Kandi Technologies Group, Inc. (NASDAQ:KNDI) Q3 2019 Results Earnings Conference Call November 12, 2019 8:00 AM ET Company Participants Kewa Luo - Investor Relations Manager Hu Xiaoming - Founder, Chairman and Chief Executive Officer Zhu Xiaoying - Interim Chief Financial Officer Conference Call Participants Karl Scherer - Rang Ring Consulting Mike Pfeffer - Oppenheimer Arthur Porcari - Corporate Strategies Operator Good day and welcome to the Kandi Technologies Third Quarter 2019 Financial Results Call. [O ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Delaware 90-0363723 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Jinhua City Industrial Zone Jinhua, Zhejiang Province People's Republic of China 321016 (Address of principal executive offices) (Zip Code) Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock KNDI NASDAQ FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securit ...

Kandi Technologies Group, Inc. (NASDAQ:KNDI) Q2 2019 Earnings Conference Call August 9, 2019 8:00 AM ET Company Participants Kewa Luo – Investor Relations Manager Hu Xiaoming – Founder, Chairman and Chief Executive Officer Zhu Xiaoying – Interim Chief Financial Officer Conference Call Participants Michael Fairnow – Focus Tech Investments Walter Hill – Carty & Company Li Gao – Private Investor Arthur Porcari – Corporate Strategies Inc. Mike Pfeffer – Oppenheimer Operator Good day and welcome to Kandi Technol ...

[PART I — FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) This section presents Kandi Technologies Group, Inc.'s unaudited condensed consolidated financial statements and management's discussion for the period ended June 30, 2019 [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Kandi Technologies Group, Inc.'s unaudited condensed consolidated financial statements for the period ended June 30, 2019, including the balance sheets, statements of income (loss) and comprehensive income (loss), statements of changes in stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's organization, accounting policies, and specific financial line items [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's total assets decreased by 4.59% from December 31, 2018, to June 30, 2019, primarily driven by a reduction in cash and cash equivalents and restricted cash, while accounts receivable and inventories saw increases; total liabilities also decreased by 6.44% over the same period Condensed Consolidated Balance Sheet Highlights | Metric | June 30, 2019 (Unaudited) | December 31, 2018 | | :---------------------- | :------------------------ | :---------------- | | Cash and cash equivalents | $3,608,933 | $15,662,201 | | Restricted cash | $1,573,992 | $6,690,870 | | Accounts receivable | $41,926,724 | $34,274,728 | | Inventories | $28,980,722 | $21,997,868 | | Total Current Assets | $161,673,143 | $167,349,788 | | Total Assets | $409,153,877 | $428,829,264 | | Total Current Liabilities | $152,032,806 | $164,822,877 | | Total Liabilities | $190,121,911 | $203,206,390 | | Total Stockholders' Equity | $219,031,966 | $225,622,874 | [Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Loss)%20and%20Comprehensive%20Income%20(Loss)) For the three months ended June 30, 2019, the company reported a net loss of **$7.32 million**, a significant decline from a net income of **$1.37 million** in the prior year, primarily due to increased operating expenses and a substantial share of loss from the JV Company; revenues increased by **47.6% YoY**, but gross profit growth was outpaced by operating expense increases Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Highlights | Metric (Three Months Ended June 30) | 2019 (Unaudited) | 2018 (Unaudited) | Change ($) | Change (%) | | :---------------------------------- | :--------------- | :--------------- | :--------- | :--------- | | Revenues, Net | $24,146,230 | $16,359,606 | $7,786,624 | 47.6% | | Cost of Goods Sold | $(19,944,076) | $(14,301,594) | $(5,642,482) | 39.5% | | Gross Profit | $4,202,154 | $2,058,012 | $2,144,142 | 104.2% | | Total Operating Expenses | $(7,155,866) | $(4,732,325) | $(2,423,541) | 51.2% | | Loss From Operations | $(2,953,712) | $(2,674,313) | $(279,399) | 10.4% | | Share of (loss) income after tax of the JV Company | $(4,500,201) | $2,372,696 | $(6,872,897) | (289.7)% | | Net (Loss) Income | $(7,318,158) | $1,374,525 | $(8,692,683) | (632.4)% | | Net (Loss) Income Per Share, Basic | $(0.14) | $0.03 | | | - For the six months ended June 30, 2019, the company reported a net loss of **$11.73 million**, a significant decrease from a net income of **$5.10 million** in the prior year, primarily due to a substantial increase in the share of loss from the JV Company and higher operating costs[7](index=7&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Total stockholders' equity decreased from **$225.62 million** at December 31, 2018, to **$219.03 million** at June 30, 2019, primarily due to a net loss of **$11.73 million** for the six months ended June 30, 2019, partially offset by an increase in additional paid-in capital Condensed Consolidated Statements of Changes in Stockholders' Equity Highlights | Metric (Six Months Ended June 30) | 2019 (Unaudited) | 2018 (Unaudited) | | :-------------------------------- | :--------------- | :--------------- | | Total shareholder's equity, beginning balance | $225,622,874 | $244,111,743 | | Stock issuance and award | $1,335 | $3,261 | | Additional Paid-in Capital, Stock issuance and award | $4,646,948 | $21,138,032 | | Net (loss) income | $(11,727,630) | $5,102,520 | | Foreign currency translation | $488,439 | $(5,122,382) | | Total shareholder's equity, ending balance | $219,031,966 | $244,111,743 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2019, the company experienced a significant increase in cash used in operating activities to **$33.12 million**, compared to **$0.17 million** in the prior year; investing activities generated **$14.23 million**, primarily from advance receipts of equity transfer, a reversal from cash used in the prior year; financing activities provided **$1.47 million**, a positive shift from cash used in the prior year Condensed Consolidated Statements of Cash Flows Highlights | Metric (Six Months Ended June 30) | 2019 (Unaudited) | 2018 (Unaudited) | | :-------------------------------- | :--------------- | :--------------- | | Net cash used in operating activities | $(33,118,904) | $(165,499) | | Net cash used in investing activities | $14,228,076 | $(620,192) | | Net cash provided by (used in) financing activities | $1,474,078 | $(5,804,126) | | Net decrease in cash and cash equivalents and restricted cash | $(17,416,750) | $(6,589,817) | | Cash and cash equivalents and restricted cash at end of period | $5,182,925 | $9,490,659 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the company's accounting policies, financial instrument valuations, and specific balance sheet and income statement items, covering organizational structure, liquidity, revenue recognition, and significant transactions like the JV Company equity transfer - The company's operations in China are subject to political, economic, and legal risks, as well as foreign currency exchange rate fluctuations (RMB to USD)[52](index=52&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - Revenue is recognized at a point in time when the customer obtains control over the product, typically at delivery, at the net sales price; the company adopted ASC Topic 606 on January 1, 2018, with no material impact[72](index=72&type=chunk)[74](index=74&type=chunk) - Goodwill and intangible assets are tested for impairment annually or when circumstances change; no impairment loss was recognized for goodwill as of June 30, 2019[89](index=89&type=chunk)[92](index=92&type=chunk) [NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES](index=10&type=section&id=NOTE%201%20-%20ORGANIZATION%20AND%20PRINCIPAL%20ACTIVITIES) Kandi Technologies Group, Inc. is a Delaware-incorporated company headquartered in Jinhua City, China, primarily engaged in the design, development, manufacturing, and commercialization of electric vehicle (EV) products, EV parts, and off-road vehicles, with a significant investment in a Joint Venture (JV) Company, Zhejiang Kandi Electric Vehicles Co., Ltd., which recently underwent an equity transfer reducing Kandi's ownership to **43.47%** - Kandi Technologies Group, Inc. is a leading producer and manufacturer of EV products (through the JV Company), EV parts, and off-road vehicles in China, with a strategic focus on pure EV-related products and expansion into Chinese and international markets, particularly the U.S[13](index=13&type=chunk)[36](index=36&type=chunk) - Kandi Vehicles' ownership in the JV Company was reduced from **50% to 43.47%** after the JV Company converted a RMB **314 million** loan from Geely Group into equity; Kandi Vehicles further agreed to sell an additional **21.47%** of its equity interests to Geely for RMB **516 million**, which would reduce its ownership to **22%** upon completion[17](index=17&type=chunk)[41](index=41&type=chunk) - The company acquired **100%** of SC Autosports LLC in July 2018, a Dallas-based sales company focused on wholesale of off-road vehicle products[34](index=34&type=chunk) [NOTE 2 - LIQUIDITY](index=13&type=section&id=NOTE%202%20-%20LIQUIDITY) Kandi's working capital