-drive propulsion and a fully enclosed cockpit with air conditioning. The Company intends to begin sales of the K32 in the U.S. in the second half of 2021.

 

On July 19, 2021, the Company announced the expansion of its battery cell business with the acquisition of Jiangxi Province Huiyi New Energy Co., Ltd. (“Jiangxi Huiyi”), a leading cell producer in Jiangxi Province, China. The Company is a leader in electric vehicles and associated parts, including the cell business of subsidiary Ankao and the intelligent battery exchange system, so this acquisition is a natural fit to its vertical integration strategy. Jiangxi Huiyi, currently produces approximately 250,000 units of 18650 lithium batteries daily. The cells have a variety of applications, especially in consumer products. Kandi intends to further grow its cell business by using the newly acquired technology to address many new applications, eventually including EV battery packs.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

This item is not applicable to us.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

We have evaluated, under the supervision of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of June 30, 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.

 

32

 

 

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 24 - COMMITMENTS AND CONTINGENCIES under Notes to Condensed Consolidated Financial Statements, our management is currently not aware of any legal matters or pending litigation that would have a significant effect on the Company’s results of operation of financial statements, nor is the Company aware of any other legal matters in which any director, officer, or any owner of record or beneficial owner of more than five percent of any class of voting securities of the Company, or any affiliate of any such director, officer, affiliate of the Company, or security holder, is a party adverse to the Company or has a material adverse interest to the Company. For the detailed discussion of our legal proceedings, please refer to Note 24 - COMMITMENTS AND CONTINGENCIES under Notes to Condensed Consolidated Financial Statements, which is incorporated by reference herein.

 

Item 6. Exhibits

 

Exhibit
Number
  Description
10.1   English Translation of the Share Transfer Agreement by and between Zhejiang Kandi Technologies Group Co., Ltd. and Shareholders of Jiangxi Province Huiyi New Energy Co., Ltd. dated July 13, 2021 (Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 19, 2021).
10.2   English Translation of the Supplementary Agreement by and between Zhejiang Kandi Technologies Group Co., Ltd. and Shareholders of Jiangxi Province Huiyi New Energy Co., Ltd. dated July 13, 2021 (Incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 19, 2021).
31.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934
31.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934
32.1   Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to § 906 of the Sarbanes-Oxley Act of 2002
101.INS   Inline XBRL Instance Document.
101.SCH   Inline XBRL Taxonomy Extension Schema Document.
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

  

33

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: August 9, 2021 By:  /s/ Hu Xiaoming
    Hu Xiaoming
    President and Chief Executive Officer
    (Principal Executive Officer)
     
Date: August 9, 2021 By:  /s/ Jehn Ming Lim
    Jehn Ming Lim
    Chief Financial Officer
    (Principal Financial Officer and
    Accounting Officer)

 

 

34

 

 

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