UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2023

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______to______

Commission File Number 001-33997

KANDI TECHNOLOGIES GROUP, INC.
(Exact name of registrant as specified in charter)

Delaware		90-0363723
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Jinhua New Energy Vehicle Town Jinhua, Zhejiang Province People’s Republic of China		321016
(Address of principal executive offices)		(Zip Code)

(86 - 579) 82239856
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on
which registered

Common Stock

KNDI

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 3, 2023, the registrant had 87,522,800 shares of common stock issued and outstanding, par value $0.001 per share.

TABLE OF CONTENTS

		Page

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	1

	Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2023 and December 31, 2022	1

	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) – Three Months and Nine Months Ended September 30, 2023 and 2022	2

	Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) – Three Months and Nine Months Ended September 30, 2023 and 2022	3

	Condensed Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended September 30, 2023 and 2022	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35

Item 4.	Controls and Procedures	35

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 6.	Exhibits	36

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

KANDI TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30, 2023			December 31, 2022
	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	72,900,121		$	84,063,717
Restricted cash		61,957,395			66,976,554
Certificate of deposit		109,676,181			81,191,191
Accounts receivable (net of allowance for doubtful accounts of $2,795,798 and $2,285,386 as of September 30, 2023 and December 31, 2022, respectively)		16,350,519			38,150,876
Inventories		57,860,989			40,475,366
Notes receivable		41,129			434,461
Other receivables		11,068,946			11,912,615
Prepayments and prepaid expense		1,689,174			2,970,261
Advances to suppliers		1,540,949			3,147,932
TOTAL CURRENT ASSETS		333,085,403			329,322,973

NON-CURRENT ASSETS
Property, plant and equipment, net		98,754,578			97,168,753
Intangible assets, net		5,561,878			7,994,112
Land use rights, net		2,690,181			2,909,950
Construction in progress		36,652			199,837
Deferred tax assets		1,427,290			1,432,527
Long-term investment		137,095			144,984
Goodwill		31,193,706			33,178,229
Other long-term assets		9,756,037			10,630,911
TOTAL NON-CURRENT ASSETS		149,557,417			153,659,303

TOTAL ASSETS	$	482,642,820		$	482,982,276

CURRENT LIABILITIES
Accounts payable	$	34,475,667		$	35,321,262
Other payables and accrued expenses		8,364,215			14,131,414
Short-term loans		9,065,350			5,569,154
Notes payable		22,129,999			19,123,476
Income tax payable		688,633			1,270,617
Other current liabilities		5,273,881			6,089,925
TOTAL CURRENT LIABILITIES		79,997,745			81,505,848

NON-CURRENT LIABILITIES
Long-term loans		8,225,000			-
Deferred taxes liability		1,172,820			1,378,372
Contingent consideration liability		-			1,803,000
Other long-term liabilities		410,182			602,085
TOTAL NON-CURRENT LIABILITIES		9,808,002			3,783,457

TOTAL LIABILITIES		89,805,747			85,289,305

STOCKHOLDER’S EQUITY
Common stock, $0.001 par value; 100,000,000 shares authorized; 84,997,369 and 77,668,730 shares issued and 84,997,369 and 74,180,171 outstanding at September 30,2023 and December 31,2022, respectively		84,997			77,669
Less: Treasury stock (null shares and 3,488,559 shares with average price of $2.81 at September 30, 2023 and December 31, 2022 )		-			(9,807,820	)
Additional paid-in capital		450,242,032			451,373,645
Accumulated deficit (the restricted portion is $4,422,033 and $4,422,033 at September 30, 2023 and December 31, 2022, respectively)		(11,771,861	)		(16,339,765	)
Accumulated other comprehensive loss		(48,131,857	)		(28,333,239	)
TOTAL KANDI TECHNOLOGIES GROUP, INC. STOCKHOLDERS’ EQUITY		390,423,311			396,970,490

Non-controlling interests		2,413,762			722,481
TOTAL STOCKHOLDERS’ EQUITY		392,837,073			397,692,971

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	482,642,820		$	482,982,276

See accompanying notes to unaudited condensed consolidated financial statements

KANDI TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30, 2023			September 30, 2022			September 30, 2023			September 30, 2022

REVENUES FROM UNRELATED PARTIES, NET	$	36,426,201		$	33,673,201		$	95,241,648		$	79,405,788
REVENUES FROM THE FORMER AFFILIATE COMPANY AND RELATED PARTIES, NET		-			-			-			-

REVENUES, NET		36,426,201			33,673,201			95,241,648			79,405,788

COST OF GOODS SOLD		(25,507,180	)		(27,304,038	)		(62,558,825	)		(67,930,595	)

GROSS PROFIT		10,919,021			6,369,163			32,682,823			11,475,193

OPERATING EXPENSE:
Research and development		(917,893	)		(1,433,649	)		(2,671,435	)		(3,828,078	)
Selling and marketing		(4,152,246	)		(1,440,995	)		(8,760,490	)		(3,807,222	)
General and administrative		(9,457,877	)		(5,686,233	)		(25,855,648	)		(18,016,843	)
Impairment of goodwill		7,539			-			(500,064	)		-
Impairment of long-lived assets		14,299			-			(948,438	)		-
TOTAL OPERATING EXPENSE		(14,506,178	)		(8,560,877	)		(38,736,075	)		(25,652,143	)
LOSS FROM OPERATIONS		(3,587,157	)		(2,191,714	)		(6,053,252	)		(14,176,950	)
OTHER INCOME (EXPENSE):
Interest income		1,927,494			2,138,130			5,982,400			4,739,208
Interest expense		(354,999	)		(177,417	)		(722,608	)		(463,994	)
Change in fair value of contingent consideration		-			434,995			1,803,000			2,733,995
Government grants		667,944			829,539			1,478,296			1,536,856
Other income, net		2,611,239			536,726			3,685,019			2,954,036
TOTAL OTHER INCOME , NET		4,851,678			3,761,973			12,226,107			11,500,101
INCOME (LOSS) BEFORE INCOME TAXES		1,264,521			1,570,259			6,172,855			(2,676,849	)
INCOME TAX BENEFIT (EXPENSE)		12,007			(497,211	)		86,330			255,232
NET INCOME (LOSS)		1,276,528			1,073,048			6,259,185			(2,421,617	)
LESS: NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		407,626			694,029			1,691,281			752,691
NET INCOME (LOSS) ATTRIBUTABLE TO KANDI TECHNOLOGIES GROUP, INC. STOCKHOLDERS		868,902			379,019			4,567,904			(3,174,308	)
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment		(2,102,246	)		(20,932,870	)		(19,798,618	)		(39,889,289	)
COMPREHENSIVE LOSS	$	(825,718	)	$	(19,859,822	)	$	(13,539,433	)	$	(42,310,906	)
WEIGHTED AVERAGE SHARES OUTSTANDING BASIC		79,174,343			75,741,399			75,931,247			75,962,899
WEIGHTED AVERAGE SHARES OUTSTANDING DILUTED		81,234,002			75,885,630			77,645,533			76,061,190
NET INCOME (LOSS) PER SHARE, BASIC	$	0.02		$	0.01		$	0.08		$	(0.03	)
NET INCOME (LOSS) PER SHARE, DILUTED	$	0.02		$	0.01		$	0.08		$	(0.03	)

See accompanying notes to unaudited condensed consolidated financial statements

KANDI TECHNOLOGIES GROUP, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

	Number of Outstanding Shares		Common Stock		Treasury Stock			Additional Paid-in Capital			Accumulated Earning (Deficit)			Accumulated Other Comprehensive Income			Non-controlling interests			Total
Balance, December 31, 2021		77,385,130	$	77,385	$	(2,392,203	)	$	449,479,461		$	(4,216,102	)	$	251,786		$	-		$	443,200,327
Stock issuance and award		25,000		25		-			92,925			-			-			-			92,950
Stock buyback		-		-		(1,570,324	)		(13,236	)		-			-			-			(1,583,560	)
Capital contribution from shareholder		-		-		-			-			-			-			1,198,398			1,198,398
Net loss		-		-		-			-			(1,616,056	)		-			(2,957	)		(1,619,013	)
Foreign currency translation		-		-		-			-			-			1,009,811			-			1,009,811

