FORM 10-Q Filing Information This section details Kandi Technologies Group, Inc.'s Form 10-Q filing, including registrant status and the reason for delayed submission Registrant Information Kandi Technologies Group, Inc. filed its Form 10-Q for the quarter ended March 31, 2020, as an accelerated filer and smaller reporting company - Kandi Technologies Group, Inc. is an accelerated filer and smaller reporting company2 Common Stock Information (as of June 1, 2020) | Metric | Value | | :--- | :--- | | Shares Issued | 56,273,102 | | Shares Outstanding | 52,849,441 | | Par Value | $0.001 per share | Explanatory Note Kandi Technologies filed this 10-Q report after the original May 11, 2020 deadline, relying on a 45-day extension granted by the SEC due to the COVID-19 pandemic's impact - The company filed its Form 10-Q after the original due date of May 11, 2020, utilizing a 45-day SEC extension due to the COVID-19 pandemic's impact34 PART I — FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's analysis, market risk disclosures, and controls evaluation Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Kandi Technologies Group, Inc. and its subsidiaries, including the Balance Sheets, Statements of Operations and Comprehensive Income (Loss), Statements of Changes in Stockholders' Equity, and Statements of Cash Flows for the periods ended March 31, 2020 and December 31, 2019 (for balance sheet) or March 31, 2019 (for income statement, equity, and cash flow) Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $177,432,424 | $195,572,436 | | Total Long-Term Assets | $169,551,390 | $175,645,960 | | TOTAL ASSETS | $346,983,814 | $371,218,396 | | Total Current Liabilities | $116,760,998 | $131,873,739 | | Total Long-Term Liabilities | $17,441,300 | $21,487,730 | | TOTAL LIABILITIES | $134,202,298 | $153,361,469 | | TOTAL STOCKHOLDERS' EQUITY | $212,781,516 | $217,856,927 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Condensed Consolidated Statements of Operations Highlights (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues, Net | $6,372,424 | $18,068,460 | $(11,696,036) | (64.7)% | | Gross Profit | $1,167,259 | $3,136,437 | $(1,969,178) | (62.8)% | | Loss from Operations | $(3,418,022) | $(58,527) | $(3,359,495) | 5740.1% | | Total Other Income (Expense), Net | $2,075,989 | $(5,159,433) | $7,235,422 | (140.2)% | | Loss Before Income Taxes | $(1,342,033) | $(5,217,960) | $3,875,927 | (74.3)% | | Income Tax (Expense) Benefit | $(232,613) | $808,488 | $(1,041,101) | (128.8)% | | NET LOSS | $(1,574,646) | $(4,409,472) | $2,834,826 | (64.3)% | | Comprehensive Income (Loss) | $(5,097,711) | $994,556 | $(6,092,267) | (612.6)% | | Net Loss Per Share, Basic | $(0.03) | $(0.09) | $0.06 | (66.7)% | | Net Loss Per Share, Diluted | $(0.03) | $(0.09) | $0.06 | (66.7)% | Condensed Consolidated Statements of Changes in Stockholders' Equity Changes in Stockholders' Equity (Three Months Ended March 31, 2020) | Metric | December 31, 2019 | March 31, 2020 | | :--- | :--- | :--- | | Common Stock | $52,839 | $52,849 | | Treasury Stock | $(2,477,965) | $(2,477,965) | | Additional Paid-in Capital | $259,691,370 | $259,713,660 | | Accumulated Deficit | $(16,685,736) | $(18,260,382) | | Accumulated Other Comprehensive Income (Loss) | $(22,723,581) | $(26,246,646) | | TOTAL STOCKHOLDERS' EQUITY | $217,856,927 | $212,781,516 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(26,526,069) | $(14,037,641) | | Net cash provided by (used in) investing activities | $11,460,291 | $(300,704) | | Net cash provided by financing activities | $8,452,964 | $0 | | Net decrease in cash and cash equivalents and restricted cash | $(6,612,814) | $(14,338,345) | | Cash and cash equivalents and restricted cash at end of period | $9,753,893 | $8,461,674 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering organizational structure, liquidity, accounting policies, specific balance sheet and income statement items, and commitments and contingencies NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES - Kandi Technologies Group, Inc. is a leading producer and manufacturer of EV