Greetings and welcome to Kandi Technologies Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kewa Luo, Investor Relations Director. Thank you, you may begin.

Thank you, operator. Hello, everyone. Thank you all for joining us today for our conference call to discuss Kandi’s results for the second quarter of 2023. Earlier today, we issued a press release covering the results. You can find the press release on the company’s website as well as from Newswire services. On the call with me today are Mr. Xiao Ming Hu, Chairman of the Board; Dr. Xueqin Dong, Chief Executive Officer; and Mr. Alan Lim, Chief Financial Officer. Dr. Dong will deliver prepared remarks in Chinese, which I will then translate. After that, we will have a Q&A session. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our CEO, Dr. Dong. Please go ahead.

Hello, everyone, I am Xueqin Dong, the CEO of Kandi Technologies. Welcome to our conference call today. I'm excited to share the key results from our second quarter. During this time, our sales revenue reached $36 million, representing a remarkable growth rate of over 70% compared to the same period last year. This significant achievement is a direct result of the persistent efforts and dedication we have invested in transforming our products over the past few years. Our journey has led us to develop a range of cutting-edge electric off-road vehicles using automotive technology, which has been crucial in driving ongoing sales growth. In the second quarter, our net profit was $4.4 million, marking a turnaround from losses to gains, which shows that we have made considerable progress in overcoming past challenges. This success is due to our focus on optimizing our product mix and aiming for higher profits in rapidly growing categories, while remaining attentive to our customers' evolving needs. Additionally, as of June 30, 2023, we maintained a strong cash balance of over $230 million, which gives us the confidence to face challenges and seize opportunities. Looking ahead, we will continue to innovate and strive to meet customer demand, progressively moving toward sustained success. I want to thank all of you for your ongoing support and commitment to our shared vision. Thank you once again. Now we will transition to the Q&A session. Chairman Hu Xiaoming and I will address your questions, with Ms. Kewa and Mr. Alan providing translation for English inquiries. Please feel free to ask your questions.

Operator, please go ahead.

At this time, we'll be conducting a question-and-answer session. Our first question comes from Frank Blatterman. Please proceed with your question.

Yes, and good evening to those of you in China, and good morning to those of you in the United States and Europe. I actually have two very short questions. The last authorization to buy back shares expired at the end of December. Has the company submitted the paperwork for another buyback? And if not, is it under active consideration? Go ahead, Kewa.

Yes, and good evening to those of you in China, and good morning to those of you in the United States and Europe. I actually have two very short questions. The last authorization to buy back shares expired at the end of December. Has the company submitted the paperwork for another buyback? And if not, is it under active consideration? Go ahead, Kewa.

Thank you for your questions. The company currently has no further plans for buyback transactions. Our goal ultimately is to strengthen the fundamentals of the company and create the largest value for the shareholders. As for the stock price, we believe that once the company's performance improves financially, it will organically attract investment from the market.

Thank you. My second question, and this is a little bit different than what I initially was going to submit. With Kandi’s cash on hand, apparently above the company's present market capitalization and a half dozen new products, there have been only two press releases this year: one announcing the CEO transition on January 11th and one announcing the acquisition of Northern Group on June 26. Was there no announcement regarding the new products? Go ahead.

What's your question?

I'm sorry. I thought I was on. With Kandi’s cash, my question is a little bit different than what I was initially going.

Sorry, I got it to that part. And what’s the second part...

With Kandi’s cash on hand, apparently above the company's market capitalization, and a half dozen new products, there have only been two press releases this year. Is the company planning on having additional press releases since we are now a very profitable company? And is it time to start touting our newer products?

Sorry, I got it to that part. What’s the second part? With Kandi’s cash on hand apparently above the company's market capitalization, and a half dozen new products, there have only been two press releases this year. Is the company planning on having additional press releases since we are now a very profitable company? And is it time to start promoting our newer products?

The company has been adjusting our product mix strategy in recent years. We do encounter challenges from time to time, and things may not always go as planned. We have adopted a strategy of refining and optimizing our products before sharing too much information. Fortunately, the specific changes made for our production have led to successful results, allowing the company to turn losses into gains in the first half of this year. Moving forward, we will consider refining our approach to public disclosures.

Thank you very much and congratulations on excellent results. Thank you, Kewa.