Balance, March 31, 2022		77,410,130	$	77,410	$	(3,962,527	)	$	449,559,150		$	(5,832,158	)	$	1,261,597		$	1,195,441		$	442,298,913
Stock issuance and award		238,600		239		-			584,331			-			-			-			584,570
Stock buyback		-		-		(1,974,490	)		(22,578	)		-			-			-			(1,997,068	)
Net income (loss)		-		-		-			-			(1,937,271	)		-			61,619			(1,875,652	)
Foreign currency translation		-		-		-			-			-			(19,966,230	)		(63,460	)		(20,029,690	)

Balance, June 30, 2022		77,648,730	$	77,649	$	(5,937,017	)	$	450,120,903		$	(7,769,429	)	$	(18,704,633	)		1,193,600		$	418,981,073
Stock issuance and award		10,000		10		-			22,290			-			-			-			22,300
Stock based compensation									250,673												250,673
Stock buyback		-		-		(911,714	)		(12,872	)		-			-			-			(924,586	)
Capital contribution from shareholder		-		-		-			-			-			-			337,557			337,557
Net income (loss)		-		-		-			-			379,019			-			694,029			1,073,048
Foreign currency translation		-		-		-			-			-			(20,932,870	)		(66,006	)		(20,998,876	)

Balance, September 30, 2022		77,658,730	$	77,659	$	(6,848,731	)	$	450,380,994		$	(7,390,410	)	$	(39,637,503	)		2,159,180		$	398,741,189

	Number of Outstanding Shares			Common Stock			Treasury Stock			Additional Paid-in Capital			Accumulated Earning (Deficit)			Accumulated Other Comprehensive Income			Non-controlling interests		Total
Balance, December 31, 2022		77,668,730		$	77,669		$	(9,807,820	)	$	451,373,645		$	(16,339,765	)	$	(28,333,239	)	$	722,481	$	397,692,971
Stock issuance and award		10,000			10			-			22,290			-			-			-		22,300
Stock based compensation		-			-			-			980,893			-			-			-		980,893
Net income (loss)		-			-			-			-			(29,110	)		-			624,567		595,457
Foreign currency translation		-			-			-			-			-			1,582,687			-		1,582,687

Balance, March 31, 2023		77,678,730		$	77,679		$	(9,807,820	)	$	452,376,828		$	(16,368,875	)	$	(26,750,552	)	$	1,347,048	$	400,874,308
Stock issuance and award		820,000			820			-			2,706,780			-			-			-		2,707,600
Stock based compensation		-			-			-			980,893			-			-			-		980,893
Cancellation of the Treasury Stock		(3,488,559	)		(3,489	)		9,807,820			(9,804,331	)		-			-			-		-
Net income		-			-			-			-			3,728,112			-			659,088		4,387,200
Foreign currency translation		-			-			-			-			-			(19,279,059	)		-		(19,279,059	)

Balance, June 30, 2023		75,010,171		$	75,010		$	-		$	446,260,170		$	(12,640,763	)	$	(46,029,611	)	$	2,006,136	$	389,670,942
Stock issuance and award		9,987,198			9,987			-			2,974,599			-			-			-		2,984,586
Stock based compensation		-			-			-			1,007,263			-			-			-		1,007,263
Cancellation of the Treasury Stock														-			-			-		-
Net income		-			-			-			-			868,902			-			407,626		1,276,528
Foreign currency translation		-			-			-			-			-			(2,102,246	)		-		(2,102,246	)

Balance, September 30, 2023		84,997,369		$	84,997		$	-		$	450,242,032		$	(11,771,861	)	$	(48,131,857	)	$	2,413,762	$	392,837,073

See accompanying notes to unaudited condensed consolidated financial statements.

KANDI TECHNOLOGIES GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Nine Months Ended
	September 30, 2023			September 30, 2022

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	6,259,185		$	(2,421,617	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Depreciation and amortization		8,952,016			9,512,970
Impairments		1,448,502			-
Provision of allowance for doubtful accounts		658,707			4,220
Deferred taxes		(200,316	)		(116,206	)
Change in fair value of contingent consideration		(1,803,000	)		(2,733,995	)
Stock award and stock based compensation expense		8,716,981			913,288

Changes in operating assets and liabilities:

Accounts receivable		11,846,717			(20,932,970	)
Notes receivable		744,574			1,927,621
Inventories		(18,498,142	)		(13,183,546	)
Other receivables and other assets		157,318			(10,264,805	)
Advances to supplier and prepayments and prepaid expenses		2,710,917			12,405,615

Increase (Decrease) In:
Accounts payable		34,021,872			46,796,615
Other payables and accrued liabilities		(4,480,660	)		4,951,022
Notes payable		(23,509,907	)		(13,574,849	)
Income tax payable		(367,848	)		(60,313	)
Net cash provided by operating activities	$	26,656,916		$	13,223,050

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net		(13,103,838	)		(1,674,445	)
Payment for construction in progress		(75,651	)		(278,777	)
(Loan to) Repayment from third party		-			(4,545,386	)
Certificate of deposit		(34,143,774	)		(22,726,928	)
Net cash used in investing activities	$	(47,323,263	)	$	(29,225,536	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term loans		12,153,286			20,642,224
Repayments of short-term loans		(8,398,565	)		(15,987,912	)
Proceeds from long-term loans		8,225,000			-
Contribution from non-controlling shareholder		-			772,716
Purchase of treasury stock		-			(4,505,213	)
Net cash provided by financing activities	$	11,979,721		$	921,815

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH	$	(8,686,626	)	$	(15,080,671	)
Effect of exchange rate changes	$	(7,496,129	)	$	(13,710,508	)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR	$	151,040,271		$	168,676,007

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	134,857,516		$	139,884,828
-CASH AND CASH EQUIVALENTS AT END OF PERIOD		72,900,121			99,029,118
-RESTRICTED CASH AT END OF PERIOD		61,957,395			40,855,710

SUPPLEMENTARY CASH FLOW INFORMATION
Income taxes paid	$	149,585		$	274,037
Interest paid	$	384,012		$	225,479

SUPPLEMENTAL NON-CASH DISCLOSURES:
Contribution from non-controlling shareholder by inventories, fixed assets and intangible assets	$	-		$	393,986

See accompanying notes to unaudited condensed consolidated financial statements

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

Kandi Technologies Group, Inc. (“Kandi Technologies”) was incorporated under the laws of the State of Delaware on March 31, 2004. As used herein, the terms “Company” or “Kandi” refer to Kandi Technologies and its operating subsidiaries, as described below.

Headquartered in Jinhua City, Zhejiang Province, People’s Republic of China (“China” or “PRC”), the Company is one of China’s leading producers and manufacturers of electric vehicle (“EV”) products, EV parts, and off-road vehicles for sale in the Chinese and the global markets. The Company conducts its primary business operations through its wholly-owned subsidiaries, Zhejiang Kandi Vehicles Co., Ltd. (“Kandi Vehicles”), Kandi Vehicles’ wholly and partially-owned subsidiaries, and SC Autosports, LLC (“SC Autosports”, d/b/a Kandi America) and its wholly-owned subsidiary, Kandi America Investment, LLC (“Kandi Investment”). In March 2021, Zhejiang Kandi Vehicles Co., Ltd. changed its name to Zhejiang Kandi Technologies Group Co., Ltd. (“Zhejiang Kandi Technologies”).

The Company’s organizational chart as of the date of this report is as follows:

NOTE 2 - LIQUIDITY

The Company had working capital of $253,087,658 as of September 30, 2023, an increase of $5,270,533 from the working capital of $247,817,125 as of December 31, 2022. As of September 30, 2023 and December 31, 2022, the Company’s cash and cash equivalents were $72,900,121 and $84,063,717, respectively, and the Company’s restricted cash was $61,957,395 and $66,976,554, respectively. As of September 30, 2023 and December 31, 2022, the Company had multiple certificates of deposit with a total amount of $109,676,181 and $81,191,191, respectively. These certificates of deposit have an annual interest rate from 3.10% to 3.99% which can be transferred when necessary without any penalty or any loss of interest and principal.

