Kandi(KNDI) - 2023 Q4 - Annual Report

PART I Item 1. Business The company, a Delaware holding company operating in the PRC and U.S., has shifted its focus to pure electric off-road vehicles, targeting a leading market position - Kandi Technologies is a Delaware holding company, with most operations conducted through its PRC and U.S. subsidiaries[14] - The company shifted its strategy to focus on pure electric off-road vehicles due to the unhealthy development stage of China's EV market, aiming for a leading position within three years[15][22] - The largest market for pure electric off-road vehicles is the United States, where Kandi is expanding its sales through its subsidiary SC Autosports and the recent acquisition of Northern Group, Inc. (NGI)[22][26] - The company is reincorporating from a Delaware company to a British Virgin Islands company (Kandi BVI) in the second quarter of 2024, a move approved by shareholders on December 27, 2023[21] Net Revenues by Geographical Market (2023 vs. 2022) | Primary geographical markets | 2023 Sales Revenue | 2022 Sales Revenue | | :--------------------------- | :----------------- | :----------------- | | U.S. and other countries/areas | $93,979,363 | $65,871,112 | | China | $29,619,869 | $51,941,937 | | Total | $123,599,232 | $117,813,049 | Net Revenues by Major Products and Services (2023 vs. 2022) | Major products and Services | 2023 Sales Revenue | 2022 Sales Revenue | | :----------------------------------------------- | :----------------- | :----------------- | | EV parts | $5,807,973 | $8,964,094 | | EV products | $1,214,786 | $7,926,233 | | Off-road vehicles and associated parts | $106,983,891 | $70,622,278 | | Electric Scooters, Electric Self-Balancing Scooters and associated parts | $683,952 | $4,616,683 | | Battery exchange equipment and Battery exchange service | $674,927 | $1,691,486 | | Lithium-ion cells | $7,994,227 | $23,992,275 | | Commission income | $239,476 | $- | | Total | $123,599,232 | $117,813,049 | Item 1A. Risk Factors The company faces significant risks related to market adoption, competition, product liability, intellectual property, extensive China-specific uncertainties, and changes from its BVI reincorporation - Future growth is highly dependent on consumer adoption of EVs and pure electric off-road vehicles, a market characterized by rapid technological changes and evolving regulations[70] - Operations in China are subject to substantial uncertainties and restrictions from the PRC government's political and economic policies, including potential intervention and changes in laws and regulations[104] - The company's reincorporation to a British Virgin Islands entity will alter shareholder rights and corporate governance, potentially offering fewer protections compared to a U.S. incorporated company[181][188] Item 1B. Unresolved Staff Comments. There are no unresolved staff comments to report - The company has no unresolved staff comments[199] Item 1C. Cybersecurity. The company's cybersecurity risk management program is overseen by senior management and the Audit Committee, focusing on third-party risks, assessments, and incident response - Cybersecurity risk management is overseen by the Director of Internal Control and CFO, with the Audit Committee providing board-level oversight[199] - The cybersecurity strategy includes managing third-party risks, conducting periodic assessments and testing, implementing controls for incident identification and escalation, deploying technical safeguards, and establishing incident response plans[200][202][203][204] Item 2. Properties. The company holds land use rights and owns fully operational facilities in China and the U.S. to support its manufacturing and assembly operations - Kandi holds granted land use rights in China, similar to life estates, for industrial and other uses, with terms up to 50 years[201][205][206] - The company owns and operates facilities in Jinhua, Yongkang, Haikou, and Xinyu in China, and in Dallas and Garland, Texas, in the U.S., all reported as fully operational[207][210][212][215][216][218] Granted Land Use Rights (as of December 31, 2023) | Area | Size (sqm) | Validity Period | Certificate Number | | :------------------------------- | :--------- | :-------------------------- | :----------------- | | Jinhua New Energy Vehicle Town | 58,587 | Oct 22, 2020 - Oct 22, 2070 | 33201931343 | | Zhejiang Qiaoxia Industrial Park | 5,864 | Apr 03, 2001 - Apr 03, 2051 | 574-26-36 | | Zhejiang Qiaoxia Industrial Park | 3,851 | Jan 21, 2018 - Jan 20, 2068 | 3310-1414461 | | Xinyu South of Tantang Road | 72,720 | Jun 15, 2022 - Dec 2, 2071 | 36006007453 | Key Facilities and Status (as of December 31, 2023) | Location | Description | Area (sqm/sqft) | Status | | :---------------- | :--------------- | :-------------- | :---------------- | | Jinhua, Zhejiang | Factories | 84,717 | Fully operational | | | Office | 6,195 | Fully operational | | | Staff quarters | 5,643 | Fully operational | | Yongkang, Zhejiang| Factories | 11,054 | Fully operational | | Haikou, Hainan | Factories | 145,000 | Fully operational | | Xinyu, Jiangxi | Factories | 15,795 | Fully operational | | Dallas, Texas | Assembly area | 43,524 | Fully operational | | Garland, Texas | Warehouse area | 74,758 | Fully operational | Item 3. Legal Proceedings. The company is involved in ongoing shareholder litigation with uncertain outcomes and recently settled an SEC administrative order for $710,000 - The company is involved in ongoing shareholder class actions and derivative actions related to past financial restatements and allegations of misconduct[220][104] - The company believes these claims are without merit and defends itself vigorously, but the ultimate outcome is uncertain and could have a negative financial impact[220][489] - Kandi settled an SEC administrative order for $710,000 in September 2023, related to alleged violations concerning statements about selling highway passenger EVs in the U.S[490] Item 4. Mine Safety Disclosures. This item is not applicable to Kandi Technologies Group, Inc - Mine Safety Disclosures are not applicable to the company[222] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase Equity Securities. Kandi's common stock trades on NASDAQ under 'KNDI', with the company retaining earnings for expansion and recently initiating a share repurchase program - Kandi's common stock has been trading on the NASDAQ Global Select Market under the symbol 'KNDI' since January 2, 2014[223] - As of March 8, 2024, there were 45 shareholders of record[223] - The company has never paid cash dividends and does not anticipate paying them in the foreseeable future, intending to retain all earnings for business operations and expansion[224] Shares Repurchased (December 2023) | Period | Total number of shares purchased | Average price per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares yet to be purchased under the plans or programs | | :-------------------------- | :------------------------------- | :---------------------- | :------------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------------------- | | December 1 to December 31, 2023 | 184,566 | $2.75 | 184,566 | $29,492,444 | | Total | 184,566 | $2.75 | 184,566 | $29,492,444 | Securities Authorized for Issuance under Equity Compensation Plans (as of December 31, 2023) | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :------------------------------------------ | :-------------------------------------------------------------------------------------------- | :------------------------------------------------------------------------------ | :------------------------------------------------------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by security holders | 4,301,358 | $3.7 | 1,152,082 | | Totals | 4,301,358 | $3.7 | 1,152,082 | Item 6. [Reserved] This item is reserved and contains no content Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The company's strategic shift to off-road vehicles drove a 4.9% revenue increase to $123.6 million and a return to profitability with $1.7 million in net income for 2023 - Kandi Technologies is a Delaware holding company, with operations primarily through PRC and U.S. subsidiaries, focusing on pure electric off-road vehicles[230][231] - The increase in net income was primarily due to higher gross profit from a greater concentration of sales from off-road vehicles with larger gross margins[263] - Working capital increased by $19.1 million to $266.9 million as of December 31, 2023[268] Key Financial Highlights (2023 vs. 2022) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | Change ($) | Change (%) | | :--------------- | :---------------------- | :---------------------- | :----------- | :--------- | | Revenues, Net | $123,599,232 | $117,813,049 | $5,786,183 | 4.9% | | Gross Profit | $41,370,023 | $19,517,726 | $21,852,297 | 112.0% | | Net Income (Loss)| $1,669,767 | $(12,851,024) | $14,520,791 | (113.0)% | Cash Flow Summary (2023 vs. 2022) | Cash Flow Activity | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :----------------------------- | :---------------------- | :---------------------- | | Net cash (used in) provided by operating activities | $(101,160,636) | $31,478,911 | | Net cash provided by (used in) investing activities | $32,278,828 | $(35,031,115) | | Net cash provided by (used in) financing activities | $14,828,688 | $(4,333,088) | | Net decrease in cash and cash equivalents and restricted cash | $(54,053,120) | $(7,885,292) | | Cash and cash equivalents and restricted cash at end of period | $93,630,068 | $151,040,271 | Item 7A. Quantitative and Qualitative Disclosures about Market Risk. This item is not applicable to Kandi Technologies Group, Inc - Quantitative and Qualitative Disclosures about Market Risk are not applicable to the company[292] Item 8. Financial Statements and Supplementary Data. This section presents the audited consolidated financial statements for 2023 and 2022, prepared under U.S. GAAP