products, EV parts, and off-road vehicles in China14 - Due to COVID-19's impact on the EV market, the company is expanding into intelligent transportation products (e.g., Electric Scooters, Electric Self-Balancing Vehicles) by leveraging its power electric motor and battery pack advantages15 NOTE 2 - LIQUIDITY Working Capital and Cash Position | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Working Capital | $60,671,426 | $63,698,697 | | Cash and Cash Equivalents | $3,719,142 | $5,490,557 | | Restricted Cash | $6,034,751 | $11,022,078 | - Kandi Vehicles entered a real estate repurchase agreement for RMB 525 million ($75 million), with the first payment of RMB 244 million ($34.4 million) received on May 22, 20201797137 - Management believes current operations and borrowing resources are sufficient for capital requirements over the next twelve months18 NOTE 3 - BASIS OF PRESENTATION - Financial statements are prepared under U.S. GAAP for interim information and SEC rules, with interim results not necessarily indicative of full-year performance19 NOTE 4 - PRINCIPLES OF CONSOLIDATION - The company consolidates wholly-owned subsidiaries and accounts for its 22% investment in the Affiliate Company using the equity method202122 NOTE 5 - USE OF ESTIMATES - Financial statements involve management estimates and assumptions, and actual results may differ23 NOTE 6 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Certain reclassifications were made to the 2019 cash flow statements for consistent presentation, including grouping due from employees into other receivables and customer deposits/deferred income into other payables25 NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS - Adopted ASU 2018-2 and ASU 2018-13 in Q1 2020 with no material impact2627 - Evaluating ASU 2020-01, effective Q1 2021, with no expected material impact28 NOTE 8 - CONCENTRATIONS Major Customer Sales and Receivables (Three Months Ended March 31, 2020) | Major Customers | Sales (2020) | Sales (2019) | Trade Receivable (2020) | | :--- | :--- | :--- | :--- | | Customer A | 33% | 61% | 66% | | Customer B | 14% | 7% | 4% | Major Supplier Purchases and Payables (Three Months Ended March 31, 2020) | Major Suppliers | Purchases (2020) | Purchases (2019) | Accounts Payable (2020) | | :--- | :--- | :--- | :--- | | Zhejiang Kandi Supply Chain Management Co., Ltd. | 60% | 12% | 7% | | Supplier C | 27% | 20% | - | NOTE 9 - EARNINGS (LOSS) PER SHARE Earnings (Loss) Per Share (Three Months Ended March 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net Loss | $(1,574,646) | $(4,409,472) | | Weighted Average Shares Outstanding Basic | 52,361,077 | 51,565,287 | | Weighted Average Shares Outstanding Diluted | 52,361,077 | 51,565,287 | | Loss per Share, Basic | $(0.03) | $(0.09) | | Loss per Share, Diluted | $(0.03) | $(0.09) | - Approximately 3.9 million options were excluded from diluted net loss per share calculation due to their exercise price being above the average market price and the company's operating loss32 NOTE 10 - ACCOUNTS RECEIVABLE Accounts Receivable, Net | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Accounts receivable | $54,146,409 | $61,436,514 | | Less: allowance for doubtful accounts | $(250,325) | $(254,665) | | Accounts receivable, net | $53,896,084 | $61,181,849 | NOTE 11 - INVENTORIES Inventories Breakdown | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Raw material | $12,322,568 | $12,127,957 | | Work-in-progress | $7,010,026 | $4,545,736 | | Finished goods | $10,839,957 | $11,062,873 | | Inventories | $30,172,551 | $27,736,566 | NOTE 12 - NOTES RECEIVABLE - Notes receivable from unrelated parties decreased from $42.49 million at December 31, 2019, to $0 at March 31, 2020, due to collections and reclassification to other receivables38 NOTE 13 - OTHER RECEIVABLES Other Receivables Breakdown | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Amount due from unrelated party for equity transfer of the Affiliate Company | $30,475,760 | $0 | | Loan to third party | $12,242,967 | $3,577,145 | | Others | $1,547,003 | $1,442,826 | | Total other receivables | $44,265,730 | $5,019,971 | NOTE 14 - PROPERTY, PLANT AND EQUIPMENT, NET Property, Plant and Equipment, Net | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | At cost | $118,666,089 | $120,719,212 | | Less: Accumulated depreciation | $(47,274,840) | $(46,311,354) | | Property, plant and equipment, net | $71,391,249 | $74,407,858 | - Depreciation expenses for Q1 2020 were $1,780,152, down from $2,015,459 in Q1 201942 NOTE 15 - INTANGIBLE ASSETS Intangible Assets, Net | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Gross carrying amount | $5,283,030 | $5,360,827 | | Less: Accumulated amortization | $(1,840,517) | $(1,706,055) | | Intangible assets, net | $3,442,513 | $3,654,772 | - Amortization expenses for Q1 2020 were $154,856, down from $159,503 in Q1 201945 NOTE 16 - LAND USE RIGHTS, NET Land Use Rights, Net | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cost of land use rights | $14,480,760 | $14,731,847 | | Less: Accumulated amortization | $(3,479,807) | $(3,459,032) | | Land use rights, net | $11,000,953 | $11,272,815 | - Amortization expenses for Q1 2020 were $80,961, down from $83,762 in Q1 201947 NOTE 17 - SHORT-TERM AND LONG-TERM BANK LOANS Bank Loans Summary | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Short-term loans | $33,861,956 | $25,980,364 | | Long-term bank loans - current portion | $13,544,782 | $13,779,641 | | Long-term bank loans | $14,109,148 | $14,353,792 | | Total Long-term loans (current and noncurrent) | $27,653,930 | $28,133,433 | - Interest expenses for short-term and long-term bank loans increased by 123.8% to $842,049 in Q1 2020 from $439,183 in Q1 201950 NOTE 18 - TAXES - Kandi Vehicles and Jinhua Ankao benefit from a reduced 15% corporate income tax rate as HNTE companies, while other entities face a 25% rate53 Effective Tax Rate and Income Tax (Expense) Benefit (Three Months Ended March 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Effective Tax Rate | 17.33% (tax expense) | 15.49% (tax benefit) | | Income Tax (Expense) Benefit | $(232,613) | $808,488 | - The company had no liability for unrecognized tax benefits as of March 31, 2020, and holds significant NOLs from PRC and Hong Kong entities5758 NOTE 19 - LEASES Operating Lease Information (as of March 31, 2020) | Metric | Amount | | :--- | :--- | | Right-of-use asset | $149,614 | | Lease liability | $151,204 | | Operating lease cost (Q1 2020) | $33,000 | NOTE 20 - CONTINGENT CONSIDERATION LIABILITY Contingent Consideration Liability | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Contingent consideration liability | $1,405,000 | $5,197,000 | - The decrease in contingent consideration liability was primarily due to a lower forecast for SC Autosports' third-year net income and a decrease in the company's stock price in Q1 202068 NOTE 21 - STOCK AWARD Employee Stock Award Expenses (Three Months Ended March 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Employee stock award expenses | $22,925 | $31,675 | - Stock awards are granted to Board members, management, and consultants under the 2008 Plan, with fair value based on the common stock's closing price7374 NOTE 22 - SUMMARIZED INFORMATION OF EQUITY METHOD INVESTMENT IN THE AFFILIATE COMPANY Affiliate Company Investment and Performance (Three Months Ended March 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Company's share in net loss of Affiliate Company | $(1,102,770) | $(9,949,158) | | Sales to Affiliate Company | $0 | $1,733,497 | | Net amount due from Affiliate Company (as of March 31) | $20,026,310 | N/A (Dec 31, 2019: $31,330,763) | - The decrease in share of loss from the Affiliate Company is due to reduced operating expenses and Kandi's decreased equity interest (from 43.47% to 22%) after equity dilution and transfer in 20197881128 NOTE 23 - COMMITMENTS AND CONTINGENCIES - Kandi is a guarantor for a $2.8 million loan to Nanlong Group Co., Ltd. (NGCL), with expected remote likelihood of loss85 - Kandi settled its guarantor liability for Zhejiang Shuguang Industrial Co., Ltd.'s (ZSICL) $4.1 million loan by paying $3.0 million, with ZSICL expected to reimburse