Although the Company expects that most of its outstanding trade receivables from customers will be collected in the next twelve months, there are uncertainties with respect to the timing in collecting these receivables.

The Company’s primary need for liquidity stems from its need to fund working capital requirements of the Company’s businesses, its capital expenditures and its general operations, including debt repayment. The Company has historically financed its operations through short-term commercial bank loans from Chinese banks, as well as its ongoing operating activities by using funds from operations, external credit or financing arrangements. Currently the Company has sufficient cash in hand to meet the existing operational needs, but the credit line is retained and can be utilized timely when the Company has special capital needs. The PRC subsidiaries have $6.9 million short-term bank loans and the US subsidiaries have $2.2 million short-term bank loans and $8.2 million long-term bank loans outstanding as of September 30, 2023.

NOTE 3 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim information, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for annual financial statements. In management’s opinion, the interim financial statements reflect all normal adjustments that are necessary to provide a fair presentation of the financial results for the interim periods presented. Operating results for interim periods are not necessarily indicative of results that may be expected for an entire fiscal year. The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements as of such date. For a more complete understanding of the Company’s business, financial position, operating results, cash flows, risk factors and other matters, please refer to its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Form 10-K”) filed with SEC on March 16, 2023.

NOTE 4 - PRINCIPLES OF CONSOLIDATION

The Company’s condensed consolidated financial statements reflect the accounts of the Company and its ownership interests in the following subsidiaries:

(1)

Continental Development Limited (“Continental”), a wholly-owned subsidiary of the Company, incorporated under the laws of Hong Kong;

(2)

Zhejiang Kandi Technologies, a wholly-owned subsidiary of Continental, incorporated under the laws of the PRC;

(3)

Kandi New Energy Vehicle Co. Ltd. (“Kandi New Energy”), formerly, a 50%-owned subsidiary of Zhejiang Kandi Technologies (Mr. Hu Xiaoming owned the other 50%), incorporated under the laws of the PRC. Pursuant to agreements executed in January 2011, Mr. Hu Xiaoming contracted with Zhejiang Kandi Technologies for the operation and management of Kandi New Energy and put his shares of Kandi New Energy into escrow. As a result, Zhejiang Kandi Technologies was entitled to 100% of the economic benefits, voting rights and residual interests of Kandi New Energy. Effective March 14, 2022, Mr. Hu Xiaoming transferred his 50% equity interests of Kandi New Energy to Zhejiang Kandi Technologies. As a result, Kandi New Energy has become a wholly-owned subsidiary of Zhejiang Kandi Technologies;

(4)

Kandi Electric Vehicles (Hainan) Co., Ltd. (“Kandi Hainan”), a subsidiary 55% owned by Kandi New Energy and 45% owned by Zhejiang Kandi Technologies, incorporated under the laws of the PRC;

(5)

Zhejiang Kandi Smart Battery Swap Technology Co., Ltd (“Kandi Smart Battery Swap”), 95% owned by Zhejiang Kandi Technologies and 5% owned by Kandi New Energy, incorporated under the laws of the PRC;

(6)

Yongkang Scrou Electric Co, Ltd. (“Yongkang Scrou”), a wholly-owned subsidiary of Kandi Smart Battery Swap, incorporated under the laws of the PRC;

(7)

SC Autosports, LLC (“SC Autosports”) (d/b/a Kandi America), a wholly-owned subsidiary of the Company formed under the laws of the State of Texas.

(8)

China Battery Exchange (Zhejiang) Technology Co., Ltd. (“China Battery Exchange”), a wholly-owned subsidiary of Zhejiang Kandi Technologies, and its subsidiaries, incorporated under the laws of the PRC;

(9)

Kandi America Investment, LLC (“Kandi Investment”), a wholly-owned subsidiary of SC Autosports formed under the laws of the State of Texas, USA;

(10)

Jiangxi Province Huiyi New Energy Co., Ltd. (“Jiangxi Huiyi”) 95% owned by Zhejiang Kandi Technologies and 5% owned by Kandi New Energy, incorporated under the laws of the PRC; and

(11)

Hainan Kandi Holding New Energy Technology Co., Ltd. (“Hainan Kandi Holding”), a subsidiary of Kandi Hainan, incorporated under the laws of the PRC; Kandi Hainan owns 66.7% and a non-affiliate, Jiangsu Xingchi owns 33.3% of Hainan Kandi Holding. Consequently, effective February 15, 2022, non-controlling interests of an aggregate of 33.3% of the equity interests of Hainan Kandi Holding held by an entity are presented in the consolidated balance sheets, separately from equity attributable to the shareholders of the Company. Non-controlling interest in the results of the Company are presented on the consolidated statement of operations as an allocation of the total income or loss for the period between non-controlling interest holders and the shareholders of the Company.

NOTE 5 - USE OF ESTIMATES

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenues and expenses during the reported period in the unaudited condensed consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements primarily include, but are not limited to, allowances for doubtful accounts, lower of cost and net realizable value of inventory, assessment for impairment of long-lived assets and intangible assets, valuation of deferred tax assets, change in fair value of contingent consideration, determination of share-based compensation expenses as well as fair value of stock warrants.

Management bases the estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates.

For the nine-month periods ended September 30, 2023, the Company recognized impairment loss of $500,064 for goodwill and impairment loss of $948,438 for finite-lived intangible assets, respectively.

NOTE 6 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are detailed in “Note 6 - Summary of Significant Accounting Policies” of the Company’s 2022 Form 10-K.

NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Adopted

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts. Prior to this ASU, an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The ASU is applied prospectively to business combinations occurring on or after the effective date of the amendment (or if adopted early as of an interim period, as of the beginning of the fiscal year that includes the interim period of early application). The Company has adopted this accounting pronouncement from January 1, 2023, and there was no material impact on its consolidated financial statements from the adoption.

NOTE 8 - CONCENTRATIONS

(a) Customers

For the three-month period ended September 30, 2023 and 2022, the Company’s major customers, each of whom accounted for more than 10% of the Company’s consolidated revenue, were as follows:

	Sales
	Three Months
	Ended			Trade Receivable
	September 30,			September 30，			December 31，
Major Customers	2023			2023			2022
Customer A		19	%		5	%		-
Customer B		17	%		24	%		11	%

	Sales
	Three Months
	Ended			Trade Receivable
	September 30，			September 30，			December 31，
Major Customers	2022			2022			2021
Customer C		39	%		13	%		-

For the nine-month period ended September 30, 2023 and 2022, the Company’s major customers, each of whom accounted for more than 10% of the Company’s consolidated revenue, were as follows:

	Sales
	Nine Months
	Ended			Trade Receivable
	September 30，			September 30，			December 31，
Major Customers	2023			2023			2022
Customer C		33	%		1	%		1	%
Customer A		14	%		5	%		-

	Sales
	Nine Months
	Ended			Trade Receivable
	September 30，			September 30，			December 31，
Major Customers	2022			2022			2021
Customer C		19	%		13	%		-

(b) Suppliers

For the three-month period ended September 30, 2023 and 2022, the Company’s material supplier, the purchase made by which accounted for more than 10% of the Company’s total purchases, was as follows:

	Purchases
	Three Months
	Ended			Accounts Payable
	September 30，			September 30，			December 31，
Major Suppliers	2023			2023			2022
Zhejiang Kandi Supply Chain Management Co., Ltd.⁽¹⁾		23	%		23	%		32	%

	Purchases
	Three Months
	Ended			Accounts Payable
	September 30,			September 30,			December 31,
Major Suppliers	2022			2022			2021
Zhejiang Kandi Supply Chain Management Co., Ltd.⁽¹⁾		29	%		28	%		11	%

(1)	Zhejiang Kandi Technologies owns 10% equity interest of the supplier.

