Kandi(KNDI) - 2021 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Kandi Technologies Group's unaudited condensed consolidated financial statements and detailed explanatory notes Condensed Consolidated Balance Sheets The balance sheets detail the company's financial position as of September 30, 2021, compared to December 31, 2020 Condensed Consolidated Balance Sheets (as of Sep 30, 2021 vs. Dec 31, 2020): | Metric | Sep 30, 2021 ($) | Dec 31, 2020 ($) | | :---------------------- | :--------------- | :--------------- | | Total Current Assets | 338,062,479 | 307,115,576 | | Total Non-Current Assets| 154,679,871 | 188,134,264 | | Total Assets | 492,742,350 | 495,249,840 | | Total Current Liabilities| 48,623,894 | 83,797,425 | | Total Non-Current Liabilities| 1,067,069 | 7,685,751 | | Total Liabilities | 49,690,963 | 91,483,176 | | Total Stockholders' Equity| 443,051,387 | 403,766,664 | - Working capital increased by $66,120,434 to $289,438,585 as of September 30, 2021, from $223,318,151 as of December 31, 2020[21] - Cash and cash equivalents decreased from $142,078,190 to $132,866,957, while restricted cash significantly increased from $442,445 to $23,903,418[21] - The Company held $54,207,258 in certificates of deposit as of September 30, 2021, with no comparable amount at December 31, 2020[21] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This section details the company's revenues, costs, and profitability for the three and nine months ended September 30, 2021 and 2020 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited): | Metric (Unaudited) | 3 Months Ended Sep 30, 2021 ($) | 3 Months Ended Sep 30, 2020 ($) | 9 Months Ended Sep 30, 2021 ($) | 9 Months Ended Sep 30, 2020 ($) | | :------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Revenues, Net | 16,795,712 | 18,717,218 | 62,649,301 | 44,526,718 | | Cost of Goods Sold | (14,046,041) | (14,806,322) | (49,447,497) | (35,911,785) | | Gross Profit | 2,749,671 | 3,910,896 | 13,201,804 | 8,614,933 | | (Loss) Income from Operations | (9,019,799) | (2,377,822) | 12,502,421 | 5,827,750 | | Net (Loss) Income | (7,868,819) | (1,458,263) | 26,657,935 | 1,022,137 | | Comprehensive (Loss) Income | (7,984,873) | 6,758,711 | 30,240,683 | 6,193,780 | | Net (Loss) Income Per Share, Basic and Diluted | (0.10) | (0.03) | 0.35 | 0.02 | Condensed Consolidated Statements of Changes in Stockholders' Equity This statement outlines changes in stockholders' equity for the nine months ended September 30, 2021 and 2020, reflecting stock issuances, net income/loss, and foreign currency adjustments Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited): | Metric (Unaudited) | Sep 30, 2021 ($) | Dec 31, 2020 ($) | | :-------------------------- | :--------------- | :--------------- | | Common Stock | 77,153 | 75,377 | | Additional Paid-in Capital | 448,591,602 | 439,549,338 | | Accumulated Deficit | (421,965) | (27,079,900) | | Accumulated Other Comprehensive Loss | (5,195,403) | (8,778,151) | | Total Stockholders' Equity | 443,051,387 | 403,766,664 | - Total stockholders' equity increased by $39,284,723 from December 31, 2020, to September 30, 2021, primarily due to net income and additional paid-in capital from stock issuances[9][13] - Accumulated deficit significantly reduced from $(27,079,900) to $(421,965), driven by net income[9][13] Condensed Consolidated Statements of Cash Flows This statement details cash flows from operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020 Condensed Consolidated Statements of Cash Flows (Unaudited): | Cash Flow Activity (Unaudited) | 9 Months Ended Sep 30, 2021 ($) | 9 Months Ended Sep 30, 2020 ($) | | :----------------------------- | :------------------------------ | :------------------------------ | | Net Cash Used in Operating Activities | (19,432,052) | (13,365,968) | | Net Cash Provided by Investing Activities | 30,061,352 | 46,247,972 | | Net Cash Provided by (Used in) Financing Activities | 2,630,000 | (25,770,794) | | Net Increase in Cash and Cash Equivalents and Restricted Cash | 13,259,300 | 7,111,210 | | Cash and Cash Equivalents and Restricted Cash at End of Period | 156,770,375 | 24,159,159 | - Cash used in operating activities increased to $19.43 million in 9M 2021 from $13.37 million in 9M 2020, primarily due to changes in other receivables and advances to suppliers[15][185] - Cash provided by investing activities decreased to $30.06 