Thank you, Frank.

Our next question comes from Joel Kramer. Please proceed with your question.

Thank you. The very quick extremely quick pace, Kandi is now growing. How long does Mr. Hu feel it will take before Kandi catches up to or beats Polaris at least in the EV sector of the off-road vehicle space? And then I have a question after that.

Thank you very much and congratulations on excellent results. Thank you, Kewa. Our next question comes from Joel Kramer. Please proceed with your question. Thank you. The very quick extremely quick pace, Kandi is now growing. How long does Mr. Hu feel it will take before Kandi catches up to or beats Polaris at least in the EV sector of the off-road vehicle space? And then I have a question after that.

We are committed to enhancing our fundamentals in the near future and aim to establish the company as one of the top manufacturers in the pure electric ATV market within the next two to three years.

What new off-road vehicles of all types and sizes do Kandi expect to release this year? And is there one or two that Mr. Hu favors as particular winners? Secondly, what percent of sales in this year's first half were sold outside the U.S. and what were the top three markets outside the U.S.? Thank you.

We are focused on our fundamentals in the upcoming years and aim to establish ourselves as a leading manufacturer in the pure electric ATV market within the next two to three years. What new off-road vehicles of various types and sizes can we expect Kandi to launch this year? Are there one or two models that Mr. Hu believes will be particularly successful? Additionally, what percentage of sales in the first half of this year were generated outside the U.S., and what were the top three markets outside the U.S.? Thank you.

Thank you for your question. We have recently launched a model called 10K, which is a pure electric dual motor forward drive UTV in the U.S. market. We believe this model will be popular among customers in the U.S. In the second half of this year, we will also introduce a pure electric mini golf cart, which we expect will also be well-received. Currently, our products are primarily sold in the U.S., with some sales in Europe and Mexico through our channel distributors. Thank you.

Hello?

Our next question comes from Mark. Please proceed with your question.

Hello, good evening, and good morning to everyone on the line. I have a question about Kandi's recent acquisition of the 20-year marketing and analytics firm, Northern Group. Reviewing Northern's website, it's clear why Kandi would value this company, given its strong existing clientele in sectors that align well with Kandi's manufacturing capabilities. For instance, Lowe's and Fleer RAM already offer Kandi golf carts, while Home Depot manages tractor supplies. With this acquisition, could we expect direct relationships with Walmart, Target, and Best Buy, who carry the HUGO One board and scooter line? Additionally, stores like Sharper Image and Schlemmer also sell HUGO boards, e-bikes, and scooters. The HUGO 1 is relevant for Kandi as it focuses on power transmission, contributing over $100 million in electric motor batteries in recent years. I can envision these companies utilizing various products or working with Kandi to create custom or private label vehicles since Kandi manufactures 95% of its cart and equipment parts in-house. Furthermore, Northern has clients like Walgreens and other national brands in different industries. My questions are: Kewa, will you proceed with the introduction, or should I follow up later?

Sure, go ahead.

My questions are whether the deal could have been executed for $30 million in cash or if the seller required a stock transaction. Does Northern, at the Kandi division, retain all the prominent industry clients like Ultra and Walgreens in its revenue streams, even if those revenues come from completely different businesses? Additionally, does its marketing team continue to pursue this unrelated business?

Sure, go ahead.

The acquisition transaction of Northern Group will be finalized using Kandi’s restricted shares, which will have specific escrow restrictions. For details regarding the agreement terms, please refer to the equity transfer agreement included in this quarterly report. As for the company’s objectives, the primary aim of Northern Group is to promote and operate our products, which remains our main focus. However, we will absolutely maintain our profitable operations and businesses. Thank you.

I have a couple more questions. The acquisition terms filed with the SEC appear to be quite unique and possibly confusing. Can you explain the earnout terms related to the 3.9 million shares? Under what conditions could the deal be reversed? Also, considering that this deal involves less than 5% of Kandi, it seems advantageous. What does management envision for Kandi's future?

We will definitely retain those profitable operations and businesses. Thank you. I understand, and I have a couple more questions. The acquisition terms filed with the SEC appear to be unique, if not confusing. Could you explain the earnout terms regarding 3.9 million shares? Under what circumstances could the deal be reversed? Additionally, for less than 5% of Kandi, this deal seems impressive. What is management's vision for Kandi's future?