and affirmed by independent auditors - The consolidated financial statements for 2023 and 2022 are presented in conformity with U.S. GAAP[296][317][361] - Independent auditors ARK Pro CPA & Co (for 2023) and Kreit & Chiu CPA LLP (for 2022) issued unqualified opinions on the financial statements and the effectiveness of internal control over financial reporting[296][297][316][317] Consolidated Balance Sheets (as of December 31, 2023 and 2022) | Item | December 31, 2023 ($) | December 31, 2022 ($) | | :------------------------------------ | :-------------------- | :-------------------- | | TOTAL CURRENT ASSETS | 343,548,138 | 329,322,973 | | TOTAL NON-CURRENT ASSETS | 151,908,461 | 153,659,303 | | TOTAL ASSETS | 495,456,599 | 482,982,276 | | TOTAL CURRENT LIABILITIES | 76,673,629 | 81,505,848 | | TOTAL NON-CURRENT LIABILITIES | 12,272,878 | 3,783,457 | | TOTAL LIABILITIES | 88,946,507 | 85,289,305 | | TOTAL STOCKHOLDERS' EQUITY | 406,510,092 | 397,692,971 | Consolidated Statements of Operations and Comprehensive Income (Loss) (2023 vs. 2022) | Item | 2023 ($) | 2022 ($) | | :------------------------------------ | :------------ | :------------ | | REVENUES, NET | 123,599,232 | 117,813,049 | | GROSS PROFIT | 41,370,023 | 19,517,726 | | LOSS FROM OPERATIONS | (13,052,171) | (27,679,432) | | TOTAL OTHER INCOME, NET | 16,524,842 | 14,340,898 | | INCOME (LOSS) BEFORE INCOME TAXES | 3,472,671 | (13,338,534) | | NET INCOME (LOSS) | 1,669,767 | (12,851,024) | | COMPREHENSIVE LOSS | (6,967,060) | (41,436,049) | Consolidated Statements of Cash Flows (2023 vs. 2022) | Cash Flow Activity | 2023 ($) | 2022 ($) | | :------------------------------------------------ | :-------------- | :-------------- | | Net cash (used in) provided by operating activities | (101,160,636) | 31,478,911 | | Net cash provided by (used in) investing activities | 32,278,828 | (35,031,115) | | Net cash provided by (used in) financing activities | 14,828,688 | (4,333,088) | | NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | (54,053,120) | (7,885,292) | | CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | 93,630,068 | 151,040,271 | Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. There are no changes in or disagreements with accountants on accounting and financial disclosure to report - There are no changes in or disagreements with accountants on accounting and financial disclosure[507] Item 9A. Controls and Procedures. Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective as of December 31, 2023 - The company's disclosure controls and procedures were evaluated and deemed effective as of December 31, 2023[508] - Management assessed the effectiveness of internal control over financial reporting (ICFR) based on the 2013 COSO Framework and concluded it was effective as of December 31, 2023[509][513] - No material changes to internal control over financial reporting occurred during the period covered by the report[515] Item 9B. Other Information. No other significant information is reported, and no directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the fourth quarter - No other information, apart from subsequent events in Note 26, is known to significantly affect the company's results or financial statements[516] - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q4 2023[517] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. There are no disclosures regarding foreign jurisdictions that prevent inspections - There are no disclosures regarding foreign jurisdictions that prevent inspections[518] PART III Item 10. Directors, Executive Officers and Corporate Governance The company's leadership includes experienced executives and independent directors, with a focus on board diversity, financial expertise, and ethical conduct - The Board of Directors and Nominating and Corporate Governance Committee consider diverse viewpoints for board candidates, complying with Nasdaq Rule 5605(f) and 5606[532] - Henry Yu and Jerry Lewin qualify as 'audit committee financial experts' under SEC regulations and NASDAQ listing standards[534] - A 'Code of Ethics' applies to all directors and employees, including principal executive, financial, and accounting officers[535] - All Section 16(a) filing requirements were met in fiscal year 2023, with some late filings noted for Hu Xiaoming, Wang Lin, Dong Xueqin, Henry Yu, and Jerry Lewin[536] Directors and Executive Officers (as of March 10, 2024) | Name | Age | Position | Served From | | :------------ | :-- | :------------------------------------- | :-------------- | | Hu Xiaoming | 67 | Chairman of the Board | June 2007 | | Lim Jehn Ming | 41 | Chief Financial Officer | May 2020 | | Chen Liming | 87 | Director (Independent) | May 2012 | | Lin Yi | 71 | Director (Independent) | May 2017 | | Jerry Lewin | 69 | Director (Independent) | November 2010 | | Henry Yu | 70 | Director (Independent) | July 2011 | | Dong Xueqin | 42 | Chief Executive Officer, President, Director | December 2021 | | Wang Lin | 35 | Director | December 2019 | Item 11. Executive Compensation Executive and director compensation for 2023 comprised base salaries, cash fees, and performance-based equity awards, governed by employment agreements - Executive compensation programs for fiscal 2023 primarily included base salary and equity compensation, with a significant portion being performance-based[541][542] - Employment agreements for Mr. Hu, Mr. Lim, and Dr. Dong specify annual salaries and equity awards[549][550] - In case of termination without cause, the company is obligated to pay one month's salary for each year of employment[552] Summary Compensation Table (2023 vs. 2022) | Name and Principal Position | Year | Salary ($) | Stock Awards ($) | Total ($) | | :-------------------------- | :--- | :--------- | :--------------- | :-------- | | Hu Xiaoming, Chairman of the Board | 2023 | 51,522 | 156,500 | 208,022 | | | 2022 | 53,505 | 122,500 | 176,005 | | Dong Xueqin, CEO and President | 2023 | 70,694 | 59,600 | 130,294 | | Lim Jehn Ming, CFO | 2023 | 120,000 | 26,870 | 146,870 | | | 2022 | 120,000 | 18,540 | 138,540 | Director Compensation (excluding Named Executive Officers) (2023) | Name | Fees Earned or Paid Cash ($) | Stock Awards ($) | Total ($) | | :---------- | :--------------------------- | :--------------- | :-------- | | Lin Yi | 8,483 | - | 8,483 | | Henry Yu | 24,000 | 18,100 | 42,100 | | Jerry Lewin | 24,000 | 26,500 | 50,500 | | Chen Liming | 8,483 | - | 8,483 | | Wang Lin | 32,519 | 6,260 | 38,779 | | Dong Xueqin | 57,969 | 59,600 | 117,569 | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Chairman Hu Xiaoming is the largest beneficial owner with 16.51% of common stock, while all officers and directors as a group hold 16.86% - As of March 8, 2024, 87,358,234 shares of common stock were outstanding[557] - Hu Xiaoming, as the sole stockholder of Excelvantage Group Limited, is deemed the beneficial owner of its 12,821,404 shares[558] Beneficial Ownership (as of March 8, 2024) | Name of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | | :----------------------- | :---------------------------------------- | :--------------- | | Hu Xiaoming | 14,426,481 | 16.51% | | Jehn Ming Lim | 1,500 | * | | Henry Yu | 148,510 | * | | Jerry Lewin | 125,000 | * | | Chen Liming | - | - | | Lin Yi | - | - | | Dong Xueqin | 20,000 | - | | Wang Lin | 11,000 | * | | All officers and directors | 14,732,491 | 16.86% | | Excelvantage Group Limited | 12,821,404 | 14.68% | Item 13. Certain Relationships and Related Transactions and Director Independence. The company maintains policies for related-party transactions and confirms the independence of four non-employee directors and all committee members - Mr. Hu Xiaoming transferred his 50% equity interest in Kandi New Energy to Zhejiang Kandi Technologies for $2.83 million in March 2022, terminating all pre-existing related party agreements[560] - The company's policy for Related-Party Transactions requires Board consideration and independent director approval for material transactions exceeding $120,000, following an Audit Committee review[561][562] - Henry Yu, Chen Liming, Lin Yi, and Jerry Lewin are independent non-employee directors, and all members of the Audit, Nominating/Corporate Governance, and Compensation Committees are independent under NASDAQ rules[563] Item 14. Principal Accounting Fees and Services. Aggregate fees paid to principal accounting firms totaled $449,071 in 2023 and $415,600 in 2022, primarily for audit services pre-approved by the Audit Committee - Audit Fees cover the audit of annual financial statements and related services[566] - All services provided by the independent registered public accountants were pre-approved by the Audit Committee[568] Aggregate Principal Accounting Fees (2023 vs. 2022) | Category | 2023 ($) | 2022 ($) | | :----------------- | :------- | :------- | | Audit Fees | 360,000 | 410,000 | | Audit Related Fees | - | - | | Tax Fees | - | - | | All other fees | 89,071 | 5,600 | | TOTAL FEES | 449,071 | 415,600 | PART IV Item 15. Exhibits, Financial Statement Schedules. This section lists all exhibits and financial statement schedules filed as part of the Annual Report, including corporate documents, agreements, and certifications - The section provides a comprehensive list of exhibits, including corporate documents (Certificate of Incorporation, Bylaws), various agreements (Share Exchange, Employment, Equity Transfer, Securities Purchase), and certifications (CEO, CFO)[571][572][573] - Many exhibits are incorporated by reference from prior SEC filings[571][572][573] - It also includes XBRL interactive data files for financial reporting[573] SIGNATURES The Annual Report is duly signed by principal officers and directors, affirming compliance with the Securities Exchange Act of 1934 - The report is signed by Dong Xueqin (President and CEO), Jehn Ming Lim (CFO), Hu Xiaoming (Chairman), and other directors, affirming compliance with the Securities Exchange Act of 1934[575][576]