million in 9M 2021 from $46.25 million in 9M 2020, despite significant cash received from equity sale in the Affiliate Company ($47.61 million) and loan repayments ($31.69 million), offset by a large increase in certificates of deposit ($54.10 million)[15][186] - Cash provided by financing activities was $2.63 million in 9M 2021, a significant improvement from cash used of $25.77 million in 9M 2020, mainly due to proceeds from short-term loans[15][186] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of the company's financial statements, covering organization, accounting policies, liquidity, and key events - Kandi Technologies Group, Inc. is a Delaware-incorporated company, headquartered in Jinhua City, Zhejiang Province, China, operating as a leading producer of EV products, EV parts, and off-road vehicles[16][17] - The Company acquired all equity interests of Jiangxi Province Huiyi New Energy Co., Ltd. for RMB 50 million (approximately $7.7 million) in cash, aiming for vertical integration, with the transaction consummated on October 31, 2021[19][108] - The Company sold its remaining 22% equity interests in the Affiliate Company (Fengsheng Automotive Technology Group Co., Ltd.) to Geely for RMB 308 million (approximately $48 million), with the final payment received on September 10, 2021, freeing Kandi from non-compete provisions[23][124][190] - The Jinhua factory completed its relocation in April 2021, leading to a $48 million gain on disposal of long-lived assets recognized in Q2 2021 from the repurchase agreement of the old land use right[64][173] Key Financial Data from Notes (as of Sep 30, 2021 vs. Dec 31, 2020): | Metric | Sep 30, 2021 ($) | Dec 31, 2020 ($) | | :---------------------- | :--------------- | :--------------- | | Accounts Receivable, net| 43,998,755 | 38,547,137 | | Inventories | 27,346,751 | 19,697,383 | | Notes Receivable | 106,514 | 31,404,630 | | Other Receivables | 23,754,321 | 1,875,245 | | Advances to Suppliers | 12,506,543 | 36,733,182 | | Property, Plant & Equipment, net | 90,461,708 | 65,402,680 | | Intangible Assets, net | 2,770,152 | 3,232,753 | | Land Use Rights, net | 3,224,185 | 3,257,760 | | Other Long Term Assets | 11,946,463 | 32,307,484 | | Contingent Consideration Liability | 0 | 3,743,000 | - The Company's effective tax rate for the nine months ended September 30, 2021, was a tax expense of 24.85% on a reported income before taxes of approximately $35.5 million, compared to a tax expense of 56.99% on $2.4 million in 2020[69][182] - Tax benefit from tax holidays for the nine months ended September 30, 2021, was $5,745,354, contributing $0.08 to basic net income per share[75] 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 performance and condition, discussing key factors influencing revenues, expenses, and liquidity Critical Accounting Policies and Estimates Management's estimates and assumptions are crucial for financial statement preparation, with no material changes from the 2020 Form 10-K[113] Overview of Business and Operations Kandi Technologies operates primarily through its PRC subsidiaries, focusing on EV products, parts, and off-road vehicles, while expanding into intelligent transportation products and battery swap systems - Kandi Technologies is a Delaware holding company, conducting most operations through wholly-owned subsidiaries in the PRC and a Variable Interest Entity (VIE) for EV battery pack production licensing[114][200] - The company's primary business involves designing, developing, manufacturing, and commercializing EV products, EV parts, automatic power exchange equipment, off-road vehicles, and intelligent transportation systems[20][117] - The '300,000 government-accredited pure EV within 5 years rideshare' program, co-founded by Kandi, has begun trials, with 73 EVs delivered in Haikou and 109 in Shaoxing, utilizing Kandi's battery swap feature and system[120] - Kandi is expanding production of intelligent transportation products like Electric Scooters and Electric Self-Balancing Vehicles, with plans for a separate listing of Kandi Smart Battery Swap on the domestic A-share market[121] - The company received EPA clearance for its K23 and K27 EV models in November 2020 and is modifying them for potential U.S. consumers[122] - The sale of the remaining 22% equity in Fengsheng Automotive Technology Group Co., Ltd. to Geely frees Kandi from associated non-compete