In response to the questions regarding the agreement terms, please refer to the equity transfer agreement included in the 10-Q for this period. Moving forward, we aim to leverage our sales resources to expand our sales channels and enhance the company’s sales revenue. Thank you.

Thank you for taking my questions and have a nice day.

Thank you.

Our next question comes from Michael Pfeffer with Oppenheimer. Please proceed with your question.

Hi. I have two related questions requiring some context. The first concerns Kandi's long promised guidance trend. While not yet included in the company's earnings press release, I'm happy to see the almost mandatory requirement to ever get Wall Street Analyst coverage. Guidance or forecast has now started to partially appear in each of the last two Kandi conference calls in response to investor questions. In the year-end 2022 conference call, Mr. Hu forecasted 20,000 to 25,000 units for ’23. On the Q1 ’23 conference call, management reconfirmed the 25,000 full-year unit sales and added three more forecasts, including 6,000 to 7,000 unit sales forecast in Q2, up from 3,000 in Q1, full-year revenues and gross margin forecast. The revenue forecast came as an affirmative response to a question of whether $150 million to $200 million was realistic for ’23 full-year and was guided to the high-end of $200 million by this. So far, our forecast, we believe that there now will be roughly $150 million, even more at the top line with the $200 million of the USD sales for the year; I think we can achieve that goal. Maybe you can translate that and I'll get to the question, please.

Okay, thank you. Go ahead.

Thanks. If achieved, this would be an impressive 80% year-over-year increase from ’22. Also, from a management response to gross margin question for the entire year, the response was equal and excellent 35% achieved in Q1 or 16.6% in 2022. If achieved by putting those two together, we could see a gross profit of some $70 million or more than $0.90 a share for ’23. My first questions are do you stand by these full-year numbers higher or lower? And how about expectations for Q3? At the current pace is a doubling to $400 million plus ’24 realistic? And if so, does Kandi have a current capacity to deliver?

In response to the gross margin question for the entire year, it was noted that an excellent gross margin of 35% was achieved in Q1, compared to 16.6% in 2022. If these figures are combined, we could anticipate a gross profit of approximately $70 million or more than $0.90 per share for 2023. My first questions are whether you still stand by these full-year numbers, whether they are higher or lower, and what are your expectations for Q3? Given the current pace, is a doubling to over $400 million in 2024 realistic? If so, does Kandi currently have the capacity to deliver?

So in the first half of this year, we sold more than 7,000 pure electric golf carts in the U.S. market, excluding over 6,000 sold in the entire year of 2022. This also comes with a significant increase in gross margin. For detailed financial figures, please refer to the quarterly report. In the second half of this year, we anticipate some growth in sales revenue. Looking ahead to 2024, we are confident that we can continue to grow based on this year's momentum, though this will depend on the stability of the international market and user acceptance of our new products. Regarding production capacity, we have been making adjustments in recent years. As long as there is market demand, we believe our production capacity will be adequate to meet those needs. Thank you.

Thank you. Okay, onto my second related part: in hindsight on May 10th, right after the excellent last Q1 conference call, the stock price had been going up for the prior week, but closed that day down around 3% to $3.08. The next day it started moving up and over the following 25 trading days reached a 52-week high of $4.28. Noteworthy, during this period, the overall market and China stocks were generally weak. Also, there was no published news from Kandi to account for the rise. The only logical reason for the move up was the publication and circulation of the conference call transcript led by its four excellent guidance comments. My point is that guidance does make a huge difference. At the time of the conference call, there was no guidance in the actual earnings press release, only some mediocre numbers. The live conference call likely had a small audience of long-time investors, and due to only 5% fund ownership and no analysts, little if any Wall Street professionals attended. These likely are the reasons it initially dropped. However, once the third-party transcript started circulating the next day, the move up started. Maybe you can translate that and I have one question and then I'm done. Thank you.

Okay. Go ahead, please.

Thank you. In my opinion, if the company would follow typical successful public company trends which incorporate forecast in the actual earnings release, which carries a much more extensive distribution profile and stickiness than a transcript. This Kandi best kept secret will finally have a chance to be discovered by Wall Street, particularly now in light of Kandi having a few quarters track record with its new predictable market of products. So my last question is, in the future, will management assure shareholders they will seriously consider making this necessary step to significantly increase investor awareness? Thank you.