the remainder86 - Shareholder class actions filed against Kandi were dismissed in September 2019, but a derivative action in Delaware Court of Chancery had a motion to dismiss denied in April 2020, and a Special Litigation Committee investigation is ongoing89909192 NOTE 24 - SEGMENT REPORTING - The company operates as a single segment, with primary geographical markets in China and the US95 Sales Revenue by Geographical Market (Three Months Ended March 31) | Market | 2020 Sales Revenue | 2019 Sales Revenue | Change (%) | | :--- | :--- | :--- | :--- | | Overseas | $2,130,824 | $5,222,525 | (59.2)% | | China | $4,241,600 | $12,845,935 | (67.0)% | | Total | $6,372,424 | $18,068,460 | (64.7)% | NOTE 25 - SUBSEQUENT EVENT - Received first payment of RMB 244 million ($34.4 million) on May 22, 2020, from the real estate repurchase agreement97 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2020, compared to the prior-year period, including an overview of performance, liquidity, and recent developments Forward-Looking Statements - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially9799 Critical Accounting Policies and Estimates - No material changes in critical accounting policies and estimates from the 2019 Form 10-K100 Overview Q1 2020 Financial Overview | Metric | Q1 2020 | Q1 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $6,372,424 | $18,068,460 | (64.7)% | | Gross Profit | $1,167,259 | $3,136,437 | (62.8)% | | Gross Margin | 18.3% | 17.4% | +0.9 pp | | Net Loss | $(1,574,646) | $(4,409,472) | (64.3)% | - COVID-19 significantly impacted the EV market, prompting the company to expand into intelligent transportation products (e.g., Electric Scooters, Electric Self-Balancing Vehicles) by leveraging its power electric motor and battery pack advantages102103 - The company originally planned to export 2,000-5,000 EV units to the U.S. in 2020, but this plan is subject to adjustment due to the COVID-19 pandemic104 Results of Operations Revenue Revenue by Product Type (Three Months Ended March 31) | Product Type | 2020 Revenue | 2019 Revenue | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | EV parts | $2,081,335 | $12,771,440 | $(10,690,105) | (83.7)% | | EV products | $255,819 | $0 | $255,819 | N/A | | Off-road vehicles | $4,035,270 | $5,297,020 | $(1,261,750) | (23.8)% | | Total | $6,372,424 | $18,068,460 | $(11,696,036) | (64.7)% | - The decrease in revenue was mainly due to the COVID-19 outbreak and lockdown policies in China affecting production and demand106 Cost of goods sold Cost of Goods Sold (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cost of goods sold | $5,205,165 | $14,932,023 | $(9,726,858) | (65.1)% | Gross profit Gross Profit and Margin by Product (Three Months Ended March 31) | Product Type | 2020 Gross Profit | 2020 Margin % | 2019 Gross Profit | 2019 Margin % | | :--- | :--- | :--- | :--- | :--- | | EV parts | $223,205 | 10.7% | $1,961,874 | 15.4% | | EV products | $14,432 | 5.6% | $0 | - | | Off-road vehicles | $929,622 | 23.0% | $1,174,563 | 22.2% | | Total | $1,167,259 | 18.3% | $3,136,437 | 17.4% | - Gross margin increased due to higher unit prices for parts from SC Autosports and the introduction of higher-margin ATVs117 Research and development Research and Development Expenses (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | R&D expenses | $640,240 | $537,433 | $102,807 | 19.1% | Selling and marketing Selling and Marketing Expenses (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Selling and marketing expenses | $878,306 | $618,003 | $260,303 | 42.1% | General and administrative expenses General and Administrative Expenses (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | General and administrative expenses | $3,066,735 | $2,039,528 | $1,027,207 | 50.4% | - Increase largely due to depreciation of Hainan facilities' idle capacity charged to administrative expenses121 Interest income Interest Income (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Interest income | $338,944 | $252,404 | $86,540 | 34.3% | Interest expenses Interest Expenses (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Interest