provisions, allowing it to pursue EV opportunities in China independently[124] Results of Operations - Three Months Ended September 30, 2021 and 2020 For the three months ended September 30, 2021, Kandi experienced a 10.3% decrease in net revenue and a 29.7% decrease in gross profit, with net loss significantly increasing to $7.87 million Three Months Ended September 30, 2021 vs. 2020 - Key Financials: | Metric | 2021 ($) | 2020 ($) | Change ($) | Change (%) | | :---------------------- | :-------------- | :-------------- | :-------------- | :-------------- | | Revenues, Net | 16,795,712 | 18,717,218 | (1,921,506) | (10.3)% | | Gross Profit | 2,749,671 | 3,910,896 | (1,161,225) | (29.7)% | | Gross Margin | 16.4% | 20.9% | (4.5) pp | | | Research & Development | (6,747,934) | (987,285) | (5,760,649) | 583.5% | | Selling & Marketing | (1,290,544) | (2,165,383) | 874,839 | (40.4)% | | General & Administrative| (3,733,230) | (3,212,209) | (521,021) | 16.2% | | Loss from Operations | (9,019,799) | (2,377,822) | (6,641,977) | 279.3% | | Net Loss | (7,868,819) | (1,458,263) | (6,410,556) | 439.6% | Three Months Ended September 30, 2021 vs. 2020 - Revenue by Product Type: | Product Type | 2021 Sales ($) | 2020 Sales ($) | Change ($) | Change (%) | | :----------------------------------------- | :------------- | :------------- | :------------ | :--------- | | EV parts | 3,166,740 | 8,438,958 | (5,272,218) | (62.5)% | | EV products | 328,772 | 515,128 | (186,356) | (36.2)% | | Off-road vehicles | 6,848,448 | 8,852,475 | (2,004,027) | (22.6)% | | Electric Scooters, Self-Balancing Scooters & parts | 6,275,645 | 910,657 | 5,364,988 | 589.1% | | Battery exchange equipment & service | 176,107 | 0 | 176,107 | - | - The decrease in gross margin to 16.4% (from 20.9%) was mainly due to a product mix shift towards lower-margin electric scooters and associated parts[138] - Interest income increased by 123.6% to $1.25 million, while interest expenses decreased by 92.0% to $63,368, primarily due to increased bank deposits and repayment of PRC subsidiaries' debt[144][145] - Government grants surged by 1545.2% to $220,967, attributed to financial support from Jinhua and Hainan local governments[147] Results of Operations - Nine Months Ended September 30, 2021 and 2020 For the nine months ended September 30, 2021, Kandi's net revenue increased by 40.7%, gross profit by 53.2%, and net income by 2508.1% to $26.66 million Nine Months Ended September 30, 2021 vs. 2020 - Key Financials: | Metric | 2021 ($) | 2020 ($) | Change ($) | Change (%) | | :---------------------- | :-------------- | :-------------- | :-------------- | :-------------- | | Revenues, Net | 62,649,301 | 44,526,718 | 18,122,583 | 40.7% | | Gross Profit | 13,201,804 | 8,614,933 | 4,586,871 | 53.2% | | Gross Margin | 21.1% | 19.3% | 1.8 pp | | | Research & Development | (31,937,436) | (2,777,426) | (29,160,010) | 1049.9% | | Selling & Marketing | (3,494,927) | (3,807,355) | 312,428 | (8.2)% | | General & Administrative| (13,522,925) | (10,186,135) | (3,336,790) | 32.8% | | Gain on Disposal of Long-Lived Assets | 48,255,905 | 13,983,733 | 34,272,172 | 245.1% | | Income from Operations | 12,502,421 | 5,827,750 | 6,674,671 | 114.5% | | Gain from Sale of Equity in Affiliate Co. | 17,734,733 | 0 | 17,734,733 | - | | Net Income | 26,657,935 | 1,022,137 | 25,635,798 | 2508.1% | Nine Months Ended September 30, 2021 vs. 2020 - Revenue by Product Type: | Product Type | 2021 Sales ($) | 2020 Sales ($) | Change ($) | Change (%) | | :----------------------------------------- | :------------- | :------------- | :------------ | :--------- | | EV parts | 16,215,586 | 23,034,841 | (6,819,255) | (29.6)% | | EV products | 1,061,078 | 769,034 | 292,044 | 38.0% | | Off-road vehicles | 17,940,647 | 19,452,160 | (1,511,513) | (7.8)% | | Electric Scooters, Self-Balancing Scooters & parts | 26,671,006 | 1,270,683 | 25,400,323 | 1999.0% | | Battery exchange equipment & service | 760,984 | 0 | 760,984 | - | - The substantial increase in net income was primarily due to the $48 million gain on disposal of long-lived assets from the Jinhua factory relocation, compared to $14 million in the prior year[173][183] - Research and development expenses increased significantly by 1049.9% to $31.94 million, reflecting increased investment in new products[169] - The gross margin improved to 21.1% (from 19.3%), mainly due to a higher concentration