For the nine-month period ended September 30, 2023 and 2022, the Company’s material supplier, the purchase made by which accounted for more than 10% of the Company’s total purchases, was as follows:

	Purchases
	Nine Months
	Ended			Accounts Payable
	September 30，			September 30，			December 31，
Major Suppliers	2023			2023			2022
Zhejiang Kandi Supply Chain Management Co., Ltd.⁽¹⁾		10	%		23	%		32	%

	Purchases
	Nine Months
	Ended			Accounts Payable
	September 30,			September 30,			December 31,
Major Suppliers	2022			2022			2021
Zhejiang Kandi Supply Chain Management Co., Ltd.⁽¹⁾		16	%		28	%		11	%

(1)	Zhejiang Kandi Technologies owns 10% equity interest of the supplier.

NOTE 9 - EARNINGS (LOSS) PER SHARE

The Company calculates earnings (loss) per share in accordance with ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings (loss) per share. Basic earnings (loss) per share are computed using the weighted average number of shares outstanding during the reporting period. Diluted earnings (loss) per share represents basic earnings (loss) per share adjusted to include the potentially dilutive effect of outstanding stock options and warrants (using treasury stock method).

Due to the average market price of the common stock during the period being below the exercise price of certain options and warrants, approximately 968,019 options and 8,131,332 warrants that were wholly expired in May 2023 were excluded from the calculation of diluted earnings per share, for the three-month and nine-month period ended September 30, 2023. On September 7, 2022, the Compensation Committee of the Board of Directors of the Company approved the grant of 5,000,000 stock options, at an exercise price of $2.07 per share. There were dilutive effects of 2,059,659 shares for the three-month period ended September 30, 2023. There were dilutive effects of 1,714,286 shares for the nine-month period ended September 30, 2023.

Due to the average market price of the common stock during the period being below the exercise price of certain options and warrants, approximately 900,000 options and 8,131,332 warrants were excluded from the calculation of diluted earnings per share, for the three-month and nine-month period ended September 30, 2022. On September 7, 2022, the Compensation Committee of the Board of Directors of the Company approved the grant of 5,000,000 stock options, at an exercise price of $2.07 per share. There were dilutive effects of 144,231 shares and 98,291 shares for the three-month and nine-month period ended September 30, 2022.

NOTE 10 - ACCOUNTS RECEIVABLE

Accounts receivable are summarized as follows:

	September 30,			December 31,
	2023			2022
Accounts receivable	$	19,146,317		$	40,436,262
Less: allowance for doubtful accounts		(2,795,798	)		(2,285,386	)
Accounts receivable, net	$	16,350,519		$	38,150,876

The following table sets forth the movement of provision for doubtful accounts:

	Allowance for Doubtful Accounts
BALANCE AT DECEMBER 31, 2021	$	3,053,277
Provision		456,974
Recovery		(999,775	)
Exchange rate difference		(225,090	)
BALANCE AT DECEMBER 31, 2022	$	2,285,386
Provision		662,670
Recovery		(3,962	)
Exchange rate difference		(148,296	)
BALANCE AT SEPTEMBER 30, 2023	$	2,795,798

NOTE 11 - INVENTORIES

Inventories are summarized as follows:

	September 30,		December 31,
	2023		2022
Raw material	$	7,873,230	$	6,551,450
Work-in-progress		6,354,973		4,114,550
Finished goods *		43,632,786		29,809,366
Inventories	$	57,860,989	$	40,475,366

*	As of September 30, 2023, approximately $43.3 million of inventory of off-road vehicles and EVs held by SC Autosports were pledged as collateral for the $2,000,000 short-term loan.

NOTE 12 - PROPERTY, PLANT AND EQUIPMENT, NET

Property, plants and equipment as of September 30, 2023 and December 31, 2022, consisted of the following:

	September 30,			December 31,
	2023			2022
At cost:
Buildings*	$	60,592,894		$	49,239,626
Machinery and equipment		72,232,045			77,845,979
Office equipment		1,532,919			1,528,135
Motor vehicles and other transport equipment		673,990			1,810,825
Molds and others		12,580,413			10,983,573
		147,612,261			141,408,138
Less : Accumulated depreciation		(48,857,683	)		(44,239,385	)
Property, plant and equipment, net	$	98,754,578		$	97,168,753

The Company’s Jinhua factory completed the relocation to a new industrial park in April 2021. The new location covers an area of more than 58,000 square meters and a construction area of more than 96,000 square meters. The Company’s off-road vehicles, EV battery packs, electric scooters battery packs, smart battery swap system and some EV parts are manufactured in the Jinhua factory. The Company’s Jinhua factory owns the above production facilities. The Company’s EV products, EV parts and electrical off-road vehicles, including Neighborhood EVs (“NEVs”), pure electric utility vehicles (“UTV”), pure electric golf cart and EV parts are manufactured in the Hainan factory. The Company’s Hainan factory expects to have production capacity with an annual output (three shifts) of 100,000 units of various models of EV products, EV parts and electrical off-road vehicles and owns the above facilities. Currently, the environmental protection, planning, fire protection, conservation of water and soil, and drainage of the Hainan factory have all passed the acceptance inspection, and the property archive have passed the acceptance. The Hainan factory has started formal production.

Depreciation expenses for the three months ended September 30, 2023 and 2022 were $2,504,272 and $2,510,531, respectively. Depreciation expenses for the nine months ended September 30, 2023 and 2022 were $7,614,411 and $7,796,048, respectively.

* As of September 30, 2023, approximately $12.4 million of buildings held by Kandi Investment were pledged as collateral for the $8,225,000 long-term loan.

NOTE 13 - INTANGIBLE ASSETS

Intangible assets include acquired other intangibles of patent and technology recorded at estimated fair values in accordance with purchase accounting guidelines for acquisitions.

The following table provides the gross carrying value and accumulated amortization for each major class of our intangible assets, other than goodwill:

	Remaining	September 30,			December 31,
	useful life	2023			2022
Cost:
Patent	1.75-3.42 years	$	4,670,032			4,938,765
Technology	3.25-4.25 years		9,459,571			10,003,915
			14,129,603			14,942,680
Less : Accumulated amortization
Patent		$	(3,034,062	)		(2,744,024	)
Technology			(2,131,415	)		(1,573,079	)
			(5,165,477	)		(4,317,103	)
Less : Accumulated impairment for intangible assets			(3,402,248	)		(2,631,465	)
Intangible assets, net		$	5,561,878		$	7,994,112

The aggregate amortization expenses for those intangible assets that continue to be amortized is reflected in amortization of intangible assets in the Unaudited Condensed Consolidated Statements of Income and Comprehensive Income were $334,240 and $482,010 for the three months ended September 30, 2023 and 2022, respectively. The aggregate amortization expenses for those intangible assets were $1,124,137 and $1,489,579 for the nine months ended September 30, 2023 and 2022, respectively.

Amortization expenses for the next five years and thereafter are as follows:

Three months ended December 31, 2023	$	334,240
Years ended December 31,
2024		1,355,288
2025		1,294,152
2026		1,081,327
2027		747,396
Thereafter		749,475
Total	$	5,561,878

NOTE 14 - LAND USE RIGHTS, NET

The Company’s land use rights consist of the following:

	September 30,			December 31,
	2023			2022
Cost of land use rights	$	3,601,940		$	3,809,211
Less: Accumulated amortization		(911,759	)		(899,261	)
Land use rights, net	$	2,690,181		$	2,909,950

The amortization expenses for the three months ended September 30, 2023 and 2022, were $20,608 and $21,764, respectively. The amortization expenses for the nine months ended September 30, 2023 and 2022, were $63,746 and $67,889, respectively. Amortization expenses for the next five years and thereafter are as follows:

Three months ended December 31, 2023	$	20,608
Years ended December 31,
2024		82,433
2025		82,433
2026		82,433
2027		82,433
Thereafter		2,339,841
Total	$	2,690,181

NOTE 15 - OTHER LONG TERM ASSETS

Other long term assets as of September 30, 2023 and December 31, 2022, consisted of the following:

	2023		2022
Prepayments for land use right (i)	$	3,643,576		3,917,226
Right - of - use asset (ii)		5,790,489		6,383,824
Others		321,972		329,861
Total other long-term asset	$	9,756,037	$	10,630,911

(i)

As of September 30, 2023 and December 31, 2022, the Company’s other long term assets included net value of prepayments for land use right of Hainan facility of $3,643,576 and $3,917,226, respectively. As of September 30, 2023, the land use right of Hainan was not recognized since the land certificate is still in process. The amortization expense for the three months ended September 30, 2023 and 2022 were $20,297 and $21,436, respectively. The amortization expense for the nine months ended September 30, 2023 and 2022 were $62,784 and $66,865, respectively.