expenses | $982,934 | $439,183 | $543,751 | 123.8% | Change in fair value of contingent consideration Change in Fair Value of Contingent Consideration (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Gain from change in fair value of contingent consideration | $3,792,000 | $89,000 | $3,703,000 | 4160.7% | Government grants Government Grants (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Government grants | $11,099 | $47,724 | $(36,625) | (76.7)% | Gain from equity dilution in the Affiliate Company Gain from Equity Dilution in Affiliate Company (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Gain from equity dilution | $0 | $4,365,390 | $(4,365,390) | (100.0)% | Share of loss after tax of the Affiliate Company Share of Loss After Tax of Affiliate Company (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Share of loss after tax | $(1,102,770) | $(9,949,158) | $8,846,388 | (88.9)% | Other income, net Other Income, Net (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Other income, net | $19,650 | $474,390 | $(454,740) | (95.9)% | Income Taxes Income Tax (Expense) Benefit (Three Months Ended March 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Effective Tax Rate | 17.33% (tax expense) | 15.49% (tax benefit) | | Income Tax (Expense) Benefit | $(232,613) | $808,488 | Net loss Net Loss (Three Months Ended March 31) | Metric | 2020 | 2019 | Change (Amount) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(1,574,646) | $(4,409,472) | $2,834,826 | (64.3)% | Liquidity and Capital Resources Cash Flow Summary (Three Months Ended March 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(26,526,069) | $(14,037,641) | | Net cash provided by (used in) investing activities | $11,460,291 | $(300,704) | | Net cash provided by financing activities | $8,452,964 | $0 | | Net decrease in cash and cash equivalents and restricted cash | $(6,612,814) | $(14,338,345) | Working Capital | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Working Capital | $60,671,426 | $63,698,697 | - The company expects to use proceeds from the $75 million real estate repurchase agreement to fund land use acquisition, factory construction, growth initiatives, and general corporate purposes137 Contractual Obligations and Off-balance Sheet Arrangements Recent Development Activities - Kandi is expanding into intelligent transportation products (e.g., Electric Scooters, Electric Self-Balancing Vehicles) by leveraging its power electric motor and battery pack advantages140 - Kandi has partnered with Hangzhou Chic Intelligent Technology Co., Ltd. to produce balance scooters using Kandi's power train system141 Item 3. Quantitative and Qualitative Disclosures about Market Risk This item is not applicable to the company - This item is not applicable to the company142 Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures - CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2020144 Changes in Internal Control over Financial Reporting - No material changes to internal control over financial reporting during the reporting period146 PART II — OTHER INFORMATION This section covers legal proceedings, lists filed exhibits, and includes the official signatures for the Form 10-Q Item 1. Legal Proceedings The company is involved in legal matters arising in the ordinary course of business, with details referenced in Note 23 - The company is involved in legal matters, with details in Note 23. No other significant legal matters or pending litigation are currently known to materially affect financial results148 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the land repurchase agreement, employment agreement for the new CFO, certifications, and XBRL taxonomy documents - Exhibits include the land repurchase agreement, new CFO employment agreement, certifications, and XBRL documents149 SIGNATURES The report is signed by Hu Xiaoming, President and Chief Executive Officer, and Jehn Ming Lim, Chief Financial Officer, on June 5, 2020 - Report signed by Hu Xiaoming (CEO) and Jehn Ming Lim (CFO) on June 5, 2020152
Kandi(KNDI) - 2020 Q1 - Quarterly Report