of sales from the Electric Scooters, Electric Self-Balancing Scooters, and associated parts product line, which has a higher gross margin[168] Liquidity and Capital Resources Kandi's liquidity improved with an increase in working capital and a shift from cash used in financing activities to cash provided Cash Flow Summary (Nine Months Ended September 30): | Metric | 2021 ($) | 2020 ($) | | :---------------------------------------- | :-------------- | :-------------- | | Net cash used in operating activities | (19,432,052) | (13,365,968) | | Net cash provided by investing activities | 30,061,352 | 46,247,972 | | Net cash provided by (used in) financing activities | 2,630,000 | (25,770,794) | | Net increase in cash and cash equivalents and restricted cash | 13,259,300 | 7,111,210 | | Cash and cash equivalents and restricted cash at end of period | 156,770,375 | 24,159,159 | - Working capital increased by $66,120,434 to $289,438,585 as of September 30, 2021, from $223,318,151 at December 31, 2020[187] - The Company received the final payment of RMB 150 million (approximately $23 million) from the real estate repurchase agreement in May 2021, following the relocation of its Jinhua factory[188] - The second half of the equity transfer payment of RMB 154 million (approximately $24 million) from the sale of the Affiliate Company equity was received on September 10, 2021[190] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company deems this item not applicable[192] Item 4. Controls and Procedures Management evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of September 30, 2021, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2021[192] - No material changes in internal control over financial reporting occurred during the period covered by the report[194] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal matters, including shareholder class actions and derivative lawsuits, with uncertain outcomes that could negatively impact financial condition or operations - The company faces ongoing shareholder class actions and derivative lawsuits, stemming from financial restatements in 2017 and allegations in a Hindenburg Research report in 2020[99][103] - A motion to dismiss a securities class action transferred to New York federal court was granted in October 2021, but the appeal period is still open[99] - The company cannot estimate possible losses from these litigations, which could result in substantial monetary judgments and negatively impact financial condition or results of operations[104] Item 1A. Risk Factors This section outlines significant risks, primarily related to the company's operations in the PRC, including uncertainties in government policies, regulatory oversight of VIE structures, and new data security and cybersecurity laws - Substantial uncertainties exist regarding PRC government policies, laws, and regulations, which could significantly impact Kandi's business operations in China[196][197] - The company's Variable Interest Entity (VIE) structure faces uncertainties under new laws, potentially leading to severe penalties or loss of control over operations[199][201][204][206] - New PRC data security and cybersecurity laws could impose significant compliance costs, restrict operations, or lead to delisting from U.S. markets if not adhered to[213][215][216][218][219] - The approval of the China Securities Regulatory Commission (CSRC) may be required for future offerings under PRC regulations, and obtaining such approval is uncertain, potentially limiting the company's ability to raise capital overseas[220][221][222][224] - U.S. regulators face difficulties in conducting investigations or collecting evidence within China, potentially hindering shareholder claims or regulatory oversight[225] - If the company's auditor's work papers become located in China and are not subject to PCAOB inspection, Kandi's ordinary shares could be delisted from the stock exchange under the Holding Foreign Companies Accountable Act[226][227] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including agreements, certifications, and XBRL documents, providing supplementary information to the financial report - Exhibits include the Supplementary Agreement II to the Share Transfer Agreement of Jinhua An Kao Power Technology Co., Ltd., certifications from principal executive and financial officers, and various Inline XBRL documents[229]