increased to **$9.64 million** as of June 30, 2019, up from **$2.53 million** at December 31, 2018; the company relies on short-term bank loans and expects to improve liquidity further upon receiving proceeds from the JV Company equity transfer and national subsidy payments Working Capital Trend | Date | Working Capital | | :--------------- | :-------------- | | June 30, 2019 | $9,640,337 | | December 31, 2018 | $2,526,911 | - The company expects to receive RMB **516 million** (approximately **$75.2 million**) from the sale of **21.47%** equity in the JV Company to Geely, with RMB **200 million** already received by July 12, 2019, and the remainder expected by September 25, 2019[41](index=41&type=chunk) - The JV Company has received RMB **876 million** (approximately **$127.7 million**) in national subsidy payments, which is expected to improve Kandi's cash flow once received from the JV Company[42](index=42&type=chunk) [NOTE 3 - BASIS OF PRESENTATION](index=14&type=section&id=NOTE%203%20-%20BASIS%20OF%20PRESENTATION) The financial statements are prepared using the accrual method of accounting in conformity with U.S. GAAP, consistently applied, and represent management's view of the company's financial position [NOTE 4 - PRINCIPLES OF CONSOLIDATION](index=14&type=section&id=NOTE%204%20-%20PRINCIPLES%20OF%20CONSOLIDATION) The consolidated financial statements include Kandi Technologies and its wholly-owned subsidiaries, as well as Kandi New Energy, which is a Variable Interest Entity (VIE) consolidated due to Kandi Vehicles' entitlement to **100%** of its economic benefits; investments in the JV Company and its subsidiaries, where Kandi holds a **43.47%** economic interest, are accounted for using the equity method - Kandi consolidates its wholly-owned subsidiaries (Continental, Kandi Vehicles, YongkangScrou, Jinhua An Kao, SC Autosports) and Kandi New Energy (a VIE)[45](index=45&type=chunk) - The company accounts for its **43.47%** economic interest in the JV Company and its numerous subsidiaries (e.g., KandiChangxing, KandiJinhua, Kandi Shanghai, Kandi Jiangsu, Zhejiang Chang Dian) using the equity method[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) [NOTE 5 - USE OF ESTIMATES](index=16&type=section&id=NOTE%205%20-%20USE%20OF%20ESTIMATES) The preparation of financial statements requires management to make estimates and assumptions that impact reported asset and liability amounts, as well as revenue and expense recognition; actual results may differ from these estimates [NOTE 6 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=16&type=section&id=NOTE%206%20-%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines Kandi's significant accounting policies, including those for economic and political risks in China, fair value measurements of financial instruments, inventory valuation, revenue recognition under ASC Topic 606, and accounting for goodwill and intangible assets, also detailing policies for government grants, income taxes, and foreign currency translation [(a) Economic and Political Risks](index=16&type=section&id=(a)%20Economic%20and%20Political%20Risks) Kandi's operations are primarily in China, exposing it to political, economic, and legal risks, including foreign currency exchange rate fluctuations between RMB and USD, and potential changes in government policies - The company's business is influenced by China's political, economic, and legal environments, and by changes in the exchange rate between the U.S. dollar and the RMB[52](index=52&type=chunk) [(b) Fair Value of Financial Instruments](index=16&type=section&id=(b)%20Fair%20Value%20of%20Financial%20Instruments) Financial instruments like cash, receivables, and payables are carried at fair value due to their short-term nature (Level 1 or 2); contingent consideration related to acquisitions is measured at fair value using Level 3 inputs - The carrying value of most short-term financial instruments approximates fair value (Level 1 or 2)[56](index=56&type=chunk) - Contingent consideration for acquisitions (Jinhua An Kao and SC Autosports) is measured at fair value using Level 3 inputs, totaling **$6,619,000** as of June 30, 2019[57](index=57&type=chunk) [(c) Cash and Cash Equivalents](index=18&type=section&id=(c)%20Cash%20and%20Cash%20Equivalents) Cash equivalents include highly-liquid investments with original maturities of three months or less; restricted cash balances were **$1,573,992** as of June 30, 2019, a decrease from **$6,690,870** at December 31, 2018 Restricted Cash Balances | Date | Restricted Cash | | :--------------- | :-------------- | | June 30, 2019 | $1,573,992 | | December 31, 2018 | $6,690,870 | [(d) Inventories](index=18&type=section&id=(d)%20Inventories) Inventories are valued at the lower of cost (weighted average) or net realizable value, with provisions made for slow-moving or obsolete items - Inventories are stated at the lower of cost (weighted average) or net realizable value, with adjustments for estimated excess, obsolescence, or impaired balances[59](index=59&type=chunk)[60](index=60&type=chunk) [(e) Accounts Receivable](index=18&type=section&id=(e)%20Accounts%20Receivable) Accounts receivable are recorded at net realizable value, with an allowance for doubtful accounts based on specific factors and historical experience; credit terms are typically **180 to 360 days** Allowance for Doubtful Accounts | Date | Allowance for Doubtful Accounts | | :--------------- | :------------------------------ | | June 30, 2019 | $135,557 | | December 31, 2018 | $120,010 | [(f) Amount due from the JV Company, net](index=18&type=section&id=(f)%20Amount%20due%20from%20the%20JV%20Company,%20net) The net amount due from the JV Company includes trade receivables and loan interest, totaling **$60 million** as of June 30, 2019; collection timing is uncertain due to JV restructuring and government subsidy progress, but the company expects to receive the amount within one year - Net amount due from the JV Company includes **$58 million** net trade receivable and **$2 million** loan interest as of June 30, 2019[63](index=63&type=chunk) - Collection of receivables from the JV Company is indirectly impacted by government subsidies and the JV's management restructuring, but the company expects to receive the amount within one year[63](index=63&type=chunk) [(g) Other Receivable](index=18&type=section&id=(g)%20Other%20Receivable) Other receivables include a **$5.2 million** short-term loan to an unrelated party at a **6%** annual interest rate, aimed at maximizing idle cash utilization - Other receivables include a **$5.2 million** short-term loan to an unrelated party with a **6%** annual interest rate[64](index=64&type=chunk) [(h) Notes receivable](index=19&type=section&id=(h)%20Notes%20receivable) Notes receivable represent short-term loans to third parties and the JV Company, typically maturing within six months; as of June 30, 2019, notes receivable from unrelated parties were **$0**, while those from the JV Company and related parties were **$1,456,537** Notes Receivable Balances | Category | June 30, 2019 | December 31, 2018 | | :------------------------------------- | :------------ | :---------------- | | Notes receivable from unrelated parties | $0 | $72,712 | | Notes receivable from JV Company and related parties | $1,456,537 | $3,861,032 | [(i) Advances to Suppliers](index=19&type=section&id=(i)%20Advances%20to%20Suppliers) Advances to suppliers are cash payments made in advance for raw materials, molds, and equipment, typically settled within two months for raw materials [(j) Property, Plants and Equipment](index=19&type=section&id=(j)%20Property,%20Plants%20and%20Equipment) Property, plant, and equipment are recorded at cost less accumulated depreciation, calculated using the straight-line method over estimated useful lives; net book value pledged as collateral for bank loans was **$7,903,018** as of June 30, 2019 Property, Plant and Equipment, Net | Date | Net Book Value | | :--------------- | :------------- | | June 30, 2019 | $78,839,301 | | December 31, 2018 | $82,045,923 | - Depreciation expenses for the three months ended June 30, 2019, were **$1,876,569**, and for the six months, **$3,892,028**[130](index=130&type=chunk) [(k) Construction in Progress](index=19&type=section&id=(k)%20Construction%20in%20Progress) Construction in progress (CIP) includes direct construction and acquisition costs for buildings or machinery; costs are capitalized until assets are ready for intended use, at which point they are transferred to plants and equipment, and depreciation begins [(l) Land Use Rights](index=19&type=section&id=(l)%20Land%20Use%20Rights) Land use rights in China are amortized using the straight-line method over a fifty-year term; the net book value pledged as collateral for bank loans was **$7,656,229** as of June 30, 2019 Land Use Rights, Net | Date | Land Use Rights, Net | | :--------------- | :------------------- | | June 30, 2019 | $11,603,594 | | December 31, 2018 | $11,749,728 | - Amortization expenses for land use rights were **$82,837** for the three months ended June 30, 2019, and **$166,599** for the six months ended June 30, 2019[132](index=132&type=chunk) [(m) Accounting for the Impairment of Long-Lived Assets](index=19&type=section&id=(m)%20Accounting%20for%20the%20Impairment%20of%20Long-Lived%20Assets) The