(ii)

As of September 30, 2023 and December 31, 2022, the Company’s operating lease right-of-use assets in other long term assets included net value of land use right of Jinhua facility acquired in October 2020 and Jiangxi facility acquired in October 2021 of $5,303,911 and $5,697,720, respectively, as well as the amount of $486,578 and $686,104 related to the lease of Hangzhou office starting January 1, 2022. The amortization expense of land use right of Jinhua facility and Jiangxi facility for the three months ended September 30, 2023 and 2022 were $28,106 and $29,682, respectively. The amortization expense of land use right of Jinhua facility and Jiangxi facility for the nine months ended September 30, 2023 and 2022were $86,939 and $92,590, respectively.

NOTE 16 - TAXES

(a) Corporation Income Tax

Pursuant to the tax laws and regulations of the PRC, the Company’s applicable corporate income tax (“CIT”) rate is 25%. However, Zhejiang Kandi Technologies, Kandi Smart Battery Swap, Jiangxi Huiyi and Kandi Hainan qualify as High and New Technology Enterprise (“HNTE”) companies in the PRC, and are entitled to a reduced income tax rate of 15% for the years presented. A HNTE Certificate is valid for three years. An entity may re-apply for an HNTE certificate when the prior certificate expires. Historically, Zhejiang Kandi Technologies, Kandi Smart Battery Swap, Jiangxi Huiyi have successfully re-applied for such certificates when their prior certificates expired. Kandi Hainan has been qualified as a HNTE since December 2020. Therefore, it will apply for its first renewal when eligible. Additionally, Hainan Kandi Holding also has an income tax rate of 15% due to its local preferred tax rate in Hainan Free Trade Port. The applicable CIT rate of each of the Company’s other subsidiaries, Kandi New Energy, Yongkang Scrou, China Battery Exchange and its subsidiaries is 25%.

The Company’s provision or benefit from income taxes for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate, and if its estimated tax rate changes, management makes a cumulative adjustment. For 2023, the Company’s effective tax rate is favorably affected by a super-deduction for qualified research and development costs and adversely affected by non-deductible expenses such as stock rewards for non-US employees, and part of entertainment expenses. The Company records valuation allowances against the deferred tax assets associated with losses and other timing differences for which we may not realize a related tax benefit. After combining research and development tax credits of 25% on certain qualified research and development expenses, the Company’s effective tax rate for the nine months ended September 30, 2023 and 2022 were a tax benefit of 1.40% on a reported income before taxes of approximately $6.2 million, a tax benefit of 9.53% on a reported loss before taxes of approximately $2.7 million, respectively.

The quarterly tax provision, and the quarterly estimate of the Company’s annual effective tax rate, is subject to significant variation due to several factors, including variability in accurately predicting the Company’s pre-tax and taxable income and loss, acquisitions (including integrations) and investments, changes in its stock price, changes in its deferred tax assets and liabilities and their valuation, return to provision true-up, foreign currency gains (losses), changes in regulations and interpretations related to tax, accounting, and other areas. Additionally, the Company’s effective tax rate can be volatile based on the amount of pre-tax income or loss. The income tax provision for the nine months ended September 30, 2023 and 2022 was tax benefit of $86,330 and tax benefit of $255,232, respectively.

Under ASC 740 guidance relating to uncertain tax positions, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of September 30, 2023, the Company did not have any liability for unrecognized tax benefits. The Company files income tax returns with the U.S. Internal Revenue Services (“IRS”) and those states where the Company has operations. The Company is subject to U.S. federal or state income tax examinations by the IRS and relevant state tax authorities. During the periods open to examination, the Company has net operating loss carry forwards (“NOLs”) for U.S. federal and state tax purposes that have attributes from closed periods. Since these NOLs may be utilized in future periods, they remain subject to examination. The Company also files certain tax returns in the PRC. As of September 30, 2023, the Company was not aware of any pending income tax examinations by U.S. or PRC tax authorities. The Company records interest and penalties on uncertain tax provisions as income tax expense. As of September 30, 2023, the Company has no accrued interest or penalties related to uncertain tax positions.

The tax effected aggregate Net Operating Loss (“NOL”) was $8.5 million and $6.2 million in tax year 2022 and 2021, which were deriving from entities in the PRC, Hong Kong and U.S. Some of the NOLs will start to expire from 2026 if they are not used. The cumulative NOL in the PRC can be carried forward for five years in general, and ten years for entities qualify High and New Technology Enterprise (“HNTE”) treatment, which is $0.6 million and $7.9 million respectfully, to offset future net profits for income tax purposes.

(b) Tax Holiday Effect

For the nine months ended September 30, 2023 and 2022, the PRC CIT rate was 25%. Certain subsidiaries of the Company are entitled to tax exemptions (tax holidays) for the nine months ended September 30, 2023 and 2022.

The combined effects of income tax expense exemptions and reductions available to the Company for the nine months ended September 30, 2023 and 2022 are as follows:

	Nine Months Ended
	September 30,
	2023		2022
Tax benefit (holiday) credit	$	2,210,952	$	1,129,332
Basic net income per share effect	$	0.03	$	0.01

NOTE 17 - LEASES

During October 2020, land use right of gross value of $3.5 million was acquired from the government as the new site of Jinhua Facility’s relocation as per the Repurchase Agreement. On October 31, 2021, the Company acquired $2.8 million of land use rights through the acquisition of Jiangxi Huiyi. This land use rights was wholly prepaid.

The Company has entered into a lease for Hangzhou office, with a term of 48 months from January 1, 2022 to December 31, 2025. The Company recorded operating lease assets and operating lease liabilities on January 1, 2022, with a remaining lease term of 48 months and discount rate of 3.70%. The annual lease payment for 2022 was prepaid as of January 1, 2022. As of September 30, 2023, the Company has paid the lease amount of both year 2022 and 2023 totaling $475,117.

As of September 30, 2023, the Company’s operating lease right-of-use assets (grouped in other long-term assets on the balance sheet) was $5,790,489 and lease liability was $483,383 (grouped in other current liabilities and other long-term liabilities on the balance sheet). For the three months ended September 30, 2023 and 2022, the Company’s operating lease expense were $82,517 and $87,146, respectively. For the nine months ended September 30, 2023 and 2022, the Company’s operating lease expense were $255,248 and $271,839, respectively.

Supplemental information related to operating leases was as follows:

	Nine Months Ended
	September 30,
	2023		2022
Cash payments for operating leases	$	255,248	$	271,839

Maturities of lease liabilities as of September 30, 2023 were as follow:

Maturity of Lease Liabilities:	Lease payable
Three months ended December 31, 2023	$	51,154
Years ended December 31,
2024		212,189
2025		220,040

NOTE 18 - CONTINGENT CONSIDERATION LIABILITY

On July 19, 2021, Zhejiang Kandi Technologies signed a share transfer agreement and its supplementary agreement (“No.1 Supplementary Agreement”) with the former shareholders of Jiangxi Huiyi (the “Transferors”). On October 31, 2021, the Company completed the acquisition of 100% of the equity of Jiangxi Huiyi. Pursuant to the share transfer agreement, the Company paid approximately RMB 50 million (approximately $7.9 million) at the closing of the transaction using cash on hand and, as agreed upon under No.1 Supplementary Agreement, 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 (“Evaluation Period”, as discussed below). Due to the latest COVID-19 outbreak and extended lockdown in some areas in China, in June 2022, the Company agreed with the Transferors and jointly signed a No.2 supplementary agreement (“No.2 Supplementary Agreement”, collectively with No.1 Supplementary Agreement, “Supplementary Agreements”) to revise the conditions of the annual profit target and extension of evaluation period for the first year, which were set under No.1 Supplementary Agreement. Pursuant to the No.2 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 received 858,770 shares of Kandi’s restrictive common stock in October 2023.

