| CONTINGENT CONSIDERATION LIABILITY | NOTE 19 - CONTINGENT CONSIDERATION LIABILITY On January 3, 2018, the Company completed
the acquisition of 100% of the equity of Jinhua An Kao, currently known as Kandi Smart Battery Swap Co., Ltd. (“Kandi Smart Battery
Swap”). The Company paid approximately RMB 25.93 million (approximately $4 million) at the closing of the transaction using cash
on hand and issued a total of 2,959,837 shares of restrictive stock or 6.2% of the Company’s total outstanding shares
of the common stock immediately prior to the closing of the acquisition valued at approximately $20.7 million to the former shareholders
of Kandi Smart Battery Swap and his designees (the “KSBS Shareholders”), and may be required to pay future consideration of
up to an additional 2,959,837 shares of common stock, which are being held in escrow and to be released contingent upon the
achievement of certain net income-based milestones in the next three years. Any escrowed shares that are not released from escrow
to the KSBS Shareholders as a result of the failure to achieve the milestones will be forfeited and returned to the Company for cancellation.
While the escrowed shares are held in escrow, the Company will retain all voting rights with respect to such shares. For the year ended
December 31, 2018, Kandi Smart Battery Swap achieved its first year net profit target. Accordingly, the KSBS Shareholders
received 739,959 shares of Kandi’s restrictive common stock or 12.5% of the total equity consideration (i.e., 5,919,674
total shares) as part of the purchase price. For the year ended December 31, 2019, Kandi Smart Battery Swap achieved its second year
net profit target. Accordingly, the KSBS Shareholders received 986,810 shares of Kandi’s restrictive common stock or 16.67% of the
total equity consideration (i.e., 5,919,674 total shares) as part of the purchase price. All the escrowed shares have been registered
in the Company’s registration statement on Form S-3 declared effective by the SEC on April 5, 2019. As the outbreak of COVID-19 in 2020 affected Kandi
Smart Battery Swap’s operation and business, on July 7, 2020, the Company and the KSBS Shareholders made the following supplements
to Condition III of the original Supplementary Agreement: The KSBS Shareholders have the right to receive an aggregate of 20.83%
of the total equity consideration (i.e., 5,919,674 total shares), provided that Kandi Smart Battery Swap realizes a net profit
of RMB50 million (approximately $8 million) or more for the period from January 1, 2020 to June 30, 2021 (as opposed to be the
originally stated “December 31, 2020”), and such profit is audited or reviewed and Kandi Smart Battery Swap gets annual or
quarterly financial report issued under US GAAP. For the period from January 1, 2020 to June 30, 2021, Kandi Smart Battery Swap achieved
its net profit target. Accordingly, the KSBS Shareholders received 1,233,068 shares of Kandi’s restrictive common stock
or 20.83% of the total equity consideration (i.e., 5,919,674 total shares) as part of the purchase price. All the
escrowed shares have been included in the Company’s registration statement on Form S-3 declared effective by the SEC on April 5,
2019. On October 31, 2021, the Company completed
the acquisition of 100% of the equity of Jiangxi Huiyi. The Company paid approximately RMB 50 million (approximately $7.9 million) at
the closing of the transaction using cash on hand and may be required to pay future consideration of up to an additional 2,576,310 shares
of common stock, or the total make good shares, upon the achievement of certain net income-based milestones in the next three years. Due
to the fresh COVID-19 outbreak and extended lockdown in some areas in China, in June 2022, the Company agreed with the original shareholders
of Jiangxi Huiyi (the “Transferors”) to revise the conditions of the annual profit target and extension of evaluation period
for the first year. Pursuant to the supplementary agreement, the Transferors have the right to obtain 858,770 KNDI shares in each of the
below-mentioned periods, provided that Jiangxi Huiyi achieves a net income of 1) RMB 8 million yuan or more during the period from July
1, 2021 to September 30, 2022 (“Period I”); 2) RMB 15 million yuan or more during the period from October 1, 2022 to September
30, 2023 (“Period II”); 3) RMB 15 million yuan or more during the period from October 1, 2023 to September 30, 2024 (“Period
III”). If the net income of Jiangxi Huiyi fails to reach the respective target number in any of the three periods, the shares that
the Transferors are entitled to obtain in that period will be adjusted accordingly: 1) if the difference between the net income in each
Period and its Target Number is less than or equivalent to 20% of its Target Number (RMB 8 Million in Period I or RMB 15 Million in Period
II or Period III), the transferee or KNDI has right to directly subtract 171,754 KNDI shares from the total make good shares, and the
Transferor are entitled to obtain 687,016 KNDI shares; 2) if the difference between the net income in each Period and its Target Number
(RMB 8 Million in Period I or RMB 15 Million in Period II or Period III) is more than 20% of its Target Number but less than 40% of its
Target Number, the transferee or KNDI has the right to directly subtract 343,508 KNDI shares from the total make good shares, and the
Transferors have the right to obtain 515,262 KNDI shares; 3) if the difference between the net income in each Period and its Target Number
(RMB 8 Million in Period I or RMB 15 Million in Period II or Period III) is greater than or equal to 40% of its Target Number, the transferee
of KNDI has the right to directly subtract 858,770 KNDI shares from the total make good shares, and the Transferors will not have the
right to obtain any shares in such year. For the period from July 1, 2021 to September 30, 2022, Jiangxi Huiyi achieved its net profit
target. Accordingly, the Transferors will receive 858,770 shares of Kandi’s restrictive common stock as part of the purchase
price. The Company recorded contingent consideration
liability of the estimated fair value of the contingent consideration the Company currently expects to pay to the KSBS Shareholders and
Jiangxi Huiyi’s former members upon the achievement of certain milestones. The fair value of the contingent consideration liability
associated with remaining shares of restrictive common stock was estimated by using the Monte Carlo simulation method, which took into
account all possible scenarios. This fair value measurement is classified as Level 3 within the fair value hierarchy prescribed by ASC
Topic 820, Fair Value Measurement and Disclosures. In accordance with ASC Topic 805, Business Combinations, the Company will re-measure
this liability each reporting period and record changes in the fair value through a separate line item within the Company’s consolidated
statements of income. As of September 30, 2022 and December 31,
2021, the Company’s contingent consideration liability to former members of Jiangxi Huiyi was $3,266,000 and $7,812,000, respectively. |