company evaluates long-lived assets for impairment when events or circumstances indicate that their carrying value may not be recoverable; no impairment loss was recognized during the reporting period - No impairment loss was recognized during the reporting period for long-lived assets[72](index=72&type=chunk) [(n) Revenue Recognition](index=20&type=section&id=(n)%20Revenue%20Recognition) Kandi adopted ASC Topic 606 on January 1, 2018, using the modified retrospective method, which did not materially impact its financial statements; revenue from EV parts and off-road vehicles is recognized when control is transferred to the customer, typically at delivery - The company adopted ASC Topic 606 Revenue from Contracts with Customers on January 1, 2018, with no material impact on its consolidated financial statements[72](index=72&type=chunk)[99](index=99&type=chunk) - Revenue is recognized when the customer obtains control over the product, usually at the time of delivery, at the net sales price[74](index=74&type=chunk) [(o) Research and Development](index=21&type=section&id=(o)%20Research%20and%20Development) Research and development expenditures are expensed as incurred; R&D expenses decreased by **1.6%** for the three months ended June 30, 2019, and by **16.4%** for the six months ended June 30, 2019, compared to the prior year Research and Development Expenses | Period | 2019 ($) | 2018 ($) | Change ($) | Change (%) | | :-------------------------- | :---------- | :---------- | :--------- | :--------- | | Three months ended June 30 | $632,590 | $642,889 | $(10,299) | (1.6)% | | Six months ended June 30 | $1,170,023 | $1,400,187 | $(230,164) | (16.4)% | [(p) Government Grants](index=21&type=section&id=(p)%20Government%20Grants) Government grants and subsidies are recognized when received or collectible, and related milestones are met; grants significantly increased for both the three and six months ended June 30, 2019, primarily due to a new policy supporting companies with stable employment Government Grants Received | Period | 2019 ($) | 2018 ($) | Change ($) | Change (%) | | :-------------------------- | :---------- | :---------- | :--------- | :--------- | | Three months ended June 30 | $175,319 | $15,558 | $159,761 | 1026.9% | | Six months ended June 30 | $223,043 | $110,813 | $112,230 | 101.3% | [(q) Income Taxes](index=21&type=section&id=(q)%20Income%20Taxes) Income taxes are accounted for using the asset and liability approach; Kandi Vehicles and Jinhua Ankao qualify for a reduced **15%** corporate income tax rate as High and New Technology Enterprises, while other subsidiaries and the JV Company have a **25%** rate; the effective tax rate for the six months ended June 30, 2019, was a **6.02%** tax benefit on a loss before taxes - Kandi Vehicles and Jinhua Ankao benefit from a reduced **15%** corporate income tax rate as HNTE companies[140](index=140&type=chunk) Effective Income Tax Rate (Six Months Ended June 30) | Year | Reported Loss/Income Before Taxes | Effective Tax Rate | | :--- | :-------------------------------- | :----------------- | | 2019 | $(12.5) million loss | 6.02% tax benefit | | 2018 | $5.2 million income | 2.59% tax expense | [(r) Foreign Currency Translation](index=22&type=section&id=(r)%20Foreign%20Currency%20Translation) The company's functional currency is the Renminbi (RMB), with financial statements presented in U.S. dollars; assets and liabilities are translated at balance sheet date exchange rates, while income and expenditures use average rates RMB:USD Exchange Rates | Date | Period end RMB : USD exchange rate | Average RMB : USD exchange rate | | :--------------- | :--------------------------------- | :------------------------------ | | June 30, 2019 | 6.8656 | 6.7839 | | December 31, 2018 | 6.8764 | 6.6146 | | June 30, 2018 | 6.61905 | 6.3666 | [(s) Comprehensive Income](index=22&type=section&id=(s)%20Comprehensive%20Income) Comprehensive income includes all changes in equity except those from owner investments and distributions, encompassing net income and foreign currency translation adjustments [(t) Segments](index=22&type=section&id=(t)%20Segments) The company operates as a single operating segment, with its chief operating decision makers relying on consolidated results for resource allocation and performance assessment [(u) Stock Option Expenses](index=22&type=section&id=(u)%20Stock%20Option%20Expenses) Stock option expenses are recorded in accordance with ASC 718, with fair value estimated using the Black-Scholes-Merton model; no stock option expenses were booked for the three and six months ended June 30, 2019, as all expenses were amortized by May 29, 2018 Stock Option Expenses | Period | 2019 | 2018 ($) | | :-------------------------- | :--- | :---------- | | Three months ended June 30 | $0 | $589,430 | | Six months ended June 30 | $0 | $1,586,926 | [(v) Goodwill](index=22&type=section&id=(v)%20Goodwill) Goodwill is allocated to reporting units and tested for impairment annually or when circumstances change; the company determined its goodwill was not impaired as of June 30, 2019 - Goodwill is tested for impairment annually, and no impairment was identified as of June 30, 2019[92](index=92&type=chunk) [(w) Intangible assets](index=23&type=section&id=(w)%20Intangible%20assets) Intangible assets, including patents, trade names, and customer relations, are amortized over their estimated useful lives; amortization expenses for the three and six months ended June 30, 2019, were **$157,967** and **$317,470**, respectively Intangible Assets, Net | Date | Intangible Assets, Net | | :--------------- | :--------------------- | | June 30, 2019 | $4,020,363 | | December 31, 2018 | $4,328,127 | Intangible Asset Amortization Expenses | Period | 2019 ($) | 2018 ($) | | :-------------------------- | :---------- | :---------- | | Three months ended June 30 | $157,967 | $167,563 | | Six months ended June 30 | $317,470 | $335,588 | [(x) Accounting for Sale of Common Stock and Warrants](index=23&type=section&id=(x)%20Accounting%20for%20Sale%20of%20Common%20Stock%20and%20Warrants) Proceeds from common stock and warrant sales are allocated based on fair value, with issuance expenses charged to paid-in capital for common stock and expensed for derivative instruments [(y) Consolidation of Variable Interest Entities](index=23&type=section&id=(y)%20Consolidation%20of%20Variable%20Interest%20Entities) Kandi consolidates Kandi New Energy as a Variable Interest Entity (VIE) because Kandi Vehicles, its wholly-owned subsidiary, is entitled to **100%** of its economic benefits, voting rights, and residual interests - Kandi New Energy is consolidated as a VIE because Kandi Vehicles absorbs a majority of its risks and rewards[96](index=96&type=chunk) [NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS](index=23&type=section&id=NOTE%207%20-%20NEW%20ACCOUNTING%20PRONOUNCEMENTS) This section details the adoption of new accounting standards, including ASC 606 (Revenue Recognition), ASU 2015-17 (Deferred Taxes), ASC 842 (Leases), ASU 2016-18 (Restricted Cash), and ASU 2017-04 (Goodwill Impairment); most adoptions had no material impact on the financial statements, with ASC 842 resulting in the recording of operating lease assets and liabilities - The company adopted ASC 606 (Revenue Recognition) and ASU 2015-17 (Deferred Taxes) in Q1 2018, with no material impact[99](index=99&type=chunk)[100](index=100&type=chunk) - ASC 842 (Leases) was adopted on January 1, 2019, resulting in **$140,000** in operating lease assets and liabilities, but no material impact on statements of operations or cash flows[101](index=101&type=chunk)[102](index=102&type=chunk) - ASU 2016-18 (Restricted Cash) was adopted in Q1 2018, with no material impact[105](index=105&type=chunk) - ASU 2017-04 (Goodwill Impairment) is effective after December 15, 2019, and is not expected to have a material impact[107](index=107&type=chunk) [NOTE 8 - CONCENTRATIONS](index=26&type=section&id=NOTE%208%20-%20CONCENTRATIONS) Kandi has significant customer and supplier concentrations; for the three months ended June 30, 2019, Jinhua Chaoneng Automobile Sales Co. Ltd. and Zhejiang Kuke Sports Technology Co., Ltd. were major customers, while Kandi Electric Vehicles Group Co., Ltd. and its subsidiaries remained a significant customer despite a decrease in sales percentage; Zhejiang Kandi Supply Chain Management Co., Ltd. and Massimo Motor Sports, LLC were major suppliers Major Customers (Three Months Ended June 30, 2019) | Major Customers | Sales % (2019) | Sales % (2018) | Trade Receivable % (2019) | Trade Receivable % (2018) | | :--------------------------------------------- | :------------- | :------------- | :------------------------ | :------------------------ | | Jinhua Chaoneng Automobile Sales Co. Ltd. | 36% | 36% | 23% | 22% | | Zhejiang Kuke Sports Technology Co., Ltd. | 27% | 4% | 8% | 2% | | Kandi Electric Vehicles Group Co., Ltd. and its subsidiaries | 17% | 29% | 58% | 66% | Major Suppliers (Three Months Ended June 30, 2019) | Suppliers | Purchases % (2019) | Purchases % (2018) | Accounts Payable % (2019) | Accounts Payable % (2018) | | :------------------------------------------- | :----------------- | :----------------- | :------------------------ | :------------------------ | | Kandi Supply Chain Management Co., Ltd. | 69% | N/A | 3% | N/A | | Motor Sports, LLC | 13% | N/A | 1% | N/A | [NOTE 9 - EARNINGS PER SHARE](index=28&type=section&id=NOTE%209%20-%20EARNINGS%20PER%20SHARE) Basic and diluted earnings per share are calculated using the weighted average number of shares outstanding; for the three and six months ended June 30, 2019, the company reported a basic and diluted net loss per share of **$(0.14)** and **$(0.22)**, respectively, compared to net income per share of **$0.03** and **$0.10** in the prior year Net (Loss) Income Per Share | Period | 2019 (Basic & Diluted) | 2018 (Basic & Diluted) | | :-------------------------- | :--------------------- | :--------------------- | | Three months ended June 30 | $(0.14) | $0.03 | | Six months ended June 30 | $(0.22) | $0.10 | - Potentially dilutive shares (**3,900,000**) were excluded from diluted EPS calculation for both periods as their effect would have been anti-dilutive[116](index=116&type=chunk) [NOTE 10 - ACCOUNTS RECEIVABLE](index=29&type=section&id=NOTE%2010%20-%20ACCOUNTS%20RECEIVABLE) Net accounts receivable increased to **$41,926,724** as of June 30, 2019, from **$34,274,728** at December 31, 2018; the allowance for doubtful accounts also saw a slight increase Accounts Receivable, Net | Date | Accounts Receivable | Less: Allowance for Doubtful Accounts | Accounts Receivable, Net | | :--------------- | :------------------ | :------------------------------------ | :----------------------- | | June 30, 2019 | $42,062,281 | $(135,557) | $41,926,724 | | December 31, 2018 | $34,394,738 | $(120,010) | $34,274,728 | [NOTE 11 - INVENTORIES](index=29&type=section&id=NOTE%2011%20-%20INVENTORIES) Net inventories increased to **$28,980,722** as of June 30, 2019, from **$21,997,868** at December 31, 2018, driven by increases across raw materials, work-in-progress, and finished goods Inventories, Net | Category | June 30, 2019 | December 31, 2018 | | :--------------- | :------------ | :---------------- | | Raw material | $8,781,174 | $7,741,264 | | Work-in-progress | $4,766,252 | $1,571,179 | | Finished goods | $16,334,406 | $13,526,126 | | Total inventories | $29,881,832 | $22,838,569 | | Less: provision for slowing moving inventories | $(901,110) | $(840,701) | | Inventories, net | $28,980,722 | $21,997,868 | [NOTE 12 - NOTES RECEIVABLE](index=30&type=section&id=NOTE%2012%20-%20NOTES%20RECEIVABLE) Notes receivable from unrelated parties decreased to **$0** as of June 30, 2019, from **$72,712** at December 31, 2018; notes receivable from the JV Company and related parties also decreased to **$1,456,537** from **$3,861,032** over the same period Notes Receivable Summary | Category | June 30, 2019 | December 31, 2018 | | :------------------------------------- | :------------ | :---------------- | | Notes receivable from unrelated parties | $0 | $72,712 | | Notes receivable from JV Company and related parties | $1,456,537 | $3,861,032 | [NOTE 13 - PROPERTY, PLANT AND EQUIPMENT](index=31&type=section&id=NOTE%2013%20-%20PROPERTY,%20PLANT%20AND%20EQUIPMENT) Net property, plant, and equipment decreased to **$78,839,301** as of June 30, 2019, from **$82,045,923** at December 31, 2018; the net book value pledged as collateral for bank loans was **$7,903,018** Property, Plant and Equipment, Net | Date | Property, Plant and Equipment, Net | | :--------------- | :--------------------------------- | | June 30, 2019 | $78,839,301 | | December 31, 2018 | $82,045,923 | - Depreciation expenses for the three months ended June 30, 2019, were **$1,876,569**, and for the six months, **$3,892,028**[130](index=130&type=chunk) [NOTE 14 - LAND USE RIGHTS](index=32&type=section&id=NOTE%2014%20-%20LAND%20USE%20RIGHTS) Net land use rights decreased slightly to **$11,603,594** as of June 30, 2019, from **$11,749,728** at December 31, 2018; the net book value pledged as collateral for bank loans was **$7,656,229** Land Use Rights, Net | Date | Land Use Rights, Net | | :--------------- | :------------------- | | June 30, 2019 | $11,603,594 | | December 31, 2018 | $11,749,728 | - Amortization expenses for land use rights were **$82,837** for the three months ended June 30, 2019, and **$166,599** for the six months ended June 30, 2019[132](index=132&type=chunk) [NOTE 15 - SHORT-TERM AND LONG-TERM BANK LOANS](index=32&type=section&id=NOTE%2015%20-%20SHORT-TERM%20AND%20LONG-TERM%20BANK%20LOANS) Short-term bank loans increased to **$32,189,466** as of June 30, 2019, from **$30,539,236** at December 31, 2018, with new loans from Agricultural Bank of China; long-term bank loans remained stable at **$28,693,778**; interest expenses for both short-term and long-term loans decreased for the three and six months ended June 30, 2019 Short-term and Long-term Bank Loans | Category | June 30, 2019 | December 31, 2018 | | :-------------- | :------------ | :---------------- | | Short-term loans | $32,189,466 | $30,539,236 | | Long-term loans | $28,693,778 | $28,794,136 | Interest Expenses on Bank Loans | Period | 2019 ($) | 2018 ($) | | :-------------------------- | :---------- | :---------- | | Three months ended June 30 | $429,355 | $433,914 | | Six months ended June 30 | $868,538 | $848,232 | [NOTE 16 - NOTES PAYABLE](index=33&type=section&id=NOTE%2016%20-%20NOTES%20PAYABLE) Notes payable increased to **$20,258,972** as of June 30, 2019, from **$12,787,619** at December 31, 2018; these include bank acceptance notes and commercial acceptance notes, often backed by restricted cash deposits Notes Payable Summary | Category | June 30, 2019 | December 31, 2018 | | :--------------- | :------------ | :---------------- | | Bank acceptance notes | $18,792,013 | $7,060,846 | | Commercial acceptance notes | $1,456,537 | $2,763,074 | | Other Notes Payable | $0 | $1,256,875 | | Total | $20,258,972 | $12,787,619 | - Restricted cash of **$1,323,992** and **$6,440,870** was held as collateral for notes payable as of June 30, 2019, and December 31, 2018, respectively[138](index=138&type=chunk) [NOTE 17 - TAXES](index=34&type=section&id=NOTE%2017%20-%20TAXES) Kandi Vehicles and Jinhua Ankao benefit from a reduced **15%** corporate income tax rate as High and New Technology Enterprises; the company's effective tax rate for the six months ended June 30, 2019, was a **6.02%** tax benefit on a reported loss, compared to a **2.59%** tax expense on income in the prior year; the Tax Cuts and Jobs Act (TCJA) accounting was completed by December 22, 2018, with no adjustments to provisional estimates - Kandi Vehicles and Jinhua Ankao qualify for a reduced **15%** corporate income tax rate[140](index=140&type=chunk) Effective Tax Rates (Six Months Ended June 30) | Year | Reported Loss/Income Before Taxes | Effective Tax Rate | | :--- | :-------------------------------- | :----------------- | | 2019 | $(12.5) million loss | 6.02% tax benefit | | 2018 | $5.2 million income | 2.59% tax expense | - The company completed accounting for the Tax Cuts and Jobs Act (TCJA) by December 22, 2018, with no adjustments to provisional estimates[148](index=148&type=chunk) [NOTE 18 - STOCK OPTIONS](index=36&type=section&id=NOTE%2018%20-%20STOCK%20OPTIONS) No stock option expenses were recognized for the three and six months ended June 30, 2019, as all expenses related to the 2015 grant of **4,900,000** options were fully amortized by May 29, 2018; as of June 30, 2019, **3,900,000** options remained outstanding at an exercise price of **$9.72** Stock Option Expenses | Period | 2019 | 2018 ($) | | :-------------------------- | :--- | :---------- | | Three months ended June 30 | $0 | $589,430 | | Six months ended June 30 | $0 | $1,586,926 | - As of June 30, 2019, **3,900,000** stock options were outstanding with a weighted average exercise price of **$9.72**[151](index=151&type=chunk) [NOTE 19 - STOCK AWARD](index=38&type=section&id=NOTE%2019%20-%20STOCK%20AWARD) The company granted restricted common stock and annual equity bonuses to directors, officers, and key employees; stock award expenses for the three and six months ended June 30, 2019, were **$1,282,733** and **$1,314,408**, respectively, recognized under General and Administrative Expenses Employee Stock Award Expenses | Period | 2019 ($) | 2018 ($) | | :-------------------------- | :---------- | :---------- | | Three months ended June 30 | $1,282,733 | $1,248,535 | | Six months ended June 30 | $1,314,408 | $1,280,210 | - On April 30, 2019, the Board authorized the grant of **238,600** shares of common stock to management and employees as compensation for past services[157](index=157&type=chunk) [NOTE 20 - INTANGIBLE ASSETS](index=38&type=section&id=NOTE%2020%20-%20INTANGIBLE%20ASSETS) Intangible assets, net, decreased to **$4,020,363** as of June 30, 2019, from **$4,328,127** at December 31, 2018; these assets, including trade names, customer relations, and patents, are amortized over their estimated useful lives, with amortization expenses of **$157,967** and **$317,470** for the three and six months ended June 30, 2019, respectively Intangible Assets, Net | Date | Intangible Assets, Net | | :--------------- | :--------------------- | | June 30, 2019 | $4,020,363 | | December 31, 2018 | $4,328,127 | Intangible Asset Amortization Expenses | Period | 2019 ($) | 2018 ($) | | :-------------------------- | :---------- | :---------- | | Three months ended June 30 | $157,967 | $167,563 | | Six months ended June 30 | $317,470 | $335,588 | [NOTE 21 - SUMMARIZED INFORMATION OF EQUITY METHOD INVESTMENT IN THE JV COMPANY](index=40&type=section&id=NOTE%2021%20-%20SUMMARIZED%20INFORMATION%20OF%20EQUITY%20METHOD%20INVESTMENT%20IN%20THE%20JV%20COMPANY) Kandi's investment in the JV Company is accounted for using the equity method; the JV Company reported significant net losses for the three and six months ended June 30, 2019, primarily due to national subsidy policy adjustments and ongoing restructuring, leading to a substantial share of loss for Kandi; Kandi's ownership in the JV Company decreased to **43.47%** after a loan conversion to equity by Geely - Kandi's ownership in the JV Company decreased to **43.47%** after Geely converted a RMB **314 million** loan into equity in March 2019, resulting in a gain from equity dilution of **$4,341,259** for the six months ended June 30, 2019[163](index=163&type=chunk)[164](index=164&type=chunk)[169](index=169&type=chunk)[261](index=261&type=chunk) JV Company Condensed Income Statement Information | Metric (Three Months Ended June 30) | 2019 (Unaudited) | 2018 (Unaudited) | | :---------------------------------- | :--------------- | :--------------- | | Net sales | $2,828,732 | $19,640,026 | | Net (loss) income | $(10,359,258) | $4,751,137 | | Kandi's share in net (loss) income | $(4,503,088) | $2,375,569 | JV Company Condensed Income Statement Information (Six Months Ended June 30) | Metric (Six Months Ended June 30) | 2019 (Unaudited) | 2018 (Unaudited) | | :-------------------------------- | :--------------- | :--------------- | | Net sales | $4,085,605 | $53,412,231 | | Net (loss) income | $(30,550,572) | $5,772,776 | | Kandi's share in net (loss) income | $(14,591,456) | $2,886,388 | - Sales to the JV Company and its subsidiaries decreased by **13.7%** for the three months and **20.7%** for the six months ended June 30, 2019, primarily due to the JV's restructuring and national subsidy policy adjustments[170](index=170&type=chunk) [NOTE 22 - COMMITMENTS AND CONTINGENCIES](index=44&type=section&id=NOTE%2022%20-%20COMMITMENTS%20AND%20CONTINGENCIES) Kandi has various commitments and contingencies, including guarantees for bank loans to the JV Company and other parties, and ongoing litigations; the company expects the likelihood of losses from certain guarantees to be remote or low, but the ultimate outcome of litigations remains uncertain and could negatively impact financial results Guarantees Provided to Other Parties | Guarantee Provided to | June 30, 2019 | December 31, 2018 | | :-------------------------------------- | :------------ | :---------------- | | Kandi Electric Vehicles Group Co., Ltd. | $0 | $7,271,247 | | Kandi Electric Vehicles Jiangsu Co., Ltd. | $7,282,685 | $7,271,247 | | Total | $7,282,685 | $14,542,494 | - The company is involved in shareholder class actions and derivative actions related to past financial statement restatements[181](index=181&type=chunk)[183](index=183&type=chunk)[185](index=185&type=chunk) - While the company believes claims are without merit, the ultimate outcome is uncertain and could have a negative financial impact due to defense costs and diversion of management resources[185](index=185&type=chunk) [NOTE 23 - SEGMENT REPORTING](index=47&type=section&id=NOTE%2023%20-%20SEGMENT%20REPORTING) Kandi operates as a single segment, with its revenue and long-lived assets primarily derived from and located in China; the company disaggregates revenue by geographical markets (Overseas and China) and major product types (EV parts and Off-road vehicles) Revenue by Geographical Markets (Three Months Ended June 30) | Geographical Market | 2019 Sales Revenue | 2018 Sales Revenue | | :------------------ | :----------------- | :----------------- | | Overseas | $5,050,136 | $663,178 | | China | $19,096,094 | $15,696,428 | | Total | $24,146,230 | $16,359,606 | Revenue by Major Products (Three Months Ended June 30) | Major Products | 2019 Sales Revenue | 2018 Sales Revenue | | :------------------ | :----------------- | :----------------- | | EV parts | $18,988,741 | $15,509,780 | | Off-road vehicles | $5,157,489 | $849,826 | | Total | $24,146,230 | $16,359,606 | [Note 24 - SUBSEQUENT EVENTS](index=47&type=section&id=Note%2024%20-%20SUBSEQUENT%20EVENTS) Subsequent events include the Board's approval of a **$20 million** stock repurchase program, the JV Company's receipt of **$127.7 million** in national EV subsidy payments, and Kandi Jiangsu's approval for dual production licenses for pure electric vehicles - The Board approved a stock repurchase program of up to **$20 million**, to be completed by the end of 2019[281](index=281&type=chunk) - The JV Company received **$127.7 million** in national subsidy payments for EV sales from 2015-2017[282](index=282&type=chunk) - Kandi Jiangsu, a JV subsidiary, received 'dual production licenses' from MIIT, qualifying it as a pure electric vehicle production manufacturer[283](index=283&type=chunk) - The JV Company decided to transfer all equity interests of Kandi Shanghai to Zhejiang Yiting Holding Co., Ltd. for approximately **$84 million** in early July 2019[189](index=189&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Kandi's financial performance and condition for the three and six months ended June 30, 2019, compared to the prior year, highlighting significant revenue growth driven by EV parts and off-road vehicles, but also detailing the substantial net loss primarily due to the JV Company's losses and increased operating costs, and covering critical accounting policies, liquidity, capital resources, and recent developments - Total revenue for the six months ended June 30, 2019, increased by **70.9%** to **$42.21 million**, driven by increased EV parts and off-road vehicle sales[212](index=212&type=chunk) - The company recorded a net loss of **$11.73 million** for the six months ended June 30, 2019, compared to a net income of **$5.10 million** in the prior year, largely due to the increased share of loss from the JV Company and higher operating costs[212](index=212&type=chunk) - The new national subsidy standard for New Energy Vehicles, which reduces national subsidies and cancels local subsidies, presents both challenges and opportunities, prompting the JV Company to develop new models independent of government subsidies[213](index=213&type=chunk) [Critical Accounting Policies and Estimates](index=49&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section outlines critical accounting policies and estimates, including those for accounts receivable, inventories, revenue recognition, stock options, warrants, convertible notes, and warranty liabilities; management emphasizes the significance of estimates in areas like net realizable value for receivables and inventories, and the five-step analysis for revenue recognition - Management's estimates for accounts receivable and inventories are critical, with allowances for doubtful accounts and provisions for slow-moving inventory impacting reported net realizable values[195](index=195&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) - Revenue recognition follows a five-step analysis, with revenue from EV products, EV parts, and off-road vehicles recognized when customer control is transferred, typically at delivery[201](index=201&type=chunk)[202](index=202&type=chunk) - Warranty policies for non-EV products involve price incentives and free parts, while EV products sold in China through the JV Company carry a three-year or **50,000-kilometer** manufacturer warranty[208](index=208&type=chunk)[209](index=209&type=chunk)[211](index=211&type=chunk) [Results of Operations](index=51&type=section&id=Results%20of%20Operations) Kandi's results of operations for Q2 and H1 2019 show significant revenue growth, particularly in off-road vehicles due to the SC Autosports acquisition; however, net income declined sharply, primarily driven by substantial losses from the JV Company, which was impacted by national subsidy policy adjustments and restructuring; gross margins improved, but increased operating costs, especially general and administrative expenses, also contributed to the net loss - Total revenue for the three months ended June 30, 2019, increased by **47.6%** to **$24.15 million**, and for the six months, by **70.9%** to **$42.21 million**[217](index=217&type=chunk)[246](index=246&type=chunk) - Net loss for the three months ended June 30, 2019, was **$7.32 million** (vs. **$1.37 million** net income in 2018), and for the six months, **$11.73 million** (vs. **$5.10 million** net income in 2018)[239](index=239&type=chunk)[266](index=266&type=chunk) - The share of loss from the JV Company was a major factor, with a **$(4.50) million** loss for Q2 2019 (vs. **$2.37 million** income in 2018) and a **$(14.45) million** loss for H1 2019 (vs. **$3.17 million** income in 2018), attributed to national subsidy policy adjustments and JV restructuring[235](index=235&type=chunk)[262](index=262&type=chunk) [Overview](index=51&type=section&id=Overview) Kandi experienced a **70.9%** revenue increase for the six months ended June 30, 2019, driven by EV parts sales, but reported a net loss of **$11.73 million**, a reversal from prior year's net income; this loss was primarily due to increased share of loss from the JV Company, impacted by national subsidy policy adjustments and