In 2023, after evaluating the actual operation of Jiangxi Huiyi, the Company believes that taking over the management rights and conducting resources integration to combine Jiangxi Huiyi with the Company’s strategy are beneficial for improving the Company’s overall business performance. On August 3, 2023, Zhejiang Kandi Technologies and the Transferors signed an agreement on termination of make good shares (the “Termination Agreement”), pursuant to which the Supplementary Agreements were terminated. Zhejiang Kandi Technologies will take over the management rights while the Transferors shall not participate the management of Jiangxi Huiyi, and there was no further Evaluation Period or make good shares.

The Company recorded contingent consideration liability of the estimated fair value of the contingent consideration the Company currently expects to pay to the Transferors for the achievement of the 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, 2023 and December 31, 2022, the Company’s contingent consideration liability to the Transferors was $0 and $1,803,000, respectively.

NOTE 19 - COMMON SHARES

Retirement of Treasury Shares

On June 9, 2023, the Board of Directors of the Company approved to retire 3,488,559 shares of its common stock held in treasury, and the retirement was completed in June, 2023. The shares were returned to the status of authorized but unissued shares. As a part of the retirement, the Company reduced its common stock and additional paid-in capital by $9,807,820.

Issuance of Shares

On May 25, 2023, the Company entered into a consulting agreement (“Consultant Agreement”) with a consulting firm to advise the Company on business growth and financial advisory services about which this consulting firm has knowledge or experience. Pursuant to the Consultant Agreement, the Company issued the consulting firm and its designees (the “Consultant”) an aggregate of 300,000 restricted shares of the Company’s common stock for its services from May 25, 2023 to May 24, 2024.

For the three months and nine months ended September 30, 2023, the Company recognized $0 and $1,083,000 of expenses for stock issued to the Consultant, respectively.

On June 17, 2023, SC Autosports entered into an equity transfer agreement (the “Equity Transfer Agreement”) with Olen Rice (the “Transferor”), who owns 100% equity interests of Northern Group, Inc. (“NGI”), a Wisconsin incorporated company, pursuant to which the Transferor agreed to transfer, and SC Autosports agreed to accept all the equity interests (100%) of NGI and its related rights and obligations. On July 12, 2023, pursuant to the Equity Transfer Agreement, the Company issued a total of 3,951,368 shares of restrictive stock to the Transferor, which are being held in escrow with certain escrow restrictions, to be released contingent upon the achievement of certain agreed-upon milestones during the escrow period. The acquisition transaction of NGI was not closed as of November 8, 2023 and the process is being finalized.

NOTE 20 - STOCK OPTIONS

On September 7, 2022, the Compensation Committee of the Board of Directors of the Company approved the grant of stock options to purchase 5,000,000 shares of the Company’s common stock, at an exercise price of $2.07 per share, to the Company’s senior employees. The stock options will vest ratably over three years on October 7, 2023, October 7, 2024 and October 7, 2025, respectively, and expire on the tenth anniversary of the grant date. The Company valued the stock options at $6,704,829 and has amortized the stock compensation expense using the graded vesting method over the service period from September 7, 2022, through October 7, 2025. The value of the stock options was estimated using the Binomial Tree Model with an expected volatility of 79.83%, an expected life of 10 years, a risk-free interest rate of 3.27% and an expected dividend yield of 0.00%.

On July 1, 2023, the Compensation Committee of the Board of Directors of the Company approved the grant of stock options to purchase 68,019 shares of the Company’s common stock, at an exercise price of $3.96 per share, to the Company’s employees. The stock options will vest ratably over three years on July 1, 2024, July 1, 2025 and July 1, 2026, respectively, and expire on the tenth anniversary of the grant date. The Company valued the stock options at $172,601 and has amortized the stock compensation expense using the graded vesting method over the service period from July 1, 2023, to July 1, 2026. The value of the stock options was estimated using the Binomial Tree Model with an expected volatility of 78.08%, an expected life of 10 years, a risk-free interest rate of 3.81% and an expected dividend yield of 0.00%.

There were $1,007,263 and $250,673 in stock compensation expenses associated with stock options booked for the three months ended September 30, 2023 and 2022, respectively. There were $2,969,050 and $250,673 in stock compensation expenses associated with stock options booked for the nine months ended September 30, 2023 and 2022, respectively.

NOTE 21 - STOCK AWARD

In connection with the appointment of Mr. Henry Yu as a member of the Board of Directors (the “Board”), the Board authorized the Company to compensate Mr. Henry Yu with 5,000 shares of Company’s restricted common stock every six months as compensation, beginning in July 2011.

As compensation for Mr. Jerry Lewin’s services as a member of the Board, the Board authorized the Company to compensate Mr. Jerry Lewin with 5,000 shares of Company’s restricted common stock every six months, beginning in August 2011.

As compensation for Ms. Kewa Luo’s services as the Company’s investor relation officer, the Board authorized the Company to compensate Ms. Kewa Luo with 2,500 shares of the Company’s common stock every three months, beginning in September 2013.

On May 15, 2020, the Board appointed Mr. Jehn Ming Lim as the Chief Financial Officer. Mr. Lim was entitled to receive 6,000 shares of the common stock annually, which shall be issuable evenly on each six-month anniversary hereof. Mr. Lim was entitled to receive 10,000 shares of the common stock per year which shall be issuable evenly on each six-month anniversary as per the renewed contract effective on May 15, 2023.

On January 10, 2023, the Board appointed Dr. Xueqin Dong as the Chief Executive Officer, Dr. Dong was entitled to receive 20,000 shares of the common stock annually.

The fair value of stock awards with service condition is determined based on the closing price of the common stock on the date the shares are granted. The compensation costs for awards of common stock are recognized over the requisite service period.

On May 10, 2022, the Company granted 238,600 shares of common stock to certain management members and employees as compensation for their past services under the 2008 Plan. On April 29, 2023, May 5, 2023 and July 1, 2023 the Company granted 588,019 shares of common stock to certain management members and employees as compensation for their past services under the 2008 Plan.

On March 13, 2023, Kandi Technologies entered into an Equity Incentive Agreement (the “Equity Incentive Agreement”) with Pan Guoqing (the “Receiving Party”), who is the representative of the project management team of the project of crossover golf carts of Kandi Electric Vehicles (Hainan) Co., Ltd. (“Kandi EV Hainan”), a wholly owned subsidiary of the Company organized under the laws of the People’s Republic of China. The Receiving Party originally led the management team of golf crossover project of Hainan Kandi Holding New Energy Technology Co., Ltd. (“Hainan Kandi Holding”), a company organized under the laws of the People’s Republic of China. The Receiving Party and its management team has agreed to be employed as management team of Kandi EV Hainan, responsible for the operation of the golf crossover project of Kandi EV Hainan, and stop production and operation of Hainan Kandi Holding’s business.