Will management assure shareholders they will seriously consider taking the necessary steps to significantly increase investor awareness? Thank you.

First of all, thank you for your valuable feedback. The company has been adjusting our product structures in recent years and has faced some difficulties; at times, things haven't gone as expected. As a result, we adopted a strategy focused on concise communication and strong execution; we are working to enhance our fundamentals. Fortunately, this strategic product transformation has led to improved profitability. That's why we have seen an increase in both income and net income in the first half of this year. Moving forward, we will definitely consider your suggestions and work to improve our communication strategy with the public. Thank you.

Our next question comes from Arthur Porcari with Corporate Strategies. Please proceed with your question.

Hello? Can you all hear me?

Yes.

Hi, it was a very good quarter. I won't take much of your time today. My question is about Jascal Zhejiang Kuka Sports Technology Company Limited and its relationship with Kandi. I was looking at Kandi products on Alibaba and found a marketing sub-website for a company established in 2001 called Jascal Zhejiang Kuka Sports Technology Company. It appears to be an international wholesaling site for various off-road vehicles, showcasing around 246 different models, both electric and internal combustion engine types, available for bulk purchase. The homepage features several vehicles, and upon closer inspection, three of them have the Kandi name on their front plates, while the rest bear designations starting with KD, which is well-known as Kandi’s identifier. This site seems to almost resemble a Kandi platform. I'd like to know more about this.

Go ahead.

Okay. At the bottom of the first page, there were images of a beautiful new manufacturing facility that looked just like Kandi’s new Haiku Hengrun 100,000 vehicle facility, but it was missing some details. At the center guard gate, there should have been a large ground sign displaying Kandi’s name along with a shield logo. Instead, there was a brown redaction patch over those images. Additionally, the facility likely has the Kandi name and the shield logo at the upper levels, but there was also a redaction patch covering that image as well. It became a bit confusing. Please share that much for now, and I have more to follow.

The sign at the third gate, which usually displays Kandi’s name along with a shield logo, instead had a brown redaction patch covering those images. Additionally, the facility's upper levels also feature the Kandi name and the shield logo, but there was a redaction patch over the picture there as well. This led to some confusion. Please convey that information for now.

Moving on to the company's profile page, I noticed they had a single document available for download for the CE Mark, which indicates authorization to operate in Europe. It's surprising to see that they don't yet have the CE Mark. The document listed Zhejiang Kandi Technologies as the manufacturer. The page also included some videos and virtual reality clips of the same facility as the homepage, but this time the reductions were absent, and it clearly displayed the Kandi name and logo. Further searching revealed a second Jascal website featuring a stunning aerial image of Kandi’s former Jin Hua facility on the banner. This site provided details on international sales, showing 70% going to North America and the remainder distributed among about 15 other countries. Additionally, it offered a feature to translate each page into approximately 80 different languages. Currently, the company appears to be an independent global wholesaler with strong long-term ties to Kandi. Discovering the CE Mark, which is necessary for the Eurozone, is also a positive sign. I’ll have a few questions to follow up on.

The company currently seems to be an independent global wholesaler with strong long-term connections to Kandi. It’s encouraging to find that the CE Mark, which is required for the Eurozone, has been obtained. I’ll have a few questions to follow up on this.

First question, what is Kandi's current relationship with this company Jascal? Or is it like perhaps something like the Northern Group is a company that maybe Kandi is looking to buy because they seem to be very proud of the Kandi name.

Finding that the CE Mark, which is mandatory for the Eurozone, is also encouraging. I will have a few questions to follow up. What is Kandi's current relationship with the company Jascal? Is it similar to the Northern Group, which Kandi might be considering acquiring, as they appear to take great pride in the Kandi name?

Jascal is a long-term customer of the company, and they still purchase certain kinds of ATV products from us according to the demands of the market. We have no plans to acquire Jascal.

Okay. Well, does Kandi have any other international wholesale relationships? And what percent of Kandi’s business do you expect will be done outside the U.S.? And also, question for a friend, can you have any dealerships in Canada?

Jascal is a long-term customer of the company, and they still purchase certain kinds of ATV products from us according to the demands of the market. We have no plans to acquire Jascal.