restructuring, and higher operating costs from the Hainan facility Six Months Ended June 30, 2019 vs 2018 Overview | Metric | 2019 ($) | 2018 ($) | Change ($) | Change (%) | | :------------- | :------------ | :------------ | :------------ | :--------- | | Total Revenue | $42,214,690 | $24,695,513 | $17,519,177 | 70.9% | | Gross Profits | $7,338,591 | $3,403,963 | $3,934,628 | 115.6% | | Gross Margin | 17.4% | 13.8% | 3.6% pts | | | Net (Loss) Income | $(11,727,630) | $5,102,520 | $(16,830,150) | (329.8)% | - The significant net loss is attributed to the increased share of loss from the JV Company, resulting from national subsidy policy adjustments and pending restructuring, as well as increased operating costs from the Hainan facility[212](index=212&type=chunk) [Comparison of the Three Months Ended June 30, 2019 and 2018](index=52&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030,%202019%20and%202018) For the three months ended June 30, 2019, Kandi's revenue increased by **47.6%** to **$24.15 million**, driven by strong growth in both EV parts and off-road vehicle sales; despite a **104.2%** increase in gross profit and an improved gross margin of **17.4%**, the company reported a net loss of **$7.32 million**, a significant decline from the prior year's net income, primarily due to a substantial increase in selling and marketing expenses, general and administrative expenses, and a large share of loss from the JV Company Key Financials (Three Months Ended June 30) | Metric | 2019 ($) | 2018 ($) | Change ($) | Change (%) | | :-------------------------- | :------------ | :------------ | :------------ | :--------- | | Revenues, Net | 24,146,230 | 16,359,606 | 7,786,624 | 47.6% | | Gross Profit | 4,202,154 | 2,058,012 | 2,144,142 | 104.2% | | Gross Margin | 17.4% | 12.6% | 4.8% pts | | | Selling and marketing | (899,478) | (228,173) | (671,305) | 294.2% | | General and administrative | (5,623,798) | (3,861,263) | (1,762,535) | 45.6% | | Share of (loss) income after tax of the JV Company | (4,500,201) | 2,372,696 | (6,872,897) | (289.7)% | | Net (Loss) Income | (7,318,158) | 1,374,525 | (8,692,683) | (632.4)% | - Off-road vehicle sales revenue increased by **506.9%** to **$5,157,489**, largely due to additional sales from SC Autosports, acquired in July 2018[221](index=221&type=chunk) - Government grants increased by **1026.9%** to **$175,319**, primarily due to a new policy supporting companies with stable employment[233](index=233&type=chunk) [Comparison of the Six Months Ended June 30, 2019 and 2018](index=57&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030,%202019%20and%202018) For the six months ended June 30, 2019, Kandi's revenue surged by **70.9%** to **$42.21 million**, driven by a **45.1%** increase in EV parts sales and a **271.6%** increase in off-road vehicle sales, largely due to the SC Autosports acquisition; gross profit more than doubled, and gross margin improved to **17.4%**; however, the company reported a net loss of **$11.73 million**, a significant reversal from the prior year's net income, primarily due to a substantial increase in the share of loss from the JV Company and higher general and administrative expenses Key Financials (Six Months Ended June 30) | Metric | 2019 ($) | 2018 ($) | Change ($) | Change (%) | | :-------------------------- | :------------ | :------------ | :------------ | :--------- | | Revenues, Net | 42,214,690 | 24,695,513 | 17,519,177 | 70.9% | | Gross Profit | 7,338,591 | 3,403,963 | 3,934,628 | 115.6% | | Gross Margin | 17.4% | 13.8% | 3.6% pts | | | Selling and marketing | (1,517,481) | (976,398) | (541,083) | 55.4% | | General and administrative | (7,663,326) | (3,463,092) | (4,200,234) | 121.3% | | Share of (loss) income after tax of the JV Company | (14,449,359) | 3,167,751 | (17,617,110) | (556.1)% | | Net (Loss) Income | (11,727,630) | 5,102,520 | (16,830,150) | (329.8)% | - EV parts sales increased by **45.1%** to **$31,760,181**, and off-road vehicle sales increased by **271.6%** to **$10,454,509**, largely due to SC Autosports[248](index=248&type=chunk)[250](index=250&type=chunk) - Gain from equity dilution in JV was **$4,341,259**, primarily due to the March JV Loan to Equity Conversion, which reduced Kandi's equity interest to **43.47%**[261](index=261&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=63&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Kandi's working capital significantly improved to **$9.64 million** as of June 30, 2019; cash used in operating activities increased substantially to **$33.12 million**, while investing activities generated **$14.23 million**, primarily from equity transfer advance receipts; financing activities provided **$1.47 million**; the company expects further liquidity improvement from the JV Company equity transfer proceeds and national subsidy payments Working Capital Trend | Date | Working Capital | | :--------------- | :-------------- | | June 30, 2019 | $9,640,337 | | December 31, 2018 | $2,526,911 | Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2019 ($) | 2018 ($) | | :----------------- | :------------ | :------------ | | Operating | (33,118,904) | (165,499) | | Investing | 14,228,076 | (620,192) | | Financing | 1,474,078 | (5,804,126) | - The company expects to receive approximately **$75.2 million** from the sale of JV Company equity and approximately **$127.7 million** in national subsidy payments to the JV Company, which will significantly improve liquidity[275](index=275&type=chunk)[276](index=276&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=65&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that the item is not applicable to Kandi Technologies Group, Inc [Item 4. Controls and Procedures](index=65&type=section&id=Item%204.%20Controls%20and%20Procedures) As of June 30, 2019, Kandi's CEO and CFO concluded that the company's disclosure controls and procedures were effective; there were no material changes to internal control over financial reporting during the period - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2019[285](index=285&type=chunk) - No material changes to internal control over financial reporting occurred during the period[287](index=287&type=chunk) [PART II – OTHER INFORMATION](index=66&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section details Kandi's legal proceedings, risk factors, and other supplementary information [Item 1. Legal proceedings](index=66&type=section&id=Item%201.%20Legal%20proceedings) Kandi is involved in various legal matters, including shareholder class actions and derivative actions related to past financial statement restatements; while the company believes these claims are without merit, the ultimate outcome is uncertain and could negatively impact its financial condition or results of operations - The company is facing putative shareholder class actions and derivative actions in federal and Delaware courts, alleging federal securities law violations related to past financial statement restatements[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) - The company believes the claims are without merit but cannot estimate the possible loss, and litigation could have a material adverse effect due to defense costs and diversion of management resources[185](index=185&type=chunk) [Item 1A. Risk Factors](index=66&type=section&id=Item%201A.%20Risk%20Factors) Kandi's business growth is highly dependent on government subsidies and favorable policies for electric vehicles in China; changes in these policies, such as reduced national subsidies and canceled local subsidies, or increased competition from foreign EV manufacturers due to relaxed ownership limits, could materially and adversely affect the company's financial condition and operating results - The company's growth significantly depends on government subsidies and policies supporting new energy vehicles, which are subject to change and beyond its control[290](index=290&type=chunk)[291](index=291&type=chunk)[293](index=293&type=chunk) - Changes in China's import tariffs and the lifting of foreign ownership limits for NEV manufacturers (e.g., Tesla building a wholly-owned factory) could increase competition and diminish Kandi's pricing advantage[292](index=292&type=chunk) - The current subsidy standard reduces national subsidies and cancels local subsidies, significantly decreasing the total subsidy amount compared to 2018, which could adversely affect the company[293](index=293&type=chunk) [Item 6. Exhibits](index=67&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and XBRL-related documents [SIGNATURES](index=68&type=section&id=SIGNATURES) The report is signed by Hu Xiaoming, President and Chief Executive Officer, and Zhu Xiaoying, Interim Chief Financial Officer, on August 9, 2019, certifying its submission pursuant to the Securities Exchange Act of 1934

Kandi Technologies Group, Inc. (NASDAQ:KNDI) Q1 2019 Earnings Conference Call May 10, 2019 8:00 AM ET Company Participants Kewa Luo - IR, Manager Xiaoming Hu - Chairman, President & CEO Xiaoying Zhu - Interim CFO Conference Call Participants Arthur Porcari - Corporate Strategies Inc. Michael Pfeffer - Oppenheimer Marc Guest - Synergence Ventures Corp Walter Hill - Carty & Company Operator Good day, and welcome to Kandi Technologies First Quarter 2019 Financial Results Call. Today's conference is being recor ...