Pursuant to the Equity Incentive Agreement, for the next three calendar years ending in December 31, 2025 (the “Incentive Period”), the Company will provide equity incentives to the Receiving Party, subject to the Receiving Party meeting certain performance milestones in its role as the management team of the golf crossover project (the “Crossover Project”) of Kandi EV Hainan. The performance milestones are measured in terms of the net profit of the Crossover Project after deducting relevant operating costs and income taxes, excluding various incentives, allowances and rebates, among others, and shall be audited and confirmed by the third party auditor designated by the granting party, or the Company. The net profit target (the “Net Profit Target”) for the Incentive Period is RMB 150 million (approximately $21,719,613), with an annual net profit target (the “Annual Net Profit Target”) of RMB 50 million (approximately $7,239,871). Should the Receiving Party meet or exceed the Net Profit Target over the Incentive Period, the Company will issue to the Receiving Party as incentive compensation up to a maximum of 5,957,811 shares (the “Maximum Equity Awards”) of the Company’s common stock (the “Award Shares”) under the Company’s 2008 Omnibus Long-Term Incentive Plan, as amended (the “2008 Plan”). The amount of Award Shares issued within each calendar year of the Vesting Period is adjusted based on the net profit of the Crossover Project within that calendar year. If the net profit of every of the three calendar years is below 60% of the Annual Net Profit Target, the Receiving Party will receive no Equity Awards. If the net profit of every of the three calendar years is at or above the Annual Net Profit Target, the Receiving Party will receive the Maximum Equity Awards, with higher performance resulting in receiving the Equity Awards earlier. If the net profit of every of the three calendar years fall between 60% of the Annual Net Profit Target and the Annual Net Profit Target, the Receiving Party will receive an amount of Equity Awards below the Maximum Equity Awards. On August 28, 2023, both parties agreed to issue 5,957,811 shares ahead of the original timeline due to the good performance achieved from January to July 2023. These shares are Restricted Shares under the 2008 Plan, to be to be vested upon the achievement of certain performance targets.

The Receiving Party has no relationship to the Company other than as described above.

On September 18, 2023, the Company issued a total of 5,957,811 Restricted Shares under the 2008 Plan but have not been vested to the relevant members of the project management team.

For the three months ended September 30, 2023 and 2022, the Company recognized $2,985,211 and $22,925 of employee stock award expenses for stock compensation and annual incentive award under the 2008 Plan paid to Board members and management under General and Administrative Expenses, respectively. For the nine months ended September 30, 2023 and 2022, the Company recognized $4,664,931 and $662,615 of employee stock award expenses for stock compensation and annual incentive award under the 2008 Plan paid to Board members and management under General and Administrative Expenses, respectively.

NOTE 22 - COMMITMENTS AND CONTINGENCIES

Guarantees and pledged collateral for bank loans to other parties

(1) Guarantees for bank loans

On March 15, 2013, the Company entered into a guarantee contract to serve as the guarantor of Nanlong Group Co., Ltd. (“NGCL”) for NGCL’s $2,741,905 (RMB 20 million) loan from Shanghai Pudong Development Bank Jinhua Branch, for a term from March 15, 2013 to March 15, 2016. NGCL is not related to the Company. Under this guarantee contract, the Company agreed to assume joint liability as the loan guarantor. In April 2017, Shanghai Pudong Development Bank filed a lawsuit against NGCL, the Company and ten other parties in Zhejiang Province People’s Court in Yongkang City, alleging NGCL defaulted on a bank loan borrowed from Shanghai Pudong Development Bank for a principal amount of approximately $2.9 million and demanded that the guarantor bear the liability for compensation. On May 27, 2017, a judicial mediation took place in Yongkang City and parties reached a settlement in mediation, in which the plaintiff agreed NGCL would repay the loan principal and interest in installments. The settlement was executed starting from May 2019. If there were an event of default that NGCL could not repay the loan, the Company may be obligated to bear the liability of defaulted amount. According to the current financial situation of NGCL, the Company does not expect it will incur any losses in connection with this matter.

(2) Pledged collateral for bank loans for which the parties other than the Company are the borrowers.

As of September 30, 2023 and December 31, 2022, none of the Company’s land use rights or plants and equipment were pledged as collateral securing bank loans for which the parties other than the Company are the borrowers.

Litigation

Beginning in March 2017, putative shareholder class actions were filed against Kandi Technologies Group, Inc. (“Kandi”) and certain of its current and former directors and officers in the United States District Court for the Central District of California and the United States District Court for the Southern District of New York. The complaints generally alleged violations of the federal securities laws based on Kandi’s disclosure in March 2017 that its financial statements for the years 2014, 2015 and the first three quarters of 2016 would need to be restated, and sought damages on behalf of putative classes of shareholders who purchased or acquired Kandi’s securities prior to March 13, 2017. Kandi moved to dismiss the remaining cases, all of which were pending in the New York federal court, that motion was granted in September 2019, and the time to appeal has run. In June 2020, a similar but separate putative securities class action was filed against Kandi and certain of its current and former directors and officers in California federal court. This action was transferred to the New York federal court in September 2020, Kandi moved to dismiss in March 2021, and that motion was granted in October 2021. The plaintiff in this case subsequently filed an amended complaint, Kandi moved to dismiss that complaint in January 2022, and the motion was granted in part and denied in part in September 2022. Discovery is ongoing as to the remaining claims and defendants.

Beginning in May 2017, purported shareholder derivative actions based on the same underlying events described above were filed against certain current and former directors of Kandi in the United States District Court for the Southern District of New York. The New York federal court confirmed the voluntary dismissal of these actions in April 2019.

In October 2017, a shareholder filed a books and records action against the Company in the Delaware Court of Chancery pursuant to 8 Del. C. Section 220 seeking the production of certain documents generally relating to the same underlying items described above as well as attorney’s fees (the “Section 220 Litigation”). On September 28, 2018, the parties, through their respective counsel, agreed to dismiss the Section 220 Litigation with prejudice and with each party bearing its own attorney’s fees, costs, and expenses, thereby concluding the action. In February 2019, this same shareholder commenced a derivative action against certain current and former directors of Kandi in the Delaware Court of Chancery. A motion to dismiss this derivative action was filed in May 2019 and that motion was denied on April 27, 2020. Discovery is ongoing.

Separately, in connection with allegations of misconduct identified in pre-suit demands made by putative shareholders of Kandi, Kandi formed a Special Litigation Committee (“SLC”) and retained a Delaware law firm as independent counsel to the SLC to aid in the SLC’s investigation of, and to ultimately report on, the allegations of misconduct set forth in the pre-suit demands. The SLC recommended to Kandi’s board of directors in June 2020 that the SLC be dissolved in light of the ongoing derivative action pending in the Delaware Court of Chancery, and this recommendation was adopted by the board in August 2020.

In December 2020, a putative securities class action was filed against Kandi and certain of its current officers in the United States District Court for the Eastern District of New York. The complaint generally alleges violations of the federal securities laws based on claims made in a report issued by Hindenburg Research in November 2020, and seeks damages on behalf of a putative class of shareholders who purchased or acquired Kandi’s securities prior to March 15, 2019. Kandi moved to dismiss in February 2022, and that motion remains pending.

While the Company believes that the claims in these litigations are without merit and will defend itself vigorously, the Company is unable to estimate the possible loss, if any, associated with these litigations. The ultimate outcome of any litigation is uncertain and the outcome of these matters, whether favorable or unfavorable, could have a negative impact on the Company’s financial condition or results of operations due to defense costs, diversion of management resources and other factors. Defending litigation can be costly, and adverse results in the litigations could result in substantial monetary judgments. No assurance can be made that litigation will not have a material adverse effect on the Company’s future financial position.

On September 21, 2023, the SEC filed a settled administrative order (the “Order”) against Kandi alleging violations of certain provisions of the United States’ securities laws. The Order sets forth certain findings, which the Company neither admits nor denies, regarding statements the Company made in its periodic filings and press releases that issued during the years 2020 and 2019. These statements concerned the Company’s then plans to sell highway passenger electric vehicles in the United States. Pursuant to the Order, the Company agreed to settle and paid a settlement of $710,000 by September 30, 2023.

NOTE 23 - SEGMENT REPORTING

The Company has one operating segment. The Company’s revenue and long-lived assets are primarily derived from and located in China and the US. The Company does not have manufacturing operations outside of China.