Currently, we do not have other wholesalers, although there are occasionally small-scale customers who come to us directly to purchase specific items. We are in the process of establishing the wholesale channel in Canada. Thank you.

Okay. Just a little follow-up there from what I've noticed. This particular company seems to have changed from just over within the past year or so to really put a lot of stress on Kandi. And of those 240-odd price products, which by the way also includes lithium batteries, which could be bought there in bulk. So I guess my question is, are those lithium batteries Kandi batteries? And on the other hand is why are they stressing the whole front page as Kandi? I mean, I'm very happy to see that. But are they just focusing a lot more on Kandi now than they have in the past? I guess that's my question.

In the past year, Kandi has faced significant pressure. Among the 240 products mentioned, there are lithium batteries available for bulk purchase. My question is whether these lithium batteries are actually Kandi batteries. Additionally, why is there such a strong emphasis on Kandi on the front page? I'm pleased to see this, but are they placing greater focus on Kandi now compared to before? That's my question.

Thank you. Our next question comes from Francis Forte. Please proceed with your question.

Thank you. In May, the company entered into a consulting agreement on business growth and financial advisory services, a $1.1 million contract. Is that a follow-up on the arrangement they had with CITIC before COVID for a possible spin-off or listing on the Chinese exchange?

Oh, okay operator. And Francis, can you hold on for a second? Management says they still need time to answer the previous question, then we'll come back to you. Okay, please?

Sure, sure.

Just hold on and wait online.

Oh, okay operator. And Francis, can you hold on for a second? Management says they still need time to answer the previous question, then we'll come back to you. Okay, please?

Okay, so right now we're finishing up the last question from the previous caller, and then we will return to the current question.

Sure.

Sure, just hold on and wait online. We're currently addressing the last question from the previous caller, and then we'll return to your question. Sorry, there are some interruptions for our answer to the previous question. Regarding that question, first of all, Zhejiang Kuka is one of our long-term customers, and they also want to promote our products. That's why we see information about our products on their website. Currently, we do not supply any lithium-ion sales to Zhejiang Kuka. Thank you.

So, Kewa, we can resume the questions.

Hi, Francis, please go ahead with your question again.

Agreement on business growth and financial advisory services for $1.1 million. Is this a follow-up with CITIC on the agreement they had before COVID to possibly do a spin-off or list part of the company on the Star exchange in China?

Agreement on business growth and financial advisory services for $1.1 million. Is this a follow-up with CITIC on the agreement they had before COVID to possibly do a spin-off or list part of the company on the Star exchange in China?

The consulting agreement is not connected to our potential listing in the China market with CITIC. Rather, it is intended for a separate strategy related to our U.S. subsidiary to explore the possibility of being listed independently on the U.S. main board.

That’s very interesting.

Thank you for your observation.

Okay. And, another question for you, Mr. Lim, when Kandi sold its Jinhua facilities a couple of years ago, as I recall, there was a large part of the compensation for that, over $70 million, I think, was a tax benefit, a potential tax benefit on our profits. I think it was for eight years. Have we ever been able to take advantage of that until now? And do now that we are profitable, could that tax benefit really come into play, and could we recoup a large part of that in the future?

Okay. Another question for you, Mr. Lim. When Kandi sold its Jinhua facilities a couple of years ago, I remember that a significant portion of the compensation, over $70 million, was a potential tax benefit on our profits, possibly for eight years. Have we been able to utilize that benefit so far? Now that we are profitable, could that tax benefit come into effect, and could we recover a substantial amount of that in the future?

Thank you for your question. Regarding the utilization of tax benefits, we believe we can make use of them in the near future. Currently, our golf carts are manufactured at our high net facilities, and we plan to expand production in Jinhua as well. We have net loss carry forwards that we can apply, so yes, we can take advantage of those tax benefits moving forward. Thank you.

Thank you very much. Thank you, and congratulations.

Thank you.

There are no further questions at this time. I would now like to turn the floor back over to Kewa Luo for closing comments.

Thank you. Thank you again for attending today's conference call. If you have any more questions, feel free to contact us or our IR agency. We look forward to updating you on our next earnings call. This concludes our call for today. You may now all disconnect. Good-bye.