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 March 31, 2019 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) | --- | --- | |------------------------ ...

Kandi Technologies Group, Inc. (NASDAQ:KNDI) Q4 2018 Earnings Conference Call March 15, 2019 8:00 AM ET Company Participants Kewa Luo - IR Hu Xiaoming - CEO Zhu Xiaoying - CFO Conference Call Participants Ted Schwartz - TAS Associates Mark Kahnau - Swiss Liquid Future Mike Pfeffer - Oppenheimer Arthur Porcari - Corporate Strategies Operator Ladies and gentlemen, good day and welcome to the Kandi Technologies’ Full Year 2018 Financial Results Call. Today’s conference is being recorded. At this time, I would ...

PART I [Business](index=4&type=section&id=Item%201.%20Business) Kandi Technologies Group, Inc. develops and distributes EV parts, products, and off-road vehicles, focusing on its Geely JV and U.S. market entry - The Company's core business involves the development, production, and distribution of EV products, EV parts, and off-road vehicles[7](index=7&type=chunk) - A significant portion of the company's business is conducted through a 50/50 joint venture (the "JV Company") with a subsidiary of Geely, to which Kandi supplies EV parts[8](index=8&type=chunk)[253](index=253&type=chunk) Net Revenue Breakdown by Product and Geography (2016-2018) | Category | 2018 ($) | 2017 ($) | 2016 ($) | | :--- | :--- | :--- | :--- | | **By Geography** | | | | | Overseas | $12,741,570 | $4,817,517 | $4,919,054 | | China | $99,697,258 | $97,988,104 | $124,572,959 | | **Total** | **$112,438,828** | **$102,805,621** | **$129,492,013** | | **By Product** | | | | | EV parts | $99,099,312 | $97,355,828 | $120,079,312 | | Off-road vehicles | $13,339,516 | $5,449,793 | $5,694,410 | | EV products | - | - | $3,718,291 | - The company is pursuing U.S. market entry through its subsidiary SC Autosports, having received NHTSA approval for its EV Models EX3 and K22 in **February 2019**[19](index=19&type=chunk)[46](index=46&type=chunk) - A key strategic initiative is the Online Ride Sharing Service ("ORSS") or "Car-Share Program," which includes a five-year alliance aiming to provide **300,000** government-accredited vehicles[13](index=13&type=chunk)[17](index=17&type=chunk)[43](index=43&type=chunk) Major Customer Concentration | Major Customer | % of Sales (2018) | % of Sales (2017) | % of Sales (2016) | | :--- | :--- | :--- | :--- | | Kandi Electric Vehicles Group Co., Ltd. (JV) | **43%** | **90%** | **60%** | | Jinhua Chaoneng Automobile Sales Co. Ltd. | **33%** | **4%** | **30%** | [Risk Factors](index=12&type=section&id=Item%201A.%20Risk%20Factors) The company identifies numerous risks across its business operations, activities in China, and ownership of its securities [Risks Relating to Our Business](index=12&type=section&id=Risks%20Relating%20to%20Our%20Business) - Future growth is highly dependent on consumers' willingness to adopt EVs, as the market is new and rapidly evolving[50](index=50&type=chunk)[51](index=51&type=chunk) - The company faces risks from product liability claims or recalls, which could be expensive and damage its reputation[58](index=58&type=chunk)[59](index=59&type=chunk) - There is a high concentration of sales to a few customers, with major customers accounting for **76% of sales in 2018**. The loss of any of these customers, particularly the JV Company, could significantly impact results[77](index=77&type=chunk)[78](index=78&type=chunk) - The company depends on a limited number of suppliers, with the top two accounting for **42% of purchases in 2018**, creating supply chain risk[79](index=79&type=chunk) - The company's auditors are located in China and are not inspected by the Public Company Accounting Oversight Board (PCAOB), which may deprive investors of the benefits of such inspections and reduce confidence in financial reporting[85](index=85&type=chunk)[86](index=86&type=chunk)[88](index=88&type=chunk) [Risks Related to Doing Business in China](index=18&type=section&id=Risks%20Related%20to%20Doing%20Business%20in%20China) - The business is subject to risks from China's slowing economic growth, which could adversely affect sales and increase costs[89](index=89&type=chunk)[90](index=90&type=chunk) - Uncertainties within the Chinese legal system and changes in political and economic conditions could materially affect business operations and profitability[91](index=91&type=chunk)[92](index=92&type=chunk) - Fluctuations in the RMB to U.S. dollar exchange rate could adversely affect financial results reported in U.S. dollars[98](index=98&type=chunk) - Changes to or elimination of government subsidies for new energy vehicles could have a material adverse effect on the business, financial condition, and operating results[101](index=101&type=chunk)[102](index=102&type=chunk) [Risks associated with the export of Kandi electric vehicles to the United States](index=20&type=section&id=Risks%20associated%20with%20the%20export%20of%20Kandi%20electric%20vehicles%20to%20the%20United%20States) - The company faces risks of patent barriers and intellectual property litigation when entering the competitive international automobile market[104](index=104&type=chunk) - Strict environmental and product safety regulations in developed countries like the United States may require significant expenditures to ensure compliance[106](index=106&type=chunk)[107](index=107&type=chunk) - Investment in expanding into the U.S. market may negatively impact short-term financial performance due to high initial costs and potentially slow sales growth[108](index=108&type=chunk) [Risks Relating to Ownership of Our Securities](index=22&type=section&id=Risks%20Relating%20to%20Ownership%20of%20Our%20Securities) - The company's CEO, President, and Chairman, Mr. Hu Xiaoming, beneficially owns **27.0%** of the outstanding common stock, enabling him to exert significant influence on corporate actions[112](index=112&type=chunk)[113](index=113&type=chunk) - The company does not anticipate paying cash dividends in the foreseeable future, intending to retain all earnings to fund business operations[114](index=114&type=chunk) [Properties](index=24&type=section&id=Item%202.%20Properties) Kandi holds land use rights for industrial parks in China, operating manufacturing facilities, and has a new EV production facility in Haikou - The company owns and operates facilities in Jinhua Industrial Park and Yongkang City, Zhejiang Province, which are fully operational[132](index=132&type=chunk)[133](index=133&type=chunk) - A new EV production facility in Haikou City, Hainan, with a planned annual capacity of **100,000** EV products, has been completed[134](index=134&type=chunk)[135](index=135&type=chunk) - As of **December 31, 2018**, land use rights and property, plant, and equipment with net book values of **$7.8 million** and **$8.1 million**, respectively, were pledged as collateral for bank loans[128](index=128&type=chunk)[132](index=132&type=chunk) [Legal Proceedings](index=26&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in legal matters arising in the ordinary course of business, detailed in Note 23 of the financial statements - For detailed discussion of legal proceedings, the report refers to Note **23** - COMMITMENTS AND CONTINGENCIES in Item **8**[136](index=136&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=27&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ, and it does not anticipate paying cash dividends in the foreseeable future - The company's common stock trades on the NASDAQ Global Select Market under the symbol "KNDI"[140](index=140&type=chunk) - The company has never paid cash dividends and does not anticipate paying any in the foreseeable future, intending to retain all earnings for business operations[140](index=140&type=chunk) [Selected Financial Data](index=29&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents a five-year summary of key consolidated financial data, including **2018** net revenues of **$112.4 million** and a net loss of **$5.7 million** Selected Consolidated Financial Data (2014-2018, in thousands) | Metric | 2018 (in thousands) | 2017 (in thousands) | 2016 (in thousands) | 2015 (in thousands) | 2014 (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenues, Net** | $112,439 | $102,806 | $129,492 | $201,069 | $170,229 | | **Gross Profit** | $20,247 | $14,344 | $17,722 | $28,419 | $23,404 | | **(Loss) Income from Operations** | $(1,638) | $(26,082) | $(31,016) | $(3,952) | $5,244 | | **Net (Loss) Income** | $(5,695) | $(28,347) | $(6,511) | $14,665 | $12,271 | | **Net (Loss) Income Per