The following table sets forth disaggregation of revenue:

	Three Months Ended September 30,
	2023		2022
	Sales Revenue		Sales Revenue
Primary geographical markets
U.S. and other countries/areas	$	26,447,482	$	20,480,662
China		9,978,719		13,192,539
Total	$	36,426,201	$	33,673,201

Major products
EV parts	$	2,192,871	$	2,624,505
EV products		-		1,726,681
Off-road vehicles and associated parts		30,246,941		21,748,245
Electric Scooters, Electric Self-Balancing Scooters and associated parts		275,736		1,167,208
Battery exchange equipment and Battery exchange service		516,368		71,184
Lithium-ion cells		3,194,285		6,335,378
Total	$	36,426,201	$	33,673,201

Timing of revenue recognition
Products transferred at a point in time	$	36,426,201	$	33,673,201
Total	$	36,426,201	$	33,673,201

	Nine Months Ended September 30,
	2023		2022
	Sales Revenue		Sales Revenue
Primary geographical markets
U.S. and other countries/areas	$	78,351,552	$	41,663,512
China		16,890,096		37,742,276
Total	$	95,241,648	$	79,405,788

Major products
EV parts	$	4,456,520	$	6,881,058
EV products		-		4,553,194
Off-road vehicles and associated parts		82,285,439		42,554,127
Electric Scooters, Electric Self-Balancing Scooters and associated parts		645,939		4,511,647
Battery exchange equipment and Battery exchange service		679,113		179,848
Lithium-ion cells		7,174,637		20,725,914
Total	$	95,241,648	$	79,405,788

Timing of revenue recognition
Products transferred at a point in time	$	95,241,648	$	79,405,788
Total	$	95,241,648	$	79,405,788

NOTE 24 - SUBSEQUENT EVENT

On October 4, 2023, the Company issued an aggregate of 858,770 shares of Common Stock, bearing a standard restrictive legend under the Securities Act of 1933, as amended, as the make good shares after Jiangxi Huiyi achieved its net profit target for the period from July 1, 2021 to September 30, 2022 based on the share transfer agreement by and between Zhejiang Kandi Technologis and shareholders of Jiangxi Huiyi dated July 13, 2021, and Supplementary Agreements .

On October 13, 2023, the Company issued a total of 1,666,661 shares of Common Stock to certain employees pursuant to the Company’s 2008 Plan and the non-qualified stock option agreements. These shares are without restrictive legend and freely tradable.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This report contains forward-looking statements within the meaning of the federal securities laws that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminologies, such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “intend,” “potential” or “continue” or the negative of such terms or other comparable terminologies, although not all forward-looking statements contain such terms.

In addition, these forward-looking statements include, but are not limited to, statements regarding implementing our business strategy; development and marketing of our products; our estimates of future revenue and profitability; our expectations regarding future expenses, including research and development, sales and marketing, manufacturing and general and administrative expenses; difficulty or inability to raise additional financing, if needed, on terms acceptable to us; our estimates regarding our capital requirements and our needs for additional financing; attracting and retaining customers and employees; sources of revenue and anticipated revenue; and competition in our market.

Forward-looking statements are only predictions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. All of our forward-looking information is subject to risks and uncertainties that could cause actual results to differ materially from the results expected. Although it is not possible to identify all factors, these risks and uncertainties include the risk factors and the timing of any of those risk factors described in the 2022 Form 10-K and those set forth from time to time in our other filings with the SEC. These documents are available on the SEC’s Electronic Data Gathering and Analysis Retrieval System at http://www.sec.gov.

Critical Accounting Policies and Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. If these estimates differ significantly from actual results, the impact to the condensed consolidated financial statements may be material. There have been no material changes in our critical accounting policies and estimates other than those disclosed in on the 2022 Form 10-K. Please refer to Part II, Item 7 of such a report for a discussion of our critical accounting policies and estimates.

Overview

For the nine months ended September 30, 2023, our operating entities recognized total revenue of $95,241,648 as compared to $79,405,788 for the same period of 2022, an increase of $15,835,860 or 19.9%. For the nine months ended September 30, 2023, our operating entities recorded $32,682,823 of gross profit, an increase of $21,207,630 or 184.8% from the same period of 2022. Gross margin for the nine months ended September 30, 2023 was 34.3%, compared to 14.5% for the same period of 2022. Our operating entities recorded a net income of $6,259,185 for the nine months ended September 30, 2023, compared to a net loss of $2,421,617 in the same period of 2022.

Thanks to our business strategy adjustment, we made considerable progress in electric off-road vehicles, despite the resurgences of COVID-19 in 2022, which has been causing frequent lockdowns in many cities and severe disruption of supply chain. Now with the global trend of “fuel to electrification” of off-road vehicles becoming more and more obvious, we have successfully developed electric crossover golf carts and put them on the market in batches, which have been favored by users. Next, we will successively launch various electric off-road vehicles, including electric crossover golf carts and electric UTVs. With the successively introduction of new products, we are confident to achieve sustained growth in the field of the pure electric off-road vehicles. As for our EV business, due to the fact that the Chinese EV market has not entered a healthy and orderly development stage, currently the Company will continue to operate in small-scale, and join back as appropriate when the EV market of China entered a healthy and orderly development stage.

On June 17, 2023, SC Autosports, a company formed under the laws of the State of Texas, a wholly-owned subsidiary of Kandi Technologies, entered into an equity transfer agreement (the “Equity Transfer Agreement”) with Olen Rice (the “Transferor”), who owns 100% equity interests of Northern Group, Inc. (“NGI”), a Wisconsin incorporated company, pursuant to which the Transferor agreed to transfer, and SC Autosports agreed to accept all the equity interests (100)% of NGI and its related rights and obligations, which includes but are not limited to general shareholder rights, the right to receive dividends, and the right to accept or subscribe for bonus shares or newly issued shares, but excluding any claims or impediments of the Transferor arising from events occurring prior to the date of the closing of the acquisition. The acquisition is for the purpose of expanding the SC Autosports’ and the Company’s sales pipelines through vertical integration. On July 12, 2023, pursuant to the Equity Transfer Agreement, the Company issued a total of 3,951,368 shares of restrictive stock to sole shareholder of NGI, which are being held in escrow with certain escrow restrictions, to be released contingent upon the achievement of certain agreed-upon milestones during the escrow period.

NGI was founded in 2000. It has extensive sales experience and sales channels in the United States rooted in wholesale, retail, supply chain and analytics solutions, including more than 20 team members, 16 major retailers and 20 suppliers and brands.

The acquisition of NGI was not closed as of the date of this report and the process is being finalized.

Results of Operations

Comparison of the Three Months Ended September 30, 2023 and 2022

The following table sets forth the amounts and percentage to revenue of certain items in our condensed consolidated statements of operations and comprehensive income (loss) for the three months ended September 30, 2023 and 2022.

	Three Months Ended
	September 30, 2023			% of Revenue			September 30, 2022			% of Revenue			Change in Amount			Change in %

REVENUES FROM UNRELATED PARTIES, NET	$	36,426,201			100.0	%	$	33,673,201			100.0	%		2,753,000			8.2	%
REVENUES FROM THE FORMER AFFILIATE COMPANY AND RELATED PARTIES, NET		-			0.0	%		-			0.0	%		-			-

REVENUES, NET		36,426,201						33,673,201						2,753,000			8.2	%

COST OF GOODS SOLD		(25,507,180	)		(70.0	%)		(27,304,038	)		(81.1	)%		1,796,858			(6.6	)%

GROSS PROFIT		10,919,021			30.0	%		6,369,163			18.9	%		4,549,858			71.4	%

OPERATING EXPENSE:
Research and development		(917,893	)		(2.5	)%		(1,433,649	)		(4.3	)%		515,756			(36.0	)%
Selling and marketing		(4,152,246	)		(11.4	)%		(1,440,995	)		(4.3	)%		(2,711,251	)		188.2	%
General and administrative		(9,457,877	)		(26.0	)%		(5,686,233	)		(16.9	)%		(3,771,644	)		66.3	%
Impairment of goodwill		7,539			0.0	%		-			0.0	%		7,539			-
Impairment of long-lived assets		14,299			0.0	%		-			0.0	%		14,299			-
TOTAL OPERATING EXPENSE		(14,506,178	)		(39.8	)%		(8,560,877	)		(25.4	)%		(5,945,301	)		69.4	%

LOSS FROM OPERATIONS		(3,587,157	)		(9.8	)%		(2,191,714	)		(6.5	)%		(1,395,443	)		63.7	%

SEC Form 10-Q filed by Kandi Technologies Group Inc