Share, Diluted** | $(0.11) | $(0.59) | $(0.14) | $0.31 | $0.29 | | **Total Assets** | $428,829 | $438,333 | $439,698 | $371,469 | $323,073 | | **Total Liabilities** | $203,206 | $215,343 | $207,351 | $132,543 | $111,489 | | **Total Shareholders' Equity** | $225,623 | $222,990 | $232,347 | $238,926 | $211,585 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Kandi's **2018** net revenues increased to **$112.4 million**, with improved gross margin and narrowed net loss, despite increased JV losses and decreased working capital [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Comparison of Key Financial Metrics (2017 vs. 2018) | Metric | 2018 ($) | 2017 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Revenues, Net** | $112,438,828 | $102,805,621 | $9,633,207 | **9.4%** | | **Gross Profit** | $20,247,445 | $14,344,189 | $5,903,256 | **41.2%** | | **Gross Margin** | **18.0%** | **14.0%** | - | **4.0** p.p. | | **Loss from Operations** | $(1,638,348) | $(26,082,239) | $24,443,891 | **(93.7%)** | | **Net Loss** | $(5,694,699) | $(28,347,474) | $22,652,775 | **(79.9%)** | - The increase in **2018** revenue was primarily due to a **144.8%** increase in sales of off-road vehicles, largely from the newly acquired subsidiary SC Autosports[158](index=158&type=chunk)[165](index=165&type=chunk) - Research and development expenses decreased by **63.5%** to **$10.1 million** in **2018**, mainly due to the completion of R&D work for the EV Model K23 at the Hainan facility[172](index=172&type=chunk) - Government grants increased by **200.8%** to **$17.8 million** in **2018**, primarily from subsidies received from the Hainan provincial government to support the development of the K23 model[180](index=180&type=chunk) - The company's share of the after-tax loss from the JV Company increased by **54.8%** to **$17.9 million** in **2018**, up from a loss of **$11.6 million** in **2017**[182](index=182&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) Cash Flow Summary (2016-2018) | Cash Flow Activity | 2018 ($) | 2017 ($) | 2016 ($) | | :--- | :--- | :--- | :--- | | **Net cash from operating activities** | $13,587,621 | $(3,214,471) | $(49,526,543) | | **Net cash (used in)/from investing activities** | $(947,441) | $2,708,638 | $966,627 | | **Net cash (used in)/from financing activities** | $(5,297,724) | $(9,814,541) | $42,570,343 | - Working capital decreased significantly from **$53.7 million** in **2017** to **$2.5 million** in **2018**. This was primarily because Kandi converted **RMB 545 million** (**approx. $79 million**) of loans to the JV Company into an increased capital contribution[197](index=197&type=chunk) - The company has historically financed its operations through short-term commercial bank loans from Chinese banks, which are typically rolled over annually[198](index=198&type=chunk) [Financial Statements and Supplementary Data](index=44&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements for **2018** and **2017**, including balance sheets, income statements, and detailed notes - The independent registered public accounting firm, BDO China Shu Lun Pan Certified Public Accountants LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[227](index=227&type=chunk)[232](index=232&type=chunk) Consolidated Balance Sheet Highlights (as of Dec 31) | Account | 2018 ($) | 2017 ($) | | :--- | :--- | :--- | | Total Current Assets | $167,349,788 | $238,312,887 | | Total Assets | $428,829,264 | $438,332,844 | | Total Current Liabilities | $164,822,877 | $184,604,985 | | Total Liabilities | $203,206,390 | $215,342,532 | | Total Stockholders' Equity | $225,622,874 | $222,990,312 | - Note **22** provides summarized financial information for the equity method investment in the JV Company. For **2018**, the JV Company had net sales of **$122.5 million** and a net loss of **$36.3 million**. Kandi's **50%** share of this loss was **$18.2 million** before eliminations[426](index=426&type=chunk) - Note **23** discloses commitments and contingencies, including guarantees for bank loans provided to the JV Company and its subsidiary totaling **$14.5 million** as of **Dec 31, 2018**. It also details ongoing shareholder class action and derivative lawsuits[433](index=433&type=chunk)[441](index=441&type=chunk)[442](index=442&type=chunk) - Note **26** details the acquisitions of Jinhua An Kao and SC Autosports in **2018**, including purchase price, contingent consideration, and goodwill recorded[452](index=452&type=chunk)[463](index=463&type=chunk) [Controls and Procedures](index=98&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of **December 31, 2018** - Management concluded that the company's disclosure controls and procedures were effective as of **December 31, 2018**[476](index=476&type=chunk) - Based on the **2013** COSO framework, management concluded that the company's internal controls over financial reporting were effective as of **December 31, 2018**[481](index=481&type=chunk) - Control deficiencies noted in the **2017 10-K** report, including lack of adequate knowledge of US GAAP and inaccurate accounting for income taxes, were corrected by **December 31, 2018**[481](index=481&type=chunk)[483](index=483&type=chunk)[484](index=484&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=100&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section provides information on the company's board of directors and executive officers, including Audit Committee composition and Code of Ethics - Provides a list and biographical information for the company's executive officers and directors, including CEO Hu Xiaoming and Interim CFO Zhu Xiaoying[486](index=486&type=chunk)[488](index=488&type=chunk)[490](index=490&type=chunk) - The Audit Committee consists of three independent directors: Henry Yu (Chairman), Jerry Lewin, and Chen Liming. Both Mr. Yu and Mr. Lewin are qualified as "audit committee financial experts"[499](index=499&type=chunk) [Executive Compensation](index=105&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation primarily consists of base salary and equity awards, with CEO Hu Xiaoming's **2018** total compensation at **$826,268** Summary Compensation Table (2018) | Name and Principal Position | Salary ($) | Stock Awards ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Hu Xiaoming (CEO, President, Chairman) | 27,213 | 459,000 | 340,056 | 826,268 | | Mei Bing (Former CFO) | 180,000 | 35,000 | - | 215,000 | - As of **December 31, 2018**, CEO Hu Xiaoming held **900,000** unexercised stock options with an exercise price of **$9.72**, expiring on **May 28, 2025**[518](index=518&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=109&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details beneficial ownership of common stock, with CEO Hu Xiaoming as the largest beneficial owner controlling **27.01%** of outstanding shares - As of **March 8, 2019**, CEO Hu Xiaoming beneficially owned **13,907,449** shares, representing **27.01%** of the outstanding common stock[528](index=528&type=chunk) - All officers and directors as a group beneficially owned **14,734,277** shares, representing **28.61%** of the outstanding common stock[528](index=528&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=110&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company discloses related party transactions and confirms the independence of four non-employee directors under NASDAQ rules - The company has a formal policy for the review and approval of related-party transactions by the Board of Directors and Audit Committee[530](index=530&type=chunk)[532](index=532&type=chunk) - Four directors (Henry Yu, Chen Liming, Lin Yi, and Jerry Lewin) have been determined to be independent by the Board pursuant to NASDAQ rules[533](index=533&type=chunk) [Principal Accounting Fees and Services](index=111&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) The company paid its principal accountant **$470,000** in fees for fiscal year **2018**, primarily for audit services Accountant Fees (2017-2018) | Fee Type | 2018 ($) | 2017 ($) | | :--- | :--- | :--- | | Audit Fees | $420,000 | $370,000 | | All Other Fees | $50,000 | $5,000 | | **TOTAL FEES** | **$470,000** | **$375,000** | PART IV [Exhibits, Financial Statement Schedules](index=112&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits filed as part of the Annual Report on Form 10-K, including corporate documents and material contracts - A comprehensive list of exhibits filed with the report is provided, including corporate governance documents, material agreements, and required certifications[537](index=537&type=chunk)[538](index=538&type=chunk)